Q3 2022 ETSY Inc Earnings Call

Investor Relations today's prepared remarks have been prerecorded. The slide deck has also been posted to our website for you referenced 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.

<unk> open throughout the entire conference call I'll be reading your questions and Jessica will help me to 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 key drivers thereof, and underlining assumptions, the global macroeconomic uncertainty and volatility, including the impacts general market political economic and business conditions may have on our business strategy, our operating results uncertainty regarding <unk>.

Overall levels of consumer spending and e-commerce generally the impact and duration of reopening headwinds and stabilization of COVID-19, driven economic trends are levers for gms growth and our plans for investments in our marketplaces and in our member support programs the potential impact of our strategic marketing and product initiatives and the anticipated.

Churn 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 in our Form 10-Q filed with the SEC on July 28, 2022, 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.

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 the replay of this call with that I'll turn it over to Josh.

Thanks, Deb and good evening, everyone. We're pleased to once again be reporting strong results achieved consolidated third quarter 2022, Gms was $3 billion.

Revenue grew to $594 million and our adjusted EBITDA margin was again very strong.

At G marketplace, Gms was $2.6 billion this past quarter compared with about $1 billion in the same quarter three years ago, and when adjusting for rather formidable currency headwinds Gms for our core marketplace was up a bit on a year over year basis.

We believe this performance is the direct result of the actions we've taken to put our larger size and scale to work investing in our sellers and aiming to drive long term growth in our active buyer base with strategies designed to fuel awareness with new audiences retention reactivation and frequency and these investments have really paid off.

Not only is the etsy marketplace over two times bigger than we were three years ago, but overall, we've held most of our gains.

This speaks volumes to the work done by teams across Etsy, particularly within the context of a fully reopened world and ongoing macro challenges.

In my opinion this is a great setup for future growth.

Another reason that we believe our business has held up so well in this post pandemic environment is because in a world of mass commodities supplied by companies obsessed with speed and scale Etsy is the antidote.

Etsy offers something different and we've continued to invest to bring even more joy to the very human experiences of selling and buying on etsy.

During the pandemic tens of millions of buyers try to etsy for the first time or for the first time in a long time.

And our customer research indicates that most buyers were delighted with the experience I've spoken with so many buyers who described how it was better than they expected or then they remembered.

Easier to find great products easier to buy them and with a more trustworthy and reliable post purchase experience.

And of course, they found the human touch from our sellers to be so differentiated and special so.

So while millions came to us during the pandemic because they had limited choices.

It's clear to me that they are coming back again, and again now because they want to.

We're just getting started advancing our right to win our playbook for ensuring that Etsy is the first stop when you want to shop your tastes and values.

By simultaneously succeeding in all four of its elements, we differentiate our value proposition and a highly competitive environment.

As we explained on prior calls this year, we've organized our investments around making etsy feel more made for you.

More efficient and inspirational, making etsy more reliable and continuing to support our sellers growth by offering them more agency and scalability. Some of you have asked if we're running out of ideas to fuel future growth. In fact, the opposite is true even as the team has scaled significantly we're seeing return metrics.

<unk> incremental gms produced per squad holding steady at very high levels, while our backlog of great ideas significantly exceeds our capacity.

One of the needle moving innovations I'm. Most excited about is the journey, we're on to leverage personalization to better tailor tailored etsy to the tastes and needs of each buyer etsy.

Etsy buyers struggle with our tyranny of choice for example, user feedback I saw recently from an Etsy shopper, who complained about his search for lamps 400000 results.

No. Thanks, I'm going to take a hard pass on that.

That's why it's so important that we narrow search results and get you to the good stuff fast, especially challenging since each person has their own idea of what the good stuff is we need world class search technology married with World Class Personalization, your search and discovery journeys onsite experiences.

<unk> E mails push notifications app engagement, all need to be relevant to you and the mission you're on whether to find something for yourself or for a loved one to find just the right thing that truly reflects your style and tastes or to just hang back and be inspired which of course is also a very personal experience.

In this way, we can make etsy feel made for you and because it's so challenging our investments here are a key source of our competitive differentiation.

Every quarter, we will expect to make progress on this journey and I'm, especially proud of the progress we've made in the past few months.

In our effort to get you to the good stuff fast we began to incorporate signals into a search engine correlated with quality such as seller reviews on time shipping performance customer responsiveness and price in this way, we don't simply prioritize items that match your search query, but rather items that are the most likely.

To result in a delightful purchase experience.

I'm excited that this quarter, we added videos to search results similar to the add to cart button in search we mentioned last quarter. We're now able to bring highly differentiated information to buyers directly on the search result page without needing to click through to the listing creating a very social shopping feel on etsy that we believe can be inherently more.

Personalized.

We also had some early wins incorporating by our tastes and interests to create more interpretable and personalized recommendations. For example, if we believe you like mid century modern style and you do a search for labs, we'd be more likely to show you lamps that fit the mid century modern aesthetic.

We're making great progress expanding search capabilities in non U S markets launching insertion personalized ranking to better rank order results introducing dynamic information retrieval, which helps us to choose more relevant listings for you and adding neuro models that helped us to understand what you are looking for even if you don't know how to describe it.

And speaking of making it easier for buyers who may have trouble finding the right words to describe an item just a few days ago, we launched a new capability for iOS buyers to take or upload a picture of an item and search on etsy for items that are visually similar cool technology advances like this support the notion that you can find virtually anything on etsy.

And more often than not that item will be different and more special than what you might find elsewhere I'd encourage you to check it out around your own homes, it's a powerful way to see the breadth depth and versatility of merchandise on etsy.

Our personalization journey is not just in product development. Our marketing teams are also doing great work here contributing to the great buyer retention and reactivation. We've had this year, we're finding so many ways to bring buyers back to etsy by reinforcing what our brand stands for and bold in creative ways and offering ever more relevant.

