Q4 2024 Etsy Inc Earnings Call
who joined us at the start of the year.
Once we are finished with the presentation, Josh and Lani will take questions from our Publishing Cell Site Analysts on video.
Speaker Change: 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: Forward-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 make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them.
Speaker Change: Also during the call, we'll 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. With that, I'll turn it over to Josh.
Thanks Deb.
Josh: 2024 was a challenging year for Etsy, one where we underperformed the far higher standards we hold for ourselves as the market leader for special.
Josh: We're disappointed, as we know you are, and we're working with tremendous urgency and focus to inflect the trajectory of the Etsy Marketplace's GMS performance.
Josh: I'm excited to tell you more about how our refreshed executive leadership team, combined with a clear strategic plan, will build upon the fundamental improvements we made to the Etsy customer experiences in 2024.
Josh: to lean into our core differentiation even more, all with the goal to return to meaningful GMS growth.
Josh: To recap our full year performance, Consolidated GMS was down 4% from 2023 to $12.6 billion.
Josh: Strong execution enabled take rate expansion in a win-win way that provides value to our community, resulting in record revenue of 2.8 billion dollars up about 2% year-over-year.
Josh: and we exceeded our commitment to deliver strong profitability with adjusted EBITDA of $782 million and margins of 27.8%.
Josh: Recent e-commerce growth has been skewed towards those that offer low prices and fast delivery and that's a game we're unlikely to win. We also recognize that consumers are shopping and spending their time differently with more competition than ever for Mindshare.
Josh: So during 2024, we challenged ourselves to zoom out, and we made some considered pivots.
Josh: to focus on where we can win to make Etsy truly better on the whole.
Josh: We temporarily shifted our way of working to be less focused on near-term conversion driving experimentation in favor of creating holistically better customer experiences focused on quality, reliability, and making our app a place for discovery.
Josh: While this resulted in real opportunity cost to GMS to the tune of at least a few hundred million dollars last year We believe it will be well worth it as we're now building on this improved foundation for 2025 and beyond
Josh: Etsy truly has something different and valuable to offer the world. That's certainly what we hear from so many of our buyers. We want more people to think of us more often and to come to us to be inspired and have fun to bring Etsy front and center in their consideration set.
Josh: So while others focus on cheap and fast, we're focusing on creativity, self-expression, and elevating artisanal items.
Josh: And while others rely on mass production and complex supply chains, we are empowering our nimble and unique seller base to thrive.
Josh: Let me walk through how the foundation we laid in 2024 to make Etsy the starting point for special will help us to move faster in 2025.
Josh: First, by dialing up Etsy's differentiation. We've often said that our selection of over 100 million unique, creative goods is what truly sets us apart.
Josh: It's our job to showcase the very best that Etsy sellers have to offer. Last year, we introduced a quality score by adding indicators of high-caliber listings into our search algorithms.
Josh: Factors like positive reviews and on-time shipping. This is helping us move from showing you listings you're most likely to buy
to surfacing ones you'll truly love.
Josh: By also providing sellers with actionable insights on ways they can improve their listings and customer service such that they'll rank higher in search, this work is having the intended effect, creating a race-to-the-top dynamic.
Josh: Sellers took millions of actions to improve their listings and we're observing a higher propensity for sellers to get better reviews, indicating that customers are having better purchase experiences when they visit Etsy.
Josh: In 2025, we'll make the quality score more dynamic and robust. For example, we're looking at how we might tackle higher-order questions, such as how unique the item is, or is it priced competitively?
Josh: We're even testing an LLM that identifies the skills and level of craftsmanship that goes into an item. There's no army of humans we could have hired to answer these types of questions before the advent of Gen AI and advanced LLMs.
Josh: As you know, frequency has been a challenging metric for us to move. We've made some progress over the years, but we're focused on doing much more to fuel purchase frequency as a key lever for growth.
Josh: Our 2024 work on gifting is a great example of how we built a dramatically better shopping experience to serve a frequent purchase occasion where special really matters.
Josh: and it made a difference. 2024 gifting GMS outperformed site-wide GMS and gifting grew as a percentage of overall GMS.
Josh: We made shopping for gifts on Etsy easier through meaningful, targeted product improvements, expanded our gift card offerings, and evolved our marketing to drive awareness for gifting moments all year long.
Josh: Gifting will remain an always-on focus for Etsy, ingrained within our core discovery flow, and in 2025 will highlight key gifting moments like birthdays, anniversaries, and baby showers to drive consideration and engagement.
Josh: This year, we'll pull from the gifting playbook to capitalize on another quintessential Etsy cross-category purchase occasion.
Josh: personalized items which fits squarely into our place for special wheelhouse.
Josh: Similar to gifting, Etsy is already known for being a great destination for personalized goods. About a third of buyers come to us looking for personalized items, spanning many categories and price points.
Josh: personalized or customized items make up roughly a third of our GMS today and we're already experiencing strong growth in some subcategories like personalized party decor and personalized apparel which both grew double digits in 2024.
Josh: Today, the personalization process on Etsy can be clunky and often very manual. So this year, our roadmap includes improvements to seller tools and buyer functionality.
Josh: Last fall's introduction of Etsy Insider, a loyalty program designed for occasional shoppers, was also targeted at growing consideration and frequency.
Josh: While still in closed beta mode, we've seen encouraging results on members' purchase frequency.
Josh: They appear to value the free shipping benefit and are meaningfully more engaged with Etsy's direct marketing content than non-members.
Josh: We'll continue to test, iterate, and learn as we move through 2025, particularly focused on building a successful, scalable economic model.
Josh: But so far so good. We're excited to see early proof points that Insider could be part of an Etsy ecosystem where our loyal customers come back to us more frequently without us having to invest marketing dollars to re-engage them.
