Q2 2021 ETSY Inc Earnings Call

What's their VP of Investor Relations and ESG engagement and joining me today are Josh Silverman, Chief Executive Officer, Richard Glaser, Chief Financial Officer, and Gabe Ratcliff, our director of Investor Relations.

Today's prepared remarks have been prerecorded.

Slide deck has also been posted to our site for your reference.

Once we are finished with Josh and Rachel's presentations, we will transition to a live video webcast Q&A session questions can be submitted via the Q&A window chat displayed on your screen feel free to use it at any time as it will remain open throughout the entire conference call I'll be reading your questions and Gabe will help me to try to get to as many as we can.

Keep in mind that our remarks today include forward looking statements related to our financial guidance and key drivers thereof, the impact of COVID-19, or its abatement may have on our communities business strategy, our operating results the potential impact of our strategic marketing and product initiatives.

Impact of our acquisition of default Nemo 7 on our market opportunity and on us with future consolidated financial results and the anticipated return on our investments and their ability to drive growth our actual results may differ materially.

We're looking statements involve risks and uncertainties, which are described in today's earnings release, and our 10-Q filed with the SEC on May 6.2021, and which will be updated in any future periodic reports, 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 disclaim any obligation to update them.

Also during the call we'll present, both GAAP and non-GAAP financial measures a reconciliation of GAAP non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with a replay of this call with that I'll turn it over to Josh.

Thanks, Deb and good evening everyone.

Etsy delivered a strong second quarter I'm pleased to share highlights with you on our progress and our results.

Consolidated Gms from $3 billion up 10% year over year on a currency neutral basis in fact, non bask Gms on electric Standalone basis grew 31 per cent year over year, which frankly I find remarkable given the extraordinary comps from last year.

On a 2 year basis. This is 153% growth also excluding facemasks.

Revenue grew 23% and our adjusted EBITDA margin was 26 per cent.

We feel great about these returns were seeing is our investment shrimp.

We also announced the acquisitions of <unk> and <unk> 7 during the quarter, which I'll talk about in just a few minutes.

Our Q2 'twenty 1 performance is particularly impressive when put in context of the year ago period that were comping.

Remembering back to Q2 of 2020 brick and mortar stores were largely shut down with the exception of essential services.

And even at those essential stores launch for long and shelves were often empty.

Even E tailers faced similar challenges with many products out of stock and long shipping delays for the rest.

And in the midst of this crisis Etsy mobilized cottage industry to the rescue.

Etsy sellers had so much of what you needed and we're ready to ship quickly at a fair price and without significant supply chain challenges.

In fact Etsy was 1 of the few places where you could shop with confidence and convenience in Q2 of 2020.

As a result, we delivered the highest growth rate of any company that we track in our sector.

Flash forward to Q2 of 2021, and thankfully things began to look dramatically different.

While the situation is still evolving people are moving about much more freely and beginning to travel in dine out again.

Many brick and mortar stores have reopened and there are a wide range of retailers ready to ship almost anything to your doorstep without delay.

And even in the face of this renewed abundance of choice again, and again shoppers chose to returned to Etsy in fact about $90 million of them and.

And most importantly, they chose to shop with us more frequently give.

Given the massive pull forward a new buyer acquisition last year, it's no surprise that new buyer growth has decelerated materially in recent months.

However that deceleration has been offset by growth in Gms per active buyer, which as you know is a big focus area for us.

We're encouraged to see that shoppers loved the experience they've had with etsy over the past year and are coming back for more even in a world of greatly expanded choice.

As Rachel will talk about further we're extremely pleased with the strength and stability, we're seeing in our cohort performance.

And our conviction debt invest in what we believe is etsy has tremendous long term opportunity.

Turning to our most important focus area and job number 1 growing the core etsy dot com marketplace.

We continue to make what we believe are very valuable long term investments aligned with our right to win driving continued material improvements in the customer experience in order to make etsy, even more special and deepen our competitive advantages.

Now I'll walk through some of the exciting progress we made in Q2.

Starting with search and discovery in our quest to close the semantic gap and create a platform that better understands our buyers tastes and preferences in Q2, our team created and launched a proprietary capability, we call X walk a large scale real time graph retrieval engine that dramatically expand.

The amount of available data used to capture semantic, meaning and to improve conversion rate by showing more relevant inventory to buyers every click and purchase on Etsy gives us information about the relationship between users queries listings shops and more and these events have long powered.

Our ranking and retrieval systems.

But due to the share volume of information, we could only use a relatively small slice of it.

With X work, we're now able to use nearly all of our relevant data to better capture semantic meaning across all of our inventory.

For example, ex work has significantly reduced the number of debt ends which will queries that returns zero search results are marking over a million incremental searches that are delivering relevant search results.

We're only at the very beginning stages of leveraging X X work, which has many other applications beyond search for example, making recommendations more relevant providing better onsite marketing experiences and improving technologies that keep the marketplace safe.

Turning to slide 7 and our efforts to amplify the human element of the Etsy marketplace.

We've mentioned listing videos on our last few calls and we're now starting to get real traction as they're incorporated throughout more and more of the etsy experience onsite and off in fact, there are now nearly 8 million videos uploaded on etsy.

Listing videos are driving engagement on social and we're seeing measurable wins from adding videos to the homepage.

