Q2 2024 Etsy Inc Earnings Call

July 31, 2024

Josh Silverman CEO and Rachel Glaser CFO. Once we're finished with the presentation, we will take questions from our publishing sell side analysts on video. Please keep in mind that our remarks today include forward looking statements related to our financial guidance, our business and our operating results as noted in the slide deck posted to our website for your reference our actual results.

May differ materially.

Speaker Change: We're looking statements involve risks and uncertainties some of which are described in today's earnings release and our most recent Form 10-Q, and which will be updated in future periodic reports that we file with the SEC any forward looking statements that we may make on this call are based on our beliefs and assumptions today and we disclaim any obligation to update them also during the <unk>.

Speaker Change: <unk> will present, both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release or slide deck posted on our IR website, along with the replay of this call.

Speaker Change: With that I'll turn it over to Josh.

Josh: Thanks, Deb and good afternoon, everyone. We're pleased that he is consolidated results came in at the high end or ahead of our guidance G. M. S was $2.9 billion down about two 1% year over year on a consolidated basis revenue grew 3% to $648 million and we posted a very healthy adjusted EBITDA margin of approximately.

Speaker Change: <unk> 28 per cent and.

Speaker Change: Etsy marketplace Gms was down about 3.2% year over year, a 210 basis point improvement from our Q1 performance of negative $5 three at.

Speaker Change: Let's see marketplaces record high level of approximately 92 million active buyers held up very well in another challenging quarter for our type of goods, while we continue to face stiff macro headwinds, we're making meaningful improvements to the customer experience, which we believe are beginning to inflect the curve along our journey to get Etsy back to growth. We also have.

Speaker Change: <unk> today that Rachel is planning to retire she's been a strategic partner and a key to the tremendous success Etsy has achieved since 2017 I believe every CFO wants to be measured on results and Rachel has so much to be proud of in that regard beyond the numbers, Rachel leads with optimism and heart, helping craft our culture <unk>.

Speaker Change: Our team's operational excellence. She has built a strong team and I'm grateful she chose etsy to serve as the culmination of her impressive career, our entire community will continue to benefit from the impact. She has made we're going to have some more time together and we'll stay focused on driving etsy success, you'll all have ample time to chat with her over the coming months.

Speaker Change: As we launch a search for her successor and of course, we'll share updates with you at the appropriate time.

Speaker Change: As a reminder, our key focus for 'twenty 'twenty four is to continue to build consideration for etsy to help buyers think of us more often by making it easier to find the best stuff driving association that there are great deals on etsy, and making shopping on etsy more convenient.

Speaker Change: We're working to make etsy more of a go to shopping destination and in particular to really lean into what makes etsy different and special and we're making excellent progress in our bold initiatives to do just that.

Speaker Change: As you know we've evolved our way of working in 'twenty 'twenty four to shift some of our focus from building incrementally better customer experiences to investing in the creation of more big Bang truly engaging experiences and moments onsite and off since 2017 Etsy is operating model has been quite unique.

Speaker Change: And the teams were tasked to bank Gms and a very disciplined way to drive valuable incremental improvements to the customer experience. This worked extremely well for us and I believe has been a key contributor to our remarkable success, including being able to maintain a very large part of our extraordinary pandemic gains gift.

On-Site and Off-Site

Since 2017, Etsy's operating model has been quite unique in that teams were tasked to bank GMS in a very disciplined way to drive valuable incremental improvements to the customer experience.

Speaker Change: Our much larger scale and the increasingly crowded and promotional ecommerce landscape. We're now allocating a significant portion of our efforts to bold integrated initiatives that combined product improvements and marketing in novel ways.

This worked extremely well for us, and I believe has been a key contributor to our remarkable success, including being able to maintain a very large part of our extraordinary pandemic gains.

Speaker Change: We're working backwards from what great customer experiences look like and are laser focused on driving by buyer engagement not just conversion.

Given our much larger scale and the increasingly crowded and promotional e-commerce landscape, we're now allocating a significant portion of our efforts to bold, integrated initiatives that combine product improvements and marketing in novel ways.

Speaker Change: I'm really excited to update you about how this new way of working is driving the success of several key 'twenty 'twenty four initiatives, including in gifting or work to highlight quality on Etsy plans for our new Etsy insider loyalty program and work to make our Etsy App the center of our customer experience.

We're working backwards from what great customer experiences look like and are laser-focused on driving buyer engagement, not just conversion.

Speaker Change: Starting with gifting, which is proving to be a winning theme better onsite gifting experiences combined with clear and engaging marketing initiatives for seasonal and evergreen gifting and specific campaigns for product innovations such as our new gift teaser video messages worked together to deliver excellent second quarter performance.

I'm really excited to update you about how this new way of working is driving the success of several key 2024 initiatives, including in gifting our work to highlight quality on Etsy.

Plans for our new Etsy Insider Loyalty Program and work to make our Etsy app the center of our customer experience.

Speaker Change: Foremen and the strategic investment area Sitewide Gms for purchases identified as gifts grew 4% on a year over year basis and significantly outperformed the overall etsy marketplace further etsy as gifting performance surpassed that of the pure play competitors, we've been tracking for benchmarking purposes, and our U S mother's day.

Try something different, which is probably going to be a really big deal.

[inaudible]

And specific campaigns for product innovations such as our new gift teaser video messages worked together to deliver excellent second quarter performance in this strategic investment area.

Speaker Change: Fathers day, and graduation performance meaningfully outpaced the NR Fs forecasted performance for these events.

Sitewide GMS for purchases identified as gifts grew 4% on a year-over-year basis and significantly outperformed the overall Etsy marketplace. Further, Etsy's gifting performance surpassed that of the pure play competitors we've been tracking for benchmarking purposes.

Speaker Change: Video gift teaser messages weren't our only product innovation in the second quarter, we launched gift lists and reminders, allowing you to track ideas you have for a loved one special event and then of course reminding you to make the purchase and new occasion pages curated for things like anniversaries birthdays and so on.

And our U.S. Mother's Day, Father's Day, and graduation performance meaningfully outpaced the NRF's forecasted performance for these events.

Speaker Change: In addition to Gms growth, we're utilizing monthly U S buyer surveys to gauge the impact of our gifting strategies and this data shows a significant year over year increase in prompted consideration of etsy for gifts.

Video gift teaser messages were our only presentation in the second quarter. We launched gift lists and reminders, allowing you to track ideas you have for a long-running special event. And, of course, reminding you to make a purchase.

Speaker Change: We're also tracking an increase in perceptions that etsy makes it easy to find a great gift of course gifting initiatives will remain front and center as we move into the all important holiday season.

Speaker Change: and the other two are young teenagers, trying to put themselves in the first place and so on. And if this is what you're asking about, we need to realize that the work that we do as a science service includes and impacts the work of different strategies, and that's why there's just a significant number of young individuals who are under the consideration of that type of test.

Speaker Change: Moving onto bold initiatives, we're making in quality to ensure we highlight the very best of Etsy differentiating ourself in a sea of Commoditized merchandize, we stand for keeping commerce human.

Speaker Change: Welcome to Tracking the Increase in Perceptions at Etsy makes it easy to find a great gift. Of course, gifting initiatives will remain front and center as we move into the all-important holiday season.

Jenny: And we have an enormous conviction that doing this in a way that no. One else can is our most important competitive advantage and that these initiatives represent a tremendous unlock for buyer consideration. We mentioned on our last call that we're using large language models and Jenny I techniques to better understand both the shopping mission you're on it.

Speaker Change: Moving on to bold initiatives we're making in quality to ensure we highlight the very best of Etsy, differentiating ourselves in a sea of commoditized merchandise.

Speaker Change: We stand for keeping commerce human, and we have an enormous conviction that doing this in a way that no one else can is our most important competitive advantage, and that these initiatives represent a tremendous unlock for buyer consideration.

Speaker Change: As well as our sellers inventory along these four key focus areas suppressing and removing items that violate our policy up ranking better quality listings in search and recommendations and better curating and organizing our marketplace.

Speaker Change: We mentioned on our last call that we're using large language models to understand AI techniques to better understand purpose trappings to your audience, as well as our sellers' inventory, allowing us to explore key purpose areas, such as processing and loading items that violate our policy.

Speaker Change: I'm extremely proud to report on the Fantastic progress our search team is making to move beyond our historical focus on solving for relevancy and search when you know what you want and can't find it anywhere else to new initiatives meant to also highlight the best of Etsy and feature the incredible diversity and uniqueness of our sellers.

Speaker Change: I'd like to thank all of you for listening to this lecture and recommendations, and I'd like to tell you that everyone has an hour left to post.

Speaker Change: Dice.

Speaker Change: I'm extremely proud to report on the fantastic progress our search team is making to move beyond our historical focus on solving the relevance game search. When you know what you're finding, you can't find it anywhere else.

Speaker Change: In the past our search algorithms ranked each listing individually based on likelihood to convert which often resulted in buyers seeing far too many similar items rather than a more more holistic set here's some powerful data.

Speaker Change: To no one's chance, but to also highlight the vast diversity and future incredible diversity and uniqueness of our science professionals.

Speaker Change: We roughly cut in half the percentage of searches where a high percentage of listing seen on page one or from a single seller.

Speaker Change: In the past, our search algorithms ranked each listed individual based on one specific event, which often resulted in variations on two of these similar items, rather than a more holistic set. Here's a powerful example.

Speaker Change: We reduced the percentage of searches that have two or more listings that may appear identical by over 70%. We're incredibly excited about what this might mean for future visitation as buyers see a more diverse and higher quality set of listings each time they visit etsy.

Speaker Change: In addition to helping buyers. These initiatives also support our sellers given how important it is that we nurture the best of Etsy across our seller base. Our latest search experiments resulted in approximately 70% of shops, having more visibility and search with the share of search impressions from small and medium shops, increasing.

Speaker Change: By nearly 30% later this summer will empower sellers by giving them more agency and actionable insights than ever before into factors like listing quality and completeness that can impact how they show up in search.

Speaker Change: Connected to this work and to further allow our sellers' unique items to shine. We've made some bold changes to our marketplace to reinforce who etsy is so that everyone who comes to etsy understands why we're different and special we know that people love what etsy represents as a marketplace that offers original items made by real people.

Speaker Change: And that being a place that support small businesses and offers original goods are etsy as top drivers for consideration and relevance.

Speaker Change: You had in the past the label handmade was the default applied any listing which wasn't vintage or craft supply.

Speaker Change: Even while our policies allow for the inclusion of items that were designed or personalized by the seller, but not made with their own hands. This lack of distinction could be confusing for both buyers and sellers.

Speaker Change: So on July nine we announced a series of updates to our listing labels to be clearer about why items belong on etsy and elevating the role of the seller in the making process. We've labeled virtually all of that she's listings along for creativity standards, one physical items made by a seller by hand or using <unk>.

We know that people love what Etsy represents as a marketplace that offers original items made by real people and that being a place that support small businesses and offers original goods are etsy is top drivers for consideration and relevance.

Speaker Change: Arsenal, our computerized tools two items designed by our seller using their own designs get produced by a production partner three hand picked items, which can include vintage items items from nature and certain collections of items that a seller personally curated for sale and for items sourced by a seller specifically in the.

Speaker Change: In the past the label handmade was the default applied any listing which wasn't vintage or craft supply.

Speaker Change: He's a craft supplies or party supplies, along with items that are personalized by the seller.

Speaker Change: We've already seen lots of love from our sellers related to these new standards with overall high engagement and positive sentiment in our community spaces.

Speaker Change: So on July nine we announced a series of updates to our listing labels to be clearer about why items belonging etsy and elevating the role of the seller in the making process. We've labeled virtually all of that she is listings along for creativity standards, one physical items made by a seller by hand or using <unk>.

