Etsy’s checkout got busier, but the bill for running it grew faster. Revenue rose $39.2 million, or 6.2%, to $668.3 million in the three months ended June 30. Cost of revenue increased 9.3%, driven mainly by payment fees and refunds, and gross margin slipped to 72.4%.
That would usually make for a less exciting profit story. Instead, operating income jumped 33.1% to $125.3 million, lifting operating margin to 18.7%. Etsy spent less on marketing as a share of revenue, while research and development was nearly flat. The marketplace made more money before the items below the operating line took their turn.
The strangest item is the bottom line: net income fell from $28.8 million to a $46.6 million loss. Diluted earnings per share moved from $0.25 to negative $0.36. Etsy’s latest disclosure does not give a single current-quarter explanation for that reversal, but it does rule out one obvious culprit: foreign exchange was a gain, not a loss.
Etsy described the swing this way:
"Other income, net increased from other expense, net, primarily driven by changes in exchange rates that impact our non-functional currency cash and intercompany balances, which resulted in a gain for the three months ended June 30, 2026 as compared to a loss for the three months ended June 30, 2025."
Etsy, Inc., Form 10-Q, Aug. 5, 2026
Other income improved by $34.9 million year over year, helped by currency movements and the absence of last year’s loss on the sale of Reverb. The supplied disclosure does not identify a single current-quarter cause for the net loss.
The operating line also carries a cost wrinkle. Etsy said:
"The increase in cost of revenue was primarily driven by an increase in payments fees, cost of refunds, and, to a lesser extent, cloud-related hosting and bandwidth costs, partially offset by the sale of Reverb on June 2, 2025."
Etsy, Inc., Form 10-Q, Aug. 5, 2026
In plain English, Etsy kept 72.4 cents of each revenue dollar before operating expenses, down from 73.2 cents. It still expanded operating profit because other operating costs grew more slowly than sales. The gross margin and operating margin are moving in opposite directions, which is a more useful read than simply calling the period profitable or unprofitable.
Cash adds another layer. The balance fell from $1.2 billion to $901.3 million, while accounts receivable rose 33.8% to $8.7 million. Capex fell 73.1%, yet free-cash-flow margin declined 2.7 percentage points. Those are observations, not an explanation: Etsy does not disclose in the supplied material why the cash balance contracted.
The backdrop is a business that has settled into slower growth. Annual revenue reached $2.9 billion in 2025, up 2.7%, with a 9.2% operating margin. The latest three-month operating margin is above the 2025 annual margin, while net income was negative and the cash balance was smaller. At 65.8 times earnings, valuation is another part of the comparison.
Etsy’s next quarterly report will provide the factual comparison that matters here: whether cash, receivables, and free cash flow move back toward the operating improvement shown in this period. Etsy is producing more operating profit alongside a net loss and a lower cash balance.
Etsy’s latest three months put operating improvement next to a net loss and a smaller cash balance, according to its Aug. 5, 2026 Form 10-Q.