We're especially encouraged by the results of our sellers are seeing from their process videos, which show how our sellers make their items and especially etsy like experience.

Many buyers are viewing these videos and watching them to completion in fact listing and processed videos drove a significant sequential increase in engagement on our social channels up 700% quarter over quarter.

Our third pillar is of course about trust.

And we've as we've said we're laser focused this year on the post purchase experience and we're making great progress.

This quarter I'd like to highlight the gains we've made with delivery predictability setting clear expectations for when items will arrive and ensuring our sellers consistently meet those expectations.

In the second quarter of 2020, only 73% of domestic orders on etsy displayed and expected delivery date and.

In other words before you placed an order almost 30% of the time, we couldn't tell you when you could expect to receive it.

Origin, Zip codes, which tell us from where in the U S. An item is shipping has also been an area of focus because they help us to more precisely estimate at the time in transit.

We've more than doubled origins Zip code coverage over the past year, which has cut 1 full day from the expected delivery date, causing a meaningful positive impact to conversion rates.

While we arent in a race to be fastest it's critical that we have transparent expectations that our sellers can meet reliably. This is a needle mover for us as we deliver on buyers' expectations, they've tended to come back and make more purchases more frequently.

We're targeting to get both of these metrics over 90% in time for the holiday season.

Last quarter, we told you that we would be exploring ways to define what good service looks like for Etsy sellers, leading to last week's global launch of our star seller program the.

Program's goal is to recognize and reward our best sellers, while motivating all sellers to deliver exceptional customer service.

As part of this program, we've defined a set of customer service metrics that we know are critical to buyers such as on time shipping 5 star reviews, and responsiveness to buyer condos.

And we've set the bar for what good looks like all while providing a transparent dashboard to show sellers, where they stand versus each of these metrics.

We believe that this creates a race to the top for sellers, who will understand even more what actions. They can take in order to further delight customers lay.

Later this year, we'll begin to surface star seller badges throughout the buyer experience.

Turning to slide 10, let's talk about our continuing investments designed to increase frequency.

As you know we're laser focused on this area and in fact, the etsy marketplace delivered a 22% increase in gms per active buyer in the quarter.

I'm delighted to report that we're seeing encouraging signs of progress across multiple initiatives.

Letting just 2.

First we're continuing to see progress with buyer triggers for example, adding a badge in the upper corner of the App icon, showing how many updates or pending drove a meaningful increase in repeat visit rate is.

And second we've created faster and easier ways for sellers to invest in deepening relationships with their buyers, while driving frequency to etsy.

A great example is seller. Thank you coupons for example get 10% off on your next purchase when you buy again from my shop, which during an experiment saw 170% improvement in uptake now 11% of purchases included thank you coupon.

As many of you know the buy on Etsy App has historically been our highest converting an experience in Q2, we began to test more prominent ways to prompt buyers to download the app at key moments in their journey with.

We focused on organic product improvements and today have invested very few marketing dollars to drive app downloads.

We have seen major wins for example by prompting App downloads on the post purchase. Thank you page encouraging you to download the app in order to easily track your worker status.

The results have been compelling we're now running at about $1.3 million App downloads, a month and have garnered 9 million downloads year to date.

And Etsy is now the number 7 shopping app in the iOS App store the highest its ever been.

Most importantly, newer cohorts of App users are showing promising engagement signals based on their visits favorite Inc, and purchase behavior.

In Q2, new App users that made a purchase then went onto favorite envy listings roughly 20% more than new mobile web users that made a purchase during the same timeframe.

Turning to brand marketing television and digital video continue to be great tools to drive awareness and engagement with the Etsy brand.

As we mentioned last quarter, our investments in the U K and Germany are showing encouraging results doubled.

Double clicking on Germany. In addition to our television and digital video investments, we worked with German personalities to support our Etsy Hotseat or Etsy has it campaign.

We saw 5 points of improvement in prompted and unprompted awareness expanded social reach and generated over $4.5 million impressions in earned media during the campaign flight other.

Their benefits included an uptick in seller growth and a higher return on our performance marketing channels.

There are so many more product and marketing wins I'd love to tell you about but I also want to give some time to our other marketplaces. We now have 4 highly differentiated e-commerce marketplaces in our house of brands and we couldnt be more excited to have found 2 more businesses that share our mission to keep commerce Hume.

In addition to common missions strong leadership teams and performance based cultures. Each brand is connected at the core with similar growth levers and requirements for success, such as sophisticated search technology compelling onsite customer experiences and efficient payment platform value added seller services effective shipping off.

<unk> strong brand and performance marketing capabilities, and our commitment to investments that protect the marketplace.

As you know we have deep expertise in each of these areas and we'll be implementing knowledge sharing loops to drive value creation across the brands, all while enabling each to serve its customers and its own distinct way.

First turning to deep up on slide 14.

We believe the pump is the best asset in the retail space given its high user engagement metrics.

The U S secondhand market opportunity is projected to double to $77 billion by 2025, and the resell portion of secondhand is forecasted to grow 11 times faster than retail clothing for the next 5 years.

We're also seeing that young consumers are adopting secondhand fashion faster than any other audience.

And Deepak is the 10th most visited shopping site among Gen Z consumers from the U S and.