Speaker Change: Many sellers, even amplify the news and shared the campaign on their social media channels.

Speaker Change: In the spirit of moving boldly as we make these meaningful changes to highlight the quality diversity and differentiation of our sellers most unique inventory and feature of the seller's role in the creation of each item. We simultaneously launched a 360 degree marketing campaign touching owned earned and paid.

Speaker Change: <unk>, our computerized tools two items designed by our seller using their own designs get produced by a production partner three hand picked items, which can include vintage items items from nature and certain collections of items that a seller personally curated for sale and for items sourced by our seller specifically in the category.

Speaker Change: Channels to reinforce at CS quality originality and humanity. When you shop. Many of our competitors, you don't know who or where you're buying from with etsy. The sweaters stitched by Jessica the glass, whereas handmade by Chad and the table is built by Tiffany.

Speaker Change: As a craft supplies or party supplies, along with items that are personalized by the seller.

Speaker Change: Our new social creative tells a deeper story on the role of our sellers and their love for the aircraft. We've created dozens of assets that range in style based on the audience platform and goal here.

Speaker Change: We've already seen lots of love from our sellers related to these new standards with overall high engagement and positive sentiment in our community spaces. Many sellers, even amplified the news and shared the campaign on their social media channels.

Speaker Change: Here's our new hero brand spot for TV streaming and Youtube, which shines a spotlight on what makes our sellers so magical.

Speaker Change: What does a robot no.

Speaker Change: Oh about love.

Speaker Change: Doesn't translate the leap inside the human heart.

Speaker Change: We simultaneously launched a 360 degree marketing campaign touching owned earned and paid channels to reinforce at CS quality originality and humanity. When you shop. Many of our competitors, you don't know who or where you're buying from with etsy, the sweaters stitched by Jessica <unk>.

Speaker Change: And it's something we can see.

Speaker Change: And hold.

Speaker Change: The fingerprints, we leave behind show how determined we are.

Speaker Change: To give the world peace of ourselves.

Speaker Change: Etsy.

Speaker Change: Glass, whereas handmade by Chad and the table is built by Tiffany.

Speaker Change: The team and I couldn't be more excited about the changes we've made and how we're telling the world about them note that this is just one, albeit large step in our quality journey with much more to come I firmly believe that we will look back at this initiative is one of the most important factors, which reignite.

Speaker Change: Here's our new hero brand spot for TV streaming and Youtube, which shines a spotlight on what makes our sellers so magical.

Speaker Change: That's his growth.

Speaker Change: We mentioned last quarter that we're making significant investments in our app to engage our existing active buyers capture more new buyers and help encourage more engagement and browsing, which we believe will in turn convert into loyalty and sales. Our app continues to lead both desktop and mobile web in terms of Gms.

Speaker Change: What does a robot no.

Speaker Change: Oh about love.

Speaker Change: I will translate that Leif inside the human heart.

Speaker Change: And it's something we can see.

Speaker Change: And hold.

Speaker Change: Growth and represented about 42% of the Gms in the second quarter, providing an excellent opportunity for low cost native traffic acquisition, particularly given it's our highest converting platform.

Speaker Change: The fingerprints really behind show how determined we are.

Speaker Change: To give the world peace of ourselves.

Speaker Change: Etsy.

Speaker Change: We've launched and are leaning into optimizing our app store position running paid ads for app downloads, featuring app download prompt on our mobile website and utilizing our own channels and CRM, we're working to make the etsy app, our marquee customer experience shifting most by our usage to the.

Speaker Change: The team and I couldn't be more excited about the changes we've made and how we're telling the world about them note that this is just one, albeit large step in our quality journey with much more to come I firmly believe that we will look back at this initiative as one of the most important factors, which reignited.

Speaker Change: <unk> growth.

Speaker Change: <unk>, rather than mobile web or desktop and drive frequency and engagement with lower intent chat shoppers, who come just looking for ideas and inspiration.

Speaker Change: While continuing to convert buyers who are on a clear shopping mission and speaking of frequency and engagement I'm excited to unveil some details of our new buyer loyalty program. Another bold move for Etsy in 2020 for Etsy insider will be launched invitation only to a highly targeted group of occasional U S buyers.

Speaker Change: Gms growth and represented about 42% of the Gms in the second quarter, providing an excellent opportunity for low cost native traffic acquisition, particularly given it's our highest converting platform.

Speaker Change: In beta form in mid September we.

Speaker Change: We've accomplished a lot so far including many rounds of research and competitive audits to inform our program and rollout we've focused on developing key benefits for buyers that highlight both the emotional and the rationale characteristics of Etsy has unique value proposition and are in the process of finalizing our pricing strategy for launch.

Speaker Change: We've launched and are leaning into optimizing our app store position running paid ads for App downloads, featuring app download prompts on our mobile website and utilizing our own channels and CRM, we're working to make the etsy app, our marquee customer experience shifting most fire usage to the <unk>.

Speaker Change: Our beta program is buyer fee based and will include free U S. Domestic shipping millions of items item discounts first access merchandise and more will test learn and iterate and are optimistic that overtime Etsy insider can be a needle mover driver of buyer frequency and etsy.

Speaker Change: <unk>, rather than mobile web or desktop and drive frequency and engagement with lower intent chat shoppers, who come just looking for ideas and inspiration while continuing to convert buyers who are on a clear shopping mission and speaking of frequency and engagement I'm excited to unveil some details of our new buyer loyalty.

Speaker Change: Love.

Speaker Change: Program another bold move for Etsy in 2020 for Etsy insider will be launched invitation only to a highly targeted group of occasional U S buyers in beta form in mid September.

Speaker Change: I've said before that I believe etsy has more to gain from advances in AI than most of our e-commerce peers, especially given the incredible breadth and uniqueness of our sellers' inventory and we've been investing to unlock this value across almost every area of our business. This slide highlights 20, plus use cases in Prague.

Speaker Change: We've accomplished a lot so far including many rounds of research and competitive audits to inform our program and rollout we've focused on developing key benefits for buyers that highlight both the emotional and the rational characteristics of Etsy has unique value proposition and are in the process of finalizing our pricing strategy for launch.

Speaker Change: Development alone, we're fortunate to be building upon a strong base with many years of investment in leading edge ml and data infrastructure talent and systems, allowing us to move quickly a key foundation of the discovery and engagement work I've discussed today has been powered by our investments in AI for example to better.

Speaker Change: Curate merchandize to improve the buyer experience and drive Gms, we're making it easier for buyers to find quality listings for mid price jewelry known as demi fine by having human experts determined what jewelry attributes are most important to our buyers search think material called purity or hot trends than utilization.

Speaker Change: Love.

Jenny I: Rising Jenny I to infer those attributes to create new search discovery modules and pathways and incorporate this into onsite experiences such as landing pages. While this search is very much in progress these better onsite shopping experiences combined with targeted marketing initiatives such as tailored social media.

Jenny I: Content CRM efforts and improved data feed curation for paid and organic search contributed to a 9% year over year increase in Gms for demi fine jewelry in the quarter.

Speaker Change: I'm really proud of the strides our team is making so far in 2020 four we're confident we're working on the areas that will meaningfully impact etsy in the months and years to come.

Speaker Change: Curate merchandize to improve the buyer experience and drive Gms, we're making it easier for buyers to find quality listings for mid price jewelry known as dummy fine by having human experts determined what jewelry attributes are most important to our buyers search think material purity or hot trends than utilization.

Jenny I: We're leaning in more than ever to what makes Etsy Etsy, we're nowhere near being as big or as successful as I believe we can be nowhere near achieving our full potential. This is inspiring and motivating to us all I'll now turn the call over to Rachel.

Speaker Change: Rising Gen AI to infer those attributes to create new search discovery modules and pathways and incorporate this into onsite experiences such as landing pages. While this search is very much in progress these better onsite shopping experiences combined with targeted marketing initiatives such as tailored social media.

Rachel: Thanks, Josh and thank you for joining our call.

Rachel: Momentary today will cover our consolidated financial results key drivers of performance and Etsy marketplace Standalone results where appropriate.

Rachel: A reminder, we divested EUR seven on August 10th 2023, So please take that into consideration when you compare it year over year consolidated results.

Speaker Change: Content CRM efforts and improved data feed curation for paid and organic search contributed to a 9% year over year increase in Gms for demi fine jewelry in the quarter.

Speaker Change: <unk> second quarter 2024, consolidated Jan math with $2 9 billion down approximately two 1% year over year with a 20 basis point FX headwind.

Speaker Change: I'm really proud of the strides our team is making so far in 2024, we're confident we're working on the areas that will meaningfully impact etsy in the months and years to come we are leaning in more than ever to what makes etsy Etsy, we're nowhere near being as big or as successful as I believe we can be.

Jenny I: Revenue increased by 3% year over year to 648 million and adjusted EBITDA was 179 million, representing a healthy 27, 7% margin up 130 basis points year over year and ahead of our guidance.

Speaker Change: Nowhere near achieving our full potential this is inspiring and motivating to us all I'll now turn the call over to Rachel.

Jenny I: Note that Eva sentence divestiture resulted in small headwinds to gms and revenue growth in the quarter that was modestly accretive to our consolidated adjusted EBITDA margin.

Rachel: Thanks, Josh and thank you for joining our call my commentary today will cover our consolidated financial results key drivers of performance and Etsy marketplace Standalone results where appropriate.

Jenny I: The etsy marketplace Gms continued to face ongoing headwinds from tough macroeconomic environment, yet results came in a bit better than we had anticipated with the $2 $5 billion in etsy marketplace, Gms, representing a three 2% decline on a year over year basis and better than the five 3%.

Speaker Change: As a reminder, we divested seven on August 10 2023.

Speaker Change: Please take that into consideration when you compare year over year consolidated results.

Speaker Change: <unk> second quarter 2024, consolidated Gms was $2 9 billion down approximately two 1% year over year with a 20 basis point FX headwind.

Jenny I: In the first quarter.

Jenny I: In addition, strong deep hop performance contributed a nice tailwind to consolidated Gms.

Speaker Change: Revenue increased by 3% year over year to $648 million and adjusted EBITDA was 179 million, representing a healthy 27, 7% margin up 130 basis points year over year and ahead of our guidance.

Speaker Change: I'll cover Etsy marketplace EMS performance in more detail later, our consolidated year over year revenue growth of 3% can be attributed to solid growth in our marketplace revenue, which increased three 8% year over year, primarily driven by payments and Offsite ads.

Speaker Change: Note that even if that means divestiture resulted in small headwinds to gms and revenue growth in the quarter that was modestly accretive to our consolidated adjusted EBITDA margin.

Speaker Change: We continue to drive Etsy payments expansion with penetration of our payments platform now at about 98% at Etsy marketplace CNS.

Jenny I: We saw a nominal revenue increase from our new seller onboarding fee, which was rolled out in additional regions at the beginning of the second quarter.

Speaker Change: The etsy marketplace Gms continued to face ongoing headwinds from tough macroeconomic environment.

Speaker Change: <unk> came in a bit better than we had anticipated with the $2 $5 billion in Etsy marketplaces.

Speaker Change: When combined with stronger trust and safety efforts. This new fee is helping to reduce fraudulent onboarding protecting both our marketplace and existing sellers.

Speaker Change: Presenting at three 2% decline on a year over year basis, and better than the five 3% decline in the first quarter.

Deepak: Consolidated services revenue grew by 1% led by higher deep hop shipping label and ads revenue as Deepak continued to drive shipping label adoption and improve the visibility of boosted ads on their marketplace.

Speaker Change: In addition, strong deep hop performance contributed a nice tailwind to consolidated Gms.

