10-Q 1 etsy-20210930.htm 10-Q etsy-20210930
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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 endedSeptember 30, 2021
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-20210930_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 FilerAccelerated 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 October 29, 2021 was 126,780,745.



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Table of Contents
Part I - Financial Information
Item 1.Consolidated Financial Statements (Unaudited)
Notes to 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 “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 information relating to our opportunity; the impact of our “Right to Win” strategy and levers for growth, marketing, and product initiatives and investments 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 plans for acquisitions and strategic investments, our “House of Brands” strategy, including integration of our recent acquisitions of Depop and Elo7, and their potential impact on our growth and results of operations; our intended economic, social and ecological impacts; and the uncertain impacts that the COVID-19 pandemic or its eventual abatement may have on our business, strategy, operating results, key metrics, financial condition, profitability, and cash flows, on changes in overall levels of consumer spending, on e-commerce generally, and on 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, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Those risks include those described in 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, the global economic climate and additional or unforeseen effects from the ongoing COVID-19 pandemic 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 the “Risk Factors” section of this Quarterly Report 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 have experienced rapid growth, and we may not have the infrastructure, human resources, or operational resources to sustain continued growth at our recent pace.
The ongoing COVID-19 pandemic is unprecedented and has impacted, and the pandemic and its eventual abatement may continue to impact, our GMS, and could impact our results of operations in numerous ways that remain volatile and unpredictable.
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 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, natural disasters, political crises, geopolitical changes 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 may be harmed.
If the widely adopted mobile, social, search and 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 Impact strategy or if our Impact strategy is not perceived to be adequate, our reputation could be harmed. We could also damage our reputation and the value of our brands 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.
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 platforms and 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.
4


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. Consolidated Financial Statements (Unaudited).
Etsy, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share amounts)
As of September 30,
2021
As of December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$619,402 $1,244,099 
Short-term investments197,430 425,119 
Accounts receivable, net of expected credit losses of $9,402 and $9,757 as of September 30, 2021 and December 31, 2020, respectively
23,884 22,605 
Prepaid and other current assets68,936 56,152 
Funds receivable and seller accounts167,682 146,806 
Total current assets1,077,334 1,894,781 
Restricted cash5,341 5,341 
Property and equipment, net of accumulated depreciation and amortization of $144,916 and $158,771 as of September 30, 2021 and December 31, 2020, respectively
198,902 112,495 
Goodwill1,385,214 140,810 
Intangible assets, net of accumulated amortization of $42,598 and $25,705 as of September 30, 2021 and December 31, 2020, respectively
613,104 187,449 
Deferred tax assets103,809 115 
Long-term investments90,350 39,094 
Other assets28,084 24,404 
Total assets$3,502,138 $2,404,489 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$13,367 $40,883 
Accrued expenses245,300 232,352 
Finance lease obligations—current8,757 8,537 
Funds payable and amounts due to sellers167,682 146,806 
Deferred revenue12,518 11,264 
Other current liabilities23,383 14,822 
Total current liabilities471,007 454,664 
Finance lease obligations—net of current portion38,700 44,979 
Deferred tax liabilities94,158 58,481 
Long-term debt, net2,274,351 1,062,299 
Other liabilities90,300 41,642 
Total liabilities2,968,516 1,662,065 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock ($0.001 par value, 1,400,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 126,503,754 and 125,835,931 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively)
127 126 
Preferred stock ($0.001 par value, 25,000,000 shares authorized as of September 30, 2021 and December 31, 2020)
  
Additional paid-in capital624,374 883,166 
Accumulated deficit(21,467)(146,819)
Accumulated other comprehensive (loss) income(69,412)5,951 
Total stockholders’ equity533,622 742,424 
Total liabilities and stockholders’ equity$3,502,138 $2,404,489 
The accompanying notes are an integral part of these consolidated financial statements.
6

Consolidated Statements of Operations (Unaudited)
(In thousands, except share and per share amounts)
 
 Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2021202020212020
Revenue$532,429 $451,478 $1,611,975 $1,108,270 
Cost of revenue153,660 120,168 445,546 313,965 
Gross profit378,769 331,310 1,166,429 794,305 
Operating expenses:
Marketing131,928 126,779 450,606 289,991 
Product development73,521 45,908 188,980 128,923 
General and administrative89,579 40,454 203,360 112,717 
Total operating expenses295,028 213,141 842,946 531,631 
Income from operations83,741 118,169 323,483 262,674 
Other income (expense):
Loss on extinguishment of debt (16,855) (16,855)
Interest expense(2,779)(10,615)(6,346)(30,608)
Interest and other income139 1,158 1,921 6,503 
Foreign exchange gain (loss)2,698 (1,464)8,223 (9,312)
Total other income (expense)58 (27,776)3,798 (50,272)
Income before income taxes83,799 90,393 327,281 212,402 
Benefit (provision) for income taxes6,131 1,368 4,669 (11,694)
Net income$89,930 $91,761 $331,950 $200,708 
Net income per share attributable to common stockholders:
Basic$0.71 $0.75 $2.62 $1.68 
Diluted$0.62 $0.70 $2.30 $1.59 
Weighted-average common shares outstanding:
Basic126,633,789 121,978,272 126,753,641 119,666,841 
Diluted147,413,915 137,560,385 145,866,797 134,376,695 

The accompanying notes are an integral part of these consolidated financial statements.
7

Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)
 
 Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2021202020212020
Net income$89,930 $91,761 $331,950 $200,708 
Other comprehensive (loss) income:
Cumulative translation adjustment(66,709)6,441 (75,059)6,308 
Unrealized (losses) gains on marketable securities, net of tax (benefit) expense of $(21), $(189), $(96) and $158, respectively
(67)(630)(304)503 
Total other comprehensive (loss) income(66,776)5,811 (75,363)6,811 
Comprehensive income$23,154 $97,572 $256,587 $207,519 

The accompanying notes are an integral part of these consolidated financial statements.
8

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)
Three Months Ended September 30, 2021
 Common StockAdditional
Paid-in Capital
Accumulated DeficitAccumulated Other Comprehensive LossTotal
 
 SharesAmount
Balance as of June 30, 2021126,522,519 $127 $590,232 $(56,970)$(2,636)$530,753 
Stock-based compensation— — 45,705 — — 45,705 
Exercise of vested options154,137 — 2,830 — — 2,830 
Vesting of restricted stock units, net of shares withheld94,448 — (14,393)— — (14,393)
Stock repurchase(267,350)— — (54,427)— (54,427)
Other comprehensive loss— — — — (66,776)(66,776)
Net income— — — 89,930 — 89,930 
Balance as of September 30, 2021126,503,754 $127 $624,374 $(21,467)$(69,412)$533,622 
Nine Months Ended September 30, 2021
 Common StockAdditional
Paid-in Capital
Accumulated DeficitAccumulated 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— — 95,062 — — 95,062 
Exercise of vested options493,932 — 10,867 — — 10,867 
Purchase of capped calls, net of taxes— — (64,673)— — (64,673)
Settlement of convertible senior notes, net of taxes985,081 1 (423)— — (422)
Vesting of restricted stock units, net of shares withheld513,675 1 (70,887)— — (70,886)
Stock repurchase(1,324,865)(1)— (234,426)— (234,427)
Other comprehensive loss— — — — (75,363)(75,363)
Net income— — — 331,950 — 331,950 
Balance as of September 30, 2021126,503,754 $127 $624,374 $(21,467)$(69,412)$533,622 

