Q4 2020 ETSY Inc Earnings Call
Hi, everyone and welcome to Etsy fourth quarter and full year 2020 earnings conference call I'm Deb Wasser VP of Investor Relations. Joining me today are Josh Silverman, CEO, Rachel Glaser, CFO and Gabe Ratcliff, our director of Investor Relations. Today's prepared remarks have been prerecorded. The slide deck has also been posted to our website for your reference.
Once we are finished with Josh and Rachel's presentations, we I'll transition to a live video webcast Q&A session questions can be submitted by the Q&A window chat displayed on your screen feel free to use it at any time of day will remain open throughout the entire conference call I'll be reading your questions and Gabe will help me try to get to as many as we can.
Please keep in mind that our remarks today include forward looking statements related to our future performance, including our financial guidance and key drivers thereof, the impact of COVID-19 on our communities business and strategy and the potential impact of our marketing and product initiatives words, such as anticipate continue expect and well as well as similar expressions are intended to identify.
Forward looking statements our actual results may differ materially from these forward looking statements forward.
Forward looking statements involve risks and uncertainties some of which I mentioned in todays earnings release, and which are more fully described in our quarterly report filed with the SEC on October 29, 2020, and in subsequent reports that we file with the SEC.
Any forward looking statements that we make on this call are based on our beliefs and assumptions today and we undertake no obligation to update them.
Also during the call we'll present, both GAAP and non-GAAP financial measures a reconciliation of non-GAAP to GAAP measures is included in today's 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 them in all welcome everyone.
2020 was no doubt a transformative year for etsy.
Time on the circumstance net preparedness, highlighting the agility of our model the dynamism of our team and the power of our differentiated strategy Etsy.
See emerge as transform a larger and stronger marketplace as a result.
We understand that the stakes are high millions count on us now more so than ever and I'm proud of our impact.
We hope to create economic opportunity for our sellers and led from the front on many important social issues.
Our marketplace that gets better as it gets bigger we believe that etsy is now even better positioned to lead into the future.
When we look at our 2020 results.
They were spectacular.
<unk> Gms was $10 3 billion up 106% on a.
Currency neutral basis consolidated revenue was $1 7 billion.
111% with an EBITDA margin of approximately 32%.
Said differently, we roughly achieved our 2023 aspirations in 2020.
Rachel will provide more insights on Q4 in just a moment, but we're proud of our inclusion in the S&P 500, as yet another signal of the importance that the etsy marketplace is playing in the global economy.
And in fact speaking of the global economy.
<unk> 'twenty was an extraordinary year for E. Commerce overall as the growth rate of e-commerce, roughly doubled as much of the offline world shutdown.
And as fast as E. Commerce grew etsy grew much much faster in fact, etsy grew almost two and half times as fast as E. Commerce, we had to change the way access of the graph just to accommodate it.
<unk> is gaining meaningful share versus e-commerce.
Because where the world is racing to offer the same thing price, maybe a little cheaper or shipping just a little faster.
C offer something truly unique something truly special.
And we're now seeing the power of that difference.
That growth helped etsy to become one of the most visited e-commerce sites in the United States. In fact, we were the fourth largest retail ecommerce site by monthly visits.
And we've become one of the most recognized e-commerce brands in the United States people suddenly mentioned etsy in the same breath as much larger retailers like Walmart or target or EBIT and it's not just in the U S. In fact in the fourth quarter international accounted for over 40% of all.
The Gms on Etsy.
Like to take a moment to talk about the United Kingdom, which had a truly breakout year in 2020 with a growth rate of 189% year over year as fastest etsy grew etsy UK grew much much faster and Germany, our second largest e-commerce market also more than double.
<unk> in 2020.
What I'm most pleased about is the percentage of e-commerce on both of those sites. That's local that's domestic where both the buyer and the seller are located in the UK or in Germany, respectively. In the UK now more than 70% of trade is local that means for people in the U K.
<unk> is very much a domestic platform, where there is a sufficient vibrancy of both supply and demand for people to be able to come there for everyday needs and we're seeing that in Germany, and I think that really speaks well to the power of our international opportunity overall.
Why while one important reason is the ability of the etsy marketplace to meet rapidly evolving buyer needs 2020 search trends highlight the dynamism of our marketplace for.
For example in.
March when the offline world largely shut down demand for essentials on Etsy exploded.
And our sellers almost instantaneously growth to meet those needs.
And as trends evolve throughout the year from nesting and home office to home furnishings to outdoor events and re imagined events things like virtual graduation ceremonies on lawn celebrations are sellers, where they are to create and to deliver.
In fact, if you can imagine that it's very possible that people came to etsy to make it and buy it.
All of this resulted in dramatic growth across all of our buyer segments.
He added twice as many new buyers in 2020 as they did in 2000 22019. In fact, there were many weeks in 2020, where etsy added more than 1 million new buyers per week.
And we reactivated 22 million lapsed buyers. These are buyers, who haven't shopped at etsy and at least a year and then come back to Etsy, Inc. 2020 at a time when they really needed us most define that etsy is better in so many ways in the last version of Etsy that they might have visited a possible.
Eight years ago.
I'm, particularly excited about the growth of habitual buyers eventual buyers for yet again, our fastest growing segment in the fourth quarter and habitual buyers grew a 157% year over year.
2020 was also a year when we grew the pie for many of our sellers in fact, many of our sellers had their best year ever in 2020 Gms per seller was up 22%, while we simultaneously grew with active sellers by 64%.
