Q2 2020 ETSY Inc Earnings Call
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Richard Laser CFO and gave Brad let our director Investor Relations team here Remarketing pre recorded slide deck has all been supposed to chart website, so you're right.
Once you finish the Josh and reaches presentations Yelp ambitions went live video webcast humanaone fashion questions can be submitted by the human eight window chat laid on your screen feel free to use it at any time remain open throughout the entire conference call. All meeting. Your question will help me trying to catch with many handy.
Keep in mind that our remarks today includes forward looking statements related to our financial guidance in key drivers there on the impact of Kobin 19 on our community isn't strategy marketing and product initiative, our future financial results anticipated investments and the timing and benefit of our stellar initiatives and strategic benefit and impact on our financial performance.
Okay.
Actual results may differ materially.
Forward looking statements involve risks and uncertainties, which are described in our press release in our 10-Q filed with the FCC on May seven and subsequent reports that we will file with the I didn't see any forward looking statements. We make on this call or be on our beliefs and assumptions today, we don't have any obligation to update.
Also during the call will present, both GAAP and non-GAAP financial measure a reconciliation of non gap to GAAP measures is included in todays earnings press release, which you can find on our IR website, along with the replay of this call with that I'll turn it over to Josh.
Thanks, a lot Deb and low everyone.
She's mission is keeping commerce human and we feel that mission is even more relevant today than it's ever been at a time when our shoulders rely on income from atrophy to provide meaningful income for their families and at a time. When there are so many forces that are holding up pardon dividing us the opportunity to create human connection.
Commerce, we believe this incredibly powerful and motivates us as a team every single day.
I'm going to share with you some pretty exceptional financial results for the second quarter.
But before I do that I wanted to pause for just a second on our social impact goals because we're as proud of how we achieved these results as we are the results themselves.
We applied the same focus and accountability to our social impact goals as we due to the rest of our business because we believe very strongly that being a great corporate citizen.
Makes us an even stronger business and so for the past many years, we have been setting goals. We've been publicly announcing those Goldman we've been publicly reporting the results in progress towards those goals as part of parcel of our annual report and we feel great about the progress we've made although there.
As much more work to be done we think that's a big part of why we've been as successful as we've been in the second quarter and in prior quarters as well.
Sellers across the consolidated ATSI marketplaces, So 2.7 billion dollars' worth of merchandise in the second quarter up 147% year over year.
That resulted in $429 million revenue and over $150 million of EBITDA.
I'm proud to report that productivity across every team stayed very strong as our product and engineering teams chip very innovative new product releases, our marketing teams achieved new levels of efficiency and our gionee organizations worked so hard to meet the surging buyer demand.
But more than just fine fantastic financial results. These results underpin the incredible opportunity that actually has to meet so many different purchase occasions for so many different buyers.
Of course, one of those purchase occasions was masks in the second quarter.
He sold $346 million worth of masks and over 110000 sellers sold at least one mask. These are really big numbers, it's hard to wrap your head around them, but to give you some sense of scale that's enough masks to stretch all the way from New York.
To London.
But the strength of the second quarter was about so much more than masks.
In fact, non mask sales, 93% in the second quarter, that's an acceleration from the 79% that non mask sales grew in the month of April.
And while we added more sellers in the second quarter Gms per active seller. Nonetheless grew by 15% year over year. So our sellers on average are becoming more and more successful.
And the breadth and depth of different purchase occasions that virus turned at before in the second quarter was truly breathtaking spanning all of our top categories.
If you need to furnish something for your new home office why not get a custom made desk made by a carpenter just for your size.
If you're going to get something nice for the summer to where why not buy a beautiful linen dress direct from the crashed person who made it at a really valued price if you need a painting firewall why not get a personalized portrait of your pet.
Even everyday goods like bread sold extremely well on etsy.
In fact looking across our top categories. What you see is across each of our top categories at sea showed extremely strong growth.
In our largest category of housewares and home furnishings and sees.
Sellers sold over $2 billion of merchandise for the last 12 months and over $700 million of merchandise in the second quarter alone with growth rates of 128% year over year and if you look at each of these categories. What you'll see is there each individually.
Very large categories. There are a multibillion dollar retailers, who builds business focuses exclusively on each of these individual categories and she is growing faster than most of them and already from a very substantial position of scale.
And of course, that's just our top six categories. In fact, 25% of our Gms came from other categories that weren't even top six whereas he sold about $600 million of Gms and many of these are eaten up themselves very large categories as well like toys and games or pets.
Yes.
So when you add it up.
It speaks again to be extremely large addressable market that we believe we are facing.
Fact, if you go back to our Investor day in March of 2019, we made an attempt to size our Tam at that time and what we said is if you look at just start top six countries and you assume that FC competes only in those top six countries and that you make a second assumption that online.
And it's a completely different market from offline.
And then you make a third assumption that special is distinct from everyday products. If you believe each of those three assumptions the market opportunity for Betsy is $100 billion.
But in fact.
I hope it has helped to explode each of those three assumptions and see compete in almost every market in the world not just the core sex and in fact, the distinction between online and offline has all been evaporated in the past few months.
And we've learned.