<unk> triggers and pathways to keep coming back for example, this year, we've created a personalization engine that models and predict the next best action of buyer should take on Etsy, and then since personalized content, specifically to them, bringing to life, a timely and relevant message.

This might be a reminder to visit or shop. Your favorite at Who's listening is now on sale of <unk>.

Back to your cart to complete a purchase or suggesting new favorite listing you recently viewed so you can get alerted if its about the sellout or go on sale.

In addition to our focus on improving buyer experiences 2022 has also been a year of tremendous investment in our sellers.

Always listening and trying our best to respond with care. In fact every month, we hear from hundreds of thousands of sellers through research groups surveys forums, and social channels support lines and community events, it's been really encouraging for us to see that our seller sentiment metrics continue to trend favorably.

We strive to understand our sellers passions their craft and the scale of their business better than any other platform, we provide affordable access to our global marketplace scalable tools support and services for shop management and growing customer relationships and we elevate their unique items and a global marketing campaign that they.

Could not create alone.

A major area of focus is to give our sellers agency the ability to understand what can drive their success, enabling them to act on that understanding and be rewarded for it in ways that ultimately grow their sales one great example of how we do this is our star seller program, which provides sellers with a dashboard highlight.

The metrics buyers care about such as being responsive shipping on time and getting great reviews.

It then rewards with Badging and increased prominence those sellers that best deliver in these key areas. The number of sellers in the program has increased over 150% year over year and they represent a growing percentage of our gms our data indicates that those sellers, who have the badge earned about 18% more gms than theirs.

Emily situated non star seller counterparts, even more importantly, we continue to see the star seller program positively impact responsiveness and shipping practices across the marketplace, resulting in an elevated experience for etsy buyers. We're also continuing to give sellers insights to help them understand the macro.

Economic pressures and think about creating pricing strategies for their listings, including adding systems for tracking their expenses and income considering discounting in their pricing strategies and participations in sales events on etsy.

Being the platform sellers love to sell on also means having their back when things affect their business that are out of their control for example, when hurricane and made landfall last month, we saw devastating impacts across Florida, where we have a meaningful concentration of sellers.

We reached out to impacted sellers with guidance to help them manage their shops in the wake of the hurricane and among other things offer build of permits and the extension of star seller status to ease their burden.

Key element of trust is returns during Q3, we announced a significant improvements moving from having sellers set a single policy for their entire shop towards allowing them to set return policies at the individual lifting level. This is important as sellers often sell a range of items. For example, some best sellers were were.

Returns are accepted and others personalized or customize where returns or not.

These return policies have been developed as highly customizable parameters that can meet a wide array of sellers requirements and by quarter and approximately 70% of global Etsy listings had a listing level return policy offering buyers a great deal more clarity in time for the holiday season.

All of this work contributes to a kpa, we're tracking for easy resolution rate, how all of our initiatives such as delivery transparency purchase protection in return policies work together to help us resolve buyer problems more quickly and easily to instill a brand promise that you can trust and rely on and I'm.

Pleased to report this K P. F. K P. I has been steadily climbing all year.

Moving now to our superbowl season, the holiday shopping period, we recently completed the survey to gain insights for how consumers and our top three core markets, we're thinking about the holiday season.

Our data shows that while holiday shoppers and even moreso etsy buyers will be looking for sales and discounts with an iron affordability finding meaningful high quality gifts is actually most important to them. So we'll be leaning into our message of extraordinary handmade affordable this holiday season reminding.

Buyers that for gifting moment, big and small etsy has it.

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We're pulling out all the stops as we do every year to help make sure Etsy sellers have the best holiday season, they can particularly in the face of continued economic uncertainty.

In September we held Etsy up holiday edition, our first ever global holiday kick off event for sellers around the world think of it as a one stop shop for all things holiday prep. The interactive online experience included insider access to trends tools and actionable takeaways to help sellers shops get.

Covered and grow topics like marketplace insights and trends social media strategies and S. C O tips with about 80000 registered attendance nearly 500000 views across all content and to 97% like right from sellers. This virtual event was also the large.

Just ever gathering of Etsy sellers in our history.

Turning now to our subsidiary brands when we purchase D pop in Hilo seven in mid 2021, we based those decisions on the longterm growth potential we saw in their businesses their alignment with our core mission and highly differentiated marketplace model and our belief that overtime they could benefit from it sees.

<unk> and financial playbook to perform better as part of Etsy, then they could alone making the some greater than the individual parts.

In hindsight, given what we've seen happen to technology and consumer company valuations as well as macro business headwinds and other factors such as rising interest rates are timing on those acquisitions certainly could have been better.

While Rachel will review, how these and other factors necessitated the adjustment of goodwill we took in the quarter I want to reiterate that we have tremendous conviction that we are in the early days realizing value from our house of brand strategy.

At D Pup <unk> settling in as the new CEO focused on building momentum in the business developing her vital few for 2000 twenty-three identifying the fewest most impactful things to reaccelerate growth and improve operational efficiency and service of the deep up community.

The team will be leading into some themes that should sound familiar to you like watching the right growth initiatives to scale conversion and influence user engagement in order to deliver an experienced that brings more people to deep up and keeps them coming back over and over again.

The Pup is focused on making it faster and easier for users to explore their style and find the items that are looking for similar to Etsy. We know today's consumer is looking for both great style and great value. So they're equally focused on improving the value of the shopping experience during a time when the dollar or the pound isn't going as far as it used.

Two.

Accelerating the velocity of product experimentation is a foundational focus area for D pop as well as optimizing initiatives that potentially scale revenue such as our newly launched boosted listing ad platform.