We of course work hard to support our sellers by driving more sales. We also work hard to support our sellers in many other ways for example, as governments in the United States and Europe drafted legislation to support our economy Etsy was a very vocal advocate, making sure that governments remember that.
Net workers people like sellers on Etsy also matter and that we need to design our legislation on our economic reform with them in mind.
Speaking of working hard I'm incredibly proud of our team and how well they transitioned under very trying circumstances at a time when they suddenly need to work entirely remote and face all the stresses that everyone is facing in the external environment, our team rose to the challenge and we're more productive than ever.
As one example experiment velocity grew 16% year over year, while we simultaneously.
Had higher hit rate than we did in the prior year.
But that means is that each team was working hard and making a lot of progress, making the product experience on etsy, even better.
In addition to that site traffic was up very substantially.
And what that means is that the productivity of every team is automatically higher the ROI of every squad is higher.
We continue to make investments aligned with our right to win we believe are making the product experience on etsy materially better.
For example, we've talked a lot about the importance of search and discovery on Etsy and here. We show. Some examples of how the search experience continues to get better and better.
Our initial investments in dynamic ranking and semantic GAAP have laid the foundation for personalized search, which is making it easier for buyers to find what they're looking for and to be inspired from among our over $85 million items.
Buyers are now falling through fewer listings, which is making search less overwhelming and more rewarding.
And of course, its about so much more than just a search we continue to make investments to improve the profit experienced in many many ways to examples in the fourth quarter with the launch of installment payments and the ability to filter searches around expected delivery dates. So you can see just items that are going.
To arrive within your timeframe.
And just as our product experience improved so has our brand awareness.
We made significant strides in marketing in 2020, expanding the visibility of our brand globally.
Our brand team launched five different creative campaigns in the U S. The U K and Germany with a record number of impressions and share of voice to put through.
And we expanded our performance marketing and our CRM campaigns very materially equipping our teams with more resources and better tools within our Martech stack and turbocharging. The success of our performance marketing campaigns through our Offsite ads program on.
Our top of mind awareness has grown.
And we have so much room, yet to grow it further.
I also want to take a minute to highlight some of the critical infrastructure investments, we make that maybe aren't as obvious to the outside world, but are so important to our success as a business for.
For example, I would like to give a shout out to our member services and trust and safety teams.
And early spring demand on Etsy, suddenly instantaneously and unexpectedly more than doubled and of course that created a dramatic increase in customer support and trust and safety tickets and our team rose to that challenge and delivered against the very high levels of customer satisfaction.
That our customers expect and deserve.
That is only possible because of the tooling and the infrastructure and the capabilities that we have built as a team over the past several years.
And in addition to providing high quality customer support we work very hard to make customer supported etsy ever more human.
In fact in the fourth quarter of 2020, 73% of customer contacts were handled real time voice or chat, which is quite a dramatic change from where we were just two years ago.
Two years ago, we described to all of you are long term right to win strategy.
Which propelled our growth in 2020 and is more relevant than ever.
We're building upon that momentum to deepen and strengthen in each of the four areas that make up our right to point.
We didn't pivot to meet the demands of 2020, rather we doubled down on this strategy, which has allowed us to meet the demands in 2020, and we believe will continue to strengthen our business for years to come.
We have a deep passion for the Etsy community, specifically, our buyers and sellers, who come to etsy to express themselves or to turn their creative passion into a business.
We believe that the opportunity is large the shift in customer behavior has brought more sales online and we know that for almost every repurchase occasion, we have something delightful on etsy to offer.
In 2021, our focus areas will be centered around things that continue to differentiate the etsy experience from all of the other players in E Commerce and.
In search and discovery are big tracks of work involved making easier to find just the right thing even when you don't have the right words to describe it and.
And helping to surprise and inspire people being a place where buyers can come and browse lean back and find inspiration.
Personalization is a very important focus helping people to find things day.
Didn't even ask for but know it when they see it.
And we've barely begun to unpack the opportunity in personalization.
We went into this in superhuman ways, combining the latest of AI with human curation, leveraging the power of our community and our team to help curate items and use those to train models to become ever more personalized.
We want to leverage the distinct power of our growing community to help make etsy less overwhelming and made just for you.
And we will do all of this in ways that make etsy, even more human.
For example, leveraging video.
Unlike most products every item on Etsy comes with a story.
Every seller has his or her own story and video is a powerful way to tell those stories plus.
Plus we can show buyers how the items look how they feel even how they sound.
This is a great example of how we have so much more runway to more richly connect buyers and sellers.
And once you find just the right item you need the confidence to be willing to buy it in.
In 2021, we're going to be very focused on the post purchase experience.
Being transparent about when you can expect an item to watch being purposeful about when to communicate that in the purchase journey.
Making sure our sellers have all the right information that they need to meet the deadlines and letting buyers know that we have their back in case anything goes wrong.
As we work to become a habit for buyers it becomes even more important that they trust us and CSC as reliable.
We will have so much more to tell you about our product roadmap as we progress throughout the year, but we couldnt be more excited about what's on deck for 2021.
And I'd like to take just a minute to talk about reverb. Another example of the beauty of a two sided marketplace, especially when combined with strong execution and product and marketing.
<unk> also had a fantastic 2020 growing faster than their market and the company recently laid out their rights to win their long term strategy with key Differentiators, which mirror Etsy zone and show just how much opportunity there is to grow the reverb platform.
<unk> want to highlight our virtuous cycle and the progress that we've made in our economic social and ecological pillars to benefit all of our stakeholders.