That you can inject the special event Betsy into everyday purchases as well it seems there for so many purchases for so many different people.
So when we pull back and looked at what we've learned over the past three months. It reinforces my belief that the size of betsy's addressable market starts with the Ti not with the beep.
All of this gives us even more conviction about the summit sizes. The prize that he is chasing and the opportunity to invest to fully realize that growth.
And obviously revenues in the second quarter exploded so quickly that they surpassed our ability to reinvest efficiently in the second quarter alone, but we maintain our conviction that we should be investing given the early stage of our growth and the significant opportunity ahead of us.
As one example, we made a commitment in 2018 to migrate to the cloud and that took a significant investment of both money and time.
But thankfully the engineering team completed that migration on schedule in the first quarter 2020, which allowed at sea to realize the full opportunity of the second quarter of 2020 without that investment. That's he will be in a very different position today and we're going to continue to make those investments that position.
Betsy to obtain its full potential for the future.
So where are we excited to invest for the future. It's in the same four areas. We've been talking about for some time that collectively make up our right to win.
I believe passionately that we're in the very early innings of unlocking the opportunity in each of these four areas. This is not about low hanging fruit there are meaningful opportunities to create step function improvements in our customer experience that will position at sea, even better to be a meaningful part of our cell.
Others in our buyers daily lives.
The second one by one.
Starting with search and discovery.
In the prior quarters I've keep dealt with you a little bit on some of the machine learning algorithms, where we've been making progress and in the second quarter, we made even more progress getting even better algorithms, but let me talk about some of the user facing features that are also really important in search and discovery.
And the second quarter, we launched saves searches and that allows a buyer to declare a persistent interest and say that they want to learn more about this search overtime. So each time they come back they can see fresh results that are related to that search or we can email them. When there are new and exciting products or maybe products that have gone.
On sale that are related to that search this makes the buyer experience better it makes it crusher and importantly, it gives buyers more reasons to come back more often and it tells us really important information about the buyers already 8% to visitors have at least one saved surge.
And for a visitor that has a saved search 11% of them have come back again to interact with that same search, which we think is really encouraging given how very new this feature is.
Another area, we've been promoting is favorites and lifts buyers tell us that there are so many good things they find on etsy that it's hard to organize them into narrowed down to make that final purchase decision. So we've been making favorite thing and listing more visible and easier and because of that we've seen a mean.
Meaningful uptick in favorite thing and adding to lists and this also gives us really valuable knowledge about the buyer. So that we can deliver even a personalized results for them and it allows buyers to have a better buying experience and often to share with others in the way that can create viral growth that we think is.
Really encouraging for frequency and growth into the future.
Turning to human connections the ability to tell the story of the seller in the story of the item is so powerful in differentiating the kinds of products for sale on Etsy and in the second quarter, we launched the ability for sellers to upload videos of themselves and have their items, which make the buying experience richer.
And tell the story and already even though this features than line for only a few weeks. There are over 700000 videos that had been uploaded we're really excited to track. The progress that this is going to make for buying experience turning to a trusted shopping experience we've talked a lot about our push into free.
Shifting and were so happy that we pushed hard on free shipping in 2019, because we believe that has positioned us better for the current moment that we're in.
In the second quarter, we launched bundles, which is the ability to see what other items the seller cells that might push the cart over $35 and therefore qualify for free shipping and we saw some meaningful uplift. There that we think is really encouraging next up for us is really working on setting appropriate expectation.
Actions around when the item can arrive and helping to resolve issues proactively for buyers before they might even become serious issues. We learned a lot from the surgeon mask sales about what happens when a seller's sales surge and how to anticipate can get ahead of potential issues in a way that supports the south.
And the buyers and we're now starting to apply that to many other products in a way that we're really excited about to continue to de lever and even more trusted shopping experience.
And last but certainly not least our sellers collections of unique items and in the second quarter. We launched augmented reality that allows a buyer to visualize a piece of of wall art on their space and wall art by the way as one of the most popular areas.
Categories on Etsy, and unlike many other people who sell home furnishings and wall art, we don't get structured data from our salaries with specific dimensions. So we need to use machine learning to interpublic, what we think the dimensions are and then show how that item would look on your wall.
And it's a great example of the kind of investment that we had etsy make because of our very unique kinds of inventory that we think are going to continue to differentiate us from other people, whose primary source of inventory is products that map to a catalog.
Collectively we're so excited about the continued progress that our product team is making in differentiating the experience for buyers and for sellers in a way that we think it's going to payoff for years to comp.
And all of that gets even richer when we do a better job telling the world about it we continued to lean into all of our marketing investments both higher funnel like television as well as performance marketing in places like Google and Facebook and we believe that they delivered very strong returns in the quarter, even as we elevated the ABS.
Salute dollar investments in those returns. We're also really starting to learn to use these new CRM tools. So that as we gain more personalized information about our buyers were able to communicate with them through our own channels into our paid channels as well as onsite in ways that feel more and more.
Personalized and all that makes us feel encouraged about what will happen with these buyers in the future.
To sum up we believe that ATSI isn't the very early stages of an enormous opportunity for the etsy marketplace and for the revert marketplace, which Rachel will talk about further we couldn't be more excited about what the future holds and the progress the team made in the second quarter.