Josh: In 2024, you saw us evolve our marketing approach to attract, retain, and engage millions of consumers around the world.
Josh: This year, we'll focus even more heavily on efficiency and meeting our customers where they are.
Josh: For example, we'll dial back on Linear TV and dial up our presence on Connected TV and PaidSocial.
Josh: and the system we built last year to more efficiently segment product listing ads will now incorporate ML models to further improve our ability to showcase quality and drive more sales.
Josh: We also have big plans to expand the relevance and reach of our owned channels, specifically push and email. Again, using ML to get better at sending buyers the right nudge on the right channel at the right time.
Josh: The other major way that we're anchoring to being the starting point for special is by powering discovery and inspiration.
Josh: building a stickier ecosystem to keep buyers engaged, starting with the Buy on Etsy app.
Josh: The app is our highest converting channel and accounts for just over 40% of our marketplace GMS, yet only makes up about 25% of total visits today.
Josh: We estimate that getting Etsy's app penetration in line with our peers represents up to a billion-dollar GMS opportunity.
Josh: Last year we optimized screen real estate by consolidating pick up the thread content that's based on past missions.
Josh: prototyped discovery-driven surfaces and enhanced ML models with richer buying signals.
Josh: We're now launching an entirely revamped navigation, featuring our all-new Shop tab, which leans heavily into discovery with browsable, inspiration-rich content designed to better showcase the incredible possibilities that Etsy has to offer.
Josh: Why are we so focused on powering discovery and inspiration? It's really the start of a fundamental shift in how we interact and engage with our buyers, creating a powerful flywheel designed to elevate the entire Etsy experience.
Josh: As our surfaces become more browsable and engaging, we can capture an order of magnitude more data about our buyers' interests, inclinations, and habits, both collectively and individually. For example, what did you hover on? What did you swipe past quickly? Which images did you choose to enlarge?
Josh: Historically, we've been focused on spearfishing, optimizing to quickly get you to what you want and then show you similar things.
Josh: The signals we get from spearfishing are powerful and show high intent like what did you favorite and what did you actually buy? But they're quite scarce compared to what we can learn from browsing behaviors
Josh: By gathering more about what sparks your interest, we'll be better positioned to delight you when you're ready to buy.
Josh: With Discovery Forward Surfaces, we're dramatically expanding the signals we collect. This richer data fuels our ability to build even more powerful models, leveraging the revolutionary power of LLMs to better predict buyer preferences and understand their intent with unprecedented accuracy.
Josh: which then leads to the core of the flywheel, creating more personalized experiences like window shopping in a store curated just for you. That's the experience we envision for our evolved surfaces.
Josh: driven by the insights from our powerful models. As the flywheel spins, these personalized experiences become even more refined and engaging.
Josh: A critical offshoot of this flywheel is the ability to create more tailored marketing. By leveraging these vast data sets and powerful LLMs, we expect to be able to generate more effective and personalized marketing strategies across all channels, from email and CRM to push notifications.
Josh: and that will land buyers on our highly browsable experiences. All of this reflects a fundamental shift in how we're working to get consumers to come and return to Etsy's evolving and ever more personalized and resonant surfaces.
Josh: Everything we're working on is in service of better buyer experiences and helping our sellers to grow.
Josh: It's important to highlight that in today's highly commoditized world of e-commerce, Etsy sellers and their items are the foundation of what makes us special.
Josh: In fact, in our recent seller census results, which you'll find in our 10k, show that 9 out of 10 Etsy sellers are one-person businesses. Nearly all work from home. 8 out of 10 are women, and half sell exclusively on Etsy.
Josh: As intended and expected, our new seller setup fee, combined with enhanced trust and safety efforts, resulted in a decline in active sellers last year.
Josh: However, the result is a healthier seller base evidenced by the higher percentage who are making sales, demonstrating our commitment to their success.
and we have a lot more in store in 2025.
Josh: Turning to DPUP, which represented a strong growth tailwind in 2024, with GMS up nearly 32% year-over-year to 789 million dollars.
Josh: Depop's fourth quarter represented the highest year-over-year GMS growth since our acquisition. Depop's full-year GMS growth in the U.S. was outstanding, up about 60% year-over-year, making Depop the fastest-growing U.S. fashion resale player.
Josh: For reverb continues to perform slightly better than the musical instrument industry as the team has done an admirable job navigating through challenging industry headwinds leveraging their tremendous differentiated inventory and building a thriving circular economy for music care, all while improving profitability.
Josh: <unk> leaned into wallet friendly options like with the launch of the reverb outlet contributing to double digit percentage growth in that segment in 2020 for.
Josh: 2025 marks at CS 20th anniversary, our etch diversity for the past two decades Etsy has been the home for creativity and self expression as I look ahead to what's in store I feel deep conviction in the power of our brand Etsy millions of incredible sellers and our strong team.
Cruz: Starting with Cruz, <unk>, who brings vast experience building and scaling critical growth strategies and a deep commitment to etsy as mission and community of passionate buyers and sellers I've long admired crude these customer centric approach to leadership and I am excited about where she will make her mark.
Cruz: <unk> is only seven weeks into the CFO job and I'm thrilled with our choice is critical thinking deep toolkit of marketplace operational and financial expertise and tremendous fit with our culture have made him an ideal partner.
Cruz: And Brad Miner, we elevated to chief marketing officer is seamlessly evolving our marketing strategies in 2025.
Cruz: We kicked off our CTO search with two strong internal leaders sharing the seat on an interim basis, they and the rest of our team are optimistically charging forward to make etsy, better and to keep commerce human.
Lanny: With that I'll turn it over to Lanny.
