Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited).
Etsy, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share amounts)
As of March 31,
2023
As of December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents $ 786,796 $ 921,278
Short-term investments 252,666 250,413
Accounts receivable, net of expected credit losses of $9,933 and $8,303 as of March 31, 2023
and December 31, 2022, respectively 26,274 27,888
Prepaid and other current assets 76,856 80,203
Funds receivable and seller accounts 202,354 233,961
Total current assets 1,344,946 1,513,743
Restricted cash 5,341 5,341
Property and equipment, net of accumulated depreciation and amortization of $216,747 and
$204,189 as of March 31, 2023 and December 31, 2022, respectively 248,352 249,744
Goodwill 138,061 137,724
Intangible assets, net of accumulated amortization of $103,793 and $92,179 as of March 31,
2023 and December 31, 2022, respectively 534,466 535,406
Deferred tax assets 128,679 121,506
Long-term investments 57,028 29,137
Other assets 43,668 42,360
Total assets $ 2,500,541 $ 2,634,961
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable $ 19,901 $ 28,757
Accrued expenses 240,025 331,234
Finance lease obligations—current 4,713 4,731
Funds payable and amounts due to sellers 202,354 233,961
Deferred revenue 14,506 14,008
Other current liabilities 17,614 19,064
Total current liabilities 499,113 631,755
Finance lease obligations—net of current portion 104,144 105,699
Deferred tax liabilities 44,379 44,735
Long-term debt, net 2,280,663 2,279,640
Other liabilities 112,430 120,406
Total liabilities 3,040,729 3,182,235
Commitments and contingencies (Note 8)
Stockholders’ deficit:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of March 31, 2023
and December 31, 2022; 122,953,145 and 125,054,278 shares issued and outstanding as of
March 31, 2023 and December 31, 2022, respectively) 123 125
Preferred stock ($0.001 par value, 25,000,000 shares authorized as of March 31, 2023 and
December 31, 2022) — —
Additional paid-in capital 913,672 815,085
Accumulated deficit (1,156,134) (1,048,267)
Accumulated other comprehensive loss (297,849) (314,217)
Total stockholders' deficit (540,188) (547,274)
Total liabilities and stockholders' deficit $ 2,500,541 $ 2,634,961
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Etsy, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended
March 31,
2023 2022
Revenue $ 640,877 $ 579,266
Cost of revenue 195,453 172,995
Gross profit 445,424 406,271
Operating expenses:
Marketing 171,314 154,280
Product development 115,924 89,476
General and administrative 79,987 78,200
Total operating expenses 367,225 321,956
Income from operations 78,199 84,315
Other income, net 3,072 1,672
Income before income taxes 81,271 85,987
(Provision) benefit for income taxes (6,734) 122
Net income $ 74,537 $ 86,109
Net income per share attributable to common stockholders:
Basic $ 0.60 $ 0.68
Diluted $ 0.53 $ 0.60
Weighted-average common shares outstanding:
Basic 124,336,969 127,149,293
Diluted 142,965,820 146,677,879
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Etsy, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
Three Months Ended
March 31,
2023 2022
Net income $ 74,537 $ 86,109
Other comprehensive income (loss):
Cumulative translation adjustment 15,627 (14,703)
Unrealized gains (losses) on investments, net of tax expense (benefit) $233, $(418),
respectively 741 (1,314)
Total other comprehensive income (loss) 16,368 (16,017)
Comprehensive income $ 90,905 $ 70,092
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Etsy, Inc.
