Form 8-K ETSY INC For: Jun 14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 14, 2018
Etsy, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36911 | 20-4898921 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
117 Adams Street
Brooklyn, New York 11201
(Address of principal executive offices, including zip code)
(718) 880-3660
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 7.01. | Regulation FD Disclosure. |
On June 14, 2018, Etsy, Inc. (“Etsy”) issued a press release announcing the introduction of new tools and packages for Etsy sellers and revisions to Etsy’s transaction fee structure. A copy of the press release is furnished as Exhibit 99.1. A copy of the investor presentation provided in connection with this announcement is furnished as Exhibit 99.2.
The information furnished under this Item 7.01, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or subject to the liabilities of that section. The information shall not be deemed incorporated by reference into any other filing with the Securities and Exchange Commission made by Etsy, regardless of any general incorporation language in such filing.
| Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits
| Exhibit No. |
Description | |
| 99.1 | Press Release issued by Etsy, Inc. on June 14, 2018. | |
| 99.2 | Corporate Presentation dated June 14, 2018. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ETSY, INC. | ||
| By: | /s/ Rachel Glaser | |
| Rachel Glaser | ||
| Chief Financial Officer | ||
Date: June 14, 2018
Exhibit 99.1
Etsy Introduces New Tools and Packages for Sellers, Revises Transaction Fee Structure
- Plans to increase investments in marketing, customer support, and product innovation
- Raises 2018 Guidance for GMS and Revenue Growth
BROOKLYN, N.Y. (June 14, 2018) — Etsy, Inc. (NASDAQ: ETSY), the global marketplace for unique and creative goods, today announced new subscription packages and enhanced tools to support global sellers at different stages of growth. The new, optional monthly plans begin to roll out next month. Etsy also announced that it is revising its seller transaction fee, which will support increased investments in the growth and health of the marketplace.
“Empowering creative entrepreneurs is at the heart of Etsy’s mission to keep commerce human,” commented Josh Silverman, Etsy, Inc. CEO. “Our two million active sellers have individual business goals and aspirations, and we want to support them no matter where they are on their journey. By listening to the needs of our sellers, we designed our new subscription packages with a combination of tools to help them succeed at each phase of their business lifecycle.”
Seller Packages
Starting in mid-July, sellers looking to jump-start their growth can opt into Etsy Plus for an introductory rate of $10 per month. In 2019, Etsy also plans to roll out Etsy Premium, which will be geared towards larger, more established creative businesses. Sellers who do not opt into Etsy Plus or Etsy Premium will have access to the same tools and services that are currently available on Etsy without an additional monthly fee as part of Etsy Standard.
| Etsy Standard |
Etsy Plus Available July 2018 |
Etsy Premium Available 2019 | ||
| • Access to the nearly 35 million active buyers in Etsy’s marketplace • All the seller tools and services Etsy currently offers that help creative entrepreneurs start, manage, and grow a business |
• Access to everything in Etsy Standard • Advanced shop customization options • Targeted restock notifications • Discounts on branded packaging and promotional materials • Free or discounted custom web addresses • $5 monthly Promoted Listing credit and 15 free monthly listing credits |
• Access to everything in Etsy Standard and Etsy Plus • Advanced management tools specifically designed for business owners with employees • Premium customer support • More details to be announced in the coming months |
Transaction Fee
Starting July 16, 2018, the transaction fee charged when a seller makes a sale will change from 3.5% to 5%, and it will also apply to the cost of shipping. This revised fee structure will enable Etsy to make further investments in marketing to attract buyers, enhance customer support, and drive product innovation.
Rachel Glaser, Etsy’s Chief Financial Officer added, “Our revised fee structure will allow us to make more meaningful investments on behalf of our sellers while remaining what we believe is the best value for entrepreneurs looking to start, manage, and grow a creative business. We plan to increase our 2017 direct marketing spend by at least 40% in 2018, revamp our Etsy community platforms, and execute against an exciting product roadmap. We believe all of this will help drive near-term growth and increase buyer lifetime value.”