With that I'll turn it over and Rachel.
Thanks, Josh and Hello, everyone is my commentary today will cover consolidated results as well as a key driver if that performance, which include Etsy standalone results where appropriate.
You can find select details on lever contributions in our press. That's currently in to be filed 10-Q.
I look forward to speaking to many of you can elect scripted format for today. So many number to report I'll be reading my prepared remarks.
UK was a spectacular quarter.
Breaking records for new high end CMAP revenue and EBITDA.
On a consolidated basis at the second quarter Gms carry 140001st that's a $2.7 billion.
Revenue grew 137% to $429 million.
And we delivered adjusted EBITDA of nearly $151 million or margins of 35%.
Both the Standalone and remember marketplaces that unprecedented growth in the second quarter within the energy verb delivering $2.5 billion and $227 million in Gms, respectively.
She was unexpected in many ways.
On our last earnings call, we outlined that with limited visibility that CMS work might be celebrate in May engineering and the high seen in April.
In fact strong trend in Kenya throughout the quarter Abraham after that 136%.
May was at 158% and even with that 142%.
We thought as trends continue in July, which I'll talk about more when I get to that.
Another point worth, noting particularly as you think about forecasting well. Our overall results were very strong don't seem to we did experience significant volatility largely attributed to reopening closing of local economy globally.
For example in the month of man's, Yes, we had a high and 151% on our low of 109%.
He was driven by growth in both marketplace and services revenue.
Key drivers of growth are driven by an increase in CMS I am.
And if he payment.
And I'm quite advertising.
The launch of Offsite as has been a despite the excess oak for our salaries and per Se. We began bailing seller in early may so the marketplace revenue contribution from outside and only reflect partial quarter.
That's far there has been a very low level of opt out from sellers have that option and minimal churn from those required to participate.
In all at the end of Q2 less than 2% of sellers have opted out of the program.
And the AD our OXXO onsite adds program previously referred to as promoted listing continues to be a very successful seller service.
At the ads grew 94% year over here in Q2, and 60% sequentially versus one.
It's worth noting that at the ads had its first million dollar day on July.
What I might add launched but it's been a former people shopping panic when migrated to at the AD and those dollars and put to work at higher efficiency.
The growth in at the ads with modestly offset by a plan decrease in a number of promoted ads per page.
Okay, great required 100 basis points sequentially, while the core business performed well and our off but adds some significant incremental revenue.
With that by a lower effective Kate rate on our on site at the ads product and to a lesser degree some of our salaries.
As a reminder to support our salaries. During this difficult time, we made one I'm investment which totaled $12 million in Q2.
It is predominantly included waving offsite atsis for a month and providing credit to some sellers.
Another factor impacting at the AD greatly increased conversion rate from higher intent visitors searching and quickly finding things like eight math, which reduces page views.
We also continue to grow our payments platform another contributor to revenue growth in the quarter in Q2, we expanded at the payment of five additional countries. If he payment is now available and 43 countries across 19 currently proper thing 92% of arts format.
Gross margin was 74%.
Britain 40 basis points compared to last year, primarily driven by our ships to Offsite AD is generating revenue growth without an equal offset in cost of badly.
Our Q2, adjusted EBITDA margin benefited from that significant an unprecedented top line growth we had another quarter.
A great proof point that our marketplace model and scalable and the cash generative.
Cost of revenue DNA and product all declined as a percentage of revenue in the quarter.
And they're relatively young company with an enormous market opportunity in front of us.
We believe we should more aggressively invest in growth and Chris do you are very clear roadmap.
And as mentioned in the past our revenue per employee if the meaningfully higher than our peers.
Recent growth provides a unique opportunity for us to reinvest some of the incremental revenue rather than put it in the bank at flat yield.
He philosophy, it's a focused investments on driving profitable growth and keeping margins of 35% demonstrate our long term potential.
To that end he turned keeps do we increased our marketing investments to $115 million.
Significantly leaning into this moment, where at Mt captured the world detention, representing 27% of revenue.
No that as a percentage of sales marketing spend was up 140 basis points compared to last year.
Within that fence performance marketing for the ethylene marketplaces $78 million and go paid gms, 21% overarching.
We believe are gaining share in performance channel led by efficiency, even at higher levels of investment.
However, we are uncertain. How this plays out currently we are seeing substantial garden conversion rate an impression and we can't predict that these trends will continue.
For our new buyers and reactivated buyers are newer cohorts were seeing LTV increase driven by higher frequency on increasing elite.
These factors drive higher by our lifetime value and enable us to spend deeper on marketing without reducing our ROI.
Higher gms or click on performance marketing and broader reach on television have also extended our marketing dollar.
We've made substantial progress building toward a full final marketing approach and continue to optimize our investments in each part of the final.
A more robust investment TV and digital video at the top of the final.
Leveraging social more extensively in the men and driving business and can burdened with performance marketing lower the final.
Our new CRM DAC is a key element in helping us dynamically target and acquire buyers with richer and more personalized content.
All of these activities are early days, particularly outside of the you asked are we continue to experiment with mid and upper funnel marketing in places like the UK and Germany.