9

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)
Three Months Ended September 30, 2020
Common StockAdditional
Paid-in Capital
Accumulated DeficitAccumulated Other Comprehensive LossTotal
SharesAmount
Balance as of June 30, 2020119,140,637 $119 $675,213 $(143,458)$(7,699)$524,175 
Stock-based compensation— — 17,448 — — 17,448 
Exercise of vested options399,793 — 6,309 — — 6,309 
Issuance of convertible senior notes, net of issuance costs and taxes— — 102,131 — — 102,131 
Purchase of capped calls, net of taxes— — (56,848)— — (56,848)
Settlement of convertible senior notes, net of taxes7,271,632 7 151,303 — — 151,310 
Vesting of restricted stock units, net of shares withheld124,961 1 (9,261)— — (9,260)
Stock repurchase(1,276,590)(1)— (166,169)— (166,170)
Other comprehensive income— — — — 5,811 5,811 
Net income— — — 91,761 — 91,761 
Balance as of September 30, 2020125,660,433 $126 $886,295 $(217,866)$(1,888)$666,667 

Nine Months Ended September 30, 2020
Common StockAdditional
Paid-in Capital
Accumulated DeficitAccumulated Other Comprehensive LossTotal
SharesAmount
Balance as of December 31, 2019118,342,772 $119 $642,628 $(227,414)$(8,699)$406,634 
Stock-based compensation— — 48,408 — — 48,408 
Exercise of vested options1,357,792 1 18,485 — — 18,486 
Issuance of convertible senior notes, net of issuance costs and taxes— — 102,131 — — 102,131 
Purchase of capped calls, net of taxes— — (56,848)— — (56,848)
Settlement of convertible senior notes, net of taxes7,271,632 7 151,303 — — 151,310 
Vesting of restricted stock units, net of shares withheld507,933 1 (19,812)— — (19,811)
Stock repurchase(1,819,696)(2)— (191,160)— (191,162)
Other comprehensive income— — — — 6,811 6,811 
Net income— — — 200,708 — 200,708 
Balance as of September 30, 2020125,660,433 $126 $886,295 $(217,866)$(1,888)$666,667 
The accompanying notes are an integral part of these consolidated financial statements.
10

Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Nine Months Ended 
 September 30,
 20212020
Cash flows from operating activities
Net income$331,950 $200,708 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense90,047 47,664 
Depreciation and amortization expense49,276 45,088 
Provision for expected credit losses12,993 9,572 
Foreign exchange (gain) loss(7,159)8,559 
Non-cash interest expense1,286 26,326 
Deferred (benefit) provision for income taxes(78,631)5,755 
Loss on extinguishment of debt 16,855 
Other non-cash expense, net4,324 3,231 
Changes in operating assets and liabilities (net of impact of business combinations):
Current assets(49,098)(75,526)
Non-current assets(4,067)3,395 
Current liabilities(5,419)146,634 
Non-current liabilities15,590 (2,972)
Net cash provided by operating activities361,092 435,289 
Cash flows from investing activities
Acquisition of businesses, net of cash acquired(1,690,823) 
Cash paid for intangible assets(1,862) 
Purchases of property and equipment(5,740)(388)
Development of internal-use software(11,519)(3,685)
Purchases of marketable securities(343,902)(300,880)
Sales and maturities of marketable securities518,985 346,596 
Net cash (used in) provided by investing activities(1,534,861)41,643 
Cash flows from financing activities
Payment of tax obligations on vested equity awards(69,147)(19,811)
Repurchase of stock(234,427)(191,162)
Proceeds from exercise of stock options10,867 18,486 
Proceeds from issuance of convertible senior notes 1,000,000 650,000 
Payment of debt issuance costs (12,849)(9,764)
Purchase of capped calls(85,000)(74,685)
Settlement of convertible senior notes(43,863)(137,166)
Payments on finance lease obligations(7,321)(7,056)
Other financing, net(93)(8,268)
Net cash provided by financing activities558,167 220,574 
Effect of exchange rate changes on cash(9,095)4,175 
Net (decrease) increase in cash, cash equivalents, and restricted cash(624,697)701,681 
Cash, cash equivalents, and restricted cash at beginning of period1,249,440 448,634 
Cash, cash equivalents, and restricted cash at end of period$624,743 $1,150,315 

