Q4 2022 ETSY Inc Earnings Call
One 6 billion up about 10% and non-GAAP adjusted EBITDA of about $717 million essentially flat with the prior year as we reinvested most of the Etsy transaction fee increase back into the business. Rachel will of course review the financials later on.
From a topline perspective, we're now nearly three times the size, we were pre pandemic and we've been careful about how we've grown our cost structure with an eye towards investing in the fewest most important areas. We believe will sustain and continue to grow the business visible in our profitable growth and strong free cash flow.
During what was undoubtedly a challenging year for e-commerce writ large as well as for Etsy.
I'm truly proud of our performance and importantly, while we don't have a crystal ball. It's this sustained performance that gives us the conviction to believe that our disciplined focus and the size of our market opportunity sets us up well no matter what business conditions lie ahead.
Investment in our core Etsy marketplace have really paid off.
And you saw that as we went through 2022, maintaining most of our gains in the face of enormous headwinds that performance has summed up here, we have nearly twice as many active buyers as we did in 2019.
Shoppers are coming to us more frequently and spending more with etsy and we're continuing to build the etsy habit.
In addition to earning our placement buyers' Hearts. We believe we've also deepened our relationship with Etsy sellers, we've seen seller cohorts retain much of the gains achieved during the pandemic, even as the world reopens and ecommerce headwinds increased.
<unk> mission is to keep commerce human and we believe that these past two years have shown that the customer needs. We need are both powerful and enduring and that etsy offers something different.
In addition to maintaining our gains we did in fact grow in some very important ways last year just a few examples.
Strategies to introduce more buyers, who identify as men to the joys of Etsy resulted in 22 million mail active buyers at year end up 124% since 2019 and now at our highest level yet.
We reactivated 24 million buyers, who lapsed over the prior 12 months the most ever reactivated in one year.
Germany was a standout performer for etsy in 2022 with Gms, increasing at a healthy double digit growth rate and now over four times larger than in 2019, that's pretty remarkable, especially given macroeconomic conditions in that region of the world.
We made real progress in our newest core market, India growing to over 120000 sellers with approximately 5 million listings over 30% of which thanks to our investments in local payment options are now available to local buyers, we're making important strides as we methodically build the foundation for vibrant.
Two sided marketplace.
We believe that these metrics are indicative of just how early we are in expanding our share of wallet in our estimated two trillion Tam and our mission to bring the world a true alternative to commoditize shopping.
I'm also incredibly proud once again of how we cared for our people our communities and our planet in 2022, we come to work grateful to be able to support creative entrepreneurs around the world and as a result, we continue to attract and retain world class talent.
Being part of a community means that when one part is suffering the rest of us try to step up and offer our support and even now as we start 2023 Etsy has already stepped up to support sellers impacted by the California floods and of course by the devastating earthquakes in Turkey.
As Youll see in our soon to be filed 10-K, we continue to make excellent progress on our ESG goals, which remained very well aligned with our business goals.
At our core we believe people want to shop their values and they want to work where they can make a difference. We know there is so much more we can do to connect our mission to keep commerce human to the impact of our marketplaces make in the world and we see this as an integral driver of growth for our entire house of brands.
No Etsy presentation would be complete without our right to win slide the strategy, we unveiled in 2019, which remains robust and relevant today.
We're confident that this strategy has enabled us to deepen our competitive advantages and gained market share over time and that our disciplined ROI focused approach to investments in product marketing technology and people has and will continue to pay off.
Each year, we pick a select set of customer experiences, where we believe we can make material improvements in ways that result in materially better experiences for buyers more sales for sellers and better returns for investors.
Teams often working in what we call a squad are tasked with a single customer experience to improve in ways that achieve a specific financial target for.
For example in 2022, we passed the Etsy ads team to make ads more relevant for buyers, while keeping seller rojas above our target levels, which drove over $100 million in incremental annualized revenue, while improving the experience for our customers.
Squads of a great deal of freedom to test faster and learn fast and a strong bias to action. They often pushed more than one <unk> per week typically to 50% of etsy as audience. So we can quickly measure whether that release has demonstrably lifted gms or move the target metrics.
Importantly, we meet monthly to review the progress made by each squad by doing this across our entire portfolio of work, we're able to understand the degree of payback, we're getting we're not from our investments how theyre impacting daily performance and adjust our work accordingly to ensure we're moving the ball forward to improve <unk>.
Or experiences and meet our targets.
It is important to note and as shown on this slide that our teams work not only on the core buyer and seller experiences. We take the same approach across member services Trust and safety payments fulfillment, our Martech stack site performance and the enablement and so on.
Last year, we said in order to earn a greater share of wallet, we've centered our right to win investments on inspiration, having fun and engaging experiences that keep you coming back for more.
Efficiency, helping you quickly and easily get in buying get out when you already know what you want and reliability, ensuring a stress free and dependable purchase I'm going to run through some very tangible examples of how the approach I've just outlined shows up in our performance.
A great example of how we made etsy more inspirational as with by our collections away for users to organize items into groups, which are easy to share or come back to later in 2021, we set a goal to increase the number and usability of collections and that year 'twenty 9 million collections were created.
In 2022, we shifted focus from creation to display to make collections are more useful part of the buyer journey and to develop ways for our community to inspire each other.
Our teams delivered excellent results, including a 20% increase in items being added to collections of 36% increase in the number of shop follows and a 12% increase in the number of items favorite it.