In fact, we think deepa is potentially to etsy like venmo was to Paypal, a new way to shop for the new generation.

Let's take a look at a quick 32nd video that captures the excitement of Deepak.

Yes.

Yeah.

Sure.

So where do we want to take the pump just like we've demonstrated with etsy and reverb, we see significant opportunities to make focused improvements to the onsite product experience that we believe can expand conversion rate.

We'll also explore value added services to drive monetization will.

We will compare insights on how we've grown etsy globally with localized experiences and focused investments to help deepak tickets marketplace beyond its current core regions in the U S and U K.

And we'll work to evaluate the efficiency of their marketing investments focused on improving LTV, driving buyer and gms growth and enabling the business to invest more it's similar or better returns compared to their current investments.

Now turning to <unk> 7.

<unk> 7 is known as the Etsy of Brazil, a leader in custom and made to order merchandise. We now have a foothold in Latin America, a region with high barriers to entry, where we previously did not have a meaningful customer base.

<unk> 7 is ranked as a top 10 ecommerce site in Brazil, providing us with a strong local brand in the largest Latin American E Commerce region.

E Commerce in Latin America is estimated to be less than 10% penetrated and is expected to reach approximately $160 billion by 2025, Brazil alone is forecasted to reach $50 billion from the same time period.

Here's a quick glimpse of yellow 7 through 1 of their TV ads. We hope you will agree that the similarities with etsy are obvious.

[music].

Yes.

Thank you.

No.

The booth at favorable interest rate that yeah.

Thank you.

You bet.

[music] zone right.

Okay.

Yes.

Okay.

[music] is that true.

True.

Got it.

On slide 19, you'll see low sevens near term priorities, which will focus on optimizing conversion rate.

<unk> from the roadmap to focus on initiatives that will inflect, Tms and make the selling and buying experience easier.

Marketing efficiency, leveraging etsy know how to further invest with a disciplined ROI lens evaluating lifetime value and customer acquisition costs seller.

Seller transparency, giving sellers visibility into their performance metrics and shipping ensuring sellers have the very best options for fast and affordable shipping that buyers can rely on.

We've just kicked off integration work from both businesses. So what's important to keep in mind that it will take multiple quarters and years to operationalize all of the many ways that we believe we can help deep up and Hilo cepheid growth and last but certainly not least river delivered a solid quarter. Despite prior year comps that benefitted from many.

<unk>, having to close their retail stores and warehouses.

We're confident that the reverb team is focused on the right areas and are excited about their future opportunities in particular this past quarter, we launched personalized recommendations and invited more music makers to add to their gear collections, which now includes over 175000 pieces of gear from players across rebirth.

This capability not only helps us to learn more about buyers and personalize their experience. It also helps players consider selling their gear through a greater understanding of how much it's worth.

We launched a new premium AD platform for bump.

And we formed a new international product team that delivered its first global specific feature enhancements.

Taking all of this together, we believe that Etsy is now an even more valuable company with an even larger opportunity than we had before.

We have a large and expanding Tam and we're moving in a different direction than Commoditized marketplaces.

The pandemic proved just how many purchase occasions etsy is relevant for and we have more confidence than ever in our core opportunity.

Reverb has a compelling value proposition and musical instruments, and we see a clear path for future growth.

<unk> enables us to deepen our penetration into apparel, specifically in the exciting and fast growing sector of resale and Ila 7 gives us a local presence in the large Brazilian market.

Our ambition is driven by a true love of lightning in a bottle peer to peer marketplaces, and a well defined investment strategy that we believe can drive strong topline growth and profitability for these brands.

Many of you have asked whether these deals are a sign of more to come I can tell you that our primary focus now is to integrate day pop Neil or 7 into the family, while continuing to drive strong performance at Etsy and reverb.

We're incredibly proud of what our team has accomplished and hopefully we've demonstrated to you that we balance our ambition with disciplined making thoughtful and strategic moves that build long term value for all of our stakeholders.

With that I'll turn it over to Rachel.

Thanks, Josh and thank you everyone for joining us for our call. My commentary today will cover consolidated results key drivers of performance and Etsy Dot Com Standalone results, where appropriate as a reminder day pop at EUR 7 results are not reflected in our consolidated financial results, our kpis for the second quarter.

<unk>.

We had a strong quarter across the board, despite macro headwinds and challenging year over year comps delivering cash Tms revenue and adjusted EBITDA squarely within our expectations.

Before diving in I wanted to point out that we're now growing up and meaningfully larger base just taking Gms. For example, we've added $2 billion incrementally to the 2019 day.

We're just beginning to benefit from the power of what this larger scale continue for etsy over time.

Moving to the financials on a consolidated basis Etsy.

Quarter, Gms grew 13% year over year to $3 billion revenue grew 23% year over year to $529 million and adjusted EBIT downwards by $139 million, but the margin of about 26%.

On an etsy dot com standalone basis, we see non mask gms growth.

Barometer of underlying trends in our core business in.

In Q2 faced Vas declined to 1.4% of Etsy Dot Com Standalone Gms, Inc.

Chinese sequentially each quarter since Q2 of last year.

And as you can see on slide 23, non <unk>, 31% year over year, particularly notable considering last year's unprecedented spike in new buyers with the onset of the pandemic.

