Q4 2021 ETSY Inc Earnings Call
With me today are Josh Silverman, CEO and Rachel Glaser CFO today's prepared remarks have been prerecorded. The slide deck has also been posted to our website for your reference once we have finished 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 and it will remain open through the entire conference call I'll be reading your questions and we'll try to get to as many as we can.
Please keep in mind that our remarks today include forward looking statements related to our financial guidance and key drivers thereof. The uncertain impacts of COVID-19 pandemic may have on our communities business strategy, our operating results our market opportunity the potential impact of our strategic marketing and product initiatives, including a transaction fee increase and the intended.
Benefits thereof, and the anticipated return on our investment and the ability to drive growth our actual results may differ materially.
Forward looking statements involve risks and uncertainties some of which are described in today's earnings release, and our 10-Q filed with the SEC on November 4th 2021, and which will be updated in subsequent reports that we filed 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 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, Tim and good evening everyone.
Actually delivered a strong fourth quarter to wrap up an impressive 2021 with record levels of GFS revenue and adjusted EBITDA. During the holiday season, when many retailers were struggling with congested supply chains Etsy sellers brought the benefits of shopping small to scale.
And in doing so we further cemented our place and virus hearts, while deepening our relationship with our sellers as well.
<unk> mission is to keep commerce human and we believe that these past two years have shown that the needs we need are both powerful and enduring.
2021 was another historic record breaking year for Etsy, and while the pandemic introduced millions of people to etsy for the first time shoppers have loved the experience they've had with etsy and are coming back for more even in a world of greatly expanded choice.
We're incredibly proud of our full year performance, which you can see on slide three with consolidated Gms of $13 5 billion up 29, 6% year over year on a currency neutral basis.
Gms for the Etsy, Standalone marketplace grew 29% year over year and 158% on a two year basis.
Consolidated revenue grew 35% year over year and our adjusted EBITDA margin was a very strong 31%. Despite the anticipated dampening impact on our profitability from our two new subsidiaries Rachel will review fourth quarter details later on.
While 2021 was not the return to normalcy that many of US had hoped for it did indeed offer greatly expanded options for consumers time and money compared with 2020, and many more places online and off where you could shop yet.
Yet at C continued to gain market share in 2019, we laid out a long term goal to outgrow ecommerce and you can see that we have done that very substantially and evidence is mounting through our cohort and brand data, but these gains were not transitory. We believe that etsy offers the world a true alt.
Eternity to commoditize sharpen.
The buyers and sellers value of this alternative and we are in the early days of expanding our share of wallet.
We grew that market share by bringing new buyers to the etsy marketplace and encouraging our existing buyers to shop more frequently.
A few things stand out when reviewing our 2021 performance on slide five.
We continue to grow existing buyers, reaching a record high of 90 million active buyers, we reactivated nearly as many buyers in 2021 as we did in 2020, which is in my view simply remarkable.
While new buyer additions didn't quite keep pace with 2000, twenty's spectacular level, new buyers still grew by 84% in 2021, when compared with the pre pandemic level of 2019.
And the pandemic cohort has been sticky 50.
53% of all active buyers, who made a purchase on the etsy marketplace. In 2020, we had another purchase in 2021 and 37% of new buyers in 2020 made a purchase in 2021.
2021 frequency metrics also improved with 49% of active buyers, making two or more purchases up from 48% in 2020 and 41% in 2019.
<unk> Gms per active buyer on a trailing 12 month basis achieved a record $136 in the fourth quarter.
We've always said that frequency is a challenging metric to move so we are especially proud of the cross functional efforts that drove these results. We believe there are several factors inspiration efficiency and reliability that will contribute to making etsy. The go to e-commerce destination for many more consumers.
Our investments in each of these areas have really been paying off our teams beat their purchase frequency goals for the year with creative approaches, including App downloads post purchase experience improvements updates and offers.
We also exceeded our goals for visit frequency with triggers like App icon Badging and push notifications.
This slide captures some of the many ways, we are engaging with buyers along their etsy journey to keep them revisiting and repurchasing and you can expect to see much more of these work streams in 2022.
Search and discovery made some big leaps forward in 2021, and we've only just begun to make the etsy marketplace feel more made for you.
Leveraging X walk will continuing to narrow the semantic gap by relying less on listing taxonomy and more on buyer interests at year end. Our <unk> engine was utilizing over 4 billion data points, a 50% increase from when we launched in the second quarter of last year.
This means we can use 16 times more real time data to capture semantic meaning across our inventory with ex work than we could with our prior search capabilities, putting a finer point on it etsy search is simply getting better.
On this slide you can see some of the great progress we've made in U S. Search for example by year end about 95% of search purchases came from items, appearing on the first page of search up 10 percentage points from the beginning of last year.
During the fourth quarter, we incorporated various additional data such as estimated delivery dates real time insertion features and listing information to improve organic search results. We also began laying the foundation to apply ex walked to non U S search clearly a lot more to come in 2022.
We continue to make etsy, even more human in many ways. For example, cellar videos, which are a very visible example of how we drive human connection and engagement on and off the marketplace top $13 million by year's end.
It seems dramatic growth has also necessitated that we invest and improve and many other often less visible ways to connect our 90 million buyers with over 5 million sellers, we've made meaningful improvements in our member support and trust and safety processes with a combination of people and technology to help make these <unk>.
<unk> is more joyful safe and streamlined.
For example, and member support we've invested in self service better dashboards and education for our sellers. So they can more quickly resolve issues without our intervention and.
And in Trust and safety investments have included expansion of our content moderation team investing even more deeply in our handmade and counterfeit item efforts and creating a dedicated machine learning engineering team to support these initiatives the.