<unk> has always believed that being a good citizen makes us an even stronger and more resilient business and 2020 demonstrated that people are looking to shop their values. They are looking to put their money with our hard goods and they hold businesses to a higher standard.
Since announcing our index strategy in 2017, we've continued to evolve and update our goals. We're incredibly proud of the progress we've made in this past year, but we're not resting on our laurels.
We're setting some aggressive new targets for 2021 and beyond.
Creating a more diverse equitable and sustainable marketplace and supply chain to expand our economic impact.
Etsy economic output is now similar to the city of Houston.
We're continuing to build on our diverse and inclusive workforce at Etsy and reverb on.
I'm proud of the fact that for example, we doubled the percentage of our leadership team that are underrepresented minorities.
And we sourced 100% of our electricity electricity from renewables.
We've set a new goal, which is to be net zero emissions by 2030.
Most importantly, you'll be able to read more about in our soon to be filed integrated annual report, where we are now using both the SaaS and the Tcf frameworks to help you better track all of our strategies and progress.
As we look forward over many years, we continue to believe that ecommerce is consolidating around fewer and fewer scale E. Commerce platforms, and we believe that etsy is better positioned than ever to be one of those few scaled platforms, our brand, which rises above the west by standing for something truly unique and <unk>.
Right.
Standing for the individual creators and for keeping commerce human.
I believe etsy can and should be a massive force in the world. The world has taken notice and we have strong conviction that our opportunity is bigger than ever.
I'd like to close by thanking our team once again for their passion their creativity and their conviction.
And now I'll turn it over to Rachel.
Thanks, Josh and thank you everyone for joining us for our Q4 earnings call.
My commentary today will cover consolidated results key drivers of performance and Etsy Standalone results where appropriate.
On a consolidated basis fourth quarter, Gms grew 118% to $3 6 billion.
Revenue grew 129% to $617 million and we delivered adjusted EBITDA of nearly 192 million capping off a strong year, where we achieved industry leading growth and record profitability.
<unk> Standalone Q4, Gms grew 127% to $3 4 billion on.
Our disciplined investment strategy and strong execution drove more adjusted EBITDA in the fourth quarter than in all of 2019.
Top line growth exceeded our Q4 guidance, which had projected a steeper decelerating gms trend.
Primarily to two factors first mass and tracking as a percentage or on EMF and second the uncertainty as consumer spending patterns and global economy related to the pandemic.
As Josh mentioned earlier international growth was robust in 2020.
In Q4 consolidated International Gms expanded 500 basis point sequentially to 40% of overall Gms Inc.
International Gms growth up 140% on a constant currency basis and was driven in part by strong trends in the UK and Germany.
Our fastest growing trade route in the fourth quarter was once again, our domestic sales between buyers and sellers within the same country.
It's also worth noting that we are disclosing <unk> revenue, which is based on the location of the seller for the first time as it was more than 10% for 2020 at $196 million.
We're adding India as a core market, bringing our total focus markets.
Given heightened investments, we've been making to build the foundation and an incredible inventory creative entrepreneurs in that country.
Etsy had an exceptional holiday at the shopping season started earlier and growth rate exceeded prior years, providing a meaningful tailwind in the quarter.
Some exciting records as shown on this slide.
We told you on our last call how it would be investing heavily in product and marketing to make etsy, a wonderful holiday shopping destination and lead investors really paid off.
Etsy peak holiday shopping day with small business Saturday growth was up 150% year over year, and we generated over $50000 in gms per minute.
This is especially important as it gives them more than 4 million small businesses on our platform relevance and a voice during this important time in retail.
We also continue to see growth in our top six categories with Homewares and home furnishings, our largest and fastest growing category growing 226% during the five days of Thanksgiving through cyber Monday.
All of the work we've done to keep at the top of mind and ensure we could handle the surge in activity enabled us to deliver great results.
Not only on our holiday heat start earlier, we also peak higher and sustained strength longer and Empire holiday periods.
We saw continued strong growth across many of our categories and 2020, especially in our top six which for all of 2020 represented over 80% of Etsy, Gms growing 85% year over year.
You can see the full year category growth on this slide.
Globally and chief growth is distributed in our 50 different retail categories.
The top six categories Sawyer growth was 115% excluding mass growth powered by segments, such as toys and games and pet supplies as expected mat sales continued to contract as a percentage of overall gms to 4% in Q4 down from 11% in Q3 and 14%.
<unk>.
Trends, which we expect to continue following the steady trend of 93% year over year growth in Q2, and Q3 non mass gms growth accelerated sequentially to 118% in Q4.
In addition, we're seeing very healthy underlying trends from mass buyers of net $3 million of masked only buyers in Q3, approximately 50% returned in Q4 for a non mass purchase.
This is up 12 percentage points compared to Q3, a great signal that we are retaining and converting buyers who are coming to etsy for some of their essential purchases.
Consolidated Q4 revenue was driven by growth in both marketplace and services revenue in particular key drivers for Gms volume Etsy payments.
The ads and Offsite ads revenue.
Yes, and Offsite ads and our expanded etsy payments platform combined helps to sustain take rate at 17, 1% in Q4.
Quarter, where historically take rates contracts due to seasonality.
We continue to make strides in bolstering our advertising products and initiatives to help sellers drive velocity in the marketplace and take control of their success on.
On a consolidated basis on site Etsy ads, and Reebok offering increased 74% year over year with both marketplace and improving our AD platforms and enhanced the functionality and user experience for sellers and share.
More relevant ads to buyers.