All of this makes our work to engage buyers and personalize their experiences even more powerful and.
In 2023, we plan to focus on making collections more inspiring and shopper Bowl building, new avenues for buyers to discover save and purchase items as well as defined and follow shops to get targeted sales and personalized updates.
We made the etsy buying experience more efficient improvements in the search experience drove lifts and sitewide conversion rate and average buyer spend we improved the buyer experience in so many ways. One of my favorite examples from last year was putting an add to cart button directly on the search result page based on the insight that some.
Buyers now feel they have enough information on the search result page to buy without needing to visit the detailed listing page.
This made the buying experience faster and more convenient for those shoppers, while improving conversion rate and hence driving more sales for our sellers.
Our teams, particularly excited about last year's work to improve site performance. For example, we reduced page load times and search which were cut by nearly one full second.
These and other performance wins in 2022 drove nearly $100 million in incremental Sitewide Gms and.
And we made so much progress, making the experience more trusted and reliable. This included our continued efforts to provide more transparency around delivery times and launching clear listing level return policies at the end of 2020 to over 30% of Etsy listings had a policy of accepts returns clearly visible at the listing level.
Up from less than 10% when we started focusing on clarity of seller return policies in the fall.
And as he purchased protection is already impacting the customer experience resolution times for customer issues dropped materially as our customer effort score improved from 70% to nearly 90%.
We have an equally disciplined approach to the payback, we get on our marketing investments dollar spent in highly targeted and strategic ways to differentiate our brand build awareness attract new buyers fuel engagement and get buyers coming back.
As you know since 2018, we've leaned more heavily into upper funnel brand strategies through TV and digital video to capture the hearts of millions of global buyers and create a flywheel that elevates the effectiveness of our other marketing channels.
As you can see these efforts have significantly move the needle on brand awareness and loyalty and in particular on purchase intent a critical leading indicator, while we've become a top 10 marketplace in the majority of our core markets. We continue to see so much opportunity to help buyers associating etsy with more specific purchase occasions.
We're out the year and to do so both among those who already shop Etsy and those who don't.
We've been getting strong returns from our brand spend in terms of in period, Gms as well as lifetime value of buyers and.
In addition to top of funnel brand work, we've deepened our investments and elevated effort throughout the funnel.
Our team delivered hundreds of millions of dollars in incremental annualized gms by improving the data feeds to our advertising partners and affiliate channels, improving search engine optimization and fun fact, we drove about $100 million in incremental annualized Gms just from improving our E mail campaigns, we're seeing positive return.
<unk> from new channels like out of home and podcasts.
We will continue to lean into these carefully testing and measuring ROI before going deeper.
With all this progress investors often ask if there is still more opportunity to improve the etsy marketplace. Absolutely. We believe there are many millions of potential buyers around the world, who should be shopping on etsy, but arent, yet and so much more opportunity to build the etsy habit for those who already know and love us.
For 2023, we've centered our right to win strategy and our team's work on these objectives first welcoming new buyers to the joy of Etsy. When we think about how we can foster continued growth over the coming years, we see new buyer growth is an important lever we intend to meet new buyers, where they are and the channels in which they are.
Spending time and help them feel at home no matter their interests or tastes the country they come from or how they came to us.
Second deepening buy our curiosity and engagement. This is really about how the etsy experience gets better the more you visit the more you engage in the more you shop, such as advancing our personalization to delight, you with our inventory and our purchase suggestions.
Third building trust when transacting with us when you shop on Etsy, you are buying from one of 5 million creative entrepreneurs around the world, we want to make sure both new and existing buyers have peace of mind when buying on etsy among.
Among other initiatives will build on the foundation of Etsy purchase protection to help buyers and sellers have even more confidence in us while we continue to invest in ensuring a trusted and safe platform.
And fourth being the platform sellers love to sell on creative entrepreneurs have so much to juggle, we'll keep investing to help them manage their shops as efficiently and effectively as possible. So they get the absolute most out of their time and money, while delivering the best possible experience to buyers.
We have so much on our roadmap that we're excited to tell you about as we go through 2023.
In 2022, we worked to integrate deep hop in dealer, seven which joined reverb and Etsy and our house of brands, while the performance of each marketplace differ given their various stages of evolution and specific marketplace dynamics. We're excited to unlock the potential of each in 2020 to reverb invested and optimizing conversion rate.
Delivering a more customized experience to different types of music makers and driving international growth.
Etsy reverb maintained the vast majority of its pandemic games in 2022 and continued to meaningfully outpace the musical instrument market on a three year basis, yet still represents less than 4% of the total musical instrument market.
Deepak has become a community powered fashion marketplace to buy and sell unique fashion with approximately 30 million registered users, while reopening competitive dynamics exchange rate fluctuations and other factors impacted <unk> 2022 performance. We believe it's still very early days for the resale opportunity cruising and her team.
Our focused on reigniting topline growth by improving the core economics of the business, including the reach and relevance of search and discovery, improving the web buyer experience embedding value signals and establishing trust to transact.
<unk> seven the easing of the COVID-19 pandemic in Brazil last year led to a resumption of consumer mobility, and therefore, a return to in person celebration and events <unk> sweet spot and the business began to see some performance improvement.
Key areas of investment for <unk>. During 2022 included conversion rate improvements and giving sellers access to faster and more affordable shipping.
