0001370637-22-000049.txt : 20220506 0001370637-22-000049.hdr.sgml : 20220506 20220504182943 ACCESSION NUMBER: 0001370637-22-000049 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 76 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220505 DATE AS OF CHANGE: 20220504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ETSY INC CENTRAL INDEX KEY: 0001370637 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36911 FILM NUMBER: 22893231 BUSINESS ADDRESS: STREET 1: 117 ADAMS STREET CITY: BROOKLYN STATE: NY ZIP: 11201 BUSINESS PHONE: (718) 880-3660 MAIL ADDRESS: STREET 1: 117 ADAMS STREET CITY: BROOKLYN STATE: NY ZIP: 11201 10-Q 1 etsy-20220331.htm 10-Q etsy-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
☒
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period endedMarch 31, 2022
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-20220331_g1.jpg
ETSY, INC.
(Exact name of registrant as specified in its charter)
__________________________________
Delaware20-4898921
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
117 Adams StreetBrooklyn,NY11201
(Address of principal executive offices)(Zip code)
(718) 880-3660
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock$0.001 par value per shareETSYThe Nasdaq Global Select Market
    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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☒Accelerated Filer ☐
Non-accelerated Filer ☐Smaller Reporting Company ☐
Emerging Growth Company
☐
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
    The number of shares of common stock outstanding as of April 29, 2022 was 127,119,018.


etsy-20220331_g1.jpg
Table of Contents
Part I - Financial Information
Item 1.Condensed Consolidated Financial Statements (Unaudited)
Notes to Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II - Other Information
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
Signatures


Unless the context otherwise requires, we use the terms “Etsy,” the “Company,” “we,” “us,” and “our” in this Quarterly Report on Form 10-Q (“Quarterly Report”) to refer to Etsy, Inc. and, where appropriate, our consolidated subsidiaries.
See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating and Financial Metrics” for the definitions of the following terms used in this Quarterly Report: “active buyer,” “active seller,” “Adjusted EBITDA,” “GMS,” “non-U.S. GMS,” “mobile GMS,” and “currency-neutral GMS growth.”
Etsy has used, and intends to continue using, its investor relations website and the Etsy News Blog (blog.etsy.com/news) to disclose material non-public information and to comply with its disclosure obligations under Regulation FD. Accordingly, you should monitor our investor relations website and the Etsy News Blog in addition to following our press releases, SEC filings, and public conference calls and webcasts.


Note Regarding Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements relating to our opportunity; the impact of our “Right to Win” and other growth strategies, including our strategies for integrating our “House of Brands” marketplaces, marketing and product initiatives, and investments and other levers of growth on our business and operating results, including future gross merchandise sales (“GMS”) and revenue growth; the impact of our Offsite Ads offering on our future financial performance; our ability to attract, engage, and retain buyers and sellers; strategic investments or acquisitions and the potential benefits thereof; our intended environmental and social impacts; the global macroeconomic uncertainty, including additional or unforeseen impacts that the COVID-19 pandemic and general market, political, economic, and business conditions may have on our business, strategy, operating results, key metrics, financial condition, profitability, and cash flows; changes in overall levels of consumer spending and e-commerce generally; and volatility in the global economy. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “aim,” “anticipate,” “believe,” “could,” “enable,” “estimate,” “expect,” “goal,” “intend,” “may,” “plan,” “potential,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and derivative forms and/or negatives of those terms.
Forward-looking statements are not guarantees of performance and involve known and unknown risks and uncertainties. Other factors 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 Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should read this Quarterly Report in its entirety and not place undue reliance on any forward-looking statements in this Quarterly Report.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report and, although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
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 Quarterly Report. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. In addition, global macroeconomic uncertainty, including additional or unforeseen effects from the COVID-19 pandemic and general market, political, economic, and business conditions, may amplify many of these risks.
Forward-looking statements represent our beliefs and assumptions only as of the date of this Quarterly Report. We disclaim any obligation to update forward-looking statements.
Summary Risk Factors
Our business is subject to numerous risks. The following summary highlights some of the risks we are exposed to in the normal course of our business activities. This summary is not complete and the risks summarized below are not the only risks we face. You should review and consider carefully the risks and uncertainties described in more detail in Part II, Item 1A, “Risk Factors,” which includes a more complete discussion of the risks summarized below as well as a discussion of other risks related to our business and an investment in our common stock.
Financial Performance and Operational Risks Related to Our Business
•We experienced rapid growth during the early part of the pandemic, and we may not have the infrastructure, human resources, or operational resources or otherwise be able to sustain continued growth at our recent pace.
•The ongoing, unprecedented COVID-19 pandemic has impacted, and may continue to impact, our GMS and could impact our results of operations in numerous volatile and unpredictable ways.
•Our quarterly operating results may fluctuate, which could cause our stock price to decline. The price of our common stock has been and will likely continue to be volatile and declines in the price of our common stock could subject us to litigation.
•We may fail to meet our publicly announced guidance or other expectations about our business and future operating results, which could cause our stock price to decline.

