Etsy 2015 Annual Report Download - page 49

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
Components of Our Results of Operations

Our revenue consists of Marketplace revenue, Seller Services revenue and Other revenue.
 Marketplace revenue consists of the 3.5% fee that an Etsy seller pays for each completed transaction on our platform, exclusive of
shipping fees charged. Marketplace revenue also consists of a listing fee of $0.20 per item that she lists (for up to four months) in our marketplace. Revenue
from completed Wholesale transactions is also included in Marketplace revenue.
 Seller Services revenue consists of fees an Etsy seller pays us for the Seller Services she uses, including Promoted Listings, Direct
Checkout and Shipping Labels.
• Revenue from Promoted Listings consists of cost-per-click fees an Etsy seller pays us for prominent placement of her listings in search results generated
by Etsy buyers in our marketplace.
• Revenue from Direct Checkout consists of fees an Etsy seller pays us to process credit, debit and Etsy Gift Card payments. Direct Checkout fees vary
between 3–4% of the item’s total sale price plus a flat fee per order, depending on the country in which her bank account is located. Direct Checkout fees
are taken from the item’s total sale price, including shipping.
• Revenue from Shipping Labels consists of fees an Etsy seller pays us when she purchases shipping labels through our platform, net of the cost we incur
in purchasing those shipping labels. We are able to provide our sellers shipping labels from the United States Postal Service and Canada Post at
discounted pricing due to the volume of purchases through our platform.
 Other revenue includes the fees we receive from a third-party payment processor.
Our revenue recognition policies are discussed under “—Critical Accounting Policies and Significant Judgments and Estimates.”

Cost of revenue consists primarily of expenses associated with the operation and maintenance of our platform and data centers, including depreciation and
amortization, employee-related costs, including stock-based compensation expense, and hosting and bandwidth costs. Cost of revenue also includes the cost
of interchange and other fees for credit card processing services, credit card verification service fees and credit card chargebacks to support Direct Checkout
revenue and costs of refunds made to Etsy buyers that we are not able to collect from Etsy sellers. Our cost of revenue as a percentage of revenue may change
over time as our revenue mix changes; for example, to the extent that Direct Checkout revenue increases as a percentage of revenue, there may be a
dampening effect on our gross margin.

Operating expenses consist of marketing, product development and general and administrative expenses. Direct and indirect employee-related costs,
including stock-based compensation expense, are the most significant component of the product development and general and administrative expense
categories, and we expect these costs to increase as we continue to hire new employees in order to support our anticipated growth. We include stock-based
compensation expense in connection with the grant of stock options in the applicable operating expense category based on the respective equity award
recipient’s function.
. Marketing expenses consist primarily of targeted online marketing costs, such as product listing ads, search engine marketing, affiliate marketing
and, to a much lesser extent, offline marketing expenses. Marketing expenses also include employee-related costs, including stock-based compensation
expense, for our employees involved in digital marketing, seller development and growth, public relations and communications, brand marketing and design,
product marketing and marketing research activities. Marketing expenses are primarily driven by investments to grow and retain members on our platform.
. Product development expenses consist primarily of employee-related costs, including stock-based compensation expense, for our
employees involved in product development activities. Additional expenses include consulting costs related to the development, quality assurance and
testing of new technology and enhancement of our existing technology.
45