Consolidated Statements of Changes in Stockholders’ (Deficit) Equity (Unaudited)
(In thousands, except share amounts)
Three Months Ended March 31, 2023
Common Stock Additional
Shares Amount
Paid-in Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss Total
Balance as of December 31, 2022 125,054,278 $ 125 $ 815,085 $ (1,048,267) $ (314,217) $ (547,274)
Stock-based compensation (1) 12,353 — 70,987 — — 70,987
Exercise of vested options 185,200 — 3,005 — — 3,005
Settlement of capped call (1,194,006) (1) 34,224 (34,223) — —
Settlement of convertible senior notes, net of taxes 232 — (1) — — (1)
Vesting of restricted stock units, net of shares withheld 100,239 — (9,628) — — (9,628)
Stock repurchase (1,205,151) (1) — (148,181) — (148,182)
Other comprehensive income — — — — 16,368 16,368
Net income — — — 74,537 — 74,537
Balance as of March 31, 2023 122,953,145 $ 123 $ 913,672 $ (1,156,134) $ (297,849) $ (540,188)
Three Months Ended March 31, 2022
Common Stock Additional
Shares Amount
Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss Total
Balance as of December 31, 2021 127,022,118 $ 127 $ 631,762 $ 71,744 $ (75,014) $ 628,619
Stock-based compensation (1) 28,010 — 51,014 — — 51,014
Exercise of vested options 250,345 — 3,394 — — 3,394
Settlement of convertible senior notes, net of taxes 58 — — — — —
Vesting of restricted stock units, net of shares withheld 89,285 — (13,684) — — (13,684)
Stock repurchase (420,398) — — (62,568) — (62,568)
Other comprehensive loss — — — — (16,017) (16,017)
Net income — — — 86,109 — 86,109
Balance as of March 31, 2022 126,969,418 $ 127 $ 672,486 $ 95,285 $ (91,031) $ 676,867
(1) Includes the partial payments of Depop deferred consideration. See Note 10—Stock-Based Compensation for additional information.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Etsy, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
2023 2022
Cash flows from operating activities
Net income $ 74,537 $ 86,109
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense 68,683 49,271
Depreciation and amortization expense 23,172 24,754
Provision for expected credit losses 4,969 3,109
Foreign exchange loss (gain) 3,611 (5,567)
Deferred benefit for income taxes (8,968) (10,517)
Other non-cash (income) expense, net (99) 3,321
Changes in operating assets and liabilities:
Current assets 34,726 32,195
Non-current assets 1,050 1,711
Current liabilities (137,660) (126,048)
Non-current liabilities (8,390) 1,206
Net cash provided by operating activities 55,631 59,544
Cash flows from investing activities
Purchases of property and equipment (2,249) (3,212)
Development of internal-use software (5,957) (6,005)
Purchases of investments (116,896) (76,416)
Sales and maturities of investments 89,005 75,478
Net cash used in investing activities (36,097) (10,155)
Cash flows from financing activities
Payment of tax obligations on vested equity awards (9,194) (12,288)
Repurchase of stock (148,182) (62,568)
Proceeds from exercise of stock options 3,005 3,394
Payment of debt issuance costs (2,045) (25)
Settlement of convertible senior notes (45) (5)
Payments on finance lease obligations (1,575) (1,598)
Other financing, net (512) 807
Net cash used in financing activities (158,548) (72,283)
Effect of exchange rate changes on cash 4,532 (1,065)
Net decrease in cash, cash equivalents, and restricted cash (134,482) (23,959)
Cash, cash equivalents, and restricted cash at beginning of period 926,619 785,537
Cash, cash equivalents, and restricted cash at end of period $ 792,137 $ 761,578
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Etsy, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
March 31,
2023 2022
Supplemental non-cash disclosures:
Deferred consideration (1) $ 1,506 $ 3,822
Stock-based compensation capitalized in development of capitalized software and asset
additions in exchange for liabilities $ 3,592 $ 3,961
(1) See “Note 10—Stock-Based Compensation” for additional information on the settlement of deferred consideration related to the Depop
acquisition.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Consolidated
Balance Sheets that sum to the total of the same such amounts shown above:
Three Months Ended
March 31,
2023 2022
Beginning balance:
Cash and cash equivalents $ 921,278 $ 780,196
Restricted cash 5,341 5,341
Total cash, cash equivalents, and restricted cash $ 926,619 $ 785,537
Ending balance:
Cash and cash equivalents $ 786,796 $ 756,237
Restricted cash 5,341 5,341
Total cash, cash equivalents, and restricted cash $ 792,137 $ 761,578
The accompanying notes are an integral part of these condensed consolidated financial statements.
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Etsy, Inc.
Notes to Condensed Consolidated Financial Statements
Note 1—Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
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 the Company’s mission, common levers for
growth, similar business models, and a strong commitment to use business and technology to strengthen communities and
empower people. The Company’s primary marketplace, Etsy.com, is the global destination for unique and creative goods made
by independent sellers. The Company generates revenue primarily from marketplace activities, including transaction, listing, and
payments processing fees, and fees for optional seller services, which include on-site advertising and shipping labels.
