Etsy, Inc. 10-K (2022-02-25)

For the fiscal year ended December 31, 2021

 

 

 

Business

 

 

Overview

 

Our Mission

 

Etsy’s 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 believe that consumers are demanding more of the businesses they support and that companies that build win-win solutions that are good for people, the planet, and profit will be best positioned to succeed.

 

commoditization : the act or process of treating something as a product that can be bought and sold

 

 

 

We are committed to growing sustainably by aligning our mission and business strategy to help create economic impact through entrepreneurship. You can read more about Etsy’s Impact and environmental, social, and governance (“ESG”) strategies beginning on page 18, where we report on metrics aligned with both our self-identified Impact priorities and widely accepted third-party frameworks.

 

sustainably : in a way that uses natural products and energy without harming the environment, especially by replacing what has been used / in a way that can continue or be continued for a long time

 

align : to arrange something in the correct position, or to be in the correct position, in relation to something else, especially in a straight line / to change something slightly so that it is in the correct relationship to something else

 

entrepreneurship : the activity of making money by starting or running businesses, especially when this involves taking financial risks; the ability to do this

 

metric : a set of numbers or statistics used for measuring something, especially results that show how well a business, school, computer program, etc. is doing

 

framework : the parts of a building or an object that support its weight and give it shape / a set of beliefs, ideas or rules that is used as the basis for making judgements, decisions, etc.

 

 

 

About our Company

 

Etsy operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. These marketplaces - which collectively create a “House of Brands” - share our mission, common levers for growth, similar business models, and a strong commitment to use business and technology to strengthen communities and empower people.

 

collectively : in a way that is done or shared by all members of a group of people; in a way that involves a whole group or society / in a way that refers to all members of a group

 

empower : to give somebody the power or authority to do something / to give somebody more control over their own life or the situation they are in

 

 

 

Our primary marketplace, Etsy.com, is the global destination for unique and creative goods made by independent sellers. The Etsy marketplace connects creative artisans and entrepreneurs with thoughtful consumers looking for items that are a joyful expression of their taste and values. Our sellers are the heart and soul of Etsy, and our technology platform allows our sellers to turn their creative passions into economic opportunity.

 

artisan : a person who does work that needs a special skill, making things with their hands

 

 

 

We have a seller-aligned business model: we make money when our sellers make money. We offer Etsy.com sellers a marketplace with tens of millions of buyers along with a range of seller tools and services that are specifically designed to help our creative entrepreneurs generate more sales and scale their businesses.

 

 

 

In addition to our core Etsy marketplace, our “House of Brands” consists of Reverb Holdings, Inc. (“Reverb”), our musical instrument marketplace acquired in 2019, Depop Limited (“Depop”), our fashion resale marketplace, and Elo7 Serviços de Informática S.A. (“Elo7”), our Brazil-based marketplace for handmade and unique items.

 

 

 

Both Depop and Elo7 were acquired in July 2021. Our marketplaces primarily operate independently, although some of our functions in key areas such as finance, legal, and human resources, for example, support all four marketplaces to some extent. The Reverb, Depop, and Elo7 marketplaces are included in all financial and other metrics discussed in this report, unless otherwise noted, from their respective dates of acquisition.

 

 

 

Our sellers generated $13.5 billion of Gross Merchandise sales (“GMS”) in 2021. Of this, the Etsy marketplace represented 90.6%, and the Reverb, Depop, and Elo7 marketplaces represented 7.0%, 2.2%, and 0.2%, respectively (the latter two marketplaces having been owned by Etsy for just less than half of 2021). We anticipate that the Etsy marketplace will continue to be the primary driver of our overall financial performance for the foreseeable future.

 

foreseeable : that you can predict will happen; that can be foreseen 

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Here are a few key statistics about our marketplaces:

 

 

 

 

(omitted)

 

 

 

Our “House of Brands” Marketplaces

 

The Etsy Marketplace

 

Buyers come to the Etsy marketplace for meaningful, one-of-a-kind items handcrafted and curated with passion and expertise by our creative entrepreneurs. We are focused on attracting potential buyers to Etsy for everyday items that have meaning and those “special” purchase occasions that happen throughout the year. These include items that reflect an individual’s unique style; gifting that demonstrates thought and care; and celebrations that express creativity and fun.

 

 

 

 

Etsy purchase occasions can happen frequently throughout the year - when a buyer is decorating a home, selecting an outfit for a special event, planning a celebration for a special moment, or buying a gift for someone else. In fact, according to a 2021 Etsy buyer survey:

 

 

 

 

Beginning in 2020 and continuing through 2021, the COVID-19 pandemic and other global macroeconomic factors drove a significant shift to online purchasing in many retail categories. Millions of buyers found Etsy for the first time, or discovered us again, for many everyday items, including those that at the beginning of the pandemic were temporarily unavailable elsewhere.

