Chief Financial Officer at Etsy
Thanks, Josh. And thank you to everyone for joining us on our call. My commentary today will cover consolidated results, key drivers of performance and Etsy marketplace standalone results were appropriate. As a reminder, Weaver, Depop and Elo7 are all reflected in our consolidated financial results and KPIs for the third quarter. Against the backdrop of continuing volatility and uncertainty, Etsy CMS outperformed our expectations in the third quarter. And we see notable stability with significantly less impact from reopening dynamics than we had been anticipating.
As we often say, we love our marketplace model for its capital light structure, with no logistics or warehousing, low infrastructure costs, the distributed nature of our sellers the diversity of their products, which offers significant reach and depth to satisfy increasing global demand. This model is proving to be resilient in today's economy as constraints on the global supply of goods increase and create supply chain bottlenecks and cost escalation in fulfillment. Etsy has unique positioning with over 5 million Etsy marketplace sellers distributed around the world. Most businesses [indecipherable] and working from their homes.
Further, over 90% of U.S Etsy marketplace sellers tell us that they source the materials locally and have limited overhead. As a result, we believe Etsy sellers stand ready-to-serve the world in ways many others can't. So how did this drive our results in the quarter? On a consolidated basis Etsy's third quarter GMS grew 18% year-over-year to 3.1 billion. Revenue grew 18% year-over-year to 532 million and adjusted EBITDA was $174 million with a margin of about 33%. Excluding the acquisitions of Depop and Elo7, but inclusive are Reverb per our guidance. Take rate was 17.5% and adjusted EBITDA margin was approximately 36%.
The primary driver for the significant [indecipherable] in adjusted EBITDA margin was sustained momentum in the Etsy marketplace's top-line growth, contributing significant flow-through to profitability. The majority of Etsy's GMS is derived organically. This quarter representing 83% of total GMS. We plan to provide you with GMS and select KPIs for our subsidiary businesses on an annual basis, so you will be able to track the success of our house of brands portfolio companies over time. But we do not plan to provide quarterly details.
The Etsy marketplace remains the vast majority of our business. Reverb, Depop and Elo7 collectively represented approximately 12% of Q3 consolidated GMS as Elo7 closed on July 2nd and Depop closed on July 12th. Integration is going well, and our teams are collaboratively developing product and operating plans to drive future growth and profitability improvements. Our 2 new subsidiaries are experiencing slightly different market conditions at present. Depop is facing reopening headwinds similar to other e-commerce players, particularly as it compares to its enormous 2020 growth.
And Elo7 has begun to see improved conditions in the Brazilian market toward the tail end of the quarter as more of the population became vaccinated. Last but not least, Reverb continues to outperform the musical instruments industry on a two year your basis. My next few slides will focus on the performance of the Etsy marketplace. During the third quarter of 2021, GMS grew 12% year-over-year, 24% year-over-year, excluding face masks and the take rate was 18%. GMS was underpinned by continued strength in our top 6 categories, led by homewares and home furnishings, our largest and fastest-growing category on a trailing 12-month basis, jewelry and accessories and apparel. Fall and Halloween themes drove buyer demand in Q3, as there was a notable uptick in seasonal home decor such as ornaments and seasonal accent items. Halloween also drove our apparel category as it is an annual purchase occasion for many of our repeat buyers.
When you look at the monthly performance fee for the Etsy marketplace, excluding masks strength Q3 shown on the right of this slide, July 2 year GMs growth was 138%. August was also 138% and September slightly accelerated to 139%. It was more stable than we had anticipated when we set guidance in early August. At that time, it was reasonable to expect that reopening trends would have had a more material impact to online shopping behavior and Etsy's performance in the third quarter. While we don't yet have full Q3 data for e-commerce growth, on the left side of this slide, we've mapped our two year performance to an e-commerce benchmark, highlighting continued share gains. We've also continued to track the impact of face masks on our business and provide transparency around that. While face mask did gain some momentum in certain regions at specific times during the quarter due to changing COVID-19 guidelines.
