10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2016
	OR
¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from  to

Commission File Number 001-36911

_________________________

ETSY, INC.

(Exact name of registrant as specified in its charter)

_________________________

Delaware	20-4898921
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
55 Washington Street, Suite 512, Brooklyn, NY	11201
(Address of principal executive offices)	(Zip code)

(718) 855-7955

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer x(Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of common stock outstanding as of April 14, 2016 was 113,073,415.

Etsy, Inc.

Table of Contents

Note Regarding Forward-Looking Statements

		Page
	Part I - Financial Information	4
Item 1.	Consolidated Financial Statements (Unaudited)	4
	Consolidated Balance Sheets as of December 31, 2015 and March 31, 2016	4
	Consolidated Statements of Operations for the three months ended March 31, 2015 and 2016	5
	Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2015 and 2016	6
	Consolidated Statements of Changes in Stockholders' Equity as of March 31, 2016	7
	Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2016	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
	Part II - Other Information	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	53
Item 6.	Exhibits	53
	Signatures	54
	Exhibit Index	55

Unless the context otherwise requires, we use the terms “Etsy,” the “company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q, or Quarterly 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” in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 1, 2016 for the definitions of the following terms used in this Quarterly Report: “active buyer,” “active seller,” “GMS,” “International GMS,” “mobile visit” and “mobile GMS.”

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report 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 terms 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” 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 report.

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 report. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report 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 - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

Etsy, Inc.

Consolidated Balance Sheets (Unaudited)

(In thousands except share and per share data)

	As of December 31, 2015			As of March 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	271,244		$	158,381
Short-term investments	21,620			111,297
Accounts receivable, net of allowance for doubtful accounts of $2,071 and $1,920 as of December 31, 2015 and March 31, 2016, respectively	20,275			19,249
Prepaid and other current assets	9,521			9,092
Deferred tax charge—current	17,132			17,132
Funds receivable and seller accounts	19,262			25,461
Total current assets	359,054			340,612
Restricted cash	5,341			5,341
Property and equipment, net	105,021			116,480
Goodwill	27,752			28,642
Intangible assets, net	2,871			2,416
Deferred tax charge—net of current portion	51,396			41,903
Long-term investments	—			12,061
Other assets	1,626			1,721
Total assets	$	553,061		$	549,176
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,382		$	13,571
Accrued expenses	31,253			22,905
Capital lease obligations—current	5,610			6,019
Funds payable and amounts due to sellers	19,262			25,461
Deferred revenue	4,712			5,036
Other current liabilities	4,903			4,367
Total current liabilities	80,122			77,359
Capital lease obligations—net of current portion	7,571			6,789
Deferred tax liabilities	61,420			61,419
Facility financing obligation	51,804			51,804
Other liabilities	21,646			22,274
Total liabilities	222,563			219,645
Stockholders’ equity:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of December 31, 2015 and March 31, 2016; 112,563,354 and 113,011,624 shares issued and outstanding as of December 31, 2015 and March 31 2016, respectively)	113			113
Additional paid-in capital	406,020			411,208
Accumulated deficit	(86,440		)	(85,248		)
Accumulated other comprehensive income	10,805			3,458
Total stockholders’ equity	330,498			329,531
Total liabilities and stockholders’ equity	$	553,061		$	549,176

The accompanying notes are an integral part of these consolidated financial statements

4

Etsy, Inc.

Consolidated Statements of Operations (Unaudited)

(In thousands except share and per share data)

	Three Months Ended   March 31,
	2015			2016
Revenue	$	58,543		$	81,847
Cost of revenue	20,709			27,911
Gross profit	37,834			53,936
Operating expenses:
Marketing	12,210			15,847
Product development	10,009			12,230
General and administrative	20,457			19,076
Total operating expenses	42,676			47,153
(Loss) income from operations	(4,842		)	6,783
Other (expense) income:
Interest expense and amortization of deferred financing costs	(193		)	(538		)
Interest and other income	15			441
Net unrealized gain on warrant and other liabilities	12			—
Foreign exchange (loss) gain	(20,853		)	8,120
Total other (expense) income	(21,019		)	8,023
(Loss) income before income taxes	(25,861		)	14,806
Provision for income taxes	(10,725		)	(13,614		)
Net (loss) income	$	(36,586	)	$	1,192
Net (loss) income per share:
Basic	$	(0.84	)	$	0.01
Diluted	$	(0.84	)	$	0.01
Weighted average common shares outstanding:
Basic	43,703,508			112,129,470
Diluted	43,703,508			115,368,566

The accompanying notes are an integral part of these consolidated financial statements

5

Etsy, Inc.

Consolidated Statements of Comprehensive Loss (Unaudited)

(In thousands)

	Three Months Ended   March 31,
	2015			2016
Net (loss) income	$	(36,586	)	$	1,192
Other comprehensive income (loss):
Cumulative translation adjustment	15,056			(7,439		)
Unrealized gains on marketable securities, net of tax	4			92
Other comprehensive income (loss)	15,060			(7,347		)
Comprehensive loss	$	(21,526	)	$	(6,155	)

The accompanying notes are an integral part of these consolidated financial statements

6

Etsy, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands except share data)

	Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total
	Shares	Amount
Balance as of December 31, 2015	112,563,354	$	113	$	406,020		$	(86,440	)	$	10,805		$	330,498
Stock-based compensation expense	—	—		2,704			—			—			2,704
Exercise of vested options	446,395	—		1,223			—			—			1,223
Vesting of restricted stock units	1,875	—		(13		)	—			—			(13		)
Stock expense-acquisitions	—	—		240			—			—			240
Excess tax benefit from the exercise of options	—	—		1,034			—			—			1,034
Other comprehensive loss	—	—		—			—			(7,347		)	(7,347		)
Net income	—	—		—			1,192			—			1,192
Balance as of March 31, 2016	113,011,624	$	113	$	411,208		$	(85,248	)	$	3,458		$	329,531

The accompanying notes are an integral part of these consolidated financial statements

7

Etsy, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Three Months Ended   March 31,
	2015			2016
Cash flows from operating activities
Net (loss) income	$	(36,586	)	$	1,192
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Stock-based compensation expense	2,133			2,581
Stock-based compensation expense-acquisitions	1,841			656
Contribution of stock to Etsy.org	3,200			—
Depreciation and amortization expense	4,341			4,731
Bad debt expense	767			341
Foreign exchange loss (gain)	20,853			(8,120		)
Amortization of debt issuance costs	31			45
Interest on marketable securities	—			(258		)
Net unrealized gain on warrant and other liabilities	(12		)	—
Loss on disposal of assets	332			492
Amortization of deferred tax charge	7,918			9,493
Excess tax benefit from exercise of stock options	(2,472		)	(1,034		)
Changes in operating assets and liabilities:
Accounts receivable	46			799
Funds receivable and seller accounts	(1,911		)	(5,913		)
Prepaid expenses and other current assets	3,100			472
Other assets	182			(140		)
Accounts payable	(419		)	173
Accrued liabilities	3,969			(10,819		)
Funds payable and amounts due to sellers	1,912			5,913
Deferred revenue	216			279
Other liabilities	(546		)	903
Net cash provided by operating activities	8,895			1,786
Cash flows from investing activities
Purchases of property and equipment	(1,852		)	(10,870		)
Development of internal-use software	(2,428		)	(2,168		)
Purchases of marketable securities	(5,400		)	(108,289		)
Sales of marketable securities	3,055			6,901
Net cash used in investing activities	(6,625		)	(114,426		)
Cash flows from financing activities
Proceeds from exercise of stock options	1,188			1,223
Excess tax benefit from the exercise of stock options	2,472			1,034
Payments on capitalized lease obligations	(503		)	(1,355		)
Deferred payments on acquisition of business	—			(649		)
Payments relating to public offering	(1,482		)	—
Net cash provided by financing activities	1,675			253
Effect of exchange rate changes on cash	(2,865		)	(476		)
Net increase (decrease) in cash and cash equivalents	1,080			(112,863		)
Cash and cash equivalents at beginning of period	69,659			271,244
Cash and cash equivalents at end of period	$	70,739		$	158,381

8

Etsy, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Three Months Ended   March 31,
	2015		2016
Supplemental non-cash disclosures
Equipment acquired under capital lease obligations	$	1,324	$	982
Stock-based compensation capitalized in development of capitalized software	$	63	$	123
Non-cash additions to development of internal-use software and property and equipment	$	330	$	1,966
Non-cash addition to construction in progress related to build-to-suit lease and facility financing obligation	$	1,187	$	—
Non-cash addition to capitalized public offering costs	$	778	$	—

The accompanying notes are an integral part of these consolidated financial statements

9

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Etsy, Inc. (the “Company” or “Etsy”) was incorporated in Delaware in February 2006. Etsy operates a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods. The Company generates revenue primarily from transaction and listing fees, Promoted Listings, Direct Checkout fees and Shipping Label sales.

Initial Public Offering

On April 21, 2015, the Company completed an initial public offering (the “IPO”) in which it issued and sold 13,333,333 shares of common stock at a public offering price of $16.00 per share. The Company received net proceeds of $194.4 million after deducting underwriting discounts of $13.9 million and other offering expenses of approximately $5.1 million. These expenses were recorded against the proceeds received from the IPO.

Certain selling stockholders sold an additional 5,833,332 shares of common stock in the IPO. The Company did not receive any proceeds from the sale of shares sold by the selling stockholders.

Upon the closing of the IPO, all outstanding shares of preferred stock of the Company converted into 53,448,243 shares of common stock. In addition, all outstanding warrants for preferred stock converted into warrants for 203,030 shares of common stock.

The Company effected a 1-for-2 reverse split of its common stock on March 25, 2015. The reverse split combined each two shares of the Company’s issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion prices of its convertible preferred stock. No fractional shares were issued in connection with the reverse split, and any fractional shares resulting from the reverse split were rounded down to the nearest whole share. All share, per share and related information presented in the consolidated financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the reverse stock split.

Basis of Consolidation

The consolidated financial statements include the accounts of Etsy and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain items in the prior years’ consolidated financial statements have been reclassified to conform to the current year presentation reflected in these interim financial statements. Specifically, in the consolidated statement of cash flows for the three months ended Match 31, 2015, the Company reclassified certain amounts previously included in deferred income taxes into changes in operating assets and liabilities to conform to the current year presentation. This reclassification had no impact on total cash flows provided by operating activities for the period.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of March 31, 2016, the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2015 and 2016, the consolidated statements of cash flows for the three months ended March 31, 2015 and 2016, and the consolidated statement of changes in stockholders’ equity for the three months ended March 31, 2016 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position as of March 31, 2016, results of operations for the three months ended March 31, 2015 and 2016 and cash flows for the three months ended March 31, 2015 and 2016. The financial data and the other information disclosed in these notes to the consolidated financial statements related to these three-month periods are unaudited. These unaudited interim financial statements should be read in conjunction with the

10

Etsy, Inc.

Notes to Consolidated Financial Statements

Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2016 (the “Annual Report”).

There have been no material changes in the Company's significant accounting policies from those that were disclosed in the Annual Report.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The accounting estimates that require management’s most difficult and subjective judgments include revenue recognition, income taxes, website development costs and internal-use software, purchase price allocations for business combinations, valuation of goodwill and intangible assets, leases and stock-based compensation. The Company evaluates its estimates and judgments on an ongoing basis and revises them when necessary. Actual results may differ from the original or revised estimates.

Income Taxes

The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate adjusted for discrete items, if any, for relevant interim periods. The Company updates its estimate of the annual effective tax rate each quarter and makes cumulative adjustments if its estimated annual tax rate changes.

The Company's quarterly tax provision and quarterly estimate of its annual effective tax rate are subject to significant variations due to several factors, including variability in predicting its pretax and taxable income and the mix of jurisdictions to which those relate, changes of expenses or losses for which tax benefits are not recognized, and changes in the laws, regulations and administrative practices of the jurisdictions in which the Company operates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting standards update that replaces existing revenue recognition guidance. The new guidance is effective for the annual and interim periods beginning after December 15, 2017. Among other things, the updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In August 2014, the FASB issued an accounting standard update under which management will be required to assess an entity’s ability to continue as a going concern and provide related disclosures in certain circumstances. The new guidance is effective for annual and interim periods beginning after December 15, 2016. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements or disclosures.

In April 2015, the FASB issued an accounting standard under which customers will apply the same criteria as vendors to determine whether a cloud computing arrangement contains a software license or is solely a service contract. The new standard is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no material impact to the current period consolidated financial statements.

In August 2015, the FASB issued an accounting standard update to address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The guidance affirms the Company's treatment of such costs, which is to defer and present the debt issuance costs as an asset and subsequently amortize the costs over the term of the line-of-credit arrangement. The new standard is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no impact to the current period consolidated financial statements.

In September 2015, the FASB issued an accounting standard update that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a

11

Etsy, Inc.

Notes to Consolidated Financial Statements

measurement-period adjustment during the period in which it determines the amount of the adjustment. The new guidance is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no impact to the current period consolidated financial statements.

In February 2016, the FASB issued an accounting standard update that requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. The new guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standard update for share-based payment transactions that require a reporting entity to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement. The new guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted for financial statements as of the beginning of an interim or annual reporting period. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

Note 2—Debt

Credit Agreement

In May 2014, the Company entered into a $35.0 million senior secured revolving credit facility pursuant to a Revolving Credit and Guaranty Agreement with several lenders (the “Credit Agreement”). In March 2015, the Company amended the Credit Agreement to increase the credit facility to $50.0 million. In December 2015, the Company amended the Credit Agreement to clarify certain provisions relating to permitted investments and to make other immaterial updates. As amended, the Credit Agreement will mature in May 2019. The Credit Agreement includes a letter of credit sublimit of $10.0 million and a swingline loan sublimit of $15.0 million.

Borrowings under the 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 LIBOR rate for a one-month interest period plus 1.00%, in each case plus a margin ranging from 0.00% to 0.25% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.00% to 1.25%. Swingline loans under the 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 total leverage ratio for the preceding four-fiscal-quarter period. The Company is also obligated to pay other customary fees for a credit facility of this size and type, including an unused commitment fee and fees associated with letters of credit. As amended, the Credit Agreement also permits the Company, in certain circumstances, to request an increase in the facility by an amount of up to $50.0 million (and in minimum amounts of $10.0 million) at the same maturity, pricing and other terms.

The amended Credit Agreement contains customary representations and warranties applicable to the Company and its subsidiaries and customary affirmative and negative covenants applicable to the Company and its restricted subsidiaries. The negative covenants include restrictions on, among other things, indebtedness, liens, investments, mergers, dispositions, transactions with affiliates and dividends and other distributions. These restrictions do not prohibit a subsidiary of the Company from making pro rata payments to the Company or any other person that owns an equity interest in such subsidiary. The amended Credit Agreement contains a financial covenant that requires the Company and its subsidiaries to maintain a total leverage ratio (defined as net debt to adjusted EBITDA) not to exceed 3.50 to 1.00.

As amended, the Credit Agreement includes customary events of default, including a change in control and a cross-default on the Company’s material indebtedness. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company and its subsidiaries’ assets, and its obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries.

At March 31, 2016, the Company did not have any borrowings under the Credit Agreement.

12

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 3—Stock-based Compensation

The Company's 2015 Equity Incentive Plan (the “2015 Plan”) provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and performance cash awards to employees, directors and consultants. The number of shares available for issuance under the 2015 Plan may be increased annually by an amount equal to the lesser of 7,050,000 shares of common stock, 5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or such other amount as determined by the Company's Board of Directors. The Board of Directors approved an increase of 2,814,083 shares available for issuance under the 2015 Plan as of January 4, 2016. Any awards issued under the 2015 Plan that are forfeited by the participant will become available for future grant under the 2015 Plan. The number of shares of the Company’s common stock initially reserved for issuance under the 2015 Plan equaled the sum of 14,100,000 shares plus up to 12,653,075 shares reserved for issuance or subject to outstanding awards under the 2006 Stock Plan. At March 31, 2016, 17,549,262 shares were authorized under the 2015 Plan, and 15,130,321 shares were available for future grant.

In the three months ended March 31, 2016, we granted nonqualified stock options and RSUs to eligible participants. Options have a term of 10 years. For both options and RSUs, vesting is typically over a four-year period and is contingent upon continued employment with the Company on each vesting date.  In general, for newly-hired employees, options generally vest 25% after the first year of service and ratably each month over the remaining 36-month period. In general, for current employees who receive an additional grant, options vest ratably each month over a 48-month period. In general, for newly-hired employees, RSUs vest 25% after the first year following the vesting commencement date, which is the first day of the fiscal quarter closest to the date of grant, and then vest ratably each quarter over the remaining 12-quarter period. In general, for current employees who receive an additional grant, RSUs vest ratably each quarter over a 16-quarter period following the vesting commencement date, which is the first day of the fiscal quarter closest to the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the inputs below. Prior to the IPO, the Company utilized equity valuations based on comparable publicly-traded companies, discounted free cash flows, an analysis of the Company's enterprise value and any other factors deemed relevant in estimating the fair value of its common stock. Subsequent to the IPO, the Company has used the closing price of its common stock on Nasdaq as the fair value of its common stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatilities are based on implied volatilities from market comparisons of certain publicly traded companies and other factors. The expected term of stock options granted has been determined using the simplified method, which uses the midpoint between the vesting date and the contractual term. The requisite service period is generally four years from the date of grant. The fair value of RSUs is determined based on the closing price of the Company's common stock on Nasdaq on the grant date.

The fair value of options granted in each year using the Black-Scholes pricing model has been based on the following assumptions:

	Three Months Ended   March 31,
	2015	2016
Volatility	40.4% - 42.7%	44.2% - 44.6%
Risk-free interest rate	1.3% - 1.3%	1.5% - 1.9%
Expected term (in years)	5.58 - 6.08	6.02 - 6.08
Dividend rate	—%	—%

13

Etsy, Inc.

Notes to Consolidated Financial Statements

The following table summarizes the activity for the Company's options:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2015	11,068,859		$	6.94
Granted	1,012,402		8.35
Exercised	(446,395	)	2.74
Forfeited/Cancelled	(194,650	)	11.21
Outstanding at March 31, 2016	11,440,216		7.18		7.08	$	32,991,516
Total exercisable at March 31, 2016	7,102,871		5.13		6.12	29,646,421
Total vested and expected to vest at March 31, 2016	10,994,483		7.02		7.02	32,718,638

The weighted-average grant date fair value of options granted in the three months endedMarch 31, 2015 and March 31, 2016 was $7.19 and $3.69, respectively. The total intrinsic value of options exercised in the three months endedMarch 31, 2015 and March 31, 2016 was $6.7 million and $2.4 million, respectively, and the total fair value of awards vested in the three months endedMarch 31, 2015 and March 31, 2016 was $2.1 million and $3.3 million, respectively. The total unrecognized compensation at March 31, 2016 was $16.9 million, which will be recognized over a weighted-average period of 2.7 years.

The following table summarizes the activity for the Company's unvested RSUs:

	Shares		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	395,846		$	13.70
Granted	1,253,657		8.31
Vested	(3,500	)	11.49
Forfeited/Cancelled	(23,195	)	12.35
Unvested at March 31, 2016	1,622,808		9.56
Total expected to vest at March 31, 2016	1,421,340		9.54

The total unrecognized compensation at March 31, 2016 was $12.6 million, which will be recognized over a weighted-average period of 3.8 years.

Total stock-based compensation expense included in the consolidated statements of operations is as follows (in thousands):

	Three Months Ended   March 31,
	2015		2016
Cost of revenue	$	408	$	200
Marketing	103		178
Product development	544		857
General and administrative	2,919		2,002
Total stock-based compensation expense	$	3,974	$	3,237

The total stock-based compensation expense in the three months ended March 31, 2015 and 2016 includes $1.8 million and $0.7 million in acquisition-related stock-based compensation expense, respectively.

Note 4—Income Taxes

In January 2015, the Company implemented an updated global corporate structure to more closely align with its global operations and future expansion plans outside of the United States. The new structure changed how the Company uses its intellectual property and implemented certain intercompany arrangements. The Company believes this may eventually result in a reduction in its overall effective tax rate and other operational efficiencies. The revised structure resulted in the setup of a

14

Etsy, Inc.