We would then look to reinvest that revenue into areas like marketing that's for further growth really getting the marketplace flywheel movie.

If these initiatives sound familiar it's because they're the same ones crudely helped lead back in 2017, which reignited it sees marketplace growth.

He loves business has been building momentum and 20 twenty-two as Brazil is beginning to see some rebalancing of wallet share between e-commerce, and brick and mortar and our G. M asked from event driven categories is now above pre pandemic levels were focused on rebuilding top of mind awareness for the brand which suffered during the pandemic you.

Oh seven has collaborated with the <unk> team to improve search optimize performance marketing and negotiate better carrier relationships that bring reduced shipping costs to sellers.

Reverb has continued to perform well this year in a challenging environment with growth outpacing the musical instruments market in the quarter.

<unk> had several work streams to make great deals available on the marketplace, improving search functionality to highlight popular listings price to sell efficiently enhancing its price guide an important tool that allows both sellers and buyers to better understand care pricing and partnering directly with manufacturers brands and authorized dealers to <unk>.

Delight refurbished b stock and demo gear to bring more great deals to musicians.

I Wanna take a moment to think our team for continuing to drive innovation and bring more buyers to millions of sellers around the world in ways that are inherently human special and different.

In particular I'd like to thank our C. T L. Mike Fisher, who will step down from his role at the end of the year for.

Fish has helped lead etsy through a period of transformation and growth over the last five years indicative of our strong bench of talent and thoughtful succession planning I'm thrilled to congratulate Raj Kumar, who will step into the role of CTO come January her promotion is a testament to her tremendous accomplishments during her eight years at etsy and to the fault.

<unk> she's earned throughout the company Watchnight has played a leading role in so many of our critical engineering initiatives and there's been a tremendous talent magnet coach and mentor across the business.

I'll wrap it up today by addressing a question a lot of you have been asking lately.

<unk> will be 2022 holiday shopping season look like the truth is we don't know whether consumers will spend more or less on gift, giving or whether they'll do more shopping online or in the mall.

But the good news is our business with differentiated inventory across our house of brands and a variable cost model doesn't depend on us taking huge bets on these questions in the same way most retailers or E tailers must so.

So we'll keep focusing on the things we can control.

Lighting, our customers investing with discipline and care and helping our people minimize distractions and get the job done.

Thanks for your time and with that I'll turn it over to Rachel.

Thanks, Josh and thank you everyone for joining us for our third quarter earnings call My.

My commentary today will cover consolidated results key drivers that performance and it seemed marketplace standalone results were appropriate.

As a reminder, <unk> pop in eight O. Seven are all reflected in Arkansas dated financial results and K P. I for the third quarter of 2022 with eight O. Seven Indeed pop included as of July 2nd and July 12th 2021, respectively.

And a consolidated basis, our third quarter G. M. S is down three per cent every year to $3 billion or revenue increased 11.7% year over year to $594 million and adjusted EBITDA with $168 million, but the strong 28 per cent margin.

Alright, Justin EBITDA margin is driven by both revenue strength and discipline operational expense management.

On our currency neutral basis T. M. S increased 7% every year as ethics headwinds accelerated 100 basis points to I 400 basis point had waiting in the corridor.

They continue to face challenging comparison as our consolidated T. M. S increased 18% every year in the third quarter of 2021 on top of the 119 per cent increase in the third quarter of 2020 at a pandemic lockdown stimulus benefits and other factors.

Our business has continued to stabilize similar to translate discuss on our last earnings call and our investment discipline is evident in a strong adjusted EBITDA Martin.

On a consolidated basis marketplace revenue increased 12% are over here at services revenue expanded 10% year over year.

The growth of our marketplace revenue was primarily driven by a full quarter benefit of the etsy marketplace transaction fee increase from 5% to 6.5%.

Within services revenue consolidated adds revenue increased 14% year over year due to ongoing growth and empty ads impacted by prior period improvements such as ads on our homepage as well as a new capability that you utilize this computer vision to help determined by her intent and serve a more personal.

<unk> add experience.

This initiative led to a higher click there eight ad impressions and conversion rates.

Solid at the payments performance in better than expected growth of Etsy ads drove higher than expected consolidated take rate, which was 19.8%.

Consolidated adjusted EBITDA margins declined on a year over year basis due to factors they've noted on fire calls investments and headcount growth and increased compensation and to a lesser extent higher cloud computing costs related to greater development activity.

We delivered strong profitability again this quarter with overall adjusted EBITDA margins largely stable over the past three quarters.

Our subsidiaries continued to represent a headwind to our overall adjusted EBITDA margin.

Moving to our investment areas consolidated product development, then increased 47% year over here to $108 million, primarily driven by headcount growth.

Our product development line is where most of our engineers did and represents the largest portion of our headcount growth fifth 2020.

Both for Etsy as well as the addition of pop any of the seven.

As we previously highlighted is scaled or engineering came in a thoughtful and sustainable way during the pandemic significantly lagging our growth and G M S and revenue.

This was followed by a pick up in our pace of hiring in 2021 and early 2022 is.

As our growth rate slowed in the second quarter of 2022, we similarly slowed hiring.

Third quarter product developments, then reflects a full quarter of the prior quarter's headcount additions now representing 18% of revenue up from 14% last year, which we believe is an appropriate level to enable future growth.

During the third quarter, we increase Arkansas dated marketing spend by 12% year over year to $147 million, primarily driven by an 8% increase in performance marketing spend which represents the majority of our spend.

A combination of optimized attribution models and a higher buyer LTV related to our transaction fee increase allowed us to lean into performance marketing, while maintaining R. R. A y hurdles.

It's important to keep in mind that with our 30 day attribution model. Some of the return on his higher spend will be earned in future quarters.