The size of these combined etsy marketplace teams increased by about 35% last year and our total 2021 investment was in excess of $100 million.
We're planning to significantly increase our investments in these areas in 2022 as well as we believe effectively managing complex very human peer to peer interactions at scale is a big differentiator for etsy.
Reliability was a major focus area in 2021, and we made great strides, we improved delivery transparency and providing buyers with more clarity and certainty around their etsy purchases. Just one example of a small iteration with big impact was the fourth quarter addition of estimated delivery date.
To our search and ranking models.
Perfect timing to help buyers narrowed their searches for items that could arrive in time for the holidays.
We also used new highly sophisticated models, including many thousands of data points on ZIP codes and postal carrier performance to anticipate holiday delays and dynamically adjust the delivery dates we had nearly 100% U S listing coverage for estimated delivery dates tracking coverage and origin Zip codes in time.
For the holiday Crunch.
In addition, 90% of U S. Domestic orders that were estimated to be delivered on time for the holidays did in fact arrive on time up significantly from the 2020 holiday season.
Youll be hearing more about our efforts to further improve reliability in 2022, including work to achieve more consistent and transparent results in our core non U S regions and deeper initiatives designed to ensure that shopping on etsy feels worry free.
We believe reliability is the cornerstone of our habitual shopping experience remaining a key needle mover to drive top of mind awareness loyalty and frequency.
Etsy marketplace sellers continued to thrive growing in total number and the success of their shops, turning to slide 10 for the full year active sellers grew by 28% and more than doubled on a two year basis and even more importantly, our seller cohorts retained more gms in subsequent years on that.
Latam.
We're continuing to innovate in areas that matter to our global seller community such as improvements to the Onboarding experience, particularly for international sellers and investing in our seller up.
And our star sellers represented 31% of fourth quarter Gms with the program gaining traction with international sellers during the fourth quarter.
Today, we announced an increase to our base transaction fee from 5% to six 5% effective April 11th.
We expect to invest most of the incremental revenue into marketing seller tools and creating world class customer experiences.
Etsy enables anyone with a creative idea to start a business and reach a built in audience of millions of shoppers, we've demonstrated our ability to drive more sales and value for our sellers and believe that this represents a fair exchange of value between etsy and our seller community.
We see so much opportunity to continue to raise top of mind awareness and consideration for etsy, among those who already shop on Etsy, and those who don't we've become a top 10 marketplace for buyers and several of our core international markets, we're reaching new audiences in the U S and we've made significant progress staying more top of my.
And in order to bring existing buyers back more frequently.
<unk> at the bottom of the funnel, we've improved our performance marketing feeds and Offsite ads in the middle of the funnel, we've had great engagement with our social content for example over a million people watched the sellers colorful leaving real that's shown on this slide and.
And at the top of the funnel our brand campaigns cut through the noise.
As you know, we lean more heavily into upper funnel brand marketing strategy since 2018 through television digital video and paid social to create a flywheel that elevates the effectiveness of all of our other marketing channels. These.
These efforts have significantly move the needle on brand awareness and loyalty our U S. Etsy buyer surveys indicate that since the fourth quarter of 2018, we have nearly doubled buyers' loyalty prompted awareness is up 11 percentage points and unprompted awareness is up eight percentage points.
When we first showed you. This data we said our goal was to move the needle on purchase intent. So that we could build top of mind awareness and consideration in the minds of buyers and.
And we've done just that.
Purchase intent has come a very long way up over 100% and visit intent has nearly doubled in that same period. We believe this data further supports my earlier comment that the pandemic will have a lasting impact on our brand.
We're seeing great movement in our brand funnel metrics and the other core markets, where we're investing in top of funnel marketing in the United Kingdom Unprompted awareness is up 10 percentage points year over year and in Germany that same metric has more than doubled.
The vast majority of our brand spend is currently in the United States, United Kingdom, and Germany. So you can imagine that we may decide in the future to take this strategy to other regions as well.
In 2021, we also began focusing more on consumers who identify as mail based on 2020 data that showed nearly 50% of male consumers in the U S were unaware of Etsy we.
We launched our first ever above the line campaign with specific media placements to reach broad male audiences and found these to be highly effective in building awareness in connection with the brand.
We've also started to see some good efficacy from new new channels like out of home podcast thing and highly targeted segmentation with our CRM tools. We see these all as important levers to further expand our buyer base in 2022 and beyond.
2021 was also a transformative year as we deepened our right to win strategy by identifying and integrating two great marketplaces than in many ways. It looked like etsy, creating a house of brands as we look ahead, our north star is to accelerate value creation for each subsidiary with the goal that the whole is greater than.
The sum of its parts.
You'll see on this slide some examples of fourth quarter, 2021 product and marketing initiatives at reverb de pop and dealer seven which are indicative of how they're utilizing the etsy playbook that has unlocked so much value over the past five years.
I'm also incredibly proud of how we cared for our people our communities and our planet in 2021, we come to work are grateful to be able to support creative entrepreneurs around the world and this new reality, it's even more important that we take care of our team with empathy resources and support to help them stay happy and productive.
We continued to attract and retain world class talent in 2021 with a keen focus on diversity and our soon to be filed 10-K Youll see some strong movement in the percentage of our leadership level employee population, who identify as a member of an underrepresented communities. I'm also proud that etsy is attrition.
Remained significantly below industry averages a testament I believe to the power of our mission the health of our culture and the care, we take of our team.
In addition, we created impactful initiatives to support sellers from underrepresented communities, such as our work with the Gular basket weavers, we drove our climate work forward by setting ambitious 2030, net zero targets and launching sustainable packaging for etsy marketplace sellers, we collected over $6.