Notes to Consolidated Financial Statements

deferred tax liability in the amount of $66.0 million on the taxable gain created in the transaction. A deferred charge was recorded for the same amount representing the future income tax which will be amortized into income tax expense over five years. During the three months ended March 31, 2015 and March 31, 2016, $7.9 million and $9.5 million, respectively, was recorded to income tax expense.

The amount of unrecognized tax benefits, included within “Other liabilities” on the consolidated balance sheets, increased $0.4 million in the three months ended March 31, 2016, from $22.2 million at December 31, 2015 to $22.6 million at March 31, 2016. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $9.0 million at March 31, 2016.

Note 5—Fair Value Measurements

The Company has characterized its investments in marketable securities, 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 sheet 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 liabilities where values are derived from techniques in which one or more significant inputs are unobservable.

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and March 31, 2016 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3) (in thousands):

	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
Asset
Cash equivalents:
Money market funds	$	212,390	$	—	$	—	$	212,390
U.S. Government bills	3		—		—		3
	212,393		—		—		212,393
Short-term investments:
U.S. Government and agency bills	21,620		—		—		21,620
	$	234,013	$	—	$	—	$	234,013
Liability
Acquisition–related contingent consideration classified as liability	$	—	$	—	$	2,357	$	2,357
	$	—	$	—	$	2,357	$	2,357

15

Etsy, Inc.

Notes to Consolidated Financial Statements

	As of March 31, 2016
	Level 1		Level 2		Level 3		Total
Asset
Cash equivalents:
Money market funds	$	90,411	$	—	$	—	$	90,411
U.S. Government bills	4,515		—		—		4,515
	94,926		—		—		94,926
Short-term investments:
Commercial paper	—		20,938		—		20,938
Corporate bonds	—		54,014		—		54,014
U.S. Government and agency bills	32,292		—		—		32,292
Yankee bonds	—		4,053		—		4,053
	32,292		79,005		—		111,297
Long-term investments:
Corporate bonds	—		3,035		—		3,035
U.S. Government and agency bills	9,026		—		—		9,026
	9,026		3,035		—		12,061
	$	136,244	$	82,040	$	—	$	218,284
Liability
Acquisition–related contingent consideration classified as liability	$	—	$	—	$	2,773	$	2,773
	$	—	$	—	$	2,773	$	2,773

Level 1 instruments include money market funds and AAA-rated U.S. Government and agency securities, which are valued based on inputs including quotes from broker-dealers or recently executed transactions in the same or similar securities.

Level 2 instruments include fixed-income funds consisting of investments in commercial paper, corporate bonds and yankee bonds, which are valued 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 instruments include contingent consideration classified as liability in connection with the acquisition of ALM. The contingent consideration is classified as liability due to its affiliation with a related put option, which will expire upon vesting of the underlying consideration, and its fair value is determined based on the fair value of the Company's common stock at the period-end reporting date.

The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3) (in thousands):

	Three Months Ended   March 31,
	2016
Balance at beginning of period	$	2,357
Acquired	—
Changes to liability-classified stock awards	416
Settled	—
Balance at end of period	$	2,773

16

Etsy, Inc.

Notes to Consolidated Financial Statements

Note 6—Marketable Securities

Short- and long-term investments consist of marketable securities that are available-for-sale. The cost and fair value of available-for-sale securities were as follows as of the dates indicated (in thousands):

	Cost		Gross Unrealized Holding Loss			Gross Unrealized Holding Gain		Fair Value
December 31, 2015
U.S. Government and agency bills	$	21,636	$	(16	)	$	—	$	21,620
	$	21,636	$	(16	)	$	—	$	21,620
March 31, 2016
Commercial paper	$	20,938	$	—		$	—	$	20,938
Corporate bonds	56,982		(5		)	72		57,049
U.S. Government and agency bills	41,310		(5		)	13		41,318
Yankee bonds	4,052		—			1		4,053
	$	123,282	$	(10	)	$	86	$	123,358

The Company’s investments in marketable securities consist primarily of investments in fixed-income funds, money market funds, and AAA-rated U.S. Government and agency bills. When evaluating investments for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market value. The Company evaluates fair values for each individual security in the investment portfolio.

Note 7—Net (Loss) Income Per Share

The following table presents the calculation of basic and diluted net (loss) income per share for periods presented (in thousands, except share and per share data):

	Three Months Ended   March 31,
	2015			2016
Numerator:
Net (loss) income	$	(36,586	)	$	1,192
Net income allocated to participating securities under the two-class method	—			(7		)
Net (loss) income applicable to common stockholders	$	(36,586	)	$	1,185
Denominator:
Weighted average common shares outstanding—basic (1)	43,703,508			112,129,470
Common equivalent shares from options to purchase common stock and restricted stock units	—			3,161,056
Dilutive effect of assumed conversion of warrants	—			78,040
Weighted average common shares outstanding—diluted (1)	43,703,508			115,368,566
Net (loss) income per share applicable to common stockholders—basic	$	(0.84	)	$	0.01
Net (loss) income per share applicable to common stockholders—diluted	$	(0.84	)	$	0.01

(1) 618,718 shares of unvested restricted stock are considered participating securities and are excluded from basic and diluted common shares outstanding.

17

Etsy, Inc.

Notes to Consolidated Financial Statements

The following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:

	Three Months Ended   March 31,
	2015	2016
Stock options	12,009,423	4,394,503
Restricted stock units	—	613,861
Warrants	203,030	—
Convertible preferred stock	53,448,243	—
Total anti-dilutive securities	65,660,696	5,008,364

Note 8—Segment and Geographic Information

Revenue by country is based on the billing address of the seller. The following table summarizes revenue by geographic area (in thousands):

	Three Months Ended   March 31,
	2015		2016
United States	$	45,752	$	63,041
International	12,791		18,806
Revenue	$	58,543	$	81,847

No individual international country’s revenue exceeded 10% of total revenue.

Note 9—Contingencies

Tax Contingencies

The Company had reserves of $2.6 million and $2.7 million at December 31, 2015 and March 31, 2016, respectively, for certain non-income tax obligations, representing management’s best estimate of its potential liability.

The Company could also be subject to examination in various jurisdictions related to income tax and non-income tax matters. The resolution of these types of matters, if in excess of the recorded reserve, could have an adverse impact on the Company’s business.

Legal Proceedings

On May 13, 2015, a purported securities class action complaint (Altayyar v. Etsy, Inc., et al., Docket No. 1:15-cv-02785) was filed in the United States District Court for the Eastern District of New York against the Company and certain officers. The complaint was brought on behalf of a purported class consisting of all persons or entities who purchased or otherwise acquired shares of the Company's common stock from April 16, 2015 through and including May 10, 2015. It asserted violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false or misleading statements and omissions with respect to, among other things, merchandise for sale on the Company's website that may be counterfeit or constitute trademark or copyright infringement. 

On October 22, 2015, the court appointed a lead plaintiff and lead plaintiff’s counsel. On January 21, 2016, lead plaintiff filed an amended class action complaint alleging false or misleading statements or omissions with respect to substantially the same topics as the original complaint. The amended complaint adds certain outside directors and underwriters as defendants, expands the purported class period to be April 16, 2015 to August 4, 2015, inclusive, and asserts violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as well as Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The amended complaint seeks certification as a class action and unspecified compensatory damages plus interest and attorneys' fees. The

18

Etsy, Inc.

Notes to Consolidated Financial Statements

Company and the named officers and directors intend to defend themselves vigorously against this action. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

On July 21, 2015, a purported securities class action complaint (Cervantes v. Dickerson, et.al., Case No. CIV 534768) was filed in the Superior Court of State of California, County of San Mateo, against the Company, certain officers, directors and underwriters. The complaint asserts violations of Sections 11 and 15 of the Securities Act of 1933.  As in the Altayyar litigation, the complaint alleges misrepresentations in the Company’s Registration Statement on Form S-1 and Prospectus with respect to, among other things, merchandise for sale on the Company's website that may be counterfeit or constitute trademark or copyright infringement. The complaint seeks certification as a class action and unspecified compensatory damages plus interest and attorneys' fees.

On November 5, 2015, another purported securities class action complaint (Weiss v. Etsy et al., No. CIV 536123) was filed in the Superior Court of State of California, County of San Mateo. The Weiss complaint names as defendants the Company and the same officers, directors and underwriters named in the Cervantes complaint, and also asserts violations of Sections 11 and 15 of the Securities Act of 1933 based on allegedly false or misleading statements or omissions with respect to, among other things, merchandise for sale on the Company's website that may be counterfeit or constitute trademark or copyright infringement. On December 24, 2015, the court consolidated the Cervantes and Weiss actions. The Company and the named officers and directors intend to defend themselves vigorously against these consolidated actions. On February 3, 2016, the court granted the Company’s motion to stay the consolidated actions. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

In addition, 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, regardless of their success, could have an adverse effect on the Company’s consolidated results of operations or cash flows in the period the claims or litigation are resolved. As of March 31, 2016, the Company does not believe that there are any material litigation exposures relating to these other claims.

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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 consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2016. This discussion, particularly information with respect to our outlook, 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 on Form 10-Q, particularly in the “Risk Factors” section, and in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting our Performance” in our Annual Report on Form 10-K.

Overview

We operate a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods. Our business model is based on shared success: we make money when Etsy sellers make money. 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 Etsy 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 Etsy sellers to purchase shipping labels through our platform. Other revenue includes the fees we receive from a third-party payment processor and funds the Company receives from a third-party service provider for unused Etsy gift cards.

As of March 31, 2016, through our innovative, technology-based platform, we connected a community of 1.6 million active Etsy sellers and 25.0 million active Etsy buyers, in nearly every country in the world. In the three months endedMarch 31, 2016, Etsy sellers generated GMS of $629.9 million, of which slightly more than 47% came from purchases made on mobile devices. We are a global company and 30.3% of our GMS in the three months endedMarch 31, 2016 came from an Etsy seller or an Etsy buyer outside of the United States.

We completed our initial public offering (the “IPO”) of our common stock on April 21, 2015.

Key Operating and Financial Metrics

We collect and analyze operating and financial data to evaluate the health of our ecosystem, allocate our resources (such as capital, time and technology investments) and assess the performance of our business. In addition to revenue, net (loss) income and other results under GAAP, the key operating and financial metrics we use are:

	Three Months Ended   March 31,
	2015			2016
	(in thousands, except percentages)
GMS	$	531,915		$	629,853
Adjusted EBITDA	$	6,673		$	14,751
Active sellers	1,428			1,603
Active buyers	20,837			25,027
Percent mobile visits	59		%	63		%
Percent mobile GMS	43		%	47		%
Percent international GMS	30.5		%	30.3		%

20

GMS

Gross merchandise sales, or GMS, is the dollar value of items sold in our marketplace within the applicable period, excluding shipping fees and net of refunds associated with cancelled transactions. GMS does not represent revenue earned by us. GMS relates only to Marketplace activity and does not reflect Seller Services activity. However, because our revenue and cost of revenue depend significantly on the dollar value of items sold in our marketplace, we believe that GMS is an indicator of the success of Etsy sellers, the satisfaction of Etsy buyers, the health of our ecosystem and the scale and growth of our business.

Adjusted EBITDA

Adjusted EBITDA represents our net (loss) income adjusted to exclude: interest and other non-operating expense, net; provision for income taxes; depreciation and amortization; stock-based compensation expense; net unrealized gain on warrant and other liabilities; foreign exchange loss (gain); and our contributions to Etsy.org. See “Non-GAAP Financial Measures” for additional information regarding our use of Adjusted EBITDA, including its limitations as a financial measure, and for a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable financial measure calculated in accordance with GAAP.

Active Sellers

An active seller is an Etsy seller who has incurred at least one charge from us in the last 12 months. Charges include transaction fees, listing fees and fees for Direct Checkout, Promoted Listings, Shipping Labels and Wholesale enrollment. An Etsy seller is someone who has created an account and has listed an item in our marketplace. An Etsy seller is identified by a unique e-mail address; a single person can have multiple Etsy seller accounts. We succeed when Etsy sellers succeed, so we view the number of active sellers as a key indicator of the awareness of our brand, the reach of our platform, the potential for growth in GMS and revenue and the health of our ecosystem.

Active Buyers

An active buyer is an Etsy buyer who has made at least one purchase in the last 12 months. An Etsy buyer is someone who has created an account in our marketplace. An Etsy buyer is identified by a unique e-mail address; a single person can have multiple Etsy buyer accounts. We succeed when Etsy buyers order items from Etsy sellers, so we view the number of active buyers as a key indicator of our potential for growth in GMS and revenue, the reach of our platform, awareness of our brand, the engagement and loyalty of Etsy buyers and the health of our ecosystem.

Mobile Visits

A visit represents activity from a unique browser or mobile app. A visit ends after 30 minutes of activity. A mobile visit is a visit that occurs on a mobile device, such as a tablet or a smartphone. Etsy sellers are increasingly using mobile devices to manage their listings and track their business performance on our platform. In addition, Etsy buyers increasingly use mobile devices to search, browse and purchase items on our platform. We view percent mobile visits as a key indicator of the level of engagement of Etsy sellers and Etsy buyers on our mobile website and mobile apps and of our ability to sustain GMS and revenue.

Mobile GMS

Mobile GMS is GMS that occurs on a mobile device, such as a tablet or a smartphone. Mobile GMS excludes orders initiated on mobile devices but ultimately completed on a desktop. We believe that mobile GMS indicates our success in converting mobile activity into mobile purchases and demonstrates our ability to grow GMS and revenue.

International GMS

International GMS is GMS from transactions where either the billing address for the Etsy seller or the shipping address for the Etsy buyer at the time of sale is outside of the United States. We believe that international GMS shows the level of engagement of our community outside the United States and demonstrates our ability to grow GMS and revenue.

21

Results of Operations

The following tables show our results of operations for the periods presented and express the relationship of certain line items as a percentage of revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results. For more information regarding the components of our results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Our Results of Operations” in the Annual Report, which we incorporate by reference.

	Three Months Ended   March 31,
	2015			2016
	(in thousands)
Revenue:
Marketplace	$	30,151		$	35,730
Seller Services	27,279			43,533
Other	1,113			2,584
Total revenue	58,543			81,847
Cost of revenue	20,709			27,911
Gross profit	37,834			53,936
Operating expenses:
Marketing	12,210			15,847
Product development	10,009			12,230
General and administrative	20,457			19,076
Total operating expenses	42,676			47,153
(Loss) income from operations	(4,842		)	6,783
Other (expense) income, net	(21,019		)	8,023
(Loss) income before income taxes	(25,861		)	14,806
Provision for income taxes	(10,725		)	(13,614		)
Net (loss) income	$	(36,586	)	$	1,192
	Three Months Ended   March 31,
	2015			2016
Revenue:
Marketplace	51.5		%	43.7		%
Seller Services	46.6			53.2
Other	1.9			3.2
Total revenue	100.0			100.0
Cost of revenue	35.4			34.1
Gross profit	64.6			65.9
Operating expenses:
Marketing	20.9			19.4
Product development	17.1			14.9
General and administrative	34.9			23.3
Total operating expenses	72.9			57.6
(Loss) income from operations	(8.3		)	8.3
Other (expense) income, net	(35.9		)	9.8
(Loss) income before income taxes	(44.2		)	18.1
Provision for income taxes	(18.3		)	(16.6		)
Net (loss) income	(62.5		)	1.5

22

Comparison of Three Months EndedMarch 31, 2015 and 2016

Revenue

	Three Months Ended March 31,						Change
	2015			2016			$		%
	(in thousands, except percentages)
Revenue:
Marketplace	$	30,151		$	35,730		$	5,579	18.5	%
Percentage of total revenue	51.5		%	43.7		%
Seller Services	$	27,279		$	43,533		$	16,254	59.6	%
Percentage of total revenue	46.6		%	53.2		%
Other	$	1,113		$	2,584		$	1,471	132.2	%
Percentage of total revenue	1.9		%	3.2		%
Total revenue	$	58,543		$	81,847		$	23,304	39.8	%

GMS increased $97.9 million, or 18.4%, to $629.9 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

During the three months ended March 31, 2016, mobile GMS increased as a percentage of total GMS to slightly more than 47%, up from approximately 43% for the three months ended March 31, 2015, as a result of increased mobile traffic and, to a lesser extent, improvements in our mobile offerings for Etsy buyers. We believe that we will continue to see the gap between mobile visits and mobile GMS narrow in 2016. 

For the three months ended March 31, 2016, international GMS decreased as a percentage of total GMS to 30.3%, from 30.5% for the three months ended March 31, 2015. We expect our percent international GMS to remain stable in 2016, assuming that currencies remain stable compared to average levels in December 2015. We continue to believe that we can grow international GMS, over time, to represent 50% of total GMS, and that the impact of currency exchange rates contributed to the slight year-over-year decline in percent international GMS.

In the three months ended March 31, 2016, approximately 11% of GMS was from goods that were not listed in U.S. dollars and, as a result, was impacted by currency exchange fluctuations. On a currency-neutral basis, GMS growth for the three months ended March 31, 2016 would have been 19.1%, or approximately 0.7 percentage points higher than the as-reported 18.4% growth. As we begin to anniversary the major gains of the U.S. dollar against global currencies, it is more difficult to estimate the indirect impact of currency exchange rates on international buyer behavior and GMS growth. We believe, however, that the continued decline of GMS between international buyers and U.S. sellers, which was down approximately 11% year-over-year in the first quarter, is indicative of the ongoing impact of currency valuation.

Revenue increased $23.3 million, or 39.8%, to $81.8 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015, of which 43.7% of the total consisted of Marketplace revenue and 53.2% consisted of Seller Services revenue. Additionally, we recognized $1.7 million in revenue from accumulated unused gift card funds received from our third-party service provider during the first quarter of 2016. Excluding this one-time payment, revenue would have increased 36.9% in the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

Marketplace revenue increased $5.6 million, or 18.5%, to $35.7 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015. This growth corresponded with an 18.4% increase in GMS to a total of $629.9 million for the three months ended March 31, 2016. As our GMS increased, our Marketplace revenue increased, primarily due to growth in transaction fee revenue and, to a lesser extent, an increase in listing fee revenue. Active sellers increased 12.3% to 1.6 million and active buyers increased 20.1% to 25.0 million for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

Seller Services revenue increased $16.3 million, or 59.6%, to $43.5 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015. The growth in Seller Services revenue was primarily driven by an increase in revenue from Direct Checkout, which continued to benefit from the integration of Paypal. Seller Services revenue also benefited from the growth in revenue from Promoted Listings and Shipping Labels. The increase in Promoted Listings revenue was due to higher click volume and overall product enhancements. The increase in Shipping Label revenue reflects a combination of an increase in the number of Etsy sellers using the service and an increase in average margin per label. Seller Services revenue continued to outpace growth in Marketplace revenue in the first quarter of 2016. We expect Seller Services

23

revenue related to our existing offerings to continue to grow in 2016, driven by increased adoption and product enhancements. Additionally, we expect to see contributions to revenue related to new product launches and types of Seller Services, including Pattern by Etsy, which enables sellers to create their own custom websites and launched early in the second quarter of this year. We do not expect the incremental revenue related to new product launches and types of Seller Services, including Pattern by Etsy, to be material in comparison to total revenue in 2016.

Other revenue increased 132.2% to $2.6 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015, mainly due to the recognition of $1.7 million in revenue from accumulated unused gift card funds received from our third-party service provider. This represents the cumulative value of gift cards that the third-party service provider has concluded are not likely to be redeemed. Future unused gift card revenue will be recognized monthly as earned and is not anticipated to be significant in future periods.

Cost of Revenue

	Three Months Ended March 31,						Change
	2015			2016			$		%
	(in thousands, except percentages)
Cost of revenue	$	20,709		$	27,911		$	7,202	34.8	%
Percentage of total revenue	35.4		%	34.1		%

Cost of revenue increased $7.2 million, or 34.8%, to $27.9 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015, primarily as a result of additional costs to support the increase in Direct Checkout revenue and, to a lesser extent, an increase in employee-related costs. Cost of revenue decreased as a percentage of revenue due to the leverage we achieved in costs related to our technology infrastructure and employee-related costs as well as the impact of gift card revenue.

Operating Expenses

There were 852 total employees on March 31, 2016, compared with 819 on December 31, 2015. We expect our number of net hires in the three months ended June 30, 2016 to increase as compared to both the three months ended March 31, 2016 and June 30,2015.