The brand campaigns and our top three core markets, including out of home Grand marketing in Germany drove brand marketing spend up 25 per cent over the prior year.

In addition to seller dripping driven promotions the Etsy marketing team has continued to use highly targeted etsy funded promotions to driver attention and engagement and a disciplined R O Y focused way.

We have long stood by the principle of a fair exchange of value related to the Commission's we earn on marketplace sales when.

When we increase of faded with seller, we do this in exchange for value, we provide them, creating a virtuous flywheel that help sellers grow and invest in their businesses.

Pie chart on slide 20 illustrates are estimated annualized reinvestment of incremental revenue generated from our transaction fee increase.

First engineering headcount is our largest bucket of spend and we are allocating a meaningful portion to product development initiatives to improve customer experience.

Second we're continuing to increase our marketing spin commensurate with a higher L. T. V. Third we are focused on building loyalty and strengthening our brand with our new Etsy purchase protection program.

It's worth noting that are Etsy purchase protection program issue report right eight resolution rate and refunded G. M. S. Estimates are all trending generally in line with our forecasts.

Lastly, we continued to increase our investments interests and safety and customer support as we've described on previous calls.

Moving to our Etsy market place performance on a standalone basis during the third quarter Etsy marketplace, Tms declined 3.8% year over year and increased 134% on a year over three your basis as top line trains stabilized following two quarters of deceleration in.

Particular, we believe we have experienced the majority of reopening headwinds that have weight on our G. M. S performance for most of the year.

The third quarter was relatively stable on a monthly basis and are your three year growth rate trended slightly higher in October further increasing our confidence that reopening headwinds are largely behind us.

We do continue to see quite a bit of volatility in a week to week G. M. S trends from the broad macroeconomic factors impacting consumer discretionary spending such as inflation.

On a currency neutral basis Etsy marketplace M. S increased 0.2% from the prior year as you can see in the Navy bar on this line we grew on a year over year basis and are well over twice as big as we were in the third quarter of 2019.

Well thankfully face masks are in the rearview mirror, it's worth mentioning that in the third quarter of 2021, we benefited from an increase of N. G. M asks you to the Delta variant Serge which accounted for in approximately 100 basis point headwind in the third quarter of 2022.

From a geographic perspective, 44% of Etsy marketplace G. M S and the third quarter of 2022 with some transactions were either as a buyer or seller or both were outside the United States.

Non U S. M S increased 9% year over year on our currency neutral basis, driven in part by the continued strength in Germany, where we have recently been investing to build brand awareness.

As would be expected a strong U S. Dollar has driven growth in the U S imports for the Etsy marketplace, which is providing additional support to our sellers in international markets.

Overall, we are pleased with the domestic vibrancy, we built in the UK in Germany, where we have domestic demand balance with domestic supply.

This equilibrium between supply and demand is what we strive for and other emerging markets.

For example in preparation to serve the India domestic market, we launch new pricing capabilities to allows sellers to easily add domestic and global prices partnered with a local provider to enable payments functionality and added domestic carriers to our shipping options during the third quarter.

From a category perspective, the diversity of our listings continues to be part of an important part of our value proposition.

Eggs are not all in one basket so to speak for example, during the quarter, we saw strong trends in fashion forward clothing bags, and purses as well as gifting and holiday home and living items.

We achieved at 25% year over year increase in G. M S from items related to back to school purchases.

And items associated with Halloween increased 17% from the prior year.

Two categories, which had been most pressured by reopening headwinds home and living and craft supplies showed signs of stabilization in the third quarter.

G M S for active buyer on a trailing 12 month basis for the Etsy market place with $135 in the third quarter, which was down only slightly on a sequential basis, providing further evidence that trends are stabilizing at levels far above or $102 in the third quarter of 2019 is shown on on this <unk>.

Line.

G M S for active by or on our currency neutral.

No basis for those buyers to purchase in the third quarter. Once again increased slightly from the prior year, suggesting that we are maintaining the majority of our pandemic games.

Encouragingly are buyers are shopping more frequently with average purchase stays up 25% on a year over three year basis.

Our biometrics remained mostly stable across active habitual and repeat buyers. We ended the quarter with 88.3 million active fires a slight increase sequentially. After two quarters of modest declines, we had $7.6 million habitual buyers down 2% sequentially.

Well of course, we are seen some degradation to this number as the lockdown periods roll out of our trailing 12 months figures.

These loyal buyers accounted for 46% of our G. M S and the third quarter and habitual buyer growth in Germany, and Australia remained a bright spot.

We also continue to see healthy new by your acquisition and great performance and the reactivation of our lapsed buyers.

In the third quarter, we added over 6 million, new buyers relatively flat sequentially and nearly 50 per cent higher than our average in pre pandemic periods, but down 10% year over year.

We continue to make progress with buyers you identify as male which represented 37% of U S new buyers and the quarter.

What an interesting data point on new buyers is that we have seen their average number of purchase days inquiries about 9% on a year with three year basis, meaning we're making great progress getting new buyers more engaged with etsy.

We reactivated over 5 million lapsed buyers and the quarter, representing an increase on a sequential basis. In fact, we've reactivated more buyers H quarter of 2022, compared with a corresponding quarter last year.

Before moving to the balance sheet, all comments on a non-cash impairment charge of about $1 billion. Please recorded on the goodwill of deep hop any low seven <unk>.

Eliminating the full amount of goodwill we were carrying for each brand.

We purchase these businesses with technology and consumer company valuations were at much higher levels.

For instance, many peers have seen enterprise value has declined by 70% or more and you have all seen the recent announcement of the sale of posh mark to neighbor for less than half of its IPL IPL value in 2021.

Another key factor that impacted our valuation analysis with a significant change in the discount rate driven by an increase in interest rates. Following a series of fed rate hikes totaling 300 basis points since the time of acquisition.