Basis of Consolidation
The condensed consolidated financial statements include the accounts of Etsy and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant
to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The Company has condensed or
omitted certain information and notes normally included in complete annual financial statements prepared in accordance with
GAAP. These unaudited interim condensed consolidated financial statements should therefore be read in conjunction with the
audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed
with the SEC on February 23, 2023 (the “Annual Report”). In the opinion of management, all material adjustments, which are of a
normal and recurring nature, necessary for a fair statement of the results for the periods presented have been reflected in the
condensed consolidated financial statements. The results of operations of any interim period are not necessarily indicative of
the results of operations for the full annual period or any future period due to seasonal and other factors.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make
estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements
and accompanying notes. Actual results could differ from these estimates and judgments. The accounting estimates that
require management’s most subjective judgments include: stock-based compensation; income taxes, including the estimate of
the annual effective tax rate at interim periods and evaluation of uncertain tax positions; the valuation of acquired intangible
assets, developed technology, and goodwill as part of purchase price allocations for business combinations; valuation of
goodwill; and leases. As of March 31, 2023, there continues to be significant global macroeconomic and geopolitical uncertainty
which may impact the Company’s business, results of operations, and financial condition. As a result, many of the Company’s
estimates and judgments require increased judgment and carry a higher degree of variability and volatility. As additional
information becomes available, the Company’s estimates may change materially in future periods.
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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 2—Revenue
The following table summarizes revenue disaggregated by Marketplace revenue and optional Services revenue for the periods
presented (in thousands):
Three Months Ended
March 31,
2023 2022
Marketplace revenue $ 467,516 $ 427,691
Services revenue 173,361 151,575
Revenue $ 640,877 $ 579,266
Contract balances
Deferred revenues
The amount of revenue recognized in the three months ended March 31, 2023 that was included in the deferred balance at
January 1, 2023 was $13.4 million.
Note 3—Income Taxes
The Company’s provision or benefit from income taxes in interim periods is determined using an estimate of the annual effective
tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates
its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.
The estimate of the annual effective income tax rate for the full year is applied to the respective interim period, taking into
account year-to-date amounts and projected results for the full year.
The Company’s quarterly tax provision, and its quarterly estimate of the annual effective tax rate, is subject to significant
variation due to several factors, including variability in accurately predicting its income or loss before tax and the mix of
jurisdictions to which they relate, taxable income or loss in each jurisdiction, changes in its stock price, audit-related
developments, acquisitions, changes in its deferred tax assets and liabilities and their valuation, foreign currency gains (losses),
changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including
changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative
changes of expenses or losses for which tax benefits are not recognized. Additionally, the effective tax rate can be more or less
volatile based on the amount of income or loss before tax. For example, the impact of discrete items and non-deductible
expenses on the effective tax rate is greater when income before income taxes is lower.
For the three months ended March 31, 2023, the Company’s effective income tax rate was 8.3% representing an income tax
provision recorded on net income before tax. The effective tax rate for the three months ended March 31, 2023 was lower than
the U.S. statutory rate of 21% primarily due to the impact from foreign operations, a benefit related to a research and
development tax credit, and excess tax benefits from employee stock-based compensation, partially offset by state income
taxes.
Although management believes its tax positions and related provisions reflected in the condensed consolidated financial
statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax
authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and
information become available, including progress on tax audits, changes in interpretation of tax laws, developments in case law
and closing of statute of limitations. To the extent that the ultimate results differ from the original or adjusted estimates of the
Company, the effect will be recorded in the provision for income taxes.
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts
and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable
income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax
authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing
and amount of income and deductions, and the allocation of income among the jurisdictions in which the Company operates. A
significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by
a revenue authority with respect to that return. Any adjustments as a result of any examination may result in additional taxes or
penalties against the Company. If the ultimate result of these audits differ from original or adjusted estimates, they could have a
material impact on the Company’s tax provision.
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Etsy, Inc.
Notes to Consolidated Financial Statements
The amount of unrecognized tax benefits included in the Consolidated Balance Sheets increased $1.1 million in the three months
ended March 31, 2023, from $35.2 million as of December 31, 2022 to $36.3 million as of March 31, 2023. The total amount of
unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $35.2 million as of March 31, 2023.
Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of
gross unrecognized tax benefits could significantly change in the next 12 months. The Company’s reasonable estimate of its
gross unrecognized tax benefits, excluding interest and penalties, that could potentially be reduced during the next 12 months is
$2.1 million.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense.