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•Our business could suffer if we experience a technology disruption that results in a loss of information, if personal data or sensitive information about users or employees is misused or disclosed, or if we or our third-party providers are unable to protect against technology vulnerabilities, service interruptions, security breaches, or other cyber incidents.
•The trustworthiness of our marketplaces and the connections within our communities are important to our success. Our business, financial performance, and growth depend on our ability to attract and retain active and engaged communities of buyers and sellers. If we are unable to retain our existing buyers and sellers and activate new ones, our financial performance could decline.
•Our business depends on continued and unimpeded access to third-party services, platforms, and infrastructure that we rely upon to maintain and scale our platforms.
•We have experienced rapid domestic and global growth, and we may be subject to expanded and potentially uninsured risk, making it more difficult for us to maintain profitability in the future.
•Our business could be adversely affected by economic downturns, inflation, natural disasters, public health crises, political crises, geopolitical changes, such as the crisis in Ukraine, or other macroeconomic conditions, which have in the past and may in the future negatively impact our business and financial performance.
•Our ability to attract and hire a diverse pipeline of talent and retain key employees is important to our success. If we experience significant attrition or turnover it could impact our ability to grow our business.
Strategic Risks Related to Our Business and Industry
•We face intense competition and may not be able to compete effectively.
•If we are not able to keep pace with technological changes, and enhance current and develop new offerings to respond to the changing needs of sellers and buyers, our business, financial performance, and growth may be harmed.
•If the widely adopted mobile, social, search, and/or advertising solutions that we, our sellers, and our buyers rely on as part of our key offering are no longer available or effective, or if access to these major platforms is limited, the use of our marketplaces could decline.
•If we do not demonstrate progress against our environmental, social, and governance impact strategy (our “Impact strategy”) or if this strategy is not perceived to be adequate, our reputation could be harmed. Our reputation and the value of our brands may also be damaged if we fail to demonstrate that our commitment to our Impact strategy enhances our overall financial performance.
•Expanding our operations outside of the United States is part of our strategy, and the growth of our business could be harmed if our international expansion efforts do not succeed.
•Our recent acquisitions of Depop Limited (“Depop”) and Elo7 Serviços de Informática S.A. (“Elo7”) may create strains on our management, technology, and operational resources and may prove to be costlier and take longer to integrate than we anticipate, which may ultimately reduce or eliminate the benefits to Etsy of the acquisitions.
•We may expand our business through additional acquisitions of other businesses or assets or strategic partnerships and investments, which may divert management’s attention and/or prove to be unsuccessful.
•We have a significant amount of convertible debt that may be settled in cash and may incur additional debt in the future.
Regulatory, Compliance, and Legal Risks
•Compliance and protection under evolving global legal and regulatory requirements including privacy and data protection laws, tax laws, product liability laws, antitrust laws, intellectual property and counterfeiting regulations, may materially impact our time, resources, and ability to grow our business.
•Expanding our operations in Latin America and India may expose us to additional risks.
•We have been involved in, and in the future may be involved in, litigation and regulatory matters that are expensive and time consuming and that may require changes to our strategy, the features of our marketplaces and/or how our business operates.
•We may be subject to intellectual property or other claims, which, even if untrue, could damage our brands, require us to pay significant damages, and could limit our ability to use certain technologies or business strategies in the future.

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Other Risks
•Future sales and issuances of our common stock, or rights to purchase common stock, including upon conversion of our convertible notes, could result in additional dilution to our stockholders and could cause the price of our common stock to decline.

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Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited).
Etsy, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share amounts)
As of March 31,
2022		As of December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$756,237 $780,196 
Short-term investments225,983 204,416 
Accounts receivable, net of expected credit losses of $8,407 and $7,730 as of March 31, 2022 and December 31, 2021, respectively
20,645 27,266 
Prepaid and other current assets101,123 109,417 
Funds receivable and seller accounts191,149 220,206 
Total current assets1,295,137 1,341,501 
Restricted cash5,341 5,341 
Property and equipment, net of accumulated depreciation and amortization of $169,358 and $157,043 as of March 31, 2022 and December 31, 2021, respectively
271,333 275,062 
Goodwill1,364,414 1,371,064 
Intangible assets, net of accumulated amortization of $63,686 and $53,152 as of March 31, 2022 and December 31, 2021, respectively
595,305 607,170 
Deferred tax assets102,991 95,863 
Long-term investments61,612 85,034 
Other assets49,042 50,774 
Total assets$3,745,175 $3,831,809 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$15,734 $28,007 
Accrued expenses241,349 328,118 
Finance lease obligations—current2,455 2,418 
Funds payable and amounts due to sellers191,149 220,206 
Deferred revenue12,503 12,339 
Other current liabilities20,015 24,500 
Total current liabilities483,205 615,588 
Finance lease obligations—net of current portion108,857 110,283 
Deferred tax liabilities77,027 79,484 
Long-term debt, net2,276,480 2,275,418 
Other liabilities122,739 122,417 
Total liabilities3,068,308 3,203,190 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 126,969,418 and 127,022,118 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)
127 127 
Preferred stock ($0.001 par value, 25,000,000 shares authorized as of March 31, 2022 and December 31, 2021)
— — 
Additional paid-in capital672,486 631,762 
Retained earnings95,285 71,744 
Accumulated other comprehensive loss(91,031)(75,014)
Total stockholders’ equity676,867 628,619 
Total liabilities and stockholders’ equity$3,745,175 $3,831,809 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
 