8 million donations in 2021 for the uplift fund our donate the change effort that supports the dismantling of barriers to creative entrepreneurship.
And we engaged buyers and the positive impact that they create by launching an impact tracker that delivers a personalized digest of your activities such as the number of supported shops environmental impact and uplift fund contributions.
People want to shop their values. We know there is so much more we can and should do to connect our mission to the impact of our marketplace makes in the world and we see this as an integral driver of growth for Etsy.
One of my favorite Investor questions is when someone asks what my big hairy audacious goal is for Etsy, well, it's to make etsy, the starting point for your E Commerce journey.
We understand that's quite a bold goal given that to make that ambition a reality, we must and are competing against the biggest names in E. Commerce in all of retail for that matter, but.
But we believe we have a real opportunity to win we believe that unlike most of the rest we offer something truly different and compelling we arent trying to sell you. The exact same commoditize product, just <unk> cheaper or two minutes faster and.
And Thats why for the Etsy marketplace alone, we see a tam of about two trillion.
We believe there are many more millions of potential buyers around the world, who should be shopping on etsy, and so much more opportunity to build the etsy habit for those who already know and love us to get there we plan to and.
Inspire buyers with an etsy that feels personal and made for them like a friend who gets to know you better over time.
Make buying on Etsy worry free.
B, the selling platform that drive seller and buyer loyalty stretch.
Strengthen the foundation of our house of brands to enable growth for each marketplace scale, our infrastructure and safeguards to efficiently and sustainably power, our global growth and availability and foster an equitable and productive environment for our people.
In 2022, you will see us doubling down on increasing by our frequency through product and marketing experiences designed to inspire and reengage with better personalization habit formed formation intelligently targeting and strategic discounting.
And we'll be leaning into messaging that reaffirms, our belief that etsy terms shopping into a joyful expression of your taste and your values. We believe it's possible to achieve our bold ambition based upon the highly differentiated nature of our marketplaces.
<unk> of our strategy and the talent of our team.
Our right to win strategy is more relevant than ever both for Etsy Dot com and our subsidiary brands and I've never been more excited about that she has growth opportunities than I am today.
With that 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 marketplace results where appropriate.
We achieved record levels in Tms revenue and adjusted EBITDA in the fourth quarter all firmly ahead of our guidance.
You can see on slide 17, and on a consolidated basis <unk> fourth quarter, Gms grew 17% to $4 $2 billion revenue grew 16% to $717 million and we delivered adjusted EBITDA of nearly $219 million.
Our fourth quarter capped off a strong year for consolidated Gms grew about 31% revenue grew 35% and adjusted EBITDA was $717 million with approximately 31% margin.
In addition, <unk> contributed incremental gms growth of approximately 5% for the quarter. It created about a 2% contraction as for adjusted EBITDA margin.
We reported $948 million in 2021, Gms up about 16% from 2020 and deep Hopper seven partial year Gms for $294 million and $32 million, respectively. The primary driver of our excellent fourth quarter adjusted EBIT performance with sustained momentum in the ethane.
Marketplaces topline growth.
Debuting significant flow through profitability.
Consolidated take rate was 17, 1% a solid performance in a quarter, where historically take rates contract with seasonality.
As we have said on prior calls our three subsidiary generally have lower take rates in the etsy marketplace, which had a take rate of about 18% in the quarter.
It seemed marketplace Q4, Gms grew 11, 8% year over year and 154% on a two year basis to $3 $8 billion also ahead of our guidance for high single digit growth.
And non ask E&S grew 15% year over year.
$3 2 million masks were sold on ethane in the fourth quarter contributing $38 $7 million in Gms, representing a 70% year over year decline in masking EMS to just 1% of total.
It is worth taking a moment to appreciate the year over year topline growth in every quarter of 2021.
Overall, the fourth quarter was quite dynamic, giving many given many of the factors we discussed on our last earnings call and those that evolved throughout the quarter.
In the Amazon variant supply chain disruptions.
Inflationary concerns and other factors impacting consumer behavior and spending patterns.
Our record fourth quarter Gms performance was driven by an early and strong kick off to the holiday season in October and extended strength through December .
Our teams did a wonderful job, making etsy, a key holiday shopping destination with gift finder, and exclusive sale and targeted efforts to engage new and existing buyers.
Apparel was one of our fastest growing categories, featuring best selling items like family Jammies in the top two categories in the quarter were home and living and jewelry.
We work hard to make sure that the marketplace is ready to serve the more than 5 million small businesses on etsy to give them relevant during this important time in retail and to ensure we can handle the high volume of activity.
And that we did exciting marketplace that included an 8% year over year increase in Gms per buyer on Black Friday.
Our record 2000 orders per minute on cyber Monday.
Nearly a half million seller shops participating in our cyber sales up 27% from last year and approximately $43000 in gms per minute during cyber five.
From a geographic perspective, 44% of fourth quarter, Etsy marketplace, Gms from transactions, where either the buyer or.
Or the seller or both or outside the U S. As you can see on slide 20.
<unk> was up 20% year over year on a constant currency basis and was driven in part by strong trends in the U K in Germany. In fact domestic sales represented over 70% in both the United Kingdom, and Germany Gms last year.
Proof points of our success, creating vibrant in domestic market in our core geographies.
Non U S active buyers reach an all time high at $31 million in the fourth quarter continuing to outpace the growth in U S active buyers.
Consolidated fourth quarter revenue was driven by growth in both marketplace and services revenue up 14% and 22% year over year, respectively.
You can see a walk of our incremental revenue from the fourth quarter of 2020 to the fourth quarter of 2021.
The majority of incremental revenue and marketplace can be attributed to gms flow through.
Within services, a key driver with strong etsy ads growth of approximately 28% year over year.