11

Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended 
 September 30,
20212020
Supplemental cash flow disclosures:
Cash paid for income taxes, net of refunds$66,105 $8,309 
Supplemental non-cash disclosures:
Replacement share-based awards issued in conjunction with acquisitions$5,686 $ 
Stock-based compensation capitalized in development of capitalized software and asset additions in exchange for liabilities$4,920 $2,752 
Right-of-use assets obtained in exchange for new lease liabilities$1,241 $641 
Debt issuance costs included in accounts payable and accrued expenses$476 $795 
During the third quarter of 2020, the Company issued approximately 7.3 million shares of common stock in conjunction with the partial repurchase of the 0% Convertible Senior Notes due 2023 (the “2018 Notes”). See “Note 8—Debt” in the Notes to Consolidated Financial Statements for more information.
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:
Nine Months Ended 
 September 30,
20212020
Beginning balance:
Cash and cash equivalents$1,244,099 $443,293 
Restricted cash5,341 5,341 
Total cash, cash equivalents, and restricted cash$1,249,440 $448,634 
Ending balance:
Cash and cash equivalents$619,402 $1,144,974 
Restricted cash5,341 5,341 
Total cash, cash equivalents, and restricted cash$624,743 $1,150,315 

The accompanying notes are an integral part of these consolidated financial statements.
12


Etsy, Inc.
Notes to Consolidated Financial Statements

Note 1—Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Etsy, Inc. (the “Company” or “Etsy”) operates a “House of Brands,” two-sided online marketplaces that connect millions of passionate and creative buyers and sellers. The Company’s primary marketplace, Etsy.com, is the global marketplace for unique and creative goods. The Company generates revenue primarily from transaction, listing, and payments processing fees, and on-site advertising and shipping label services.
Basis of Consolidation
The consolidated financial statements include the accounts of Etsy and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. On July 2, 2021, Etsy acquired all the outstanding shares of Elo7 Serviços de Informática S.A. (“Elo7”) by means of a merger, and on July 12, 2021 Etsy acquired all of the issued share capital of Depop Limited (“Depop”) pursuant to a share purchase. The financial results of Elo7 and Depop have been included in Etsy’s Consolidated Financial Statements from the respective dates of acquisition. See “Note 5—Business Combinations.”
Basis of Presentation
The accompanying unaudited interim 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 consolidated financial statements should therefore be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2021 (the “Annual Report”). In the opinion of management, all material adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for the periods presented have been reflected in the 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 consolidated financial statements in conformity with GAAP requires the Company to make estimates and judgments that affect the amounts reported and disclosed in the 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; purchase price allocations for business combinations and valuation of acquired intangible assets, developed technology, and goodwill. As of September 30, 2021, the effects of the ongoing COVID-19 pandemic and progress towards its abatement 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 required 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.
Stock-Based Compensation
Service based stock options, service based restricted stock units (“RSUs”), and performance based restricted stock units (“PBRSUs”) are awarded to employees, officers, and members of the Company’s Board of Directors. The PBRSUs include financial performance based restricted stock units (“Financial PBRSUs”) and total shareholder return performance based restricted stock units (“TSR PBRSUs”), both of which have performance and service vesting requirements. The Company recognizes forfeitures as they occur.
The Company calculates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The fair value of RSUs is measured using the closing price of the Company’s common stock on Nasdaq on the grant date. Additionally, the fair value of the Financial PBRSUs is determined using a probability assessment and the fair value of the TSR PBRSUs with market conditions are determined using a Monte-Carlo simulation model.
13