Many of our key operating metrics that he had been marketplace were significantly higher in the second quarter than any other periods since it's been a public company.
This thing of the dynamic nature of our business model availability of our sellers inventory and the power of our brand and what we plan for.
In the second quarter active buyers grew 39% to exceed million that the marketplace and repeat buyers through 51% to 26 million.
Buyers on the platform with only a map sale were approximately 7% of the buyers and yet the marketplace or 4 million. So while not sales were a tailwind for growth our core business is performing exceptionally well.
Gms her active buyer on a trailing 12 month basis were 4.8% year over year higher than a record growth reached last quarter driven in part by habitual buyers going to 64% year over year.
Excluding math Gms per active buyer was up 5.9% in Q2 and 7.3% on a two year basis.
On a consolidated basis, including Refurb percent International Gms contracted 400 basis points sequentially to 32% of overall Gms.
As a greater percentage was driven by us domestic fires.
International Gms was up over 100% and was driven in part by our international domestic train group.
Gms between sellers and buyers located in the same country.
New buyers and reactivated buyers are expanding at the percentage of our overall buyers and were up 162% year over year.
The second quarter, we acquired nearly 12 million new buyers compared to 19 million in all of 2019 and reactivated 7.2 million buyers are existing buyer segment also grew 124% year over year.
Repeat purchase rate was 45% in Q2 520 basis points sequentially.
Non out fires had a disproportionately impact on frequency compared to mass fires as gms for non mouse items was up 93% year over year in the second quarter as Josh mentioned.
Our internal data shows that getting new buyers to their fourth purchase is generally inflection point for repeat purchases.
The second quarter, 9.8% of new and reactivated buyers made for a more purchases across two or more category.
Centric nearly doubled compared to last year and isn't really encouraging and strong indication that we have a high probability of routine buyers.
Currently our newer cohort are performing better than our older cohorts.
But this isn't unusual time with fewer options for buyers.
And with so much uncertainty about current and future macro conditions were not asserting that these cohorts will continue to outperform.
However, we do feel confident that these cohorts will be at least as good as any cohort or acquired.
In fact, if you look at 530, you can see that our historical cohort trends have been extraordinarily reliable and predictable, citing a very steady recurring immunity and gms and our base business that has gradually improve product and marketing.
You can see a clear inflection point starting in April of this year, reflecting the significant growth and reactivated buyers and increasing frequency.
Our work going forward is very focused on engaging and retaining these new cohort.
We have seen an interesting gms dynamics as as geography is impacted by Kobe began to reopen.
This slide shows two examples.
First in France, we experienced a decrease in a repeat purchase rate as reopening commence.
Patrick in a state like Texas that reopen for a short period remain strong deleverage choppy.
Not surprisingly mass trends and generally held up or even accelerate it in some locations economies reopened.
So it's important to keep in mind that macro conditions are very volatile and hard to predict a moment on revert, which also had a great Q2.
Strong and stable performance throughout the quarter featuring high growth in the U.S. and internationally as well.
In addition to its traditional appeal to a musician and that music aficionados.
Leaguer became an important online channel for many sellers and has expanded its street at a place for new here and not expires.
Lieberman significant value in the marketplace over the past here, but like everything is in the early inning of realizing it's true potential.
Effective this week regroup has increased its seller transaction fee for 3.5% to 5%.
And we'll utilize the incremental revenue to invest in marketing customer engagement and stellar tools and services.
We believe the changes to reverse pricing model, an incremental investments will unlock significant growth opportunities and serve as a foundation to build on for the future.
As of 630, we had over $1 billion of cash cash equivalents and short term investments. In addition to 200 million dollar revolver. That's currently undrawn.
We have a capital light did this model with minimal capex and marginal working capital needs.
We believe we can continue to convert a very high percentage of our adjusted EBITDA into free cash flow.
Finally, let me discuss our our outlook for Q3.
This year has been anything that predictable. So we caution you to remember the potential headwinds we called out in the path and that appear in our slide presentation on factors impacting the business.
We currently estimate Gms for Q3 in the range of 2.2 billion to 2.5 billion, which is up 80% to 110% compared to Q3 and last year.
Revenue of 366 million to 426 million of 85% to 115% versus last year.
And adjusted EBITDA of 111 million to 127 million with a margin in the range of 28% to 32%.
Our margin guidance reflects our strong conviction that at the has significant opportunities for further growth and that investments in technology marketing product and people will yield both near and long term benefit.
I've started ramping our investments this quarter that they'll take some time to fully impacted CNL.
Our Q3 margin guidance is modestly higher than we want it to be if we were able to flip the switch and have all resources Onboarded in Atlanta.
That Q4, and 2021 margin guidance for are flat to war of the impact of the increased pace of hiring.
In addition here are few insights to help you with your models.
Our gms guidance for Q3 imply the deceleration in topline growth, mainly due to lapping that reserve acquisition on August 15th which added approximately 20 percentage points to growth in the second quarter.
We still think rigor to achieve breakeven adjusted EBITDA margin everything Twain 20, as their incremental transaction fee revenue is mostly offset by stepped up investment.
We'll also be lapping the introduction of Etsys free shipping initiative, which resulted in higher Gms as sellers incorporated a portion of the cost of shipping into the item pipe.