Etsy, Offsite and continued TD on encouraging returns with opt out rates remaining less than 2%.
We're optimizing return on return and channel mix for our sellers listing now incorporating buyer segment information in the signals <unk> and partners, including differentiated LTV to drive efficiency.
In the second half of 2029% on Etsy Standalone Gms earned in our ops finance fee.
This effective increase in take rate enables us to invest more on behalf of our sellers, while maintaining our ROI threshold.
From a salary perspective return on AD spend is in the range of six to eight times on the high end for any add on it and this is a risk free investment since the summer only paid the fee once you make the sale.
Gross margin was 76% up 920 basis points compared to last year and continue to benefit from our shift to offsite ads, which delivers incremental revenue without an equal offset in cost of revenue.
And to a lesser extent the change to repurchase transaction fee also expanded gross margin in Q4. This was the first full quarter of consolidated P&L benefit.
We're scaling our investments in two ways, both in marketing and product development on.
On this slide we show new marketing as a percentage of Gms.
Buyer growth to illustrate how we scaled marketing to drive returns.
As you know we've been leaning in more heavily to upper funnel channel in particular and these investments are having the desired impact for example in the fourth quarter, we saw year over year improvement in comp ticket and unprompted awareness and positive gains in several key brand metrics.
We also track monthly movement and brand familiarity emotional fruitiness relevance in every day.
And are seeing strong progress here as well.
I wanted to highlight some specifics around our Q4 <unk> investments.
As mentioned last quarter, we ran two separate TV campaigns during the holiday period.
Non aimed to drive purchases and another designed to build brand affinity and deepen the emotional connection to etsy.
Both campaigns in addition to various other efforts and media and PR.
As chief marketing team as far as one of AD age's marketers of the year alongside the long time, some on the world's most well known brands.
Overall, both campaigns outperformed our expectations driving visits and conversion rate and ultimately incremental gms.
Despite an increase in CPM as many retailers stepped up spend occurred a year.
Q4, consolidated marketing spend was $211 million up 151% year over year.
Brand marketing expense, which includes television and digital video was 23% of our consolidated marketing spend in Q4.
On 24% in Q4 last year versus 18% in Q3.
This represents approximately $49 million of spend in the fourth quarter.
And our performance marketing channels, we rapidly scaled our spend as a result on Offsite ads.
Performance marketing spend was $147 million up 193% year over year and up 65% compared to last quarter.
We're also hard at work improving our owned channel building out use cases for our new CRM tools, such as personalized E mails were targeting pushing on vacation.
We're investing to drive efficiencies in each and every channel across the funnel to bring in new buyers and drive frequency.
The other lever for improvement in Gms and our investment in product development, which you can see illustrated on this slide.
This spend drives higher conversion rates from new and repeat buyers and increase frequency the.
The impact of this investment is evident both on our Gms growth.
Our experiment velocity and accelerated hiring is on larger product development investment as seen on our P&L.
We ended the year with 1414 employees, an increase of 14% compared to last year.
As Josh mentioned earlier were getting twice the leverage from our product teams with an ambitious investment roadmap.
Moving to our operating metrics. We are really pleased with the continued increases in new buyers and reactivation of our large base of existing buyers.
For example in the fourth quarter active buyers grew 77% year over year to approximately $81 million for the etsy marketplace, and a 92% increase in new and reactivated buyers.
<unk> per active buyer on a trailing 12 month basis grew 13% year over year driven in part by habitual buyers, which grew over 157% in Q4. This is up from 100% growth in the third quarter, the third quarter of sequential acceleration in this valuable segment.
Also 11% of repeat buyers in Q3 became habitual buyers in Q4, and we now have $6 5 million habitual buyers.
In addition to our habitual buyers many of our other buyer segments exhibited tremendous growth for example, repeat buyers those who made purchases on two or more days in a 12 month period grew 97% to $32 million approximately 20 percentage points faster than overall active buyers think sequential acceleration comps.
Share to last quarter.
2020, with an unprecedented year as all of our buyer cohorts inflected higher during the period.
<unk> 35 shows 2020, gms per buyer and a year over year growth from each of our last five cohorts. We're pleased to see that our older cohorts such as the 2015 cohort who have been on the platform for five years generated the highest gms per buyer and growth as fast as on more recent cohorts for.
For our newer cohorts in 2020, we've seen a meaningful improvement in their purchase behavior approximately 22 percentage of new buyers in 2020 became repeat buyers within 60 days of their first purchase.
From 16% in 2019.
These data points are indicative of the underlying trends in our marketplace continue to improve.
Moving to the balance sheet as of 12 31, we had $1 $7 billion in cash cash equivalents and short term investments. In addition to a $200 million revolver is currently undrawn.
In Q4, we repurchased $78 million of our stock or 618841 shares at an average price of $125 per share.
We've now completed that November 2018 buyback program repurchasing approximately $200 million of stock or roughly 3 million shares at an average price of $64.80 on.
Our board of directors recently authorized a new $250 million stock repurchase program.
And turning to our outlook, while it is our normal practice to provide annual guidance at the basic framework for our business.
Given the continued uncertainties facing etsy e-commerce at large and global macroeconomic conditions that impact consumer spending we are only providing guidance for Q1 at this time.
We currently estimate Q1 consolidated gms to be approximately 3 billion on.
About 115% to 125% compared to Q1 of last year.
Revenue of 513 million to $536 million up 125% to 135% versus last year.
And adjusted EBITDA of $168 million to $178 million with a margin in the range of 32% to 34%.