Our Tunis subsidiaries were also sources of incremental revenue.
As we've been highlighting we see investments in product and marketing as critical components to drive future growth.
One way to visualize this is shown on slide 22.
We start the year with baseline Gms stemming from prior cohorts coming back over time, and which includes the benefit from the prior year's product and marketing investments.
We then layer on top of that new investments in product and marketing that we expect to drive conversion rate and frequency.
And together they form the forecast for our in your Tms.
This becomes the baseline for next year, a virtuous flywheel that helps drive future growth.
Specifically related to our 2021 product investments you can see here, how we have scaled our spend as a percentage of revenue.
Some of the most impactful product wins in 2021 windows that drove frequency improved seller tools such as thank you coupons.
App downloads and our investments in search.
In fact, the product investments generated over $1 billion in annualized Tms return in 2021.
As outlined on the prior slide we get a partial benefit from the impact in year end.
It's the gift that keeps on giving with future payback expected in 2022 and beyond.
The marketplace improvements, we make helped drive buyer stickiness and frequency.
We ended the year with 2402 employees increase of 70% compared to last year, while a significant amount of this increase was the result of our two acquisitions Etsy stand alone head count grew 31% with many of those hires in product development and engineering.
Fourth quarter consolidated direct marketing expense with $172 million down 12% year over year in the third.
Third quarter, we hadn't run incrementally test that surfaced opportunities to optimize our performance marketing spend.
This model refinement enabled us to lower spending for product listing ads SCM and social on a year over year basis in the fourth quarter, which helped to drive up our margins.
We offset approximately 40% of performance marketing spend for Etsy dot com to Offsite ads revenue, which enables us to put more dollars to work on behalf of our sellers in a profitable way.
All in all our performance marketing spend drove approximately $2 3 billion and annualized Gms in 2021.
Consolidated brand marketing spend which includes TV and digital video was 25% of our consolidated and marketing spend in the fourth quarter, representing approximately $50 million of stock.
And.
For the full year, we increased brand marketing spend by 30%.
Typically leaning more heavily into TV and digital video and the United Kingdom and Germany.
We're confident that the incremental marketing spend in Germany, particularly our Etsy hockey campaign meaningfully impacted our brand awareness metrics.
Moving to our Etsy marketplace operating metrics, we have seen excellent stability in our active buyer count with $90 million at year end up $9 million total for 2021 and buyers are spending more with etsy with our gms per active buyer, reaching an all time high of 136.
In the fourth quarter up 16% year over year.
We believe this metric is a useful way to track the success of our efforts to drive buyer retention frequency and purchases.
Repeat etsy buyers represent shoppers, who made purchases on two or more days in the previous 12 months.
Can see on slide 26 that we ended 2021 $36 million repeat buyers with a two year growth rate of 121%.
We separate out are repeat buyers from our habitual buyers those that shop on etsy, six or more times per year and spend at least $200.
In my view one of our most exciting data point is the growth in habitual buyers. We ended the year with $8 1 million habitual buyers a record level up 26% year over year and up 224% on a two year basis.
These buyers comprise about 9% of our total active buyers.
5% in 2019, yet accounted for 45% of 2021 GMI.
And we are acquiring millions of new buyers new buyer acquisition grew 44% sequentially in the quarter to $10 million the highest quarterly level reported all year.
<unk> been highlighting throughout 2020 in 2021, there has also been a massively awakening of lapsed buyers over the past two years.
In fact, we reactivated $6 8 million buyers in the fourth quarter up 65% sequentially versus the third quarter and edging past a year ago quarter.
Totaled $21 4 million buyers were reactivated in 2021 nearly as many in 2020.
We continue to see by our reactivation and the key to our long term growth as buyers often lap and their etsy purchases and believe we still have significant room to re engaged buyers and build top of mind awareness and consideration.
Moving to the balance sheet as of 12, 31, we had $1 $1 billion in cash cash equivalents and short and long term investments.
You can see on the right how our capital light business model has delivered record levels of quarterly operating cash flow, even when compared with the prior year's very strong performance moving to our outlook in the first quarter of 2021 as he reported a 132% Gms growth, which we believe is among the highest growth rates.
Ever reported by our U S public ecommerce company.
Q1 of last year with a particular anomaly with.
With eight percentage points of growth coming from the tailwind of stimulus checks, coupled with deep pandemic Lockdowns, which we estimate contributed a tailwind similar to the stimulus.
As we've said all year the comparisons of the first quarter of 2022 to the first quarter of 2021 will be difficult.
Now that were in late February of the new year. It does feel like there is a possibility of a new normal.
We're watching the same economic and consumer data that you are.
And we can see that travel eating out and other measures of mobility are on the rise.
People are tired of staying home we are too.
And so it's not surprising to see the long awaited reopening headwinds impact our February results.
Following a very strong January .
Began to experience reopening headwinds with a notable deceleration in February .
To date February was still positive on a year over year basis.
As a reminder, given the March 2021 round of stimulus checks March will be another tough comp.
Despite last year's huge spike in Q1, and the reopening softness we've seen this month our guidance implies that etsy Standalone will keep all of the significant gains in last year in spite of the tailwind from stimulus checks and lockdown turning to headwinds.
And that is before the benefit of our new subsidiaries. We think this is quite remarkable and a very encouraging indication of the durability of the growth we've experienced over the last few years.
We currently expect first quarter consolidated Gms to be $3 2 billion to $3 4 billion.
We expect that our first quarter revenue will be 565 million to $590 million and our adjusted EBITDA margin will be about 26%.
While macro conditions remain extremely uncertain and we are not providing annual guidance. We did want to outline some factors to consider for your full year model.