At the midpoint of our Q3 Greitens revenue will increase 100% and we expect ft consolidated take rate for the second half of the year to be approximately 16.9%.
As we execute our strategy in that's in our sellers picked up and make investments to drive to drive growth. We believe we can capture more of our addressable market opportunity.
And before I close a quick shout out to ethane amazingly talented and dedicated team are working hard to deliver this growth.
I'll now turn the call over to damage. So we can take your questions.
Great. Thanks Rachel.
Hi, everyone. So we're not going live we have plenty of questions in the queue. So I'm not going to given any times tick anymore. If you would you want to pick questionable trying to get them as lumber, we really have plenty already so the first one I'm going to turn to today is from enrollment from Keybanc. So Ed wants to know if we can talk about the math business intra quarter and.
And exiting the quarter.
We see a pick up at Cowen impacted southern States and has demand softened as math to become more widely available.
And I happen to start with that.
Yes, I mean, I guess, what I would say about masks is that it.
Continues to be very volatile the primary observation, we have is that when government agencies like the CDC in the United States or similar agencies in international markets recommend mask usage, we do see a material increase mask usage of spike in mass purchases are around that time.
But it does tend to fluctuate state to state County to county country to country to the point that it it's pretty volatile and frankly quite hard to predict. So we've tried very hard this quarter and even last quarter to break out mask sales because we know that you might want to model those differently as you as you think fault.
Ward.
It's just really hard to have a crystal ball around.
Our on what's going to happen with it in the future.
Okay. Great. Thanks, Josh next question comes from Rick Patel at Needham can you talk about what your sellers are staying about our finance and what gives you confidence that they see the value and paying the C and or the higher conversion you expect to be more aggressively thats going forward in light of German moment.
Them.
I'm happy to start and then maybe aberrational feeling on you know we're really pleased with the response from Offsite adds as Rachel said, we have about a 2% opt out rate right now.
And what that indicates to us is that sellers are really seem to value in the program and frankly, we think they should because we think it's a really valuable program for them. The return on AD spend is terrific.
You look at 12% or 15% of revenue being spent on performance marketing that benchmark really well what a seller would normally have to spend if they were marketing there on web site, but in addition to that we take the risk.
So if a seller where normally marketing their own website. They would typically pay per click and beyond the hook is whether or not that sale converted so as that program has really rolled out and sellers have had a chance to experience that I think they're seeing first hand that it is in fact really good value and sentiment continues to improve and.
So we're we're happy with how the program is going and the value that it's to look right.
Yes, it will.
Leasing I'd add there.
On that just remember for your models that we didnt start feeling on Offsite adds until May So there was a month.
Quarter that Didnt include anything incremental revenue from that and the others.
A little factor and put in there that you when we went very well research.
And worked with sellers to gauge how what their appetite was going to be for this product and how it's howard be receives and so it didnt roll out without noise. It just rolled out with the.
Level of noise, we had expected or slightly better than that and so and that the on the churn in opt out rate speak for themselves that 98% in is something that we feel pretty good about.
Great, Thanks, Josh and Rachel.
Yeah.
Pain from Jefferies.
The realize 18% operating leverage and its highest ever quarterly EBITDA margin, despite expanding marketing spend by nearly 160% has a high level of scale and efficiency than where it seems in Q2 increase your outlook for 30% of greater EBITDA margins by 2023 or what's your view on margin since all over the long term.
You want me to start Josh and then you can file on.
And so at first of all we gave guidance for Q3 and Didnt, even give guidance for Q4. So you can tell our we're being cautious about we were featured unpredictable in we're definitely not giving.
2021 guidance or guidance beyond.
2021 and.
And the guidance that we gave for Q3 by the way in.
Yes, a pretty wide range.
30 point range on Gms, So we talked about a lot of volatility when we gave long term guidance, though I will say that we gave an average you know on averaging over time, those where the rates that we would be at and we also as Josh mentioned a couple of questions. You know we took.
We have several times, we've called out how to think about mask sales which are.
Probably a nonrecurring now it may it maybe part of our life for quite some time that it's probably nonrecurring.
Acuity.
And so when you think about long term you might want to think about.
Backing those numbers out of you model it to look at what our base business.
Okay next question from Nick Jonas at Citi.
With that seems Reshipping initiative gressman coded given the surge demand in Gms, our sellers more wherever the benefit of free shipping or given the demand is free shipping less of that factor.
See you Josh.
Sure.
So.
We're feeling really good about how free shipping is going and were.
Grateful that we took it head on in 2019, when we dead because I think it positioned us much better for this moment that we're in today when buyer show up on Etsy. There most of the time finding shipping prices that are aligned with their expectations and I think thats really helping at sea to rise to the moment right now so.
We we continue to see progress in free shipping and we highlighted.
The highlight of the quarter was really presenting this concept of bundles. So when you're on a seller shop looking at an item. We show you another item or two you could add to your card that would tip you over to $35 that you would get free shipping and that showed positive progress. So I think that Theres continued things we can do.
New in shipping to help.
Meet people's expectations on cost, but candidly that is not the friction point than it once was because of the good work that we've done when we look at top concerns or headwinds from buyers.