Non math CNS growth and a 2 year basis remained fairly stable relative to last quarter and the historical trend line. These are encouraging data points that highlight the strong underlying trends in our business. While we don't anticipate showing the monthly cadence of growth in the skincare. We thought it was important to show the stability if our trends in light of day expected headwinds in there.

Coming quarters.

Here you can see the monthly cadence of growth on a 2 year basis for the Etsy Dot com standalone marketplace.

April was up 177% may was up 150% and June was up 143%. This trend details how we delivered strong growth throughout the quarter, particularly on a 2 year basis, then in light of the expected currency headwinds there has been a steady deceleration as the world has reopened.

On a consolidated basis percent international Gms expanded 900 basis price year over year to 41% of overall CNS.

International Gms grew faster than our overall growth and was up 45% in Q2.

Our fastest growing trade route with them once again international domestic sales in which both the buyer and seller or in the same market.

The international buyer growth trended in line with each other unlike in the U S, where we are seeing deceleration in new buyer growth.

Growth in international has been fueled by product investments such as an improved English and German translation model and higher investment in brand marketing in the UK and Germany.

Consolidated Q2 revenue was again driven by growth in both marketplace and services revenue with key drivers being etsy ads revenue etsy payments and E&S volume.

Transaction fee revenue and grew 15% year over year, driven by higher Gms from visit growth and frequency.

Payments revenue was up 19% and we processed 92% of our Etsy Dot com Standalone Gms to Etsy payments in Q2, a direct result of the expansion of Etsy payments to 90 countries in Q3 of 2020.

Consolidated advertising revenue, which includes etsy ads and refurbished pump was up 44% year over year.

Consolidated take rate expanded to 17, 4% in the second quarter at 150 basis points compared to lap as compared to Q2 of last year.

Etsy ads revenue growth, excluding refurbished and service was up 47% following nearly 100% revenue growth in the prior year.

Etsy ads revenue is driven by experiments that improved our AD ranking function, resulting in a significant increase in the post click conversion rate, while maintaining the same attractive return on AD spend for our sellers.

As a result sellers have continued to increase their overall budget for etsy ads to procure prominent placement and increased sales in fact for the month of June 2021 seller budget was 92% higher when compared to their overall budget in June of 2020.

Yeah.

Gross margin was 72% on a consolidated basis continuing to benefit from our shift to Offsite ads, which delivers incremental revenue without an equal offset in cost of revenue and which we view as a significant subsidy to our performance marketing spend.

As you May recall, our introduction of Offsite ads, especially began to bill sellers for in May 2020.

500 basis point expansion in gross margin at that time, Inc.

In Q2, 'twenty, 1 offsite ads opt out rates were still less than 2% and charge ability remained healthy in fact, the number of sellers who've chosen to stay in the program is growing at a faster rate and active sellers a testament to how many sellers value our appetite ads product.

Our product development investments continue to deliver strong returns driving higher conversion rates and frequency.

For example, we now have more squads focused on frequency initiative and have seen significant increases in hit rate.

Q2, consolidated product development spend was $62 million up 37% year over year, mostly driven by our planned increased head count.

Noticed that consolidated head count with nearly 1600 at corner ended up 24% year over year with much of this increase sitting in product development.

We have continued to ramp our marketing spend to lean into this time on the Etsy brand is capturing global attention.

Q2, consolidated marketing spend was $167 million at 46% year over year.

Brand spend was 23% of consolidated marketing up 73 per cent per year.

Important driver of the increased marketing spend in Q2 with our TV campaigns in the UK, and Germany, which each performed well during the quarter.

In Germany, where we had not tested upper funnel marketing before we jumped 4 places in Comscore retail rankings. During the month of May in both markets. We also observed the halo effect of making other performance channels work harder.

We're seeing significant progress, prompting buyers to download the app, which represents our smallest share of visits it has the highest conversion rate and nearly all of this is coming from product investments rather than marketing spend we believe success here can lead to more traffic from repeat and existing buyers shifting from paid to organic.

Which will enable us to spend more to acquire new buyers through higher LTV as.

As well as improvement to adjusted EBITDA as paid clicks and visits shift to organic.

Moving to our operating metrics for the Etsy Standalone marketplace in Q2 active buyers grew 51% year over year to approximately $90 million.

Pete buyers, those who made purchases on 2 or more days and a 12 month period grew 16, 1% year over year to $36 million.

And habitual buyers are most loyal buyers remained our fastest growing buyer segment at 115 per cent for the quarter to nearly $8 million.

As of Q2.2021, this buyer segment accounts for only 9% of active buyers that contributed on average about 40% of our Tms.

These metrics demonstrate encouraging stability in our buyer base science, it's all been looking for as parameters for how sticky the 2020 gains may be.

As you know the pandemic the pandemic significantly accelerated our acquisition of the new buyers in 2020, we acquired 38 million new buyers nearly 2 times the number of new buyers we acquired in 2019 from.

Remember in new buyer is someone who has never before shopped on etsy.

As anticipated our new buyer growth rate declined in Q2, but remained at a healthy level of 8 million nearly double the number of new buyers acquired in Q2.2019.

On a trailing 12 month basis, we've acquired over 40 million new buyers.

Excited to see that the underlying purchase trends for our new buyer cohorts remained healthy as well for example, Q2 Gms Permian by our expanded to $46 growing 24% year over year.