 Three Months Ended 
 March 31,
 20222021
Revenue$579,266 $550,646 
Cost of revenue172,995 142,917 
Gross profit406,271 407,729 
Operating expenses:
Marketing154,280 151,204 
Product development89,476 53,706 
General and administrative78,200 52,182 
Total operating expenses321,956 257,092 
Income from operations84,315 150,637 
Other income, net1,672 7,091 
Income before income taxes85,987 157,728 
Benefit (provision) for income taxes122 (13,962)
Net income$86,109 $143,766 
Net income per share attributable to common stockholders:
Basic$0.68 $1.14 
Diluted$0.60 $1.00 
Weighted-average common shares outstanding:
Basic127,149,293 126,214,735 
Diluted146,677,879 144,714,686 

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

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Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
 
 Three Months Ended 
 March 31,
 20222021
Net income$86,109 $143,766 
Other comprehensive loss:
Cumulative translation adjustment(14,703)(11,064)
Unrealized losses on marketable securities, net of tax benefit of $418 and $80, respectively
(1,314)(255)
Total other comprehensive loss(16,017)(11,319)
Comprehensive income$70,092 $132,447 

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

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Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)
Three Months Ended March 31, 2022
 Common StockAdditional
Paid-in Capital		Retained EarningsAccumulated Other Comprehensive LossTotal
 
 SharesAmount
Balance as of December 31, 2021127,022,118 $127 $631,762 $71,744 $(75,014)$628,619 
Stock-based compensation (1)28,010 — 51,014 — — 51,014 
Exercise of vested options250,345 — 3,394 — — 3,394 
Settlement of convertible senior notes, net of taxes58 — — — — — 
Vesting of restricted stock units, net of shares withheld89,285 — (13,684)— — (13,684)
Stock repurchase(420,398)— — (62,568)— (62,568)
Other comprehensive loss— — — — (16,017)(16,017)
Net income— — — 86,109 — 86,109 
Balance as of March 31, 2022126,969,418 $127 $672,486 $95,285 $(91,031)$676,867 
(1) Includes the partial payment of Depop deferred consideration.
Three Months Ended March 31, 2021
Common StockAdditional
Paid-in Capital		(Accumulated Deficit)
Retained Earnings		Accumulated Other Comprehensive Income (Loss)Total
SharesAmount
Balance as of December 31, 2020125,835,931 $126 $883,166 $(146,819)$5,951 $742,424 
Cumulative effect of adoption of accounting standard changes— — (228,738)27,828 — (200,910)
Stock-based compensation— — 20,976 — — 20,976 
Exercise of vested options217,293 — 3,930 — — 3,930 
Settlement of convertible senior notes, net of taxes625,022 1 (292)— — (291)
Vesting of restricted stock units, net of shares withheld107,322 — (14,802)— — (14,802)
Other comprehensive loss— — — — (11,319)(11,319)
Net income— — — 143,766 — 143,766 
Balance as of March 31, 2021126,785,568 $127 $664,240 $24,775 $(5,368)$683,774 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Three Months Ended 
 March 31,
 20222021
Cash flows from operating activities
Net income$86,109 $143,766 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense49,271 20,351 
Depreciation and amortization expense24,754 13,080 
Provision for expected credit losses3,109 4,601 
Foreign exchange gain(5,567)(4,395)
Deferred benefit for income taxes(10,517)(3,068)
Other non-cash expense, net3,321 1,455 
Changes in operating assets and liabilities:
Current assets32,195 (11,580)
Non-current assets1,711 1,231 
Current liabilities(126,048)(16,597)
Non-current liabilities1,206 (379)
Net cash provided by operating activities59,544 148,465 
Cash flows from investing activities
Purchases of property and equipment(3,212)(526)
Development of internal-use software(6,005)(3,226)
Purchases of marketable securities(76,416)(268,972)
Sales and maturities of marketable securities75,478 91,714 
Net cash used in investing activities(10,155)(181,010)
Cash flows from financing activities
Payment of tax obligations on vested equity awards(12,288)(14,802)
Repurchase of stock(62,568)— 
Proceeds from exercise of stock options3,394 3,930 
Payment of debt issuance costs (25)(25)
Settlement of convertible senior notes(5)(27,319)
Payments on finance lease obligations(1,598)(2,421)
Other financing, net807 1,259 
Net cash used in financing activities(72,283)(39,378)
Effect of exchange rate changes on cash(1,065)(8,498)
Net decrease in cash, cash equivalents, and restricted cash(23,959)(80,421)
Cash, cash equivalents, and restricted cash at beginning of period785,537 1,249,440 
Cash, cash equivalents, and restricted cash at end of period$761,578 $1,169,019 