Note 4—Net Income Per Share
The following table presents the calculation of basic and diluted net income per share for the periods presented (in thousands,
except share and per share amounts):
Three Months Ended
March 31,
2023 2022
Numerator:
Net income $ 74,537 $ 86,109
Add back interest expense, net of tax attributable to assumed conversion of convertible senior
notes 1,595 1,592
Net income attributable to common stockholders—diluted $ 76,132 $ 87,701
Denominator:
Weighted-average common shares outstanding—basic 124,336,969 127,149,293
Dilutive effect of assumed conversion of options to purchase common stock 2,602,709 3,303,488
Dilutive effect of assumed conversion of restricted stock units 1,310,947 1,509,044
Dilutive effect of assumed conversion of convertible senior notes (1) 14,715,195 14,716,054
Weighted-average common shares outstanding—diluted 142,965,820 146,677,879
Net income per share attributable to common stockholders—basic $ 0.60 $ 0.68
Net income per share attributable to common stockholders—diluted $ 0.53 $ 0.60
(1) The $1.0 billion aggregate principal amount of 0.25% Convertible Senior Notes due 2028 (the “2021 Notes”), $650.0 million aggregate
principal amount of 0.125% Convertible Senior Notes due 2027 (the “2020 Notes”), the $649.9 million aggregate principal amount of
0.125% Convertible Senior Notes due 2026 (the “2019 Notes” and together with the 2021 Notes and 2020 Notes, the “Notes”), and the 0%
Convertible Senior Notes due 2023 (the “2018 Notes”) were dilutive for the three months ended March 31, 2023 and March 31, 2022.
During the first quarter of 2023, upon maturity of the 2018 Notes, the Company paid in cash the remaining outstanding principal to the
holders of the 2018 Notes. See “Note 7—Debt” for additional information.
The following potential common shares were excluded from the calculation of diluted net income per share attributable to
common stockholders because their effect would have been anti-dilutive for the periods presented:
Three Months Ended
March 31,
2023 2022
Stock options 192,568 198,081
Restricted stock units 1,490,998 1,853,488
Total anti-dilutive securities 1,683,566 2,051,569
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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 5—Fair Value Measurements
The Company has characterized its investments based on the priority of the inputs used to value the investments, into a three-
level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets
or liabilities (Level 1), and lowest priority to unobservable inputs (Level 3). If the inputs used to measure the investments fall
within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value
measurement of the investment. Investments recorded in the accompanying Consolidated Balance Sheets are categorized
based on the inputs to valuation techniques as follows:
Level 1 These are investments where values are based on unadjusted quoted prices for identical assets in an active market that
the Company has the ability to access.
Level 2 These are investments where values are based on quoted market prices in markets that are not active or model derived
valuations in which all significant inputs are observable in active markets.
Level 3 These are financial instruments where values are derived from techniques in which one or more significant inputs are
unobservable. The Company did not have any Level 3 instruments as of December 31, 2022.
Short- and long-term investments and certain cash equivalents consist of investments in debt securities that are available-for-
sale.
In the year ended December 31, 2022, the Company authorized the creation of an Impact Investment Fund through which the
Company expects to deploy approximately $30 million to further the Company’s Impact strategy and goals. In the three months
ended March 31, 2023, the Company invested a portion of the Impact Investment Fund in two investments which are classified
as long-term investments on our Consolidated Balance Sheet. The investment in a loan receivable is measured on an amortized
cost basis and the investment in shares of a limited liability company is measured on the net assets value (“NAV”) basis. The
Company uses NAV or its equivalent to measure the value of certain investments in alternative investment funds, debt funds,
equity funds, and private equity funds, which may be redeemable in the near term or restricted from redemption in the near term,
as a practical expedient.
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Etsy, Inc.
Notes to Consolidated Financial Statements
The following table sets forth the cost, gross unrealized losses, gross unrealized gains, and fair value of the Company’s
investments as of the dates indicated (in thousands):
Cost
Gross
Unrealized
Holding
Loss
Gross
Unrealized
Holding
Gain Fair Value
Cash and
Cash
Equivalents
Short-term
Investments
Long-term
Investments
March 31, 2023
Level 1
Money market funds 185,828 — — 185,828 185,752 76 —
U.S. Government securities 84,104 (237) 156 84,023 — 51,148 32,875
269,932 (237) 156 269,851 185,752 51,224 32,875
Level 2
U.S. agency securities 24,841 (1) 25 24,865 — 22,823 2,042
Certificate of deposit 37,492 (90) 3 37,405 3,595 33,810 —
Commercial paper 68,447 (70) 13 68,390 — 68,390 —
Corporate bonds 93,754 (1,276) 52 92,530 — 76,419 16,111
224,534 (1,437) 93 223,190 3,595 201,442 18,153
Level 3
Loans receivable - held for
investment 3,000 — — 3,000 — — 3,000
3,000 — — 3,000 — — 3,000
NAV
Shares in limited liability
company 3,000 — — 3,000 — — 3,000
3,000 — — 3,000 — — 3,000
$ 500,466 $ (1,674) $ 249 $ 499,041 $ 189,347 $ 252,666 $ 57,028
December 31, 2022
Level 1
Money market funds (1) 462,866 — — 462,866 374,314 76 —
U.S. Government securities 64,968 (424) 4 64,548 2,995 61,553 —
527,834 (424) 4 527,414 377,309 61,629 —
Level 2
U.S. agency securities 10,053 (1) 3 10,055 — 10,055 —
Certificate of deposit 40,915 (184) 7 40,738 5,471 35,267 —
Commercial paper 57,777 (101) 18 57,694 4,454 53,240 —
Corporate bonds 122,294 (1,729) 6 120,571 1,212 90,222 29,137
231,039 (2,015) 34 229,058 11,137 188,784 29,137
$ 758,873 $ (2,439) $ 38 $ 756,472 $ 388,446 $ 250,413 $ 29,137
(1) $88.5 million of money market funds were classified as funds receivable and seller accounts as of December 31, 2022.