Marketing

	Three Months Ended March 31,						Change
	2015			2016			$		%
	(in thousands, except percentages)
Marketing	$	12,210		$	15,847		$	3,637	29.8	%
Percentage of total revenue	20.9		%	19.4		%

Marketing expenses increased $3.6 million, or 29.8%, to $15.8 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015, primarily as a result of an increase in spending on product listing ads and affiliate marketing campaigns and employee-related expenses in our marketing team, which includes our public relations, communications and seller development teams. During the second quarter of 2016 we expect to accelerate our pace of marketing spend compared with the first quarter. Overall in 2016, we expect marketing expenses as a percentage of revenue to decline, which will create leverage in our operating cost structure.

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Product development

	Three Months Ended March 31,						Change
	2015			2016			$		%
	(in thousands, except percentages)
Product development	$	10,009		$	12,230		$	2,221	22.2	%
Percentage of total revenue	17.1		%	14.9		%

Product development expenses increased $2.2 million, or 22.2%, to $12.2 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015, primarily as a result of an increase in employee-related expenses in our product and engineering teams.

General and administrative

	Three Months Ended March 31,						Change
	2015			2016			$			%
	(in thousands, except percentages)
General and administrative	$	20,457		$	19,076		$	(1,381	)	(6.8	)%
Percentage of total revenue	34.9		%	23.3		%

General and administrative expenses decreased $1.4 million, or 6.8%, to $19.1 million in the three months ended March 31, 2016 compared to the three months ended March 31, 2015, primarily driven by a one-time contribution of $3.2 million to Etsy.org during the first quarter of 2015. Removing the impact of this contribution, general and administrative expenses would have increased 10.5%, driven by an increase in professional services mainly related to compliance with Sarbanes-Oxley and rent expense related to new office locations. We also benefited from a mark-to-market adjustment that lowered our stock-based compensation expense related to the acquisition of ALM in the three months ended March 31, 2016 compared to the three months ended March 31, 2015. We expect general and administrative expenses as a percent of revenue will increase in 2016 as compared to 2015 driven by expenses associated with our new headquarters and Sarbanes-Oxley compliance.

Other (Expense) Income, net

	Three Months Ended March 31,						Change
	2015			2016			$		%
	(in thousands, except percentages)
Other (expense) income, net	$	(21,019	)	$	8,023		$	29,042	(138.2	)%
Percentage of total revenue	(35.9		)%	9.8		%

Other expense, net was $21.0 million in the three months ended March 31, 2015 mainly due to a foreign exchange loss largely made up of a non-cash unrealized currency loss due to intercompany debt in connection with the revised global corporate structure that we implemented on January 1, 2015. Other income, net was $8.0 million in the three months ended March 31, 2016 mainly due to a foreign exchange gain related to the same structure.

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Provision for Income Taxes

	Three Months Ended March 31,						Change
	2015			2016			$			%
	(in thousands, except percentages)
Provision for income taxes	$	(10,725	)	$	(13,614	)	$	(2,889	)	26.9	%
Percentage of total revenue	(18.3		)%	(16.6		)%

Our income tax provision for the three months ended March 31, 2015 and March 31, 2016 was $10.7 million and $13.6 million, respectively. The primary driver of our income tax provision was the tax expense related to our updated corporate structure of $7.9 million and $9.5 million in the three months ended March 31, 2015 and 2016, respectively. Other drivers include forecasted pretax income, the disallowance of the benefit of losses in certain foreign jurisdictions, the mix of income and losses in jurisdictions with a wide range of tax rates, and the amount of non-deductible stock-based compensation expense.

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Non-GAAP Financial Measures

Adjusted EBITDA

In this quarterly report, we provide Adjusted EBITDA, a non-GAAP financial measure that represents our net (loss) income adjusted to exclude: interest and other non-operating expense, net; provision for income taxes; depreciation and amortization; stock-based compensation expense; net unrealized gain on warrant and other liabilities; foreign exchange loss (gain) and contributions to Etsy.org. Below is a reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP financial measure.

We have included Adjusted EBITDA because it is a key measure used by our management and board of directors to evaluate our operating performance and trends, allocate internal resources, prepare and approve our annual budget, develop short- and long-term operating plans and assess the health of our business. As our Adjusted EBITDA increases, we are able to invest more in our platform.

We believe that Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our business as it removes the impact of certain non-cash items and certain variable charges.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

• Adjusted EBITDA does not consider the impact of stock-based compensation expense or changes in the fair value of warrants;

• Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;

• Adjusted EBITDA does not consider the impact of foreign exchange loss (gain);

• Adjusted EBITDA does not reflect other non-operating expenses, net of other non-operating income, including net interest expense (income);

• Adjusted EBITDA does not reflect the impact of our contributions to Etsy.org; and

• other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net (loss) income and our other GAAP results.

The following table reflects the reconciliation of net (loss) income to Adjusted EBITDA for each of the periods indicated:

	Three Months Ended March 31,
	2015			2016
	(in thousands)
Net (loss) income	$	(36,586	)	$	1,192
Excluding:
Interest and other non-operating expense, net	178			97
Provision for income taxes	10,725			13,614
Depreciation and amortization	4,341			4,731
Stock-based compensation expense	2,133			2,581
Stock-based compensation expense—acquisitions	1,841			656
Net unrealized gain on warrant and other liabilities	(12		)	—
Foreign exchange loss (gain)	20,853			(8,120		)
Contribution to Etsy.org	3,200			—
Adjusted EBITDA	$	6,673		$	14,751

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Liquidity and Capital Resources

The following table shows our cash and cash equivalents, short- and long-term investments, accounts receivable and working capital:

	As of March 31,
	2016
	(in thousands)
Cash and cash equivalents	$	158,381
Short-term investments	111,297
Accounts receivable, net	19,249
Long-term investments	12,061
Working capital	263,253

As of March 31, 2016, our cash and cash equivalents, a majority of which were held in cash deposits and money market funds, were held for working capital purposes and to invest in the build-out of our new Brooklyn, New York headquarters and other capital expenditures related to new office spaces globally to support the growth in our business and operations. Through March 31, 2016, we have invested approximately $20 million into the new Brooklyn, New York headquarters. As planned, we intend to invest up to a total of $50 million in build-out costs.

During the first quarter of 2016, our short- and long-term investments, a majority of which were held in fixed-income funds and AAA-rated U.S. Government and agency securities, increased as the result of our investment of excess working capital funds into short-term instruments aligned with our investment strategy. These investments are intended to allow us to preserve our principal, maintain the ability to meet our liquidity needs, deliver positive yields and continue to provide us with direct fiduciary control. All investments have maturities no longer than 24 months, with the average maturity of these investments maintained at 12 months or less.

We believe that our existing cash and cash equivalents and short- and long-term investments, together with cash generated from operations and available borrowing capacity under our Credit Agreement (described below under "Credit Facility"), will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in our "Risk Factors" in this report and in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting our Performance” in our Annual Report on Form 10-K.

Sources of Liquidity

On April 21, 2015, we completed our initial public offering, or IPO, in which we issued and sold 13,333,333 shares of common stock at a public offering price of $16.00 per share. We received net proceeds of $194.4 million after deducting underwriting discounts of $13.9 million and other offering expenses of approximately $5.1 million. These expenses were recorded against the proceeds received from the IPO. In addition, we incurred approximately $300,000 in IPO-related expenses not deductible from IPO proceeds.

Credit Facility

In May 2014, we entered into a $35.0 million senior secured revolving credit facility pursuant to a Revolving Credit and Guaranty Agreement with several lenders, or the Credit Agreement. In March 2015, we amended the Credit Agreement to increase the credit facility to $50.0 million. In December 2015, we amended the Credit Agreement to clarify certain provisions relating to permitted investments and to make other immaterial updates. As amended, the Credit Agreement will mature in May 2019. The amended Credit Agreement includes a letter of credit sublimit of $10.0 million and a swingline loan sublimit of $15.0 million. A description of the terms of the Credit Agreement is included in “Note 2—Debt” in the Notes to Consolidated Financial Statements.

As of May 5, 2016, no amounts have been drawn under the Credit Agreement.

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Historical Cash Flows

	Three Months Ended   March 31,
	2015			2016
	(in thousands)
Cash provided by (used in):
Operating activities	$	8,895		$	1,786
Investing activities	(6,625		)	(114,426		)
Financing activities	1,675			253

Net Cash Provided by Operating Activities

Our cash flows from operations are largely dependent on the amount of revenue generated on our platform. Net cash provided by operating activities in each period presented has been influenced by changes in accounts receivable, funds receivable and customer accounts, prepaid expenses and other current assets, accounts payable and accrued liabilities, and funds payable and amounts due to customers.

Net cash provided by operating activities was $1.8 million in the three months ended March 31, 2016, as a result of the net income of $1.2 million, depreciation and amortization expense, stock-based compensation expense, foreign exchange loss, amortization of deferred tax charges and other non-cash charges of $8.9 million and changes in our operating assets and liabilities that used $8.3 million in cash.

Net cash provided by operating activities was $8.9 million in the three months ended March 31, 2015, as a result of the net loss of $36.6 million, depreciation and amortization expense, stock-based compensation expense and other non-cash charges of $38.9 million and changes in our operating assets and liabilities that provided $6.6 million in cash.

Net Cash Used in Investing Activities

During the first quarter of 2016, we made a significant investment of our excess cash balances into short- and long-term marketable securities. Our other primary investing activities consisted of capital expenditures, including investments in website development and internal-use software and purchases of property and equipment to support our overall business growth. Investments in website development and internal-use software and purchases of property and equipment may vary from period to period due to timing of the expansion of our operations.

Net cash used in investing activities was $114.4 million in the three months ended March 31, 2016. This was primarily attributable to net purchases of marketable securities of $101.4 million and $13.0 million in capital expenditures, including $10.9 million for purchases of property and equipment and $2.1 million for website development and internal-use software.

Net cash used in investing activities was $6.6 million in the three months ended March 31, 2015. This was primarily attributable to $4.3 million in capital expenditures, including $2.4 million for website development and internal-use software and $1.9 million for purchases of property and equipment and net purchases of marketable securities of $2.3 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $0.3 million in the three months ended March 31, 2016. This was primarily attributable to proceeds from the exercise of stock options of $1.2 million, and excess tax benefit from the exercise of stock options of $1.0 million, offset by payments on capitalized lease obligations of $1.3 million and a deferred payment related to the acquisition of ALM of $0.6 million.

Net cash provided by financing activities was $1.7 million in the three months ended March 31, 2015. This was primarily attributable to the excess tax benefit from the exercise of stock options of $2.5 million and proceeds from the exercise of stock options of $1.2 million, offset by payments related to our public offering of $1.5 million and payments on capitalized lease obligations of $0.5 million.

Off Balance Sheet Arrangements

As of March 31, 2016, we did not have any off balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

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Contractual Obligations

There were no material changes in commitments under contractual obligations, compared to the contractual obligations disclosed in the Annual Report.

Unrecognized tax benefits totaled $22.2 million and $22.6 million at December 31, 2015 and March 31, 2016, respectively. While the ultimate resolution and timing of these unrecognized tax positions are uncertain, we do not expect this balance to significantly increase or decrease over the next twelve months.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with revenue recognition, income taxes, website development costs and internal-use software, price allocations for business combinations, valuation of goodwill and intangible assets, leases and stock-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no changes in our significant accounting policies, which are disclosed in “Note 1—Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the Annual Report.

Recent Accounting Pronouncements

Under the JOBS Act, we meet the definition of an emerging growth company. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In May 2014, the Financial Accounting Standards Board, or FASB issued an accounting standards update that replaces existing revenue recognition guidance. The new guidance is effective for annual and interim periods beginning after December 15, 2017. Among other things, the updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We are currently evaluating the effect the guidance will have on our consolidated financial statements.

In August 2014, the FASB issued an accounting standard update under which management will be required to assess an entity’s ability to continue as a going concern and provide related disclosures in certain circumstances. The new guidance is effective for annual and interim periods beginning after December 15, 2016. The adoption of this guidance is not expected to have an impact on our consolidated financial statements or disclosures.

In April 2015, the FASB issued an accounting standard under which customers will apply the same criteria as vendors to determine whether a cloud computing arrangement contains a software license or is solely a service contract. The new standard is effective for annual and interim periods beginning after December 15, 2015. We have adopted this guidance in the first quarter of 2016 noting no material impact to our current period consolidated financial statements.

In August 2015, the FASB issued an accounting standard update to address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The guidance affirms our treatment of such costs, which is to defer and present the debt issuance costs as an asset and subsequently amortize the costs over the term of the line-of-credit arrangement. The new standard is effective for annual and interim periods beginning after December 15, 2015. We have adopted this guidance in the first quarter of 2016 noting no impact to our current period consolidated financial statements.

In September 2015, the FASB issued an accounting standard update that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The new guidance is

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effective for annual and interim periods beginning after December 15, 2015. We have adopted this guidance in the first quarter of 2016 noting no impact to our current period consolidated financial statements.

In February 2016, the FASB issued an accounting standard update that requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. The new guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the effect the guidance will have on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard update for share-based payment transactions that require a reporting entity to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement. The new guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted for financial statements as of the beginning of an interim or annual reporting period. We are currently evaluating the effect the guidance will have on our consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Management believes there have been no material changes to our quantitative and qualitative disclosures about market risks during the three months ended March 31, 2016, compared to those discussed in the Annual Report, except as described below.

Currency Risk

Most of our sales are denominated in U.S. dollars, and therefore, our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, and may be subject to fluctuations due to changes in currency exchange rates, particularly changes in the Pound Sterling and Euro. Fluctuations in currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. On January 1, 2015, we implemented a revised corporate structure to more closely align our structure with our global operations and future expansion plans outside of the United States, which resulted in a U.S. dollar-denominated intercompany debt on a Euro-denominated ledger that may be subject to continued currency exchange rate risk. A 10% increase or decrease in current exchange rates could result in an increase or decrease to currency exchange (loss) gain of $28.4 million.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2016. “Disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to the company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016 at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) or 15d-15(d) of the Exchange Act during the first quarter of 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

See “Note 9—Contingencies—Legal Proceedings” in the Notes to Consolidated Financial Statements.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, our consolidated financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance” in our Annual Report on Form 10-K and the other information in this Quarterly Report on Form 10-Q. If any of these risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. As a result, the price of our common stock could decline and you could lose part or all of your investment.

Risks Related to Our Business and Industry

We have a history of operating losses and we may not achieve or maintain profitability in the future.

We generated net income of $1.2 million for the three months ended March 31, 2016 and incurred losses of $54.1 million, $15.2 million and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of March 31, 2016, we had an accumulated deficit of $85.2 million. We may not achieve or maintain profitability in the future. We expect that our operating expenses will increase substantially as we hire additional employees, increase our marketing efforts, expand our operations and continue to invest in the development of our platform, including new services and features for our community. These efforts may be more costly than we expect and our revenue may not increase sufficiently to offset these additional expenses. In addition, our revenue may decline for a number of reasons, including those described in these Risk Factors.

Further, our revenue growth rate, particularly our marketplace revenue, may continue to decelerate in the future for a number of reasons, including the gradual deceleration of our GMS growth rate. For further information about the rate of revenue and GMS growth, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Revenue.” You should not rely on growth rates of prior quarterly or annual periods as an indication of our future performance.

Our quarterly operating results may fluctuate, which could cause our stock price to decline.

Our quarterly operating results, as well as our key metrics, may fluctuate for a variety of reasons, many of which are beyond our control. These reasons include those described in these Risk Factors as well as the following:

• fluctuations in revenue generated from Etsy sellers on our platform, including as a result of the seasonality of marketplace transactions and Etsy sellers’ use of Seller Services;

• our success in attracting and retaining Etsy sellers and Etsy buyers;

• the amount and timing of our operating expenses;

• the timing and success of new services and features we introduce;

• our success in executing on our four key strategies;

• the impact of competitive developments and our response to those developments;

• our ability to manage our existing business and future growth;

• disruptions or defects in our marketplace, such as privacy or data security breaches;

• the impact of our revised global corporate structure that was implemented on January 1, 2015; and

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• economic and market conditions, such as currency fluctuations.

Fluctuations in our quarterly operating results and key metrics may cause those results to fall below our own financial projections or the expectations of analysts or investors, which could cause the price of our common stock to decline. Fluctuations in our results could also cause a number of other problems. For example, analysts or investors might change their models for valuing our common stock, we could experience short-term liquidity issues, our ability to retain or attract key personnel may diminish and other unanticipated issues may arise.

In addition, we believe that our quarterly operating results and key metrics may vary in the future and that period-to-period comparisons of our operating results may not be meaningful. For example, our overall historical growth rate may have overshadowed the effect of seasonal variations on our historical operating results. These seasonal effects may become more pronounced over time, which could also cause our operating results and key metrics to fluctuate. You should not rely on the results of one quarter as an indication of future performance.

Our growth depends on our ability to attract and retain an active and engaged community of Etsy sellers and Etsy buyers.

Our financial performance has been and will continue to be significantly determined by our success in attracting and retaining active sellers and active buyers. For example, our revenue is driven by the number of active sellers, seller engagement, the number of active buyers, buyer engagement and our ability to maintain a trusted marketplace. We must continue to encourage Etsy sellers to list items for sale and use our Seller Services and encourage Etsy buyers to purchase items in our marketplace.

We believe that many new Etsy sellers and Etsy buyers find Etsy by word of mouth and other non-paid referrals from existing Etsy sellers and Etsy buyers. If existing Etsy sellers are dissatisfied with their experience on our platform, they may stop listing items in our marketplace and may stop referring others to us. Likewise, if existing Etsy buyers do not find our platform appealing, whether because of a negative experience, lack of buyer-friendly features, declining interest in the nature of the goods offered by Etsy sellers or other factors, they may make fewer purchases and they may stop referring others to us. Under these circumstances, we may have difficulty attracting new Etsy sellers and Etsy buyers without incurring additional marketing expense.

Even if we are able to attract new Etsy sellers and Etsy buyers to replace the ones that we lose, they may not maintain the same level of activity, and the revenue generated from new Etsy sellers and Etsy buyers may not be as high as the revenue generated from the ones who leave our marketplace. If we are unable to retain existing Etsy sellers and Etsy buyers and attract new Etsy sellers and Etsy buyers who contribute to an active community, our growth prospects could be harmed and our business could be adversely affected.

The trustworthiness of our marketplace and the connections within our community are important to our success. If we are unable to maintain them, our ability to attract and retain Etsy sellers and Etsy buyers could suffer.

We have built a trusted marketplace that embodies our values-based culture, emphasizing respect, direct communication and fun. Our reputation depends upon our Etsy sellers, their unique offerings and their adherence to our policies. We establish trust in our marketplace in a variety of ways. For example, our policies are designed to encourage transparency and clearly outline the rights and responsibilities of Etsy sellers, Etsy buyers, wholesale partners and manufacturing partners participating on our platform. We strive to give the Etsy buyer comfort that she is purchasing unique goods from a small business that adheres to certain principles. Our Integrity team uses a combination of machine learning, automated systems and community-generated flags to review items and shops that may violate our policies. We also have sophisticated tools to detect fraud and we strive to prohibit bad actors from using our platform. We ask our large wholesale retail partners to agree to the Etsy Wholesale Retailer Commitments, which are a set of guidelines to follow when working with Etsy sellers and are intended to foster relationships that lead to mutual success. In addition, manufacturers who apply to join Etsy Manufacturing must commit to ethical expectations and to operating a safe and just workplace, with transparency and reliable customer service.

Transparency is one of our core values and Etsy's transparency with our community helps to support the trustworthiness of our marketplace. For example, we publish an annual Progress Report that details our progress toward our ideals and shares our hopes for the years to come. In 2015, we also released a Transparency Report, which, among other things, describes the steps we take when items that do not meet our guidelines are listed on our platform, or when listed items are alleged to infringe third party rights.

We also establish trust by emphasizing the person behind every transaction. We deepen connections among members of our community through our direct communication tools, seller stories on our website and our in-person events, which highlight

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personal relationships as a key part of the Etsy experience. For example, Etsy sellers are encouraged to share their stories and use new tools, such as shop videos, to reach Etsy buyers on our platform and on social media. We also recognize that sometimes transactions don’t always go as planned. When that happens, our Case System provides a way for Etsy sellers and Etsy buyers to communicate with each other to resolve disputes.