Leading to higher cost of equity and debt alongside increases inflation expectations in the UK in Brazil.

Other factors that went into our conclusion to impair. The goodwill included included the performance of date and near <unk> term forecasts of both businesses impacted by the macroeconomic conditions you are all quite familiar with such as reopening headwinds and.

<unk> factors consumer discretionary spending trends.

Foreign exchange rate volatility and ongoing geopolitical events.

The impairment charge ahead of diluted loss per share impact of $8.20, resulting in a diluted loss per share of $7.62 or a net loss of $963 million.

Despite the timing of these acquisitions, we continue to believe in the longterm growth opportunities for both businesses.

As of September 30th we had $1.1 billion in cash cash equivalents and short and long term investments and a 200 million dollar revolver that is currently undrawn.

During the third quarter, we repurchased $151 million in stock under our 600 million dollar May 2022 board authorized repurchase program.

Operating cash flow for the quarter with a healthy $207 million this quarter converting 123 per cent of EBITDA to cash flow.

Now turning to the outlook I Wanna first highlight that our guidance assumes currency exchange rates remain unchanged at current levels and we do not use currency hedges.

As a reminder, we reported consolidated G M S growth of 17% on a year over year basis in the fourth quarter of 2021.

And G M S increased 154% from the fourth quarter of 2019 with a resurgence in Covid cases related to omicron and global supply chain issues impacting many competitors, providing etsy with strong tailwinds during the all important holiday season last year as.

As I previously mentioned, we are encouraged to see that our year over three year growth rate in October trends in slightly higher it in Q3.

Mark in about five months of overall G M F stabilization and suggesting reopening trends have largely normalized.

That said our guidance range for Q4 takes into account the dynamic and somewhat unpredictable period, we are in.

We currently estimate our fourth quarter of 2022 consolidated G. M asked to be approximately $3.6 billion to $4 billion down about 10% at the midpoint compared to the fourth quarter of last year.

And up approximately 130% compared to the fourth quarter of 2019.

For the Etsy marketplace. This implies a year over year decline of roughly high single digits.

We're also encouraged that over our overall trends in our subsidiaries are broadly showing early signs of stabilization this quarter.

We don't yet know how the holiday season will play out for E. Commerce in general. So we we have incorporated a worsening macro economic environment and therefore, a week holiday period into the bottom end of our guidance.

We're forecasting revenue of 700 million to $780 million up about 3% of the mid point compared to the fourth quarter of last year and up 174% compared to the fourth quarter of 2019.

We currently expect an adjusted EBITDA margin of approximately 27% with seasonally higher marketing spend being the primary driver of the sequential decline.

In particular, you should assume a typical seasonal trend in marketing investments, where we will increase both performance and brand spend we currently expect to consolidated take root for the fourth quarter to be a bit lower on a sequential basis due to normal seasonality.

On a full year basis, using the mid point of our queue for guidance. We <unk>, we would expect to deliver about $13 billion G. M. S. In 2022 down about three per cent compared with 2021 and revenue of about $2.5 billion of about 7% with strong profitability throughout the year.

We are encouraged by the stability in recent quarters, indicating we have indeed kept the vast majority of our pandemic games have.

If you think about 2023 recall that the strong start to 2022 from a COVID-19 surge that kept many of US still at home gives us a significant cops to grow over in the first quarter.

And that we started to see reopening headwinds in mid February that didn't start to moderate until may so while the year may start off slowly we are optimistic for growth resume in 2023 unless macro headwinds intensify.

Thank you all for your time today, and I will now turn the call back to them to take your questions.

Hi, everyone.

<unk> I'm Gonna die right into questions I know are prepared remarks by a little bit long. So thank you for bearing with US first one I'm gonna give it a bunch of Josh Uhm, some Marvin Fung at P. T. I G last quarter, you lost about a million buyers.

But this quarter you added 200000 on a similar number of gross adds isn't fair to say that trying to improve this quarter and if so which is your key initiatives. Do you think is most responsible for that improvement in by your attention.

Yeah. The shortage first thanks for the question I appreciate it and the short answer is yes that is a fair assumption churn decreased even further also gross adds held up pretty well and we continue to reactivate lapsed players.

You know if you think about our trends reopening headwinds we felt really most severely between January and may and so.

Viruses are trailing 12 months.

Eric and as it gets further into our <unk>.

Mirror things should stabilize even further we think we believe but what I really pulled the lens back. We went from maybe 40 million active buyers to close to 90 million active buyers during the pandemic and at the time, you know millions of millions of those when people who came for masks millions of millions of those came in 2021 you couldn't show.

Offline and very many places and even online most places where having shipping delays or supply chain issues or other things and we were all asking ourselves how many of these people will come back and we're really delighted that here. We are and you know Q3 of 2023 2022.

You know you've got a multitude of options and the vast majority of people are coming back the vast majority.

So we feel really great about that to your question about what is keeping them coming back with specific tactics.

You know honestly.

Honestly I think the most important thing is they really lovely experience, they're having they find that it's easier to find products and they thought that the product comes in a reasonable amount of time that they're fair priced and that their delightful when they arrived so.

It's kind of the best of all reasons my opinion.

People, just like the experience and it's different than what they find anywhere else. In addition to that we are pulling you know.

Martin marketing lovers, I think to really remind people to think of Betsy at the right time, and I think that matters a lot and then we're building more than the product.

Talked about this call about all the personalization of what we're doing.

You think that makes a really big difference that we're finding things that are right for you more and more unable to present you with both email some push notifications, but also recommendations on site.

That makes sense to you in different times and I think that is a big opportunity I think it's helping and I think there's a lot more for us to do with a lot more opportunity in the future.