Lanny: Thank you, Josh and thanks to everyone for joining our fourth quarter call before I dive into the results. Let me start by saying how excited I am to be here as a student of digital marketplaces I have always admired the etsy brand business model and leadership team I am a habitual etsy shopper myself ever since my first.
Lanny: Purchase of a handmade leather computer bag, nearly 10 years ago I am thrilled to join Etsy at this pivotal time.
Lanny: This company has a history of sharps strategic execution.
Lanny: 2017 to early 2020, Josh and the team led a transformation to establish at CS demand centric business model, which drove a reinvigorated growth in a stairstep in profitability.
Lanny: Then from 'twenty to 'twenty to 'twenty to 'twenty four at G successfully navigated another extraordinary period with seamless execution exiting the pandemic, maintaining much greater consumer scale and take rate efficiency and right now accelerating advancements in ml and AI are redefining the technological landscape.
Lanny: And creating new opportunities for those poised and driven to take advantage with a strong track record our brand scale and talented team I strongly believe we are well positioned to harness new technologies and make etsy ever more clearly differentiated a vastly better place to shop and to <unk>.
Lanny: <unk> growth in the long term.
Lanny: Our team delivered approximately $3 $7 billion and consolidated Gms in the fourth quarter down six 8% year over year Gms in the core Etsy marketplace declined eight 6% year over year, leading to softer than anticipated consolidated gms.
Lanny: As discussed earlier this was partially driven by our decision to prioritize longer term initiatives over shorter term growth combined with a shorter holiday shopping period.
Speaker Change: I want to highlight deep hops strong topline performance, which Josh mentioned as it represented a very nice tailwind to Q4 consolidated Gms.
Speaker Change: Although consolidated Gms declined in the fourth quarter consolidated revenue increased one 2% year over year to a record $852 million.
Speaker Change: And adjusted EBITDA grew to an all time quarterly high of $251 million up 6% from the prior year.
Speaker Change: Within that revenue performance consolidated marketplace revenue declined one 4% due to lower G. M S, which pressured transaction revenue, partially offset by higher consolidated payments revenue as well as revenue from the new seller onboarding fee.
Speaker Change: Services revenue was once again, a key contributor to performance, increasing eight 1% year over year.
Speaker Change: The take rate bridge on the left shows Etsy ads as a primary driver of this strength, where improved AD relevancy and optimized bidding are giving us the ability to deploy more of sellers' budgets and deliver attractive return on AD spend to sellers in the process.
Speaker Change: All in all I'd say delivered a consolidated fourth quarter take rate of 22, 8% ahead of our outlook driven by the aforementioned contributions solid take rate expansion in Etsy ads consolidated payment's expansion, including for both Etsy, and Deepak and incremental revenue from the cell.
Speaker Change: <unk> Onboarding fee.
Speaker Change: Fourth quarter consolidated adjusted EBITDA margin was 29, 4% above the outlook of 28% to 29% and roughly 140 basis points higher than last year.
Speaker Change: The primary source of that improvement was gross margin leverage at the etsy marketplace, where a lower rate of fraudulent activity led to a meaningful decrease in the variable cost of revenue in the quarter.
Speaker Change: I think it's encouraging to see etsy deliver healthy bottom line performance in what was a challenging quarter for Gms.
Speaker Change: During the fourth quarter consolidated product development spend decreased 5% year over year to $111 million.
Speaker Change: We gained leverage on a full year basis with consolidated product development spend as a percentage of revenue declining to 15, 8% in 2024 compared to 17, 1% in the prior year.
Speaker Change: Primarily reflecting the reorganization undertaken in late 2023.
Speaker Change: Fourth quarter consolidated marketing spend increased 9% year over year to $285 million.
Speaker Change: Which drove total marketing spend as a percentage of revenue to 33, 5% in Q4.
Speaker Change: The company pulled back a bit on brand spend versus the prior year and increased investment in paid social while continuing to execute across other performance channels.
Speaker Change: For the full year consolidated marketing spend increased 13% year over year and consolidated marketing spend as a percentage of revenue increased to 35%.
Speaker Change: Turning to Etsy marketplace buyer metrics as a longtime observer I'm frankly in all of the way Etsy has driven buyer acquisition over time.
Speaker Change: Well, let's see obviously had an outsized influx of buyers during the pandemic the ability to continuously find new buyer channels reactivate large pools of lapsed buyers and create stickiness with existing buyers is no small feat and provides enormous value to our sellers.
Speaker Change: To that point the Etsy marketplace ended the year with nearly 90 million active buyers still close to record levels.
Speaker Change: One of the silver linings in 2024 was the continued reactivation of lapsed buyers nearly $29 million for the year and nearly $10 million in the fourth quarter alone.
Speaker Change: Mid funnel and other paid social marketing channels are working well as a tap on the shoulder reminding buyers to come back to Etsy.
Speaker Change: And while fourth quarter, new buyer acquisition declined year over year, Etsy acquired 7 million buyers globally, and 24 million for the year, who had never shopped on the marketplace before.
Speaker Change: In terms of geographic performance in our appendix slides and the 10-K, you will see that we have transitioned to a new view of U S versus non U S Gms performance.
Speaker Change: This updated disclosure is based solely on where the buyer is located rather than our prior definition, which took into consideration the location of both the buyer and the seller.
Speaker Change: U S buyers represented 74% of full year Gms in 2024, and 75% in the fourth quarter and.
Speaker Change: And non U S buyers accounted for 26% and 25% respectively.
Speaker Change: Looking forward. We believe this view will provide a clearer picture of our success in attracting international buyers and growing non U S buyer Gms overtime.
Speaker Change: In the fourth quarter on a year over year basis, non U S buyer Gms underperformed U S buyer Gms.
Speaker Change: Underscoring the unfavorable macro environment in many of these marketplaces in international geographies.