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Etsy, Inc.
Notes to Consolidated Financial Statements
The table below shows the gross unrealized loss and fair value of the following investments in available-for-sale debt securities
that are classified by the length of time that the securities have been in a continuous unrealized loss position as of the dates
indicated (in thousands):
Gross Unrealized
Holding Loss Fair Value
March 31, 2023
Less than 12 months in a continuous unrealized loss position
Corporate bonds $ (284) $ 42,122
U.S. Government securities (99) 34,070
$ (383) $ 76,192
12 months or longer in a continuous unrealized loss position
Corporate bonds $ (992) $ 38,344
U.S. Government securities (138) 7,936
$ (1,130) $ 46,280
December 31, 2022
Less than 12 months in a continuous unrealized loss position
Corporate bonds $ (281) $ 70,469
U.S. Government securities (265) 51,075
$ (546) $ 121,544
12 months or longer in a continuous unrealized loss position
Corporate bonds $ (1,448) $ 50,102
U.S. Government securities (159) 7,442
$ (1,607) $ 57,544
The remaining available-for-sale debt securities in an unrealized loss position have been in a continuous unrealized loss position
for less than 12 months.
The Company evaluates fair value for each individual security in the investment portfolio. When assessing the risk of credit loss
of its available-for-sale debt securities, the Company considers factors such as the extent to which the fair value is less than the
amortized cost basis, the credit rating, including whether there has been any changes to the rating of the security by a rating
agency, available information relevant to the collectability of the security, and management’s intended holding period and time
horizon for selling the security.
Outside of the Company’s Impact Investment Fund, the Company typically invests in short- and long-term instruments, including
fixed-income funds and U.S. Government securities aligned with the Company’s investment strategy. In accordance with the
Company’s investment policy, all investments, other than investments made through its Impact Investment Fund, have maturities
no longer than 37 months, with the average maturity of these investments maintained at 12 months or less.
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Etsy, Inc.
Notes to Consolidated Financial Statements
Disclosure of Fair Values
The Company’s financial instruments that are not remeasured at fair value in the Consolidated Balance Sheets include the Notes.
See “Note 7—Debt” for additional information. The Company estimates the fair value of the Notes through inputs that are
observable in the market, classified as Level 2 as described above. The following table presents the carrying value and estimated
fair value of the Notes as of the dates indicated (in thousands):
As of March 31, 2023 As of December 31, 2022
Carrying Value Fair Value Carrying Value Fair Value
2021 Notes $ 990,104 $ 830,400 $ 989,629 $ 863,300
2020 Notes 644,730 586,235 644,431 646,230
2019 Notes 645,829 934,082 645,536 998,361
2018 Notes — — 44 145
$ 2,280,663 $ 2,350,717 $ 2,279,640 $ 2,508,036
The carrying value of other financial instruments’, including accounts receivable, funds receivable and seller accounts, accounts
payable, and funds payable and amounts due to sellers approximate fair value due to the immediate or short-term maturity
associated with these instruments.