Both the 2020 and the 2021 Etsy stand alone quarterly Gms cadence, we're impacted by pandemic headwinds in tailwind.
Normally when compared with our historical Gms seasonality.
This makes the quarterly Gms cadence and our last pre pandemic years 2018 in 2019 and more normalized template to use for your modeling for 2022.
Traditionally etsy has a seasonally lower first quarter with sequential growth in Q2, and Q3 relative to Q1 building to a strong Q4. In fact Q4 is typically about 30% to 32% of annual Gms.
As Gms from our subsidiary <unk> is expected to be less than 15% of our total Gms in 2022. This quarterly cadence supports consolidated gms as well.
We currently expect lower Gms growth year over year in the first half of 'twenty, two and higher Gms growth in the second half as our comps begin to normalize assuming relatively stable macroeconomic conditions.
And while the impact of the transactions the increase is forecasted to be accretive to adjusted EBITDA dollars, we expect to see change to be roughly neutral to margins given our planned reinvestment in growth driving initiatives.
Keep in mind that the higher take rate is also expected to drive our LTV higher so we can invest in more ways that benefit our sellers.
It's important to remember that our newly acquired subsidiary brand Deep hop enabled seven are completely additive to our first half growth the whole lap those acquisitions in July .
Our three subsidiaries together represent about 400 basis points in reduction in consolidated EBITDA margin, though reverb is EBITDA positive.
The size of our addressable market is enormous and we see a clear and compelling road map for continued growth.
With investments in people and technology across our house of brands.
While reopening and macro conditions inject some near term uncertainty and headwind into the forecast we have conviction about the opportunities for growth.
And we will continue to invest with discipline and focus in ways. We believe deliver strong long term results for our stakeholders.
Before opening up for your questions I'll turn it back to Josh for some closing remarks.
While we are facing reopening headwinds we've long anticipated we see these as short term with significant tail winds at our back in a world that we believe has been forever transformed by the massive adoption of E. Commerce Etsy, two has been transformed marketplaces get better as they get bigger and we're now more than two five.
Five times bigger than we were before the pandemic, we have many millions more buyers, who love us and are coming back for more tens of millions more unique listings from which they can shop in our core Etsy brand is becoming a household name.
And we have a capital light business model that serves as a flywheel for long term profitable investment.
While wallet share may shift for a bit to out of home endeavors people still need to buy things and we believe etsy is simply a better way to shop. It's still early days for E Commerce and it remains our goal to continue to outgrow the broader e-commerce industry on average and over time, it's a massive opportunity and we feel.
Extremely well positioned to grab a bigger share.
Thank you all for your time today, I'll now turn the call over to them.
Thanks, everyone before we dive into questions Josh wants to make one quick opening remark.
Thanks Deb.
But were prerecorded remarks, we recorded a couple of days ago.
So.
I just need to start by acknowledging the events that are happening in the Ukraine today.
The invasion of Ukraine, obviously weighs heavily on all of US. So we're reporting our results as usual, but today is certainly anything but unusual day and wanted to acknowledge our hearts go out to our buyers and sellers and community.
Ukraine, and eastern Europe , as well as all our global community that is impacted by these events.
Okay.
Alright, great. Thanks, Josh.
Okay, we'll start with a question from Mario reps at Canaccord.
I'll start with Josh on this one increasing order frequency has been one of your top priorities and it seems like you've been particularly successful driving that metric up for your newer cohorts can you just talk about whether that's a reflection of all the improvements on the platforms such as search personalization delivery transparency et cetera.
And or is it the type of buyers that you are acquiring more recently more recently, how it has and how has some of its been leveraged across the buyer base you why our buyer base, so frequency and products.
Great question I don't think it's due to acquiring a different kind of buyer, we're really seeing a broad based lift across our existing buyers as well as our new cohorts. So habitual buyers continue to be the fastest growing segment of mutual buyers doubled in 2021, and then grew by 26%.
Again.
Doubled in 2020 and grew by another 26%.
In 2021.
To put another point on it about half of our buyers now are repeat meaning they buy more than once in a year and for those repeat buyers. They are actually buying an average of five times a year.
<unk> buyers are about 9% of our buyers, but represent about 45% of our gms and those buyers are buying more than once a month.
And so when you look at the opportunity I know in my household something arrived from Etsy every week.
And it's not that I think we shop, a lot more than others, but we primarily shop online and when we shop online etsy as our starting point, where we know that theres great products available on Etsy, and we start there. We go elsewhere only if we can't find something on Etsy, So we see a ton of opportunity.
The growth in habitual is we think is a great proof point.
For the opportunity for everyone to be shopping a lot more energy to the question of how.
I'd start with having a great buyer experience you can have all the tactics in the world you want but the main thing is when you come to Etsy did you find something you love and when it arrived in the mail did you actually loved the product was it what you thought and again and again buyers are finding something they love on Etsy and when it arrives in the mail. They are delighted by the actual purchase and that is.
The foundation of our success.
And we will continue to be we talked a little bit in the prepared remarks about some of the tactics that have been particularly successful, but I would start by saying.
Triggering people offline to remind them.
That theres something available on Etsy.
Having more of them come to the App as an example, where we have a particularly great experience and where we see more habitual usage, having search work harder to recommend the right things for them as well as to get them to the best item quickly and then reinforcing reliability, we've talked a little bit in this call about having estimated deliver.
Murray dates and then meeting those expectations and it's so important for us to be a habit that people know that they can rely on us and that we can tell them. When they can expect the item to arrive and it will arrive on time as we said so we're really proud of the progress. We've made there and we think all of those are key to why we've we've seen real success in free.
Quincy.
Okay. Thank you.