Great and stuff. Okay. So the next I have two questions Uhm take right and I'm going to combine them. One is from Laura Shampine at the Capitol and the other one is an honour enjoy that a medium coke and I'll get that sent to you Rachel The guide seems to imply a negative take great twins sequentially is that right and what would account for that question and the second part is how should.

Remodeled okay, great going forward into 2023.

Uhm. Thank you for the question and thanks for joining the call I think you've done your math right. So our guide did imply that there's a slight do you sell in intake right, though we don't guide to take right and we've talked about this on a lot of other call that seasonally in the fourth quarter Etsy add relative to our G. M. S is a lower percentage and that's because.

It takes fewer page views per purchase because conversion rate goes up so high and that drive at the ads to be lower relative said another way. It's uhm at the ads will be great, but G. M. S is going to be greater and that's what drives to take right down now we didn't guide take rate for 2023, So there's I. Thank you.

Could follow seasonally what we've done uhm with take rapes sequentially quarter by quarter to try and estimate what take right might look like by next year, but we're not implying that that take right. This is indicative of the take rate dip at two four is indicative of the full year 2023 at all.

Mmk great. Thanks, Rachel next one is off with some honor at need them can you talk about the customer <unk> can you talk about the customer reception of the purchase protection program and then I'll I'll circle back with Rachel about a financial question related to a purchase of protection, but you also if you wanted to talk about the overall reception that would be great.

Sure.

<unk> to talk about we're really happy with how it's going so most importantly on the rare occasion that customer does have an issue and creates what we call a case internally those kids suitcases are getting resolved much faster in fact, the time to resolve has been cut roughly half. These policies are just super clear.

Dear Etsy steps in and covers those costs many cases when when.

We might not have in the past uhm and that saves time hassle and stress for everyone. So we're we're really happy to see the the customer experience is getting a lot better. It's also true that as we're promoting purchase protection in places like check out we're actually seeing some conversion rate lifts. So it's yielding some incremental.

G M S. So that that feels great and I guess I'll, let Rachel talk about costs. Yeah. So that we can put the cloth come in line for the third quarter was a specific question I always have a good feeling versus the $25 million annualized run right that we gave yeah, our all of our metrics or tracking or pretty close to how we originally.

Forecasted them or better in terms of cost the costs are in line in terms of other metrics like issue resolution rate and things like that those are tracking right, where we want them to be.

Okay perfect. Thank you the next.

Sometimes forte at Davidson does in and I'll get this one to Rachel I think that income country buying and selling insulate you. Some changes in F X Ray. It's for example, when there is a transaction between the UK buyer and seller.

If so does that lessen the impact on your performance in a strong dollar compared to Congress here such as Amazon.

No it doesn't because what we do is the sale does happen between a buyer in that country and a seller in that country, but we do convert it back to U S. C for the purposes of our financials, we do get some benefit which is that we have natural hedge from opex and some of those markets.

Not all of them, but where we do performance marketing marketing room, where we have offices, we get some upside from the exchange rate uhm, helping us in the other direction and then the other thing is that the metrics. We've given you about the the two sided equilibrium in those <unk> is showing at that the effects is insulating.

Uhm buyer spending.

Habits from is that the F X dot hurting that if they're buying and selling within their same currency. So that the demand and the supplier or are not hindered by ethics changes going to U S D.

Great. Thanks, Rachel that's one is for Josh from Corbin wire at Uhm R. W Bird.

You had a 1 billion dollar write down after only a year somebody's acquisition what are your learning from this experience and how old she'll be comfortable that this doesn't happen again.

Thanks for the question for your question I appreciate it so first.

<unk>.

It won't happen overnight and as we said at the time, we spent about two years courting.

These companies they came to fruition both of those acquisitions coincidentally around the same time and we felt great about the acquisitions and in fact, the market felt overall quite enthusiastic I've got a lot of really positive reactions from shareholders.

The general market reaction, though that we received at the time was positive and then reopening headwinds that they hit quite hard for Etsy for you know.

The popular seven M for many many other e-commerce companies and then inflation happened in interest rates Rose and then a war broke out Russia invaded Ukraine and a lot of things happened in the whole market went down across many many ecommerce names and you're seeing us acknowledged that and so I'll not that's on me the timing was wrong, we continue to feel.

<unk> great about the companies, we forget about the strategy.

And the timing didn't work out so we will continue to do our best to make the best decisions, we possibly can with the information we have I think if you look back over the you know the five and a half years that this management team has been here I think on average and over time, we have been very good stewards of shareholder capital we've been very thoughtful we.

We've never been a growth at all costs company, we've always cared about profitable growth and making smart investments and we're gonna keep doing the best we can to.

Good stewards of shareholder capital.

<unk> mm, Okay, Rachel I'm Gonna can buy in a couple of questions on all set to start with one of them Alexandra Snyder Goldman Sachs on guidance, what he thought this could create an upside or a downside surprise. The G. M. S trajectory in queue for relative to your guidance can you unpack the various building blocks that.

Went into our guidance for the fourth quarter.

So the question Alexandra So first let me start with what we said about Q3, we said that Q3 was showing stabilization S. As being talked about on our last call. We had seen some deceleration from the start of the year and as we went through a <unk>.

Pretty stable mm run runway and in fact October actually improved from Q3, so the guidance that we gave.

At the bottom end of our range would imply that we see some continued pressure that would push that push that stabilization down lower <unk> lower than what we're seeing in October but at the top end of the range. It would say that we have a pretty good holiday holiday that's similar to 2019.

And so that that's that's the <unk> and.

That's sort of the elements of the guide that we gave what would push the numbers down or things that we think are somewhat out of our control the macroeconomic factors that impact consumer discretionary spending and we don't have a good line of sight right now to predict exactly have November and December are going to pan out.