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Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended 
 March 31,
20222021
Supplemental non-cash disclosures:
Deferred consideration$3,822 $— 
Stock-based compensation capitalized in development of capitalized software and asset additions in exchange for liabilities$3,961 $954 
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown above:
Three Months Ended 
 March 31,
20222021
Beginning balance:
Cash and cash equivalents$780,196 $1,244,099 
Restricted cash5,341 5,341 
Total cash, cash equivalents, and restricted cash$785,537 $1,249,440 
Ending balance:
Cash and cash equivalents$756,237 $1,163,678 
Restricted cash5,341 5,341 
Total cash, cash equivalents, and restricted cash$761,578 $1,169,019 

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

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Etsy, Inc.
Notes to Condensed Consolidated Financial Statements

Note 1—Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Etsy operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. These marketplaces - which collectively create a “House of Brands” - share the Company’s mission, common levers for growth, similar business models, and a strong commitment to use the power of business and technology to strengthen communities and empower people. The Company’s primary marketplace, Etsy.com, is the global destination for unique and creative goods. The Company generates revenue primarily from marketplace activities, including transaction, listing, and payments processing fees, and fees for optional seller services, which include on-site advertising and shipping label services.
Basis of Consolidation
The condensed consolidated financial statements include the accounts of Etsy, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. On July 12, 2021, Etsy acquired all of the issued share capital of Depop Limited (“Depop”) pursuant to a share purchase, and on July 2, 2021, Etsy acquired all the outstanding shares of Elo7 Serviços de Informática S.A. (“Elo7”) by means of a merger. The financial results of Depop and Elo7 have been included in Etsy’s condensed consolidated financial statements from the respective dates of acquisition. See “Note 5—Business Combinations.”
Reclassification
Certain items in the prior years’ condensed consolidated financial statements have been reclassified to conform to the current year presentation reflected in the condensed consolidated financial statements.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the applicable rules and regulations of the Securities and Exchange Commission (“SEC”). The Company has condensed or omitted certain information and notes normally included in complete annual financial statements prepared in accordance with GAAP. These unaudited interim condensed consolidated financial statements should therefore be read in conjunction with the audited condensed consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2022 (the “Annual Report”). In the opinion of management, all material adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results for the periods presented have been reflected in the condensed consolidated financial statements. The results of operations of any interim period are not necessarily indicative of the results of operations for the full annual period or any future period due to seasonal and other factors.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and judgments. The accounting estimates that require management’s most subjective judgments include: stock-based compensation; income taxes, including the estimate of the annual effective tax rate at interim periods and evaluation of uncertain tax positions; the valuation of acquired intangible assets, developed technology, and goodwill as part of purchase price allocations for business combinations; valuation of goodwill; and leases. As of March 31, 2022, the effects of global macroeconomic uncertainty, including the ongoing COVID-19 pandemic and general market, political, and economic conditions, on the Company’s business, results of operations, and financial condition continue to evolve. As a result, many of the Company’s estimates and judgments require increased judgment and carry a higher degree of variability and volatility. As additional information becomes available, the Company’s estimates may change materially in future periods.

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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 2—Revenue
The following table summarizes revenue disaggregated by Marketplace revenue and optional Services revenue for the periods presented (in thousands):
Three Months Ended 
 March 31,
20222021
Marketplace revenue$427,691 $413,642 
Services revenue151,575 137,004 
Revenue$579,266 $550,646 
Contract balances
Deferred revenues
The amount of revenue recognized in the three months ended March 31, 2022 that was included in the deferred balance at January 1, 2022 was $11.8 million.