<unk> also began testing an online marketing campaign aimed at driving brand awareness as it builds a broader marketing strategy.
Similar to Etsy, we believe that <unk> can expand its consideration set in the mind of Brazilian consumers become becoming a destination they turn to more frequently for more of life's special moments.
Last year, we said it was our aspiration to make etsy, a starting point for your E Commerce journey.
Feel even more confident that I did a year ago that this bold statement is the white aspiration for us.
In our quest to achieve this we'll remain hyper focused on doing something different enough that is better enough and matters often enough to win sustained customer loyalty.
Want to thank our incredible global team for all your hard work in making our marketplaces better places to sell and shop in 2022 and two.
To our shareholders for your continued support.
While the world remains a fairly unpredictable place, we've proven our differentiation and resilience and that gives us a lot of comfort as we keep our eye on the prize.
With that I'll turn it over to Rachel.
Thanks, Josh and thank you everyone for joining US my commentary today will cover consolidated results for our house of brands.
The drivers of performance and Etsy marketplace, Standalone results where appropriate.
Fourth quarter consolidated <unk> declined 4% year over year to $4 billion nearly flat on a currency neutral basis.
Revenue increased 12, 6% year over year to $807 million and we delivered adjusted EBITDA of $227 million, representing a very healthy 28% margin.
Foreign exchange headwinds moderated in the fourth quarter to 330 basis points down from 400 basis points in the third quarter.
We're pleased that the etsy marketplace successfully anniversaried the incredibly strong prior year period, which included pandemic lockdowns and supply chain issues.
In addition, we saw some acceleration in etsy marketplace Gms growth on a year over three year basis, which I'll discuss more in a few minutes.
Our three subsidiary marketplaces had a tougher time than etsy with some weakness in the quarter that weighed on our consolidated results.
Drilling into fourth quarter revenue growth marketplace revenue increased 11% year over year, primarily driven by the etsy marketplace transaction fee increased from 5% to six 5%.
Services revenue outpaced marketplace growth up 17, 7% year over year with consolidated ads revenue, increasing 20% year over year.
While we had expected to see normal seasonal headwinds for etsy ads on higher organic traffic during the fourth quarter continued product enhancements drove better than anticipated performance.
This included utilization of neural network embedding a type of machine learning advancement to increase AD relevance, which drove more clicks and purchases.
We also launched and more visually engaging AD experience with videos on the homepage that increased conversion and return on AD spend for sellers.
We delivered another quarter of strong profitability in the fourth quarter with adjusted EBITDA, increasing year over year from 219 million to $227 million driven by the higher revenue.
As you can see in the chart on the left consolidated adjusted EBITDA margin declined on a year over year basis in the fourth quarter, primarily due to higher marketing spend and to a lesser extent increased G&A expense and product development spend which drove our margin down to 28, 1% from 35%.
It's important to note that a significant portion of product and marketing investments generally do not get payback in period, which I will discuss in more detail.
As you can see from the chart on the right. We have delivered very strong bottom line profitability over the last five years, both in margin percentage and even more importantly in adjusted EBITDA dollars.
I'd also like to highlight that 2017, our capital light business model and disciplined expense management has allowed us to convert nearly 100% of our EBITDA to free cash flow.
And we have used a portion of this cash to repurchase shares to offset dilution, resulting from stock based compensation.
During this period, our free cash flow has grown meaningfully and our share count has remained flat.
Our consolidated product development increased 36% year over year to $113 million in the fourth quarter, primarily driven by head count additions for the Etsy marketplace.
As a reminder, our product development expense line is where most of our engineers debts and.
Hence the largest portion of our head count growth since 2020.
We ended 2022 with approximately 2790 employees, an increase of 16% on a consolidated basis compared to 2021.
As you know and can see in the chart on the left we began to slow hiring as our growth rate slowed in the second quarter of 2022, and we also experienced very strong levels and employee retention.
Fourth quarter consolidated head count was essentially flat to third quarter for.
For 2022, our revenue per average full time head count for Etsy marketplace with $1 $4 million, which is well above the approximately $800000 for the etsy marketplace in 2019 as they've hired at a pace significantly below our revenue growth rate.
Josh explained how we carefully measure payback from the product development expense line, which we generally see within about 18 months.
In addition returns per core product head count also remain in line with a year ago levels and indication that we remain efficient even with a significantly larger size of our team.
Development spend as a percentage of revenue was 16% for 2022, which as you can see on the right is now similar to our pre pandemic range and at what we believe is in a healthy range for sustainable growth and profitability during.
During the fourth quarter, we increased our consolidated marketing spend by 20% year over year to $245 million, primarily driven by a 29% increase in performance marketing, which represents the majority of our spend.
Solidago brand span increased 12% year over year, as we ran new television and digital video campaign and our top three core markets during the important holiday selling season.
The vast majority of our spend across our marketing channels for the Etsy marketplace that also includes spending for our subsidiary marketplaces.
And for those of you, who compute our customer acquisition costs from the marketing spend numbers. We disclosed. Please remember that our attribution models is the lifetime value of a buyer not just a 30 day view. So some of the return occurs in a later period.
For the full year consolidated marketing spend increased only modestly including increases in both brand and performance and we delivered 40 basis points of leverage in 2022 with our consolidated marketing spend as a percentage of revenue decreased to 27, 7%.
We continue to gain efficiencies in marketing and as you know our Offsite ads revenue offset approximately 35% of etsy marketplace performance marketing spend allowing us to put more dollars to work on behalf of our sellers.