And the top end of our guide would show <unk>. The continued dynamics and Uhm trend line that we've been seeing so far in September .

September and October .

<unk> I just want jumping to clarify when you say stabilization at a three you're stuck eating relative to pre pandemic right yep.

Yeah.

Great Alright, so you've got quite a few questions in about promotional activity merchandising strategy. So I'm gonna combine questions from David Malinowski from Bank of America, Lawrence Schenk from Morgan Stanley and Leehar, what's from Deutsche Bank [laughter] I'll do this for the first the first one the first uhm how should we think about your promotional caden and the fourth call.

<unk> will accompany be uhm will accompany the cofunded by more cell or promotions are discounts given that that would be a very aggressive a competitive holiday season I'll start with that and then there's just like a a second part question I Wanna I Wanna ask related to that.

Yeah, so art or sell it we have given ourselves a lot more tools for them to behave more promotionally, particularly in a time like a holiday season like Halloween like back to school and those tools have enabled them to take modest discounts and they are in the forms of.

You know you shop for my shop from my shop here that 10% off on your next purchase kind of thing I'd say modest they're not very they're not very deep discounts at the same time Etsy has significantly increased it CRM capabilities and we've been able to give some put our own P&L to work modestly to also off.

For discounts, we used to that kind of when we're <unk>. We're using that same R. O Y Island that we do with all of our performance marketing and that we are also.

Measuring if we give if we enable some kind of a discount what what is the impact on that and how much return visitation do we get or how much how do we influence the conversion rate from our sellers. So I would consider that part of our <unk> that part of our marketing spend a minimum is relative to the the the bigger pie that were that were spending on performance marketing.

Yeah, maybe just the other part of that question came on suddenly Horowitz. This is more of this about how we're thinking about our marketing strategy in general for this holiday season, given where we are to talk Macroenvironment did you want to add a couple of thoughts on that too.

Sure and just to build on Rachel's point, we are seeing a lot more promotional activity from ourselves vast majority of that is funded by the sellers. The sellers are choosing to give very targeted discounts a tiny piece of that is is funded by etsy, but but.

The vast majority of the promotional activity, you're seeing a seller choosing to put in certain items on sale for certain for certain buyers in terms of our marketing spend for queue for <unk> to remind people that actually is really relevant for them and so we lean in in the holiday season, we plan to lean in in this fourth quarter like we have in.

In other fourth quarters, so we're going to be running Grand T V spots, which really tell the story of Betsy NYSE matters and why it's different.

As well as more direct response T V ads, which really highlight the kinds of items you can buy on etsy and the shoulder tap a very specific kinds of categories, where where where relevant and then we typically see on the performance marketing side things like search queries for gifts go up on Google.

And so that naturally drives more performance marketing for us, but again with with all of this we take his phone reuland, we look very much at what kinds of returns were getting so the the performance marketing side, there's quite a lot of science, it's very dynamic and attempts to adapt our models adapt within hours.

Or days to what we're seeing in in the market the brand side as the peace, where we've got to make.

Some bets and so.

We we we think that this is the right time for us to be telling our story, we expect to be telling that story in the fourth quarter, We love the creative with the team has developed and and that's reflected in the margins in the guidance.

Great that's.

That's perfect and then I have two questions from Steven Forbes.

And the first one I'm gonna give too.

First of all I'm Gonna give to Josh as we look out to 2023, what categories represent the greatest opportunity for us to drive marketshare.

So.

Great things about it is we just we have such breath.

So we have.

Seven categories that have 15 million buyers or more and we have 15 categories that have a million or more and what we take from that is there are so many different occasions for which in categories for Jessie is relevant.

50 million people are finding something to shop in that category is pretty good chance that many many people could find something relevant in that category, that's why I love that.

Product that we highlight are a little bit in the earnings call. The the new release, we just said where you can take a photo of of virtually anything and you'll see items on etsy that are that are similar I'd encourage you give that a shot.

I'll be quite surprised at how often we have a really great version of of whatever it is here in the market for I do think there's an opportunity for us to improve the shopping experience many of those categories. So when you survey.

Buyers and you ask them name great.

Great places to shop online more and more of them will come up with that.

And you know that you will be one of the first three places people name more often but if you ask people where do you go to shop for home furnishings very very few people will say gutsy when in fact in fact, we're not even a top 10 name there and the the number 10 named six per cent of people would name.

Hobby lobby and our research came up as the 10th.

And we weren't even 10th where somewhere less than that and yet it's our biggest category. We sold billions of dollars of home furnishings and so it's about building those associations with very specific categories jewelry home furnishings fashion craft supplies art.

On paper and party goods, we've so pets. So many babies weddings. So many great categories on Etsy and it's about building those associations more broadly we are leaving more into starting to fertilize those experiences more so that things like the tech sodomy. So you have a better browser experience, we could come to home for.

<unk> for example, you browse it doesn't feel like a lot of other sites. You browse words are you looking for kitchen or living room is typically what you get in a browser experience as he takes you often very deep into very niche.

So we do think there's a real opportunity to up level and you'll see us focus on that more than 2023.

That's great just add any other part of the question from Steve was for Rachel about Uhm, Alright, do you have any high level thoughts about the potential to reduce the the weight of the recent acquisitions on a consolidated margin instructor and what time line should people be thinking about for that.

Hi, Steve Thanks for the question and before I answered I just have to give a second to Josh Josh This point about how cool that.

At that empty lands product is open your App is a little camera icon in the search bar and click on it and take a picture anything in your household and you'll be able to find it on let's see what else. He has it's like it's very cool.

On the lessening the the weight of our recent acquisitions I <unk> one thing I want to remind you is set a few times that collectively are three subsidiaries are less than 15.

Percent of our total G M S N.