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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 3—Income Taxes
The Company’s provision or benefit from income taxes in interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter the Company updates its estimate of the annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment. The estimate of the annual effective income tax rate for the full year is applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year.
The Company’s quarterly tax provision, and its quarterly estimate of the annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting its income or loss before tax and the mix of jurisdictions to which they relate, taxable income or loss in each jurisdiction, changes in its stock price, audit-related developments, acquisitions, changes in its deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions, and relative changes of expenses or losses for which tax benefits are not recognized. Additionally, the effective tax rate can be more or less volatile based on the amount of income or loss before tax. For example, the impact of discrete items and non-deductible expenses on the effective tax rate is greater when income before income taxes is lower.
For the three months ended March 31, 2022, the Company’s effective income tax rate was (0.1)% representing an income tax benefit recorded on net income before tax. The effective tax rate for the three months ended March 31, 2022 was lower than the U.S. statutory rate of 21% primarily due to excess tax benefits from employee stock-based compensation, the impact from foreign operations, and a benefit related to a research and development tax credit, partially offset by state income taxes.
Although management believes its tax positions and related provisions reflected in the condensed consolidated financial statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretation of tax laws, developments in case law and closing of statute of limitations. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in the provision for income taxes.
The provision for income taxes involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdictions in which the Company operates. Future changes in applicable laws, projected levels of taxable income and tax planning could change the effective tax rate and tax balances recorded by the Company. In addition, tax authorities periodically review income tax returns filed by the Company and can raise issues regarding its filing positions, timing and amount of income and deductions, and the allocation of income among the jurisdictions in which the Company operates. A significant period of time may elapse between the filing of an income tax return and the ultimate resolution of an issue raised by a revenue authority with respect to that return. Any adjustments as a result of any examination, may result in additional taxes or penalties against the Company. If the ultimate result of these audits differ from original or adjusted estimates, they could have a material impact on the Company’s tax provision.
The amount of unrecognized tax benefits included in the Consolidated Balance Sheets increased $0.7 million in the three months ended March 31, 2022, from $28.8 million as of December 31, 2021 to $29.5 million as of March 31, 2022. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $28.4 million as of March 31, 2022. Although the timing of the resolution and/or closure of audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. The Company’s reasonable estimate of its gross unrecognized tax benefits, excluding interest and penalties, that could potentially be reduced during the next 12 months is $2.6 million.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 4—Net Income Per Share
The following table presents the calculation of basic and diluted net income per share for the periods presented (in thousands, except share and per share amounts):
 Three Months Ended 
 March 31,
 20222021
Numerator:
Net income$86,109 $143,766 
Add back interest expense, net of tax attributable to assumed conversion of convertible senior notes1,592 784 
Net income attributable to common stockholders—diluted$87,701 $144,550 
Denominator:
Weighted-average common shares outstanding—basic127,149,293 126,214,735 
Dilutive effect of assumed conversion of options to purchase common stock3,303,488 4,405,537 
Dilutive effect of assumed conversion of restricted stock units1,509,044 2,311,459 
Dilutive effect of assumed conversion of convertible senior notes (1)14,716,054 11,782,955 
Weighted-average common shares outstanding—diluted146,677,879 144,714,686 
Net income per share attributable to common stockholders—basic$0.68 $1.14 
Net income per share attributable to common stockholders—diluted$0.60 $1.00 
(1)The $1.0 billion aggregate principal amount of 0.25% Convertible Senior Notes due 2028 (the “2021 Notes”), $650.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2027 (the “2020 Notes”), $650.0 million aggregate principal amount of 0.125% Convertible Senior Notes due 2026 (the “2019 Notes”), and 0% Convertible Senior Notes due 2023 (the “2018 Notes” and together with the 2021 Notes, 2020 Notes, and the 2019 Notes, the “Notes”) were dilutive for the three months ended March 31, 2022 and March 31, 2021. The Company used the if-converted method when calculating the dilutive effect of the Notes for both the three months ended March 31, 2022 and March 31, 2021.
The following potential common shares were excluded from the calculation of diluted net income per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:
 Three Months Ended 
 March 31,
 20222021
Stock options198,081 32,992 
Restricted stock units1,853,488 114,953 
Total anti-dilutive securities2,051,569 147,945 