Updated 2018 Guidance
In light of these changes to its fee structure, which will go into effect July 16, 2018, Etsy is revising its 2018 financial guidance (prior guidance provided on May 8, 2018) as follows:
| • | GMS growth of 16%-19% (vs. prior guidance of 16%-18%) |
| • | Revenue growth of 32%-34% (vs. May 2018 prior guidance of 22%-24%) |
| • | Adjusted EBITDA margin of 21%-23% (no change from prior guidance), reflecting Etsy’s planned reinvestment in improved seller tools and support, enhanced shipping experience, and increased marketing. |
For notes about the factors contributing to Etsy’s guidance, please see the investor slides available on Etsy’s investor relations website.
For more information on this announcement, please see our post on our news blog and dedicated seller page.
About Etsy
Etsy, Inc. is the global marketplace for unique and creative goods. Our mission is to keep commerce human, and we’re committed to using the power of business to strengthen communities and empower people. We connect millions of buyers and sellers from nearly every country in the world. Buyers come to Etsy to be inspired and delighted by items that are crafted and curated by creative entrepreneurs. For sellers, we offer a range of tools and services that address key business needs.
Etsy was founded in 2005 and is headquartered in Brooklyn, New York.
Cautionary Statement Regarding Forward-Looking Statements
This press release (including statements quoted in this press release) contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements related to our updated financial guidance, our expectations regarding the new subscription packages and updated transaction fees, including the timing of anticipated launch dates and the potential impact on our business and the businesses of our sellers and our future growth.
Forward-looking statements include all statements that are not historical fact. Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include the successful execution of our business strategy, the success of our new pricing model and the impact of that model on our sellers, our reputation and our business, GMS and results of operations, the success of our marketing efforts, our active and engaged community of Etsy sellers and Etsy buyers, the growth and performance of our platform, and other risks and uncertainties that are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and subsequent reports that we file with the Securities and Exchange Commission.
Forward-looking statements represent our beliefs and assumptions only as of the date of this press release. We disclaim any obligation to update forward-looking statements, except as required by law.
Investor Relations Contact:
Etsy, Deb Wasser, Vice President, Investor Relations
Media Relations Contact:
Etsy, Kelly Clausen, Director, Corporate Communications
| Exhibit 99.2
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JUNE 14, 2018 UPDATE Driving further marketplace investments via updated fees and new subscription plans
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Forward-looking statements This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements related to our updated financial guidance, our expectations regarding the new subscription packages and updated transaction fees, including the timing of anticipated launch dates and the potential impact on our business and the businesses of our sellers and our future growth. Forward-looking statements include all statements that are not historical fact. Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include the successful execution of our business strategy, the success of our new pricing model and the impact of that model on our sellers, our reputation and our business, GMS and results of operations, the success of our marketing efforts, our active and engaged community of Etsy sellers and Etsy buyers, the growth and performance of our platform, and other risks and uncertainties that are more fully described in our filings with the Securities and Exchange Commission, including in the section entitled “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, and subsequent reports that we file with the Securities and Exchange Commission. Forward-looking statements represent our beliefs and assumptions only as of the date of this presentation. We disclaim any obligation to update forward-looking statements, except as required by law. 2
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Etsy is updating fees and introducing subscription packages We’re updating our transaction fees, which will enable us to invest more in the Etsy marketplace and our sellers’ success. We are introducing optional subscription packages designed for the specific needs of sellers at different stages in their life cycle. We’re providing more features to support the needs of our sellers in addition to the many tools they use today. 3
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It’s been a remarkable journey these past 13 years 2005 2018 4
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We significantly expanded the marketplace over time YEAR 11 TODAY2 $1M $3.3B GMS GMS 9,250 2M Sellers Active Sellers 22,100 35M Buyers Active Buyers Results from July 2005 to July 2006 5 GMS results as of 12/31/2017, Active Sellers and Active Buyers as of 3/31/2018
