Dive Brief:

• Etsy on Monday said its third quarter gross merchandise sales rose 13.2% year over year to $766.4 million, reflecting growth of 140 basis points from the second quarter following the launch of new features and tools, as well as 10.8% year-over-year growth in active sellers and 16.7% year-over-year growth in active buyers, according to a press release.

• Revenue in the quarter rose 21.5% year over year to $106.4 million, which bested the Zacks consensus estimate of $104.59 million. That was driven by growth in seller services revenue and markets, which rose 11.2% from the year-ago period.

• Operating expenses in the quarter also rose — up 12.6% from the year-ago period to reach $62.6 million — but the company has made a conscience effort to streamline its cost structure. Q3 net income was $25.8 million, with diluted earnings of 21 cents per share, up from a net loss of $2.4 million and a net loss of 2 cents per share in the year-ago period, and handily besting the Zacks consensus estimate of 5 cents per share.

Dive Insight:

CEO Josh Silverman on Monday emphasized Etsy’s progress, which was imperative considering the pressure the artisan marketplace is under from investors. The quirky marketplace has struggled since going public two years ago, as sellers and customers alike have complained that larger sellers have undermined its artisanal focus and as Amazon moved into its territory with Handmade at Amazon. 

In May, private equity firms TPG Group Holdings Advisors and Dragoneer Investment Group revealed significant stakes in the company, which were purchased "on the belief that they were undervalued," and the firms noted in a Securities and Exchange filing dated May 4 that they had "contacted representatives of Etsy to offer to engage in discussions regarding strategic alternatives." 

That came after the marketplace retailer replaced Chad Dickerson with Silverman as CEO, likely a response to hedge fund Black-and-White Capital, owner of 2% of Etsy’s shares, which had released two letters highlighting critical issues and necessary steps to address them. Layoffs in May and June brought the total planned staff cuts at Etsy this year to 230 positions, or 22% of its workforce.

In a conference call with analysts on Monday, Silverman noted several initiatives to boost discovery and create urgency, a particular challenge for a site that, as he put it, according to a transcript from Seeking Alpha, sells "over 45 million unbranded items from 1.9 million unbranded sellers." 

He also noted particular challenges for Etsy at the holidays. In addition to shoppers' expectations for discounts and free shipping online at any retailer, Etsy shoppers in the past have tended to wind down their interactions with the site in mid-December, "just when the other e-commerce players were gearing up for some of the busiest shopping days of the year. We believe we can do better for our sellers."

To extend the holiday-time attention on Etsy, the site is planning a "coordinated holiday sale" and a new seller tool that lets sellers offer free shipping. Sellers will also be able to offer add-ons like gift wrapping, customized cards and an option to send gifts directly to a recipient. Finally, Etsy launched a holiday gift finder built on data from the most popular searches and the expertise of its in-house merchandising team. "Curation is essential to an engaging discovery experience," Silverman said.

But the emphasis on progress was somewhat subdued for the near term, with bigger goals coming later. Silverman noted that the company is focused on making incremental improvements. Those will be critical for Etsy, considering it faces a direct threat from Amazon's Handmade site. Silverman took pains to point out that, while its assortment overshadows Amazon Handmade, other retailers' price advantage derives from mass production, which is not Etsy's focus, and that Amazon-style efficiencies don't work for Etsy's unique merchandise.

"For our products, which are often made to order and again unique, warehousing is not a strategy that actually is very effective," he said. "So, the traditional advantages that other people have had in the past may transfer less well into our space."