Etsy, Inc.
Notes to Consolidated Financial Statements
For PBRSUs, the Company recognizes stock-based compensation expenses on a straight-line basis over the longer of the derived, explicit, or implicit service period. As of interim and annual reporting periods, the Financial PBRSUs stock-based compensation expense is adjusted based on expected achievement of performance targets, while TSR PBRSUs stock-based compensation expense is not adjusted.
Recently Issued Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08—Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification Topic 606—Revenue from Contracts with Customers (“ASC 606”). Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. This ASU will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC 606. The amendments in this ASU do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with ASC 606, such as refund liabilities, or in a business combination, such as customer-related intangible assets and contract-based intangible assets. The new guidance is effective for annual and interim periods beginning after December 15, 2022. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. This update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently evaluating the impact that this new guidance may have on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models previously required under GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features through equity. Without an initial allocation of proceeds to the conversion option, the debt will likely have a lower discount, thereby resulting in less non-cash interest expense through accretion. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This update permits the use of either the modified retrospective or fully retrospective method of transition.
The Company early adopted this standard, effective as of January 1, 2021, on a modified retrospective basis. The adoption of this standard had a material effect on the Company’s consolidated financial statements. The most significant effects related to the 0.125% Convertible Senior Notes due 2027 (the “2020 Notes”), 0.125% Convertible Senior Notes due 2026 (the “2019 Notes”), and 0% Convertible Senior Notes due 2023 (the “2018 Notes” and together with the 0.25% Convertible Senior Notes due 2028 (the “2021 Notes”), the 2020 Notes, and the 2019 Notes, the “Notes”), and included derecognition of the unamortized debt discount, which was recorded as a direct deduction from the Notes, resulting in an increase in long-term debt, net of approximately $264 million; derecognition of the equity component, which represents the value of the conversion option on the issuance date of the Notes outstanding, resulting in a reduction in additional paid-in capital of approximately $229 million, net of taxes; derecognition of deferred tax liabilities of approximately $63 million; and reversal of the cumulative debt discount recognized as interest expense in the Company’s Consolidated Statements of Operations since the date of issuance of each of the Notes to the period ending December 31, 2020, resulting in a decrease of accumulated deficit of approximately $28 million, net of taxes. The Company also had a reduction in interest expense due to the adoption of ASU 2020-06 as the debt discount has been derecognized and, effective January 1, 2021, there is no amortization of the debt discount. The Company did not incur any impact to liquidity or cash flows. When calculating net income per share of common stock attributable to common stockholders, the Company uses the if-converted method as required under ASU 2020-06 to determine the dilutive effect of the Notes.
14

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 
 September 30,
Nine Months Ended 
 September 30,
2021202020212020
Marketplace revenue$395,503 $341,623 $1,204,608 $829,575 
Services revenue136,926 109,855 407,367 278,695 
Revenue$532,429 $451,478 $1,611,975 $1,108,270 
Etsy.com marketplace revenue is comprised of the fees a seller pays for marketplace activities. Marketplace activities include listing an item for sale, completing sales transactions, and using the Company’s payments platforms to process payments. Across the Company’s “House of Brands,” Reverb, Depop, and Elo7 marketplace revenue is comprised of seller transaction fees and payments fees, similar to Etsy.com, but these marketplaces do not charge a listing fee to their sellers.
Etsy.com services revenue is comprised of the fees a seller pays for the Company’s optional other services, which primarily include on-site advertising services and shipping labels. Similar services revenue is recognized across the Company’s “House of Brands,” including from Reverb’s Bump on-site advertising and Reverb, Depop, and Elo7’s shipping labels.
For more information on the Company’s critical accounting policies related to Etsy.com revenue recognition, see “Note 1—Basis of Presentation and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements of the Company’s Annual Report, which is incorporated herein by reference.
Contract balances
Deferred revenues
The amount of revenue recognized in the nine months ended September 30, 2021 that was included in the deferred balance at January 1, 2021 was $11.3 million.
15