We also encourage our employees to build meaningful connections with other members of our community. For example, each of our employees, including management, is expected to perform support rotations to help foster connections with Etsy sellers and Etsy buyers and to help us better understand their needs.

The trustworthiness of our marketplace and the connections among the members of our community are the cornerstones of our business. Many things could undermine these cornerstones, such as:

• complaints or negative publicity about us, our platform, or our policies and guidelines, even if factually incorrect or based on isolated incidents;

• an inability to gain the trust of prospective buyers;

• lack of awareness of our policies;

• changes to our policies that members of our community perceive as inconsistent with our values or that are not clearly articulated;

• a failure to enforce our policies effectively, fairly and transparently, including, for example, by allowing the widespread listing of prohibited items in our marketplace;

• a failure to respond to feedback from our community; or

• a failure to operate our business in a way that is consistent with our values.

If we are unable to maintain a trustworthy marketplace and encourage connections among members of our community, then our ability to attract and retain Etsy sellers and Etsy buyers could be impaired and our reputation and business could be adversely affected.

Adherence to our values and our focus on long-term sustainability may negatively influence our short- or medium-term financial performance.

Our values are integral to everything we do. Accordingly, we intend to focus on the long-term sustainability of our business, our ecosystem and expanding the Etsy Economy, which is one of our key strategies. We may take actions that we believe will benefit our business and our ecosystem and, therefore, our stockholders over a longer period of time, even if those actions do not maximize short- or medium-term financial results. However, these longer-term benefits may not materialize within the timeframe we expect or at all. For example:

• we may choose to prohibit the sale of items in our marketplace that we believe are inconsistent with our values even though we could benefit financially from the sale of those items;

• we may choose to revise our policies in ways that we believe will be beneficial to our community and our ecosystem in the long term even though the changes may be perceived unfavorably; or

• we may take actions, such as investing in alternative forms of shipping or locating our servers in low-impact data centers, that reduce our environmental footprint even though these actions may be more costly than other alternatives.

We are a Certified B Corporation. The term “Certified B Corporation” does not refer to a particular form of legal entity, but instead refers to companies that are certified by B Lab, an independent nonprofit organization, as meeting rigorous standards of social and environmental performance, accountability and transparency. B Lab sets the standards for Certified B Corporation certification and may change those standards over time. These standards may not be appropriately tailored to the legal requirements of publicly-traded companies or to the operational requirements of larger companies. Our reputation could be harmed if we lose our status as a Certified B Corporation, whether by our choice or by our failure to meet B Lab’s certification requirements, if that change in status were to create a perception that we are more focused on financial performance and are no longer as committed to the values shared by Certified B Corporations. Likewise, our reputation could be harmed if our publicly

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reported B Corporation score declines and that created a perception that we have slipped in our satisfaction of the Certified B Corporation standards. Similarly, our reputation could be harmed if we take actions that are perceived to be misaligned with our values.

Expanding our community into markets outside of the United States is an important part of our strategy and the growth of our business could be harmed if our expansion efforts do not succeed.

Our vision is global and local and building local marketplaces globally is one of our key strategies. Although we have a significant number of Etsy sellers and Etsy buyers outside of the United States, we have limited experience in developing local markets outside the United States and may not execute our strategy successfully. Operating in markets outside of the United States also requires significant management attention, including managing and staffing operations over a broad geographic area with varying cultural norms and customs, and adapting our platform to local markets.

Despite our execution efforts, the nature of the goods that Etsy sellers list in our marketplace may not appeal to non-U.S. consumers in the same way as they do to consumers in the United States. In addition, non-U.S. buyers are not as familiar with our marketplace and brand as buyers in the United States and may not perceive us as relevant or trustworthy. Also, visits to our marketplace from Etsy buyers outside the United States may not convert into sales as often as visits from within the United States, including due to the impact of the strong U.S. dollar relative to other currencies and the fact that a majority of the goods listed on our marketplace are denominated in U.S. dollars. Our success in markets outside the United States will be linked to our ability to attract local Etsy sellers and Etsy buyers to our platform. If we are not able to expand into markets outside of the United States successfully, our growth prospects could be harmed.

Competition is also likely to intensify in the international markets where we operate and plan to expand our operations. Local companies based in markets outside the United States may have a substantial competitive advantage because of their greater understanding of, and focus on, those local markets. Some of our competitors may also be able to develop and grow in international markets more quickly than we will.

Continued expansion in markets outside of the United States may also require significant financial investment. These investments include marketing to attract and retain new Etsy sellers and Etsy buyers, developing localized services and payment processing functions, forming relationships with third-party service providers, supporting operations in multiple countries and potentially acquiring companies based outside the United States and integrating those companies with our operations. Our investment in markets outside of the United States may be more costly than we expect and our revenue may not increase sufficiently to offset these additional expenses.

Further expansion into markets outside of the United States will subject us to risks associated with operations abroad.

Doing business in markets outside of the United States subjects us to increased risks and burdens such as:

• complying with different regulatory standards (particularly including those related to the use of personal information, payment processing, intellectual property, consumer protection and taxation of goods and services);

• fluctuations of foreign exchange rates;

• potentially heightened risk of fraudulent transactions;

• limitations on the repatriation of funds;

• exposure to liabilities under anti-corruption, anti-money laundering and export control laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the UK Bribery Act of 2010, trade controls and sanctions administered by the U.S. Office of Foreign Assets Control, and similar laws and regulations in other jurisdictions;

• varying levels of Internet, e-commerce and mobile technology adoption and infrastructure;

• our ability to enforce contracts and intellectual property rights in jurisdictions outside the United States; and

• barriers to international trade, such as tariffs or other taxes.

Etsy sellers face similar risks in conducting their businesses across borders. Even if we are successful in managing the risks of conducting our business across borders, if Etsy sellers are not, our business could be adversely affected.

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If we invest substantial time and resources to expand our operations outside of the United States and cannot manage these risks effectively, the costs of doing business in those markets may be prohibitive or our expenses may increase disproportionately to the revenue generated in those markets.

We expect to continue to increase our marketing efforts to help grow our business, but those efforts may not be effective at attracting new Etsy sellers and Etsy buyers and retaining existing Etsy sellers and Etsy buyers.

Maintaining and promoting awareness of our marketplace and broader platform is important to our ability to attract and retain Etsy sellers and Etsy buyers. We believe that much of the historical growth in the number of Etsy sellers and Etsy buyers has originated from word-of-mouth referrals and other organic means, as our historical marketing efforts and expenditures have been relatively limited. We intend to continue to invest significant resources in marketing, with a particular focus on bringing more Etsy buyers to our platform. We anticipate that our marketing initiatives may become increasingly expensive as competition increases, and generating a meaningful return on those initiatives may be difficult. Even if we successfully increase revenue as a result of these efforts, that additional revenue may not offset the expenses we incur.

The marketing efforts we implement may not succeed for a variety of reasons, including our inability to execute and implement our plans. External factors beyond our control may also impact the success of our marketing initiatives. Our marketing efforts currently include search engine marketing, affiliate marketing, and display advertising, as well as search engine optimization, social media usage, mobile “push” notifications and email. We obtain a significant number of visits via search engines such as Google, Bing and Yahoo!. Search engines frequently change the algorithms that determine the ranking and display of results of a user’s search and may make other changes to the way results are displayed, which can negatively affect the placement of links to our marketplace and, therefore, reduce the number of visits to our marketplace. The growing use of online ad-blocking software, including on mobile devices, may also impact the success of our marketing efforts because we may reach a smaller audience and fail to bring more Etsy buyers to our platform. We also obtain a significant number of visits through email advertising. If we are unable to successfully deliver emails to Etsy sellers and Etsy buyers, or if Etsy sellers and Etsy buyers do not open our emails, whether by choice, because those emails are marked as low priority or spam, or for other reasons, our business could be adversely affected. Social networking websites, such as Facebook and Pinterest, are another important source of visits to our marketplace. As online commerce and social networking continue to evolve, we must maintain a presence within these networks. We may be unable to develop or maintain such a presence.

Our payments system depends on third-party providers and is subject to evolving laws and regulations.

Etsy buyers primarily pay for purchases using Direct Checkout or PayPal. In the United States and other countries where Direct Checkout is available, Etsy buyers can use Direct Checkout on our platform to pay with credit cards, debit cards, bank transfers, PayPal, and, in certain markets, Apple Pay, Google Wallet and Etsy gift cards, rather than being directed to a third-party payment platform. A significant portion of our GMS is processed through Direct Checkout, and a portion of our revenue is derived from Direct Checkout.

We have engaged third-party service providers to perform underlying compliance, card processing, currency exchange, identity verification and fraud analysis services. If these service providers do not perform adequately or if our relationships with these service providers were to terminate, Etsy sellers’ ability to receive orders or payment could be adversely affected and our business would be harmed. In addition, if these providers increase the fees they charge us, our operating expenses could increase. Alternatively, if we respond by increasing the fees we charge to Etsy sellers, some Etsy sellers may stop using Direct Checkout, stop listing new items for sale or even close their accounts altogether.

The laws and regulations related to payments are complex and subject to change, and vary across different jurisdictions in the United States and globally. As a result, we are required to spend significant time and effort to comply with those laws and regulations. Any failure or claim of our failure to comply, or any failure by our third-party service providers to comply, could cost us substantial resources, could result in liabilities, or could force us to stop offering Direct Checkout. As we expand the availability of Direct Checkout or offer new payment methods to Etsy sellers and Etsy buyers in the future, we may become subject to additional regulations and compliance requirements.

Further, through our agreement with our third-party credit card processor, we are indirectly subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard, which are subject to change. We are also subject to rules governing electronic funds transfers. Any change in these rules and requirements could make it difficult or impossible for us to comply.

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Our ability to expand our ecosystem is important to the growth of our business.

We spend substantial time and resources creating new offerings in order to add new members to our community, grow our ecosystem and open new sales channels for Etsy sellers. For example, in October 2013, we expanded our ecosystem by allowing Etsy sellers to apply to work with values-aligned manufacturers and in September 2015 we announced the preliminary launch of Etsy Manufacturing, a marketplace to help Etsy sellers find and connect directly with manufacturers to form responsible partnerships.

Additionally, in August 2014, we added traditional retailers to our ecosystem with the launch of our Wholesale offering, which allows Etsy sellers to sell their products to retailers on our platform.

Our efforts to expand our ecosystem could fail for many reasons, including lack of acceptance of our offerings by existing or new members of our community, our failure to market our offerings effectively, defects or errors in our new offerings or negative publicity about us or our new offerings.

Diversifying our offerings, expanding our ecosystem and growing the Etsy Economy involve significant risk. For example, our initiatives may not drive increases in revenue, may require substantial investment and planning, and may bring us more directly into competition with companies that are better established or have greater resources than we do. We may be required to invest additional time and resources in the development and training of our existing community, particularly our employees who will help implement our expansion efforts. If we are unable to cost-effectively expand our ecosystem, then our growth prospects and competitive position may be harmed.

We must enhance our current offerings and develop new offerings to respond to the changing needs of Etsy sellers and Etsy buyers.

Our industry is characterized by rapidly changing technology, new service and product introductions and changing customer demands. We spend substantial time and resources understanding the needs of Etsy sellers and Etsy buyers and responding to them. For example, we enhance our Seller Services, search and discovery functionality and the member experience on a regular basis. We also focus on providing additional Seller Services and tools to help Etsy sellers manage and scale their businesses. For example, in 2015, we introduced calculated shipping, which helps automate the most time-consuming aspects of determining shipping costs for Etsy sellers. In addition, we enhanced Direct Checkout by integrating PayPal payments, which enables Etsy sellers to accept PayPal on our platform and reach more Etsy buyers. In addition, in 2016, we introduced Pattern by Etsy, which enables Etsy sellers to create their own custom websites, Shop Home, a product that brings a new modern look and feel to Etsy with each shop's landing page, and Shop Videos, a tool that allows Etsy sellers to record, edit and share videos about themselves and their shops with Etsy buyers. Offering high-impact Seller Services is one of our key strategies.

Etsy sellers and Etsy buyers may not be satisfied with our enhancements or new offerings or may perceive that these offerings do not respond to their needs. In addition, developing new services and features is complex, and the timetable for commercial release is difficult to predict and may vary from our historical experience. As a result, the introduction of new offerings may occur after anticipated release dates or they may be introduced as pilot programs, which may not be continued for various reasons. Our new offerings also may bring us more directly into competition with companies that are better established or have greater resources than we do.

If we do not continue to cost-effectively develop new offerings that satisfy Etsy sellers and Etsy buyers, then our competitive position and growth prospects may be harmed. In addition, new offerings may have lower margins than existing offerings and our revenue from the new offerings may not be enough to offset the cost of developing them.

If the mobile solutions available to Etsy sellers and Etsy buyers are not effective, the use of our platform could decline.

Making Etsy an everyday experience is one of our key strategies and starts with mobile. Visits and purchases made on mobile devices by consumers, including Etsy buyers, have increased significantly in recent years. The smaller screen size and reduced functionality associated with some mobile devices may make the use of our platform more difficult or less appealing. Visits to our marketplace on mobile devices may not convert into purchases as often as visits made through personal computers, which could result in less revenue for us. Etsy sellers are also increasingly using mobile devices to operate their businesses on our platform. If we are not able to deliver a rewarding experience on mobile devices, Etsy sellers’ ability to manage and grow their businesses may be harmed and, consequently, our business may suffer. Further, although we strive to provide engaging mobile experiences for both Etsy sellers and Etsy buyers who visit our mobile website using a browser on their mobile device, we depend on Etsy sellers and Etsy buyers downloading our mobile apps to provide them the optimal mobile experience.

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As new mobile devices and mobile platforms are released, we may encounter problems in developing or supporting apps for them. In addition, supporting new devices and mobile device operating systems may require substantial time and resources.

The success of our mobile apps could also be harmed by factors outside our control, such as:

• actions taken by providers of mobile operating systems or mobile app download stores;

• unfavorable treatment received by our mobile apps, especially as compared to competing apps, such as the placement of our mobile apps in a mobile app download store;

• increased costs to distribute or use our mobile apps; or

• changes in mobile operating systems, such as iOS and Android, that degrade the functionality of our mobile website or mobile apps or that give preferential treatment to competitive products.

If Etsy sellers and Etsy buyers encounter difficulty accessing or using our platform on their mobile devices, or if they choose not to use our platform on their mobile devices, our growth prospects and our business may be adversely affected.

We rely on consumer discretionary spending and may be adversely affected by economic downturns and other macroeconomic conditions or trends.

Macroeconomic conditions may adversely affect our business. If general economic conditions deteriorate in the United States or other markets where we operate, consumer discretionary spending may decline and demand for the goods available in our marketplace may be reduced. This would cause sales in our marketplace to decline and adversely impact our business. Conversely, if recent trends supporting self-employment and the desire for supplemental income were to reverse, the number of Etsy sellers offering their goods in our marketplace could decline and the number of goods listed in our marketplace could decline. In addition, we believe that currency exchange rates are dampening the demand from buyers outside the United States for goods denominated in U.S. dollars, which is impacting our GMS. As of March 31,2016, approximately 89% of our GMS was denominated in U.S. dollars.

Even without changes in economic conditions, the demand for the goods listed in our marketplace is dependent on consumer preferences. Consumer preferences can change quickly and may differ across generations and cultures.

If demand for the goods that Etsy sellers offer in our marketplace declines, our business would be harmed. Trends in socially-conscious consumerism and buying locally could also shift or slow to the detriment of our business. Our growth prospects would also be hampered if the shift to online and mobile commerce does not continue.

We face intense competition and may not be able to compete effectively.

Our industry is highly competitive and we expect competition to increase in the future. To be successful, we need to attract and retain both Etsy sellers and Etsy buyers. As a result, we face competition from a wide range of online and offline competitors.

We compete with retailers for Etsy sellers. In addition to listing her goods for sale on Etsy, an Etsy seller can list her goods with other online retailers, such as Amazon, eBay or Alibaba, or sell her goods through local consignment and vintage stores and other venues or marketplaces. She may also sell wholesale directly to traditional retailers, including large national retailers, who discover her goods in our marketplace or otherwise. We also compete with companies that sell software and services to small businesses, enabling an Etsy seller to sell from her own website or otherwise run her business independently of our platform, such as Square, Intuit and Shopify.

We compete to attract, engage and retain Etsy sellers based on many factors, including:

• our brand awareness;

• the global scale of our marketplace and the breadth of our online presence;

• the number and engagement of Etsy buyers;

• the extent to which our Seller Services can ease the administrative tasks that an Etsy seller might encounter in running her business, including through mobile apps;

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• our seller education resources and tools;

• our policies and fees;

• the ability to scale her business through our manufacturing program;

• our mobile apps;

• the strength of our community; and

• our values.

In addition, we compete with retailers for the attention of the Etsy buyer. An Etsy buyer has the choice of shopping with any online or offline retailer, whether large marketplaces, such as Amazon, eBay or Alibaba, or national retail chains, such as Pottery Barn or Target, or local consignment and vintage stores or other venues or marketplaces. Many of these competitors offer low-cost or free shipping, fast shipping times, favorable return policies and other features that may be difficult or impossible for Etsy sellers to match.

We compete to attract, engage and retain Etsy buyers based on many factors, including:

• the unique goods that Etsy sellers list in our marketplace;

• our brand awareness;

• the person-to-person commerce experience;

• our reputation for trustworthiness;

• our mobile apps;

• ease of payment; and

• the availability and reliability of our platform.

Many of our competitors and potential competitors have longer operating histories, greater resources, better name recognition or more customers than we do.

They may invest more to develop and promote their services than we do, and they may offer lower fees to sellers than we do. Further, our competitors could obtain preferential rates or shipping services, causing Etsy sellers and Etsy buyers to pay higher shipping costs or find alternative delivery services. Additionally, we believe that it is relatively easy for new businesses to create online commerce offerings or tools or services that enable entrepreneurship.

Local companies or more established companies based in markets where we operate outside of the United States may also have a better understanding of local customs, providing them a competitive advantage. For example, in certain markets outside the United States, we compete with smaller, but similar, local online marketplaces with a focus on unique goods that are attempting to attract sellers and buyers in those markets.

If we are unable to compete successfully, or if competing successfully requires us to expend significant resources in response to our competitors’ actions, our business could be adversely affected.

We rely on Etsy sellers to provide a fulfilling experience to Etsy buyers.

A small portion of Etsy buyers complain to us about their experience with our platform. For example, Etsy buyers may report that they have not received the items that they purchased, that the items received were not as represented by an Etsy seller or that an Etsy seller has not been responsive to their questions.

Although our Case System provides a way for Etsy sellers and Etsy buyers to communicate with each other to resolve disputes, negative publicity and sentiment generated as a result of these types of complaints could reduce our ability to attract and retain Etsy sellers and Etsy buyers or damage our reputation. A perception that our levels of responsiveness and support for Etsy

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sellers and Etsy buyers are inadequate could have similar results. In some situations, we may choose to reimburse Etsy buyers for their purchases to help avoid harm to our reputation, but we may not be able to recover the funds we expend for those reimbursements.

Anything that prevents the timely processing of orders or delivery of goods to Etsy buyers could harm Etsy sellers. Service interruptions and delivery delays may be caused by events that are beyond the control of Etsy sellers, such as interruptions in order or payment processing, transportation disruptions, natural disasters, inclement weather, terrorism, public health crises or political unrest. Disruptions in the operations of a substantial number of Etsy sellers could also result in negative experiences for a substantial number of Etsy buyers, which could harm our reputation and adversely affect our business.

Our reputation may be harmed if members of our community use unethical business practices.

Our emphasis on our values makes our reputation particularly sensitive to allegations of unethical business practices by Etsy sellers or other members of our community. Our policies promote legal and ethical business practices, such as encouraging Etsy sellers to work only with manufacturers who do not use child or involuntary labor, who do not discriminate and who promote sustainability and humane working conditions. However, we do not control Etsy sellers or other members of our community or their business practices and cannot ensure that they comply with our policies. If members of our community engage in illegal or unethical business practices or are perceived to do so, we may receive negative publicity and our reputation may be harmed.

Failure to deal effectively with fraud could harm our business.

Although we have measures in place to detect and reduce the occurrence of fraudulent activity in our marketplace, those measures may not always be effective.

