• by Sarah Mahoney  @mahoney_sarah, May 4, 2023

Despite evidence of consumers cutting back on crafty splurges, Etsy's quarterly results came in better than forecast. The company outlined how shifts in its marketing approach are helping to boost sales and retail customers, steadily increasing return on its marketing budget.

Consolidated gross merchandise sales dropped 4.6% to $3.1 billion in the first quarter, a decline of 2.6% on a currency-neutral basis. Revenue rose 10.6% to $640.9 million, aided by growth at Etsy Ads, its retail ad network.

And while net income fell 13.4% to $74.5 million, that still beat Wall Street forecasts.

The number of active buyers on the platform grew to 89.9 million, up 1%, and its first increase since late 2021.

Those results reflect an 11% increase in marketing spending of $171 million, including an 11% bump in performance marketing and a 20% increase in brand marketing.

The numbers are likely solid enough to convert doubters, including those who believe the Brooklyn-based company's fortunes were distorted by the rush of mask purchases that characterized the early years of the pandemic.

"We've once again maintained the vast majority of our pandemic gains in the face of stiff macroeconomic headwinds," said Josh Silverman, chief executive officer, in remarks webcast for investors.

Observers agree. "Active buyer trends suggest the COVID cohort overhang is over," writes Jason Helfstein, who follows the company for Oppenheimer & Co. and continues to rate Etsy as likely to outperform competitors.

And while the number of new buyers in the quarter dipped 6% compared to the comparable period last year, and 7% from last quarter, Helfstein notes that "reactivated buyers are up 21% year over year." Those reactivated consumers are more valuable, with a lifetime value about 35% higher than new buyers in the first year.

Silverman and his team spent plenty of time on the call bragging about its marketing approach, including the impact of its brand campaigns and the effectiveness of its performance approach.

"We optimized our performance marketing attribution models and leveraged higher lifetime buyer value related to our transaction fee increase, allowing us to spend deeper in performance marketing year-over-year while maintaining a positive ROI."

Between 2019 and 2022, Etsy increased its ROI on performance marketing spending by 40%.