So Rachel I'm going to take this one for you we've gotten the same question from multiple people I know that Khan from tourist John <unk> from Jefferies and others, what does the outlook assume for core Etsy Gms growth and then the second part of that question is.
Can you help us further disaggregate how much of the slowdown is the result of an unusually difficult comparison in the year quarter ago created by some transitory onetime events like Joe on stimulus and how much is really the ongoing impact of consumers adjusting their behavior as the world Reopens. So I'll, let Rachel I'll start and then I'm sure Joshua probably want to pile on as well.
Thank you for the question and Hello, everyone.
Let's take it apart what what did we say about the quarter and the guidance we gave of imply.
Implies about approximately 5% for consolidated empty at the midpoint.
And we have said that our subsidiaries are less than 15% of our total gms and so what we said was depending on where in the range you pick that etsy is at least.
Keeping all of the gains that it had from last year. So you would say roughly flat at the midpoint, but it's important that we took some time to take you through what last year was like Q1 last year was 132% growth. We did some research to see if anyone has reported any number that high and amongst many many companies and we were.
We're at the Tippy top of the highest growth rate that we could find.
And it's also important to remember what we said last year was that stimulus checks added about eight four percentage points of growth to that first quarter, and we think the sort of deep pandemic lockdowns that we had last year at the same time added at least that much also in terms of growth. So if you were to take that flat and have that <unk>.
16 points of growth, that's where we think we would organically be panning out.
At least around now.
We also gave some color on what's happening during the quarter. So we said we had a strong January and then we started to notice a start a sharp decile in February which would be timed approximately with when stimulus checks started to be coming in.
Being distributed last year at this time, and we think March hasnt, even stronger comp to beat so.
I'm not it's clearly disaggregated it for you, but there is a blend of help tailwind that is no longer here now and the fact that we are seeing reopening happen and that people. There's this pent up demand to go out to dine out to travel there. We're looking at the mobility indices and we're seeing that that indeed.
Increasing at the inverse right to ecommerce declining.
But we're very very pleased that we're hanging onto all the games that we had from a year ago.
Josh do you want to add anything on that.
Okay.
Okay awesome.
<unk> from UBS.
For Josh can you talk about the Tam, especially in terms of how much of your market opportunity is handmade.
Yes, I mean, if you if you go look at the latest Q, we put a lot of data in there we estimated to be about two trillion.
And if.
If the pandemic has taught us anything it's that the distinction between online and offline is arbitrary.
And what do I mean by that when you talk to buyers on their shopping mission. They don't say I am looking for the best online place to buy this or Im looking for the best offline place to buy that most of them. They are looking for a gift for their mother or a throw pillow for their living room, and they're going to go to online and offline places.
And what we're seeing is etsy can compete effectively against both online and offline that's really one market in the minds of buyers when we look at the categories in which etsy participates we sell a great. Many things we don't sell consumer electronics, we don't sell.
Groceries.
The name two big ones, we don't sell travel, but we saw most other things that consumers buy and we really have seen that over the past two years when home and living spiked. We were there for you when gross when a gardening spiked we were there for you and pet supplies Spike we were there for you and gift Spike we were there for you.
Who knew that the bread, making products were available on Etsy I Didnt shame on me until bread, making became a big thing and all of a sudden.
We see it so the variety of the versatility of the Etsy marketplaces is quite remarkable and then our global opportunity.
We have been investing in some key core markets, but we think most markets make sense for etsy and if you look at the absolute explosion in demand on the buyer and the seller side in the U K.
It's a great Testament to we've been planting seeds in the U K for many years and Holy Cow they grow gray.
Great Big Forest.
Almost overnight.
And we think that kind of opportunity exists in many many countries all around the world.
So when you add it up it's a two trillion dollars.
<unk> two trillion Tam.
Analogy I might paint is in a very different category, but if you look at Airbnb for example, they talk about the hospitality industry writ large as their Tam and if I'm on a business trip in Chicago.
I'm going to need a bed for seven hours I'm going to fly in and fly out I might go to a marriott or Hilton.
I don't really care I, just wanted to be kind of achievement.
Commodity if I'm, taking my family and I want a special experience Airbnb is a great great opportunity and so theyre looking for the special of hospitality, where the special of E Commerce, and I think that opportunity is massive and obviously retail writ large is a very very.
Big Tam to be to be playing in.
Okay, great. Thanks, Josh.
One is from Lauren Chung from Morgan Stanley and I'll start with Rachel on this one is there any additional color you can share on how you're thinking about full year EBITDA margin given all of the moving pieces such as our M&A, our fee increase and incremental investments.
Hi, Laura and thank you for the question.
We've said so many times that we love our marketplace model and.
And I think our profits are one of the differentiating things that make etsy specialty. So it's a great question on islands claim up to talk about it and.
Why do we love our marketplace model. So much first of all we have said that our cost base is highly variable and we don't have distribution centers. We don't have retail stores, we don't even have very much capital investment and so because it is variable we are able to pull those levers as we want leaning into marketing and hiring of people and investing in product development.
When we can like you saw us do in March of 2020, when we first saw the pandemic, starting where a lot of companies deciding to pull back on those things, we leaned into it and it was to our to our benefit so I'll start with that fact, putting putting that out there that we have a highly cash generative model with very.
High flow through of topline to our bottom line secondly, we did announce a transaction fee increase and like we did on another transaction fee increase that we did in 2018, we plan to reinvest a considerable portion of that incremental revenue back into the marketplace, because we want to directly.
Have that benefit the sellers. So a lot of that will go into marketing and customer support and product development like we did before the lever we can pull the fastest is in marketing and that allows us to be able to spend.
More and still achieve the ROI threshold that we set for ourselves. So we plan to invest that at about the rate of our current EBITDA.