And given this outlook for Q1, we have the benefit of nearly two months of the quarter already in the books January was very strong, but it was clear to US. It was helped in part by a tailwind from stimulus checks.
You want to call. This out as we do not currently expect to have the same tailwind in Q2 and in fact can already see that February relative to January is less strong without some stimulus.
Furthermore, the recent weather events in the south and the Pacific Northwest had a very clear impact on our Gms in the past week. Another reminder, that certain unpredictable macro events beyond our control our app to create volatility in our performance.
As you update your models and think about the cadence of growth for 2021 and beyond we'd like to remind you on a few things.
During the latter part of Q1 Etsy will lap a period of negative growth rates that spans from mid to late March 2020.
The outlook on just gave for Q1 includes several weeks of Comping decimal points.
Then as you recall on April 2nd of 2020, we saw the start of significant unprecedented growth initially catalyzed by demand for phase III.
In total 2020, facemasks exceeded $740 million with $346 million in Q2 and $264 million in Q3.
While face mask versus non facemask gms trends have certainly been encouraging our expectation is that year over year quarterly growth rate comparisons will be challenging when you eliminate the face mask sales from here forward model.
In 2020, Etsy growth outpaced the broader e-commerce sector.
While we are not getting a full year guidance today. It may be informative to look at third party data and research on how they are projecting growth for the industry. This year.
It suggests that the sector Q1, 2021 growth will be approximately in line with Q4 2020 and that the industry will start to more rapidly decelerate starting in Q2 with the majority of incremental growth for the year realized in the first quarter.
It remains our ambition to continue to outgrow ecommerce per pound by the underlying changes we've seen in the marketplace and the heightened awareness of our differentiated brand.
However, we also know we hope that as the World opens up later this year consumers will soon be able to spend more of their money on travel dining and entertainment and this will create some headwinds in etsy growth relative to 2020.
Last note on our revenue outlook historically, there is some favorable seasonality to our first quarter take rate.
This year, we also benefit from off site ads additional etsy payments geographies and reverb higher transaction fee as.
As we think about the quarterly cadence of take rate throughout the year Q1 may represent the high watermark for 2021 take rate.
On expenses two points to keep in mind first we want to reiterate that our revenue per head count is significantly higher than our peers and results and margins that are stronger than we launch given the many opportunities we see to invest for growth.
So as you think about expense trends and margin drivers keep in mind that we are investing in talent and accelerating our pace of hiring in 2021 with a particular focus on product and engineering.
Second we exceed the revenue threshold in many international geographies for collecting and remitting digital sales tax this obligation will grow as our business continues to expand.
We have more conviction than ever to invest in our business for the long term building top of mind awareness in the hearts and minds of consumers and continuing to gain market share.
We're building on our momentum and we expect to continue to capitalize on our large market opportunity.
Thank you for your time today I will now turn the call over to Jim. So we can take your questions.
Hi, everyone. Good to bear we are ready to go we have a lot of questions in the chart.
<unk> Sky right and if you have any additional questions feel free to to element as well.
The first question is from Rick Patel at Needham <unk> Company.
Can you update us on where you are on the personalization journey. What did you learn in 2020 and what can we look forward to on 'twenty and 'twenty one.
What point when you'll have enough data and analytics to go beyond search and his personal but personalization as a predictive tool Josh I think we should start with you on that on.
Great. Thanks for the question, Yes, I mean 2020 is really the first time that Etsy has started to be personalized in a meaningful way and you're right that we started with search I think we're in very early innings.
And.
You can think about personalization very narrowly as knowing for example, how we've started what things have you searched for in the past book things of your favorite at in the past what have you bought in the past and using that to inform your search results but.
Taking the aperture al <unk>.
Further having a deeper understanding of what that might imply of your sense of style and understanding things like what style or all of these 80 plus million items. What are other people who bought these also been interested in what might complete the look of this it might not be that item at all but it might be other things that match with.
That item. These are all areas of personalization, where we have not really even begun and so I think we have a tremendous amount of opportunity still to go on what we have learned which is not surprising to us or anyone is that it is actually valuable even in our first launches and personalization. It makes the experience better at mixed conversion.
Rate go up we're very optimistic about what it can do so if I think about personalization to your point of where else can you go search and discovery, which I would think of as a lean and you type in Aquarius Etsy, and we give you a more personalized set of results.
Is where we've started lead back is another opportunity for personalization. So think what kinds of recommendations can we present to you what kinds of things can we show you that would inspire you review didn't even think to ask for but we happen to know that other people like you are interested in the other bucket that I think is very on.
Exciting is off site when we are marketing to you be it on Facebook or Google or elsewhere. The ability to know more about you would be even more personalized in terms of how we reach out to you is an opportunity that I think is large and will continue to get better and better over time.
Okay, great. Thanks, Josh <unk>.
Next one comes from John <unk> from Jefferies.
Gms growth in the international business has been lagging modestly behind the U S. Until this most recent quarter what were some of the key drivers of the acceleration on the international business. During Q4, and what are some of the key learnings from that success that you can use as part of the broader framework to take advantage of the big opportunity outside on the U S. On.
To start with that and then maybe we can have great I'll chime in on a little bit too.
Perfect. Okay, Greg one of the wonderful things about a two sided marketplace like Etsy is that it gets better as it gets bigger there's a virtuous cycle, that's turning and so the growth in the etsy in our core international markets has been strong in the past, but was truly extraordinary in 2020.
And if I look at the U K in particular, which really had a breakout year. It does feel like that virtuous cycle, just on more and more so.