For the Etsy marketplace, specifically performance marketing spend drove approximately $2 5 billion in annualized Gms in 2022 up from $2 3 billion in 2021.
Moving to Etsy marketplace performance on a standalone basis during the fourth quarter Etsy marketplace Gms declined three 5% year over year and was largely flat on a currency neutral basis.
Is that accelerating trends on a year over a three year basis and Roche on a currency neutral basis. During the all important cyber five with our December strength being a key factor in delivering gms at the top end of our guidance.
When looking at full year performance trends shown on this slide it is gratifying that we have far surpassed the 16% to 20% compounded annual growth rate target, we set for the etsy marketplace back in 2019.
From a geographic perspective, 45% of fourth quarter Etsy marketplace, Gms from transactions, where either the buyer or the seller or both were outside of the U S.
This gms was up 5% year over year on a currency neutral basis, driven in part by the continued strength in Germany.
Our non U S. Active buyers reached an all time high of $34 million in the fourth quarter continuing to outpace the U S active buyer growth trends.
A strong U S dollar drove growth in the U S imports for the for the Etsy marketplace, providing additional support for our non U S dollars.
Moving to category performance during the fourth quarter with a strong trends in apparel and items, such as bags purses and other gifts as well as in paper and party driven by more in person holiday gatherings. This year.
Top selling items during the holiday included personalized gifts, such as custom named necklaces and jewelry boxes.
This slide shows full year 2020 to etsy marketplace, Gms and our top six categories, representing 86% of total etsy marketplace Gms in 2022.
Toys and games overtook beauty and personal care by a bit to end the year at the top six category.
We believe our breadth of listings remains an important competitive advantage, allowing the etsy marketplace to seamlessly respond to shifting consumer demands.
As you saw from our reporting throughout the year weakness in home and living and craft supplies was generally offset by strength in apparel and paper and party supplies.
We ended the year with $89 4 million active buyers, which was down slightly from the prior year, but it has held up very well through reopening and other headwinds are active buyers have slightly increased on a sequential basis in each of the last few quarters.
We added $9 5 million new buyers in the fourth quarter. While this figure is down about 6% from the prior year. It grew 51% on a sequential basis from Q3 2022 to Q4 2022.
This is a spectacular number significantly higher than the 44% sequential growth in new buyers in the prior year.
On a full year basis, we acquired 55% more new buyers in 2022 than in 2019.
Lapsed buyers are defined as existing etsy buyers, who have not made a purchase in at least a year.
In the fourth quarter, we reactivated a record number of lapsed buyers nearly 9 million.
Adding that to our strong performance in the first three quarters of 2022, we reactivated a record 24 million buyers for the year up 24% from 2021 and 87% from 2019, we will continue to focus on this fertile growth opportunity in 2023.
We ended the quarter was $7 4 million habitual buyers and 194% increase from the fourth quarter of 2019, and they accounted for 40% of our etsy marketplace Gms in the fourth quarter of 2022.
The largest share of new habitual buyers came from Germany, and Australia are promising Testament to our growing brand awareness in these markets.
Ah repeat by our count remained largely unchanged from the prior year at approximately 36 million in 2022, despite the reopening headwinds with fourth quarter repeat buyers strengths coming from Germany and France.
As of December 31, we had $1 $2 billion in cash cash equivalents and short and long term investments and a $200 million revolver that is currently undrawn.
During the fourth quarter, we repurchased $150 million in stock under our $600 million May 2022 board authorized repurchase program.
Our free cash flow for the quarter was a healthy $286 million converting 126% of EBITDA to free cash flow.
I also want to point out that the capped call relating to our mostly retired 2018 convertible notes will be settled in shares on March 1st as a result, we expect to receive shares valued at approximately $157 million.
Now turning to outlook.
So far this quarter, we have continued to see significant volatility in gms on a week to week basis.
Which led us to bake a fairly broad range of outcomes into our Q1 guidance.
In addition credit card and other third party data shows that there may be an overall shift in consumer demand to services and household supplies like groceries and away from discretionary categories.
With that in mind, we currently estimate our first quarter 2023, consolidated gms to be approximately $2 $95 billion to $3, one 5 billion.
Revenue to be about $600 million to $640 million.
And with an adjusted EBITDA margin of 26% to 27%.
As we attempt to look past the first quarter I'll remind you that last year, we had a very strong January they started to see rather steep gms deceleration in the latter half of the first quarter with this deceleration continuing until about may.
In a stable macro environment, the math would suggest a return to gms growth rates in the teens in the second half of this year.
However, the data and information and we are seeing so far in 2023 related to consumer spending shifts and pressure from the macro environment makes us very cautious.
It is possible that the benefit we would expect for moving beyond the prior year steep comps could be negated by increasing recessionary factors.
Really tough for us to call right now.
So how do we plan in these uncertain times, we do a lot of scenario planning internally with our forecasting approach that starts with baseline trend from existing buyers.
And then layers on incremental growth from both new product initiatives and marketing.
We also benefit from our marketplace model that operates with minimal capital requirements and relatively few fixed expenses. In fact, the majority of our consolidated expenses are either entirely they are variable or semi variable with revenue trends.
As I mentioned earlier, we started to meaningfully slow down our pace of hiring in the second quarter of last year commensurate with the G. M. S run rate we were experiencing.