Overall, they represented less than 2% of Etsy marketplace GMS in the quarter. In Q3, non-mask GMS was up 138% on the two year basis, relatively stable compared to prior quarters. This growth was underpinned by significant growth in the UK despite all mobility restrictions being lifted in the early in the quarter. This is quite encouraging, and we believe our brand is becoming more prominent and Etsy is gaining share in our largest core geography outside of the U.S Consolidated Q3 revenue was again driven by growth in both marketplace and services revenue. With Etsy ads, GMS volume, and the incremental benefit of Depop and Elo7, being the primary drivers.
The average take rate for our subsidiary businesses is lower than the Etsy marketplace's and was approximately 10% in Q3, with marketplace fees representing the majority of their revenue. Transaction fee revenue, inclusive of all, fight ads grew 18% year-over-year, driven by higher GMS from frequency and average order value. In Q3, our offsite ads revenue offset nearly 40% of Etsy marketplace performance marketing spend, that contracted slightly compared to last year as we ran incrementality test and pulled back performance marketing on several chargeable channels.
The reduced marketing spends from our incrementality tests also contributed to a reduction in clicks on Etsy ads, driving a modest contraction in take rate. However, Etsy ads revenue was up 28% as ad relevance continues to drive improvements in click-through rate. Our disciplined investments in product and marketing continued to deliver strong returns and serve as a foundation for future growth, with many initiatives focused on conversion rate and frequency. Q3 consolidated marketing spend was $132 million up 4% year-over-year, and contracted as a percentage of revenue 700 basis points sequentially. The Q3 spend reflects the pullback and performance marketing for our -- for our incrementality testing. After running successful television campaigns in the U.S., UK and Germany, we paused some campaigns for 2 to 3 weeks to measure the interaction effects between marketing channels and incrementality of our brand spend.
In the fourth quarter, we're leveraging these learnings and applying them to our placements for the new holiday creative. We're also investing in other marketing programs in the Fourth Quarter, like expanding our Etsy Coupons tool to proactively target new buyers. We'll continue to leverage our CRM capabilities to segment and target specific buyers on and off CSC platform. Q3 consolidated product development spend was $74 million up 60% year-over-year, reflecting our success in expanding our team to invest in critical areas that we believe will increase GMS. As of the end of Q3, consolidated headcount was slightly over 2,300 up 70% year-over-year with much of this increase sitting in product development. Note that the large increase in consolidated headcount includes nearly 600 employees at Depop and Elo7. The competition for talent is fierce, but we have been pleased with our ability to attract, retain, and engage our employees in what has clearly become a very tight labor market. Similar to our marketing investments, we apply an ROI lens to product and engineering development spend.
As shown on slide 23, we have significantly grown our product and engineering headcount and feel confident that we can generate a strong ROI even as we scale us spend. I'll also note that we continue to make strategic investments that don't directly generate incremental GMS, but that are necessary to effectively run and scale the business. These investment areas include development infrastructure and support, cloud costs, trust and safety, and financing compliance. We have seen very encouraging performance in all of our Etsy marketplace buyer segments, particularly on two year basis, as we comp prior year pandemic-driven peaks.
In Q3, active buyers grew 30% year-over-year to 89 million stables with Q2, 2021. Repeat buyers, those who made purchases on two or more days in a 12-month period grew 35% year-over-year to 36 million. And habitual buyers, our most loyal buyers, remained our fastest-growing buyer segment up 65% for the Quarter to nearly 8 million, and up 237% on the two year basis. These 3 metrics for flexibility in our buyer base over the past few quarters, a signal we've all been looking for to gauge the retention of our 2020 cohort. We're also pleased to see healthy trends and stability within our new buyer cohorts on the Etsy marketplace. We acquired 7 million new buyers in Q3. Very strong performance considering how many millions of new buyers we have attracted in the past year. And still well ahead of our pre -pandemic quarterly new buyer acquisition rate. We're seeing particular strength internationally as Etsy new buyer growth outside the U.S. expanded as a percentage of total new buyer growth driven by investment in performance marketing in several new markets.
In fact, new buyers outside of the U.S. have expanded 600 basis points year-over-year as a percentage of total new buyers. Even more noteworthy, new buyer repeat purchase rate was up 25% in 2021 compared to 2019, further evidence of our success driving frequency. When measuring the performance of the 2020 active buyer cohort, early data suggests they are all outperforming our historical cohorts as shown on Slide 26. In fact, of our 69 million active buyers in Q3, 2020, 56% made another purchase over the next 12 months. This compares to 43% for our historical cohorts, a clear improvement.