For example, Etsy sellers occasionally receive orders placed with fraudulent or stolen credit card data. Under current credit card practices, we could be held liable for orders placed through Direct Checkout with fraudulent credit card data even if the associated financial institution approved the credit card transaction. Although we attempt to detect or challenge fraudulent transactions, we may not be able to do so effectively. As a result, our business could be adversely affected. We could also incur significant fines or lose our ability to give the option of paying with credit cards if we fail to follow payment card industry data security standards or fail to limit fraudulent transactions conducted in our marketplace.

Negative publicity and sentiment resulting from fraudulent or deceptive conduct by members of our community or the perception that our levels of responsiveness and support for Etsy sellers and Etsy buyers are inadequate could reduce our ability to attract and retain Etsy sellers and Etsy buyers and damage our reputation.

If sensitive information about members of our community is misused or disclosed, or if we or our third-party providers are subject to cyber attacks, members of our community may curtail use of our platform, we may be exposed to liability and our reputation could suffer.

We collect, transmit and store personal and financial information provided by members of our community, such as names, email addresses, the details of transactions and credit card and other financial information. Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to some confidential and sensitive data. In an effort to protect sensitive information, we rely on a variety of security measures, including encryption and authentication technology licensed from third parties. However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability to adequately protect sensitive information. The preventive measures we take to address these risks are costly and may become more costly in the future.

Like all online services, our platform is vulnerable to power outages, telecommunications failures and catastrophic events, as well as computer viruses, break-ins, phishing attacks, denial-of-service attacks and other cyber attacks. Any of these incidents could lead to interruptions or shutdowns of our platform, loss of data or unauthorized disclosure of personally identifiable or other sensitive information. Cyber attacks could also result in the theft of our intellectual property. As we gain greater public visibility, we may face a higher risk of being targeted by cyber attacks. Advances in computer capabilities, new technological discoveries or other developments may result in cyber attacks becoming more sophisticated and more difficult to detect. We and our third-party service providers may not have the resources or technical sophistication to anticipate or prevent all such cyber attacks. Moreover, techniques used to obtain unauthorized access to systems change frequently and may not be known until launched against us or our third-party service providers. Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or employees of our third-party service providers.

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We and our third-party service providers regularly experience cyber attacks aimed at disrupting our and our third-party service providers’ services. If we or our third-party service providers experience security breaches that result in marketplace performance or availability problems or the loss or unauthorized disclosure of sensitive information, people may become unwilling to provide us the information necessary to set up an account with us. Existing Etsy sellers and Etsy buyers may stop listing new items for sale, decrease their purchases or close their accounts altogether. We could also face potential liability, costly remediation efforts and litigation, which may not be adequately covered by insurance. Any of these results could harm our growth prospects, our business and our reputation.

Our business depends on network and mobile infrastructure provided by third parties and on our ability to maintain and scale the technology underlying our platform.

The reliability of our platform is important to our reputation and our ability to attract and retain Etsy sellers and Etsy buyers. As the number of Etsy sellers and Etsy buyers, volume of traffic, number of transactions and the amount of information shared on our platform grow, our need for additional network capacity and computing power will also grow. The operation of the technology underlying our platform is expensive and complex, and we could experience operational failures. If we fail to accurately predict the rate or timing of the growth of our platform, we may be required to incur significant additional costs to maintain reliability.

We also depend on the development and maintenance of the Internet and mobile infrastructure. This includes maintenance of reliable Internet and mobile networks with the necessary speed, data capacity and security, as well as timely development of complementary products.

Third-party providers host much of our technology infrastructure. Any disruption in their services, or any failure of our providers to handle the demands of our marketplace could significantly harm our business. We exercise little control over these providers, which increases our vulnerability to their financial conditions and to problems with the services they provide. If we experience failures in our technology infrastructure or do not expand our technology infrastructure successfully, then our ability to attract and retain Etsy sellers and Etsy buyers could be adversely affected, which could harm our growth prospects and our business.

Our ability to recruit and retain employees is important to our success.

We strive to attract, retain and motivate employees, from our office administrators to our management team, who share our dedication to our community and our mission. As we continue to grow, we cannot guarantee we will continue to attract the employees we need to maintain our competitive position.

Some of the challenges we face in attracting and retaining employees include:

• preserving our company culture as we grow;

• continuing to attract and retain employees who share our values;

• promoting existing employees into leadership positions to help sustain and grow our culture;

• hiring employees in multiple locations globally;

• responding to competitive pressures and changing business conditions in ways that do not divert us from our values; and

• integrating new personnel and businesses from acquisitions.

Our ability to attract, retain and motivate employees, including our management team, is important to our success. In general, our employees, including our management team, work for us on an at-will basis. The unexpected loss of or failure to retain one or more of our key employees, such as our CEO or CFO, could adversely affect our business. Other companies, including our competitors, may be successful in recruiting and hiring our employees, and it may be difficult for us to find suitable replacements on a timely basis or on competitive terms.

Filling engineering, product management and other technical positions in the New York City area is particularly challenging, especially in light of our distinctive technology philosophy and engineering culture. Qualified individuals are limited and in high demand, and we may incur significant costs to attract, develop and motivate them. Even if we were to offer higher compensation and other benefits, people with suitable technical skills may choose not to join us or to continue to work for us. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with

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their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we are not able to maintain our engineering culture and broader company culture, then our ability to recruit and retain employees could suffer and our business would be harmed.

The growth of our business may strain our management team and our operational and financial infrastructure.

We have experienced rapid growth in our business, such as in headcount, the number of Etsy sellers and the number of countries in which we have Etsy sellers and Etsy buyers and we plan to continue to grow in the future, both in the United States and abroad. For example, our headcount has grown from 251 employees on December 31, 2011 to852 employees on March 31, 2016. The growth of our business places significant demands on our management team and pressure to expand our operational and financial infrastructure. As we continue to grow, our operating expenses will increase. If we do not manage our growth effectively, the increases in our operating expenses could outpace any increases in our revenue and our business could be harmed.

Continued growth could also pose other challenges, such as the need to develop and improve our operational, financial and management controls and to enhance our reporting systems and procedures. For example, over the past several years we have been implementing and refining an enterprise resource planning, or ERP, system to enhance a variety of important functions such as invoicing, accounts receivable, accounts payable, foreign currency translation, financial consolidation and internal and external financial and management reporting matters. ERP system implementations are complex, long-term projects that involve substantial expenditures. To fully realize the benefits of our ERP system we have made and may continue to make changes to our business and financial processes. Our business may be harmed if our ERP system does not function as expected or does not result in the expected benefits.

We may expand our business through acquisitions of other businesses, which may divert management’s attention and/or prove to be unsuccessful.

We have acquired a number of other businesses in the past and may acquire additional businesses or technologies in the future. For example, in April 2014 we acquired Jarvis Labs, Inc. (d/b/a Grand St.) and in June 2014 we acquired Incubart SAS (d/b/a A Little Market). Acquisitions may divert management’s time and focus from operating our business. Acquisitions also may require us to spend a substantial portion of our available cash, incur debt or other liabilities, amortize expenses related to intangible assets or incur write-offs of goodwill or other assets. In addition, integrating an acquired business or technology is risky. Completed and future acquisitions may result in unforeseen operational difficulties and expenditures associated with:

• incorporating new businesses and technologies into our infrastructure;

• consolidating operational and administrative functions;

• coordinating outreach to our community;

• maintaining morale and culture and retaining and integrating key employees;

• maintaining or developing controls, procedures and policies (including effective internal control over financial reporting and disclosure controls and procedures); and

• assuming liabilities related to the activities of the acquired business before the acquisition, including liabilities for violations of laws and regulations, commercial disputes, taxes and other matters.

Moreover, we may not benefit from our acquisitions as we expect, or in the time frame we expect. We also may issue additional equity securities in connection with an acquisition, which could cause dilution to our stockholders. Finally, acquisitions could be viewed negatively by analysts, investors or the members of our community.

Our business depends on continued and unimpeded access to the Internet and mobile networks.

Etsy sellers and Etsy buyers rely on access to the Internet or mobile networks to access our marketplace. Internet service providers may choose to disrupt or degrade access to our platform or increase the cost of such access. Mobile network operators or operating system providers could block or place onerous restrictions on the ability to download and use our mobile apps.

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Internet service providers or mobile network operators could also attempt to charge us for providing access to our platform. In 2015, rules approved by the Federal Communications Commission went into effect that prohibit Internet service providers from charging content providers higher rates in order to deliver their content over certain “fast traffic” lanes; however, the rules are subject to pending legal challenges and if they are overturned, our business could be adversely impacted. Outside of the United States, government regulation of the Internet, including the idea of network neutrality, may be developing or non-existent. As a result, we could face discriminatory or anti-competitive practices that could impede both our and Etsy sellers’ growth prospects, increase our costs and harm our business.

Our business is subject to a large number of U.S. and non-U.S. laws, many of which are evolving.

We are subject to a variety of laws and regulations in the United States and around the world, including those relating to traditional businesses, such as employment laws and taxation, and newer laws and regulations focused on the Internet and online commerce, such as payment systems, privacy, anti-spam, data protection, electronic contracts, intellectual property and consumer protection. These laws and regulations are continuously evolving, and compliance is costly and can require changes to our business practices and significant management time and effort. Additionally, it is not always clear how existing laws apply to the Internet as many of these laws do not address the unique issues raised by the Internet or online commerce.

For example, laws relating to online privacy are evolving differently in different jurisdictions. Federal, state and non-U.S. governmental authorities, as well as courts interpreting the laws, continue to evaluate the privacy implications of the use of third-party “cookies,” “web beacons” and other methods of online tracking. The United States, the European Union and other governments have enacted or are considering legislation that could significantly restrict the ability of companies and individuals to collect and store user information, such as by regulating the level of consumer notice and consent required before a company can employ cookies or other electronic tracking tools.

Some providers of consumer devices and web browsers have implemented, or have announced plans to implement, ways to block tracking technologies which, if widely adopted, could also result in online tracking methods becoming significantly less effective. Any reduction in our ability to make effective use of such technologies could harm our ability to personalize the experience of Etsy buyers, increase our costs and limit our ability to attract and retain Etsy sellers and Etsy buyers on cost-effective terms. As a result, our business could be adversely affected.

In some cases, non-U.S. privacy, data protection, consumer protection, e-commerce and other laws and regulations are more restrictive than those in the United States and are enforced aggressively. For example, the European Union traditionally has imposed stricter obligations and provided for more onerous penalties under such laws than the United States. Consequently, the expansion of our operations internationally may require changes to the ways we display, collect and use consumer information.

Existing and future laws and regulations enacted by federal, state or non-U.S. governments could impede the growth or use of the Internet or online commerce. It is also possible that governments of one or more countries may seek to censor content available on our platform or may even attempt to block access to our platform. If we are restricted from operating in one or more countries, our ability to attract and retain Etsy sellers and Etsy buyers may be adversely affected and we may not be able to grow our business as we anticipate.

We strive to comply with all applicable laws, but they may conflict with each other, and by complying with the laws or regulations of one jurisdiction, we may find that we are violating the laws or regulations of another jurisdiction. Despite our efforts, we may not have fully complied in the past and may not in the future. If we become liable under laws or regulations applicable to us, we could be required to pay significant fines and penalties, and we may be forced to change the way we operate. That could require us to incur significant expenses or to discontinue certain services, which could negatively affect our business.

Additionally, if third parties with whom we work violate applicable laws or our policies, those violations could result in other liabilities for us and could harm our business.

We may be subject to claims that items listed in our marketplace are counterfeit, infringing or illegal.

Although we do not create or take possession of the items listed in our marketplace by Etsy sellers, we frequently receive communications alleging that items listed in our marketplace infringe third-party copyrights, trademarks, patents or other intellectual property rights. We have intellectual property complaint and take-down procedures in place to address these communications, and we believe such procedures are important to promote confidence in our marketplace. We follow these procedures to review complaints and relevant facts to determine the appropriate action, which may include removal of the item from our marketplace and, in certain cases, closing the shops of Etsy sellers who repeatedly violate our policies.

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Our procedures may not effectively reduce or eliminate our liability. In particular, we may be subject to civil or criminal liability for activities carried out by Etsy sellers on our platform, especially outside the United States where we may be less protected under local laws than we are in the United States. Under current U.S. copyright law and the Communications Decency Act, we may benefit from statutory safe harbor provisions that protect us from liability for content posted on our platform by Etsy sellers and Etsy buyers. However, trademark and patent laws do not include similar statutory provisions, and liability for these forms of intellectual property is often determined by court decisions. These safe harbors and court rulings may change unfavorably. In that event, we may be held secondarily liable for the intellectual property infringement of Etsy sellers.

Regardless of the validity of any claims made against us, we may incur significant costs and efforts to defend against or settle them. If a governmental authority determines that we have aided and abetted the infringement or sale of counterfeit goods or if legal changes result in us potentially being liable for actions by Etsy sellers on our platform, we could face regulatory, civil or criminal penalties. Successful claims by third-party rights owners could require us to pay substantial damages or refrain from permitting any further listing of the relevant items. These types of claims could force us to modify our business practices, which could lower our revenue, increase our costs or make our platform less user-friendly. Moreover, public perception that counterfeit or other unauthorized items are common in our marketplace, even if factually incorrect, could result in negative publicity and damage to our reputation.

We may be subject to intellectual property claims, which are extremely costly to defend, could require us to pay significant damages and could limit our ability to use certain technologies in the future.

Companies in the Internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. We periodically receive communications that claim we have infringed, misappropriated or misused others’ intellectual property rights. To the extent we gain greater public recognition, we may face a higher risk of being the subject of intellectual property claims. Third-parties may have intellectual property rights that cover significant aspects of our technologies or business methods and prevent us from expanding our offerings. Any intellectual property claim against us, with or without merit, could be time consuming and expensive to settle or litigate and could divert the attention of our management. Litigation regarding intellectual property rights is inherently uncertain due to the complex issues involved, and we may not be successful in defending ourselves in such matters.

In addition, some of our competitors have extensive portfolios of issued patents. Many potential litigants, including some of our competitors and patent holding companies, have the ability to dedicate substantial resources to enforcing their intellectual property rights. Any claims successfully brought against us could subject us to significant liability for damages and we may be required to stop using technology or other intellectual property alleged to be in violation of a third party’s rights. We also might be required to seek a license for third-party intellectual property. Even if a license is available, we could be required to pay significant royalties or submit to unreasonable terms, which would increase our operating expenses. We may also be required to develop alternative non-infringing technology, which could require significant time and expense. If we cannot license or develop technology for any allegedly infringing aspect of our business, we would be forced to limit our service and may be unable to compete effectively. Any of these results could harm our business.

We may be involved in litigation matters that are expensive and time consuming.

In addition to intellectual property claims, we may become involved in other litigation matters, including class action lawsuits. For example, as described further in “Note 9—Contingencies—Legal Proceedings” in the Notes to Consolidated Financial Statements, three purported securities class action lawsuits have been filed naming Etsy and certain of our officers and/or directors as defendants. Under certain circumstances, we have contractual and other legal obligations to indemnify and to incur legal expenses on behalf of current and former directors, officers, and underwriters, in connection with the litigation described in this Quarterly Report on Form 10-Q and in connection with any future lawsuits. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our offerings or business practices. Any of these results could adversely affect our business. In addition, defending claims is costly and can impose a significant burden on our management.

We may be unable to protect our intellectual property adequately.

Our intellectual property is an essential asset of our business. To establish and protect our intellectual property rights, we rely on a combination of trade secret, copyright, trademark and, to a lesser extent, patent laws, as well as confidentiality procedures and contractual provisions. The efforts we have taken to protect our intellectual property may not be sufficient or effective. We generally do not elect to register our copyrights or the majority of our trademarks, relying instead on the laws protecting

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unregistered intellectual property, which may not be sufficient. In addition, our copyrights and trademarks, whether or not registered, and patents may be held invalid or unenforceable if challenged. While we have obtained or applied for patent protection with respect to some of our intellectual property, we generally do not rely on patents as a principal means of protecting intellectual property. To the extent we do seek patent protection, any U.S. or other patents issued to us may not be sufficiently broad to protect our proprietary technologies.

In addition, we may not be effective in policing unauthorized use of our intellectual property. Even if we do detect violations, we may need to engage in litigation to enforce our intellectual property rights. Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert our management’s attention. In addition, our efforts may be met with defenses and counterclaims challenging the validity and enforceability of our intellectual property rights or may result in a court determining that our intellectual property rights are unenforceable. If we are unable to cost-effectively protect our intellectual property rights, then our business could be harmed.

Our software is highly complex and may contain undetected errors.

The software underlying our platform is highly complex and may contain undetected errors or vulnerabilities, some of which may only be discovered after the code has been released. We rely heavily on a software engineering practice known as “continuous deployment,” meaning that we typically release software code many times per day. This practice may result in the more frequent introduction of errors or vulnerabilities into the software underlying our platform. Any errors or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of our community members, loss of revenue or liability for damages, any of which could adversely affect our growth prospects and our business.

We are subject to the terms of open source licenses because our platform incorporates open source software.

The software powering our marketplace incorporates software covered by open source licenses. In addition, we regularly contribute source code to open source software projects and release internal software projects under open source licenses, and we anticipate doing so in the future. The terms of many open source licenses have not been interpreted by U.S. courts and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our marketplace. Under certain open source licenses, we could be required to publicly release the source code of our software or to make our software available under open source licenses. To avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software. In addition, use of open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or controls on the origin of the software. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our platform. Additionally, because any software source code we contribute to open source projects is publicly available, our ability to protect our intellectual property rights in such software source code may be limited or lost entirely, and we will be unable to prevent our competitors or others from using such contributed software source code. Any of these risks could be difficult to eliminate or manage and, if not addressed, could adversely affect our business, financial condition and results of operations.

Our business and our Etsy sellers and Etsy buyers may be subject to sales and other taxes.

The application of indirect taxes, such as sales and use tax, value-added tax, or VAT, provincial taxes, goods and services tax, business tax and gross receipt tax, to businesses like ours and to Etsy sellers and Etsy buyers is a complex and evolving issue. For example, as of January 1, 2015, the European Union imposed an obligation on us to collect and remit VAT on sales of automatically-downloaded digital items, and we have implemented such collection and remittance procedures. Significant judgment is required to evaluate applicable tax obligations and as a result amounts recorded are estimates and could change. In many cases, the ultimate tax determination is uncertain because it is not clear how existing statutes apply to our business or to Etsy sellers’ businesses. One or more states, the federal government or other countries may seek to impose additional reporting, record-keeping or indirect tax collection obligations on businesses like ours that facilitate online commerce. For example, the U.S. Congress is currently considering legislation, which would grant states the authority to require online merchants to collect sales tax on online sales at the time a transaction is completed. New taxes could also require us or Etsy sellers to incur substantial costs to capture data and collect and remit taxes. If such obligations were imposed, the additional costs associated with tax collection, remittance and audit requirements could make selling in our marketplace less attractive and more costly for Etsy sellers, which could adversely affect our business.

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We may experience fluctuations in our tax obligations and effective tax rate.

We are subject to taxation in the United States and in numerous other jurisdictions. We record tax expense based on current tax payments and our estimates of future tax payments, which may include reserves for estimates of probable settlements of tax audits. At any one time, multiple tax years could be subject to audit by various taxing jurisdictions. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are re-evaluated. Further, our effective tax rate in a given financial statement period may be adversely impacted by changes in tax laws, changes in the mix of revenue among different jurisdictions, changes to accounting rules and changes to our ownership or capital structure. Fluctuations in our tax obligations and effective tax rate could adversely affect our business.

In January 2015, we implemented a revised corporate structure to more closely align our structure with our global operations and future expansion plans outside of the United States. Our new corporate structure changed how we use our intellectual property and implemented certain intercompany arrangements. We believe this may result in a reduction in our overall effective tax rate over the long term and other operational efficiencies; however, the tax laws of the jurisdictions in which we operate are subject to interpretation, and their application may depend on our ability to operate our business in a manner consistent with our corporate structure. Moreover, these tax laws are subject to change. Tax authorities may disagree with our position as to the tax treatment of our transfer of intangible assets or determine that the manner in which we operate our business does not achieve the intended tax consequences. If our new corporate structure does not achieve our expectations for any of these or other reasons, we may be subject to a higher overall effective tax rate and our business may be adversely affected.

The terms of our debt instruments may restrict our ability to pursue our business strategies.

