10-K: Etsy's 2023 Performance: Navigating Headwinds While Maintaining Pandemic Gains

• Etsy operates online marketplaces connecting buyers and sellers globally, with a focus on unique and creative goods.
• In 2023, Etsy's sellers generated $13.2 billion in Gross Merchandise Sales (GMS), with the Etsy marketplace contributing $11.6 billion.
• The company's strategy centers on building a sustainable competitive advantage, growing the Etsy marketplace, and leveraging its playbook across its 'House of Brands'.
• Etsy's revenue is generated from marketplace activities and optional seller services, such as on-site advertising and shipping labels.
• Despite flat GMS in 2023 compared to 2022, Etsy maintained most of its pandemic gains, attributed to investments in customer experience and engagement.
• Etsy's 'Right to Win' strategy focuses on unique items, search and discovery, human connections, and a trusted brand to drive growth.
• The company is committed to expanding in its six core geographies and increasing cross-border transactions.
• Etsy's 'House of Brands' includes Reverb (musical instruments) and Depop (fashion resale), each with significant growth potential.
• In 2023, Etsy implemented a restructuring plan to improve efficiency and align its workforce with business needs, resulting in an 11% workforce reduction.
• The company is committed to environmental, social, and governance (ESG) goals, including a Net Zero target by 2030.

Score: 6

Explanation: Etsy faces significant challenges, including declining GMS and increased competition, but maintains a strong brand, loyal customer base, and opportunities for growth in niche markets. The company's commitment to its mission and strategic investments provide a foundation for future success, but execution will be critical.

• Etsy maintained the vast majority of GMS gains achieved during the pandemic.
• The company achieved a new all-time high of 92 million active buyers on the Etsy marketplace in 2023.
• Etsy's revenue grew in 2023, driven by changes to seller fees and growth in international markets.
• The company made significant investments in improving the customer experience and deepening engagement with buyers.
• Etsy's 'Right to Win' strategy is designed to create a sustainable competitive advantage.
• The company has a strong focus on ESG goals, including a Net Zero target and a commitment to diversity and inclusion.
• Etsy's 'House of Brands' strategy provides opportunities for growth and diversification.
• The company has a strong balance sheet and positive operating cash flows.
• Etsy's brand awareness is high in its core markets.
• The company's focus on gifting and other purchase occasions has the potential to drive frequency.

• Etsy's GMS declined nearly 2% year-over-year in 2023 for the Etsy marketplace.
• The company faced headwinds from macroeconomic factors, including pressure on consumer discretionary spending and a competitive retail environment.
• GMS per active buyer declined 4% year-over-year in 2023.
• Etsy's habitual buyer count declined 4% year-over-year in 2023.
• The company implemented a restructuring plan in late 2023, resulting in an 11% workforce reduction for the Etsy marketplace.
• Etsy's reliance on third-party platforms and services creates potential risks.
• The company faces intense competition from online and offline retailers.
• Etsy's international expansion efforts require significant investment and may face challenges.
• The company incurred impairment charges related to Elo7 in 2023 and Depop and Elo7 in 2022.
• Etsy is subject to evolving regulations, including those related to data privacy, product liability, and platform responsibility.

• Fluctuations in revenue growth and financial performance due to macroeconomic conditions and changing consumer spending patterns.
• Inability to retain existing buyers and sellers or activate new ones.
• Failure to maintain trusted marketplaces and manage policy violations effectively.
• Technology disruptions, security breaches, or data privacy incidents.
• Dependence on third-party services, platforms, and infrastructure.
• Intense competition from online and offline retailers.
• Challenges in keeping pace with technological changes and evolving customer needs.
• Risks associated with international expansion, including regulatory and operational complexities.
• Potential for future impairment charges related to goodwill and other long-lived assets.
• Exposure to evolving regulations, including those related to data privacy, product liability, and platform responsibility.

Etsy anticipates continued pressure on consumer discretionary spending in the near term but remains optimistic about its long-term growth potential. The company plans to focus on driving buyer consideration, expanding in key categories and geographies, and leveraging its 'House of Brands' strategy.

• Our mission to Keep Commerce Human is rooted in our belief that, although automation and commoditization are parts of modern life, human creativity cannot be automated and human connection cannot be commoditized.
• We are committed to growing sustainably by aligning our mission and business strategy to help create economic impact through entrepreneurship.
• Our 'Right to Win' is centered on four key elements that we believe make Etsy.com a better place to shop and sell and, which, in turn, will bring more buyers, lead to increased frequency and size of purchases, and build long-term loyalty to the Etsy marketplace.
• We believe that given our sellers broad array of unique merchandise, Etsy should be able to drive existing and potential buyers to think of us more often for a wider range of purchase occasions, including higher stake ones, to drive long-term growth and market share gains.
• We are confident that while it will take time to build this type of brand association, we can ultimately do much more to help buyers and potential buyers better understand the when and why of Etsy.
• New leadership has focused on building momentum in the business, identifying the fewest, most impactful things to re-accelerate growth and improve operational efficiency in service of the Depop community.