And they collectively there are almost immaterial to our to our bottom line. We do say that it's 400 basis points of uhm drag on our margins, but you have to remember that even if they were breakeven they are lower margin businesses and they would still be dilutive two margin. So you can.

You can't do the math on that 400 basis points F.

As a percentage of our revenue will come up with how much the investment if that were making their we really think that these investments, we're making and the businesses are appropriate to enable them to grow. That's you know they shouldn't be spending less on investing for growth because we own and that we should be a benefit to their growth not the other way around and they all.

Operate now very similar to how at the operates with a prioritization on focusing on the vital few and experimentation culture, where they they test their way into that things that are going to have the biggest impact and there. They are always and it's probably forever will be optimizing how to make their.

How to be efficient and making the biggest bets and putting the investments and the deal with things that are going to drive the highest growth.

Alright, Thanks, Michelle Uhm next one some Maria reps uhm at Canaccord, I'm Gonna give us a bunch of trash recognizing that you aren't dieting for 20th 23, how are you thinking about investment priorities for next year.

Thanks for the question you know.

One thing we shared in the call is that we've we've scaled our team fairly significantly over the past two years we.

Not.

At all costs company and when revenue doubled almost overnight, we didn't double headcount overnight because I don't think that would have been manageable growth. We couldn't have made sure that we were bringing in really high caliber people and we were you know, making sure that they had cleared roles and responsibilities and all the things that you know scaling responsibly means.

Doing at a certain cadence and.

So.

We have taken a little bit of time to scale, our team to catch up with revenue I'm really proud of the fact that when we look at our productivity metrics things like G. M. S per squad that is as high as it is.

<unk> for years.

And so would that suggest is that where we are in the marginal return curve, we've significantly increase the team over the course of the past two years and yet they continue to add at least as much value if not more.

Then we were seeing before.

Before the pandemic, even on a per squad basis, we've got a ton of great ideas from the teams are doing a great job of executing those in a way that improves the customer experience and build shareholder value. If we look at the number of things we talked about and this earnings call I'm really proud of Etsy purchase protection all of the progress.

We made on personalization the progress we've made on CRM, the new marketing initiatives that we've launched the new T V Sports, we watch and by the way we had to cut four or five things on the cutting room floor, because we call was just too long.

So this team is getting a lot done that is making a better customer experience building shareholder value, we're doing it with urgency and we're doing what is still a pretty small team.

And we feel great about that so we're not managing to a margin targets. So much as we're looking at as we scale are we continuing to drive meaningful growth measurable growth with the team that we have we feel pretty good about the team right now the size and shape of the team and we'll keep an eye on as we.

Go through next year, you know if we invest a little more are we getting a little more and and make sure that we're always looking at profitable growth and finding the right balance there.

Connected questions when I was asking right right away for you Josh Uhm, some kunal Monica E. B S. And you can you know somewhat optimistic for 2020 as soon as the name of the macro doesn't get worse as the way we put we said that but do we think that's more of some sort of buyers more buyers or more sense by baya.

You know over time, I think we're going to continue to get both I mean, I'm pleased with the fact that while new buyer growth has slowed from the pandemic.

Unsurprisingly.

It's 50 per cent higher than it was before the pandemic.

And I think that's pretty exciting and so there are still are a lot of people out there in the U S. In the UK and especially in the rest of the world who have not yet shop on etsy.

And so we think there's a real opportunity to add new buyers and then reengaging lapsed buyers 100 million lapsed buyers mmm shop that I'd see before generally had a very good experience and just need to be reminded to come back or come back more often so we engage more lapsed buyers and adding more buyers I do think there continues.

B a runway there, but we think there's a big opportunity and frequency and over time.

I do think we have a big opportunity to get people to have more purchase days per shopper in more occasions.

Again, you know seven categories of 15 million shoppers and yet very few people shop across all seven categories.

And you know again that.

Take a photo of virtually anything and she's got a great version of it I don't think people realize how often he can serve them.

And so I'm excited about that and the last opportunity to one then we talked about the best that we haven't put our shoulder against it and I'd say, we're still not putting our shoulder against it but average order value.

As we get more trustworthy people get more familiar with that see having them take larger purchases on etsy buying bigger stakes items I do think is continues to be an opportunity for us as well.

Alright, and Rachel I'm Gonna, Netflix, so far, but I'm gonna try to squeeze one in cause it's pretty hot topic, we get a lot from that was that that skin at keybanc I'm, hoping you could that could provide a bit of color around inflation, particularly as it relates to sell it type thing have you seen them begin to pick up their prices.

We haven't really seen that in Q2.

[noise] anything change that yeah yeah.

Thought we were gonna get out of this call with no inflation [laughter], but uhm just under the wire.

We really haven't seen sellers, yeah, we do we do basket of goods analysis, and we haven't seen sellers take their pricing up in any material way and we you know we do try to help them think about pricing strategically and other things, but there's probably more we can do there I will say that does make etsy relatively safe speaking.

A value play eight relative to other places, where we see prices going up significantly in some of our creative ads kind of lean into that a bit talking about you know you can really find something special something that only etsy has or it's you know it's made especially for you and it it doesn't break the bank at the same time, so it kind of is another differentia.

Factor for our marketplace.

Okay, Great I am going to call. It there Josh did you have any closing remarks are good.

Don't we feel really good about the progress and and again you know if you'd asked us.

A year ago or two years ago in the midst of the pandemic.

What would we hope for in terms of retaining buyers routine by or spend.

I'm, just delighted with how well you know our.

Our retention has been in light of people, having so many more choices and I do think it really comes down to the fact that they really like the experience and it's different than being different in a way that's better matters. So.

Grateful for it and we'll keep doing the best we can.

Well. Thank you all for your time Tonight, and we'll talk to you next week. Thanks, everyone.

Thank you.