Speaker Change: Our gms per active buyer, which is a trailing 12 month figure was $121 down three 5% year over year.
Speaker Change: And then a continuation of the trend throughout 2024, lower household income buyers underperformed relative to higher household income buyers.
Speaker Change: Well lets these top categories experienced softness in the fourth quarter, we saw growth in some subcategories like personalized clothing and vintage jewelry.
Speaker Change: These are classic examples of what buyers come to us for.
Speaker Change: These nuggets give us conviction in the work that Josh described earlier to highlight purchase occasions and to deepen item attributes, which is meant to unlock new and exciting buyer discovery journeys within our many millions of items.
Speaker Change: Moving now to the balance sheet as of December 31st Etsy had $1.2 billion in cash cash equivalents and short and long term investments.
Speaker Change: During the fourth quarter Etsy repurchased a total of $260 million in stock and at yearend, we had an additional $1 billion available under our newer board authorization.
Speaker Change: Betsy generated over $780 million in adjusted EBITDA in 2020 for converting approximately 90% of that to free cash flow a portion of which the company deployed to reduce the outstanding share count by $12 2 million shares over the course of the year.
Speaker Change: Turning to our outlook and starting with the first quarter of 2025. We currently anticipate that first quarter consolidated Gms will decline at a rate similar to the year over year performance reported for the fourth quarter of 2024.
Speaker Change: In a typical first quarter, we would expect to gain significant benefit from Gms attributable to prior year product launches and that's less of a factor this year due to the shift in our product investment strategy last year we've.
Speaker Change: We've seen some bright spots in the quarter, so far including encouraging Valentine's day and related gifting performance.
Speaker Change: Collectively our subsidiaries are expected to provide a tailwind to consolidated gms growth in the first quarter.
Speaker Change: We expect Q1 2025 take rate to be approximately 23% due to the benefit of AD product improvements payment's expansion and the seller onboarding fee, we initiated in 2024.
Speaker Change: We currently anticipate our first quarter 2025, consolidated adjusted EBITDA margin will be approximately 25% to 26%.
Speaker Change: Well, we aren't ready to provide a specific consolidated gms outlook for the full year I want to point out a few factors that we believe should position the etsy marketplace for improved Gms performance beyond the first quarter.
Speaker Change: First and most obviously the comparisons get easier in the second half of the year.
Speaker Change: Second we expect to move beyond the opportunity cost phase of our 2020 for product development shift with the benefits of investments in our foundation and in the Etsy shopping experience emerging over time.
Speaker Change: And third our 2025 product development plan is rebalanced to accelerate the velocity of product experimentation that has historically driven incremental near term gms impact while we continue to push forward the longer term priorities we've discussed.
Speaker Change: Given our desire to fund an ambitious product development pipeline, including some incremental hiring in AI and ml, we're planning for modest deleverage in consolidated product development spending this year.
Speaker Change: Meanwhile, it's our current intention to keep consolidated marketing spend as a percentage of revenue fairly constant on a year over year basis in 2025.
Speaker Change: We'll be making certain spending reallocations and remaining very ROI, driven seeking efficiencies to drive gms.
Speaker Change: Putting those pieces together with etsy marketplace Gms position to improve as we move through 2025, we would expect adjusted EBITDA margins to be stronger in the second half of the year than in the first half consistent with what we've seen in prior years.
Speaker Change: We are committed to maintaining strong bottom line performance and generating healthy free cash flow. While also investing in the things, which will further differentiate etsy, which will build our opportunity and drive long term growth.
Speaker Change: Thank you all for your time today, it's truly a pleasure to be here and I'm excited to help etsy get to this next phase of growth and success with that with that I'll now turn the call over to the operator.
Speaker Change: At this time, if you would like to ask a question. Please click on the raise hand 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: When it is your turn Youll hear your name called and receive a message on your screen asking to be promoted to a panelist. Please accept wait a moment and once you've been promoted you mean on mute your video and audio and ask a question.
Speaker Change: As a reminder, we are allowing analysts one question.
Speaker Change: We will wait one moment to allow the acute form.
Speaker Change: Yeah.
Speaker Change: Our first question will come from Eric Sheridan with Goldman Sachs. You May know, Amit your audio and video and ask your question.
Speaker Change: Thank you so much for taking the question.
Speaker Change: Thanks, So much I wanted to follow up on the key learnings from your marketing initiatives in 2024, and how they inform the shifts in where you plan on spending marketing dollars by channel in 2025, and the second part of it would just be teasing out how to think about the return profile of that spend is I think why in these comments.
Speaker Change: Right there at the and apply a little bit more variability of return on marketing as you get into the second half of 'twenty to 'twenty five. Thanks. So much yeah, great. Thank you for the question I'm going to walk through the funnel if I may on that so at the top of the funnel with.
Speaker Change: More brand campaigns, we're really following our customers where they are shifting away from linear TV towards more things like.
Speaker Change: No.
Speaker Change: Directv.
Speaker Change: Connected TV.
Speaker Change: And things like Youtube TV.
Speaker Change: TV places like that in the mid funnel I think theres, a huge opportunity for us and what we mean by that is people who for example are planning a wedding, having a baby moving home, but haven't yet figured out the very very specific item that they need to buy that I think is a huge opportunity for us and really ties in.
Speaker Change: The more browsable surfaces that I talked about in the recorded call. So we made investments in that in 2024, where we're really starting to lean in and learn how to make those profitable channels. As you know we call. It R&D, we lean into channels and we test what creative is going to work and what feed strategy and what landing page and as those.
Speaker Change: Things become ROI positive, we're able to lean more and more into them. So that work we kicked off a lot of R&D on that in 2024, that's going to continue in 2025 that I think is really important and it really does tie to the more browsable surfaces as better landing pages at the bottom of the funnel.