Speaker Change: I'll cover Etsy marketplace Gms performance in more detail later, our consolidated year over year revenue growth of 3% can be attributed to solid growth in our marketplace revenue, which increased three 8% year over year, primarily driven by payments and Offsite ads.

Speaker Change: For the core Etsy marketplace ads revenue growth moderated during the quarter as we comp to Q2 of 2023, which featured strong growth from significant product optimization efforts.

Speaker Change: Nevertheless, etsy ads still stop modest year over year take rate expansion as the unlocked value for our sellers by refining our retrieval engines and ranking models to improve AD relevance all in all our consolidated take rate improved to 22% above our guidance of approximately 21, 6% and <unk>.

Speaker Change: We continue to drive Etsy payments expansion with penetration of our payments platform now at about 98% of Etsy marketplace TNF we.

Speaker Change: We saw a nominal revenue increase from our new seller onboarding fee, which was rolled out in additional regions at the beginning of the second quarter.

Speaker Change: When combined with stronger trust and safety efforts. This new fee is helping to reduce fraudulent onboarding protecting both our marketplace and existing sellers.

Speaker Change: Above the 29% reported in the same period last year.

Speaker Change: This strong performance is primarily the result of previously mentioned marketplace revenue growth.

Speaker Change: Consolidated services revenue grew by 1% led by higher D pop shipping label and ads revenue as Deepak continued to drive shipping label adoption and improve the visibility of boosted ads on their marketplace.

Speaker Change: Our second quarter consolidated adjusted EBITDA margin was about 28% ahead of our guidance and up 130 basis points from last year.

Speaker Change: We gained leverage year over year unemployed costs and cost of revenue, which was partially offset by a higher level of performance marketing investment this quarter.

Speaker Change: The core etsy marketplace ads revenue growth moderated during the quarter as the comp to Q2 of 2023, which featured strong growth from significant product optimization efforts.

Speaker Change: Just a quick note you have may have noticed in our PR that our second quarter net income was impacted by a non income tax expense for digital services tax ruling in Canada effective the end of June and retroactive to 2022.

Speaker Change: Nevertheless, etsy ads still saw modest year over year take rate expansion as we unlocked value for our sellers by refining our retrieval engines and ranking models to improve AD relevance all in all our consolidated take rate improved to 22% above our guidance of approximately 21, 6% and a.

Speaker Change: While this did not have an impact on our adjusted EBITDA results. It did impact our GAAP G&A and consolidated net income.

Speaker Change: We continue to drive leverage within consolidated product development spend which decreased 6% year over year to $114 million during the second quarter, primarily due to decreased employee compensation expense connected with our 2023 workforce reductions.

Speaker Change: Above the 29% reported in the same period last year.

Speaker Change: This strong performance is primarily the result of previously mentioned marketplace revenue growth.

Speaker Change: Our second quarter consolidated adjusted EBITDA margin was about 28% ahead of our guidance and up 130 basis points from last year.

Speaker Change: You can see from the chart on the right that revenue per head count for the Etsy marketplace continues to grow on a year over year basis and remains well above many of our peers, even those are significantly larger size and scale.

Speaker Change: We gained leverage year over year unemployed cost and cost of revenue, which was partially offset by a higher level of performance marketing investment this quarter.

Speaker Change: Second quarter consolidated marketing marketing spend increased 10% year over year to $183 million.

Speaker Change: Just a quick note you have may have noticed in our PR that our second quarter net income was impacted by a non income tax expense for digital services tax ruling in Canada.

Speaker Change: Most of this increase can be attributed to the etsy marketplace, where we leaned into our ROI positive channels and expanded into mid funnel and newer performance channels, particularly within paid social which is the second largest performance channel behind P. L. A.

Speaker Change: <unk> the end of June and retroactive to 2022.

Speaker Change: While this did not have an impact on our adjusted EBITDA results. It did impact our GAAP G&A and consolidated net income.

Speaker Change: The chart on the left shows how we have lean further into paid social and the first half of this year and we expect this trend will continue in the second half.

Speaker Change: Keep in mind that we believe that as they shift our mix towards paid social this will support buyer retention and frequency more than new buyer acquisition since a lot of our paid social advertising is a re targeting existing buyers and you see that reflected in the buyer metrics I will outline shortly.

Speaker Change: In the second quarter, we also comped a period of lower investment in the prior year when testing across our performance channels temporarily reduced spend.

Speaker Change: Second quarter consolidated marketing marketing spend increased 10% year over year to $183 million.

Speaker Change: As a reminder, revenue from our Offsite ads program offsets more than a third of our performance marketing spend.

Speaker Change: Consolidated brand spend declined 26% year over year, and 42% sequentially as we pulled back in this area. Following our significant Q1 2020 for marketing and investment to support the launch of gift mode.

Speaker Change: The chart on the left shows how we have lean further into paid social and the first half of this year and we expect this trend will continue in the second half keep.

Speaker Change: Let's move now to our Etsy marketplace second quarter, 2024, Gms and higher metrics.

Speaker Change: Keep in mind that we believe that as we shift our mix towards paid social this will support buyer retention and frequency more than new buyer acquisition since a lot of our paid social advertising is re targeting existing buyers and you see that reflected in the buyer metrics I'll outline shortly.

Speaker Change: We believe that the improved year over year Gms performance, we saw versus our first quarter results can be attributed to two factors first about a third of the sequential acceleration can be attributed to a tailwind from the Easter holiday timing shift, which we noted was a headwind to our Q1 results.

Speaker Change: In the second quarter, we also comped a period of lower investment in the prior year when testing across our performance channels temporarily reduced spend.

Speaker Change: Second we believe the initiatives we've been investing in this year drove the remaining portion of the sequential improvement demonstrated in part by stronger mother's and father's day purchases here, despite ongoing macro pressure on consumer and consumer discretionary product spending.

Speaker Change: As a reminder, revenue from our Offsite ads program offsets more than a third of our performance marketing spend.

Speaker Change: Consolidated brand spend declined 26% year over year, and 42% sequentially as we pulled back in this area. Following our significant Q1 2024 marketing investment to support the launch of gift mode.

Speaker Change: From a geographic perspective, our gms, excluding U S domestic declined slightly on a year over year basis, but improved about 120 basis points sequentially.

Speaker Change: Let's move now to our Etsy marketplace second quarter, 2024, Gms and higher metrics.

Speaker Change: We also saw some improved performance in a few of our categories, which as you may recall were all down on a year over year basis in Q1.

Speaker Change: You can see here that paper and party supplies, that's flat year over year and toys and games grew.

Speaker Change: In addition year over year trends improved in Q2, 'twenty 'twenty four versus Q1, 'twenty 'twenty four and five of six categories.

Speaker Change: We are pleased to report that etsy marketplace active buyers of approximately $91 5 million demonstrated continued resilience growing 1% on a year over year basis, and remaining roughly flat the last quarter.

Speaker Change: Drilling down a bit by our metrics were a bit of a mixed bag, we reactivate reactivated over 6 million lapsed buyers in the quarter up 8% year over year.

Speaker Change: From a geographic perspective, our gms, excluding U S domestic declined slightly on a year over year basis, but improved about 120 basis points sequentially.

Speaker Change: And we added over 5 million new buyers.

Speaker Change: This metric is down 9% year over year the decline moderated sequentially.

Speaker Change: We also saw some improved performance in a few of our categories, which as you may recall were all down on a year over year basis in Q1.

Speaker Change: Actively we added approximately 12 million new and reactivated buyers.

Speaker Change: Habitual buyers decreased by 3% year over year. However, our retention rate of habitual buyers are slightly better on a year over year basis.

Speaker Change: You can see here that paper and party supplies was flat year over year and toys and games grew.

Speaker Change: In addition year over year trends improved in Q2, 2024 versus Q1, 2024 and five of fixed categories.

Speaker Change: Lastly, gms per active buyer was down three 2% in the quarter to $124 continuing to show signs of stabilization on a sequential basis.

Speaker Change: In totality. We believe these metrics continue to indicate that etsy remains highly relevant to tens of millions of consumers who come to us despite tight discretionary budget, albeit spending a bit less because they fill a need like no one else.

Speaker Change: Drilling down a bit by our metrics were a bit of a mixed bag. We reacted reactivated over 6 million lapsed buyers in the quarter up 8% year over year and.

Speaker Change: Deep hop continues to be a source of growth and opportunity in the re commerce apparel sector. They delivered very strong year over year Gms growth driven once again by the U S market.

Speaker Change: And we added over 5 million new buyers.

Speaker Change: This metric is down 9% year over year, the decline moderated sequentially collectively we added approximately 12 million new and reactivated buyers.

Speaker Change: Deep hop removed selling fees for sellers base in the U S. Effective July 15th and introduced a small buyer marketplace fee change designed to empower sellers to earn more from their wardrobes offer improved value and choice for buyers and make it easier for people to take their first steps into secondhand.

Speaker Change: Habitual buyers decreased by 3% year over year. However, our retention rate of habitual buyers are slightly better on a year over year basis.

Speaker Change: Lastly, gms per active buyer was down three 2% in the quarter to $124 continuing to show signs of stabilization on a sequential basis.

Speaker Change: The evolved fee structure follows similar changes made in the U K market earlier this year.

Speaker Change: And turning to river. They continue to outpace the performance of the musical instruments sector and gain share by highlighting affordable music gear across the experience for example, reverb launch the reverb outlet in June, which showcases new and like new music ear sold at discounts of 20% or more from a trusted and.

Speaker Change: Totality. We believe these metrics continue to indicate that etsy remains highly relevant to tens of millions of consumers who come to us despite tight discretionary budget, albeit spending a bit less because they fill a need like no one else.

Speaker Change: <unk> retailers and brands as of June 30th we had $1 $1 billion in cash cash equivalents and short and long term investments.

Speaker Change: Deepak removed selling fees for sellers base in the U S. Effective July 15th and introduced a small buyer marketplace fee change designed to empower sellers or earn more from their wardrobes offer improved value and choice for buyers and make it easier for people to take their first steps into secondhand.

Speaker Change: During the second quarter, we repurchased a total of $150 million in stock under our $1 billion June 2023 Board authorized repurchase program of which approximately $416 million remained available as of June 30th.

Speaker Change: Our capital light business model allowed us to deliver strong free cash flow this quarter of approximately $141 million.

Speaker Change: The evolved fee structure follows similar changes made in the UK market earlier this year.

Speaker Change: We also continued to convert approximately 90% of our adjusted EBITDA to free cash flow on a trailing 12 month basis.

Speaker Change: And turning to reverb they continue to outpace the performance of the musical instruments sector and gain share by highlighting affordable music gear across the experience for example, reverb launch the reverb outlet in June, which showcases new and like new music year sold at discounts of 20% or more for trusted and off.

Speaker Change: And you can see here, how we have continued our commitment to return a significant portion of our free cash flow to shareholders through share repurchases into 2024.

Speaker Change: Turning to our outlook. We are pleased to have already seen a modest acceleration in consolidated gms in the first quarter to the second quarter of 2024 ahead of what we expected in May.

Speaker Change: As retailers and brands as of June 30th we had $1 $1 billion in cash cash equivalents and short and long term investments.

Speaker Change: Our guidance is that third quarter consolidated Gms will decline in the low single digit range on a year over year basis.

Speaker Change: During the second quarter, we repurchased a total of $150 million in stock under our $1 billion June 2023 board authorized repurchase program.

Speaker Change: As you know consumer discretionary project spending trends remain volatile with.

Speaker Change: Mixed singles about the health of the U S consumer.

Speaker Change: Of which approximately $416 million remain available as of June 30th our.

Speaker Change: So this guidance is based upon current expectations that the macro conditions, which impact our business don't get worse from here.