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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 6—Accrued Expenses
Accrued expenses consisted of the following as of the dates indicated (in thousands):
As of March 31,
2023
As of December 31,
2022
Pass-through marketplace tax collection obligation $ 94,813 $ 129,591
Vendor accruals 90,893 127,791
Employee compensation-related liabilities 36,981 63,718
Taxes payable 17,338 10,134
Total accrued expenses $ 240,025 $ 331,234
Note 7—Debt
The following table presents the outstanding principal amount and carrying value of the Notes as of the dates indicated (in
thousands):
As of March 31, 2023
2021 Notes 2020 Notes 2019 Notes 2018 Notes Total
Principal $ 1,000,000 $ 650,000 $ 649,932 $ — $ 2,299,932
Unamortized debt issuance costs 9,896 5,270 4,103 — 19,269
Net carrying value $ 990,104 $ 644,730 $ 645,829 $ — $ 2,280,663
As of December 31, 2022
2021 Notes 2020 Notes 2019 Notes 2018 Notes Total
Principal $ 1,000,000 $ 650,000 $ 649,932 $ 44 $ 2,299,976
Unamortized debt issuance costs 10,371 5,569 4,396 — 20,336
Net carrying value $ 989,629 $ 644,431 $ 645,536 $ 44 $ 2,279,640
Terms of the Notes
The Notes will mature at their maturity date unless earlier converted or repurchased. The terms of the Notes are summarized
below:
Convertible Notes Maturity Date
Contractual
Convertibility Date (1)
Initial Conversion
Rate per $1,000
Principal
Initial Conversion
Price
Annual Effective
Interest Rate
2021 Notes June 15, 2028 February 15, 2028 4.0518 $ 246.80 0.4 %
2020 Notes September 1, 2027 May 1, 2027 5.0007 199.97 0.3 %
2019 Notes October 1, 2026 June 1, 2026 11.4040 87.69 0.3 %
2018 Notes March 1, 2023 November 1, 2022 27.5691 36.27 — %
(1) During any calendar quarter preceding the respective convertibility date of each series of Notes, in which the closing price of
the Company’s common stock exceeds 130% of the applicable conversion price of the Notes on at least 20 of the last 30
consecutive trading days of the quarter, holders may, in the immediate quarter following, convert all or a portion of their
Notes. Based on the daily closing prices of the Company’s stock during the quarter ended March 31, 2023, holders of the
2021 Notes, 2020 Notes, and 2019 Notes are not eligible to convert their 2021 Notes, 2020 Notes, and remaining 2019
Notes, respectively, during the second quarter of 2023.
During the first quarter of 2023, upon maturity of the 2018 Notes, the Company paid in cash the remaining outstanding principal
of $44 thousand to the holders of the 2018 Notes.
Based on the terms of each series of Notes, when a conversion notice is received, the Company has the option to pay or deliver
cash, shares of the Company’s common stock, or a combination thereof. Accordingly, the Company cannot be required to settle
the Notes in cash and, therefore, the Notes are classified as long-term debt as of March 31, 2023.
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Etsy, Inc.
Notes to Consolidated Financial Statements
The Company may redeem all or any portion of the 2021 Notes, at the Company’s option, subject to partial redemption
limitations, on or after June 20, 2025, if the last reported sale price of the Company’s common stock has been at least 130% of
the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day
immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day
period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of
redemption at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed, plus accrued and
unpaid interest to, but excluding, the redemption date.
The Notes are general unsecured obligations of the Company. The Notes rank senior in right of payment to all of the Company’s
future indebtedness that is expressly subordinated in right of payment to the Notes; rank equal in right of payment with all of the
Company’s liabilities that are not so subordinated; are effectively junior to any of the Company’s secured indebtedness; and are
structurally junior to all indebtedness and liabilities (including trade payables) of the Company’s subsidiaries.
Interest Expense
Interest expense, which consists of coupon interest and amortization of debt issuance costs, related to each of the Notes for the
periods presented below was as follows (in thousands):
Three Months Ended
March 31,
2023 2022
2021 Notes $ 1,100 $ 1,100
2020 Notes 501 501
2019 Notes 496 496
Total interest expense $ 2,097 $ 2,097
Fair Value of Notes
The estimated fair value of each of the Notes was determined through inputs that are observable in the market, and are
classified as Level 2. See “Note 5—Fair Value Measurements” for more information regarding the fair value of the Notes.
Capped Call Transactions
The Company used a portion of the net proceeds from each of the Note offerings to enter into separate privately negotiated
capped call instruments (the 2018, 2019, 2020, and 2021 capped call instruments collectively referred to as the “Capped Call
Transactions”) with certain financial institutions, initial purchasers, and/or their respective affiliates. The Capped Call
Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the Company is required to
make in excess of the principal amount of the Notes upon conversion of the Notes in the event that the market price per share of
the Company’s common stock is greater than the strike price of the Capped Call Transactions with such reduction and/or offset
subject to a cap. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s common
stock underlying the respective Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Notes.
The initial terms of the Company’s outstanding Capped Call Transactions are presented below:
Capped Call Transactions Maturity Date Initial Cap Price per Share Cap Price Premium
2021 Capped Call Transactions June 15, 2028 $ 340.42 100 %
2020 Capped Call Transactions September 1, 2027 327.83 150 %
2019 Capped Call Transactions October 1, 2026 148.63 150 %
The 2018 capped call transactions matured on March 1, 2023, and, in accordance with the settlement terms, the Company
received 1,194,006 shares of the Company’s common stock from the counterparties to the capped call instruments. These
shares were retired upon receipt.