Speaker Change: Which is where most of our spend is we've we're making a lot of investments in better M L to be able to help.
Speaker Change: Places like Google and Facebook, no, which items to surface and that really ties very well to the quality initiatives. We've been talking about for some time to make sure that the items, we're paying to promote it.
Speaker Change: In places like Google and Facebook are actually the best of Etsy that represent etsy, the best and are most likely to convert it turns out that we can add a lot of value even to their tech based on what we know using better.
Speaker Change: AI and ml, so I see opportunity to optimize even further in the pls side of the business and then move up the consideration funnel in the mid funnel in the upper funnel. So people think to come to Etsy earlier, and I think over time that can create a really fundamental shift in customer behavior for etsy, that's going to be very positive for us.
Speaker Change: Eric you asked a little bit about our expectations for the full year on marketing spending and as we said we plan to keep marketing spending right now about at the same range as the proportion of revenue as a percentage of revenue as we did last year, but we run our marketing very much to an ROI and if we as we were able to improve the ROI, we can step up the <unk>.
Speaker Change: Getting spending and we will do that as we've done in the past. So your question about variability. This year. We've told you where we expect it to be for the full year and we'll be working hard to drive improvements in ROI and as we do we'll be able to spend more.
Speaker Change: Great. Thank you.
Speaker Change: Thank you for the question.
Speaker Change: Our next question will come from Youssef Squali with tourists Securities you May know Amit your audio and turn on your video and ask your question.
Youssef Squali: Awesome. Thank you guys for taking the question. So I have two and Lenny it's great seeing you again.
Speaker Change: So maybe Josh this may be a little repetitive with your prepared remarks, but I think it's important to double click on it but beyond the first quarter what are the two or three main factors you believe should position the etsy marketplace.
Speaker Change: Improved <unk> performance and would you anticipate return to Gms growth by year end, which is left.
Speaker Change: One of the key questions a lot of people have and then.
Speaker Change: I guess lanny can the active seller count was down 10% maybe can you talk about the type of merchant you've been losing there how much of a priority is growth in that metric and can you maybe get back to positive gms growth without growth in active sellers. Thank you.
Speaker Change: So I'll take the first question, we haven't given a full year guide.
Speaker Change: But we did say we have reason for optimism that things will improve after the first quarter and let me talk about at least two reasons why why I believe that to be true first as we've talked about a lot last year, we made some intentional pivots to shift many of our product development squads away from their traditional work.
Speaker Change: Our near term Gms driving conversion to shift to more holistic.
Speaker Change: Sure.
Speaker Change: Holistic tracks of work that really uplift and differentiate the etsy customer experience. We think that's been very important and foundational we think that sets etsy up much better for the future I'm really happy we did it and we believe we felt the opportunity cost of at least a few hundred million dollars of G. M. S.
Speaker Change: That that would have been producing driving growth through the fourth quarter and actually into the first quarter and beyond so normally in the first quarter of the year, we're feeling the tailwind from the Gms driving work that the team had been doing in the prior few quarters since the teams last year, we're focused for.
Speaker Change: Much of the year on these more holistic experiences that means we're not feeling that tailwind right now, but we do feel like these more holistic experiences ought to be yielding gms benefits over time as customers have better experiences. For example, one of the things I shared in the call is a higher percentage of purchases of results.
Speaker Change: And five star reviews, right now because were putting our very best sellers and their very best items in front of our buyers, we feel like that ought to be yielding benefit and as we now are entering 2025, we're shifting some of our product development efforts back to these very intentional near term.
Speaker Change: <unk> driving work that we've historically been very good at so we will have a more balanced approach through 2025. Those teams are just starting in their tracks of work you know January one. They just started returning their focus to the more traditional near term Gms driving work, but we think as we move through the year we have.
Speaker Change: Track record of seeing those those kinds of efforts be very productive so.
Speaker Change: That's why we think that the work we did last year is good and we think it positions us.
Speaker Change: To see improvements as we move past the first quarter.
Speaker Change: And quickly on your question about cellar count one thing we've seen is that the percentage of sellers, who have made a sale successfully has grown as the volume of sellers has come down a little bit that reflects some purposeful friction that we've put in the seller sign up and sell our acquisition process.
Speaker Change: Make sure that the sellers on the market really have the will and the skill to be successful in the marketplace from a growth perspective, we think that the variety the depth and the breadth of the selection that Etsy has got is ample and sufficient to drive and support really good gms growth in the long term and it's incumbent upon us to be.
Speaker Change: Bring that selection forward to consumers anticipating what theyre looking for bringing them back for those incremental shopping moments as Josh described earlier.
Speaker Change: So as we're looking forward I think we.
Speaker Change: We feel really good about the breadth of our selection and it's all about us elevating that and bringing customer bringing buyers back to that great selection that's on the marketplace.
Speaker Change: Our next question will come from Lee Horowitz with Deutsche Bank.
Speaker Change: When you leave it hasn't just one moment.
Speaker Change: Great. Thanks for the question.
Speaker Change: Josh you gave some some really helpful color on priorities in 'twenty five but you also talked about E. Commerce platforms that are gaining share at this point as those that compete either price or speed of delivery I guess as you look out to.
Speaker Change: 225, do you expect that the priorities that youre, making in terms of product can drive incremental gms in a way that offsets. These consumer level headwinds do you have enough in your tool kit or do you need to sort of the market to improve.
Speaker Change: Okay.
Speaker Change: I mean, certainly it won't hurt or consumers to feel more confidence and feel like they are not trying to pinch every single penny.