Now with possible recession looming in the unapproved predictable way this could impact us.
We're maintaining our prudent approach in 2023.
So hiring but focused on the fewest most critical roles and tightening our belt significantly in other discretionary areas.
And as you've heard today, we have a lot in our pipeline that we are excited about so while there is clearly an opportunity cost associated with this decision. We think it's the right thing to do given the very volatile macro conditions and good strong acquisition of new buyers and reactivation of lapsed buyers last year are just two proof points.
The strength of our brand representative of a through line so to speak that cuts across volatility that we have seen and may continue to see in 2023.
We highly value the agility and resilience of our team and our marketplaces, which have served us so well, enabling us to lean into critical growth investments, while also protecting our margins.
We believe that that puts us in a position of relative strength and it's our goal to do that again in 2023.
Being raised in California, I've always loved the saying that you can't stop the waves, but you can learn how to serve.
We have proven we know how to serve even through choppy waters and we hope that gives you as much comfort as it does to us.
You all for your time today, and now I'll turn the call back to Deb to take your questions.
Hi, everyone nice to see you all again, thank you for joining us I'm going to kick it off right away with some questions about quite a.
You in the queue start with Maria reps from Canaccord. This one is going to be front Josh.
Last thing and search functionality has consistently been a pillar of the etsy growth strategy looking out over the next two to three years what are your top investment priorities as it relates to search with all the recent momentum in AI and large language models could we see some type of chat based search functionality integrated into etsy at some point and then briefly.
How has your image search feature have been trending.
Great questions. Thanks, very much.
So.
As you said.
Besting in search and discovery is a very very core part of <unk>.
At present.
Present, and our future with over $120 million about 120 million live listings getting you to the good stuff is really important.
Looking back at just 2022, the search team launched about 120 developments that were ramped up meaning experiments that worked that we ramped up and some examples of those included Etsy lens as you referenced.
Neural models.
This work and.
When we think about what those did etsy lenses is an example of something that allows you to talk with pictures instead of talking with words. So how do you tell the search engine, what you want and really new and novel ways.
X what helps you to process massive amounts of information and neuro models help you to make sense of what people mean, not what they say and in fact, the neuro models. We're using use the same kind of underlying algorithms that that chart GPT users. So we're already using some of the underlying technologies.
That youre seeing from great innovators like like open AI and it's having great impact by the way. The search team is also doing more prosaic things that are having a lot of.
Impacts for example search results are now getting good enough that we could put a buy button right on search results and allow people to buy directly from search results without having to go all the way to the listing page and that's been a great collaboration of our team to figure out exactly what information you need on the search results page in order to give someone the confidence.
To buy so we made a ton of progress in 2022 in ways that improve the customer experience and drove the bottom line. We're really excited about our roadmap in 2023 and beyond.
And I would say that similarly, figuring out more novel ways to talk to our search engine to tell it what you want so multimodal search through maybe pictures and words is going to be very important show me things are the following style that would match well with this couch.
And so those kinds of things I think open up a huge opportunity for etsy.
Having multiple objective function has been very helpful. How do I do something which drives conversion rate, but also drives repeat visit rate those.
Those two actually might not be the same in terms of search results. So training our models to solve for more than one thing at one time something I'm, particularly interested in is how can we get better quality everyone has their own view of what great looks like and what a really good item on etsy looks like so how can we start to.
To better anticipate what's right for you how can we get more personalized so that you see only the best of Etsy.
According to you we have a great roadmap.
And I'm really excited about the work that the team is doing to your specific question of could we see some kind of like interface very possibly yes, I would say that we are constantly testing what's on the frontier and if it makes our experience better.
And it does it in a way that's profitable we're going to do it one other thing I just want to say is every time that search team develops a new model a new algorithm.
We look at how much extra processing power hazard used and therefore, how much extra cost has have added and how much does it improve conversion rate and the lifetime value of the buyers is that profitable to ramp up and we only ramp up things where the benefit it adds is greater than the cost on lastly on your quest.
About etsy lens.
It's very early days, we're pretty subtle in terms of where we promoted in the search bar because we're just trying to learn how do people use it and make sure that the search result quality that we get is really good but.
I am very excited by the early results we're seeing.
I think theres, a big future and the opportunity to talk and pictures and not just in words and while we're on that topic I think theres a lot of opportunities.
One for generative AI one is in search no doubt you might see it in the seller experience, making it easier for sellers to make listings you might see it in the member services experience and having a better opportunity to get customer support or developers may be able to use it to to make themselves more productive.
So theres lots of opportunity, we Havent working group looking at all of it. There's also a lot of potentially adverse consequences were up.
Of course also concerned about that so we're going to be thoughtful we're going to test our way in.
But I'm optimistic that all of these new technologies and open up new possibilities to make our experience better for our customers.
Great. Thanks, Josh on the next one is for you as well as from Jason <unk> at Oppenheimer. There was a report out about items on your marketplace violating IP, there's probably something we've never paid much attention to at least one if not why buyers go to etsy, but a quick search looks like there could be some counterfeit items could you talk about what youre doing about IP violations.
So thats, probably don't understand what a violation is for example, if someone is selling a nip beanie swished logo or the words Nike is that it might be violation.
Thanks, a lot for the question I appreciate it.
First let me say that Etsy is about special it's about things that are made by hand or vintage items and so youre absolutely right that it is not with buyers. Thank god for mass produced items.