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Etsy, Inc.
Notes to Consolidated Financial Statements
2023 Credit Agreement
On March 24, 2023, the Company entered into a $400.0 million senior secured revolving credit facility pursuant to an Amended
and Restated Credit Agreement (the “2023 Credit Agreement”) among the Company, as borrower, certain subsidiaries of the
Company as guarantors, the lenders, and JPMorgan Chase Bank N.A., as administrative Agent. The 2023 Credit Agreement will
mature in March 2028 and includes a letter of credit sublimit of $60.0 million and a swingline loan sublimit of $20.0 million.
The 2023 Credit Agreement amends and restates in its entirety the Credit Agreement dated as of February 25, 2019 between the
Company, as borrower, the lenders party thereto from time to time, and Citibank N.A., as administrative Agent.
Borrowings under the 2023 Credit Agreement (other than swingline loans) bear interest, at the Company’s option, at (i) a base
rate equal to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, and (c) an adjusted Term SOFR rate for a one-
month interest period plus 1.00%, in each case plus a margin ranging from 0.50% to 1.25% or (ii) an adjusted Term SOFR rate
plus a margin ranging from 1.50% to 2.25%. Swingline loans under the 2023 Credit Agreement bear interest at the same base
rate (plus the margin applicable to borrowings bearing interest at the base rate). These margins are determined based on the
senior secured net leverage ratio (defined as secured funded debt, net of unrestricted cash up to $100.0 million, to EBITDA (as
defined in the 2023 Credit Agreement)) for the preceding four fiscal quarter periods. The Company is also obligated to pay other
customary fees for a credit facility of this size and type, including an unused commitment fee, ranging from 0.20% to 0.35%
depending on the Company’s senior secured net leverage ratio, and fees associated with letters of credit. The 2023 Credit
Agreement also permits the Company, in certain circumstances, to request an increase in the facility by an amount of up to
$200.0 million at the same maturity, pricing and other terms and to request an extension of the maturity date for the facility. In
connection with the 2023 Credit Agreement, the Company also paid the lenders certain upfront fees.
At March 31, 2023, the Company did not have any borrowings under the 2023 Credit Agreement and was in compliance with all
financial covenants.
Note 8—Commitments and Contingencies
Purchase Obligations
The Company’s purchase obligations are primarily related to cloud computing. During the three months ended March 31, 2023,
there were no material changes outside the ordinary course of business to the Company’s non-cancelable purchase obligations
disclosed in the Company’s Annual Report.
Legal Proceedings
From time to time in the normal course of business, various other claims and litigation have been asserted or commenced
against the Company. Due to uncertainties inherent in litigation and other claims, the Company can give no assurance that it will
prevail in any such matters, which could subject the Company to significant liability for damages. Any claims or litigation could
have an adverse effect on the Company’s results of operations, cash flows, or business and financial condition in the period the
claims or litigation are resolved. Although the results of litigation and claims cannot be predicted with certainty, the Company
currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business.
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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 9—Stockholders’ Deficit
Effective May 3, 2022, the Board of Directors approved a stock repurchase program that authorizes the Company to repurchase
up to $600 million of its common stock. The program does not have a time limit and may be modified, suspended, or terminated
at any time by the Board of Directors. The number of shares repurchased and the timing of repurchases will depend on a number
of factors, including, but not limited to, stock price, trading volume, and general market conditions, along with the Company’s
working capital requirements, general business conditions, and other factors.
Under the stock repurchase program, the Company may purchase shares of its common stock through various means, including
open market transactions, privately negotiated transactions, tender offers, or any combination thereof. In addition, open market
repurchases of common stock could be made pursuant to trading plans established pursuant to Rule 10b5-1 under the Securities
Exchange Act of 1934, as amended, which would permit common stock to be repurchased at a time that the Company might
otherwise be precluded from doing so under insider trading laws or self-imposed trading restrictions.
The 2018 capped call transactions matured on March 1, 2023, and in accordance with the settlement terms, the Company
received 1,194,006 shares of the Company’s common stock from the counterparties to the capped call instruments. These
shares were retired upon receipt. See “Note 7—Debt.” This receipt and subsequent retirement of shares was separate from the
stock repurchase plan approved by the Board of Directors in May 2022.