Shipping costs no longer is often cited as a as a top friction point. So we're turning our attention now to what are the next things on the list and for example expected delivery date is something that we hear a lot is this item going to arrive on time, what happens if it doesn't arrive on time, so we're turning more attention now to setting buyer.
Dictation around when an item will arrive, making sure we have a variety of options for shipping speed and also showing them. If theres a particular date that they need to hit here are things that can arrive in time for that date also I think in terms of keeping etsy human.
Helping them to see the making process you know etsy may not be the fastest place to ship something but theres a lot about having the product be made just for for them and so giving them insight into where the product is the fulfillment process, where it isn't in the making process. We think can actually build excitement and energy around the product.
Even before it arrived so you'll see us.
Focusing more in coming quarters around that post purchase experience as well.
Great. Thanks, Josh O'kane turns from Maria reps that Canaccord highlight performance for a number of product categories, which is very helpful. Can you talk about product categories in terms of behavior of the customers you're seeing is there anything in the behavior pattern of new customers that would indicate whether they were.
Staying with the platform longer term or not.
Yes, great question and you.
You know.
Rachel gave some highlights on that in her prepared remarks. So we're trying to give you as much color as we can so things like repurchase repeat purchase rate are up very significantly year over year from where they were.
You know second quarter of 2019, and we feel great about that metrics like what percentage of customers are making four or more purchases from two or more categories that metric is going very well.
As well so we're really encouraged by that but we also do acknowledge that this is anything but a normal taught.
And so you know how this will trend wants.
People have more options again.
It is impossible for anyone to predict with accuracy.
And so what I can say is that we're working super hard to make sure that our customers have a fantastic customer experience.
And that we're engaging them learning what we can about them to deliver even more personalized experiences to get them to come back and that's really up.
Our whole focus right now.
In the only thing I'd add there is that some of the metrics. We gave on non Mac sales were looking at really the core business and Josh save a lot of information on.
Categories are performing but we also that non now sales were up over 90% and that CMS per buyer on his trim Gms for buyer on trailing 12 month basis was.
Accelerated see almost 6%, where it's been gradually kicking out we saw a nice little lift in that metric too is just reinforces the.
The fact that people are coming back more frequently and sticking with that.
The offering.
Okay, great moving on to question from Lauren Counsel from Morgan Stanley can you quantify at a high level, how much you reinvested on either into marketing technology, and so forth into the business in second quarter, we cover them comedy.
[music].
Okay.
Great. Thank you.
Sure I can start with.
Can start with the number that we game on the call we significantly increased our marketing benefit Q2, I think with our highest the high watermark on marketing spend.
For the company and you can do some.
Back of the on the road map that will show that we're getting really healthy ROI is on spend and it's even healthier. When you think about if you do that back of the envelope map ingesting looking at the in quarter Gms from the in quarter span for every buyer that we acquired and get a nice tail on that buyer more so even when you spend.
Branded marketing that you're going to get a long tail. After the fact, so we feel pretty confident that werent, placing our best in that might places we've gotten on our our television span. The first time, we broke out the brand marketing.
Colors and on the television span, we triangulate or.
Season.
Nine or 10 different sources, we will pull data into two.
Make sure that we're getting to invite place that's the right answer on ROI. So these are on data will use the data of our media company we layer on.
Brand tracker information. So we can get 30 testimony from both etsy buyers and non Etsy buyers and then we panel data from I thought to make sure that were getting healthy return we feel very very good about returns the beginning on on that spend looking forward, we're very likely to continue to spend.
I'm taking advantage.
Very attractive cpms in the.
Did you know.
Video and television linear television market.
Yes.
Very attractive cpcs in weak performance marketing and we'll start to.
That's more in some of the international markets, particularly the UK and Germany, as well as new boats Rand.
Creative and.
R&D, our performance related creative in tandem with each other so.
We are.
Pretty pleased with where pharmacy beginning that marketing.
And if I can pile on.
You know we are all creatures of habit and shopping is largely habit driven.
And.
There are very few times you one's life when you have an opportunity to reshape their habits. The classics three or when you get married when you move home and when you have a baby and otherwise your habits are pretty cemented and you're not really open to forming you habits and so what this current moment has created is it's created a moment when everyone's habits.
Up for grabs suddenly before you go buy anything you've got a stop and think for yourself, where can I go to get that and in that pause at sea is winning.
If you get someone to pause for 30 seconds, and say where can I go etsy is going to come to mind.
But you know a more normal times you don't get 30 seconds, you've got may be a fraction of effect. So the opportunity as if somebody has one second to last when you say where can you go to buy home decor, where can you go to buy jewelry, where can you go to buy address where can you go to buy gift for your mother, where you can go where can you go to by choice fear kits.
We want to see the beyond the tip of People's talks.
And this is a moment to lean into that and to try to re wire those habits. Because we know that if we are in the tip of their tungsten they come class, they're gonna have a great experience. It's just about that top of mind consideration. So as Rachel said, we spent at a higher level than we ever had in the second quarter and we feel very good about.
The returns that we got we're always very focused on looking at returns and in particular at the margin. If we spent one more dollar what would have happened.