Speaker Change: For those who who are saying hey, the economy actually looks pretty good all the data looks pretty good I think we just went through an election, which was kind of a referendum on how do people feel about the economy and I don't think they feel great about it so having more consumer confidence would no doubt help that said, we're very focused on doing what we can do within our power and.
I do think we have a lot of agency here I think.
Speaker Change: Right to compete in the race to the bottom of who can sell it cheaper and ship. It faster Etsy is just not well positioned for that that's not what we're about and I don't think it's great for our brand I do think that really leaning into what makes etsy different why do we have great products at fair prices that are going to really delight you not something that ends up in a landfill free minutes.
Speaker Change: After you buy it I think.
Speaker Change: <unk> is more meaningful now than ever.
Speaker Change: And then in fact as we look at there's a whole world is looking at supply chain right. Now we are having all kinds of conversations I'm sure. We'll get a question about tariffs at some point in this call, but we're all thinking about where do we fit in the global supply chain and I think this is a moment for etsy to be saying, Hey, there's a chance to be part of something really different there is a chance to own something.
Speaker Change: And that really matters and so really what we're really focused on is elevating the really the best of Etsy and our ability to do that is much greater all of the sudden with the advent of llm's understanding what are the highest quality items what are the most artisanal items, which items appear to be value priced appropriately to the market.
Speaker Change: Who are the sellers that actually do the very best job, serving our customers and really lifting those people up and then creating more browsable spaces on the site, where even if you didn't come looking for jewelry. For example, you were looking for a home furnishings. When you arrived but we're showing you Hey, Etsy has got amazing like <unk>.
Speaker Change: Fine jewelry dummy fine jewelry is an area, where we compete super well that's going to be a ring, that's maybe 100 to $300 and.
Speaker Change: For items like that youre going to find much better products better quality and better price than what you can find at the mall. So we have a lot of opportunities to compete we just need to really put our best foot forward and that's where we've been making some foundational investments that I think really positions us well for that.
Speaker Change: Okay.
Speaker Change: Thanks Lee.
Speaker Change: Our next question will come from <unk>.
Speaker Change: Sorry, I reps with Canaccord.
Speaker Change: Ramping with us in just a moment.
Speaker Change: Hey, Maria you May now I mean, your audio and ask a question.
Maria: Thank you for taking my questions and Atlantic Congrats on joining the company.
Speaker Change: Firstly.
Speaker Change: Though until insights into how the competitive backdrop kind of at the.
Speaker Change: Our strategic framework could change.
Speaker Change: No.
Speaker Change: Good minimus exemption is that actually were killed and.
Josh: I think Josh related to that can you.
Josh: You spend a minute talking about tariffs and the impact of the platform, yes, absolutely.
Josh: The short answer is it really depends because we're seeing all kinds of proposals and its very difficult right now to know, which tariffs on which countries will they will de minimis be allowed or not in those regimes.
Josh: Hard to know.
Josh: Etsy has much less dependence on products coming in from China vastly less dependence on products coming in from China than most of our competitors. So I think to the extent that we see tariffs that are very focused on China or other friction of products coming in from China.
Josh: Think at least in the near term Etsy as a net beneficiary from that I think it does speak to the resilience of our platform.
Josh: And beyond.
Josh: Beyond that.
Josh: But we shared.
Josh: 75% of purchase activity happens from the U S.
Josh: About 25% of that comes in from it's important people from the U S importing primarily from Europe.
Josh: And so if there were broad based European tariff regimes.
Josh: That could create more friction on our buyers. It's it's a little hard to know depending on how broad the.
Josh: The tariff regimes are how much friction there are for generally relatively low value packages most of our.
Of our items would fall under most de Minimis thresholds. So.
Josh: We're tracking it very carefully we're keeping a very close eye where were doing whatever work. We can do to anticipate and prepare for come what may in general, though I think.
Josh: Etsy will be more resilient than many of our competitors.
Josh: In these situations and I think it speaks to the resilience of our platform in general that we've been through a lot of global shocks of one kind or another and this is where a cottage industry can really come to the rescue are sellers buy most of their raw materials from their own.
Josh: And then within 60 miles of their home.
Josh: And I think that that might turn out to be very useful for us.
Josh: Great. Thank you.
Brent: Thanks Brent.
Speaker Change: Our next question will come from Curtis Nagle with Bofa Securities.
Speaker Change: Curtis you May now turn on your camera and I need to ask a question.
Curtis Nagle: Terrific. Thanks, very much for the question so first one.
Curtis Nagle: Maybe digging into the point about the Etsy ads driving the higher take rates, we can certainly see that in the numbers doesn't.
Curtis Nagle: Doesn't appear to be driving.
Curtis Nagle: Tms would be sort of a net basis am I misreading. This and I guess, just generally speaking thinking about overall take rates would you consider maybe lowering a bit to help drive some of the tumors.
Curtis Nagle: Great question, so the Etsy ads.
Curtis Nagle: Our actually neutral or better to Gms. So we tend not to ramp things up if they are harmful to gms. The standard is it's got to be for the buyer experience. It's got to be that the ads are as good as the organic so.
Curtis Nagle: Not always the case in the pet lots of releases that the Etsy ads benefits, we've seen isn't like one big Bang release There've been a number of things that they've done but in general I would say there are at least neutral and sometimes beneficial the etsy ads team is actually gold based on Gms and take rate so theyre goals based on producing.
Curtis Nagle: An experience that drives more sales for our sellers.
Curtis Nagle: In terms of taking the take rate down.
Curtis Nagle: It doesn't appear to US right now that that is a hindrance in fact, we see a huge abundance of really high quality listings on the site. We're proud of the fact that most of the fees. We charge our are optional. So theres 20 to list an item that's been stable for I think since we launched Etsy 20 years ago, There's a.
