Etsy’s Q4 2024 Earnings Report: Record Revenue Masks GMS Woes as Depop Steals the Show

#Top-Line Takeaways: Revenue Records and GMS Gloom

Etsy’s Q4 2024 earnings kicked off with a bang—or at least a polite clap—delivering a record-breaking consolidated revenue of $852.2 million, a 1.2% uptick from $842.3 million in Q4 2023. That’s the highest quarterly revenue in the company’s 20-year history, a milestone that deserves a gold star considering the Gross Merchandise Sales (GMS) cratered 6.8% year-over-year to $3.735 billion. The take rate—revenue divided by GMS—shot up to 22.8%, a notable leap from last year’s 21% (implied from $842.3M / $4.007B), proving Etsy’s got a PhD in squeezing more juice out of a shrinking orange. For a business facing headwinds, this is less a victory lap and more a masterclass in revenue alchemy.

Let’s zoom in on that GMS decline, because it’s the elephant in the room wearing a handmade scarf. Consolidated GMS fell 6.8%—6.9% on a currency-neutral basis, with a negligible 0.1% FX tailwind—while the Etsy marketplace itself took a harder hit, dropping 8.6% to $3.3 billion from roughly $3.6 billion in Q4 2023 (derived from total GMS minus subsidiaries). The culprits? A toxic brew of consumer discretionary spending fatigue, a holiday season shorter than a New York minute, category mix shifts, and a retail landscape so promotional it could double as a clearance rack at TJ Maxx. Yet, December bucked the trend with a ‘relative acceleration’—Etsy pins this on a Cyber 5 timing shift, but I’d wager it’s also desperate holiday shoppers hunting for that last-minute artisanal gift.

Breaking down the GMS further unveils a tale of two marketplaces. Full-year consolidated GMS landed at $12.587 billion, down 4.4% from $13.161 billion in 2023, with the Etsy marketplace contributing $10.9 billion—a 5.2% drop from an estimated $11.5 billion last year (back-of-the-envelope from prior splits). Meanwhile, subsidiaries Reverb and Depop chipped in $917.9 million and $788.9 million, respectively, for the year. Depop’s Q4 GMS was its highest since Etsy’s 2021 acquisition, pushing full-year growth to a jaw-dropping 31.6%. Reverb’s Q4 didn’t get a solo spotlight, but its full-year steadiness hints at resilience. The takeaway? Etsy’s core is wilting, but its ‘House of Brands’ is quietly carrying the torch.

Revenue’s where the plot thickens. Consolidated revenue grew 1.2%, but the split is telling: Marketplace revenue slipped 1.4% to $607.3 million from $615.8 million, while Services revenue—think Etsy Ads and seller tools—surged 8.1% to $244.9 million from $226.5 million. For the full year, Marketplace revenue edged up 1.2% to $2.021 billion, and Services revenue climbed 4.8% to $787.6 million. Etsy Ads, spotlighted as the ‘primary contributor,’ reflects sharper bidding algorithms that are clearly paying off. This isn’t just a lifeline—it’s a strategic pivot. Etsy’s betting on sellers to foot the bill through ads, and with a take rate creeping toward 23% for Q1 2025 guidance, it’s a bet that’s working.

Gross profit adds another layer to this revenue saga, rising 8.2% to $634.5 million from $586.6 million, with a full-year tally of $2.034 billion (up 5.9% from $1.920 billion). That’s a gross margin of 74.5% in Q4—up from 69.6% last year (implied from $586.6M / $842.3M)—driven by a 14.9% drop in cost of revenue to $217.7 million from $255.8 million. Full-year cost of revenue fell 6.5% to $774.6 million. Why the drop? Likely efficiencies in payment processing or shipping, though Etsy’s tight-lipped on specifics. For the financially curious, this margin expansion amid GMS shrinkage is a neon sign flashing ‘operational leverage’ — and it’s dazzling. Here are a few under-the-radar stats that are worth noting:

1. Currency-Neutral Nuance

   The 6.9% currency-neutral GMS decline versus 6.8% reported shows FX barely moved the needle (0.1% impact). Compare that to Q4 2023’s 0.9% FX boost—Etsy’s global exposure isn’t the scapegoat here; it’s pure demand softness.

2. December’s Stealth Rally

   October and November GMS tanked, but December’s uptick wasn’t quantified. If Cyber 5 drove it, why not spill the beans? This vagueness smells like a modest win Etsy’s too coy to brag about—maybe a 2-3% monthly lift?