Many of you asked us during the past year, if the buyers that we acquired during the COVID-19 pandemic. Our valuable are only came to etsy during the pandemic and unlimited shopping options.

There are only a few months into the world gradually reopening and so far all signs indicate that these buyers are at least as valuable as those we acquired prior to the pandemic.

Gms per active buyer on a trailing 12 month basis accelerated to $129 a record 22% year over year growth driven by repeat purchases and frequency. We're extremely pleased to see our cohorts continue to show stable underlying trends as we invest to drive further stickiness and habit forming behavior.

Moving to the balance sheet as of 630, we had $2.5 billion in cash and cash equivalents and short term investments. In addition to a $200 million revolver that is currently undrawn.

Note that the acquisitions at both the top and iOS 7 were completed in July. So these acquisitions are not reflected on our quarter ending balance sheet.

During the quarter, we also issued $1 billion of 7 year convertible senior notes.

A portion of the proceeds was used to repurchase $180 million of our stock and to purchase capped calls.

Free cash flow was impacted by the timing of cash payments compared to accruals for sizable expenses, such as sales taxes and marketing spend.

And now turning to our outlook.

We currently estimate that our Q3 consolidated Gms, which will now include Etsy reverb, a pop and a low 7 will be approximately $2.9 billion to $3 billion up about 12, 5% at the midpoint compared to Q3 of last year.

Our Q3 revenue will be $500 million to $525 million of up about 13, 5% at the midpoint versus Q3 of last year and our adjusted EBITDA margin will be about 25%.

Within our Q3 Gms guidance, we are forecasting very solid growth for the Etsy Dot com standalone marketplace, we expect to deliver mid single digit gms growth and growth growth in the mid teens, excluding face masks.

In Q3, 2020, Etsy Dot com Standalone marketplace, <unk> grew 116%, which was the highest growth rate among the U S publicly traded e-commerce peers that we track a really big number to comp please.

Please also remember that 11% of Etsy stand alone Gms are $264 million was from Facemasks in Q3.2020.

Consolidated revenue guidance assumes that take rate of about 17, 4%.

<unk> <unk> 7 from the Q3 guidance, our take rate guidance for adjusted Etsy Dot Com and reverb are former consolidated reporting would've been about 17, 7%.

Consolidated adjusted EBITDA margin guidance for Q3 is also impacted by the addition of <unk> 7 the.

The addition of these 2 businesses is about a 300 basis point contraction to what our guidance would have been without them.

Given very similar fundamental economics to Etsy dot com and reverb, we're confident that with scale, both can deliver strong margins and healthy levels of profitability.

It is important to keep in mind that the etsy dot com marketplace will continue to be the vast majority of our top and bottom line performance at least in the near term in fact, given the transaction timing and the relative size of Deepak 7 we expect only modest contributions from our Q3 and FY 'twenty, 1 and top line performance.

Also for your models I mentioned that Q2 consolidated head count was up over 20% and you can expect this rate of hiring to continue this quarter.

And we recently welcomed 550, new employees to Etsy, Inc. With our July acquisitions of keep up and he will step in as.

As we look beyond Q3, we are excited about the upcoming holiday season, with so many product and marketing initiatives already bearing fruit and more to come from.

For Q4 keep in mind that we will be comparing to the very strong 2020 holiday period, which benefited from an extended shopping season.

Stimulus payments continued shut downs in certain regions and some logistics disruptions for other e-commerce players.

Also recall that the fourth quarter had a $133 million of face mask gms or about 4% of our total.

We are currently forecasting very little Gms from face masks in our Q4.2021 internal model.

We've previously pointed out that our comps get tougher as we progressed through 2021.

With Q1.2022, potentially our hardest go forward comp given a sizable positive impact from government stimulus and Q Q1.2021.

We operate etsy with a disciplined approach that maintains a healthy balance between growth and margins and our results have historically landed us between that rule of 40 and a rule of 50 company.

We plan to continue to live by this principle and are confident that our long term profitability model remains intact.

Thank you for your time today I will now turn the call over to them. So we can take your questions.

Hi, everyone could see today, and we're going to dive right into questions.

I'm going to start with.

<unk> from da Davidson, we've had a lot of investors ask us about the impact of the economy reopening on Etsy, how should we think about the impact of raw and Additionally, what categories are benefiting from the reopening such as wedding and what categories would you say are being negatively impacted.

I think Josh we can at least start with that 1.

Sure. So first we feel really good about our Q3 guide I mean, we're talking about Etsy standalone growing in the mid teens Q over Q in a world, where we anticipate that in Q3, the world will be largely reopened and people are going about their lives.

Much like they were not entirely like they were before Covid of course, but much like they were before before COVID-19.

So some of the things that are powering that we are seeing a resurgence of growth from some categories like weddings weddings. For example was up over 100% quarter over a year over year in Q2, and it was the second sequential.

The second sequential quarter of growth for weddings. So that's certainly helpful. We're also seeing.

Building momentum in some categories like back to school. So last year was all about homeschooling and people were buying desks for their kids at home now, they're buying backpacks and theyre buying all sorts of things to get ready to send their kids back to school and we're already seeing that we're really pleased to see sustained momentum in many categories. So for example home.