Speaker Change: Our capital light business model allowed us to deliver strong free cash flow this quarter of approximately $141 million. We also continued to convert approximately 90% of our adjusted EBITDA to free cash flow on a trailing 12 month basis.

Speaker Change: Q3, 24 consolidated take rate is currently estimated to be similar to the second quarter and it remained relatively stable for the rest of the year.

Speaker Change: And consolidated adjusted EBITDA margin will be approximately 27%.

Speaker Change: And you can see here, how we have continued our commitment to return a significant portion of our free cash flow to shareholders through share repurchases into 2024.

Speaker Change: The sequential pressure on Q3, adjusted EBITDA margin can primarily be attributed to three factors.

Speaker Change: Shift in timing of the cost of creative for our new seller focused brand campaign, which moved from the second quarter into the third quarter.

Speaker Change: Two continuing to lead into more exploratory marketing channels for the etsy marketplace, including unlocking paid social.

Speaker Change: Our guidance is that third quarter consolidated Gms will decline in the low single digit range on a year over year basis.

Speaker Change: And third some select incremental hiring to support our app investments.

Speaker Change: As you know consumer discretionary project spending trends remain volatile with mixed signals about the health of the U S. Consumer. So this guidance is based upon current expectations that the macro conditions, which impact our business don't get worse from here.

Speaker Change: We continue to expect that our full year 2020 for consolidated adjusted EBITDA margin will be at least at the level of our 2023 performance as seasonal volume and cost efficiencies should benefit our fourth quarter margin this year.

Speaker Change: Q3, 24 consolidated take rate is currently estimated to be similar to the second quarter and remained relatively stable for the rest of the year.

Speaker Change: The Etsy marketplace also historically has a larger share of revenue and adjusted EBITDA in Q4 relative to our subsidiaries who are expected to continue to be about 300 basis points of headwind to the consolidated results.

Speaker Change: And consolidated adjusted EBITDA margin will be approximately 27%.

Speaker Change: The sequential pressure on Q3, adjusted EBITDA margin can primarily be attributed to three factors.

Speaker Change: In closing I want to comment about my plans to retire from Etsy.

Speaker Change: Shifting timing of the cost of creative for our new seller focused brand campaign, which moved from the second quarter into the third quarter.

Speaker Change: It has been a privilege and honor and a joy to be says Chief financial Officer.

Speaker Change: I could not be prouder of everything we've accomplished over the last seven years.

Speaker Change: Two continuing to lead into more exploratory marketing channels for the etsy marketplace, including unlocking paid social.

Speaker Change: Working alongside this accomplished executive team has been a capstone to my career and I want to especially acknowledge Josh Smith.

Speaker Change: And third some select incremental hiring to support our app investments.

Josh Smith: Who for the past seven years has been equal parts partner mentor and friend.

Speaker Change: And who I know will be an important part of my life in the years ahead.

Speaker Change: And perhaps perhaps most importantly enough can't be said about the spectacular finance team we have at Etsy.

Speaker Change: A truly stand on the shoulders of a world class organization and I am confident they will carry on without missing a beat once I have moved on.

ASIC: I am excited to help identify and transition my responsibilities to ASIC.

Speaker Change: Successor, and after that I'll look forward to continuing board service, including in my current role on the New York Times Board, serving as their audit Committee chair.

Speaker Change: In closing I want to comment about my plans to retire from Etsy.

Speaker Change: It has been a privilege and honor and a joy to be says Chief financial Officer.

Speaker Change: My husband, and I are looking forward to more travel and maybe a little more downtime that be assured I will remain a habitual etsy buyer and a huge champion of the company.

Speaker Change: I could not be prouder of everything we've accomplished over the last seven years.

Speaker Change: Working alongside this accomplished executive team has been a capstone to my career and I want to especially acknowledge Josh Smith.

Speaker Change: I'm confident we can continue our ambitious strategy for sustainable profitable growth and advance our mission of keeping commerce human.

Joshua G. Silverman: For the past seven years has been equal parts partner mentor and friend and who I know will be an important part of my life in the years ahead.

Speaker Change: It's bittersweet to be saying these words that know my colleagues will deliver outstanding product and experiences for our buyers and sellers.

Speaker Change: And perhaps perhaps most importantly enough cannot be said about the spectacular finance team we have at Etsy.

Speaker Change: Thank you for your time today I will now turn the call over to the operator to take your questions.

Speaker Change: I truly stand on the shoulders of a world class organization and I am confident they will carry on without missing a beat once I have moved on.

Speaker Change: At this time, if you would like to ask a question. Please click on the Raytheon button, which can be found on the black bar at the bottom of your screen you may remove yourself from the queue at any time by lowering your hand.

Speaker Change: I am excited to help identify and transition my responsibilities to two.

Speaker Change: A successor and after that I'll look forward to continuing board service.

Speaker Change: When it is your churn you will receive a message on your screen asking to be promoted to the panelists.

Speaker Change: <unk> in my current role on the New York Times Board, serving as the audit Committee chair.

Speaker Change: Accept and once your name has been called you May Unmeet your video and audio and ask your question.

Speaker Change: My husband, and I are looking forward to more travel and maybe a little more downtime, but be assured I will remain a habitual etsy buyer and a huge champion of the company.

Speaker Change: You do not accept we will move on to the next analyst.

Speaker Change: As a reminder, we are allowing one question. If you have a follow up question you may raise your hand to rejoin the queue. We will now wait one moment to allow the uniform.

Speaker Change: I am confident etsy can continue our ambitious strategy for sustainable profitable growth and advance our mission of keeping commerce human.

Speaker Change: It's bittersweet to be saying these words that know my colleagues will deliver outstanding products and experiences for our buyers and sellers.

Speaker Change: Thank you our first question will come from Jason L Stine with Oppenheimer.

Speaker Change: Thank you for your time today I will now turn the call over to the operator to take your questions.

Speaker Change: You may now and yet your audio and video and ask your question.

Speaker Change: At this time I would like to ask a question. Please click on the Raytheon button, which can be found on the black bar at the bottom of your screen you may remove yourself from the queue at any time by lowering your hand when it is your churn you will receive a message on your screen asking to be promoted for panelists. Please.

Speaker Change: Alright.

Speaker Change: Thanks.

Speaker Change: So before I ask the question I want to say this is probably where our third rodeo. So maybe there'll be a fourth.

Speaker Change: I think going back.

Speaker Change: Is it.

Speaker Change: Perfect and once your name has been called you May I meet your video and audio and ask your question. If you do not accept we will move on to the next analyst.

Speaker Change: <unk> dot com or move Youre thinking of move.

Speaker Change: We've moved as home store right.

Speaker Change: So it's definitely been a blast over the year.

Speaker Change: As a reminder, we are allowing one question. If you have a follow up question you may raise your hand to rejoin the queue. We will now wait one moment to allow the uniform.

Speaker Change: Okay.

Speaker Change: So question.

Speaker Change: So Josh I wanted to dig into the.

Speaker Change: The new Teller classification program.

Speaker Change: When do you think you'll be able to tell if.

Jason Stuart Helfstein: Thank you our first question will come from Jason <unk> with Oppenheimer.

Speaker Change: Ultimately when an improved buyer conversion, which then ultimately presumably gives you confidence to lean more into marketing and kind of just get the flywheel going so that just a timing question yeah.

Jason Stuart Helfstein: You may now and yet your audio and video and ask your question.

Speaker Change: Back in any thoughts on getting your sellers to raise their prices banks.

Speaker Change: Alright.

Speaker Change: Hi.

Speaker Change: On the first one actually.

Jason: So before I ask the question I want to say this is probably where our third rodeo so maybe there'll be a poor.

Speaker Change: Not sure it'll raise conversion I hope it will raise frequency. So our search engine right now is really optimized for conversion, which is why we have historically shown you for example, multiple very similar variance of an item if if the black box algorithms thinks the most likely thing you're going to bias. This it might show you a variance.

Speaker Change: I think going back to.

Speaker Change: <unk> dot com or move Youre thinking of move.

Speaker Change: We'll move as home store right.

Speaker Change: Yeah.

Speaker Change: Alright.

Speaker Change: It's definitely been a blast over the years.

Speaker Change: Roughly the same thing and if thats actually what you wanted for the.

Speaker Change: In cases.

Speaker Change: <unk>.

Speaker Change: So Josh I wanted to dig into the the new seller classification program.

Speaker Change: Two or 3% of people, who are really ready to buy that thing that was a great experience and to drive conversion, but what about the other 97%, who really weren't necessarily ready to buy we would be much better served to show them a broader variety of things. So that they understand everything we have on offer whether theyre going to buy this session or come back.

Speaker Change: When do you think youll be able to tell it.

Speaker Change: Ultimately when an improved buyer conversion, which then ultimately presumably gives you confidence to lean more into marketing.

Speaker Change: And kind of just get the flywheel going so that just a timing question back.

Speaker Change: More often so I think what we're going to end up with now dramatic improvements in the diversity of items, we're showing on etsy. The diversity of sellers were showing on Etsy I think is going to drive a lot more people to say Wow, there's a lot more stuff for sale that I realize there is more categories of items for sale that are relevant they're going to come back more often and that's what.

Speaker Change: Back in any thoughts on getting your sellers to raise their prices.

Speaker Change: On the first one actually.

Speaker Change: Not sure it'll raise conversion I hope it will raise frequency. So our search engine right now is really optimized for conversion, which is why we have historically shown you for example, multiple very similar variance of an item if the black box algorithms thinks the most likely thing youre going to buys this it might show you a variance.

Speaker Change: What I'm really excited about in terms of getting sellers to raise their prices where marketplace and seller set their own prices and we're not.

Speaker Change: Telling them how to price, we do give them market information to help them price I think the more we can do to emphasize the humanity of Etsy Etsy seller. The artisanal craft roll that was played but more we can give the seller a rightful pricing power and so you should expect to see.

Speaker Change: Roughly the same thing.

Speaker Change: That's actually what you wanted for the two or 3% of people, who are really ready to buy the thing that was a great experience and drives conversion, but what about the other 97% really werent necessarily ready to buy we would be much better served to show them a broader variety of things so that they understand everything we have on offer.

Speaker Change: Oh.

Speaker Change: See in the quarters to come us doing more and more to center the seller her role in the baking process things like video of her actually making the thing. So you really understand how our teams know the item is.

Speaker Change: They're going to buy this session or come back more often so I think what we're going to end up with now <unk>.

Speaker Change: Dramatic improvements in the diversity of items were showing on etsy the diversity of sellers.

Speaker Change: And that I think is going to really support our sellers and their pricing power and I'm excited about it and just to add a note to the frequency comment you made because you asked about when it can get the flywheel going again.

Speaker Change: Sewing on Etsy, I think is going to drive a lot more people to say Wow, there's a lot more stuff for sale that I realize there is more categories of items for sale that are relevant they're going to come back more often and that's what I'm, what I'm really excited about in terms of getting sellers to raise their prices where marketplace and seller set their own prices and we're not.

Speaker Change: Increased frequency, obviously drives up what.

Speaker Change: Lifetime value. So we can actually get the marketing flywheel going that way.

Speaker Change: More frequency is a good thing.

Speaker Change: Thanks, Jason I'd say operator next question.

Speaker Change: Our next question comes from Jian Li with Evercore.

Speaker Change: Rightful pricing power and so you should expect to see.

Speaker Change: And yet your audio and video and ask your question.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Congrats Hey, John really a good run here.

Speaker Change: I have a question on the.

Speaker Change: The shape of Gms growth recovery.

Amy: And that I think is going to really support our sellers and their pricing power and I am excited about it and just add a note to the frequency come Amy because you asked about when it can get the flywheel going again.

Speaker Change: Through the back half of the year.

Speaker Change: How I guess like a couple of things like how is macro changed.