I also want to state very definitively that trust is the bedrock of our marketplace and there is no place for counterfeit items.
In our marketplace and we work very hard and invest very hard to make sure that we have a clean and safe marketplace. I think we have more skin in the game than most in terms of having trust as the bedrock of our brand because our sellers are 5 million independent largely unbranded sellers and so they rely on etsy to be <unk>.
Trusted brand to lift them up which is why we invest so much in this space.
Branded items make up a very small and not growing portion of Fcs traffic and sales.
So let me be even more specific about that when we look at we looked at over 800 of the most popular brands in our ecosystem and.
And we saw that those brands were referenced in low single digit numbers of our search queries and our sales.
I also want to be clear about the fact that the.
The fact that they were referenced in a search by no means means that their IP violations. There are many legitimate reasons why a brand might be referenced in our search.
It may be a vintage item it may be fair use and the questions you were asking where all questions about fair use if you use a logo on a beanie is that legit or not the answer is it's complicated.
And it comes to something called fair usage, that's very difficult to adjudicate.
The seller might actually have a license.
To that brand they may be referencing it is fair for example, too to reference that.
<unk> item is an accessory that would felt like this was a handmade.
Kate phone case that would that would be compatible with the following branded phone or it's legitimate to altra in item for example to monogram an item or two take a pair of jeans and paint something hand painted on that.
All of those are legitimate uses so we believe that many of the times that an item or a surge references the brand it is actually legitimate and not violate that.
That said, we care a lot about making sure that anything that is violating we get off the site. In fact, we invested more than $50 million in 2022 alone on trust and safety efforts working closely with brands to make sure that it's very easy to identify report and then we will take down.
Anything that is.
That is a violation. One example, we launched a.
Rights holders portal that makes it very easy for <unk> rights holders to registered to searches and.
<unk> report to us anything thats violating so that we can work even more closely with them taking our items down. We're also very transparent in this area. So we published a transparency report each year and I would encourage you to go take a look at that when we talk about the number of reports that we see in our takedown efforts. So we take this very seriously we care.
A lot about.
About having a clean and well lighted store.
And we're very proud of our efforts in this space.
Thanks, Josh next wanted to start with Rachel and I think just might want to add onto this one a little bit is from Laura Champine of loop capital what was the margin impact in Q4 of Etsy purchase protection.
And then how do you expect it to impact the first quarter and then maybe Josh can have come back to you. If you can talk about if you purchase protection oil, but Rachel.
Alright, Thank you for the question so.
We've said in the past that we expected as you purchased protection to be about a $25 million expense on an annualized basis, we launched Etsy purchase protection and early August . So Q4 was our first full quarter of that 25 million that is so small.
Small portion of the 25, we're trending well within that envelope that we had previously voted.
The.
Really early days yet to see.
How are you how how much gms lift this might ultimately have how much in accretion in that trust with this.
Initiatives might have we're not promoting it separately.
To a large extent.
We are.
Where we're promoting and at checkout.
Check out there is a reference there and that comes to us at no extra cost. So I feel we feel good about the costs.
Breakout any margin impact, specifically, but I'm, giving you a range of magnitude on the impact to our P&L adjusted.
Justin do you want to add anything else on a few purchase protection, yes, just that.
When we look at the opportunity in frequency when we ask people do you intend to come back soon and for the people who say they don't intend to come back soon why not.
She has my back is a leading indicator where they aren't confident that etsy will have their back and so thats why we think that leaning into trust is so important we're really proud of the fact that.
As Rachel said as he purchased protection is coming in right around our cost estimates may be even a little less and that suggests that.
That our sellers are doing a great job. They are shipping on time. The item is as described it is arriving not damaged the vast majority of the time. So we don't have as many chances to prove that we have you back.
<unk> of the fact that sellers are generally doing a great job, but the the fact that the time to fix an issue has gone down so dramatically just in the past few months as a result of the Etsy purchase protection program. We think is really powerful we've gone from days to hours in.
In terms of how long it takes to resolve an issue and as a customer that's a great experience you have an issue you contact customer support and in the first contact which resolved would give you a refund and you move on we think that over time, it's not like a light switch that flips and suddenly your brand is perceived differently, but the next day you go to coffee with your friend.
And you say look what happened to me it was a great experience on Etsy and over time, you build that brand. So we're very excited about the early performance of the purchase protection and want to keep investing in having our customers back both buyers and sellers because we think it's really important.
Great. Thanks, both of you.
Let's start this next one with Rachel just to give us some stats and then I'll turn it to Josh a little bit as well.
I'm Lee Horowitz Deutsche Bank.
Now that we're through where there's presumably the last COVID-19 comp should the expectation be that habitual buyers can grow from here and what do you see as the key areas of product improvement in 2023 that you expect to drive cross category shopping and eventual buyer growth maybe Rachel you want to start by just kind of reiterating what we said about <unk> yeah. So what we said on the call was that habitual buyer.
<unk>.
It's about 8% of our total buyers represented 40% of our Gms, that's actually for the full year of 2022 it represented 44%.
And just as a reminder, habitual buyers those buyers that come six or more times, a year and spend $200 or more than a year.
It's a little bit of a step down but those buyers are not churning out they're actually becoming repeat buyers and I think they follow the same trend line as all of the other headwinds we might experience during reopening during recession periods of time, where consumers have less discretionary spending.
Very reasonable that we'd see some.
Stepped down from that.