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To invest more in our sellers’ success, for the first time ever, we are updating the pricing model and introducing subscription plans We’re making 2 changes to our We’re introducing monthly transaction fee: subscription plans: • The transaction fee is increasing from 3.5% to 5%* • ETSY STANDARD: Everything you need to start, manage, and • The transaction fee will be applied to the shipping grow a creative business price* • ETSY PLUS: Expanded set of tools to help jump-start growth and express your brand • ETSY PREMIUM (COMING IN 2019) Full suite of tools for advanced and expanded business management *Effective July 16, 2018 6
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Etsy Subscription Plans CURRENT No additional monthly charge Everything you need to start, manage, and grow a creative business All current Etsy seller tools NEW $10/Month* More ways to grow your business and your brand 15 Listing Credits/Month $5 Pro-List Credit/Month • Custom shop layout • Restock notifications • Custom web address • Discounted custom packaging *Increases to $20/month in January 2019 COMING 2019 Pricing TBD Advanced tools and expanded business management Pricing and Credits TBC • Premium Customer Support • Additional features to manage your shop at scale 7
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Big steps toward a bigger future. Changes to our pricing enable us to make investments for the future. We are focused on: 1. Bringing more buyers 2. Building new tools for our sellers 3. Enhancing support and community Examples: • Increased marketing spend • NBC’s ‘Making It’ and related advertising • Sales events • Targeted Offers • Advanced analytics • Shipping tools • 24/7 support • Live chat • Community redesign
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1 We’ve delivered nearly 35M active buyers and are working to deliver even more Marketing Spend In 2017, Etsy spent $78M on direct marketing. We plan to increase that investment by at least 40% in 2018 This summer, Etsy trend expert Dayna Isom Johnson will be a judge on NBC’s crafting competition show Making It, introducing Etsy’s global marketplace to a primetime television audience. We will test new channels, offline and online Sales Events We’re helping more shoppers discover the creative products that make our marketplace unique 9
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2 We’re focused on building the best tools for running a creative business online Marketing Services We’ve created new ways to build a loyal following. Tools like Targeted Offers make it easier to create promotions that attract shoppers and keep them coming back Business Insights We’re committed to giving our sellers the data they need to make smart decisions. In 2018, we’ll be sharing more insights into what Etsy buyers want and new tips and advice on optimizing search Shipping We will continue to invest in our shipping experience in the US and Canada. Later this year, we’re introducing Etsy Shipping Labels to the United Kingdom, and will explore opportunities for shipping in other countries 10
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3 We’re enhancing support for our community Community Support We’re giving our community spaces an upgrade to provide support and guidance for our sellers Seller Resources In September, we plan to give the Etsy Teams and the Etsy Forums a new look that will make it easier and more fun to connect with creative entrepreneurs around the world Customer Support Now our customers can request a call from Etsy 24 hours a day, 7 days a week or get answers through our redesigned Help Center and live chat 11
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With new pricing, we are revising our 2018 financial guidance 2018 Original May 8th Guidance 2018 Revised Guidance* Guidance* GMS Growth 14—16% 16—18% 16—19% ~$3.7B—$3.8B ~$3.8B—$3.84B ~$3.8B—$3.9B Revenue Growth 21—23% 22—24% 32—34% ~$534M—$543M ~$538M—$547M ~$582M—$591M Adjusted EBITDA Margin** 20—22% 21—23% 21—23% ~$108M—$118M** ~$114M—$125M** ~$123M—$134M** * Original guidance issued on 2/27/2018 and revised guidance issued on 6/14/2018 ** Based on the mid-point of 2018 revenue guidance We will reinvest anticipated incremental revenue in marketing, customer support, and product innovation; EBITDA margins remain 21%—23% Etsy is not able, at this time, to provide GAAP targets for net income margin for 2018 because of the unreasonable effort of estimating certain non-cash items that are excluded from non-GAAP Adjusted EBITDA margin, including, for example, provision or benefit for income taxes and foreign exchange gain or loss, the effect of which may be significant. 12
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Appendix
