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 ended	June 30, 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, 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.)
117 Adams Street	Brooklyn,	NY	11201
(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 class		Trading Symbol(s)	Name of each exchange on which registered
Common Stock	$0.001 par value per share	ETSY	The 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 July 22, 2022 was 126,608,897.

Table of Contents

Part I - Financial Information
6	Item 1.	Condensed Consolidated Financial Statements (Unaudited)
13		Notes to Condensed Consolidated Financial Statements
27	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
43	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
43	Item 4.	Controls and Procedures
Part II - Other Information
44	Item 1.	Legal Proceedings
44	Item 1A.	Risk Factors
76	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
76	Item 3.	Defaults Upon Senior Securities
76	Item 4.	Mine Safety Disclosures
76	Item 5.	Other Information
77	Item 6.	Exhibits
78		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; our ability to attract, engage, and retain buyers and sellers; strategic investments 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 there may not be sustained demand for our services or the products sold in our marketplaces. We also may not have the infrastructure, human resources, or operational resources or otherwise be able to support our recent growth.

•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.

3

•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 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”) have created and may continue to 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 incur impairment charges for our goodwill and other intangible assets, which would negatively impact our operating results.

•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.

4

•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.

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.

5

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 June 30, 2022		As of December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	758,874	$	780,196
Short-term investments	247,816		204,416
Accounts receivable, net of expected credit losses of $7,568 and $7,730 as of June 30, 2022 and December 31, 2021, respectively	20,133		27,266
Prepaid and other current assets	112,855		109,417
Funds receivable and seller accounts	180,544		220,206
Total current assets	1,320,222		1,341,501
Restricted cash	5,341		5,341
Property and equipment, net of accumulated depreciation and amortization of $180,162 and $157,043 as of June 30, 2022 and December 31, 2021, respectively	261,697		275,062
Goodwill	1,269,155		1,371,064
Intangible assets, net of accumulated amortization of $71,546 and $53,152 as of June 30, 2022 and December 31, 2021, respectively	550,925		607,170
Deferred tax assets	105,331		95,863
Long-term investments	46,944		85,034
Other assets	47,485		50,774
Total assets	$	3,607,100	$	3,831,809
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,929	$	28,007
Accrued expenses	218,029		328,118
Finance lease obligations—current	3,709		2,418
Funds payable and amounts due to sellers	180,544		220,206
Deferred revenue	11,873		12,339
Other current liabilities	17,818		24,500
Total current liabilities	449,902		615,588
Finance lease obligations—net of current portion	107,287		110,283
Deferred tax liabilities	68,639		79,484
Long-term debt, net	2,277,519		2,275,418
Other liabilities	122,458		122,417
Total liabilities	3,025,805		3,203,190
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 126,741,612 and 127,022,118 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)	127		127
Preferred stock ($0.001 par value, 25,000,000 shares authorized as of June 30, 2022 and December 31, 2021)	—		—
Additional paid-in capital	712,053		631,762
Retained earnings	106,241		71,744
Accumulated other comprehensive loss	(237,126)		(75,014)
Total stockholders’ equity	581,295		628,619
Total liabilities and stockholders’ equity	$	3,607,100	$	3,831,809

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

6

Etsy, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2022		2021		2022		2021
Revenue	$	585,135	$	528,900	$	1,164,401	$	1,079,546
Cost of revenue	171,421		148,969		344,416		291,886
Gross profit	413,714		379,931		819,985		787,660
Operating expenses:
Marketing	164,068		167,474		318,348		318,678
Product development	102,095		61,753		191,571		115,459
General and administrative	74,990		61,599		153,190		113,781
Total operating expenses	341,153		290,826		663,109		547,918
Income from operations	72,561		89,105		156,876		239,742
Other income (expense), net	601		(3,351)		2,273		3,740
Income before income taxes	73,162		85,754		159,149		243,482
(Provision) benefit for income taxes	(39)		12,500		83		(1,462)
Net income	$	73,123	$	98,254	$	159,232	$	242,020
Net income per share attributable to common stockholders:
Basic	$	0.58	$	0.77	$	1.25	$	1.91
Diluted	$	0.51	$	0.68	$	1.11	$	1.68
Weighted-average common shares outstanding:
Basic	127,088,053		126,977,990		127,171,302		126,659,372
Diluted	145,683,336		144,867,491		146,373,492		144,857,500

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

7

Etsy, Inc.