And as we've talked about in recent quarters, we've also had great success reactivating buyers. For instance, in Q3, we reengaged 4 million buyers who hadn't made a purchase in over a year. With our investments in product and marketing, we are more able to reactivate a growing buyer base. We're very encouraged to see that when compared to the historical retention of active buyers over time, this newer cohort is significantly outperforming.
GMS per active buyer on a trailing 12-month basis expanded to $132, up 20% year-over-year driven by frequency and AOV. Among our repeat buyers, we continue to see growth in the average number of purchase days per year, from 4.6 purchases in 2019 to 5.2 purchases in 2021. Including all buyer segments, buyers now buy an average of 3.1 times per year, which is up nearly 25% since 2019. Now moving to the Balance Sheet. As of 930, we had approximately $907 million in cash and cash equivalents, short and long-term investments in addition to a $200 million revolver that is currently undrawn.
Note that the acquisitions of both Depop and Elo7 close in July and are reflected on the quarter ending Balance Sheet. Also, in the quarter, we had several uses of cash that did not impact adjusted EBITDA. These include approximately $32 million of transaction expenses related to our acquisitions of Depop and Elo7. A portion of which were accrued in the prior quarter, as well as the cash tax payment of approximately $60 million. In addition, we repurchased $54 million in shares during the quarter under our board authorized repurchase plan. Our model remains highly cash-generative, asset-light, and generally convert the majority of adjusted EBITDA into free cash flow.
And now turning to our outlook. We currently estimate that our Q4 consolidated GMS, which will now include Etsy, Reverb, and a full quarter for Depop and Elo7 will be $3.9 billion to $4.1 billion, up about 12% at the midpoint compared to Q4 of last year. We expected our Q4 revenue will be $660 million to $690 million up about 10% at the midpoint versus Q4 of last year. And our adjusted EBITDA margin will be about 26%. Within our Q4 GMS guidance, we are forecasting very solid growth for the Etsy marketplace of high single-digit GMS growth, implying relatively stable two year growth when compared to Q3.
We think this is excellent, given our year-ago performance. Drilling in a bit more on our guidance, the holiday season has kicked off early on the Etsy marketplace than we have had a strong October. We note that during the month of October, keywords that have holiday terms in them have increased nearly 100% year-over-year. Buyers are anticipating longer shipping times driven by constraints in the supply chain. We recognize several important tailwinds, including external forecasts for strong holiday spending, consumer behavior that continues to rely on e-commerce. Now, becoming a habit, not a substitute. And entities distributed supply chain that maybe less impacted than others in this environment. On the flip side, we're also keeping an eye on several potential headwinds, including those associated with inflation, retail reopening, potential carrier constraints, and consumer confidence.
It's important to keep in mind that Etsy's November and December year-over-year comps are challenging, so we factored this into our guidance as well. Within the context of our guidance, here are a few additional items to keep in mind. Note that 4% of Etsy's marketplace GMS or $133 million was from face masks in Q4 2020. And we expect face masks to be relatively inconsequential in Q4, 2021. Also, keep in mind that Depop and Elo7, while accretive to our top-line, will be with us for a full quarter. Meaning, they will be dilutive to adjusted EBITDA margins similar to the impact they have in Q3 as we invest in their future growth. The majority of the contraction and take rates driven by our subsidiary marketplaces having a lower average take rate than Etsy standalone. Also, we expect an increase in amortization based on the allocation of purchase price for both Depop and Elo7. Refer to our 10-Q, which will be filed shortly for more details.
You will see us stepping back up our marketing spend in the fourth quarter and hiring will continue to be at an elevated pace. As a reminder, in the fourth quarter of 2020, U.S stimulus checks were a significant boost to consumer spending that is not expected to repeat this year. Stimulus checks also remained an important factor in our elevated growth in Q1 2021 and a bit in the early part of Q2. So, please keep the high growth levels in mind as you model 2022.
Thank you all for your time today. I will now turn the call over to Deb so we can take your questions.