Appears to us that going from a top 20 E Commerce brand to a top 10 E. Commerce brand appears to have a really positive impact on our business and going from top 10 to top five has a really positive impact in terms of brand awareness in the market.
And it makes sense because what's happening is we're bringing vibrancy, we're bringing more sellers with more items. So you can shop domestically more and we're getting more buyers, which brings more sellers. So part of what we're learning is what might be mechanisms, where we can accelerate that brand awareness how can we invest there's a natural growth curve.
<unk>, which we which we ride, but how can we invest to make that happen. Even faster you are seeing us do things like brand marketing in both the UK and in Germany, and as we always do with Etsy, We're very data driven we're very experiment driven and we're looking at what's that doing to our flywheel on both the demand and the supply side and how can we extrapolate that.
To think about ways to accelerate accelerate our growth even further in international.
And I don't have a ton to add on a perfect answer and I'd only add that with art, we did invest more heavily in both on the UK and Germany in the fourth quarter of this year not only in brand, but also in mid funnel. So we used on.
Actually the entire funnel, we used in line of our performance spend and some of that middle piece, where we did social and we were able to capture.
More of the audience specific to those markets with personalized.
Personalized message for them in those markets.
Thanks for mentioning that Rachel I'm going to build on that because we've talked about the opportunity in martech and how our martech capabilities can continue to get better and better we werent using the most up to date Apis and data feeds with on with partners like Google and Facebook.
In some of our international markets and so part of what we did in the latter half of 2020 is really update those data feeds which allowed us to be even more precise on performance marketing to get better rois. So a lot of things came together through 2020 that allowed us to really accelerate growth at a time when it really mattered, but there continues to be a really good pipe.
Point of opportunity for us to get better in March for sure.
Okay, great I'm going to move to one from Edward <unk> from Keybanc can.
Can you provide a way to dimensionalize, how broadly the consumer is shopping and assortment on etsy, and our new and reactivated consumers shopping multiple categories.
But the tag team on I think.
I'll start I think ratios given data on I think she can give some more.
But we're really pleased by the fact that we are seeing cross category purchase and I think thats really encouraging but what we know is that almost anything you want to buy you can buy on etsy, not consumer electronics I mean, there's a couple of not travel so there's a few things.
Categories out there, but for the most part things you need to buy and use you can find them on etsy and our consumers are learning that more and more one data point that Rachel shared is that 50% of people who were masked only buyers in the third quarter came back and bought a non mask.
In the fourth quarter, which we think is is really encouraging so.
We do like what we see and honestly you know during this time of Covid people who've had fewer options. So they've turned to etsy more often and there.
Generally delighted by what they see in almost every category, they're going to find a really broad assortment of products theyre going to find that they are priced well and.
Getting something made just for you with a handwritten note is just a better way to shop.
So I'll add just a couple of additional data points there.
One that I really like is that.
Two or more purchases on the percentage.
Percentage of buyers that had two or more purchases in 2020 was 48% that's up from 41% a year ago and when you look at the category of buyers that have two or more purchases. The average was five purchases that was the first time, we crossed five so they are coming back.
Much more frequently and then we talked about this last time as well, but the number of buyers that crop.
Category purchases was 17% in 2020, so thats fires that came for Finjan blue box or more purchases across two or more categories and so on.
We're really seeing.
People exploring I love the metrics that Joshua throughout there too about the non masked buyers coming back another time.
And that really shows that the new buyers that were not net.
Obtained and the ones that we reactivated are really exploring etsy and understand the breadth of products that we have.
Okay.
Thanks, both of you know that's one of the next one I think connects the dots on some of that.
It's probably a dollar on an from Wedbush.
Two part question Etsy.
It is now one of the few marketplace, that's growing volume in triple digits on a same growth accelerate in Q1. One is that I think they are definitely and that is allowing you to keep by our growth on volume. So strong and then the second piece of the question is really specifically the different categories can you talk about specific categories strength, how sustainable do you think the Hungary category is for you.
Our expectations for wedding on bridal showers. This share which are typically important for you on Q2 to Q3, that's the many pieces.
Josh I'll start and then share and civic and remembered all first in terms of what we're doing differently. It's hard for me to say because I have a lot more access to information about what etsy does and what our competitors too. So I can talk about what we're doing it honestly I think a big on part of it is we stand for something different there.
Theres a bunch of places you can go where you can buy the exact same thing as somewhere else.
And maybe it's too soon to cheaper.
I have an hour faster and that's not always what people are solving for and so I think the fact that we own a space in E. Commerce that I think is both different and important.
Is is meaningful and I think that that means we have a real opportunity to grow share and continue to grow share over time, we're not following everyone else's playbook on.
And people are realizing more and more that etsy is a different way to shop, and I think a better way to shop.
Often so that I think is the most important thing we are firing on all cylinders as best we can saw in CCAR performance marketing team is doing a great job I think our brand marketing team is doing a great job I think our product team has really been doing a lot of great work to ship.
Ship, great product improvements that make the customer experience better one of the things one of the questions I get often is.
We're on what inning are you or how much good stuff is left at Etsy, one of the things that I mentioned in my prepared remarks is that hit rate went up that's a fancy way of saying that a higher percentage of things we shipped in the fourth quarter had a really positive impact on the customer experience than in prior quarters on that would not.
Suggest that we are running out of runway, rather that we're getting better and better.
Unpacking new opportunities as we go so I think the team is executing really well against a business. That's differentiated that's that's strong.