3. Services Revenue Breakdown

   Services revenue’s 8.1% Q4 jump outpaced the full-year’s 4.8%. Q4’s ad-heavy push likely spiked late, hinting at a seasonal seller blitz—could this signal untapped ad potential for 2025?

Etsy’s revenue resilience is a slow-burn triumph. A 1.2% top-line bump against a 6.8% GMS nosedive is no accident—it’s a testament to pricing power and a services pivot that’s keeping the ship afloat. Depop’s 31.6% full-year GMS growth is the unsung hero, quietly offsetting Etsy marketplace’s 8.6% Q4 stumble. But let’s not kid ourselves: GMS is the heartbeat of this business, and it’s arrhythmia city. If Etsy can’t reverse this trend, that 22.8% take rate might start feeling like a tax on a ghost town. Still, the gross margin pop and ad revenue surge suggest a company that’s not just surviving—it’s adapting with a cunning edge.

#Profitability Powerhouse: Margins That Make You Blink

If GMS is the storm cloud hanging over Etsy’s Q4 2024, profitability is the dazzling silver lining that might just blind you with its brilliance. Consolidated net income rocketed 56% to $129.9 million, up from $83.3 million in Q4 2023, a leap partly fueled by sidestepping $27 million in restructuring and exit costs that weighed down last year’s results. The net income margin soared to 15.2%, a whopping 530 basis-point jump from 9.9%, while diluted EPS climbed to $1.03 from $0.62. Full-year net income hit $303.3 million, down 1.4% from $307.6 million in 2023, but that Q4 surge? It’s the kind of profitability that makes you wonder if Etsy’s got a secret cash-printing press stashed in a Brooklyn loft.

Adjusted EBITDA steals the show with a record-breaking $250.6 million, up 6.4% from $235.5 million in Q4 2023, pushing the margin to 29.4%—a 140 basis-point improvement from 28%. For the full year, Adjusted EBITDA reached $781.5 million, a 3.6% rise from $754.3 million, with a margin of 27.8% versus 27.4%. Here’s the kicker: Etsy converted roughly 90% of that full-year EBITDA into free cash flow, raking in $702.5 million (implied from cash flow adjustments and $752.5M operating cash flow). They didn’t hoard it either—Q4 saw $260 million spent repurchasing 4.9 million shares, part of a 12.2 million share reduction for 2024, shrinking the float by nearly 10% from 122.5 million to 110.6 million basic shares. That’s a shareholder-friendly flex that’s juicing EPS faster than a Vitamix on high.

Dig into the income statement, and the profitability engine purrs even louder. Income from operations jumped 34.3% to $155.1 million from $115.5 million in Q4 2023, with a full-year tally of $390.2 million (up 39.5% from $279.8 million). Gross profit’s 8.2% rise to $634.5 million (74.5% margin) paired with operating expenses inching up just 1.7% to $479.3 million from $471.1 million tells a story of discipline. Break it down: Marketing spend ballooned 9.2% to $285.2 million from $261.1 million, yet product development costs shrank 5.1% to $111.5 million from $117.5 million, and general and administrative (G&A) expenses plummeted 10.6% to $82.7 million from $92.5 million. Full-year operating expenses rose a mere 0.8% to $1.654 billion, despite marketing leaping 12.8% to $856.6 million. Etsy’s channeling cash into buyer acquisition while slashing fat elsewhere—a lean, mean profit machine.

The balance sheet backs up this profitability swagger. Cash, equivalents, and investments closed at $1.2 billion, down from $1.57 billion in 2023, but that’s after $505 million in stock repurchases (implied from Q4’s $260M and full-year 12.2M shares). Long-term debt held steady at $2.283 billion, and operating cash flow for 2024 hit $752.5 million, up 6.6% from $705.5 million. Net cash from financing activities was a $518.1 million outflow, dwarfing 2023’s $405.3 million, thanks to buybacks and $102.6 million in tax payments on vested equity awards. Etsy’s not just profitable—it’s a cash flow juggernaut with the flexibility to reinvest or reward shareholders at will. Here are couple key profitability stats to note:

1. Stock-Based Compensation Stability

   Stock-based compensation expense stayed flat at $68.2 million in Q4 (vs. $68.5 million in 2023), despite a 10% share count drop. Full-year SBC rose 2.8% to $282.8 million. This restraint—especially with product development SBC down 1.8% to $144.5 million—hints at a shift from equity-heavy incentives to cash efficiency.

2. Tax Provision Spike

   Q4’s provision for income taxes jumped 87% to $48.4 million from $25.9 million, driving a full-year tax hit of $107.5 million (vs. a $14.7M benefit in 2023). A 6.8% GMS drop didn’t shield Etsy from a heftier tax bite—possibly tied to Canada’s retroactive digital services tax ($6.1M full-year add-on). Ouch.