Speaker Change: Versus three months ago, you don't have to come in better or worse versus where you stood three months ago and.

Amy: Increased frequency, obviously drives up what lifetime value. So we can actually get the marketing flywheel going that way.

Speaker Change: Why wouldn't we expect Gms recovery to continue sequentially given that you are leaning more into marketing in Q3, and all of these product initiatives in the back half.

Speaker Change: More frequency is a good thing.

Amy: Thanks, Jason I'd say operator next question.

Speaker Change: I can start with the macro and that we're seeing.

Speaker Change: And I'd say, it's been sort of tough sweating pretty volatile.

Speaker Change: We see them.

Speaker Change: Our next question comes from Jian Li with Evercore.

Speaker Change: We look at external data, we see things going in a positive direction, we see things going in the negative direction.

Speaker Change: And yet your audio and video and ask your question.

Speaker Change: Experience Q2, Q1 to Q2, it's probably about the same amount of pressure in the guidance that we gave does we expect about the same for the rest of the year.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: First congratulations on a really good run here.

Jian Li: I have a question on the.

Speaker Change: Shape of Gms growth recovery.

Speaker Change: If it were to get worse that would influence the forecast that we have.

Speaker Change: And in the back half of the year.

Speaker Change: How I guess like a couple of things like how is macro changed.

Speaker Change: We there's a lot of other main chair events that are going on in addition to macro so we had.

Speaker Change: Versus three months ago, you don't have to come in better or worse versus where you stood three months ago and.

Speaker Change: Tempted presidential assassination, we had.

Speaker Change: Why wouldn't we expect Gms recovery to continue sequentially given that you are leaning more into marketing in Q3, and all of these product initiatives in the back half.

Speaker Change: Pretty volatile and we have a pretty exciting and volatile democratic.

Speaker Change: Competition going on right now we have the Olympics, we have I think Wimbledon World Cup in one other European soccer going all on the state at the same time and other things.

Speaker Change: I can start with the macro and that we're seeing.

Speaker Change: And I'd say, it's been sort of tough flooding pretty volatile. So it's been a theme we've.

Speaker Change: In addition to macro tend to influence our we've always talked about what we call. The CNN effect of influence are.

Speaker Change: We've seen.

Speaker Change: When we look at external data, we see things going in a positive direction, we see things going in a negative direction. What we've experienced Q2 Q1 to Q2, it's probably about the same amount of pressure in the guidance that we gave does we expect.

Speaker Change: Our outcome. So we are fighting against those things that go one direction, but in the meantime, we're really planning for a great.

Speaker Change: Q4, particularly with investments in quality as Josh has talked about and gift mode, which keeps getting better and better with new product launches getting ready for the holiday season. So there's a lot to be excited about just cautious with this with this environment.

Speaker Change: About the same for the rest of the year.

Speaker Change: If it were to get worse that would influence the forecasts that we have.

Speaker Change: We there's a lot of other mindshare events that are going on in addition to macro so we had.

Operator: Okay. Thanks, Tim Operator next question.

Speaker Change: <unk> presidential assassination, we had a.

Speaker Change: Our next question will come from Nathan <unk> with Morgan Stanley You May now on mute your audio and video and ask your question.

Speaker Change: Pretty volatile pretty exciting and volatile Democratic.

Speaker Change: Competition going on right now we have Olympics, we had I think Wimbledon World Cup in one other European soccer going all on the same at the same time and other things.

Nathan: Hi, everyone and congrats Rachel it's been great working with you.

Rachel: Thanks, Thank you.

Nathan: A few quick questions on the new loyalty program going into beta So first off what was the primary customer you're targeting here or is it primarily that repeat customer that maybe is it habitual, yes, you're going to bring them over the line and then can you talk through how you think about <unk>.

Speaker Change: In addition to macro tend to influence our we've always talked about what we call. The CNN effects of influence are.

Speaker Change: Our outcome so we're fighting.

Speaker Change: Fighting against those things that go one direction, but in the meantime, we're really planning for a great.

Speaker Change: <unk> that program and the goals for profitability.

Speaker Change: Great question, Yes, so all great question. So the target customer is people, who shop only occasionally on etsy, Thank people, who shop, three or four times, a year and the ideas by having a paid loyalty program. Once you're Bang you want to get value out of it. So the idea is can we take those people and turn them into people, who every time they're shopping for.

Speaker Change: Q4, particularly with investments in quality as Jeff has talked about and gift mode, which keeps getting better and better with new product launches getting ready for the holiday season. So there is a lot to be excited about just cautious with this with this environment.

Operator: Okay. Thanks, Tim Operator next question.

Speaker Change: Something think let me start on Etsy.

Speaker Change: Start all of my shopping missions on Etsy or many of my shopping mission and Etsy, we're particularly excited to test what would happen if shipping cost went away and I want to be clear Etsy is funding. This we're not asking the seller to fund this and obviously the fees will charge to the buyers will help fund it but.

Speaker Change: Our next question will come from Nathan <unk> with Morgan Stanley You May now on mute your audio and video and ask your question.

Nathan: Hi, everyone and congrats Rachel it's been great working with you.

Rachel: Thanks Nathan.

Nathan: A few quick questions on the new loyalty program going into beta so first off what's the primary customer you're targeting here or is it primarily that repeat customer that maybe is it habitual yet you think you could bring them over the line and then can you talk through how you think about.

Rachel: But that's going to be a very interesting experiment and then we're also leaning a lot into emotional.

Speaker Change: Reward so think Nielsen drops special value and new product releases for customers. We think all of this we can create something very exciting we don't have specific pricing that we're ready to announce yet, but we're thinking in the range of the cost of a couple of others.

Speaker Change: Pricing that program and the goals for profitability.

Speaker Change: Great question, Yes, so all great question. So the target customer is people, who shop only occasionally on etsy, Thank people, who shop, three or four times, a year and the ideas by having a paid loyalty program once you're paying you want to get value out of it. So the idea is can we take those people and turn them into people, who every time, they're shopping for something.

Rachel: The cost of a latte per month kind of things. We know people are very value conscious right now.

Speaker Change: And again, we're not targeting our most loyal most habitual buyers who already come to etsy to shop.

Speaker Change: Thanks, Let me start on Etsy start.

Rachel: For many many of their missions, we're targeting more occasional shoppers and seeing if we can upgrade them. So we think something in the range of the cost of a.

Speaker Change: Start all of my shopping missions on Etsy or many of my shopping mission is on Etsy were particularly excited to test what would happen if shipping cost went away I don't want to be clear Etsy is funding. This we're not asking the seller to fund this and obviously the fees will charge the buyers will help fund it but.

Rachel: <unk> is probably about right.

Speaker Change: It just said it in his prepared remarks, but instead, it's an invitation only data right now so it's a very limited group of people and then learn and iterate from there and you asked about profitability, obviously everything we do we want to be profitable in time.

Speaker Change: But thats going to be a very interesting experiment and then we're also leaning a lot into emotional.

Speaker Change: Reward so think deals and drops a special value and new product releases for customers. We think all of this we can create something very exciting we don't have specific pricing that we're ready to announce yet, but we're thinking.

Rachel: In the beginning.

Rachel: We're going to test and learn on this one and I think the program I would expect the program to evolve.

Speaker Change: <unk> four and a half years at American Express, which not only runs a massive loyalty program of its own membership rewards, but are partners with delta and Starwood and so many other loyalty programs and it really deep way. So I've had a chance to look at the loyalty market.

Speaker Change: In the range of the cost of a couple of the <unk>.

Speaker Change: Cost of a latte.

Speaker Change: Per month kind of things, we know people are very value conscious right now.

Speaker Change: And again, we're not targeting our most loyal most habitual buyers who already come to etsy to shop.

Rachel: For a long time and typically these programs evolve and you learn a lot about how to make the economics work and I expect we're going to be a bit of a learning curve here.

Speaker Change: For many many of their missions, we're targeting more occasional shoppers and seeing if we can upgrade them. So we think something in the range of the cost of.

Speaker Change: Really excited about that and I am quite optimistic about what this can be in the future.

Speaker Change: <unk> is probably about right.

Speaker Change: Great. Thank you.

Speaker Change: Just said it in his prepared remarks, but is that it's an invitation only beta right now so it's a very limited group of people and then learn and iterate from there and you asked about profitability, obviously everything we do we want to be profitable in time I think in the beginning.

Speaker Change: Yes, we don't get invited because were habitual and items.

Speaker Change: Okay.

Speaker Change: De minimis impact to margins in 2020, or so let's say we have the next.

Speaker Change: I wanted to introduce the next one.

Savannah, Algeria: Our next question comes from Savannah, Algeria, with where Wolfe research you may have.

Speaker Change: We're going to test and learn on this one and I think the program I would expect the program to evolve.

Speaker Change: Your audio and video and ask your question.

Speaker Change: I spent four and a half years at American Express, which not only runs a massive loyalty program of its own membership rewards, but are partners with delta and Starwood and so many other loyalty programs and a really deep way. So I've had a chance to look at the loyalty market.

Savannah: Hello, Thank you for taking my questions Rachel.

Speaker Change: It's sad to see you go and I wish you all the best.

Speaker Change: At least from my side definitely will Miss you.

Speaker Change: For a long time and typically these programs evolve and you learn a lot about how to make the economics work and I expect we're going to be on a bit of a learning curve here I'm really excited about that and I am quite optimistic about what this can be in the future.

Speaker Change: Two questions. Please one is just at a high level if you could.

Speaker Change: Talk about Josh what what do you think is the most exciting as you think about all these different initiatives and everything that you're launching for 2025. There is a lot of concern around consumer spend pulling back around competition.

Speaker Change: Great. Thank you.

Speaker Change: Yes, we don't get invited because were habitual and items.

Speaker Change: Okay.

Speaker Change: Et cetera, So what would you say to those who are doubting that there could be positive growth in next for next year and then second.

Speaker Change: De minimis impact to margins in 2020 or so.

Speaker Change: It looks like we have the next.

Speaker Change: Is on the.

Speaker Change: Operating wanted to introduce the next one.

Speaker Change: Then a follow up on your on the prior question actually.

Speaker Change: Our next question comes from Savannah, Algeria, with where Wolfe Research you May I meet your audio and video and ask your question.

Speaker Change: Why why did you decide on this strategy now on the subscription.

Speaker Change: And what was the reason for it and launching it now thank you great. Thanks, and congrats on your new gig.

Savannah: Hello, Thank you for taking my questions Rachel.

Speaker Change: It's sad to see you go and I wish you all the best.

Speaker Change: It's nice to see you.

Speaker Change: At least from my side definitely will Miss you.

Speaker Change: Okay two questions. The first is.

Speaker Change: Economic outlook and what am I excited about and why should we be excited for 2025, I guess I'd start with.

Speaker Change: Two questions. Please one is just at a high level if you could.

Speaker Change: If you ask five economists their opinion on 2025, youre going to get six opinions.

Speaker Change: So we're trying to control we can control and.

Speaker Change: We can control, having an amazing and highly differentiated customer experience so in a world where.

Speaker Change: Competition et cetera, So what would you say to those who are doubting that there could be positive growth in next for next year and then second is on the.

Speaker Change: It may feel like we're swimming upstream in the economy.

Speaker Change: Think first we're maintaining our position when swimming upstream and I think we're getting a lot stronger forward, which is going to position us even better and most importantly, we're not going to get pulled downstream, we're not going to be part of that race to the bottom we're leaning into what makes etsy, even more etsy, we're leading into differentiation and I'm. So excited about you're asking about the things we're doing in gifting, we're seeing some.

Speaker Change: A follow up on your on the prior question actually.

Speaker Change: How why why did you decide on this strategy now on the subscription.

Speaker Change: And what was the reason for launching it now thank you great. Thanks, and congrats on your new gig.