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 nine months ended September 30, 2021, the Company’s effective income tax rate was (1.4)% representing an income tax benefit recorded on net income before tax. The effective tax rate for the nine months ended September 30, 2021 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 that are subject to lower tax rates, 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 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 $2.9 million in the nine months ended September 30, 2021, from $23.7 million as of December 31, 2020 to $26.6 million as of September 30, 2021. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate is $25.6 million as of September 30, 2021. 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. Given the number of years remaining subject to examination and the number of matters being examined, at this time, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.
The Company recognizes interest and/or penalties related to uncertain tax positions in income tax expense.
16

Etsy, Inc.
Notes to Consolidated Financial Statements
Note 4—Net Income Per Share
The following table presents the method used when calculating the impact of the Company’s Notes on earnings per share for the periods presented:
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
2021202020212020
2021 NotesIf-ConvertedN/AIf-ConvertedN/A
2020 NotesIf-ConvertedTreasury StockIf-ConvertedTreasury Stock
2019 NotesIf-ConvertedIf-ConvertedIf-ConvertedIf-Converted
2018 NotesIf-ConvertedIf-ConvertedIf-ConvertedIf-Converted
The Notes were dilutive for the three and nine months ended September 30, 2021.
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 
 September 30,
Nine Months Ended 
 September 30,
 2021202020212020
Numerator:
Net income attributable to common stockholders—basic$89,930 $91,761 $331,950 $200,708 
Add back interest expense, net of tax attributable to assumed conversion of convertible senior notes1,594 4,494 3,312 13,348 
Net income attributable to common stockholders—diluted$91,524 $96,255 $335,262 $214,056 
Denominator:
Weighted-average common shares outstanding—basic126,633,789 121,978,272 126,753,641 119,666,841 
Dilutive effect of assumed conversion of options to purchase common stock4,126,970 4,533,426 4,229,632 4,380,663 
Dilutive effect of assumed conversion of restricted stock units1,936,390 2,425,214 2,042,745 1,705,718 
Dilutive effect of assumed conversion of convertible senior notes14,716,766 8,623,473 12,840,779 8,623,473 
Weighted-average common shares outstanding—diluted147,413,915 137,560,385 145,866,797 134,376,695 
Net income per share attributable to common stockholders—basic$0.71 $0.75 $2.62 $1.68 
Net income per share attributable to common stockholders—diluted$0.62 $0.70 $2.30 $1.59 
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 
 September 30,
Nine Months Ended 
 September 30,
 2021202020212020
Stock options193,919 5,769 135,179 341,109 
Restricted stock units54,189 36,260 475,475 66,231 
Convertible senior notes 8,213,081  10,430,621 
Total anti-dilutive securities248,108 8,255,110 610,654 10,837,961 
17

Etsy, Inc.
Notes to Consolidated Financial Statements
Note 5—Business Combinations
Depop Acquisition
On July 12, 2021, the Company acquired all of the outstanding capital stock 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 $1.479 billion, net of cash acquired, (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, and (3) $9.2 million holdback pending the finalization of certain purchase price items which were resolved and paid in the fourth quarter of 2021. The portion of the replacement equity awards associated with services rendered post-acquisition will be recorded as post-combination expense on a straight-line basis over the remaining vesting period of the awards. Additionally, deferred consideration awards will be issued to certain Depop executives, which will also be recorded as post-combination expense on a straight-line basis over the three-year mandatory service period associated with the deferred consideration. Neither of these awards was included in the fair value of the consideration transferred. For more information on these awards, see Note 11—Stock-Based Compensation.
The acquisition was accounted for under the acquisition method of accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired was recorded as goodwill, which 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 allocation of the purchase price has been prepared on a preliminary basis and changes to the allocation to certain assets and liabilities, including tax estimates, may be revised as additional information becomes available. The Company will finalize the acquisition accounting within the required measurement period of one year.
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, except years):
Preliminary Purchase Price AllocationEstimated Useful Life (in years)
Current assets$4,249 
Property and equipment other1,299 
2-