Curtis Nagle: Six 5% Commission, which we think is pretty fair pay.
Curtis Nagle: Payments fee, which is very competitive with any other payments platform you'd use.
Curtis Nagle: And and everything else is optional and so our sellers are opting in when we create value added services be it shipping labels or etsy ads.
Curtis Nagle: We think we've done a good job of making this a real win win and in fact, if you look at the take rate expansion over 'twenty 'twenty four and even over 2023 those were all us making the experience better in a way that our sellers opted in so we think we made the pie better they were real win win experiences and the notion that the take rate.
Curtis Nagle: Always has to be a zero sum game I'm not sure is is true I think we've done a pretty good job of demonstrating.
Curtis Nagle: That we can we can make the pie bigger for everyone. We expect to be able to sustain the take rate that the advances we've made over the last 12 months. Our first quarter outlook is that it'll be take rate should be around 23%, which is up a little bit from where it was in the fourth quarter.
Curtis Nagle: As Josh said, we believe it.
Curtis Nagle: These efforts to bring value to those additional services that are appreciated by the sellers that support the take rate where it is today and where it could go in the future.
Curtis Nagle: Our next thing I'll add on Etsy ads since we're on it if we look back historically at Etsy ads you see it tends to go through a period of time when.
Curtis Nagle: Take rate from Etsy ads relatively stable then youll see it go up relative there, we're making some foundational investments in core infrastructure and other investments in a year and then it pays off with better models. The next year and you tend to see it go a little bit like that.
Curtis Nagle: I think that the Etsy ads improvements we've made last year are going to be very sustainable this year, but the team has some great ideas for some very foundational work that they want to do on Etsy ads. It may not raise the take rate in the short term in particular, taking a lot of the quality work from search and infusing that into AD so that search.
Curtis Nagle: <unk> adds work more closely together and you see less duplication between them I think that's going to be a great track of work.
Curtis Nagle: Don't know that it will raise the take rate, but I think it will make the buyer experience better to the core of your question.
Curtis Nagle: That's one of the big focus areas for this year.
Curtis Nagle: Okay.
Speaker Change: Thank you. Our next question will come from Steve Forbes with Guggenheim. Please go ahead.
Steve Forbes: Good morning, everyone.
Speaker Change: Josh maybe just to focus on the habitual buyer base and the repeat buyer base rate intuitively. It makes a lot of sense with what's happening with the seller base.
Steve Forbes: So maybe can you just help us understand sort of what factors are driving.
Steve Forbes: The shrinkage of the habitual buyer base and then as you sort of explore the loyalty program development process.
Steve Forbes: What needs right does the habitual buyer repeat buyer really want from etsy.
Steve Forbes: About improving the value proposition of the loyalty program over time, yeah. So there's.
Steve Forbes: Broadly speaking two categories I would say in the habitual buyer there are people who are going through a life event like a wedding.
Steve Forbes: Or a new baby, where they suddenly have a lot of purchases that are very relevant for etsy, and we'll see them pop up and be very high purchasers and then they typically don't go away. They just buy less in the next year and we see waves of that happening.
Steve Forbes: When wedding sizes get smaller we've had fewer weddings for example, you see a little bit of headwinds from from some of that.
Steve Forbes: When I say, we I mean, the market has had fewer wedding, we went through a wedding boom and weddings are not quite where they were at.
Steve Forbes: At the moment.
Steve Forbes: But the other thing we're seeing is people who have just figured out that etsy is a place. They can go for all kinds of things and they start their shopping at Etsy, and we really want when we talk about these discovery experiences more browsable experiences, helping more people to realize that they can start their shopping missions at etsy much earlier.
Steve Forbes: What we find with those habitual is that they really know how to.
Steve Forbes: How etsy search works if you sit next to them. They know the right words to put into etsy search to get to the right stuff, they're very creative and they speak merch and what we're trying to do is create experiences that allow people that don't speak merch that don't know how to talk to our search engine to be able to have.
Steve Forbes: A really fun and engaging experience as well and be able to sort of swim in the joy of all the fun stuff, that's etsy without needing to be an expert in over time, I think that can lead to a lot more frequency for us.
Steve Forbes: Thank you yeah as we've said in prior calls we continue to see when we see a small decline in our visuals.
Steve Forbes: Not people, leaving Etsy, it's just going from six purchases to five typically it's just buying a little less often or spending a little less money.
Steve Forbes: Yeah.
Steve Forbes: We are encouraged by the early.
Steve Forbes: Indications from our loyalty program.
Steve Forbes: People like free shipping.
Steve Forbes: And when they get free shipping they seem to buy a fair amount more product from etsy.
Steve Forbes: So I think it's it's really now the work to do is to look at what what's going to happen with churn rates, which is obviously very important some of these people are on a seasonal.
Steve Forbes: Prescription so every quarter. It takes three months to see how many are sticking with us, but importantly also what the unit economics look like for us and how to make sure that we are doing this in a way where the unit.
Steve Forbes: Economics really makes sense and I think that's gonna be iterative work.
Steve Forbes: Where we're going to continue to sort of expand the pool of people. We have in the program worked through the unit economics, and then grow probably in a in a more organic way I wouldn't say that we are that we have.
Steve Forbes: The number of subscribers, we hoped to have so the program is delivering what we hoped and that's a petri dish big enough for us to really be learning from them.
Steve Forbes: Thank you.
Mark Kelley: Our next question will come from Mark Kelley with Stifel. Please go ahead.
Mark Kelley: Great. Thank you very much good morning, I appreciate you taking my questions.
Speaker Change: Yeah, we're getting some questions. This morning, just about why 2025 will be different than in 2024.
Speaker Change: Because the messaging was fairly similar at this point last year that you know as we progress throughout the year things will just get better I guess, what gives you confidence that this year will be a little bit better.