And so given that we feel quite good about the returns we got in the second quarter, we're going to push harder in the third quarter and see what happens if we go even deeper into some of our marketing spend both in terms of sort of real time metrics and the brand metrics much consideration metrics.
As we think that this is a moment that we really want to rise to and try to.
Try to try to really lean into.
Okay, great. Thanks.
Next on term, Jason Helfstein from Oppenheimer.
How much of the improvement in checkout conversion are top of the final checkout can be traced to product inserts changes as the result of the cloud migration one other product changes can you highlight.
Well I can speak about a couple first I mean, the cloud migration is a great example, eventually making a long term investment.
It took us several years of work and of course, it cost money, but it also took material time from our engineering team, but had we not and of course no. One could have anticipated what would have happened in April and in the second quarter, but have we not made that investment when traffic doubled on the site basically overnight if we had been.
In our own.
Data centers without the ability to add capacity.
You know our site would have slowed to across all in this moment would have passed us by so I think that it's a great example of us making investments both for the near term, but also for the long term imbalance that set at sea up to really achieve its full potential and we're going to continue to have a very balanced investment portfolio to make sure that we are well.
Set up to achieve our full potential when you look at conversion rate and conversion rate was up significantly in this quarter I think part of it is there are fewer places to shop and so people are arriving with a fairly high degree of intent, but I also think our search engines are just getting better and I don't know that I need to kick out every quarter.
With you on algorithms, but I will say that we've launched even more robust machine learning algorithms that are consuming more data that are doing just a better job of serving search results to you were doing a better job organizing those search results in a waste that it feels to you a little bit easier to digester to buyers easier to digest.
And we're doing a better job of streamlining what's the information that needs to be on the page and what information is extremely aster distracting, we're constantly experimenting with that and frankly, it's just getting better and that's allowing people to make more confident purchase decisions, which is undoubtedly helping with.
With our conversion rate.
Hey, Josh next one sort of a follow up on that one a little bit Francisco since one.
It some Rick Patel it need on the phone Jim can you provide more color on initiatives toward personalization 13 searches and favorites sound like a stepping stone to product discovery and inspiration.
Do you see these features evolving induces a multiyear journey.
Definitely a multiyear journey and there's there's at least two pieces. We've got to know more about you and we've got to know more about the items and so in terms of learning more about you, allowing you to leave bread crumbs tell us more about yourself things like what do you favorite what do you add to what lists also tells the slot.
Name that list as this value added value oriented.
You know.
Midcentury modern or did you name. It you know things from I live in Europe.
So all of that gives us a lot more data about you by the way there's other things that we can start to incorporate that we have it.
Things like size of wallet that might inform what kind of average purchase price, we want to be showing what part of the country you live in which might also informed taste.
Those kinds of things, which may be some pretty basic we have not historically incorporated into our search engine. So historically in up and so very very recent times everyone. In America searching for a certain key where we get the same search results and so there is obviously an opportunity to do much much better than that and you are.
We're seeing us now gain.
Ask buyers for bread crumbs asked them to tell us a little bit about themselves, they're taste their interest as well as our ability to intuit.
Things about them that are going to allow us to be more personalized the other pieces how much do we actually understand about the item itself and we've talked in the past a little bit about knowledge base, but what we need by that is that we have been extremely reliant on the actual words that a seller inputs when they describe an item.
And that is naturally very very limited both in terms of what we understand about the item and what other items it might be related to so our ability to say based on looking in an item and based on other items that are related to this is a gemstone ring and its four people, whose birth month is April and other things.
That relate to the birth month of April are the following those kinds of things.
There is a huge roadmap, where we are only at the very beginning of of unpacking I think can make the experienced much better another thing that will add.
As in order to navigate etsy really well.
You have historically needed to be quite articulate youve needed to know what key words, you should input into our search engine to describe your taste or what you're looking for that implies a pretty high degree of intend to that you know what you're looking for and quite a lot of savvy to come up with words like boho that many of us wouldn't even.
No what that what that needs. So the ability to use images and say I'm not sure I can put into words, but it looks like this.
That kind of image related search or let me show you. Some inspirations of other people who seem like you and does this motivate you those kinds of ways to prompt allow people to browse allow them to.
To find inspiration from other people without needing to come up with words themselves. We are again first inning of that in fact, I think we're just stepping up to the plate at the top of the first on that and I think theres. So much. We can do that's going to make gets even better place to shop coming through that.
Okay needs, Josh next loans from large sametime at loop.
Can we get more color around the potential long term impact of finance margin and more granularity about the impact may not in the second quarter.
Okay.
And I'll grab that when so we.
First of all the second quarter as a reminder, you're looking at two third in the quarter for the incremental revenue we generated from from Offsite ads.
We are on the other hanmi and can you spend so we were out their spending our marketing dollars yelping expense in the marketing line.
That's offset by incremental revenue and so some of the accounting that we might see happening is that we.
Formerly had.
Google Google shopping products and revenue.
Completely offset too.
Two revenue in our cost of revenue line dealt with revenue with zero margin. That's gone away now we now have revenue at a margin, but the expense it sitting marketing on our gross margin line.