There was another part of your question around category mix, yes, largely.
Largely the same in the fourth quarter of not I don't think a lot to report there in terms of home furnishing. So let's talk about that one for a minute guests etsy is growing much faster than most players in home furnishings and yet if you look at our total home furnishing sales versus the market for home furnishings, we are still a tiny part on.
<unk> of the home furnishings market and so I think there is an enormous amount of opportunity for for etsy to grow in in home furnishings as with other categories. You. A question about weddings weddings group about is growing about 30% year over year, which I think is a testament to the perseverance and creative.
<unk> of the human spirit in this moment in time, if you are finding a way to get to get married and get your community together virtually or or whatnot.
That's great and so the fact that we're actually seeing weddings back to growing is.
Is a testament to our customers, but I hope that when people can get back together in person again, we might see weddings and events grow grow even faster and that might be a tailwind.
<unk>.
I was just going to add an anecdote that.
If people were watching the inauguration Bernie Bernie Sanders with featured wearing some submissions and those mittens.
We're getting the exact amount we're on blowout sales for that day or the day surrounding that on Etsy site. So people are we still on the same sort of thing with the unfortunate passing of grief, Peter Ginsberg, where all of a sudden we were selling out of reach Peter Peter Ginsberg merchandise people are beginning to know that you can come to etsy for anything.
And everything not just the Christian on the couch with accounts itself and Youre seeing that in the category growth that we the numbers that we put out in our prepared remarks.
One Rachel on $1 nine.
We did Midlands and Bernie Sanders related merchandise in the in the days following the inauguration.
Okay next one I think I'll give it to you Rachel.
On a Laura champine at Luke I'm, hoping to get your targets or expectations for two metrics on success based <unk>, 9% in Q4.
And I would say when we're talking about on off site and there and.
In Gms per paid channels 20 per cent and Q, 21% on Q4.
So.
You correctly cited those metrics that the question was what is our what are the aspirational targets for that so of course, we've only given you guidance for Q on Q1, and we didn't guide on either of those metrics in particular.
One thing I'll point out is that we're growing the entire pie. So not just our paid marketing we still have a lot of heart for investment in our organic traffic. So.
We invest in FTE allo, we invest in brand marketing, we're really investing in top of mind awareness. So if I give you an aspiration for percentage then is chargeable or percentage that is paid it would be for getting the denominator because we're growing.
On a zero sum game, we're growing both of them.
Matrix considerably.
We are opening up new channels for our.
On our Offsite ads, we just announced yesterday that we hope on that some of our affiliate channel from our sellers will now be able to have their products listed on many many more sites than just the big ones, Google and Facebook and so that's exciting for them and we want to help them put their marketing dollars to work in the highest ROI.
On a positive ways that we can so that we will continue to optimize this channel, but we're just working the full funnel at all times.
Okay, Great next one I'm going to take us from Dell.
Bill and help them with Roth capital.
Can you talk about the impact initiatives like the impact on initiatives are having such a broader marketing efforts offsite ads targeting and how that's driving the growth of habitual buyers.
On repeat buyers and.
I think that's on the part of the question on it's a little bit nuance on a different point. We've already answered are you able to identify certain characteristics of a new buyer that increases the likelihood that they can actually become a repeat buyer or habitual buyer.
Great question I mean on.
The first part so I think all parts of the funnel are playing a role in getting people to come back more often and become a virtual buyers and we're learning more about how they all work in conjunction so three years ago four years ago, we really only we're deep in the bottom of the funnel and things like performance marketing, which matters as you've gone to Google and you searched for a mug in ucs.
T mugs that Roger Oh, Yes of course, I can go to etsy, but.
But we're learning more how TV and then mid funnel things like like video and other ads and social can really all work collectively to get us top of mind and have you start on etsy and not start somewhere else.
I think is.
It's really helpful. The second more newest part of the questions on can you remind me what that was.
It was in terms of how we are how we're learning about what is likely to make someone become habitual.
<unk> mobile learning logged out that we are learning more about that and we're learning more about.
We're learning more about how do we anticipate so for example, you can bid differently on.
If you see our brand new.
Buyer, who would not have seen before or someone who's maybe bought two times, but not for three years, we're starting to get much more nuanced about particularly in performance marketing at a bit differently for different customers that might have a different lifetime value, but we're also learning more about what it is that drives loyalty and.
Part of it.
Part of what a habitual buyers figured out is is she's sort of figure it out the hacks of etsy to get the most out of Etsy. For example, she is really good at knowing what keywords to type into a search engine to get the kinds of satisfying results that she wants she might know for example, how to describe her.
<unk> of style in the way that our merchandise or would speak in a lot of people don't have that kind of vocabulary don't have that kind of language and so when we talk about a big focus for 2021 and beyond being getting great search results. When you don't know the words to describe it.
I think a lot of that is how do we create the kind of experience of habitual buyer has four other kinds of buyers. So they can see the wonder of etsy in the way that eventual buyers too as well I think theres, a tremendous opportunity for us to make etsy more accessible to more people so they become a pitch.
Right now on average it's only add searches is certainly it's super important partner.
Getting the repeat frequency and the confidence and the trust and Etsy that youre going to be able to easily find wonderful things. The other one has been what we've been talking about with our post purchase experience that you have trucks that youre going to get your item in time for the <unk>.
The purpose of buying the item and you'll get it.
You won't be able to you you'll know what to do if you need to return it and youre going to get it at a cost that is not egregious on all of those things we've been working on with considerable effort and we Josh talked about them as a big focus area for 2021 per day to day.