Numbers are significantly higher than they were pre pre pandemic one habitual represented only about 5% of our total GMO.
Josh you want to talk a little about initiatives focus on habitual from cross category and all of that works, that's a big focus of ours and.
So the team is working on it in a couple of ways. So let me start with the product experience and then I can talk about the marketing experience and the product experience, we want to make it easy for you to pick up a thread when youre in the middle of emission.
And then easy to start a new mission when Youre done with the mission that you're on and so starting to understand and Intuit are you trying to complete emission or start a new one is one path of work. The team is working on and then when we think about completing emission some of the work we talked about in the call about collections is a good example, where when you are on that so youre thinking well maybe.
I want this or maybe I want that maybe you're planning a wedding what are different ways I can set the table. So you might put all of those into one collection watterson bridal gowns I might use you might put that into a different collection that by the way tells US a lot about you that's very interesting and now you've curated collections and some other buyer might also find very used to.
So you laid bread crumbs to make it easy for you to come back and you've made it easier for us to get to know you better and in getting to know you better to become more personalized and serve other customers.
As well.
And then picking up the next mission is where.
Things like recommendation algorithms get very important and where our better understanding of things like style and taste concepts that were very difficult to understand using just technology five years ago that are suddenly getting much much easier to understand.
That's where I think the cutting edge is we're very optimistic that we can continue to do a much better job of understanding your taste understanding what our inventory is and matching you with good recommendations.
Continue to do a good job with singles Nudges as well that continues to be a fruitful area for what are nudges. We give you for example, badges and the App that would be a worthwhile reason to want to come back.
Something you added to our collection might've just gone on sale for example, or a seller or something you added to a collection.
Might have just put something new.
In her shop. So these are all different things, we're doing on the site itself off the site.
We're getting better and better at targeted marketing so broad scale.
We're launching a new TV campaign in the next week or two and Youre going to see us really talk about.
Fashion and gifting very explicitly etsy as a place to come for home fashion and gifting. That's not exhaustive etsy is about even though those are very very big categories and opportunities that seems about so much more than even those but try this plant very specific associations in the minds of the consumer about.
When they should be thinking about etsy, because we know that broad scale. They have a lot of love for the Etsy brand on average, but over the course of the day when a shopping mission comes up they don't always associated with that so that breadcrumb that creating a clear association is very important so youll see.
This most recent campaign really lean into those three purchase occasions, very specifically to try to build that habit and then we're getting even better with things like <unk> with things like SCM non brand, we're actually seeing some really interesting progress right now with what we call mid funnel video for example, Youtube videos of being able to understand.
And who are customers that we might have interacted with before and what's going on in their life, maybe they are having a wedding and this would be a good time to show them.
Advertisements about the kinds of wedding offerings that we have so there's a lot of offsite marketing, we're doing as well, but I am very excited about in terms of what that can do to get people, who already like us to want to think of us more often and come back more often.
Great Great Josh Thanks planning a wedding if my daughter, so all the collections are happening.
Right now.
Alright, and then go to Rachel we got a question from economic.
<unk> from Deutsche and UBS sorry.
I want to make sure we clarify something we said on our recorded remarks can be for Rachel If you look for teams Gms growth in the second half how much of that will come from growth and by our count versus growth in spend per buyer. So I think we want to clarify what we actually said about the second half yeah. So first of all we didn't we didn't give guidance for the full year. So we always we've been.
Cautiously during unpredictable times, giving one quarter at a time.
And but we do like to give some sort of tea leaves are some suggestions on how to think about the second half and so at this time, what we said was.
I'm going to quote another CFO , who sat on our call last quarter or the quarter before that time heals all the lapping.
And you would expect that time would heal overlapping if not for what we're seeing it's pretty volatile.
Headwinds right now from reopening from constrained consumer balance sheets from inflation.
Inflationary pressures and that.
What we're seeing is some some what I would call that characterized as choppy waters and so that.
Volatility our headwind may actually negate, what we would say could be.
Growth in the teens.
If if not just because of the lapping if not for this headwind that we're getting from the sort of exogenous factors.
Okay, great. Thanks, Rachel the next one's going to get to just talk about a question we got from Ed dilemma.
On <unk> can you talk about the drivers of new buyer growth in Q4, obviously that was a good number.
How can you lean into the strength and drive strong new buyer growth again in 2023.
So thanks for the question.
We're proud of our marketing efforts and we think bringing new buyers to the site. The team did a really good job in the fourth quarter. Both in the U S and in international we continue to make gains in the U S.
We talked about for example, increasing nail buyer penetration.
And investing more in different channels to do that we've talked about NFL.
NFL ads.
In a recent call.
We're also doing a better and better job in our marketing on Google and Facebook to be able to speak to male audiences.
In a more personalized way and we're seeing that really pay off and then internationally we've been <unk>.
Fertilizing some of those fields and we're starting to see really great results from that so we've talked about the U K a lot Germany.
It was a great performer in 2022.
And in both of those markets now we have greater than 70% of of purchases come from sellers in the same market. So we've got a really vibrant two sided marketplace and now in both the UK and Germany, where top 10 E. Commerce site. That's the result of investing.
For a number of years to lay that foundation. So we're really excited in some of the other core markets we have.
Now and how we can see growth there to continue to bring new buyers.
To Etsy as we also continue to invest in the U S.
Great. Thanks, Josh.