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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 5—Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. The purchase price is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. The excess of the purchase price over the estimated fair value of the net assets acquired is recorded as goodwill. The results of businesses acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition.
Depop Acquisition
On July 12, 2021, the Company acquired all of the issued share capital of Depop, an online global peer-to-peer fashion resale marketplace. The Company believes Depop extends its market opportunity in the high frequency apparel sector, specifically in the fast-growing resale space, and deepens the Company’s reach into the Gen Z consumer. The fair value of consideration transferred of $1.493 billion consisted of: (1) cash consideration paid of $1.489 billion, net of cash acquired and (2) non-cash consideration of $4.8 million representing the portion of the replacement equity awards issued in connection with the acquisition that was associated with services rendered through the date of the acquisition. The portion of the replacement equity awards associated with services rendered post-acquisition is recorded as post-combination expense on a straight-line basis over the remaining vesting period of the awards. Additionally, deferred consideration awards issued to certain Depop executives are also recorded as post-combination expense on a straight-line basis over the mandatory service period associated with the deferred consideration. Neither of these awards was included in the fair value of the consideration transferred. See Note 11—Stock-Based Compensation for more information on these awards.
Goodwill consists largely of assembled workforce, expanded market opportunities, and value creation across the Company’s businesses. The resulting goodwill is not expected to be deductible for tax purposes.
The Company finalized the valuation of assets acquired and liabilities assumed for the acquisition of Depop as of December 31, 2021.
Depop Purchase Price Allocation
The following table summarizes the allocation of the purchase price (at fair value) to the assets acquired and liabilities of Depop assumed as of July 12, 2021 (the date of acquisition) (in thousands):
Final Purchase Price Allocation as AdjustedEstimated Useful Life (in years)
Current assets$4,288 
Property and equipment other1,299 
2-5
Developed technology95,764 5
Trademark249,820 20
Customer relationships148,504 13
Goodwill1,118,855 Indefinite
Current liabilities
(18,878)
Non-current liabilities (1)(27,957)
Deferred tax liability, net(78,872)
Total purchase price$1,492,823 
(1)Non-current liabilities are primarily related to non-income tax related contingency reserves.




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Etsy, Inc.
Notes to Consolidated Financial Statements
Elo7 Acquisition
On July 2, 2021, the Company acquired all the outstanding shares of Elo7 (including Elo7, Ltd. and related subsidiaries entities), by means of a merger, an e-commerce marketplace in Brazil focused on unique, handmade items. The Company sees significant potential in Brazil's e-commerce sector, which is still in early stages of development and fueled by one of the largest economies in the world. The Company believes having a well-known local brand will help Etsy to better capitalize on this opportunity. The fair value of consideration transferred of $212.1 million consisted of: (1) cash consideration paid of $211.3 million, net of cash acquired, and (2) non-cash consideration of $0.8 million representing the portion of the replacement equity awards issued in connection with the acquisition that was associated with services rendered through the date of the acquisition. The portion of the replacement equity awards associated with services rendered post-acquisition are recorded as post-combination expense on a straight-line basis over the remaining vesting period of the awards, and were therefore not included in the fair value of the consideration transferred. See Note 11—Stock-Based Compensation for more information on these awards.
Goodwill consists largely of assembled workforce, expanded market opportunities, and value creation across the Company’s businesses. The resulting goodwill is not expected to be deductible for tax purposes.
The Company finalized the valuation of assets acquired and liabilities assumed for the acquisition of Elo7 as of December 31, 2021.
Elo7 Purchase Price Allocation
The following table summarizes the allocation of the purchase price (at fair value) to the assets acquired and liabilities assumed of Elo7 as of July 2, 2021 (the date of acquisition) (in thousands):
Final Purchase Price Allocation as AdjustedEstimated Useful Life (in years)
Current assets$2,721 
Developed technology12,084 5
Trademark22,187 15
Customer relationships44,374 15
Goodwill157,187 Indefinite
Non-current assets
2,412 
Current liabilities
(3,406)
Non-current liabilities
(2,691)
Deferred tax liability, net(22,727)
Total purchase price$212,141 
Acquisition-Related Expenses
Acquisition-related expenses are expensed as incurred. They were recorded in general and administrative expenses and were $0.9 million for the three months ended March 31, 2022.


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Etsy, Inc.
Notes to Consolidated Financial Statements
Unaudited Supplemental Pro Forma Information
The following unaudited pro forma summary presents consolidated information of the Company, including Depop and Elo7, as if the business combinations had occurred on January 1, 2020 (in thousands):
Three Months Ended March 31, 2021
Revenue$573,407 
Net income133,465 
The pro forma financial information includes adjustments that are directly attributable to the business combinations and are factually supportable. The pro forma adjustments include incremental amortization of intangible and developed technology assets, and remove non-recurring transaction costs directly associated with the acquisitions, such as legal and other professional service fees, and the pro forma tax impact for such adjustments. Cost savings or operating synergies expected to result from the acquisitions are not included in the pro forma results. For the three months ended March 31, 2021, the pro forma financial information excludes $0.1 million of non-recurring acquisition-related expenses. These pro forma results are illustrative only and not indicative of the actual results of operations that would have been achieved nor are they indicative of future results of operations.