<unk> and the progress we've made even in 2020 kind of real impact on sort of day.
On the trust factor that we have with our buyers coming back to Etsy, Inc.
Okay. Great next one is from a ria reps at Canaccord.
It hasn't done that many acquisitions and the acquisitions on the path and the reverb acquisition was fairly successful for you does it change your view on selectively leveraging M&A for future growth and are there any assets or capabilities that you'd like to add on the nice to add to be at full platform Josh.
I mean, I do feel good about our stewards of shareholder capital I do feel good about the M&A that we've done in the past if I look at on Blackbird, which was a capabilities acquisition that made our machine learning search machine learning a lot better if I look at on the Nevada.
<unk> deal that we did in Germany that made Germany stronger and certainly reverb.
Which is off to a great start and we're really pleased with how that team executed in 2020 on how that business is evolving.
Think our track record is good.
On M&A I also think we've been patient and Vicky.
Our core business.
I think is at the early stages of having on.
Packing is growth potential and we want to make sure that we keep our eye on the products, but I do think that you know as if we come across an acquisition that we think builds capability brings us into new market or expands us into other categories.
We think it's a great business and we think.
We can buy it at a fair price and then we can add value.
I think we'd be we'd be open minded.
Okay.
One is from now on that comment truest, if we if we have to think about the drivers behind the growth on repeat usage, how much of that is due to marketing effectiveness of their marketing programs versus on numerous product improvements that you've been making product versus marketing.
Well the good news is that they really work together I get where youre coming from and I would say they are both driven substantial value I don't know if we've put enough tea leaves out there yet for you guys to quantify it.
But they have both been very meaningful drivers.
And when we improve the product.
The most common thing that happens conversion rate goes up you can also drive <unk> V up you can drive frequency up theres, a lot of ways that making the product better.
<unk> is visible to Washington of metrics one of the most the fastest moving metric is usually conversion rate and so when the product team does something to make conversion rate higher suddenly the marketing team can spend more for visit right. The lifetime value effectively of every visit has gone up.
When the product experience gets better customer loyalty gets better.
And that also allows us to market more so there really is a virtuous circle.
Two the two.
<unk>.
But broadly speaking.
I would say they have both been very meaningful it's not really lopsided, where one is way bigger than the other I will mention again, something Rachel said in her prepared remarks, which is if you think about a squad one product squad focusing on our customer problem.
The traffic that that squad is working on now is suddenly dumped.
So if they were able to get US an increase in conversion rate of X. The value of that is now twice what it was in 2019.
And so the leverage we're getting out of our product organization is extraordinary and it speaks to the fact that we really want to be hiring because I think there's a long roadmap of great initiatives and there's frankly too many things on the cutting room floor.
Now so it is a focus of ours to scale the team to keep up with the opportunity ahead of us.
And I would just add just one one or two more comments on just a reminder, on the way that we forecast and build on our plans for our businesses that we start with our baseline zone, what would happen. If we all just went home and so there is some number there that our cohorts our older cohorts are very strong they come and they're very reliable they come back.
After a year per year and that's the baseline and then from there we build on what is going to come to us incrementally through marketing and what we expect might come to us incremental ace III product. So you are asking the exact question. How much is how much is each of those incremental market and I agree with Josh 100% that day they work together.
The things that we're working on also are to bring back new buyers. So we added a significant number of new buyers, which doubled in the year.
We are reactivating those older cohorts, so maybe cohorts that don't come even once a year, we reactivated zone and then we're working on the frequency of all of those groups to how often they come back. So we've been able to move the levers on all of those things to the one two punch on both product and marketing once they come to the site, we want to convert them and so on.
On it really just the heavy lifting on converting.
Repeat repeat that experience again.
Okay. I know, we're on time on I'm going to squeeze on one more.
Funds from canola the car from Deutsche Bank since two part question on the first one is related to the U K. So housing can growth trend during the air Force is mobility. So as people are moving around less how did our growth quite move up oriented.
Or is it inversely correlated like that or was there. Some other thing going on with the U K growth and on the second piece is about marketing spend that we're looking to ramp up spend further on <unk>.
In Germany this year.
Okay.
Yes, I would say that the growth rate in the U K was definitely impacted by Lockdowns. The U K had some pretty strong lockdowns early in the spring and then again late in the year and we definitely saw that on our site up pretty strongly in pretty immediately.
But the growth rate in the middle of 2020 on the U K was pretty good too.
When he's locked down so.
So the growth rate throughout the year was was was really good but it was even stronger during lock downs I think that's a fair point, we did invest more in the UK and Germany frankly across.
Our core European markets, we invested more part of that was just building better martech capabilities as I mentioned Cmos <unk> to be better allowed us to invest more we didn't change our discipline around ROI thresholds, we just got better capabilities that allowed us to invest more and the timing was good because it was at a very very moment when.
Demand was skyrocketing throughout Europe, we are excited about the returns we're seeing on the higher funnel investments, we're making in the UK and Germany. So you should expect us to continue to be investing in TV. For example, in the UK and Germany, and we are experimenting like we did with the U S. We're experimenting with Wow walls.
Spending that amount worked what if we spend more how does that work and what is that margin return curve look like and so you'll see us experiment with that quarter to quarter in both the UK and Germany I would expect in 2021.
Okay great.
That I think we're going to call it and we look forward to talking to everybody on the next week. Thank you all for your time and your attention on your interest in NFC. Thank you so much.
Thank you.
Okay.