Margins, which means EBITDA dollars aren't going to grow but with more topline we might see EBITA margins stay about the same as where they are now.
I wanted to talk about the take rate for a minute to make sure that people get that right in their models. So I'm going to put a pin in the take rate question. I also want to talk about our subsidiaries that you've contract. Our EBITDA margins I think we said by about 300 basis points. That's another thing to think about when you think about EBITDA for the full year.
Further we have lots of room to scale, our revenue per head count is considerably higher than peer benchmark. So you can go check that in your research, but we've checked it and that means we have a lot of room to invest not only in things that drive top line growth.
In our infrastructure things that keep our marketplace safe that help ensure our trusted brand and help our developers do what they do in a much more agile way. So we're continuing to invest in those things so real quick on take rate.
You think about take rate for 'twenty, 'twenty, one and the full year take rate with an effective 17.3% approximately.
Before you add directly the the take rate impact Q1.
One 5% take rate impact to that you have to think to think about what that $17 three <unk> on a pro forma basis, because we didn't have the subs in for that whole year and so the pro forma numbers more like 17%, so you'd add that one 5%, but only to Q2 Q3 and Q4 of 2022, because that's when the new the new transaction fee comes in.
To effect and that gets you to something around 18, 5% when you add those things and for on a full year basis for our take rate. So those are the comments I'll make about full year EBITDA, maybe Josh has something to add.
No I think what you mean is 18, 5% for Qs two three and four right.
Yeah for those quarters I'm, sorry, if I'm correct.
No that was great. Okay perfect Alright next one I'll start with Josh on this one from Victoria James at D. A Davidson how if at all have you been impacted by consumers, we're trying to physical stores as suggested by some of your e-commerce peers such as wafer.
Well just to pick home home and living for just a second because it is an interesting. One we've said that that has been our largest category. We saw an explosion in home and living during the pandemic. We saw an explosion in almost everything during the pandemic, but but home and living more than even most and it is now our number one category into very large category.
For us home and living is running roughly flat right now.
Just barely above zero in terms of growth rate.
I think that's kind of amazing given that again. This time last year, there was stimulus and there was lockdowns and you had no. Other few other places obviously there were some but few other places to go to shop. So the fact that we're growing over that and still keeping that spend I think is kind of remarkable also true that there's been a lot.
Of nesting Thats gone on for the past two years and it's fair to assume that people might have spruced up their current place about as much as they want us Bruce at all.
And when interest rates rise.
People may move homes, less and that tends to be a headwind to home furnishings, and so I won't be surprised to see home furnishings as a category.
This headwinds as we move through this year and it is our largest category.
But what we hear from buyers as they love Etsy and they love the experience they've had on etsy and it feels different than it feels compelling to them. So the threat of offline.
We're prepared to compete with offline where compared to compete with come who may we do see that first or are we think that the category mix on etsy is a real strength of ours. So for example home furnishings right now is roughly flat weddings is growing in the mid twenties.
Mid 20%.
And it's a great example of we sell lots of things in lots of categories and some of them are going to be headwinds in some of their some of them are going to be tailwind now weddings was much smaller category than home furnishings at the moment, but over time that that can change what we are hearing from consumers, though is general concerned with their spending.
Overall inflation is a concern.
With them they don't arent getting stimulus checks now by the way people have to repay their student loans or is a trillion dollars of student loan debt out there that people haven't had to pay for awhile theres been a lot of rent forgiveness, thats probably ending.
So theres a lot more demands for their wallets and Oh, yeah by the way they want to travel and they want to dine out as Rachel said <unk> sort of all of us.
No we won't be surprised to see more competition for consumer wallets generally.
Where discretionary spend.
In retail and E tail is going to have to fight a little harder against some other categories, but we're certainly compared to fight for the the share of dollars that are going to discretionary retail and E tail, we're ready willing and able to fight for our share of that.
Okay great.
This one is from Needham.
Marketing continues to be reined in for the past quarter or if that's not affecting demand with gms, beating plan again in Q4 'twenty one what drove the decision to pull back during Q4, and how do you think about marketing in Q1 and for the full year I'm not sure, which one of you wanted to want to take that one I think that's just going to start I'm going to follow as you go from there you go okay.
Great.
Oh, thanks for the question.
We've said through the years that we are very disciplined at looking at the marginal return on the next dollar spend in marketing and we do that with performance marketing, we do that above the line and we are constantly testing in each channel PLE social.
And whatnot, when we spend a little deeper what do we get for it and when we pull back what do we get for it. It's also worth noting that that changes overtime consumer behavior is changing the competitive landscape is changing the market rates for cpm's and whatnot are changing and so we're constantly testing that and when we find them.
The marginal return on the next dollar has maybe evolved and isn't as good as we thought.
We can pull back and be more efficient and we're always looking to be as efficient as we can with spent what we saw in the fourth quarter as we have a lot of tailwind things, where we're going very well and the marginal returns on some of our spend therefore were not as high meaning the incremental <unk> was lower if we hadn't spend that dollar we still would have.
And the sale, so we pulled back and.
That's adjustment that we're that we're always doing it's also worth noting that when we raise our take rate as we announced today the lifetime value of each interaction each buyer. We bring in are the repeat purchase goes up and that allows us to spend deeper and we think that's a great thing for for our seller community and four.
For our marketplaces old.
Great. Okay. This one is from Seth Sigman at Guggenheim habitual buyers increased to 9% of buyers from 8% in 2020% to 45% of GMP.
The prior year.
So not only is that see converting more habitual buyers, but these virtual buyers are also spending more what are the learnings from these buyers are applicable to the broader buyer base. That's a great question for you Josh.