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Etsy, Inc.
Notes to Consolidated Financial Statements
Note 6—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 Sheets are categorized based on the inputs to valuation techniques as follows:
Level 1 These are investments where values are based on unadjusted quoted prices for identical assets in an active market that the Company has the ability to access.
Level 2 These are investments where values are based on quoted market prices in markets that are not active or model derived valuations in which all significant inputs are observable in active markets.
Level 3 These are financial instruments where values are derived from techniques in which one or more significant inputs are unobservable. The Company did not have any Level 3 instruments as of March 31, 2022 and December 31, 2021.
Short- and long-term investments and certain cash equivalents consist of investments in debt securities that are available-for-sale. The following table sets forth the cost, gross unrealized losses, gross unrealized gains, and fair values of the Company’s investments as of the dates indicated (in thousands):
 CostGross
Unrealized
Holding
Loss		Gross
Unrealized
Holding
Gain		Fair ValueCash and Cash EquivalentsShort-term InvestmentsLong-term Investments
March 31, 2022
Cash$196,005 $— $— $196,005 $196,005 $— $— 
Level 1
Money market funds547,825 — — 547,825 547,825 — — 
U.S. Government and agency securities63,432 (290)— 63,142 — 55,264 7,878 
611,257 (290)— 610,967 547,825 55,264 7,878 
Level 2
Certificate of deposit21,317 (35)7 21,289 2,166 19,123 — 
Commercial paper44,291 (100)4 44,195 10,241 33,954 — 
Corporate bonds173,228 (1,852)— 171,376 — 117,642 53,734 
238,836 (1,987)11 236,860 12,407 170,719 53,734 
$1,046,098 $(2,277)$11 $1,043,832 $756,237 $225,983 $61,612 
December 31, 2021
Cash $214,771 $— $— $214,771 $214,771 $— $— 
Level 1
Money market funds556,427 — — 556,427 556,427 — — 
U.S. Government and agency securities60,311 (55)11 60,267 — 52,632 7,635 
616,738 (55)11 616,694 556,427 52,632 7,635 
Level 2
Certificate of deposit20,709 (7)1 20,703 — 20,703 — 
Commercial paper25,235 (14)1 25,222 8,998 16,224 — 
Corporate bonds192,727 (481)10 192,256 — 114,857 77,399 
238,671 (502)12 238,181 8,998 151,784 77,399 
$1,070,180 $(557)$23 $1,069,646 $780,196 $204,416 $85,034 


19
Etsy, Inc.
Notes to Consolidated Financial Statements
The Company evaluates fair value for each individual security in the investment portfolio. All investments in an unrealized loss position have been in an unrealized loss position for less than 12 months as of March 31, 2022.
The Company typically invests in short- and long-term instruments, including fixed-income funds and U.S. Government and agency securities aligned with the Company’s investment strategy. The maturities of the Company’s non-current marketable debt securities generally range from greater than 12 and up to 37 months.
Disclosure of Fair Values
The Company’s financial instruments that are not remeasured at fair value in the Consolidated Balance Sheets include the Notes. See “Note 8—Debt” for additional information. The Company estimates the fair value of the Notes through inputs that are observable in the market, classified as Level 2 as described above. The following table presents the carrying value and estimated fair value of the Notes as of the dates indicated (in thousands):
As of March 31, 2022As of December 31, 2021
Carrying ValueFair ValueCarrying ValueFair Value
2021 Notes$988,204 $879,601 $987,729 $1,165,519 
2020 Notes643,536 645,724 643,237 862,774 
2019 Notes644,680 1,039,288 644,390 1,644,869 
2018 Notes (1)60 205 62 375 
$2,276,480 $2,564,818 $2,275,418 $3,673,537 
(1)Contemporaneously with the partial repurchase of the 2018 Notes in the third quarter of 2020, the Company agreed with the counterparties to the associated capped call instrument (the “2018 Capped Call Transactions”) that the 2018 Capped Call Transactions would remain outstanding with a maturity of March 2023 and there was no exchange of any consideration for such agreement. See “Note 8—Debt” for more information on the Company’s capped call transactions.
The carrying value of other financial instruments, including accounts receivable, funds receivable and seller accounts, accounts payable, and funds payable and amounts due to sellers approximate fair value due to the immediate or short-term maturity associated with these instruments.
Note 7—Accrued Expenses
Accrued expenses consisted of the following as of the dates indicated (in thousands):
As of March 31,
2022		As of December 31,
2021
Pass-through marketplace tax collection obligation $100,715 $136,360 
Vendor accruals91,441 115,593 
Employee compensation-related liabilities28,878 66,477 
Taxes payable20,315 9,688 
Total accrued expenses$241,349 $328,118 


