Unless the context otherwise requires, we use the terms “Etsy,” the “company,” “we,” “us” and “our” in this Annual Report on Form 10-K, or Annual Report, to refer to Etsy, Inc. and, where appropriate, our consolidated subsidiaries.
See "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating and Financial Metrics" for the definitions of the following terms used in this Annual Report: "active buyer," "active seller," "GMS," "International GMS," "mobile visit," and "mobile GMS."
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include information related to our possible or assumed future results of operations and expenses, our outlook, our mission, business strategies and plans, business environment and future growth. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” or similar expressions and the negatives of those terms.
Forward-looking statements are not guarantees of performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Those risks include those described in “Risk Factors,” "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance" and elsewhere in this report. Given these uncertainties, you should read this report in its entirety and not place undue reliance on any forward-looking statements in this Annual Report on Form 10-K.
Moreover, we operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements made in this Annual Report on Form 10-K. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10- K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Forward-looking statements represent our beliefs and assumptions only as of the date of this report. We disclaim any obligation to update forward-looking statements.
PART I.
Item 1. Business.
Overview
Our mission is to reimagine commerce in ways that build a more fulfilling and lasting world. We are building a human and community-centric global and local marketplace. We are committed to using the power of business to create a better world through our platform.
We operate a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods. As of December 31, 2015, through our innovative, technology-based platform, we connected a community of 1.6 million active Etsy sellers and 24.0 million active Etsy buyers, in nearly every country in the world.
Our community is the heart and soul of Etsy and is made up of creative entrepreneurs who sell on our platform, thoughtful consumers looking to buy unique goods in our marketplace and the Etsy employees who maintain our platform and nurture our ecosystem. Our community also includes the retailers who participate in our Wholesale offering and the manufacturers who form responsible partnerships with Etsy sellers. We are focused on bringing new participants into our community and expanding the impact of our platform and what we call the "Etsy Economy." The Etsy Economy values and honors the people who design and make goods, is transparent about the way they are made and connects the people who make, sell and buy them. It is an economy in which creative entrepreneurs find meaningful work and both global and local markets for their goods.
Our business model is based on shared success: we make money when Etsy sellers make money. In 2015, Etsy sellers generated Gross Merchandise Sales ("GMS") of $2.4 billion, of which approximately 43% came from purchases made on mobile devices. We are a global company and 29.8% of our 2015 GMS came from an Etsy seller or an Etsy buyer outside of the United States.
Our revenue is diversified, generated from a mix of marketplace activities and the services we provide to Etsy sellers to help them create and grow their businesses. Marketplace revenue is made up of two components: the $0.20 listing fee that an Etsy seller pays for each item she lists and the 3.5% transaction fee she pays for each completed transaction. Seller Services revenue includes the fees our sellers pay Etsy for services, which include Promoted Listings, our ad service for prominent placement in on-site search results, Direct Checkout, our payment processing service, and Shipping Labels, which allows sellers to purchase shipping labels through our platform. Other revenue includes the fees we receive from a third-party payment processor.
We operate at the center of several converging macroeconomic trends in online and mobile commerce, employment, consumption and manufacturing. We believe that in combination these trends will benefit Etsy sellers engaging in their creative passion, working for themselves and defining success on their own terms; Etsy buyers accessing a diverse, global marketplace of goods that have historically been found in highly fragmented markets; and, increasingly, values-aligned manufacturers using modern tools to craft goods in responsible partnership with Etsy sellers.
We are focused on four key strategies that we believe will allow us to sustain and grow the Etsy community:
Etsy was founded in June 2005 in Brooklyn, New York. On April 21, 2015, we completed our initial public offering (the "IPO") and our common stock is listed on the Nasdaq Global Select Market under the symbol "ETSY."
Our Values
Our values are integral to everything we do.
We are a mindful, transparent and humane business. We believe that business interests and social and environmental responsibility are interwoven and aligned and that the power of business should be used to strengthen communities and empower people. To demonstrate our commitment, we monitor our efforts to minimize the harm and maximize the benefit that we have on people and the planet and then publish an annual Progress Report to publicly report our results. B Lab, an independent nonprofit organization, has certified us as a B Corporation for our adherence to certain social and environmental standards. In addition, Fortune has recognized us as a great place to work in 2013, 2014 and 2015.
We plan and build for the long term. We want to build a company that lasts, and we plan to measure our success in years and decades. Etsy sellers in particular depend on us and on our platform to grow their businesses, so we will strive to make decisions that are best for the long-term health of our ecosystem. Our ecosystem consists of Etsy and the people and communities around the world who benefit from our platform.
We value craftsmanship in all we make. Craftsmanship is the marriage of skill and passion. We believe every job at our company should demonstrate our commitment to craft. We are an engineering-driven company, and we think of our code as craft: we are makers of the products and services that members of our community use, and we approach the work we do with the same care and inspiration as do Etsy sellers.
We believe fun should be part of everything we do. Our mission includes fostering a world in which personal fulfillment is a key element of success. We believe that this way of working is connected and joyful. We strive to do excellent work and bring a sense of humor and playfulness to it.
We keep it real, always. We have the courage and the will to do business in ways that are unconventional and impactful. We strive to stay genuine, maintaining integrity, humility and sincerity in everything we do. When we feel that we are not being true to our values or our mission, we are not afraid to stop and change course.
Our Community
Our community includes Etsy sellers, Etsy buyers, wholesale partners, manufacturers and Etsy employees.
Etsy Sellers: Creative Entrepreneurs
Etsy sellers join our community to be part of a vibrant global-local marketplace that allows them to express their creativity and turn their passion into a business while connecting to thoughtful consumers locally and around the world. As of December 31, 2015, there were 1.6 million active sellers on our platform and more than 13% of active sellers as of that date had been selling on Etsy for more than four years.
We support a diverse group of artists, makers, designers and collectors from around the world—from the solo artisan to the full-time jewelry maker with staff; from the antique furniture collector to the textile graphic designer partnering with a small-batch manufacturer.
Etsy sellers range from hobbyists to professional merchants, and have a broad range of personal and professional goals. We survey our sellers every two years and in November 2014, we conducted a survey of U.S. Etsy sellers who made a sale in the preceding 12 months. The 2014 Seller Survey, which included responses from 4,000 sellers, reveals a unique population of Internet-enabled creative entrepreneurs who are building businesses on their own terms—prioritizing flexibility, independence and creativity. Some Etsy sellers are looking for extra pocket money, while others depend on their shops to support themselves and their families. According to our 2014 Seller Survey, among U.S. Etsy sellers:
Etsy Buyers: Thoughtful Consumers
Etsy buyers visit our marketplace to discover a broad selection of unique goods in dozens of retail categories that are hard to find elsewhere, ranging from a $5 ornament to a $50 hand-knit sweater to a $2,000 custom-made coffee table. In a 2015 survey of Etsy buyers, 92% agreed that Etsy offers products they cannot find elsewhere. We believe many Etsy buyers are motivated by more than simply price and convenience; we believe they also value craftsmanship, artistry, uniqueness, authenticity and sustainability. We find that Etsy buyers want to know how items were made, where they were made and who made them. In our marketplace, Etsy buyers can enjoy a personalized shopping experience and build relationships through direct interactions with Etsy sellers. Etsy buyers can also purchase customized items or other bespoke goods from Etsy sellers. By buying in our marketplace, Etsy buyers are supporting creative entrepreneurs in their local communities and around the world. As of December 31, 2015, there were 24.0 million active buyers on our platform.