Etsy operates in the highly competitive e-commerce industry, facing pressure from larger marketplaces, traditional retailers, and social commerce platforms. The industry is experiencing a shift towards value-conscious shopping and increased demand for unique and personalized goods, which aligns with Etsy's core offerings.

• Etsy's GMS decline of nearly 2% in 2023 for the Etsy marketplace underperformed the broader e-commerce market in its core geographies, which grew 7% year-over-year according to Euromonitor.
• Etsy's focus on unique, handmade, and vintage goods differentiates it from mass-market retailers like Amazon and Walmart.
• Compared to other specialty marketplaces like Reverb (musical instruments) and Depop (fashion resale), Etsy has a broader product offering and a larger customer base.
• Etsy's seller transaction fee of 6.5% is higher than some competitors, such as eBay (variable, but generally lower than Etsy's), but lower than others, such as Amazon (variable, but can be higher than Etsy's depending on the category).
• Etsy's focus on sustainability and ethical sourcing aligns with growing consumer demand for conscious consumption, similar to companies like Patagonia and Allbirds.

• {'stakeholder': 'Shareholders', 'impact': "Potential impact on shareholder value due to GMS decline, restructuring plan, and stock repurchase program. Long-term impact depends on Etsy's ability to execute its growth strategy and adapt to market conditions."}
• {'stakeholder': 'Employees', 'impact': "The restructuring plan resulted in an approximately 11% workforce reduction for the Etsy marketplace, impacting employee morale and potentially creating uncertainty. The company's focus on diversity and inclusion, as well as employee engagement, may be impacted by these changes."}
• {'stakeholder': 'Customers', 'impact': "Buyers may benefit from Etsy's investments in improving the customer experience, such as enhanced search and discovery, gifting features, and a focus on quality listings. However, changes in seller fees and product availability could impact buyer satisfaction."}
• {'stakeholder': 'Sellers', 'impact': "Sellers may benefit from Etsy's efforts to drive buyer traffic and improve the selling experience. However, increased fees, competition, and policy enforcement actions could negatively impact some sellers."}
• {'stakeholder': 'Suppliers', 'impact': "Etsy's focus on sustainable sourcing and supplier diversity may create opportunities for suppliers aligned with these values. However, increased scrutiny and engagement on environmental and social issues could also create challenges for some suppliers."}
• {'stakeholder': 'Creditors', 'impact': "Etsy's ability to meet its debt obligations depends on its financial performance and cash flow generation. The company's strong balance sheet and positive operating cash flows provide some assurance to creditors, but macroeconomic conditions and business performance could impact its ability to service debt in the future."}

• Continue investing in the 'Right to Win' strategy to enhance the Etsy marketplace.
• Focus on driving buyer consideration and increasing purchase frequency.
• Expand in key categories, such as Gifting, Home and Living, and Style.
• Grow domestic and international markets, with a focus on core geographies.
• Leverage the 'House of Brands' strategy to drive growth across Etsy, Reverb, and Depop.
• Continue to invest in technology, marketing, and customer support.
• Monitor and adapt to evolving macroeconomic conditions and consumer preferences.
• Execute the Restructuring Plan to improve operational efficiency.
• Continue to pursue ESG goals, including the Net Zero target and diversity and inclusion initiatives.

• 2019: Etsy acquired Reverb Holdings, Inc.
• July 2, 2021: Etsy acquired Elo7 Servios de Informtica S.A.
• July 12, 2021: Etsy acquired Depop Limited.
• April 11, 2022: Etsy increased the Etsy marketplace seller transaction fee from 5% to 6.5%.
• September 30, 2022: Etsy recorded non-cash impairment charges of $897.9 million and $147.1 million to write-off goodwill in full for Depop and Elo7, respectively.
• May 2023: Etsy held its second global Etsy Up seller event.
• June 14, 2023: Etsy's Board of Directors approved a stock repurchase program authorizing repurchases of up to $1 billion of common stock.
• August 10, 2023: Etsy completed the sale of Elo7 Servios de Informtica S.A.
• December 12, 2023: Etsy's Board of Directors approved a restructuring plan.
• December 31, 2023: End of the fiscal year 2023.