20
Etsy, Inc.
Notes to Consolidated Financial Statements
Note 8—Debt
The following table presents the outstanding principal amount and carrying value of the Notes as of the dates indicated (in thousands):
As of March 31, 2022
2021 Notes2020 Notes2019 Notes2018 NotesTotal
Principal$1,000,000 $650,000 $649,955 $60 $2,300,015 
Unamortized debt issuance costs11,796 6,464 5,275 — 23,535 
Net carrying value$988,204 $643,536 $644,680 $60 $2,276,480 
As of December 31, 2021
2021 Notes2020 Notes2019 Notes2018 NotesTotal
Principal$1,000,000 $650,000 $649,958 $62 $2,300,020 
Unamortized debt issuance costs12,271 6,763 5,568 — 24,602 
Net carrying value$987,729 $643,237 $644,390 $62 $2,275,418 
Terms of the Notes
The Notes will mature at their maturity date unless earlier converted or repurchased. The terms of the Notes are summarized below:
Convertible NotesMaturity DateContractual Convertibility Date (1)Initial Conversion Rate per $1,000 PrincipalInitial Conversion PriceAnnual Effective Interest Rate
2021 Notes
June 15, 2028February 15, 20284.0518 $246.80 0.4 %
2020 Notes
September 1, 2027May 1, 20275.0007 199.97 0.3 %
2019 Notes
October 1, 2026June 1, 202611.4040 87.69 0.3 %
2018 Notes
March 1, 2023November 1, 202227.5691 36.27 — %
(1)During any calendar quarter preceding the respective convertibility date of each series of Notes, in which the closing price of the Company’s common stock exceeds 130% of the applicable conversion price of the Notes on at least 20 of the last 30 consecutive trading days of the quarter, holders may, in the immediate quarter following, convert all or a portion of their Notes. Based on the daily closing prices of the Company’s stock during the quarter ended March 31, 2022, holders of the 2019 Notes and the remaining 2018 Notes are eligible to convert their 2019 Notes and 2018 Notes, respectively, and holders of the 2021 Notes and 2020 Notes are not eligible to convert their 2021 Notes and 2020 Notes, respectively, during the second quarter of 2022.
Based on the terms of each series of Notes, when a conversion notice is received, the Company has the option to pay or deliver cash, shares of the Company’s common stock, or a combination thereof. Accordingly, the Company cannot be required to settle the Notes in cash and, therefore, the Notes are classified as long-term debt as of March 31, 2022.
The Company may redeem all or any portion of the 2021 Notes, at the Company’s option, subject to partial redemption limitations, on or after June 20, 2025, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The Notes are general unsecured obligations of the Company. The Notes rank senior in right of payment to all of the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes; rank equal in right of payment with all of the Company’s liabilities that are not so subordinated; are effectively junior to any of the Company’s secured indebtedness; and are structurally junior to all indebtedness and liabilities (including trade payables) of the Company’s subsidiaries.

21
Etsy, Inc.
Notes to Consolidated Financial Statements
Interest Expense
Interest expense, which consists of coupon interest and amortization of debt issuance costs, related to each of the Notes for the periods presented below was as follows (in thousands):
Three Months Ended 
 March 31, 2022
2021 Notes2020 Notes2019 Notes2018 NotesTotal
Total interest expense$1,100 $501 $496 $— $2,097 
Three Months Ended 
 March 31, 2021
2021 Notes2020 Notes2019 Notes2018 NotesTotal
Total interest expense$— $502 $496 $32 $1,030 
Fair Value of Notes
The estimated fair value of each of the Notes was determined through inputs that are observable in the market, and are classified as Level 2. See “Note 6—Fair Value Measurements” for more information regarding the fair value of the Notes.
Capped Call Transactions
The Company used a portion of the net proceeds from each of the Notes offerings to enter into separate privately negotiated capped call instruments (the 2018, 2019, 2020, and 2021 capped call instruments collectively referred to as the “Capped Call Transactions”) with certain financial institutions, initial purchasers, and/or their respective affiliates. The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset the cash payments the Company is required to make in excess of the principal amount of the Notes upon conversion of the Notes in the event that the market price per share of the Company’s common stock is greater than the strike price of the Capped Call Transactions with such reduction and/or offset subject to a cap. Collectively, the Capped Call Transactions cover, initially, the number of shares of the Company’s common stock underlying the respective Notes, subject to anti-dilution adjustments substantially similar to those applicable to the Notes.
The initial terms of the Company’s Capped Call Transactions are presented below:
Capped Call TransactionsMaturity DateInitial Cap Price per ShareCap Price Premium
2021 Capped Call TransactionsJune 13, 2028$340.42 100 %
2020 Capped Call TransactionsSeptember 1, 2027327.83150 %
2019 Capped Call TransactionsOctober 1, 2026148.63150 %
2018 Capped Call TransactionsMarch 1, 202352.76100 %


22
Etsy, Inc.
Notes to Consolidated Financial Statements
2019 Credit Agreement
On February 25, 2019, the Company entered into a $200.0 million senior secured revolving credit facility pursuant to a Credit Agreement (the “2019 Credit Agreement”) with lenders party thereto from time to time, and Citibank N.A., as administrative Agent. The 2019 Credit Agreement will mature in February 2024. The 2019 Credit Agreement includes a letter of credit sublimit of $30.0 million and a swingline loan sublimit