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

(In thousands)

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2022		2021		2022		2021
Net income	$	73,123	$	98,254	$	159,232	$	242,020
Other comprehensive (loss) income:
Cumulative translation adjustment	(145,596)		2,714		(160,299)		(8,350)
Unrealized (losses) gains on marketable securities, net of tax (benefit) expense of $(159), $5, $(576), and $(75), respectively	(499)		18		(1,813)		(237)
Total other comprehensive (loss) income	(146,095)		2,732		(162,112)		(8,587)
Comprehensive (loss) income	$	(72,972)	$	100,986	$	(2,880)	$	233,433

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

8

Etsy, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands, except share amounts)

	Three Months Ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2022	126,969,418	$	127	$	672,486	$	95,285	$	(91,031)	$	676,867
Stock-based compensation	—	—		63,997		—		—		63,997
Exercise of vested options	143,841	—		2,064		—		—		2,064
Settlement of convertible senior notes, net of taxes	101	—		—		—		—		—
Vesting of restricted stock units, net of shares withheld	319,244	1		(26,494)		—		—		(26,493)
Stock repurchase	(690,992)	(1)		—		(62,167)		—		(62,168)
Other comprehensive loss	—	—		—		—		(146,095)		(146,095)
Net income	—	—		—		73,123		—		73,123
Balance as of June 30, 2022	126,741,612	$	127	$	712,053	$	106,241	$	(237,126)	$	581,295

	Six Months Ended June 30, 2022
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of December 31, 2021	127,022,118	$	127	$	631,762	$	71,744	$	(75,014)	$	628,619
Stock-based compensation (1)	28,010	—		115,011		—		—		115,011
Exercise of vested options	394,186	—		5,458		—		—		5,458
Settlement of convertible senior notes, net of taxes	159	—		—		—		—		—
Vesting of restricted stock units, net of shares withheld	408,529	1		(40,178)		—		—		(40,177)
Stock repurchase	(1,111,390)	(1)		—		(124,735)		—		(124,736)
Other comprehensive loss	—	—		—		—		(162,112)		(162,112)
Net income	—	—		—		159,232		—		159,232
Balance as of June 30, 2022	126,741,612	$	127	$	712,053	$	106,241	$	(237,126)	$	581,295

(1) Includes the partial payment of Depop deferred consideration.

9

Etsy, Inc.

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(In thousands, except share amounts)

	Three Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance as of March 31, 2021	126,785,568	$	127	$	664,240	$	24,775	$	(5,368)	$	683,774
Stock-based compensation	—	—		28,381		—		—		28,381
Exercise of vested options	122,502	—		4,107		—		—		4,107
Purchase of capped calls, net of taxes	—	—		(64,673)		—		—		(64,673)
Settlement of convertible senior notes, net of taxes	360,059	—		(131)		—		—		(131)
Vesting of restricted stock units, net of shares withheld	311,905	1		(41,692)		—		—		(41,691)
Stock repurchase	(1,057,515)	(1)		—		(179,999)		—		(180,000)
Other comprehensive income	—	—		—		—		2,732		2,732
Net income	—	—		—		98,254		—		98,254
Balance as of June 30, 2021	126,522,519	$	127	$	590,232	$	(56,970)	$	(2,636)	$	530,753