3. Other Income Swing

   Other income swung to a $23.2 million gain in Q4 from a $6.3 million loss in 2023, boosting pre-tax income. Full-year other income hit $30.6 million (up from $13M). Interest income ($17.2M full-year) and forex gains ($13.4M) padded the bottom line—quiet boosts that deserve a shoutout.

Etsy’s profitability is a financial fireworks display. A 56% net income surge and 29.4% EBITDA margin in a GMS downturn is the stuff of CFO dreams—Lanny Baker’s grinning somewhere. The 90% EBITDA-to-free-cash-flow conversion and 12.2 million share buyback scream capital allocation prowess; Etsy’s not just surviving, it’s thriving on a lean diet. But that tax spike and G&A cut raise eyebrows—could aggressive cost-slashing signal a short-term profit goose at the expense of long-term R&D? I’d argue no: the $856.6 million marketing splurge shows Etsy’s playing offense. This is a company flexing its profitability muscle while keeping powder dry for a 2025 growth push—impressive, if not downright cheeky.

#Buyer Behavior Blues: A Tale of Attrition and Acquisition

Now, let’s talk buyers — this is where Etsy’s story gets a little shaky. Active buyers dipped 2.6% to 89.6 million on the Etsy marketplace, and consolidated active buyers fell 1.1% to 95.5 million. More telling? GMS per active buyer slid 3.5% to $121 over the trailing twelve months. Habitual buyers—those making six or more purchases totaling $200+ annually—plummeted 9.5% to 6.4 million. That’s a red flag waving in the wind: Etsy’s losing its most loyal spenders faster than you can say ‘hand-knitted sweater.’

But hold the panic button—Etsy reactivated a record 9.8 million lapsed buyers, up 1.3% from last year, and snagged 6.9 million newbies. That’s a Herculean effort to refill the leaky bucket, and it’s working to an extent. Still, the math doesn’t lie: reactivation and acquisition aren’t fully offsetting the bleed in habitual buyers. Why? Maybe it’s the promotional overload elsewhere, or perhaps Etsy’s app-first discovery push (42% of 2024 GMS came via the app) isn’t resonating with the die-hards who crave the old-school Etsy vibe.

1. Hidden Gem #1: Etsy Insider Beta

   Buried in the report is the launch of ‘Etsy Insider,’ a loyalty program in beta. If it boosts purchase frequency among those 6.4 million habitual buyers—or lures back lapsed ones—it could be a game-changer. No hard numbers yet, but this feels like Etsy’s quiet bet on retention.

2. Hidden Gem #2: Seller Setup Fee Impact

   A new shop setup fee, paired with trust/safety upgrades, slashed fraudulent onboarding. Active sellers dropped 10% to 8.1 million, but that’s a feature, not a bug—fewer scammers could mean a cleaner, more trustworthy marketplace, boosting buyer confidence long-term.

#Subsidiary Stars: Depop Shines, Reverb Strums Along

While the Etsy marketplace trips over its own artisanal shoelaces, its subsidiaries are stepping into the spotlight with swagger. Depop, the fashion resale wunderkind acquired by Etsy in 2021 for $1.625 billion, posted its highest quarterly GMS in Q4 2024 since the deal, propelling full-year GMS to $788.9 million—a sizzling 31.6% jump from 2023’s roughly $599.8 million (back-calculated from growth rate and total). That’s a standout in Etsy’s $12.587 billion consolidated GMS, where the core Etsy marketplace ($10.9 billion) slumped 5.2% year-over-year. Depop’s Q4 listing growth ‘accelerated’ after swapping seller fees for buyer fees in the U.S. and U.K., a pivot that’s clearly resonating with thrifters and re-commerce fanatics.

Reverb, Etsy’s musical gear marketplace snapped up in 2019 for $275 million, plays a steadier tune. Full-year GMS hit $917.9 million, up modestly from an estimated $900 million in 2023 (implied from prior trends and consolidated GMS), making it a reliable 7.3% slice of the $12.587 billion pie. Q4 specifics are scant, but the report teases double-digit year-over-year GMS growth in its Outlet & Exclusive categories—think discounted amps and rare guitars. Reverb’s paid social video strategy also ‘outperformed benchmarks,’ driving revenue and efficiency. Together, Depop and Reverb contributed $1.707 billion to 2024 GMS, offsetting nearly half of the Etsy marketplace’s $600 million-ish decline. This ‘House of Brands’ is more than a buzzword—it’s a lifeline.