We do not currently have any obligations outstanding under our credit facility. However, our credit facility requires us to comply with various covenants that limit our ability to take actions such as:

• disposing of assets;

• completing mergers or acquisitions;

• incurring additional indebtedness;

• encumbering our properties or assets;

• paying dividends or making other distributions;

• making specified investments; and

• engaging in transactions with our affiliates.

These restrictions could limit our ability to pursue our business strategies. If we default under our credit facility and if the default is not cured or waived, the lenders could terminate their commitments to lend to us and cause any amounts outstanding to be payable immediately. Such a default could also result in cross defaults under other debt instruments. Moreover, any such default would limit our ability to obtain additional financing, which may have an adverse effect on our cash flow and liquidity.

We may need additional capital, which may not be available to us on acceptable terms or at all.

We believe that our existing cash and cash equivalents and short-term investments, together with cash generated from operations and available borrowing capacity under our credit facility, will be enough to meet our anticipated cash needs for at least the next 12 months. However, we may require additional cash resources due to changed business conditions or other developments, such as acquisitions or investments we may decide to pursue. We may seek to borrow funds under our credit facility or sell additional equity or debt securities. The sale of additional equity securities could result in dilution to our existing stockholders. Borrowing funds would result in increased debt service obligations and could result in additional operating and financial covenants that would limit our operations. It is also possible that financing may not be available to us in amounts or on terms acceptable to us, if at all.

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If our insurance coverage is insufficient or our insurers are unable to meet their obligations, our insurance may not mitigate the risks facing our business.

Our insurance policies cover a number of risks and potential liabilities, such as general liability, property coverage, errors and omissions liability, employment liability, business interruptions, data breaches, crime, product liability and directors’ and officers’ liability. For certain types of business risk, we may not be able to, or may choose not to, acquire insurance. In addition, we may not obtain enough insurance to adequately mitigate the risks we face or we may have to pay high premiums and/or deductibles for the coverage we do obtain. Additionally, if any of our insurers becomes insolvent, it would be unable to pay any claims that we make.

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

We are an emerging growth company as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we intend to take advantage of some of the exemptions from the reporting requirements applicable to other public companies. For example, we intend to take advantage of the exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments. It is possible that investors will find our common stock less attractive as a result of our reliance on these exemptions. If so, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) in 2020, which will follow the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.0 billion or (c) in which we become a large accelerated filer, which means that we have been a public company for at least 12 months, have filed at least one annual report and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our then most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Operating as a public company requires us to incur substantial costs and requires substantial management attention. In addition, our management team has limited experience managing a public company.

As a public company, we incur substantial legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations of the Securities and Exchange Commission, or the SEC. The rules and regulations of Nasdaq also apply to us. As part of these requirements, we have established and maintained effective disclosure and financial controls and made changes to our corporate governance practices. We expect that continued compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming.

Most of our management and other personnel have little experience managing a public company and preparing public filings. In addition, our management and other personnel divert attention from other business matters to devote substantial time to the reporting and other requirements of being a public company. In particular, we expect to incur significant expense and devote substantial management effort to complying with the requirements of Section 404 of the Sarbanes-Oxley Act. We will need to continue to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.

Our management will not be required to evaluate the effectiveness of our internal control over financial reporting until December 31, 2016. If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy of our financial reports.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting. Beginning with our annual report for the year ended December 31, 2016, we will be required to provide a management report on internal control over financial reporting. In preparation of being able to provide such a report, we continue to make progress in documenting, assessing and testing our internal control over financial reporting. When we are no longer an emerging growth company, our management report on internal control over financial reporting will need to be attested to by our independent registered public accounting firm. We do not expect to have

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our independent registered public accounting firm attest to our management report on internal control over financial reporting while we are an emerging growth company.

As described in our Annual Report on Form 10-K, we previously identified two material weaknesses in our internal control over financial reporting, which we remediated as of December 31, 2015. If we have a material weakness in our internal control over financial reporting in the future, we may not detect errors on a timely basis. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we identify a material weakness in our internal control over financial reporting in the future, it could harm our operating results, cause us to fail to meet our SEC reporting obligations or Nasdaq listing requirements on a timely basis, adversely affect our reputation, cause our stock price to decline or result in inaccurate financial reporting or material misstatements in our annual or interim financial statements. Further, if there are material weaknesses or failures in our ability to meet any of the requirements related to the maintenance and reporting of our internal controls, such as Section 404 of the Sarbanes-Oxley Act, investors may lose confidence in the accuracy and completeness of our financial reports and that could cause the price of our common stock to decline. We could become subject to investigations by Nasdaq, the SEC or other regulatory authorities, which could require additional management attention and which could adversely affect our business.

In addition, our internal control over financial reporting will not prevent or detect all errors and fraud. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

Our business could be adversely affected by natural disasters, public health crises, political crises or other unexpected events.

Natural disasters and other adverse weather and climate conditions, public health crises, political crises, such as terrorist attacks, war and other political instability, or other unexpected events, could disrupt our operations, Internet or mobile networks, or the operations of one or more of our service providers. For example, when Hurricane Sandy struck New York in October 2012, although our data centers were unaffected, our headquarters in Brooklyn was closed for five days, and we experienced a heavy volume of support requests from Etsy sellers and Etsy buyers, which required us to devote additional resources to handle those requests. Events of this type could also impact Etsy sellers’ ability to continue producing goods for sale in our marketplace. In addition, such events could negatively impact consumer spending in the affected regions. If any of these events occurs, our business could be adversely affected.

Risks Related to Ownership of Our Common Stock

The price of our common stock has been and will likely continue to be volatile and declines in the price of common stock could subject us to litigation.

The price of our common stock has been and is likely to continue to be volatile. For example, since shares of our common stock were sold in our IPO in April 2015, our common stock's daily closing price on Nasdaq has ranged from a low of $6.36 to a high of $30.00 through May 5, 2016. The price of our common stock may fluctuate significantly for numerous reasons, many of which are beyond our control, such as:

• variations in our operating results and other financial and operational metrics, including the key financial and operating metrics disclosed in this Annual Report, as well as how those results and metrics compare to analyst and investor expectations;

• forward-looking statements related to our financial projections, our failure to meet or exceed our financial projections or changes in our financial projections;

• failure of analysts to initiate or maintain coverage of our company, changes in their estimates of our operating results or changes in recommendations by analysts that follow our common stock or a negative view of our financial projections;

• announcements of new services or enhancements, strategic alliances or significant agreements or other developments by us or our competitors;

• announcements by us or our competitors of mergers or acquisitions or rumors of such transactions involving us or our competitors;

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• changes in our board of directors, management or other key personnel;

• disruptions in our marketplace due to hardware, software or network problems, security breaches or other issues;

• the strength of the global economy or the economy in the jurisdictions in which we operate, currency fluctuations, and market conditions in our industry and those affecting members of our community;

• trading activity by our principal stockholders, including upon the expiration of contractual lock-up agreements, and sales of large blocks of our common stock;

• the number of shares of our common stock that are available for public trading;

• litigation or other claims against us;

• the performance of the equity markets in general and in our industry;

• the operating performance of other similar companies;

• changes in legal requirements relating to our business; and

• any other factors discussed in this report.

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. Stock prices of many technology companies have historically been highly volatile. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities class action litigation. For example, as described further in “Note 9—Contingencies—Legal Proceedings” in the Notes to Consolidated Financial Statements, three purported securities class action lawsuits have been filed naming Etsy and certain of our officers and/or directors as defendants. We may experience more such litigation following future periods of volatility or declines in our stock price. Any securities litigation, could result in substantial costs and divert our management’s attention and resources, which could adversely affect our business.

If analysts do not publish research about our business, or if they publish inaccurate or unfavorable research, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If few analysts cover us, demand for our common stock could decrease and our common stock price and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly.

We do not intend to pay dividends on our capital stock, so any returns will be limited to increases in the value of our common stock.

We have never declared or paid any cash dividends on our capital stock. We currently anticipate that we will retain future earnings for the operation and expansion of our business and do not anticipate declaring any dividends in the foreseeable future. In addition, our ability to pay cash dividends on our capital stock is restricted by the terms of our credit facility. As a result, stockholders will not receive dividends or other distributions and may only receive a return on their investment if the trading price of our common stock increases.

Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could cause the price of our common stock to decline.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that sales may have on the prevailing price of our common stock.

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As we have previously described, all of our executive officers and directors and certain major holders of our capital stock entered into lock-up agreements with the underwriters of our initial public offering that restrict these stockholders’ ability to transfer a portion of their shares of our common stock for a period of 360 days following our initial public offering. The approximately 21.9 million shares that remained subject to lock-up agreements became freely tradeable on April 10, 2016.

Additionally, certain holders of shares of our common stock have registration rights. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by our affiliates as defined in Rule 144 under the Securities Act. Sales of securities by any of these stockholders could adversely affect the trading price of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution to our stockholders and could cause the price of our common stock to decline.

We may issue additional common stock, convertible securities or other equity in the future. We also issue common stock to our employees, directors and other service providers pursuant to our equity incentive plans. Such issuances could be dilutive to investors and could cause the price of our common stock to decline. New investors in such issuances could also receive rights senior to those of current stockholders.

We have broad discretion in the use of our cash resources and may not use them effectively.

We currently intend to use our cash resources for working capital and general corporate purposes, including continued investments in the growth of our business. Our management has broad discretion in the allocation and use of our cash resources. The failure by our management to allocate or use these funds effectively could harm our business. Pending their use, we may invest these funds in a manner that does not produce income or that loses value. Our ultimate use of the net proceeds from our initial public offering may vary substantially from their original intended use.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, could limit attempts to make changes in our management and could depress the price of our common stock.

Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change in control of our company or limiting changes in our management. Among other things, these provisions:

• provide for a classified board of directors so that not all members of our board of directors are elected at one time;

• permit our board of directors to establish the number of directors and fill any vacancies and newly created directorships;

• provide that directors may only be removed for cause;

• require super-majority voting to amend some provisions in our certificate of incorporation and bylaws;

• authorize the issuance of “blank check” preferred stock that our board of directors could use to implement a stockholder rights plan;

• eliminate the ability of our stockholders to call special meetings of stockholders;

• prohibit stockholder action by written consent, which means all stockholder actions must be taken at a meeting of our stockholders;

• provide that our board of directors is expressly authorized to amend or repeal any provision of our bylaws;

• restrict the forum for certain litigation against us to Delaware; and

• require advance notice for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings.

These provisions may delay or prevent attempts by our stockholders to replace members of our management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, Section 203 of the Delaware General Corporation Law may delay or prevent a change in control of

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our company. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock. Anti-takeover provisions could depress the price of our common stock by acting to delay or prevent a change in control of our company.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Use of Proceeds.

On April 21, 2015, we closed the initial public offering of our common stock at a price to the public of $16.00 per share. The offer and sale of all of the shares in our initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-202497), which was declared effective by the U.S. Securities and Exchange Commission, or SEC, on April 15, 2015.

The remainder of the information required by this item regarding the use of our initial public offering proceeds has been omitted pursuant to SEC rules because such information has not changed since the date of our last periodic report.

Issuer Purchases of Equity Securities

The table below provides information with respect to repurchases of shares of our common stock during the three months ended March 31, 2016.

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number of Shares (of Units) that May Yet Be Purchased Under the Plans or Programs
January 1 - 31, 2016 (1)	1,625	$	8.26	—	—
February 1 - 29, 2016 (1)	—	—		—	—
March 1 - 31, 2016 (1)	—	—		—	—
Total	1,625	$	8.26	—	—

(1) Represents shares withheld to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Other Information.

None.

Item 6. Exhibits.

See the Exhibit Index.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ETSY, INC.
Date: May 5, 2016	/s/ Kristina Salen
	Kristina Salen Chief Financial Officer
	(Principal Financial and Accounting Officer)

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Exhibit Index

Exhibit No.	Description
31.1	Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
32.2	Certification of Chief Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Schema Linkbase Document.
101.CAL	XBRL Taxonomy Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Definition Linkbase Document.
101.LAB	XBRL Taxonomy Labels Linkbase Document.
101.PRE	XBRL Taxonomy Presentation Linkbase Document.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Chad Dickerson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Etsy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Chad Dickerson____________

Chad Dickerson
President, Chief Executive Officer and Chair
(Principal Executive Officer)

Date: May 5, 2016

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Kristina Salen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Etsy, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/Kristina Salen________

Kristina Salen

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: May 5, 2016

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Chad Dickerson, certify that the Quarterly Report of Etsy, Inc. on Form 10-Q for the quarterly period ended March 31, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Etsy, Inc.

/s/ Chad Dickerson____________

Chad Dickerson
President, Chief Executive Officer and Chair
(Principal Executive Officer)

Date: May 5, 2016

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kristina Salen, certify that the Quarterly Report of Etsy, Inc. on Form 10-Q for the quarterly period ended March 31, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Etsy, Inc.

/s/ Kristina Salen

Kristina Salen

Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: May 5, 2016

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 14, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	ETSY INC
Entity Central Index Key	0001370637
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		113,073,415

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 158,381	$ 271,244
Short-term investments	111,297	21,620
Accounts receivable, net of allowance for doubtful accounts of $2,071 and $1,920 as of December 31, 2015 and March 31, 2016, respectively	19,249	20,275
Prepaid and other current assets	9,092	9,521
Deferred tax charge—current	17,132	17,132
Funds receivable and seller accounts	25,461	19,262
Total current assets	340,612	359,054
Restricted cash	5,341	5,341
Property and equipment, net	116,480	105,021
Goodwill	28,642	27,752
Intangible assets, net	2,416	2,871
Deferred tax charge—net of current portion	41,903	51,396
Long-term investments	12,061	0
Other assets	1,721	1,626
Total assets	549,176	553,061
Current liabilities:
Accounts payable	13,571	14,382
Accrued expenses	22,905	31,253
Capital lease obligations—current	6,019	5,610
Funds payable and amounts due to sellers	25,461	19,262
Deferred revenue	5,036	4,712
Other current liabilities	4,367	4,903
Total current liabilities	77,359	80,122
Capital lease obligations—net of current portion	6,789	7,571
Deferred tax liabilities	61,419	61,420
Facility financing obligation	51,804	51,804
Other liabilities	22,274	21,646
Total liabilities	219,645	222,563
Stockholders’ equity:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of December 31, 2015 and March 31, 2016; 112,563,354 and 113,011,624 shares issued and outstanding as of December 31, 2015 and March 31 2016, respectively)	113	113
Additional paid-in capital	411,208	406,020
Accumulated deficit	(85,248)	(86,440)
Accumulated other comprehensive income	3,458	10,805
Total stockholders’ equity	329,531	330,498
Total liabilities and stockholders’ equity	$ 549,176	$ 553,061

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Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Allowance for doubtful accounts	$ 1,920	$ 2,071
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	1,400,000,000	1,400,000,000
Common stock, shares issued	113,011,624	112,563,354
Common stock, shares outstanding	113,011,624	112,563,354

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Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Income Statement [Abstract]
Revenue	$ 81,847	$ 58,543
Cost of revenue	27,911	20,709
Gross profit	53,936	37,834
Operating expenses:
Marketing	15,847	12,210
Product development	12,230	10,009
General and administrative	19,076	20,457
Total operating expenses	47,153	42,676
(Loss) income from operations	6,783	(4,842)
Other (expense) income:
Interest expense and amortization of deferred financing costs	(538)	(193)
Interest and other income	441	15
Net unrealized gain on warrant and other liabilities	0	12
Foreign exchange (loss) gain	8,120	(20,853)
Total other (expense) income	8,023	(21,019)
(Loss) income before income taxes	14,806	(25,861)
Provision for income taxes	(13,614)	(10,725)
Net (loss) income	$ 1,192	$ (36,586)
Net (loss) income per share:
Basic (in dollars per share)	$ 0.01	$ (0.84)
Diluted (in dollars per share)	$ 0.01	$ (0.84)
Weighted average common shares outstanding:
Basic (in shares)	112,129,470	43,703,508
Diluated (in shares)	115,368,566	43,703,508

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Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Statement of Comprehensive Income [Abstract]
Net (loss) income	$ 1,192	$ (36,586)
Other comprehensive income (loss):
Cumulative translation adjustment	(7,439)	15,056
Unrealized gains on marketable securities, net of tax	92	4
Other comprehensive income (loss)	(7,347)	15,060
Comprehensive loss	$ (6,155)	$ (21,526)

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Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - 3 months ended Mar. 31, 2016 - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income
Beginning balance at Dec. 31, 2015	$ 330,498	$ 113	$ 406,020	$ (86,440)	$ 10,805
Beginning balance (in shares) at Dec. 31, 2015		112,563,354
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense	2,704		2,704
Exercise of vested options	$ 1,223		1,223
Exercise of vested options (in shares)	446,395	446,395
Vesting of restricted stock units	$ (13)		(13)
Lapse of restricted stock units (in shares)		1,875
Stock expense-acquisitions	240		240
Excess tax benefit from the exercise of options	1,034		1,034
Other comprehensive loss	(7,347)				(7,347)
Net income	1,192			1,192
Ending balance at Mar. 31, 2016	$ 329,531	$ 113	$ 411,208	$ (85,248)	$ 3,458
Ending balance (in shares) at Mar. 31, 2016		113,011,624

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities
Net (loss) income	$ 1,192	$ (36,586)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Stock-based compensation expense	2,581	2,133
Stock-based compensation expense-acquisitions	656	1,841
Contribution of stock to Etsy.org	0	3,200
Depreciation and amortization expense	4,731	4,341
Bad debt expense	341	767
Foreign exchange loss (gain)	(8,120)	20,853
Amortization of debt issuance costs	45	31
Interest on marketable securities	(258)	0
Net unrealized gain on warrant and other liabilities	0	(12)
Loss on disposal of assets	492	332
Amortization of deferred tax charge	9,493	7,918
Excess tax benefit from exercise of stock options	(1,034)	(2,472)
Changes in operating assets and liabilities:
Accounts receivable	799	46
Funds receivable and seller accounts	(5,913)	(1,911)
Prepaid expenses and other current assets	472	3,100
Other assets	(140)	182
Accounts payable	173	(419)
Accrued liabilities	(10,819)	3,969
Funds payable and amounts due to sellers	5,913	1,912
Deferred revenue	279	216
Other liabilities	903	(546)
Net cash provided by operating activities	1,786	8,895
Cash flows from investing activities
Purchases of property and equipment	(10,870)	(1,852)
Development of internal-use software	(2,168)	(2,428)
Purchases of marketable securities	(108,289)	(5,400)
Sales of marketable securities	6,901	3,055
Net cash used in investing activities	(114,426)	(6,625)
Cash flows from financing activities
Proceeds from exercise of stock options	1,223	1,188
Excess tax benefit from the exercise of stock options	1,034	2,472
Payments on capitalized lease obligations	(1,355)	(503)
Deferred payments on acquisition of business	(649)	0
Payments relating to public offering	0	(1,482)
Net cash provided by financing activities	253	1,675
Effect of exchange rate changes on cash	(476)	(2,865)
Net increase (decrease) in cash and cash equivalents	(112,863)	1,080
Cash and cash equivalents at beginning of period	271,244	69,659
Cash and cash equivalents at end of period	158,381	70,739
Supplemental non-cash disclosures
Equipment acquired under capital lease obligations	982	1,324
Stock-based compensation capitalized in development of capitalized software	123	63
Non-cash additions to development of internal-use software and property and equipment	1,966	330
Non-cash addition to construction in progress related to build-to-suit lease and facility financing obligation	0	1,187
Non-cash addition to capitalized public offering costs	$ 0	$ 778

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Basis of Presentation and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Etsy, Inc. (the “Company” or “Etsy”) was incorporated in Delaware in February 2006. Etsy operates a marketplace where people around the world connect, both online and offline, to make, sell and buy unique goods. The Company generates revenue primarily from transaction and listing fees, Promoted Listings, Direct Checkout fees and Shipping Label sales.

Initial Public Offering

On April 21, 2015, the Company completed an initial public offering (the “IPO”) in which it issued and sold 13,333,333 shares of common stock at a public offering price of $16.00 per share. The Company received net proceeds of $194.4 million after deducting underwriting discounts of $13.9 million and other offering expenses of approximately $5.1 million. These expenses were recorded against the proceeds received from the IPO.