	Six Months Ended June 30, 2021
	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total
	Shares	Amount
Balance as of December 31, 2020	125,835,931	$	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	—	—		49,357		—		—		49,357
Exercise of vested options	339,795	—		8,037		—		—		8,037
Purchase of capped calls, net of taxes	—	—		(64,673)		—		—		(64,673)
Settlement of convertible senior notes, net of taxes	985,081	1		(423)		—		—		(422)
Vesting of restricted stock units, net of shares withheld	419,227	1		(56,494)		—		—		(56,493)
Stock repurchase	(1,057,515)	(1)		—		(179,999)		—		(180,000)
Other comprehensive loss	—	—		—		—		(8,587)		(8,587)
Net income	—	—		—		242,020		—		242,020
Balance as of June 30, 2021	126,522,519	$	127	$	590,232	$	(56,970)	$	(2,636)	$	530,753

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

10

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended   June 30,
	2022		2021
Cash flows from operating activities
Net income	$	159,232	$	242,020
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	113,628		47,791
Depreciation and amortization expense	49,781		26,065
Provision for expected credit losses	5,409		9,890
Foreign exchange gain	(10,164)		(3,306)
Deferred benefit for income taxes	(14,941)		(21,128)
Other non-cash expense, net	4,658		2,893
Changes in operating assets and liabilities:
Current assets	20,148		6,599
Non-current assets	2,437		3,756
Current liabilities	(147,535)		(41,225)
Non-current liabilities	2,645		(3,193)
Net cash provided by operating activities	185,298		270,162
Cash flows from investing activities
Purchases of property and equipment	(5,633)		(1,917)
Development of internal-use software	(11,567)		(7,084)
Purchases of marketable securities	(133,642)		(268,972)
Sales and maturities of marketable securities	124,370		197,770
Net cash used in investing activities	(26,472)		(80,203)
Cash flows from financing activities
Payment of tax obligations on vested equity awards	(39,787)		(56,493)
Repurchase of stock	(124,736)		(180,000)
Proceeds from exercise of stock options	5,458		8,037
Proceeds from issuance of convertible senior notes	—		1,000,000
Payment of debt issuance costs	(25)		(12,566)
Purchase of capped calls	—		(85,000)
Settlement of convertible senior notes	(32)		(43,853)
Payments on finance lease obligations	(3,188)		(4,887)
Other financing, net	(4,335)		72
Net cash (used in) provided by financing activities	(166,645)		625,310
Effect of exchange rate changes on cash	(13,503)		(5,486)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(21,322)		809,783
Cash, cash equivalents, and restricted cash at beginning of period	785,537		1,249,440
Cash, cash equivalents, and restricted cash at end of period	$	764,215	$	2,059,223

11

Etsy, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended   June 30,
	2022		2021
Supplemental cash flow disclosures:
Cash paid for income taxes, net of refunds	$	24,856	$	8,063
Supplemental non-cash disclosures:
Stock-based compensation capitalized in development of capitalized software and asset additions in exchange for liabilities	$	8,708	$	2,905
Deferred consideration (1)	$	3,822	$	—

(1) See “Note 11—Stock-Based Compensation” for more information on the settlement of deferred consideration.

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:

	Six Months Ended   June 30,
	2022		2021
Beginning balance:
Cash and cash equivalents	$	780,196	$	1,244,099
Restricted cash	5,341		5,341
Total cash, cash equivalents, and restricted cash	$	785,537	$	1,249,440
Ending balance:
Cash and cash equivalents	$	758,874	$	2,053,882
Restricted cash	5,341		5,341
Total cash, cash equivalents, and restricted cash	$	764,215	$	2,059,223

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

12

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 June 30, 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.

13

Etsy, Inc.

Notes to Consolidated Financial Statements

Interim Impairment Evaluation

During the quarter ended June 30, 2022, the Company evaluated whether events or circumstances had changed such that it would indicate it is more likely than not that its goodwill, finite-lived intangible assets, and other long-lived assets were impaired (triggering event). Given the current macroeconomic conditions, including reopening, pressures on consumer discretionary spending, foreign exchange rate volatility, and ongoing geopolitical events, and the resultant headwinds to our business and the global economy, the Company concluded a triggering event had occurred for the Depop and Elo7 reporting units and conducted an impairment test of its goodwill, finite-lived intangible assets, and other long-lived assets as of June 30, 2022. The Company prepared a quantitative assessment for the Depop and Elo7 reporting units, including estimates of future revenue, net available cash flows, and the discount rate. The Company did not recognize any goodwill, finite-lived intangible assets, or other long-lived assets impairment as a result of this quantitative assessment for the three months ended June 30, 2022.