We would expect wasting great performance from that and from its current activate very low churn as a reminder, so every time, there's a successful ads that we.
Successful Pls that we placed on one of the Offsite channels that will win.
A seller I won't be charging their 12% or 15% of that transaction fee. If that sale is successful on their site. So if we buy that pay appealing it's not successful only by that TEOA and its successful that's on somebody else's with thing there's no. There's no transaction fee that gets transferred over to theirs.
Nice performance, it's not 100% path if I'm correct.
Great. Thanks, Rachel next ones from Intel at Needham can you talk about attic performance in the markets were story openings are further along.
Tumors in those markets remain loyal to digital platform urban, particularly at the time reinforcing success to make sure you reaching assessments.
Regimen.
Yes, I can take outlets that we gave a couple of examples.
In France and taxes, so in France, we thought there was an impact as those and that market reopen or has that I'd say, it's soft impact to feed.
Performance in that market as opposed to me state like Texas Thats.
Reopened, but it's been pretty stable volatile, but the overall the overall trend line has been stable is that slide in our presentation deck that shows that dynamic I think we're going at the state reopening in closing, we opening and closing and we don't know a lot about what's happening with let's turn to work scenarios.
And returns at schools scenarios, which actually might drive more demand for things that we felt aren't in the nature of personal care for example.
Protective gear, and even with masks and even though there is now more competition with math that might be something that sticks with us for very long time lighten somewhere mass were very long time, we're starting to see things like.
Accessories so.
Harris frenzy that matches the math I might have made this joke on the last quarter call, but I've started the trend he needs, which isn't a map plant bikini and all match each other we start to see.
Shield and other products that all have to deal with the current environment that we're in so every openings and closings by themselves don't.
Necessarily predict what will happen too.
Performance on the site and then going back again to the point you made about Theres, a core business, they're completely unrelated to the.
[music].
To be.
Mat sales I guess.
The the line between online and offline is virtually disappeared people realize that assay the placed by anything really and our core are tough core six categories has now.
Over 90% excluding math.
So I'll just pile on there a little bit to say.
It has been extraordinarily difficult to look and find one to one relationships of estate reopens and you see that more start we in France, and others Thats why we kind of pick that as one example.
And that's what's made all this so tricky there is a diesel implied in our Q3 guidance and we believe that that is appropriate you know.
We although it's very difficult to find a light switch effect, where you know a state reopens and you see a sudden change we do see some deceleration as states reopened as you would expect we do see some deceleration when they close back down again, we see some acceleration and so our guidance implies some level of T cells.
Rationing in the third quarter and based on what we see happening we think that that's appropriate into the best of our knowledge that reflects what we think is most likely to happen given that the very wide lands.
That we gave 30 percentage point range in guidance. The other thing that I would point out is federal stimulus.
Which has been very meaningful.
And.
Again, it's hard to pin down how much of 600 dollar weekly check is is making a difference, but we have some indicators to suggest that it is it is making some difference and so if those checks were to stop or be reduced.
We also think of that.
Second Avenue.
So all those are things that we're thinking about in factoring in as we as we look forward.
Okay, Great. We're just about at times and then in Sweden, one more from your dollar erroneous from Wedbush with the influx of new buyers coming at the are there one or two things you would like to call out we think thats, the best ability to bring new and reactivated buyers that regular ATSI shoppers and our their pockets of users.
Within cohort that you think are more attractive going forward that your marketing to or you just treating everyone equally.
Well as I said I think we're really trying to get passed the day, where we treat everyone equally we have been treating everyone equally up until now and we're now gaining the tools to be able to start to differentiate and personalized and again, we value every buyer and we value every seller, but that doesn't mean that they want to see the same.
Okay. Thanks.
From us and in fact, given the vastness of the Etsy marketplace. They certainly don't want to see the same things. So the more we can learn about the buyers. The more we can match them with the sellers in the items that they're most likely to love and and we're just starting things like saved searches favorite thing these you're very powerful.
But there.
You know.
There are just the beginning of the kind of things that we can do to start to understand what a buyer likes and by the way once we know that if a buyer as favorite at something in particular, if we see them searching for something on Google or or we find them on Facebook our opportunity to to to be more specific in terms.
What we market to them have a better sense of what we bid to be in front of them again and to reengage them, what such second purchase worth what's that six purchase for us we're starting to get much more specific about thinking about the incremental value of getting someone that next step in the life stage and what's the next likely purchase that's likely to get them.
There so I'm.
Really encouraged by the roadmap that we have ahead of us to be able to do in ever better job on that.
Mostly I think because I think we're almost at a time.
I am incredibly excited by what this quarter says about the potential of ATSI when buyers give us a chance we have an unbelievable ability to meet their needs across almost everything in life that they want to buy.
And when they try us they find we've got something great for sale, that's similar to what they have.
Could have found someplace else, except that it made it just for them.
And they bought us from a person who made it in a way that feels really human and so we're seeing buyers be delighted by that and so I think that that.
Speaks volumes to the potential that we have in in the years in decades to come.
Great just at the perfect way to end. Thank you all for listening, thanks, Josh and Rachel and we will talk to you. All 10, we appreciate your time and interest messy.
Thank you.