The following table summarizes the Company’s cumulative share repurchase activity under the program noted above, excluding
shares withheld to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units (“RSUs”)
and the 1,194,006 shares received from the 2018 capped call transactions noted above (in thousands, except share and per
share amounts):
Shares
Repurchased
Average Price
Paid per Share
(1)
Value of
Shares
Repurchased
(1)
Remaining
Amount
Authorized
Balance as of January 1, 2023 $ 301,431
Repurchases of common stock for the three months ended:
March 31, 2023 1,205,151 $ 122.96 $ 148,199 (148,199)
Balance as of March 31, 2023 1,205,151 $ 122.96 $ 148,199 $ 153,232
(1) Average price paid per share excludes broker commissions. Value of shares repurchased includes broker commissions.
All repurchases were made using cash resources, and all repurchased shares of common stock have been retired.
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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 10—Stock-Based Compensation
During the three months ended March 31, 2023, the Company granted RSUs, including financial performance-based restricted
stock units (“Financial PBRSUs”) and total shareholder return performance-based restricted stock units (“TSR PBRSUs”), under
its 2015 Equity Incentive Plan (“2015 Plan”) and, pursuant to the evergreen increase provision of the 2015 Plan, 6,252,714
additional shares were added to the total number of shares available for issuance under the 2015 Plan effective as of January 2,
2023. At March 31, 2023, 56,644,564 shares were authorized under the 2015 Plan and 35,994,141 shares were available for
future grant.
The following table summarizes the activity for the Company’s unvested RSUs, which includes Financial PBRSUs and TSR
PBRSUs, during the three months ended March 31, 2023:
Shares
Weighted-Average
Grant Date Fair Value
Unvested at December 31, 2022 6,393,786 $ 128.37
Granted 2,693,002 108.55
Vested (175,703) 141.91
Forfeited/Canceled (167,216) 125.59
Unvested at March 31, 2023 8,743,869 122.05
The total unrecognized compensation expense at March 31, 2023 related to the Company’s unvested RSUs, including the
Financial PBRSUs and TSR PBRSUs, was $888.3 million, which will be recognized over an estimated weighted-average
amortization period of 3.07 years.
Awards related to the acquisition of Depop on July 12, 2021, will be recognized as post-combination service stock-based
compensation expense over a vesting period equal to the mandatory service period associated with the award, with a
corresponding liability included within Other liabilities on the Company’s Consolidated Balance Sheets until the service-based
vesting criteria are met and the awards are settled in shares of Etsy common stock. The unrecognized compensation expense at
March 31, 2023 related to these awards was $3.0 million, which will be recognized over an estimated weighted-average
amortization period of 1.1 years. These amounts are excluded from the unrecognized compensation expense associated with
the Company’s unvested RSUs noted above.
The total unrecognized compensation expense at March 31, 2023 related to the Company’s options was $11.6 million, which will
be recognized over an estimated weighted-average amortization period of 1.74 years.
Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the periods
presented below is as follows (in thousands):
Three Months Ended
March 31,
2023 2022
Cost of revenue $ 7,246 $ 4,191
Marketing 5,262 3,632
Product development 36,709 21,397
General and administrative 19,466 20,051
Stock-based compensation expense $ 68,683 $ 49,271
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our
condensed consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly
Report on Form 10-Q (“Quarterly Report”) and with the audited consolidated financial statements included in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023 (the “Annual Report”). This discussion,
particularly information with respect to our outlook, key trends and uncertainties, our plans and strategy for our business, and our
performance and future success, includes forward-looking statements that involve risks and uncertainties. Our actual results could
differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed
below and elsewhere in this Quarterly Report, particularly in Part II, Item 1A, “Risk Factors.” We also believe that our performance
and future success depend on a number of factors that present significant opportunities for us, as discussed in Part I, Item 1,
“Business,” in our Annual Report, which we incorporate by reference.
Overview
Business
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.
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. 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.
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.
Style
(me)
Gifting
(you)
Celebration
(us)
In addition to our core Etsy marketplace, our “House of Brands” consists of Reverb Holdings, Inc. (“Reverb”), our musical
instrument marketplace, Depop Limited (“Depop”), our fashion resale marketplace, and Elo7 Serviços de Informática S.A. (“Elo7”),
our Brazil-based marketplace for handmade and unique items. Each of our marketplaces primarily operate independently,
although some of our key operational functions such as finance, legal, and human resources, for example, support all four
marketplaces to some extent. Our goal is that all four marketplaces benefit from shared expertise in product, marketing,
technology, and customer support, and that the sum of the whole, over time, will equal more than its individual parts.
We generate revenue primarily from marketplace activities, including transaction, listing, and payments processing fees, and
optional services, which include on-site advertising and shipping labels.
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