Furnishings is seeing nice sustained growth and as you know that's our largest category and some other things that are really hot in.

Home furnishings right now our kids kids.

Our furniture.

Gordon.

Gardening activities and things like that and then as always we're seeing the viral trends whatever's Hot and new right now.

Is showing up on Etsy, so things that are hot on Tictoc for example show up on Etsy within moments and actually can drive millions of dollars of Gms. So those are really the 4 buckets.

And.

Debt.

The beginning no you've got it right.

Greg.

The next 1 it may take from Ana <unk> from Needham and this one's for Rachel question on take rate. It came in flat sequentially, what's driving the upside excluding the new businesses from the second half and how do you think about the take rate opportunity longer term for etsy.

So first of all I think we gave a lot of color on take rate because we gave you what take rate would be with and without the new businesses that you can see that without the businesses is our take rate would have been 17, 7% in the new business is much smaller than etsy have lower take rates and make some contraction to that overall net.

<unk>.

He has got in take rate gains from the expansion of etsy payments to 9 new markets globally.

And reverb actually took a price increase last year as well, which helped keep the former consolidated etsy take rate high.

We look at take rate improvements as a value exchange that where we can offer more services that are that benefit the seller.

In exchange for some fee increase we are open to doing those things. So for instance last year we added.

Off site ads and that with that.

Win win for sellers and for Etsy, and so there's lots of opportunity to continue to add services and where.

Where we see a fair exchange of value would consider taking.

Ticking fees for that but right now we have no plans for that and then there's nothing in our guidance.

Yes that we have any plans for that.

Okay, great. Thanks, Rachel.

Next 1 is from Andy rumour at Keybanc Josh.

Josh I'll toss. This 1 to you you moved very quickly to bring selection inventory from day vonda onto the core Etsy marketplace do you see the same opportunity existing with you with that.

Great question, Thanks, so with the Nevada.

Arrangement, we had an etsy business in Germany, and we did a referral agreement with us.

Basically kind of Etsy lookalike company called Nevada in Germany, and we just combined the 2 you're right very very quickly.

<unk> is different etsy.

Etsy doesn't really have a presence in Brazil, and in fact cross border trade between Brazil, and other markets outside of market store is really tough for a bunch of reasons.

And so.

We expect that <unk> will remain a standalone brand in the Standalone business, giving us a presence in Brazil for the first time and you know when we look at who has succeeded in Brazil. It is tend to be the the native companies Mercado Libre is is very successful there and ebay.

Didn't manage to penetrate so we think having a native indigenous brand in Brazil built 4 of Brazil that is focused primarily on domestic trade is it the right way to go and we're really excited about the <unk> 17 and brand is our way to do that.

Okay great.

Since we're talking International I'll go next to a question from John <unk> from Jefferies.

Last quarter, Josh characterize the advertising strategy in Germany as being different than in the U S. Because etsy is leaning into brand marketing early on after having success with your brand marketing campaigns in the UK and Germany is the next step to begin layering in more performance marketing spend to take advantage of the improved awareness that you Richie net Josh.

Josh Yes.

Is that from your Rachel.

For you.

Okay got it sorry.

So I think the short answer is yes.

We are seeing that the brand marketing spend we're doing in in Germany, and the UK is making our performance marketing more effective and therefore, we are spending more the performance marketing spend is quite mechanical we have very clear rois thresholds and we have quite clear ways to measure impact.

In nearly real time, so as the.

The performance of our performance marketing gets better we just automatically increase spend and if things happen to depress. It we automatically take spend down, but you're right that because of the television advertising is making brand awareness higher it means the propensity to click on our ads.

Is higher and the lifetime value of the customers is higher and that allows us to spend.

From an incrementally more in those markets.

Okay great.

Next 1 I will take is from Laura Champine from loop. This 1 is from Rachel what drove the decline in mix of Gms from paid channels in the quarter.

So good.

Good. Good question, we said percentage that was paid was 19% which is down from the previous quarter and remember that 1 of the things that we do is we invest in top of funnel marketing, which we don't count in our paid spend because the traffic from top of funnel marketing comes into the direct channel. So we spent a.

A lot of money market incrementally in marketing in the second quarter. The adopt the dominant portion of that incremental spend was on.

Top of funnel marketing in the UK and Germany drove a lot of topline that we count as direct so that's 1 of the answers to your question. The second answer is that we actually spent relatively flat amount of money on performance marketing and we got the same or better ROI.

And also recall that our performance marketing it now subsidized by our off net ads product.

You don't actually see that subsidy in the marketing line that shows up in revenue. So all of those factors together drove really high return on our performance marketing spend and relatively.

A lower percentage of total traffic coming from pain.

Okay, great. Thanks, Rachel next from.

Nick Jones at Citi.

Josh flow through this 1 to you to start can you talk about the effectiveness Etsy has had in managing a rebirth.

Implications for the ability to manage and Deepak how many other opportunities might there be out there that could look similar to these in terms of focusing on products earned in the graphics or geography, I assume that means.

Potential future acquisitions.

Yes, we feel great about the progress to date with.

With reverb and really job 1 was to partner with the reverb team to think about where can their product efforts be most focused to improve conversion rate that makes the value of a visit go off and the lifetime value of a visit or in a customer go up.