Certain selling stockholders sold an additional 5,833,332 shares of common stock in the IPO. The Company did not receive any proceeds from the sale of shares sold by the selling stockholders.

Upon the closing of the IPO, all outstanding shares of preferred stock of the Company converted into 53,448,243 shares of common stock. In addition, all outstanding warrants for preferred stock converted into warrants for 203,030 shares of common stock.

The Company effected a 1-for-2 reverse split of its common stock on March 25, 2015. The reverse split combined each two shares of the Company’s issued and outstanding common stock into one share of common stock and correspondingly adjusted the conversion prices of its convertible preferred stock. No fractional shares were issued in connection with the reverse split, and any fractional shares resulting from the reverse split were rounded down to the nearest whole share. All share, per share and related information presented in the consolidated financial statements and accompanying notes have been retroactively adjusted, where applicable, to reflect the reverse stock split.

Basis of Consolidation

The consolidated financial statements include the accounts of Etsy and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

Certain items in the prior years’ consolidated financial statements have been reclassified to conform to the current year presentation reflected in these interim financial statements. Specifically, in the consolidated statement of cash flows for the three months ended Match 31, 2015, the Company reclassified certain amounts previously included in deferred income taxes into changes in operating assets and liabilities to conform to the current year presentation. This reclassification had no impact on total cash flows provided by operating activities for the period.

Unaudited Interim Financial Information

The accompanying consolidated balance sheet as of March 31, 2016, the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2015 and 2016, the consolidated statements of cash flows for the three months ended March 31, 2015 and 2016, and the consolidated statement of changes in stockholders’ equity for the three months ended March 31, 2016 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position as of March 31, 2016, results of operations for the three months ended March 31, 2015 and 2016 and cash flows for the three months ended March 31, 2015 and 2016. The financial data and the other information disclosed in these notes to the consolidated financial statements related to these three-month periods are unaudited. These unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2016 (the “Annual Report”).

There have been no material changes in the Company's significant accounting policies from those that were disclosed in the Annual Report.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The accounting estimates that require management’s most difficult and subjective judgments include revenue recognition, income taxes, website development costs and internal-use software, purchase price allocations for business combinations, valuation of goodwill and intangible assets, leases and stock-based compensation. The Company evaluates its estimates and judgments on an ongoing basis and revises them when necessary. Actual results may differ from the original or revised estimates.

Income Taxes

The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate adjusted for discrete items, if any, for relevant interim periods. The Company updates its estimate of the annual effective tax rate each quarter and makes cumulative adjustments if its estimated annual tax rate changes.

The Company's quarterly tax provision and quarterly estimate of its annual effective tax rate are subject to significant variations due to several factors, including variability in predicting its pretax and taxable income and the mix of jurisdictions to which those relate, changes of expenses or losses for which tax benefits are not recognized, and changes in the laws, regulations and administrative practices of the jurisdictions in which the Company operates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting standards update that replaces existing revenue recognition guidance. The new guidance is effective for the annual and interim periods beginning after December 15, 2017. Among other things, the updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In August 2014, the FASB issued an accounting standard update under which management will be required to assess an entity’s ability to continue as a going concern and provide related disclosures in certain circumstances. The new guidance is effective for annual and interim periods beginning after December 15, 2016. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements or disclosures.

In April 2015, the FASB issued an accounting standard under which customers will apply the same criteria as vendors to determine whether a cloud computing arrangement contains a software license or is solely a service contract. The new standard is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no material impact to the current period consolidated financial statements.

In August 2015, the FASB issued an accounting standard update to address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The guidance affirms the Company's treatment of such costs, which is to defer and present the debt issuance costs as an asset and subsequently amortize the costs over the term of the line-of-credit arrangement. The new standard is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no impact to the current period consolidated financial statements.

In September 2015, the FASB issued an accounting standard update that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The new guidance is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no impact to the current period consolidated financial statements.

In February 2016, the FASB issued an accounting standard update that requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. The new guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standard update for share-based payment transactions that require a reporting entity to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement. The new guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted for financial statements as of the beginning of an interim or annual reporting period. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

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Debt

3 Months Ended

Mar. 31, 2016

Debt Disclosure [Abstract]

Debt

Debt

Credit Agreement

In May 2014, the Company entered into a $35.0 million senior secured revolving credit facility pursuant to a Revolving Credit and Guaranty Agreement with several lenders (the “Credit Agreement”). In March 2015, the Company amended the Credit Agreement to increase the credit facility to $50.0 million. In December 2015, the Company amended the Credit Agreement to clarify certain provisions relating to permitted investments and to make other immaterial updates. As amended, the Credit Agreement will mature in May 2019. The Credit Agreement includes a letter of credit sublimit of $10.0 million and a swingline loan sublimit of $15.0 million.

Borrowings under the 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 LIBOR rate for a one-month interest period plus 1.00%, in each case plus a margin ranging from 0.00% to 0.25% or (ii) an adjusted LIBOR rate plus a margin ranging from 1.00% to 1.25%. Swingline loans under the 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 total leverage ratio for the preceding four-fiscal-quarter period. The Company is also obligated to pay other customary fees for a credit facility of this size and type, including an unused commitment fee and fees associated with letters of credit. As amended, the Credit Agreement also permits the Company, in certain circumstances, to request an increase in the facility by an amount of up to $50.0 million (and in minimum amounts of $10.0 million) at the same maturity, pricing and other terms.

The amended Credit Agreement contains customary representations and warranties applicable to the Company and its subsidiaries and customary affirmative and negative covenants applicable to the Company and its restricted subsidiaries. The negative covenants include restrictions on, among other things, indebtedness, liens, investments, mergers, dispositions, transactions with affiliates and dividends and other distributions. These restrictions do not prohibit a subsidiary of the Company from making pro rata payments to the Company or any other person that owns an equity interest in such subsidiary. The amended Credit Agreement contains a financial covenant that requires the Company and its subsidiaries to maintain a total leverage ratio (defined as net debt to adjusted EBITDA) not to exceed 3.50 to 1.00.

As amended, the Credit Agreement includes customary events of default, including a change in control and a cross-default on the Company’s material indebtedness. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company and its subsidiaries’ assets, and its obligations under the Credit Agreement are guaranteed by certain of the Company’s subsidiaries.

At March 31, 2016, the Company did not have any borrowings under the Credit Agreement.

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Stock-based Compensation

3 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

Stock-based Compensation

The Company's 2015 Equity Incentive Plan (the “2015 Plan”) provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”) and performance cash awards to employees, directors and consultants. The number of shares available for issuance under the 2015 Plan may be increased annually by an amount equal to the lesser of 7,050,000 shares of common stock, 5% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year, or such other amount as determined by the Company's Board of Directors. The Board of Directors approved an increase of 2,814,083 shares available for issuance under the 2015 Plan as of January 4, 2016. Any awards issued under the 2015 Plan that are forfeited by the participant will become available for future grant under the 2015 Plan. The number of shares of the Company’s common stock initially reserved for issuance under the 2015 Plan equaled the sum of 14,100,000 shares plus up to 12,653,075 shares reserved for issuance or subject to outstanding awards under the 2006 Stock Plan. At March 31, 2016, 17,549,262 shares were authorized under the 2015 Plan, and 15,130,321 shares were available for future grant.

In the three months ended March 31, 2016, we granted nonqualified stock options and RSUs to eligible participants. Options have a term of 10 years. For both options and RSUs, vesting is typically over a four-year period and is contingent upon continued employment with the Company on each vesting date.  In general, for newly-hired employees, options generally vest 25% after the first year of service and ratably each month over the remaining 36-month period. In general, for current employees who receive an additional grant, options vest ratably each month over a 48-month period. In general, for newly-hired employees, RSUs vest 25% after the first year following the vesting commencement date, which is the first day of the fiscal quarter closest to the date of grant, and then vest ratably each quarter over the remaining 12-quarter period. In general, for current employees who receive an additional grant, RSUs vest ratably each quarter over a 16-quarter period following the vesting commencement date, which is the first day of the fiscal quarter closest to the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the inputs below. Prior to the IPO, the Company utilized equity valuations based on comparable publicly-traded companies, discounted free cash flows, an analysis of the Company's enterprise value and any other factors deemed relevant in estimating the fair value of its common stock. Subsequent to the IPO, the Company has used the closing price of its common stock on Nasdaq as the fair value of its common stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatilities are based on implied volatilities from market comparisons of certain publicly traded companies and other factors. The expected term of stock options granted has been determined using the simplified method, which uses the midpoint between the vesting date and the contractual term. The requisite service period is generally four years from the date of grant. The fair value of RSUs is determined based on the closing price of the Company's common stock on Nasdaq on the grant date.

The fair value of options granted in each year using the Black-Scholes pricing model has been based on the following assumptions:

	Three Months Ended   March 31,
	2015	2016
Volatility	40.4% - 42.7%	44.2% - 44.6%
Risk-free interest rate	1.3% - 1.3%	1.5% - 1.9%
Expected term (in years)	5.58 - 6.08	6.02 - 6.08
Dividend rate	—%	—%

The following table summarizes the activity for the Company's options:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2015	11,068,859		$	6.94
Granted	1,012,402		8.35
Exercised	(446,395	)	2.74
Forfeited/Cancelled	(194,650	)	11.21
Outstanding at March 31, 2016	11,440,216		7.18		7.08	$	32,991,516
Total exercisable at March 31, 2016	7,102,871		5.13		6.12	29,646,421
Total vested and expected to vest at March 31, 2016	10,994,483		7.02		7.02	32,718,638

The weighted-average grant date fair value of options granted in the three months endedMarch 31, 2015 and March 31, 2016 was $7.19 and $3.69, respectively. The total intrinsic value of options exercised in the three months endedMarch 31, 2015 and March 31, 2016 was $6.7 million and $2.4 million, respectively, and the total fair value of awards vested in the three months endedMarch 31, 2015 and March 31, 2016 was $2.1 million and $3.3 million, respectively. The total unrecognized compensation at March 31, 2016 was $16.9 million, which will be recognized over a weighted-average period of 2.7 years.

The following table summarizes the activity for the Company's unvested RSUs:

	Shares		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	395,846		$	13.70
Granted	1,253,657		8.31
Vested	(3,500	)	11.49
Forfeited/Cancelled	(23,195	)	12.35
Unvested at March 31, 2016	1,622,808		9.56
Total expected to vest at March 31, 2016	1,421,340		9.54

The total unrecognized compensation at March 31, 2016 was $12.6 million, which will be recognized over a weighted-average period of 3.8 years.

Total stock-based compensation expense included in the consolidated statements of operations is as follows (in thousands):

	Three Months Ended   March 31,
	2015		2016
Cost of revenue	$	408	$	200
Marketing	103		178
Product development	544		857
General and administrative	2,919		2,002
Total stock-based compensation expense	$	3,974	$	3,237

The total stock-based compensation expense in the three months ended March 31, 2015 and 2016 includes $1.8 million and $0.7 million in acquisition-related stock-based compensation expense, respectively.

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Income Taxes

3 Months Ended

Mar. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

In January 2015, the Company implemented an updated global corporate structure to more closely align with its global operations and future expansion plans outside of the United States. The new structure changed how the Company uses its intellectual property and implemented certain intercompany arrangements. The Company believes this may eventually result in a reduction in its overall effective tax rate and other operational efficiencies. The revised structure resulted in the setup of a deferred tax liability in the amount of $66.0 million on the taxable gain created in the transaction. A deferred charge was recorded for the same amount representing the future income tax which will be amortized into income tax expense over five years. During the three months ended March 31, 2015 and March 31, 2016, $7.9 million and $9.5 million, respectively, was recorded to income tax expense.

The amount of unrecognized tax benefits, included within “Other liabilities” on the consolidated balance sheets, increased $0.4 million in the three months ended March 31, 2016, from $22.2 million at December 31, 2015 to $22.6 million at March 31, 2016. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $9.0 million at March 31, 2016.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company has characterized its investments in marketable securities, 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 sheet 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 liabilities where values are derived from techniques in which one or more significant inputs are unobservable.

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and March 31, 2016 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3) (in thousands):

	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
Asset
Cash equivalents:
Money market funds	$	212,390	$	—	$	—	$	212,390
U.S. Government bills	3		—		—		3
	212,393		—		—		212,393
Short-term investments:
U.S. Government and agency bills	21,620		—		—		21,620
	$	234,013	$	—	$	—	$	234,013
Liability
Acquisition–related contingent consideration classified as liability	$	—	$	—	$	2,357	$	2,357
	$	—	$	—	$	2,357	$	2,357

	As of March 31, 2016
	Level 1		Level 2		Level 3		Total
Asset
Cash equivalents:
Money market funds	$	90,411	$	—	$	—	$	90,411
U.S. Government bills	4,515		—		—		4,515
	94,926		—		—		94,926
Short-term investments:
Commercial paper	—		20,938		—		20,938
Corporate bonds	—		54,014		—		54,014
U.S. Government and agency bills	32,292		—		—		32,292
Yankee bonds	—		4,053		—		4,053
	32,292		79,005		—		111,297
Long-term investments:
Corporate bonds	—		3,035		—		3,035
U.S. Government and agency bills	9,026		—		—		9,026
	9,026		3,035		—		12,061
	$	136,244	$	82,040	$	—	$	218,284
Liability
Acquisition–related contingent consideration classified as liability	$	—	$	—	$	2,773	$	2,773
	$	—	$	—	$	2,773	$	2,773

Level 1 instruments include money market funds and AAA-rated U.S. Government and agency securities, which are valued based on inputs including quotes from broker-dealers or recently executed transactions in the same or similar securities.

Level 2 instruments include fixed-income funds consisting of investments in commercial paper, corporate bonds and yankee bonds, which are valued 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 instruments include contingent consideration classified as liability in connection with the acquisition of ALM. The contingent consideration is classified as liability due to its affiliation with a related put option, which will expire upon vesting of the underlying consideration, and its fair value is determined based on the fair value of the Company's common stock at the period-end reporting date.

The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3) (in thousands):

	Three Months Ended   March 31,
	2016
Balance at beginning of period	$	2,357
Acquired	—
Changes to liability-classified stock awards	416
Settled	—
Balance at end of period	$	2,773

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Marketable Securities

3 Months Ended

Mar. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Marketable Securities

Marketable Securities

Short- and long-term investments consist of marketable securities that are available-for-sale. The cost and fair value of available-for-sale securities were as follows as of the dates indicated (in thousands):

	Cost		Gross Unrealized Holding Loss			Gross Unrealized Holding Gain		Fair Value
December 31, 2015
U.S. Government and agency bills	$	21,636	$	(16	)	$	—	$	21,620
	$	21,636	$	(16	)	$	—	$	21,620
March 31, 2016
Commercial paper	$	20,938	$	—		$	—	$	20,938
Corporate bonds	56,982		(5		)	72		57,049
U.S. Government and agency bills	41,310		(5		)	13		41,318
Yankee bonds	4,052		—			1		4,053
	$	123,282	$	(10	)	$	86	$	123,358

The Company’s investments in marketable securities consist primarily of investments in fixed-income funds, money market funds, and AAA-rated U.S. Government and agency bills. When evaluating investments for other-than-temporary impairment, the Company reviews factors such as length of time and extent to which fair value has been below cost basis, the financial condition of the issuer and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market value. The Company evaluates fair values for each individual security in the investment portfolio.

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Net (Loss) Income Per Share

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Net (Loss) Income Per Share

Net (Loss) Income Per Share

The following table presents the calculation of basic and diluted net (loss) income per share for periods presented (in thousands, except share and per share data):

	Three Months Ended   March 31,
	2015			2016
Numerator:
Net (loss) income	$	(36,586	)	$	1,192
Net income allocated to participating securities under the two-class method	—			(7		)
Net (loss) income applicable to common stockholders	$	(36,586	)	$	1,185
Denominator:
Weighted average common shares outstanding—basic (1)	43,703,508			112,129,470
Common equivalent shares from options to purchase common stock and restricted stock units	—			3,161,056
Dilutive effect of assumed conversion of warrants	—			78,040
Weighted average common shares outstanding—diluted (1)	43,703,508			115,368,566
Net (loss) income per share applicable to common stockholders—basic	$	(0.84	)	$	0.01
Net (loss) income per share applicable to common stockholders—diluted	$	(0.84	)	$	0.01

(1) 618,718 shares of unvested restricted stock are considered participating securities and are excluded from basic and diluted common shares outstanding.

The following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:

	Three Months Ended   March 31,
	2015	2016
Stock options	12,009,423	4,394,503
Restricted stock units	—	613,861
Warrants	203,030	—
Convertible preferred stock	53,448,243	—
Total anti-dilutive securities	65,660,696	5,008,364

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Segment and Geographic Information

3 Months Ended

Mar. 31, 2016

Segment Reporting [Abstract]

Segment and Geographic Information

Segment and Geographic Information

Revenue by country is based on the billing address of the seller. The following table summarizes revenue by geographic area (in thousands):

	Three Months Ended   March 31,
	2015		2016
United States	$	45,752	$	63,041
International	12,791		18,806
Revenue	$	58,543	$	81,847

No individual international country’s revenue exceeded 10% of total revenue.

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Contingencies

3 Months Ended

Mar. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies

Tax Contingencies

The Company had reserves of $2.6 million and $2.7 million at December 31, 2015 and March 31, 2016, respectively, for certain non-income tax obligations, representing management’s best estimate of its potential liability.

The Company could also be subject to examination in various jurisdictions related to income tax and non-income tax matters. The resolution of these types of matters, if in excess of the recorded reserve, could have an adverse impact on the Company’s business.

Legal Proceedings

On May 13, 2015, a purported securities class action complaint (Altayyar v. Etsy, Inc., et al., Docket No. 1:15-cv-02785) was filed in the United States District Court for the Eastern District of New York against the Company and certain officers. The complaint was brought on behalf of a purported class consisting of all persons or entities who purchased or otherwise acquired shares of the Company's common stock from April 16, 2015 through and including May 10, 2015. It asserted violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on allegedly false or misleading statements and omissions with respect to, among other things, merchandise for sale on the Company's website that may be counterfeit or constitute trademark or copyright infringement. 

On October 22, 2015, the court appointed a lead plaintiff and lead plaintiff’s counsel. On January 21, 2016, lead plaintiff filed an amended class action complaint alleging false or misleading statements or omissions with respect to substantially the same topics as the original complaint. The amended complaint adds certain outside directors and underwriters as defendants, expands the purported class period to be April 16, 2015 to August 4, 2015, inclusive, and asserts violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as well as Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The amended complaint seeks certification as a class action and unspecified compensatory damages plus interest and attorneys' fees. The Company and the named officers and directors intend to defend themselves vigorously against this action. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

On July 21, 2015, a purported securities class action complaint (Cervantes v. Dickerson, et.al., Case No. CIV 534768) was filed in the Superior Court of State of California, County of San Mateo, against the Company, certain officers, directors and underwriters. The complaint asserts violations of Sections 11 and 15 of the Securities Act of 1933.  As in the Altayyar litigation, the complaint alleges misrepresentations in the Company’s Registration Statement on Form S-1 and Prospectus with respect to, among other things, merchandise for sale on the Company's website that may be counterfeit or constitute trademark or copyright infringement. The complaint seeks certification as a class action and unspecified compensatory damages plus interest and attorneys' fees.

On November 5, 2015, another purported securities class action complaint (Weiss v. Etsy et al., No. CIV 536123) was filed in the Superior Court of State of California, County of San Mateo. The Weiss complaint names as defendants the Company and the same officers, directors and underwriters named in the Cervantes complaint, and also asserts violations of Sections 11 and 15 of the Securities Act of 1933 based on allegedly false or misleading statements or omissions with respect to, among other things, merchandise for sale on the Company's website that may be counterfeit or constitute trademark or copyright infringement. On December 24, 2015, the court consolidated the Cervantes and Weiss actions. The Company and the named officers and directors intend to defend themselves vigorously against these consolidated actions. On February 3, 2016, the court granted the Company’s motion to stay the consolidated actions. In light of, among other things, the early stage of the litigation, the Company is unable to predict the outcome of this matter and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

In addition, 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, regardless of their success, could have an adverse effect on the Company’s consolidated results of operations or cash flows in the period the claims or litigation are resolved. As of March 31, 2016, the Company does not believe that there are any material litigation exposures relating to these other claims.

