Etsy’s goal of “reimagining commerce,” is a long-term proposition, which explains why after the company lost money again in the fourth quarter it tempered the news with a rosy three year sales and profit forecast.
Etsy operates an online marketplace designed to connect sellers of unique and handmade goods with buyers and in the fourth quarter its platform facilitated $741 million in gross merchandise sales or GMS. That’s a 21.3% increase from the prior year. Revenues to Etsy from those sales combined with the services it provides to sellers increased 35% to $88 million. The increased volume was driven by more people using the platform to sell and buy unique products.
Etsy said the number of active sellers increased 15.5% to 1.6 million and the number of active buyers increased 21.4% to 24 million. The company broadly defines “active” as someone who sold or bought within the past year.
Despite the increased activity, Etsy reported a net loss of $4.2 million, or four cents a share, compared to a net loss of $5.4 million, or 12 cents a share in the fourth quarter the prior year. For the full year, Etsy reported a loss of $54 million, or 59 cents a share, compared to a prior year loss of $15.2 million, or 38 cents a share.
"We are proud of our progress in 2015. We hit many important milestones that are the building blocks for long-term, sustainable growth," said Etsy chairman and CEO Chad Dickerson. “We executed against our strategic priorities, particularly in mobile, where we began to narrow the gap between mobile visits and mobile GMS. We also enhanced our existing seller services and continued to bring new constituents into the Etsy Economy.”
Etsy is like many retailers these days in that it discloses one set of number that meet generally accepted accounting principles (GAAP) and another set adjusted to exclude certain expenses which don’t, but the company asserts are important when evaluating the business.
For example, on an adjusted basis, Etsy’s non-GAAP earnings before interest, taxes, depreciation and amortization (EBITDA) in the fourth quarter increased to $14 million from $9.2 million and for the year grew to $31 million from $23 million.
Looking ahead, the company took the unusual step, especially for an e-commerce company which went public last year, of providing investors with a three year forecast of its adjusted EBITDA and other growth metrics.
"We believe Etsy has significant opportunity ahead and we remain committed to delivering long-term, sustainable growth to all our stakeholders. One of our key values at Etsy is open and transparent communication. In that spirit, we are providing this additional long-term guidance to better demonstrate how we believe our strategic initiatives will translate to our financial results over the next three years," said Kristina Salen, Etsy’s CFO.
Over the next three years the company said it expects gross merchandise sales on the platform to increase between 13% and 17%, translating to revenue growth in the range of 20% to 25%. Gross margins are forecast to be in the mid-60% range with adjusted EBITDA hitting a mid-teen percentage by 2018.
As for three year financial targets on a GAAP basis, Etsy said it was unable to provide those numbers due to, “the difficulty of estimating certain items that are excluded from non-GAAP adjusted EBITDA margin, including interest expense, net, provision for income taxes, depreciation and amortization, stock-based compensation expense, net unrealized loss on warrant and other liabilities, foreign exchange loss, other non-operating expense, net, contributions to Etsy.org and acquisition-related expenses, the effect of which may be significant.”
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