And at the same time, how can we optimize their marketing spend and those 2 are actually a virtuous cycle because if conversion rate goes up the value of the visit goes up that allows you to actually invest more in marketing right and if your marketing is more efficient you can really get the flywheel to turn and so we're excited about how that has worked.

At at Reverb, and we hope to execute similar ideas not the exact same but similar kinds of playbooks at both <unk> and <unk> 7 theyre, both very different marketplaces, and they have different dynamics and they face different trends and so step 1 is to get in and partner with their teams and understand where they are and see where we are.

Can add value and what their current roadmaps are and so the teams are doing that very actively I think we've owned those 2 businesses for 2 or 3 weeks.

In total and the teams are already there and working.

We're excited about about what the future can hold I will say that this takes work and it takes time and it takes effort and we are very conscious of the fact that the big price here is the core etsy marketplace, which we are incredibly excited about the massive opportunity ahead of us at Etsy.

So <unk>.

Want to be thoughtful and disciplined as we always are so integrating deep up in the low 7 I think is meaningful and.

We want to take the time to integrate those 2 and make sure that they're successful and really set up for success.

So that's that's that's very much our focus right now to the question of are there other 2 sided marketplaces out there maybe.

Maybe.

As I said, it's lightning in a bottle. It's not every day you come across a truly authentic organic 2 sided marketplace really has mojo in a place that's additive to etsy, where etsy has really positioned to help where we can acquire it at a fair price and where we have the bandwidth available.

Available to do it so we've got a high bar and I would say, we're going to be patient and picky and right now we're very much focused on the core etsy marketplace and integrating Deepak Needless oven.

Okay, great. Thanks, Josh.

To give a couple to Rachel that have also had to do with the popular 7 more on the financial side. So from shred it could urea from Evercore ISI.

Rachel could you quantify the impact from deep Hopper most haven't included it in the Q3 guidance.

I just tried other things for the question. So first of all I'll start by saying that our 3 subsidiaries in our new house of brands together represent less than 15% of our total gms. So they're still important we see huge opportunity for them, but they are relatively minor impact to our total guidance at etsy, we try to think about focus.

And we're very focused on continuing to grow the etsy marketplace. What was disclosed 4 day pop and when we announced the acquisition with that deep hop did about $650 million of Gms in 2020, and about $70 million in revenue and it was growing about 100%.

In 2020.

You would expect that day pop is experiencing the same sort of macro headwinds from the economy reopening debt all of E. Commerce is experiencing so we hit while we're not giving specific guidance for Deepak now you can.

Consider that that's factored into our guidance Elo step N is much smaller.

Also they had they did not have a tailwind from the pandemic in 2020 like Department Etsy.

Not because they're they've had.

Significant impact from Covid in that region and also their business is much more concentrated in the event space that had been more.

Hampered by.

Set downs.

We did however, say that in our guidance that debt. The addition of those 2 new businesses to our former consolidated numbers of former consolidated Etsy, plus reverb creates about a 300 basis point contraction to the bottom line. These are very new businesses, we've owned them for 2 weeks.

Reverb is a perfect example of how we've been able to grow and optimize.

That business that we're super excited about it while we invest in them for growth.

Okay, Rachel while I have you.

Similar question on similar topic from.

Jason how scene and Oppenheimer, if we assume 10% take rate for the acquisition to depopulate 7 connectedness close enough to the revenue impact by the acquisitions as well in Q3.

So.

I think we gave pretty clear and transparent information on the impact of take rate from our from our subsidiary businesses. As we said our total take rate for Etsy would have been 7 for our former consolidated businesses would have been 17, 7% without them.

And I believe we gave take rates specifically for deep hop when we acquired them in about that 10% range. So that's a good number in just 7 today is very very small so it's not going to move the needle I think youre safe in that in that assumption.

Okay great.

Next 1 from the gala running from went much.

You added 8 million new buyers this quarter after a big last 12 months of new and reactivated buyer adds what is driving the continued uptick in new buyers strategically and how is this behavior from this cohort similar or different.

Maybe Josh will talk about overall overarching new buyer behavior.

We feel great about that and so adding 8 million new buyers is a sequential decline from what we were adding in the pandemic, but it's 8 million new buyers.

It's almost twice the level of new buyers, we were adding before the pandemic.

So I think that's again quite quite remarkable and theyre coming from a number of sectors..1 international has been great and we are growing in international markets, a little faster as a percentage of the total than we are in the U S. In places like the UK and Germany. For example, our core focus areas. The investments we've been making over a period of years to make those markets. Moreover.

We're seeing some of the fruits of that but EBIT in the United States. There are still a lot of people, who don't shop online don't regularly shop online or Havent really heard of Etsy Etsy is coming into the common vocabulary now and people are starting to say Oh, Yeah. My neighbor told me about that and Oh, yes here Thats really have been cool theres a lot of people, who still haven't yet experienced.

<unk> Etsy, and then Theres, new demographics that we're starting to really lean into for example men that's about 50% of the population and its very underrepresented at Etsy as we've said.

And we think that.

Leaning in more there we can we can do a lot to open up to new segments and new categories, even within the United States.

The only thing I'd pile on to that with is that our new.

New buyer growth on a trailing 12 month basis, we said it was $40 million. So it really huge number and we've talked about.