Speaker Change: Green shoots here that are really encouraging the performance mother's day and father's day. Then then graduation I'm encouraged that that strategy is showing some encouraging green shoots I am really excited about the quality work that were doing when we say, 50% fewer searches have a high preponderance from one seller 70%.

Speaker Change: It's nice to see you.

Speaker Change: Okay two questions. The first is a.

Speaker Change: Economic outlook and what am I excited about and why should we be excited for 2025, I guess I would start with.

Speaker Change: You asked five economists their opinion on 2025, youre going to get six opinions.

Speaker Change: So we're trying to control we can control.

Speaker Change: Fewer searches have multiple items that appear to be largely identical I think that what that can do to the customer experience over time, we've done a ton in the path to suppress items that.

Speaker Change: We can control, having an amazing and highly differentiated customer experience so in a world where.

Speaker Change: It may feel like we're swimming upstream in the economy.

BIOLASE: BIOLASE our policy now we're really focused on elevating the highest quality items on etsy soon we will be launching to our sellers a dashboard showing them, how we score the quality of their items and the quality of their service level, creating even more of a race to the top for sellers. So they have agency over how to rank higher.

Speaker Change: Think first we're maintaining our position when swimming upstream and I think we're getting a lot stronger forward, which is going to position us even better and most importantly, we're not going to get pulled downstream, we're not going to be part of that race to the bottom we're leading into what makes etsy EBIT more etsy, we're leading into differentiation and I'm. So excited about you're asking about the things we're doing in gift thing we're seeing some.

Speaker Change: <unk> in search and that makes the buyer experience only better and better I am Super excited about elevating the very best of that seed letting our sellers shine, helping our buyers understand the role that the seller made in that process and really differentiating at C. I think it's an exciting path.

Speaker Change: Green shoots here that are really encouraging the performance and mother's day and father's day. Then then graduation I'm encouraged that that strategy is showing some encouraging green shoots I am really excited about the quality work that we do and when we say, 50% fewer searches have a high preponderance from one seller 70%.

Speaker Change: I'm really encouraged by the early start we're on right now.

Speaker Change: Sure.

Speaker Change: We're not giving 2020 guidance here so the other part of your question was.

Speaker Change: So we think that growth next year, we did show data on this call that tops categories, where we think last quarter. We were down in every one of our major categories along with many other.

Speaker Change: <unk> our policy now we're really focused on elevating the highest quality items on etsy soon we will be launching to our sellers a dashboard showing them, how we score the quality of their items and the quality of their service level, creating even more of a race to the top for sellers. So they have agency over how to rank higher.

Speaker Change: And each of those verticals this quarter we saw.

Speaker Change: Improvements in all of those categories, except for one and two of them are actually flat and positive. So we're starting to see the green shoots that we want to see in the categories that are most important to us I think there was a second question from Spider, which was why royalty now Oh why loyalty.

Speaker Change: <unk> in search and that makes the buyer experience only better and better I am Super excited about elevating the very best of Etsy, letting our sellers shine, helping our buyers understand the role that the seller made in that process and really differentiating at C. I think it's an exciting path.

Speaker Change: Consideration of a huge focus for us people loved the experience when they're on etsy, but they.

Speaker Change: They only think of us only.

Speaker Change: Very often I think a way to think of Etsy is we're the place to go when you can't find it anywhere else and we've been amazing at that and we've gotten better and better at that I mean, you know what if you wanted and you know what you want we have it at Etsy and we've gotten great. It's showing you at and for a few years. There was a period of time when you couldnt find almost anything.

Speaker Change: We're really encouraged by the early start we're on right now.

Speaker Change: Sure.

Speaker Change: No, we're not giving 2025 guidance here. So the other part of your question was.

Speaker Change: So we think that growth next year, we did show data on this call that tops categories, where we've seen last quarter. We were down in every one of our major categories along with many other.

Speaker Change: Anywhere else and we were the beneficiary since that time, we've done I think remarkable job, replacing almost all of that Gms with other gms here at Etsy, but we want to move from being the place to go when you can't find it anywhere else at the end of your process to the beginning of your process. We want you to start at Etsy I am planning a wedding.

Speaker Change: <unk> in each of those verticals this quarter we saw.

Speaker Change: Improvements in all of those categories, except for one and two of them are actually flat and positive. So we're starting to see the green shoots that we want to see in the categories that are most important to us I think there is a second question from Spider, which was why royalty now Oh why loyalty.

Speaker Change: Just had a baby I'm redecorating my home at the very beginning we want you to start on Etsy, and we know we have so much opportunity there and we've not been great. There. We think we have an opportunity to become really great. There and I think that llm's youre going to really help organize this enormous corpus of listings we.

Speaker Change: Consideration of a huge focus for us people loved the experience when they're on Etsy.

Speaker Change: The only think of us only.

Speaker Change: Very often I think a way to think of Etsy is we're the place to go when you can't find it anywhere else and we've been amazing at that and we've gotten better and better at that I mean, what if you wanted and you know what you want we have it at Etsy and we've gotten great of showing you at and for a few years. There was a period of time when you couldnt find almost anything.

Speaker Change: Have to be understandable why humans help to navigate it and make it a great starting point so our loyalty program as a way of saying Hey, join our loyalty program and start your commerce missions. We want you to pay a little bit of money every month and now that you've made that commitment. We want you to think every time you are buying something online wanted just start that mission.

Speaker Change: On Etsy, we tested paid and free together and if you launch them together they tend to cannibalize the free tends to cannibalize. The paid so we thought better to start with paid not saying, we would never do a free I'm, saying, we're going to evolve we're going to test, but but our consumer research suggested if youre going to test best to start with.

Speaker Change: The beginning of your process, we want you to start at Etsy I am planning a wedding I just had a baby I'm redecorating my home at the very beginning we want you to start on Etsy, and we know we have so much opportunity there and we've not been great. There. We think we have an opportunity to become really great there and I think.

Speaker Change: Our paid program great. Thank you operator next question.

Speaker Change: Our next question will come from John column 'twenty with Jefferies. You May know in mute your audio and video and ask your question.

Speaker Change: Llm's youre going to really help organize this enormous corpus of listings, we have to be understandable why humans help to navigate it and make it a great starting point so our loyalty program as a way of saying Hey joined our loyalty program and start your commerce missions. We want you to pay a little bit of money every month and now that you've made that commitment we want.

Speaker Change: Hi, Thanks for the question.

Speaker Change: Wanted to ask one on marketing so on the performance marketing side up 30, 31% I think that's the biggest increase since 2020.

Speaker Change: Given that that is currently significantly faster than the trajectory of Gms just talk about what gives you confidence that once you recalibrate the trajectory of performance marketing to better balance growth and profitability that you won't see a big pullback in Gms.

Speaker Change #110: Sort of I think every time you are buying something online wanted to start that mission on Etsy, we tested paid and free together and if you launch them together they tend to cannibalize the freedoms to cannibalize. The paid so we thought better to start with paid not saying, we would never do a free I'm, saying, we're going to evolve we're going to test but.

Speaker Change: Can I start with first of all last year in Q2, we did pull back on marketing spend because we're running instrumentality tests during that quarter. So the base was sort of not a normal base.

Speaker Change #111: But our consumer research suggested if youre going to test best to start with a paid program great. Thank you operator next question.

John <unk>: Our next question will come from John <unk> with Jefferies. You May know on mute your audio and video and ask your question.

Speaker Change: One of the reasons for the growth in this year's Q2 marketing performance marketing spend we also said a bit of time talking about we've been able to and we've done that throughout.

Speaker Change #105: Hi, Thanks for the question.

John: Just wanted to ask one on marketing so on the performance marketing side up 30, 31% I think that's the biggest increase since 2020.

Speaker Change: Test our way into two new channels and we will have.

Speaker Change: For a while until we can optimize to get the ROI positive and we've been very happy and excited for that.

Speaker Change #101: Given that that is currently significantly faster than the trajectory of Gms just talk about what gives you confidence that once you recalibrate the trajectory of performance marketing to better balance growth and profitability that you won't see a big pullback in Gms.

Speaker Change: Paid social and paid social video as a new channel for us and we've been able to bring them up to be ROI positive and we showed a chart that shows that there are an increasing percentage of our total performance marketing spend and thats not instead of pls and other existing channels. In addition, so we feel confident in.

Speaker Change #139: Can I start with first of all last year in Q2, we did pull back on marketing spend because they were running instrumentality tests during that quarter. So the base was sort of not a normal base. So that's one of the reasons for the growth in this year's Q2 marketing performance marketing spend we also said.

Speaker Change: <unk> investments as well and then.

Speaker Change: The other thing is that we're testing as more markets outside of the U S, where we've seen really positive growth in some of the <unk>.

Speaker Change: Some of those countries that are noncore to two of.

Speaker Change: A bit of time talking about we've been able to and we've done this through.

Speaker Change: Our top six and so that some of those are in the phase of.

Speaker Change: <unk>.

Speaker Change: Test our way into two new channels, and we will test.

Speaker Change: Incubated and optimizing them to get the ROI positive and some of them are actually producing at this point you want to take the second part of your question. Your second part Jon was how do we have confidence that those are.

Speaker Change: For a while until we can optimize to get the ROI positive and we've been very happy and excited with that.

Speaker Change: On paid social and paid social video as a new channel for us and we've been able to bring them up to be ROI positive and we showed a chart that shows that there are an increasing percentage of our total performance marketing spend and thats not instead of pls and other existing channels. In addition, so we feel confident in.

Speaker Change: I guess not be dilutive to margins over time.

Speaker Change: Yes.

Speaker Change: We always have a lot of discipline on.

Speaker Change: When we invest a dollar or are we getting a meaningful return back all the way down the marginal return curve, what I am encouraged by right now as we're starting to make progress on paid social and I think that's really helpful for us and it's an area that we want to lean in and when I talk about going from the place to go after you've looked everywhere else and you already know exactly what you want that.

Speaker Change: Those investments as well and then.

Speaker Change: The other thing that we're testing as more markets outside of the U S, where we've seen really positive growth in some of the some of those countries that are noncore to two of our top six and so that some of those are in the phase of.

Speaker Change: Right I know exactly what I'm looking for and I have searched for it and Google to a much higher level use case like I'm generally planning a wedding.

Speaker Change: Meta Youtube. These places are much better at these very high level generalized use cases, and the better we can get and targeting those users and then having a landing experience. That's highly organized that takes you from mid funnel consideration all the way down to here is that really the few items that make the most sense for you all the way down to here's what you're going to want to buy I think.

Jon: Incubated them and optimizing them to get them ROI positive and some of them are actually producing at this point you want to take the second part of your question. The second part Jon was how do we have confidence that those are.

Speaker Change: Alright.

Jon: Not be dilutive to margins over time.

Jon: I mean, we all we always have a lot of discipline on.

Speaker Change: That unlocks a whole new opportunity for us so I'm encouraged by the progress we're making in paid social we're always going to have a strong for ROI.

Jon: When we invest a dollar or are we getting meaningful return back all the way down the marginal return curve, what I am encouraged by right now as we're starting to make progress on paid social and I think thats really helpful for us and it's an area that we want to lean in and when I talk about going from the place to go after you've looked everywhere else and you already know exactly what you want that.

Speaker Change: And the other work that we're doing on quality for example on loyalty on App centric is really to make sure that once we've engaged you were really pushing to engage you in the app.

Speaker Change: And then get you to come back again, and again and build that frequency loop and that's going to be another big unlock for us and just one last known is that we didn't reiterate that we expect our full year margins to be at.

Jon: It's really a poa.

Jon: Right I know exactly what I'm looking for in a search for it and Google to a much higher level use case like I'm generally planning a wedding.