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FAQs Why is Etsy raising its fees? Raising fees enables Etsy to invest more in bringing buyers to our sellers, building tools that make it easier for sellers to run shops, and improve the seller experience by enhancing support and community spaces. What specifically did Etsy announce? We are changing marketplace transaction fees to 5% from 3.5% and offering two new subscription plans to provide a framework for growth at all stages of a seller’s creative journey. Also, we are applying a transaction fee to shipping costs. Are sellers required to subscribe to one of the new packages? No. Sellers can choose to remain on the standard package and have access to all of their current Etsy tools and services. Can sellers continue to use Promoted Listings and Pattern without paying for a package? Yes. Sellers can continue to pay for tools like Promoted Listings and Pattern separately without choosing a package. Can sellers change subscription packages? Sellers can switch between packages or stop paying for a subscription at any time. Will sellers who pay for a subscription package get special treatment in search? No. Paid subscriptions will not influence how seller listings appear in search. 14
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FAQs Why is 16-19% GMS growth the correct range after increasing pricing and making meaningful investments? Our 2018 guidance reflects our high confidence view on the performance of the business this year. Keep in mind pricing goes into effect July 16, 2018. We expect some impact from seller churn given that we have never raised prices before, this will be the first time we are making some of the incremental investments so the returns are uncertain, and not all of our investments are intended to drive GMS. Also, we have shared the potential headwinds in the second half of 2018 as discussed on our May 8th earnings call. However, the mid-point of our revised GMS guidance indicates a significant acceleration compared to 14.5% for 2017. Will you consider additional price increases in the future? We will continue to monitor the fair exchange of value we provide to our sellers. What is the seller profile for each tier and how do you think your seller base will breakout by tier? It’s premature to discuss seller profiles or choices as the offerings have only recently launched. Why did you decide that 5% was the right number? We regularly survey our sellers to gather their feedback on the platform and did significant seller outreach in advance of this launch. We concluded that changing the fee to 5% strikes the right balance in terms of re-investing in the marketplace and providing value for sellers. What other features could you add to your Etsy Premium service? We are very excited about the improvements we are making to the selling experience. We believe it’s too early to comment on other features, but we will continue to make improvements based on seller feedback. How will Etsy’s new pricing compare to competition? We continue to believe Etsy offers the best value and is one of the most economical platforms to turn a creative passion into a viable business. Why is Etsy applying transaction fees to shipping? It’s standard industry practice to apply transaction fees to the total transaction value (both item cost and shipping cost). Part of the reason for this practice is that it promotes fairness and transparency in the marketplace. 15
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Key factors impacting our guidance reflected in our May 8, 2018 Press Release • We anticipate that the other key factors impacting our 2018 GMS and revenue guidance will be: Continued visit growth. Conversion rate growth driven by product launches enhancing the buying experience. Continued growth in international GMS, which we expect to grow faster than overall GMS, driven by global product enhancements and assuming stable currency rates. Continued Services revenue growth, which we expect to grow at a faster pace than Marketplace revenue growth as we add enhancements and features to our portfolio of services and increase our efforts to grow seller adoption. Also, we expect Promoted Listings to be the primary driver of Services revenue growth in 2018. External headwinds, which we expect may offset some growth, such as E.U.‘s GDPR, currency fluctuations, changes to VAT and state sales tax laws, and the potential for geopolitical events that impact trade. • We anticipate that the key factors impacting our 2018 Adjusted EBITDA margin guidance will be: Lower operating expense as a percent of revenue stemming from the approximately $35 million in annualized cost savings resulting from increased efficiencies in our operating structure in 2017. We expect to gain the most leverage in general administrative expenses, followed by product development expenses. We expect to spend approximately $10 million to $15 million in 2018 on cloud migration activities, most of which will be expensed through cost of revenue. Throughout the first few phases of the migration, we will maintain some of our existing data center infrastructure to ensure reliability of our platform. As we migrate to the cloud we anticipate spending a smaller portion on existing data center infrastructure and more on cloud capacity. As a result, compared with 2017, we expect to reduce capital expenditures related to maintaining our existing data center infrastructure by $4 million to $5 million in 2018. Once we have fully migrated to the cloud, we expect our total cash costs will decrease compared to our standalone data center infrastructure. 16