On this call and internally about the pull forward effect of we acquired so many new buyers in a short amount of time that we were actually pulling forward new buyers debt.

Our old rate, we would've acquired in future years, and just to remind you that you can only be in the higher ones. So what we're seeing with the biodiesel reaches 100%.

Line with what we expected and we take we get excited and take great comfort from the fact that all of these buyers are coming to etsy, more often and shopping more frequently so the gms per active buyer.

Are up 22%.

In the quarter is super exciting to see.

Great. Okay. We've got several versions of this question, but I'll ask the 1 that came in from Ana <unk> from Needham we've heard from several online companies talking about the intra quarter slowdown as the economy Reopens can you talk about what you are seeing quarter to date in Q3.2021, and if there are any callouts from categories Dan.

You want me to grab it.

Okay. So we're not giving any.

Unfortunately, given any guidance about what we're seeing in Q3 now, but maybe a simple way to answer. Your question is our guidance assumes that there are no further lockdowns.

So of course as we see what happens in the world that may or may not change the forecast and the guidance that we've given.

Okay.

Great. Thanks Rachel.

Next 1 is from Nick Jones.

And I'll give this 1 to Josh can you talk more about the storm cellar program.

Is this an icon on the seller profiles and can you give us the data that you can share from the habits might help sellers to somewhat.

Yeah. Great question. Thank you for that so you had a star solar program is really designed yes. It will be an icon on people's shops that'll show up in a few months, we might do featured marketing around our strength our sellers that might influence your prominence in search we're going to experiment with a lot of things, but at minimum it will be a badge on your shop to highlight.

To buyers that you're 1 of the very best sellers I think 1 of the most important things. It does though is it provides agency to sellers.

Some very transparently here are the customer service metrics that buyers care about the most and here is what good looks like.

And that sets a bar or an aspiration for our sellers of where they want to go and where we want them to go and 1 of the things we hear from sellers over and over again is what can I do to be more prominent and the.

If you look online what the tips and tricks they hear from a lot of others as like keyword stuffing like put marquee word from your title that doesn't necessarily make buyer experience better right do you ship on time do you answer bio convoke buyer convos in a really timely fashion.

You get 5 star reviews on your products those are things that buyers really care about and we want to focus sellers on those things and so the star seller program is a great example, and by the way it's not the only way we can do this but it is a powerful example of how we can really tell sellers exactly what they can do to be more prominent and give them agency.

In their own success in a way that creates a race to the top end lifts all boats and I'm really excited about this track of work.

In the coming years.

Okay, great. Thank you.

And from Marvin Fong at <unk>.

The other 1 on Q3 guidance would.

Would you say you are contemplating maybe mainly a slowdown in traffic or are you also seeing changes in conversion rate items per basket, where purchase frequency. Rachel did you want to take that 1.

Sure. So no we are not contemplating decrease in conversion rate and frequency, we're really excited about the product and marketing.

Initiatives that we have that are actually driving growth in those metrics.

And you can you know as we've talked about in answer to a few other questions.

The deceleration in new buyers largely associated with masks remember that.

Q3 of last year, 11% of Gms came from mask sales.

And new.

New buyers of our a lot of the the masked buyers so those things go.

Go together and that we have these really really big numbers to comps, we said that non mat sales in Q3 last year grew 119%.

Roughly added $2 billion of Gms on a 2 year basis. So these are really big big numbers to compensate them.

Medical.

Gymnastics that we're doing that with lots of underlying growth opportunities in the core business.

Okay, Great and then I'll squeeze 1 more in under the wire here from now the con at Ventana excuse me a true.

How are you thinking about opportunity in hybrid payments on debt.

<unk> payments and how should we think about timelines for that.

Thank you Rachel you wont do that Meyer, Okay, I'll take I'll take that 1.

And Deepak has a great payment structure today, and so right right now.

We each business has their own CEO they have their own operations, we want them to run and fully optimize their businesses. We are thinking about loosely.

Where we can find optimizations, maybe in 3 categories first is.

Things that are back office like G&A, where we don't necessarily need to replicate certain functions in every single business and we can handle those things from a corporate perspective.

Things like legal and finance and Treasury and things like that second tier are things that we can operate as services across all of our brands. So payments might be an example of that and we'll certainly explore that there might be other things like member support and trust and safety there might be other services like our app.

With the innovation and creativity of those management teams like product engineering and so we're just again, we've only owned them for 2 weeks and we will look we continue look for opportunities to optimize and scale as we grow payments might be 1 of those areas.

Happy to talk to you more about it as we dig into it.

Okay, Great Josh did you want to add anything on that 1 our weekend.

Thanks, very much for your interest I think when I think back to a year ago. The question. We kept getting was like is this just a flash in the Pan all these people are coming to etsy, just because they have to.

And are they all going to go away when the world Reopens and I'm not saying, we're fully post pandemic or the world is completely reopen but people have a lot of choice right now and I couldnt be more excited about the fact that in a world of a lot of choice Etsy is growing and it's growing materially and people are coming back they are choosing to come back.

Back more and more often to etsy, even when they have vastly more choice than they did before and I think that's super encouraging for from future.

Great Alright, thanks, everyone for your questions for your attention and we will talk to you I'm sure very soon.

Thank you.