 

macroeconomic : connected with large economic systems, such as those of whole countries or areas of the world

 

 

 

Our sellers’ ability to provide these items to buyers enabled Etsy to reinforce our brand messaging, aligning handcrafted and “special” with everyday purchase occasions. We’ve developed a thoughtful and powerful strategy to define what “everyday” means for Etsy, bringing it to life in our marketing and product experiences. We’ve also continued to deepen our brand’s connection to small businesses and the dynamic, unique inventory available on Etsy.

 

reinforce : to make a feeling, an idea, etc. stronger / to make a structure or material stronger, especially by adding another material to it

 

 

 

Throughout 2021 we focused on deepening our engagement with buyers, encouraging them to consider Etsy as a starting point for their purchase or inspiration journeys across many retail categories and shopping occasions. As a result, we’ve seen a meaningful increase in overall buyer frequency, and habitual buyers, our most loyal, are the fastest growing buyer segment.

 

frequency : the rate at which something happens or is repeated / the fact of something happening often / the rate at which a sound or electromagnetic wave vibrates (= moves up and down) 

 

 

 

In fact, GMS from existing Etsy buyers grew 34% year-over-year in 2021 and represented approximately 87% of overall Etsy.com GMS. You can read more about the performance of our buyer segments below.

 

 

 

We believe the Etsy marketplace is characterized by several unique qualities, including:

 

A brand that stands for “Intentional Shopping:” In a world of increasing automation and commoditization, Etsy.com is a marketplace where creativity lives and thrives because it’s powered by people. We help our community of sellers turn their ideas into successful businesses. Our platform connects them with millions of buyers looking for an alternative—something special that expresses their taste and values.

 

 

 

Unique products: Etsy boasts a large assortment of handmade, customized, personalized, vintage, and craft supply products from all over the world. As of December 31, 2021 there were nearly 100 million items listed on the Etsy marketplace, and approximately 23% of our 2021 GMS was from custom or made-to-order merchandise.

 

 

 

Global reach: In 2021, 42% of Etsy sellers were located outside the United States, and 43% of our GMS was generated between an Etsy seller, Etsy buyer, or both, located outside of the United States. Our platform makes it easy for Etsy buyers and sellers to interact across borders even if they do not speak the same language and wish to transact in different currencies.

 

 

 

We use innovative machine translation technology to translate listings, reviews, Etsy Ads, and conversations between buyers and sellers. We invest in localization, particularly within our core non-U.S. markets, to create a more localized experience such as browse features and shipping filters, which has resulted in more buyers purchasing from sellers within their own country. In fact, our fastest growing trade route is between buyers and sellers in the same non-U.S. country and, in 2021, over 70% of GMS in the United Kingdom and Germany was from domestic sales.

 

 

 

Organic traffic base: The unique nature of our sellers’ inventory and power of our brand have enabled us to organically build a loyal, global base of Etsy buyers on the platform. In 2021, 81% of our GMS was generated through organic channels, including a large portion from buyers visiting Etsy directly as well as from non-paid channels such as search, social, email, and push notifications.

 

 

 

Connection between Etsy buyers and sellers: As of December 31, 2021, 90.1 million buyers and 5.3 million sellers were active on the Etsy marketplace. We emphasize that the items listed for sale on the Etsy marketplace are brought to life by real people and that buyers can connect directly with sellers in order to ask questions and personalize or customize items to their specifications. 

 

 

 

One example of how we are enabling buyers and sellers to engage in new, more human ways is our use of listing videos, where sellers showcase their expertise in making and bringing their products to life. Approximately 13 million seller videos were uploaded as of December 31, 2021.

 

 

 

Connected experience across all devices: We want to engage Etsy buyers wherever they are and provide an enjoyable and accessible shopping experience regardless of the format. Our mobile website and our Etsy mobile app for Etsy buyers (“Buy on Etsy”) include search and discovery, curation, personalization, augmented reality, and social shopping features.

 

 

 

For the year ended December 31, 2021, approximately 64% of Etsy.com GMS was generated on a mobile device. Through product investments that drive buyers to our app, we’ve been able to increase app downloads by 47% in 2021, which is beneficial to conversion rate, as our mobile app channel has the highest conversion rate among devices.

 

 

 

Buyer intent; people come to the Etsy marketplace to browse and be inspired: Our platform is designed to provide a personalized search experience to Etsy buyers, adjusting results and recommendations based on transaction data and previous browsing history. We are continuing to build more sophisticated algorithms that allow us to deliver more personalized results to our buyers, utilizing browsing and transaction data to surface items buyers didn’t know they wanted.

 

 

 

In 2021, we launched a proprietary capability we call “XWalk,” a large-scale, real-time graph retrieval engine that dramatically expands the available data processed to capture semantic meaning, and to improve conversion rate, by showing more relevant inventory to buyers.

 

proprietary : (of goods) made and sold by a particular company and protected by a registered trademark / relating to an owner or to the fact of owning something 

 

retrieval : the process of getting something back, especially from a place where it should not be / (computing) the process of getting back information that is stored on a computer 

 

semantic : connected with the meaning of words and sentences

 

 

 

(the rest omitted)