Dive Brief:

• Thanks to "strong growth" in sales of both goods and services, Etsy on Wednesday said total Q2 revenue rose 136.7% year over year to $428.7 million. Gross merchandise sales grew 145.6% to $2.7 billion, $2.5 billion from the Etsy marketplace and $227 million from the Reverb musical instrument marketplace.

• The Etsy marketplace in the quarter had 11.5 million new and 7.2 million reactivated buyers (who hadn’t purchased in a year or more), according to a company press release. Consolidated active buyers grew 41% from last year, and active sellers grew 34.6%.

• Gross profit rose 159.1% to $317.4 million, and gross margin expanded by 640 basis points to 74%, from 67.6% a year ago. Net income in the quarter rose 429.1% to $96.4 million from $18.2 million a year ago.

Dive Insight:

Etsy had already embarked on several initiatives to improve search and marketing when the pandemic struck and turbo-fueled e-commerce.

Specifically, the marketplace benefited from consumers' need for office and furniture goods as they were sent home to work, their desire to beautify their dwellings as they hunkered down to insulate themselves from the disease and their need for masks. Etsy sold $346 million worth of masks in the quarter, and more than 110,000 sellers sold at least one mask, CEO Josh Silverman said during a conference call with analysts, according to a Motley Fool transcript. 

"These are really big numbers," he said. "It's hard to wrap your head around them but to give you some sense of scale that's enough masks to stretch all the way from New York to London."

But non-mask sales also grew 93% in the quarter, an acceleration from April's 79% in non-masks sales growth, according to Silverman. Executives expressed confidence in the potential of Reverb, a marketplace for new and used musical instruments that the company acquired last year for $275 million. Effective this week, Reverb increased its seller transaction fee from 3.5% to 5% and will invest the incremental revenue in marketing, customer engagement, and seller tools and services.

The company spent heavily on marketing in the quarter — $115 million, or 27% of revenue, and up 140 basis points from last year — in part to seize on the opportunity that has suddenly appeared as consumer loyalties get smashed during an uncertain and volatile time.

In explaining that investment, Silverman noted that humans "are all creatures of habit and shopping is largely habit driven," adding that retailers get few opportunities — traditionally at life-changing moments like moving, marriage and having a child — to reshape those habits.

"And so what this current moment has created is it's created a moment when everyone's habits are up for grabs," he said. "Suddenly, before you go buy anything, you've got to stop and think for yourself, where can I go to get that? And in that pause, Etsy is winning. If you can get someone to pause for 30 seconds and say, where can I go, Etsy is going to come to mind. But in more normal times, you don't get 30 seconds. You've got maybe a fraction of a second."

Also in the quarter, Etsy invested in progress on social issues, including donating $1 million to the Equal Justice Initiative and Borealis Philanthropy’s Black-Led Movement Fund and offsetting 100% of Reverb’s emissions, as is done already at Etsy. Beginning in April, for every item purchased on Reverb, Etsy will invest in environmental projects to offset the environmental impact of shipping.