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   June 30,				Six Months Ended   June 30,
	2022		2021		2022		2021
Marketplace revenue	$	439,549	$	395,463	$	867,240	$	809,105
Services revenue	145,586		133,437		297,161		270,441
Revenue	$	585,135	$	528,900	$	1,164,401	$	1,079,546

Effective April 11, 2022, the Etsy marketplace increased the seller transaction fee, included in marketplace revenue, from 5% to 6.5%.

Contract balances

Deferred revenues

The amount of revenue recognized in the six months ended June 30, 2022 that was included in the deferred balance at January 1, 2022 was $12.3 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 six months ended June 30, 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 six months ended June 30, 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 $0.9 million in the six months ended June 30, 2022, from $28.8 million as of December 31, 2021 to $29.7 million as of June 30, 2022. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $28.8 million as of June 30, 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 $3.7 million.

The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

15

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   June 30,				Six Months Ended   June 30,
	2022		2021		2022		2021
Numerator:
Net income	$	73,123	$	98,254	$	159,232	$	242,020
Add back interest expense, net of tax attributable to assumed conversion of convertible senior notes	1,591		934		3,183		1,718
Net income attributable to common stockholders—diluted	$	74,714	$	99,188	$	162,415	$	243,738
Denominator:
Weighted-average common shares outstanding—basic	127,088,053		126,977,990		127,171,302		126,659,372
Dilutive effect of assumed conversion of options to purchase common stock	2,809,359		4,164,254		3,096,439		4,284,047
Dilutive effect of assumed conversion of restricted stock units	1,069,916		1,734,872		1,389,722		2,026,843
Dilutive effect of assumed conversion of convertible senior notes (1)	14,716,008		11,990,375		14,716,029		11,887,238
Weighted-average common shares outstanding—diluted	145,683,336		144,867,491		146,373,492		144,857,500
Net income per share attributable to common stockholders—basic	$	0.58	$	0.77	$	1.25	$	1.91
Net income per share attributable to common stockholders—diluted	$	0.51	$	0.68	$	1.11	$	1.68

(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”), $649.9 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 and six months ended June 30, 2022 and June 30, 2021. The Company used the if-converted method when calculating the dilutive effect of the Notes for the three and six months ended June 30, 2022 and June 30, 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   June 30,		Six Months Ended   June 30,
	2022	2021	2022	2021
Stock options	199,204	176,858	198,646	105,322
Restricted stock units	5,636,055	690,062	4,002,273	388,099
Total anti-dilutive securities	5,835,259	866,920	4,200,919	493,421

16

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 Adjusted		Estimated Useful Life (in years)
Current assets	$	4,288
Property and equipment other	1,299		2-5
Developed technology	95,764		5
Trademark	249,820		20
Customer relationships	148,504		13
Goodwill	1,118,855		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.

17

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 Adjusted		Estimated Useful Life (in years)
Current assets	$	2,721
Developed technology	12,084		5
Trademark	22,187		15
Customer relationships	44,374		15
Goodwill	157,187		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 $0.8 million and $1.6 million for the three and six months ended June 30, 2022, respectively, and $9.9 million for both the three and six months ended June 30, 2021.

18

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   June 30, 2021		Six Months Ended   June 30, 2021
Revenue	$	548,624	$	1,122,031
Net income	85,408		218,873

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 and six months ended June 30, 2021, the pro forma financial information excludes $14.1 million and $14.2 million, respectively, 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.

19

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 June 30, 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):

	Cost		Gross Unrealized Holding Loss		Gross Unrealized Holding Gain		Fair Value		Cash and Cash Equivalents		Short-term Investments		Long-term Investments
June 30, 2022
Cash	$	266,330	$	—	$	—	$	266,330	$	266,330	$	—	$	—
Level 1
Money market funds (1)	554,367		—		—		554,367		483,605