Speaker Change: At least as high as last year's margins, though.

Speaker Change: Youtube. These places are much better at these very high level generalized use cases, and the better we can get and targeting those users and then having a landing experience. That's highly organized that takes you from mid funnel consideration all the way down to here's the really the few items that make the most sense for you all the way down to here's what you're going to want to buy I think that.

Speaker Change: We have confidence in the way the marketing dollars are going to flow for the rest of the year for us to be able to achieve those margins great. Okay fantastic.

Speaker Change: Next question operator.

Speaker Change: Our next question will come from Rick Patel with Raymond James You May know on mute your audio and video and ask your question.

Rick Patel: Hey, guys nice to see you Rachel Congrats on an amazing career I'm sad for us, they're really happy for you and your whole chapter.

Speaker Change: Marks a whole new opportunity for us so I'm encouraged by the progress we're making in paid social we're always going to have a strong for ROI.

Speaker Change: Rick can you talk about your efforts to emphasize value.

Speaker Change: The other work that we're doing on quality for example on loyalty on App centric is really to make sure that once we've engaged you were really pushing to engage with the app.

Speaker Change: On the marketplace. So how are we working with sellers to communicate the importance of offering sharper price points and discounts and secondly, how you execute that in terms of making sure you put the right deals in front of the right buyers.

Speaker Change: And then get you to come back again, and again and build that frequency Luke and that's going to be another big unlock for us and just one last known is that we did reiterate that we expect our full year margins to be at least as high as last year's margins, though.

Rick Patel: So.

Speaker Change: The efforts we've had in place in the past continue in terms of having a robust toolkit for sellers. So they can put their items on sale. They can offer a discount to a returning customer if you left an item and checkout. They can offer you a coupon to get you to come back and close and we see sellers continue to use and adopt those tools.

Speaker Change #113: We have confidence in the way the marketing dollars are going to flow for the rest of the year for us to be able to achieve those margins great. Okay Fantastic next.

Speaker Change #103: Next question operator.

Speaker Change #120: Our next question will come from Rick Patel with Raymond James You May know on mute your audio and video and ask your question.

Speaker Change: We have for example, as part of the loyalty program deals drops we're going to be highlighting like things that we think are really cool value would really special value, we want to lean more into discovery on Etsy, where we just we highlight things. We think are cool and we don't put all the effort on the buyer to have to have the keyword in mind already in search for it.

Rick Patel: Hey, guys nice to see you Rachel Congrats on an amazing career on SaaS for US, we're really happy for you and your whole chapter.

Speaker Change: Rick.

Rick Patel: Can you talk about your efforts to emphasize value.

Speaker Change: On the marketplace. So how are we working with sellers to communicate the importance of offering sharper price points and discounts.

Speaker Change: But the main thing I want to emphasize in this call.

Speaker Change: Because we're investing a lot more in the differentiation of Etsy who's the human behind the item and what was her role in the process and really elevating that and I think theres, a big opportunity in our user experience for us in the coming quarters to do a much better job centering the seller and her role and in doing that I think it can really.

Speaker Change #144: Secondly, how you execute that in terms of making sure you put the right deals in front of the right buyers.

Speaker Change: So.

Speaker Change: Okay.

Speaker Change #102: Efforts, we've had in place in the past continue in terms of having a robust toolkit for sellers. So they can put their items on sale. They can offer a discount to our returning customer if you left an item and check out. They can offer you a coupon to get you to come back and close and we see sellers continue to use and adopt those tools.

Speaker Change: Just how special this item is har tiznow. This item is and give her more pricing power for the value that she deserves and that's an area that we want to.

Speaker Change: We want to lean into as well I think it's important another good example.

Speaker Change #102: We have for example, as part of the loyalty program deals drops we're going to be highlighting things that we think are really cool value would really special value I'm going to lean more into discovery on Etsy, where we just we highlight things. We think are cool and we don't put all the effort on the buyer to have to have the keyword in mind already in search for it.

Speaker Change: Within the corporate the gummy fine Oh, yeah, Yeah. So look if we look at our jewelry category jewelry under $10 is under a lot of pressure right now and there was a period of time when malls were closed and so you couldnt buy jewelry. Many other places and actually sold a lot of jewelry under $10, but jewelry under $10 might have $5.

Speaker Change: But the main thing I want to emphasize on this call.

Speaker Change: Shipping, it's not obvious that buying it.

Speaker Change: NFC is going to be the place, where we're going to shine and I'm not saying there isn't wonderful jewelry under $10 on Etsy. There is we have wonderful sellers, who sell that but.

Speaker Change: That'd be fine jewelry of let's say value of between one and $200.

Speaker Change: How special this item is how artisanal this item is and give her more pricing power for the value that she deserves and that's an area that we want to.

Speaker Change: Amazing value there and those items are growing quite nicely for example engagement rings on Etsy, you can buy a beautiful engagement ring made just for you often to your specifications for a price. It's a fraction of what you pay in the mall.

Speaker Change: We want to lean into as well I think it's important another. Good example, you might want to do it within the.

Speaker Change #108: <unk> Oh, yeah, Yeah. So look if we look at our jewelry category jewelry under $10 is under a lot of pressure right now and there was a period of time when malls were closed and so you couldn't buy jewelry. Many other places and actually sold a lot of jewelry under $10, but jewelry under $10 might have $5 of shipping.

Speaker Change: It's an area, where we have real competitive differentiation, we have a real right to win and we want to make sure that those sellers really get elevated and get a chance to shine. So we're leading in a lot more there to another place actually to talk about <unk>. One of the challenges is we have such a diverse set of inventory there that getting all of the attributes for all of those.

Speaker Change #108: It's not obvious that buying it.

Speaker Change #108: NFC is going to be the place, where we're we're going to shine and I'm not saying there isn't wonderful jewelry under $10 on Etsy. There is we have wonderful sellers, who sell that but.

Speaker Change: Items labeled accurately has historically been a challenge for us that's a task llm's are doing quite well. So we've asked the <unk> to go after our whole jewelry category and tell us what's the material what's the carrot what's the.

Speaker Change #108: That'd be fine jewelry of let's say value of between one and $200.

Speaker Change: The weight of it and it's doing quite a nice job and then allow us to do things like filter what are the filters a customer would expect how do we apply those attributes and create a more organized shopping experience starting in jewelry and we're seeing llm's there have a very nice effect.

Speaker Change #133: Amazing value there.

Speaker Change #108: And those items are growing quite nicely for example engagement rings on Etsy, you can buy a beautiful engagement ring made just for you often to your specifications for a price. It's a fraction of what you pay in the mall.

Speaker Change: Great. Thank you operator next question.

Speaker Change #109: It's an area, where we have real competitive differentiation, we have a real ride twin and we want to make sure that those sellers really get elevated and get a chance to shine. So we're leading in a lot more there to another place actually to talk about <unk>. One of the challenges is we have such a diverse set of inventory there.

Speaker Change: Our next question will come from Chris <unk> with UBS, you May now and yet your audio and ask your question.

Chris: Great. Thanks for taking my question.

Speaker Change: Could you just talk about sustaining the 23 EBITDA margin for 'twenty. Four is this really just the 24 dynamic or is there really a willingness to revisit this against the different backdrop and then Josh.

Speaker Change #127: But getting all of the attributes for all of those items labeled accurately has historically been a challenge for us. That's a task llm's are doing quite well. So we've asked <unk> to go after our whole jewelry category and tell us what's the material what's the carrot what's the.

Josh Smith: Really zero in on the App.

Speaker Change: Who's using the App today, how has engagement maybe differ from buyers that were pre COVID-19 versus new buyers, 42% of Gms is a very material amount just any color you can kind of share on that thanks.

Speaker Change: The wage.

Speaker Change: And it's doing quite a nice job and then allow us to do things like filter what are the filters a customer would expect how do we apply those attributes and create a more organized shopping experience starting in jewelry and we're seeing llm's there have a very nice effect.

Speaker Change: So.

Speaker Change: Okay.

Speaker Change: What we love about our model that we have a very variable cost base relative to.

Speaker Change: To our fixed costs. So let me only drive let's hire in Gms and revenue large percentage of that flow through to EBITDA and we demonstrated that for many quarters when labor in the peak of our pandemic wins that we were showing tremendous flow through to the bottom line and since then.

Speaker Change #115: Great. Thank you operator next question.

Speaker Change #114: Our next question will come from Chris <unk> with UBS, you May now and yet your audio and ask your question.

Chris: Great. Thanks for taking my question.

Speaker Change #116: Could you just talk about sustaining the 23 EBITDA margin for 'twenty four or is this really just a 24 dynamic or is there really a willingness to revisit this against a different backdrop and then Josh.

Speaker Change: Continuing to maintain the Etsy stand alone margins most of the contractually Athene has come from the addition of our subsidiary so we've really kept both those things steady the amount of contraction from our subsidiaries in the amount of ethane margin and we've been doing that in spite of.

Josh: Really zero in on the App.

Speaker Change #117: Who is using the app today, how has engagement maybe differ from buyers that were pre COVID-19 versus new buyers, 42% of Gms is a very material amount just any color you can kind of share on that thanks.

Speaker Change: That to down Tms and modest increases in revenue. So what we expect going into the last part of this year is we expect to see a traditionally higher fourth quarter Gms and revenue because of holiday sales so that that happens against the backdrop of this relatively high variable.

Speaker Change #117: So.

Speaker Change: Okay.

Speaker Change #123: What we love about our model that we have a very variable cost base relative to.

Speaker Change #118: To our fixed costs. So when we when we drive let higher in Tms and revenue large percentage of that flows through to EBITDA and we demonstrated that for many quarters when labor in the peak of our pandemic wins that we were showing tremendous flow through to the bottom line and since then.

Speaker Change: Variable cost base or if we see higher flow through to bottom line during that period of time, and we see some things working in our favor versus last year, where last year for instance, we had.

Speaker Change: <unk> from Q3 into Q4 on above the line spend there was a bigger increase than were expecting this year last year, we saw higher cost of revenue related to fraud that we don't expect to see this year and we've been working really hard on things like that in our trust and safety organization to make sure that we keep those costs as well as.

Speaker Change: Sure.

Speaker Change #121: Continuing to maintain the etsy standalone margins most of the contractually Athene has come from the addition of our subsidiary so we really kept both those things steady the amount of contraction from our subsidiaries in the amount of ethane margin and we've been doing that in spite of.

Speaker Change: Possible, while also keeping our marketplace. So we feel very comfortable about the.

Speaker Change #121: That to down Tms and modest increases in revenue. So what we expect going into the last part of this year is we expect to see we have a traditionally higher fourth quarter Gms and revenue because of holiday sales so that that happens against the backdrop of this relatively high variable.

Speaker Change: The level of our margins, we are very productive and very little organization. We showed a slide in this in this deck that showed revenue per head count and when we've been asked in the past about.

Speaker Change: Why not.

Speaker Change: And.

Speaker Change #121: Variable cost base of this we'll see higher flow through to bottom line during that period of time, and we see some things working in our favor versus last year, where last year for instance, we had.

Speaker Change: Reduce your costs, even further to expand margins. We think if we did that it would be at the cost of Tms in revenue because we are such a lean organization and we manage every single pad in our product.

Speaker Change: And engineering organizations or.

Speaker Change #121: <unk> from Q3 into Q4 on above the line spend over a bigger increase than were expecting this year last year, we saw higher cost of revenue related to fraud that we don't expect to see this year and we've been working really hard on things like that in our trust and safety organization to make sure that we keep those costs as well as.

Speaker Change: ROI positive results. So we feel pretty good about how we're managing our cost base in that.

Speaker Change: Profitability that will delivery yes.