Yes.
I think the big lesson is that.
We have an opportunity to be a starting point for commerce I think that this period of time has caused all of us to be aware of the role we play in this global supply chain, where things are mass produced at huge quantity far away.
To go on a boat to go on a train to go on a truck to end up at your household to have you look and be just the same as all of your neighbors in that end up in a landfill two seconds later.
And I think we're seeing a rise of conscious consumerism, where.
Where people really want to maybe buy fewer things, but have those things mean more express themselves and their sense of style and taste differentiate from.
Others, and maybe last longer and not end up in a landfill and by the way. If you can buy it from the person who made it and have it be within your own state or within your own country and feel like you're supporting your local community isn't that nice.
Doesn't even have to cost more if you think about all the markups that happened from the time that product was mass produced until the time. It ended up in your door step there are four or five people that took mark ups along the way. So when this maker makes it incentive directly to you maybe shopping small can actually give you great value as well as a sense of style.
I think we're beginning to realize that there's a different way to shop that is often a better way to shop.
Not saying for everything all the time youre still going to need those commodities of life that don't care about at all and Youre going to use them dispose of them and Thats fine, but for a lot of purchases that we all make.
There's a different way to show up as I said at least one package of weak arrives.
From from Etsy at my household.
Just because we think to start at Etsy as I said, our habitual shoppers are shopping at least once a month on average are shopping more than once a month.
On Etsy.
And what's different about them I think is just that they figure it out that etsy is a place where you can find many things. So our opportunity is to help educate the rest of the market.
To help to train that etsy can be a starting point for their E Commerce and I think the opportunity there is absolutely enormous.
Rachel do you want to answer.
I was going to get some data and he and he gave it is great.
In fact after you had a lot of the data in your question and then the one for months.
For months is actually.
And more than double what we're seeing from our the average for RMP buyer, So theres significant.
Now you said that the habitual buyer segment perfect. Okay, I'll move to one from sweat acreage area.
Can you. Please provide details on etsy initiatives. This year 2022 to drive purchase frequency can you give us some examples of what those might be focused on buyer exploration efficiency a liability.
Yeah, so on the inspiration level.
Youre starting to see US do more to present, you with recommendations of things you haven't thought of or even things like continuous feeds of lean back experience is where you can just see streams of all the really cool things on Etsy. So for example, like video real some things being made which is really addictive and compel.
<unk>.
And we're making great progress in our recommendation engine to be able to inspire you with things that you are likely to like but maybe hadn't even thought.
To come to Etsy for and that understanding things like taste and style.
It would have been impossible years ago, but with advances in machine learning, we start to be able to intuit, what your taste is and what of the 100 million things for sale on Etsy. Other things that are meet that that's that sense of style in terms of efficiency.
Obviously, the search engine getting better and I shared some data on the dramatic gains we're making.
There, but getting you to the right item quickly. So you feel like when you know what you want you can get in and out quickly. That's also very important.
And reliability is critical and I shared some data about how.
Over the holiday period, 90% of items arrived on time, another data point, we didn't share, but I think is a great 198% of things that we said would arrive in time for the holidays arrived in time for the holidays and Thats really critical that we.
That we do what we say and that you learned to be able to trust etsy and that can move us from being the occasional purchase where may be you can afford for things to go wrong to being something Thats really your everyday tried and true.
And we have made great strides there and you will see us continue to invest meaningfully this year.
To make sure that buyers really know that we have their back and that they can buy on etsy in a really worry free way.
Don't think it's a silver bullet that all of a sudden changes things, but I think that over a period of months and years as people really learn how reliable etsy can be I think it can dramatically change consumer behavior.
Okay, Great I know, we went over but I do want to get in a car.
<unk> about our subsidiaries so we've gotten a couple of questions one from Ed <unk>.
Keybanc and one from Laura Champine at loop that regarding our subs. So can we talk about the growth profiles for deep pop a rebar reverb many of those seven and then specifically Laura asked about the marketing strategy for <unk> in 2022, So Joshua Im sure I would say that broadly speaking deepak and and <unk>.
River are facing similar headwinds reopening headwinds to etsy.
If we talk about deep up just for a second the UK and Deepak.
A lot of their business in the U K.
Teenagers in the UK, where literally locked in their apartments for two years. The lockdowns there were quite extreme and they're now allowed to go out and they are availing themselves of that and I don't blame them I've got two teenagers and the home I can relate and so there's some some reopening headwinds.
There that we've been expecting and aren't surprised by them. We think are going to be temporary and then as teenagers get a chance to get outside again.
Sure.
They're going to want to.
Refresh their wardrobes and get back on Deepak and levels at and above.
Where they've been.
And reverb similarly.
Theres been some reopening headwinds there.
But all expected.
<unk> seven a little different in that <unk> business is very event based and so their business is really centered around things like baby showers, <unk> and things like that and.
The vaccinations have been more broadly spreading through Brazil, we think thats really encouraging but people are not gathering together in numbers, yet in Brazil, and so we think that that is.
Going to come hopefully going to come real soon and we will provide a real tailwind for <unk> seven.
And so we'll see what the coming months bring there in terms of the marketing strategy.
For Deepak, we are leaning into our Buffalo Wild with deep hop, we're testing that in the U S. Right now to really make their brand a little more front and center. We're also testing performance marketing for the first time with <unk> and so there will be a <unk>.
Some margin impact to that but we think it's.
Great investment over time, we think it's the right thing to do we have a lot of faith and confidence in deep up and are excited to invest to grow that business in that platform.
Okay, great. Thank you all for hanging with us a little bit over time here, we really appreciate it and we will be here to answer all of your questions. So that ends the call for this evening. Thank you.
Thank you everyone.