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Consolidation

The consolidated financial statements include the accounts of Etsy and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The accounting estimates that require management’s most difficult and subjective judgments include revenue recognition, income taxes, website development costs and internal-use software, purchase price allocations for business combinations, valuation of goodwill and intangible assets, leases and stock-based compensation. The Company evaluates its estimates and judgments on an ongoing basis and revises them when necessary. Actual results may differ from the original or revised estimates.

Income Taxes

The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate adjusted for discrete items, if any, for relevant interim periods. The Company updates its estimate of the annual effective tax rate each quarter and makes cumulative adjustments if its estimated annual tax rate changes.

The Company's quarterly tax provision and quarterly estimate of its annual effective tax rate are subject to significant variations due to several factors, including variability in predicting its pretax and taxable income and the mix of jurisdictions to which those relate, changes of expenses or losses for which tax benefits are not recognized, and changes in the laws, regulations and administrative practices of the jurisdictions in which the Company operates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued an accounting standards update that replaces existing revenue recognition guidance. The new guidance is effective for the annual and interim periods beginning after December 15, 2017. Among other things, the updated guidance requires companies to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In August 2014, the FASB issued an accounting standard update under which management will be required to assess an entity’s ability to continue as a going concern and provide related disclosures in certain circumstances. The new guidance is effective for annual and interim periods beginning after December 15, 2016. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements or disclosures.

In April 2015, the FASB issued an accounting standard under which customers will apply the same criteria as vendors to determine whether a cloud computing arrangement contains a software license or is solely a service contract. The new standard is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no material impact to the current period consolidated financial statements.

In August 2015, the FASB issued an accounting standard update to address the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The guidance affirms the Company's treatment of such costs, which is to defer and present the debt issuance costs as an asset and subsequently amortize the costs over the term of the line-of-credit arrangement. The new standard is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no impact to the current period consolidated financial statements.

In September 2015, the FASB issued an accounting standard update that eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. The new guidance is effective for annual and interim periods beginning after December 15, 2015. The Company has adopted this guidance in the first quarter of 2016 noting no impact to the current period consolidated financial statements.

In February 2016, the FASB issued an accounting standard update that requires a reporting entity to recognize right-of-use assets and lease liabilities on the balance sheet for operating leases to increase transparency and comparability. The new guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

In March 2016, the FASB issued an accounting standard update for share-based payment transactions that require a reporting entity to recognize excess tax benefits and deficiencies as income tax expense or benefit in the income statement. The new guidance is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted for financial statements as of the beginning of an interim or annual reporting period. The Company is currently evaluating the effect the guidance will have on its consolidated financial statements.

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Stock-based Compensation (Tables)

3 Months Ended

Mar. 31, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of options granted in each year using the Black-Scholes pricing model has been based on the following assumptions:

	Three Months Ended   March 31,
	2015	2016
Volatility	40.4% - 42.7%	44.2% - 44.6%
Risk-free interest rate	1.3% - 1.3%	1.5% - 1.9%
Expected term (in years)	5.58 - 6.08	6.02 - 6.08
Dividend rate	—%	—%

Summary of Stock Option Activity

The following table summarizes the activity for the Company's options:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contract Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2015	11,068,859		$	6.94
Granted	1,012,402		8.35
Exercised	(446,395	)	2.74
Forfeited/Cancelled	(194,650	)	11.21
Outstanding at March 31, 2016	11,440,216		7.18		7.08	$	32,991,516
Total exercisable at March 31, 2016	7,102,871		5.13		6.12	29,646,421
Total vested and expected to vest at March 31, 2016	10,994,483		7.02		7.02	32,718,638

Summary of Unvested RSU Activity

The following table summarizes the activity for the Company's unvested RSUs:

	Shares		Weighted-Average Grant Date Fair Value
Unvested at December 31, 2015	395,846		$	13.70
Granted	1,253,657		8.31
Vested	(3,500	)	11.49
Forfeited/Cancelled	(23,195	)	12.35
Unvested at March 31, 2016	1,622,808		9.56
Total expected to vest at March 31, 2016	1,421,340		9.54

Schedule of Share-based Compensation, Allocation of Recognized Period Costs

Total stock-based compensation expense included in the consolidated statements of operations is as follows (in thousands):

	Three Months Ended   March 31,
	2015		2016
Cost of revenue	$	408	$	200
Marketing	103		178
Product development	544		857
General and administrative	2,919		2,002
Total stock-based compensation expense	$	3,974	$	3,237

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and March 31, 2016 using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2) and significant unobservable inputs (Level 3) (in thousands):

	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
Asset
Cash equivalents:
Money market funds	$	212,390	$	—	$	—	$	212,390
U.S. Government bills	3		—		—		3
	212,393		—		—		212,393
Short-term investments:
U.S. Government and agency bills	21,620		—		—		21,620
	$	234,013	$	—	$	—	$	234,013
Liability
Acquisition–related contingent consideration classified as liability	$	—	$	—	$	2,357	$	2,357
	$	—	$	—	$	2,357	$	2,357

	As of March 31, 2016
	Level 1		Level 2		Level 3		Total
Asset
Cash equivalents:
Money market funds	$	90,411	$	—	$	—	$	90,411
U.S. Government bills	4,515		—		—		4,515
	94,926		—		—		94,926
Short-term investments:
Commercial paper	—		20,938		—		20,938
Corporate bonds	—		54,014		—		54,014
U.S. Government and agency bills	32,292		—		—		32,292
Yankee bonds	—		4,053		—		4,053
	32,292		79,005		—		111,297
Long-term investments:
Corporate bonds	—		3,035		—		3,035
U.S. Government and agency bills	9,026		—		—		9,026
	9,026		3,035		—		12,061
	$	136,244	$	82,040	$	—	$	218,284
Liability
Acquisition–related contingent consideration classified as liability	$	—	$	—	$	2,773	$	2,773
	$	—	$	—	$	2,773	$	2,773

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The table below provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3) (in thousands):

	Three Months Ended   March 31,
	2016
Balance at beginning of period	$	2,357
Acquired	—
Changes to liability-classified stock awards	416
Settled	—
Balance at end of period	$	2,773

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Marketable Securities (Tables)

3 Months Ended

Mar. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Cost and Fair Value of Available-for-sale Securities

The cost and fair value of available-for-sale securities were as follows as of the dates indicated (in thousands):

	Cost		Gross Unrealized Holding Loss			Gross Unrealized Holding Gain		Fair Value
December 31, 2015
U.S. Government and agency bills	$	21,636	$	(16	)	$	—	$	21,620
	$	21,636	$	(16	)	$	—	$	21,620
March 31, 2016
Commercial paper	$	20,938	$	—		$	—	$	20,938
Corporate bonds	56,982		(5		)	72		57,049
U.S. Government and agency bills	41,310		(5		)	13		41,318
Yankee bonds	4,052		—			1		4,053
	$	123,282	$	(10	)	$	86	$	123,358

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Net (Loss) Income Per Share (Tables)

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following table presents the calculation of basic and diluted net (loss) income per share for periods presented (in thousands, except share and per share data):

	Three Months Ended   March 31,
	2015			2016
Numerator:
Net (loss) income	$	(36,586	)	$	1,192
Net income allocated to participating securities under the two-class method	—			(7		)
Net (loss) income applicable to common stockholders	$	(36,586	)	$	1,185
Denominator:
Weighted average common shares outstanding—basic (1)	43,703,508			112,129,470
Common equivalent shares from options to purchase common stock and restricted stock units	—			3,161,056
Dilutive effect of assumed conversion of warrants	—			78,040
Weighted average common shares outstanding—diluted (1)	43,703,508			115,368,566
Net (loss) income per share applicable to common stockholders—basic	$	(0.84	)	$	0.01
Net (loss) income per share applicable to common stockholders—diluted	$	(0.84	)	$	0.01

(1) 618,718 shares of unvested restricted stock are considered participating securities and are excluded from basic and diluted common shares outstanding.

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:

	Three Months Ended   March 31,
	2015	2016
Stock options	12,009,423	4,394,503
Restricted stock units	—	613,861
Warrants	203,030	—
Convertible preferred stock	53,448,243	—
Total anti-dilutive securities	65,660,696	5,008,364

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Segment and Geographic Information (Tables)

3 Months Ended

Mar. 31, 2016

Segment Reporting [Abstract]

Revenue from External Customers by Geographic Areas

The following table summarizes revenue by geographic area (in thousands):

	Three Months Ended   March 31,
	2015		2016
United States	$	45,752	$	63,041
International	12,791		18,806
Revenue	$	58,543	$	81,847

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Basis of Presentation and Summary of Significant Accounting Policies (Details) $ / shares in Units, $ in Millions	Apr. 21, 2015 USD ($) $ / shares shares	Mar. 25, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reverse stock split conversion ratio		0.5
IPO
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued	13,333,333
Share price | $ / shares	$ 16.00
Proceeds from initial public offering | $	$ 194.4
Underwriting discount | $	13.9
Other offering expense | $	$ 5.1
Sale of stock by stockholders	5,833,332
Conversion of preferred stock warrants into common stock warrants	203,030
Convertible preferred stock | IPO
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Conversion of convertible preferred stock into common stock, shares	53,448,243

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Debt (Details) - Revolving Credit Facility	3 Months Ended
	Mar. 31, 2016 USD ($)	Mar. 31, 2015 USD ($)	May. 31, 2014 USD ($)
Debt Instrument [Line Items]
Line of credit, maximum borrowing capacity		$ 50,000,000	$ 35,000,000
Line of credit, maximum available borrowing capacity	$ 50,000,000
Line of credit, maximum available borrowing capacity, minimum increment of increase	$ 10,000,000
Total leverage ratio	3.50
Outstanding borrowings	$ 0
Letter of Credit
Debt Instrument [Line Items]
Line of credit, maximum borrowing capacity			10,000,000
Bridge Loan
Debt Instrument [Line Items]
Line of credit, maximum borrowing capacity			$ 15,000,000
Federal Funds Effective Swap Rate
Debt Instrument [Line Items]
Line of credit, basis spread on variable interest rate	0.50%
One-Month London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Line of credit, basis spread on variable interest rate	1.00%
Minimum | One-Month London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Line of credit, basis spread on variable interest rate	1.00%
Minimum | Base Rate
Debt Instrument [Line Items]
Line of credit, basis spread on variable interest rate	0.00%
Maximum | One-Month London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Line of credit, basis spread on variable interest rate	1.25%
Maximum | Base Rate
Debt Instrument [Line Items]
Line of credit, basis spread on variable interest rate	0.25%

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Stock-based Compensation - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	Jan. 04, 2016	Mar. 31, 2016	Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Intrinsic value of options exercised		$ 2,400	$ 6,700
Fair value of the awards vested		3,300	2,100
Total unrecognized compensation		16,900
Stock-based compensation expense-acquisitions		$ 656	$ 1,841
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation, period of recognition		2 years 8 months 12 days
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total unrecognized compensation, period of recognition		3 years 9 months 18 days
Total unrecognized compensation		$ 12,600
2015 Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized		17,549,262
Number of shares available for grant		15,130,321
Maximum number of additional shares issued annually	2,814,083	7,050,000
Percentage of outstanding stock		5.00%
Shares reserved for future issuance		14,100,000
Weighted average grant date fair value of options		$ 3.69	$ 7.19
2015 Equity Incentive Plan | Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term for options		10 years
Stock option vesting period		4 years
Stock option requisite service period		4 years
2015 Equity Incentive Plan | RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting period		4 years
2006 Plan Eligible for 2015 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares reserved for future issuance		12,653,075
Newly-hired employee | Vest 25% after first year of service | 2015 Equity Incentive Plan | Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting rights, percentage		25.00%
Newly-hired employee | Vest 25% after first year of service | 2015 Equity Incentive Plan | RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting rights, percentage		25.00%
Newly-hired employee | Vest ratably over 48 month period | 2015 Equity Incentive Plan | Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting period		36 months
Newly-hired employee | Vest ratably over 48 month period | 2015 Equity Incentive Plan | RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting period		3 years
Current employee | Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting period		48 months
Current employee | 2015 Equity Incentive Plan | RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option vesting period		4 years

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Stock-based Compensation - Fair Value of Options Granted Using the Black-Scholes Pricing Model (Details) - Stock options	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Volatility, minimum	44.20%	40.40%
Volatility, maximum	44.60%	42.70%
Risk-free interest rate, minimum	1.50%	1.30%
Risk-free interest rate, maximum	1.90%	1.30%
Dividend rate	0.00%	0.00%
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	6 years 7 days	5 years 6 months 29 days
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term (in years)	6 years 29 days	6 years 29 days

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Stock-based Compensation - Summary of Stock Option Activity (Details)	3 Months Ended
	Mar. 31, 2016 USD ($) $ / shares shares
Shares
Outstanding, beginning balance (in shares) | shares	11,068,859
Granted | shares	1,012,402
Exercised | shares	(446,395)
Forfeited/Cancelled | shares	(194,650)
Outstanding, ending balance | shares	11,440,216
Total exercisable at March 31, 2016 (in shares) | shares	7,102,871
Total vested and expected to vest at March 31, 2016 (in shares) | shares	10,994,483
Weighted-Average Exercise Price
Outstanding, beginning balance (in dollars per share) | $ / shares	$ 6.94
Granted | $ / shares	8.35
Exercised | $ / shares	2.74
Forfeited/Cancelled | $ / shares	11.21
Outstanding, ending balance | $ / shares	7.18
Total exercisable at March 31, 2016 (in dollars per share) | $ / shares	5.13
Total vested and expected to vest at March 31, 2016 (in dollars per share) | $ / shares	$ 7.02
Weighted-Average Remaining Contract Term (in years)
Outstanding at March 31, 2016, Weighted-Average Remaining Contract Term	7 years 29 days
Total exercisable at March 31, 2016, Weighted-Average Remaining Contract Term	6 years 1 month 13 days
Total vested and expected to vest at March 31, 2016, Weighted-Average Remaining Contract Term	7 years 7 days
Outstanding at March 31, 2016, Aggregate Intrinsic Value | $	$ 32,991,516
Total exercisable at March 31, 2016, Aggregate Intrinsic Value | $	29,646,421
Total vested and expected to vest at March 31, 2016, Aggregate Intrinsic Value | $	$ 32,718,638

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Stock-based Compensation - Summary of Unvested RSUs (Details) - RSUs	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Shares
Unvested at December 31, 2015 (in shares) | shares	395,846
Granted | shares	1,253,657
Vested | shares	(3,500)
Forfeited/Cancelled | shares	(23,195)
Unvested at March 31, 2016 | shares	1,622,808
Total expected to vest at March 31, 2016 | shares	1,421,340
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Unvested at December 31, 2015 (in dollars per share) | $ / shares	$ 13.70
Granted | $ / shares	8.31
Vested | $ / shares	11.49
Forfeited/Cancelled | $ / shares	12.35
Unvested at March 31, 2016 | $ / shares	9.56
Total expected to vest at March 31, 2016 (in dollars per share) | $ / shares	$ 9.54

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Stock-based Compensation - Allocated Share-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 3,237	$ 3,974
Cost of revenue
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	200	408
Marketing
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	178	103
Product development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	857	544
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 2,002	$ 2,919

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Income Taxes (Details) - USD ($) $ in Millions	1 Months Ended	3 Months Ended
	Jan. 31, 2015	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Income Tax Contingency [Line Items]
Deferred tax liability for gain in revised corporate structure transaction	$ 66.0
Deferred charge amortization period	5 years
Deferred charge amortized to income tax expense		$ 9.5	$ 7.9
Unrecognized tax benefits that would impact effective tax rate favorably		9.0
Other Liabilities
Income Tax Contingency [Line Items]
Increase in unrecognized tax benefits		0.4
Unrecognized tax benefits		$ 22.6		$ 22.2

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Fair Value Measurements - Schedule of Major Categories of Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - Recurring - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 94,926	$ 212,393
Short-term investments	111,297
Long-term investments	12,061
Asset	218,284	234,013
Liability	2,773	2,357
Acquisition–related contingent consideration classified as liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability	2,773	2,357
Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	90,411	212,390
U.S. Government bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	4,515	3
U.S. Government and agency bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	32,292	21,620
Long-term investments	9,026
Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	20,938
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	54,014
Long-term investments	3,035
Yankee bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	4,053
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	94,926	212,393
Short-term investments	32,292
Long-term investments	9,026
Asset	136,244	234,013
Liability	0	0
Level 1 | Acquisition–related contingent consideration classified as liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability	0	0
Level 1 | Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	90,411	212,390
Level 1 | U.S. Government bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	4,515	3
Level 1 | U.S. Government and agency bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	32,292	21,620
Long-term investments	9,026
Level 1 | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0
Level 1 | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0
Long-term investments	0
Level 1 | Yankee bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Short-term investments	79,005
Long-term investments	3,035
Asset	82,040	0
Liability	0	0
Level 2 | Acquisition–related contingent consideration classified as liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability	0	0
Level 2 | Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level 2 | U.S. Government bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level 2 | U.S. Government and agency bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0	0
Long-term investments	0
Level 2 | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	20,938
Level 2 | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	54,014
Long-term investments	3,035
Level 2 | Yankee bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	4,053
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Short-term investments	0
Long-term investments	0
Asset	0	0
Liability	2,773	2,357
Level 3 | Acquisition–related contingent consideration classified as liability
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Liability	2,773	2,357
Level 3 | Money market funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level 3 | U.S. Government bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Level 3 | U.S. Government and agency bills
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0	$ 0
Long-term investments	0
Level 3 | Commercial paper
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0
Level 3 | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	0
Long-term investments	0
Level 3 | Yankee bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	$ 0

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Fair Value Measurements - Schedule of Unobservable Inputs Reconciliation (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning of period	$ 2,357
Acquired	0
Changes to liability-classified stock awards	416
Settled	0
Balance at end of period	$ 2,773

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Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Cost	$ 123,282	$ 21,636
Gross Unrealized Holding Loss	(10)	(16)
Gross Unrealized Holding Gain	86	0
Fair Value	123,358	21,620
Commercial paper
Schedule of Available-for-sale Securities [Line Items]
Cost	20,938
Gross Unrealized Holding Loss	0
Gross Unrealized Holding Gain	0
Fair Value	20,938
Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Cost	56,982
Gross Unrealized Holding Loss	(5)
Gross Unrealized Holding Gain	72
Fair Value	57,049
U.S. Government and agency bills
Schedule of Available-for-sale Securities [Line Items]
Cost	41,310	21,636
Gross Unrealized Holding Loss	(5)	(16)
Gross Unrealized Holding Gain	13	0
Fair Value	41,318	$ 21,620
Yankee bonds
Schedule of Available-for-sale Securities [Line Items]
Cost	4,052
Gross Unrealized Holding Loss	0
Gross Unrealized Holding Gain	1
Fair Value	$ 4,053

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Net (Loss) Income Per Share - Calculation of Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Numerator:
Net (loss) income	$ 1,192	$ (36,586)
Net income allocated to participating securities under the two-class method	(7)	0
Net (loss) income applicable to common stockholders	$ 1,185	$ (36,586)
Denominator:
Weighted average common shares outstanding—basic (1)	112,129,470	43,703,508
Common equivalent shares from options to purchase common stock and restricted stock units	3,161,056	0
Dilutive effect of assumed conversion of warrants	78,040	0
Weighted average common shares outstanding—diluted	115,368,566	43,703,508
Net (loss) income per share applicable to common stockholders—basic (in dollars per share)	$ 0.01	$ (0.84)
Net (loss) income per share applicable to common stockholders—diluted (in dollars per share)	$ 0.01	$ (0.84)
Shares of unvested restricted stock considered participating securities	618,718

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Net (Loss) Income Per Share - Summary of Shares Excluded from the Calculation of Diluted Net Loss Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	5,008,364	65,660,696
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	4,394,503	12,009,423
Restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	613,861	0
Warrants
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	0	203,030
Convertible preferred stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per share	0	53,448,243

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Segment and Geographic Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenue, Major Customer [Line Items]
Revenue	$ 81,847	$ 58,543
United States
Revenue, Major Customer [Line Items]
Revenue	63,041	45,752
International
Revenue, Major Customer [Line Items]
Revenue	$ 18,806	$ 12,791

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Contingencies (Details) - USD ($) $ in Millions	Mar. 31, 2016	Dec. 31, 2015
Non-income Tax Obligations
Loss Contingencies [Line Items]
Non-income tax obligation reserve	$ 2.7	$ 2.6