Speaker Change: We haven't given forward guidance I don't want to we're not going to give forward guidance. This is a team that is always cared about efficiencies as always cared about productivity every quarter and every year has been a quarter and a year of efficiency for this team theres never been a year when we said screw it we don't care.

Speaker Change: Thoughtful while also keeping our marketplace. So we feel very comfortable about the.

Speaker Change: The level of our margins, we are very productive and very rural organization. We showed a slide on this in this deck that showed revenue per head count and when we've been asked in the past about.

Speaker Change: And we want to make sure we're investing appropriately for the future the margins in the core business of 30% you can't find the marketplace of our size and scale with the margin anywhere close to that and when you look at revenue per head count you've got to start looking at businesses that are multiples of ours getting all of the fixed cost leverage because they get to get to.

Speaker Change #107: Why not.

Speaker Change #107: Reduce your costs, even further to expand margins. We think if we did that it would be at the cost of Gms and revenue because we are such a lean organization and we manage every single head in our product and.

Speaker Change: Comps like ours. So I think it's a real testament to how much we have always cared about efficiency and we want to make sure. We're investing appropriately for the very large opportunity that we feel we have and we're always thinking carefully about how to balance that to make the value grow as much as we possibly can for all of our stakeholders.

Speaker Change #107: In engineering organizations or ROI.

Speaker Change #107: ROI positive results. So we feel pretty good about how we're managing our cost base.

Speaker Change #107: Profitability that will delivery yes.

Speaker Change #107: We haven't given forward guidance I don't want to we're not going to give forward guidance. This is a team that is always cared about efficiency is.

Speaker Change: And a quick one for the Christmas second question, Yes, we are using it and absolutely. So it's about 42% of our Gms now it's growing quarter on quarter, it's about 45% of our active users have downloaded the app, but when a user downloads the app they start visit.

Speaker Change #107: Always cared about productivity every quarter and every year has been a quarter and a year of efficiency for this team theres never been a year when we said screw it we don't care.

Speaker Change #107: And we want to make sure we're investing appropriately for the future the margins in the core business of 30% you can't find the marketplace of our size and scale with the margin anywhere close to that and when you look at revenue per head count you've got to start looking at businesses that are multiples of ours getting all of the fixed cost leverage because they get to get to.

Speaker Change: US a lot more often and their lifetime value goes up in fact, the most lifetime value accretive thing you can do with the user is get them get them to download the app it skews a little more young.

Speaker Change: App users.

John Sweet: Comps like ours. So I think it's a real testament to how much we have always cared about efficiency and we want to make sure. We're investing appropriately for the very large opportunity that we feel we have and we're always thinking carefully about how to balance that to make the value grow as much as we possibly can for all of our stakeholders, John Sweet and <unk>.

Speaker Change: But otherwise we had thought for a long time that the only people who are willing to use the app. Our most habitual users we've been finding lately that many first time users who are downloading the app before they've even bought anything so I think consumer behavior has really changed and we have an opportunity to make the onboarding and the app the first place and the <unk>.

Speaker Change #106: Quick one for the Christmas second question, Yes, we are using it and absolutely. So it's about 42% of our Gms now it's growing quarter on quarter.

Speaker Change: Enter piece of your App experience, where historically, it's been a place that people have only been wanting to migrate once they've shopped on etsy. Several times I think that's very exciting for us, but we are almost at a time, but I'm going to let operator, let's take one more question.

Speaker Change #126: About 45% of our active users have downloaded the app, but when a user downloads. The app they start visiting us a lot more often and their lifetime value goes up in fact, the most lifetime value accretive thing you can do with a user would get them get them to download the app it skews a little more young.

Michael Moore: Our final question will come from Michael Moore, and with Moffett, Nathan I mute your audio and ask your question.

Speaker Change: Perfect.

Michael Moore: Thank you congrats again Rachel.

Michael Moore: Enjoying the time two quick questions. If I can on one Rachel to follow up on your comment about fraud.

Speaker Change #106: <unk> App users.

Speaker Change #106: But otherwise we had thought for a long time that the only people who are willing to use the app. Our most eventual users we've been finding lately that many first time users who are downloading the app before they've even bought anything so I think consumer behavior has really changed and we have an opportunity to make the onboarding and the app the first place and the.

Michael Moore: Highlighted that as a gross margin headwind I believe in the 10-K. So I was wondering if you could maybe quantify.

Speaker Change: The effectiveness of the Onboarding speed bump.

Speaker Change: That's been a lift to gross margins and Thats something that we should expect going forward and then my second question I think may be geared more towards Josh and Thats, just talking maybe a little bit about the limiting factors for on site ads you've spoken that some sellers trying to give you more money than you can allocate.

Speaker Change #106: The centerpiece of your App experience, where historically, it's been a place that people have only been wanting to migrate once they've shopped on etsy several times I think thats very exciting for us.

Speaker Change: Okay.

Speaker Change #124: Almost a time, but I'm going to let operator, let's get one more question.

Speaker Change: Service revenue growth has decelerated granted against tough comps, but just trying to think about the opportunity to grow that as a percentage of gms or some type of structural limitation to the AD load. Thank you again for those two questions.

Speaker Change: Our final question will come from Michael Moore, and with Moffett Nathanson.

Speaker Change #130: Audio and ask your question.

Speaker Change: Perfect.

Michael Moore: Thank you congrats again Rachel.

Michael Moore: Enjoying the time two quick questions. If I can in one way or another follow up on your comment.

Speaker Change: On the fraud, I think first I'll say I don't I don't think we're ever done and I think all large marketplaces at all businesses that have subscription models are.

Michael Moore: Ron you highlighted that as a gross margin headwind I've read in the 10-K. So I was wondering if you could maybe quantify.

Speaker Change: Take credit card today, whether they're all experiencing the same thing. So I think we've done a very effective job of getting our fraud rate, mostly result in us refunding buyers because a seller has promised to ship something that never stops.

Speaker Change #131: The effectiveness of the Onboarding speed bump and how thats been a lift to gross margins and if it's something that we should expect going forward and then my second question I think may be geared more towards Josh and Thats, just talking maybe a little bit about the limiting factors offer onsite ads you've spoken that some.

Michael Moore: Sometimes it was helpful charge backs or other thing so with the rate was very high in Q4 of last year. We learned if that these fraudsters les and wait for the Q4 seasonal and then and then and then it becomes a ramp and so.

Josh: So just kind of give you more money than you can allocate.

Speaker Change #134: Service revenue growth has decelerated granted against tough comps, but just trying to think about the opportunity to grow that as a percentage of gms or some type of structural limitation.

Michael Moore: A lot more savvy than they were last year and we've got multiple things that seller Onboarding theater, one of many things and I think it has been modestly helpful. But we get a status I remember on the impact of the seller.

Speaker Change #140: The ad load.

Speaker Change #135: Again for those two questions.

Speaker Change #141: On the fraud, I think first I'll say I don't think we're ever done and I think all large marketplaces at all businesses that have subscription models are.

Michael Moore: Okay.

Michael Moore: And it is in <unk>.

Michael Moore: Modestly.

Michael Moore: Additive to revenue, but that's not the main reason we did it was really to create that speeding up our sellers.

Speaker Change #135: Take credit card today, whether they're all experiencing the same thing. So I think we've done a very effective job of getting our fraud.

Michael Moore: But we've got many other things in our whole portfolio of getting very sophisticated in fraud, and it's allowed us to reduce the.

Speaker Change: Spot rate, which mostly resulted in us refunding buyers because a seller has promised to ship something that whenever.

Michael Moore: The reserves that we put in place for.

Michael Moore: Fraud, what our fraud forecasts are.

Speaker Change: They never shipped sometimes it results in charge backs or other things, but with the late with very high in Q4 of last year, we learned if that is true.

Michael Moore: Come down.

Michael Moore: I think we're in great shape for Q4 and where.

Michael Moore: Hi.

Speaker Change #136: Rod surface Les and wait for the Q4 seasons, and then and then that and then it becomes a ramp and so I think a lot more savvy than they were last year and we've got multiple things that seller onboarding fever, one of many things and I think it has been modestly helpful. Do we give a stat on freight I remember on the impact of the seller.

Michael Moore: All hands on deck in eyes wide open.

Michael Moore: And on Etsy ads.

Speaker Change: The rate of AD growth slowed, but actually take rate still modestly expanded as a result of etsy ads. So.

Michael Moore: I continue to think there's a lot of opportunity in etsy ads.

Michael Moore: As we've shared before most of the sellers big enough to be using Etsy ads are.

Speaker Change #136: Okay.

Speaker Change #137: If it's in modestly.

Michael Moore: Some of them are giving us more budget than we can use some of them are giving us less budget than we can use so nudging some of them to give us a bigger budget is a lever the biggest lever continues to be picking the right AD to put in front of the right buyer because that's the win win win it makes the buyer experience better it keeps the seller roll off high and Thats something were always.

Speaker Change: Additive to revenue, but that's not the main reason we did it was really to create that speeds are sellers onboarding, but we've got many other things in the whole portfolio.

Speaker Change: Getting very sophisticated in fraud, and it's allowed us to reduce the <unk>.

Speaker Change: The reserves that we put in place for.

Michael Moore: Is very focused on making sure the sellers get money get value for money on this advertising investment and obviously, it's great for shareholders. So we continue to get better at showing the right AD to the right buyer and that's where we're going to continue to drive take rate up from the etsy ads product and I.

Speaker Change: Fraud.

Speaker Change: Our fraud forecasts are have.

Speaker Change: Come down.

Speaker Change: We are in great shape for Q4.

Speaker Change: All hands on deck in eyes wide open.

Speaker Change #122: And on Etsy ads.

Speaker Change #122: The rate of growth slowed, but actually take rate still modestly expanded as a result of etsy ads. So.

Michael Moore: Think there is still plenty of room for us to continue just as our search engine keeps getting better it's very related to the ads search engine, which is also going to continue to get better great. Thank you.

Speaker Change #122: I continue to think there's a lot of opportunity in etsy ads.

Speaker Change #138: We've shared before most of the sellers big enough to be using Etsy ads are.

Speaker Change: We went over by a few minutes. So I think we're going to call. It. So I just want to close by saying again, it's been a wonderful.

Speaker Change #138: Some of them are giving us more budget than we can use some of them are giving us less budget than we can use so nudging some of them to give us a bigger budget is a lever the biggest lever continues to be picking the right AD to put in front of the right buyer because that's the win win win it makes a buyer experience better it keeps the seller roll off high and that's something we're always.

Michael Moore: Wonderful partnership I know, we're not done we will continue working together until the next.

Speaker Change: Our CFO is seated but.

Speaker Change: As I told you privately you have less large small shoes.

Speaker Change: I'm really grateful thank you and likewise, it's been a joy.

Speaker Change #122: We're very focused on making sure the sellers get money get value for money on this advertising investment and obviously, it's great for shareholders. So we continue to get better at showing the right AD to the right buyer and that's where we're going to continue to drive take rate up from the etsy ads product and <unk>.

Speaker Change: So I'll be here for a while and we'll see you again. Thank you all thank you.

Speaker Change: Thank you.

Speaker Change #122: There is still plenty of room for us to continue just as our search engine keeps getting better it's very related to the ads search engine, which is also going to continue to get better great. Thank you.

Speaker Change #122: Went over by a few minutes. So I think we're going to call. It. So I just want to close by saying again, Rachel it's been a wonderful partnership I know, we're not done we will continue working together until the next.

Speaker Change #128: Our CFO is seated but.

Rachel: As I told you privately you have less large small shoes.

Rachel: I'm really grateful, thank you and likewise.

Speaker Change #142: As it relates to the yes, there'll be here for a while and we'll see you all here. So thank you all banking.

Speaker Change #143: Thank you.

Q2 2024 Etsy Inc Earnings Call

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