I'm going to move to a question from Rick Patel at Raymond James concerning our subsidiaries, starting with Josh and then Rachel I'll come back to you. Afterwards can you expand on most recent developments Josh for reverb and Deepak.
<unk> 700, <unk> you didn't ask about it.
And maybe touch on some new initiatives, there and then Richard I'll Circle back with a profit question sure. So let's see starting with reverb reverb appears to be gaining share versus the musical instrument market broadly speaking over time we.
We feel really good about that.
They have a brand that is highly differentiated in the space. Some of the things that <unk> been working on recently that I think are really cool is partnering directly with brands.
So that those brands are launching limited edition exclusives on the reverb site, that's really exciting it can be a channel for the brands over time and it gives you a reason to want to go to river because theres a lot of only on river.
Kinds of things were opportunities for brands to move inventory that didn't sell at really deep discounts. So for those of you who are musicians keeping eye on reverb because there was a lot of cool stuff going on there other insights that they've had.
Is that.
Not all of the inventory is priced right because we saw so much inflation through 2021 and supply chain is backing up and now prices have settled back down again for many items and sellers may not have gotten the memo and so they may have items that are priced for what looked like an attractive price nine months ago.
That looks very expensive today.
And so they're doing a lot on value right now how do we help coach sellers for what the current price looks like that's the kind of thing Thats really cool that's hard for etsy to do because we don't have a catalog of things for sale, but all have SKU numbers, but at reverb. They do and they can do more of what is the current market price.
Sellers make good decisions there.
That's very exciting.
Deepak first crupi and the team have done a really good job of accelerating product velocity with using a lot more data to determine which parts of what theyre launching our work. So that's really core to the Etsy playbook, we talked about this in our prepared remarks, having.
Having the team broken down into small squads that each worked very independently and very urgently to fix a customer problem and measure every launch they do is that actually making the customer experience better in a way that's driving more gms. So we've.
Been successfully installing that playbook and velocity of the team at the pump is up substantially similar to reverb actually affordability is a big area that they're working on.
Making sure that sellers are selling items at prices that feel good to buyers the competitive landscape for Deepak is more challenging right now there is a lot of competition in there.
The.
Recycle clothing market in the U K economy has been a headwind.
No secret that the things are tougher and discretionary spending in the U K economy is tight so those have been headwinds for deep up there I think focused on exactly the right things with making sure. The customer experience continues to be world class, making sure. The brand continues to be a leading brand investing also in the U S, where we're a huge market opportunity.
Much earlier for deep up where we see some.
Current trends.
And.
And that team will keep focused as we do with all of our brands unprofitable growth doing things to drive profitable growth and last but not least you have seven.
<unk> seven is more weighted to events and activities than the other etsy brands.
So for example, having casinos are having a birthday parties.
Our weddings things like that and so as they come through Covid in Brazil, We think thats going to provide tailwind.
For them to continue driving the <unk> seven.
Business in Brazil.
Rachel do you want to just touch on the profitability question, Yes, I think the second part of the question was just on.
Getting profitability through those subsidiaries.
So I just want to remind you that the subsidiaries are 12% or less of our total gms so they're very very small.
Reverb is just at about hovering around breakeven.
He will step in is not yet profitable, but theyre also too tiny to matter or make any kind of material impact to our overall margin.
Deepak we're in.
Investing for growth it would be that it would be really the wrong thing to do to starve them at this point, but I will also say even if they were all three.
Breakeven or better they would still be dilutive to our margins at this point just because they're all sub scale.
And so their margins will be lower and when you factor that it keeps very high margins. It just brings them down by a bit.
Thanks, Rachel I know, we're at time, but we're going to squeeze in one more because we want to get to it.
Got a question from Rick.
From Sean Dunlap at Morningstar, and it's really just about what we're seeing in India and can we talk about the early results in the roadmap from here, Josh, especially getting its being going from a one sided marketplace to decide it.
Yeah, we are really excited about the Indian market. It has a wonderful history of artisan ship craftsmanship handmade.
Very aligned with the culture of India and also the priorities of the government, which we think is great our ability to lift up and support Indian sellers in their own market. We think is.
Is something that we're very well aligned on all of US together, we have about 120000 sellers now in India was about 5 million live listings. So we think that's a really encouraging start and the big asset. We bring is the opportunity for the sellers to export to other markets in a very affordable way for 'twenty you can open up.
Store in India, and sell to the world and so that's how we've been able to get.
Good number of sellers and listings now we are building the belts and suspenders to allow for a buyer experience in India as well and that that requires shipping providers that requires payments infrastructure.
Making sure that we have all the right trust and safety infrastructure for the Indian culture in the Indian market and so that's the investment we've been making in the work that we've been doing.
Sure.
Encouraged by the progress that we're making.
And we're very excited about the future I do want to say.
We want to invest in India in a sustainable way and so.
Making sure that we do it.
In a way that supports organic growth over time and doesn't just flood the market with a lot of investment that either succeeds or fails in a short amount of time and then if it doesn't work we pull out with our tail between our legs, how do we sort of bit by bit step by step invest organically in the market in a way that is very sustainable over the long.
<unk> and builds a great market.
We're excited about that we think they have a lot to offer the Indian market.
And excited.
We're excited about the progress we've made.
Great, Thanks, Josh and with that I'm going to call. It we look forward to seeing everyone on the road back and realized.
There soon thank you all for joining us. Thank you thanks, everyone.