Depop’s momentum deserves a closer look. That 31.6% full-year GMS surge—let’s call it $189.1 million in added volume—dwarfs the Etsy marketplace’s 8.6% Q4 drop ($282 million loss, roughly, from $3.3B vs. $3.6B). The fee switch (zero seller fees, buyer fees introduced) juiced Q4 listings, while U.S. share gains and a global re-commerce boom (think Gen Z’s obsession with secondhand swagger) fueled the fire. Depop’s also scaling mid-funnel YouTube presence and tweaking search relevance—moves that scream long-term growth. Reverb, meanwhile, keeps chugging with its Seller Dashboard upgrade and holiday season double-digit spikes, proving niche markets can hum even when the mothership sputters.

Financially, these subsidiaries don’t get standalone revenue or profit lines in the report—Etsy lumps them into the consolidated $852.2 million Q4 revenue and $2.808 billion full-year haul. But their GMS heft suggests they’re punching above their weight. Depop’s 31.6% growth implies a Q4 GMS of roughly $220 million (assuming even quarterly pacing from $788.9M), while Reverb’s steadier $917.9M annual clip hints at a Q4 around $240 million with that late-year category boost. Against Etsy marketplace’s $3.3 billion Q4 GMS, subsidiaries delivered 13% of Q4 volume (up from 11% in 2023, roughly). That’s a quiet shift in Etsy’s revenue engine—and a hint that acquisition costs are finally paying dividends. A couple key insights here:

1. Depop’s Fee Flip Impact

   The seller-to-buyer fee shift sparked Q4 listing growth, but no hard numbers on volume or revenue lift. If listings grew 20% (a conservative guess), that’s thousands of new items—Depop’s tapping a supply-side goldmine that Etsy’s core could envy.

2. Reverb’s Category Kings

   Outlet & Exclusive categories hit double-digit GMS growth in Q4, yet total Reverb GMS grew just 2% year-over-year (estimated). This suggests other categories flatlined—could Reverb’s niche focus be both its strength and its ceiling?

3. YouTube Mid-Funnel Magic

   Depop’s YouTube scaling gets a nod, but no ROI stats. Pair this with Reverb’s social video wins—Etsy’s subsidiaries are mastering mid-funnel marketing where the core marketplace leans on top-funnel splash. A lesson lurking here?

Opinion time: Depop’s the rockstar stealing Etsy’s thunder. That 31.6% GMS explosion isn’t just a fluke—it’s a blueprint. Targeting a younger, sustainability-hungry crowd with fee tweaks and YouTube finesse, Depop’s outpacing the mothership by miles. Reverb’s quieter double-digit category wins show staying power in a niche, but its slower overall clip feels like a supporting act. Here’s the bold call: Etsy should crib Depop’s playbook—ditch some seller fees, amp up mid-funnel video, chase the re-commerce wave—to jolt its core GMS back to life. The $1.9 billion spent on these acquisitions is finally flexing muscle; if Etsy leans in, this ‘House of Brands’ could be its ticket out of the GMS rut.

#Can Etsy Craft a Comeback?

Etsy’s Q1 2025 guidance isn’t exactly a rah-rah moment: GMS decline expected to mirror Q4’s 6.8%, with a take rate around 23% and Adjusted EBITDA margin of 25-26%. Translation? More of the same—shrinking sales volume, offset by revenue efficiency and profitability. But CEO Josh Silverman’s dangling a carrot: ‘Discovery’ enhancements to spark ‘joyful shopping journeys’ and personalized experiences. If that sounds vague, it’s because it is—but the intent is clear: Etsy wants buyers hooked again.

CFO Lanny Baker’s more bullish, hinting at ‘improved GMS performance’ beyond Q1, fueled by external factors (easing consumer pressures, perhaps?) and internal tweaks. With $1.2 billion in cash and investments, Etsy’s got the war chest to experiment—think Etsy Insider scaling or Depop-style innovations. The balance sheet’s a beauty: long-term debt steady at $2.28 billion, and free cash flow humming at 90% of EBITDA. Etsy’s not strapped—it’s just stubborn about growth.

Here’s my take: Etsy’s doing a lot right—profitability’s stellar, subsidiaries are humming, and share buybacks are a shareholder’s dream. But the GMS slide and buyer attrition scream stagnation in the core marketplace. The app’s 42% GMS share is a win, yet habitual buyers are ghosting. Etsy’s 20th anniversary in 2025 could be a triumphant pivot if Silverman’s ‘Discovery’ vision clicks—or a nostalgic footnote if it doesn’t. I’d bet on the former, but only because Depop’s momentum feels too good to waste.