Speaker Change: Then maybe a quick one on that $1 billion of incremental Gms.
Speaker Change: From the App improve.
Speaker Change: Improvements that you're talking about I guess could you maybe walk through that a little bit Josh. Thank you yeah on the first one.
Speaker Change: Youll recall that in the spring and summer we started to change our messaging and actually say that we thought that the most important thing for etsy to do was to create holistically more different experiences.
Speaker Change: And <unk>.
Speaker Change: Really lean into the differentiation of Etsy, elevate quality reduce samian S things like that which we didn't think we're going to have a near term benefit and so while you're right that in the first quarter. We said, we expected the product, but product to contribute and drive growth. We we actually evolved our messaging from that and we said in the spring.
Speaker Change: And some are hey, we've decided to shift our efforts the things that we don't have near term benefit but will set up that's a much better for the medium and the long term, we think that that had an opportunity cost last year of at least a few hundred million dollars felt particularly in the back half of the year that would've also normally been provider.
Speaker Change: A tailwind for us in Q1, which we we arent feeling from that understandably.
Speaker Change: As we head into this year, we have actually shifted some of our product resources back to that near term.
Speaker Change: Conversion driving work that historically has been.
Speaker Change: Very beneficial for us well continuing to keep also.
Speaker Change: Investment on things that continue the work around quality and differentiation that we think is going to drive frequency and loyalty to etsy over the medium term and so I think having that more balanced portfolio. I think is going to be very helpful. Lanny also tick through a couple of other things that we think will be helpful. In the recorded part of the call for <unk>.
Speaker Change: Sample the fact that the comps get a bit easier as we as we move through the year. So we're going to keep focusing on the things. We can control, which is really setting up Betsy is the best possible alternative to all of the really cheap and Commoditized stuff out there and I think the more we do to set up Betsy is something that's truly better and different than that.
Speaker Change: I think that is a very big prize and we have our eyes on that prize and really focused on building towards that much better future I think.
Speaker Change: During the company being relatively new as I look at this year, the return and rebalancing of more of our development efforts to that sort of bread and butter etsy.
Speaker Change: Conversion driving the.
Speaker Change: Sort of shorter term gms driving rebalancing in that direction gives me encouragement about our growth rates today and what they can be tomorrow is that as that becomes more of our mix going into this year and then there are they're really important fundamental investments made last year are in things like gifting that I think will contribute more.
Speaker Change: We move through this year, we had it was.
Speaker Change: As we said in Valentine's day, and gifting around that was encouraging and I think you'll see the benefits of that foundational work. We did last year set us up for potential improvement later on this year. So this is one of the factors that were pointing toward the second part of the question from Mark was on the App.
Speaker Change: Why do we think.
Speaker Change: So we've been as you know also speaking of opportunity cost taking people, who land on mobile web and saying Hey, you really should be on the App, we feel some friction from that that's intentional friction, but theres going to be some conversion rate loss that comes from that we're trying to be thoughtful and balanced not reckless about it very data driven about it but we are seeing.
Speaker Change: <unk>.
Speaker Change: An increase in App downloads as we had in beat through the beginning of this year that we think is encouraging so we're going to keep leaning into that work.
Speaker Change: Overtime getting much more of our usage to shift to the App. We think is going to be really great for long term health of our customers and etsy business.
Speaker Change: Perfect. Thank you very much thanks Mark.
Speaker Change: Our next question comes from John <unk> with Jefferies. Please go ahead.
Speaker Change: Okay.
Speaker Change: Great. Thanks, so much for taking my questions. So when you compare the insights from your foundational investments so far and think about.
Speaker Change: How to position Etsy marketplace for a return to growth talk about which areas of improvement to the consumer experience that you expect to contribute most meaningfully to that recovery.
Speaker Change: And maybe as part of that can you just provide some examples of the areas of investments that youll focus more on to generate more near.
Speaker Change: Search firm Gms wins that you talked to talked about.
Speaker Change: Yes, let me start with the near term and then I'll go to the medium term if that's okay.
Speaker Change: The near term there is a couple of tracks of work that this the conversion driving team and one of the changes. We've made is instead of having every squad try to build a better experience for the medium term, while also growth hacking conversion driving wins for the short term, we've actually separated that and said these are squads that are specifically dedicated to.
Speaker Change: <unk> conversion driving near term Gms and these are squads that are building.
Speaker Change: Newer surfaces, and we think improved experiences for the medium term. So you can think about it as value capture and value creation squads.
And I think just having differentiation of mission is is going to help but having those those squads that are very focused on near term Gms, we've launched a whole bunch of new surfaces as the work that we did in the last half of last year.
Speaker Change: There's now an opportunity to go into those new services, we've launched and actually improve them for conversion and so I think.
Speaker Change: We will see some benefit from that.
Speaker Change: So tactically when I think about things that are likely to pay off this year applying a lot more machine learning to our feeds to our lower funnel marketing I think can drive meaningful.
Speaker Change: Efficiency gains there that we would to the extent theyre ROI positive reinvest in growth. So those are some examples of things that I think in the near term can be very helpful. In the medium term.
Speaker Change: I want to talk about browsing and I want to talk about quality on the let's start with the with the browsing side.
Speaker Change: Historically, our recommendations have been based off of very high intent signals like what did you buy what did you favorite and what did you add to cart. Those three signals have been most of what powers recommendations on etsy.
Speaker Change: Those are very high intent signals they tell us a lot about you, but they happened very rarely most customers have only a few purchases and the cards favorites. So we don't end up having a lot of data to work from and it can end up being a very rearview mirror like experience on etsy by creating more browser.
Speaker Change: Both surfaces, where you're just.
Speaker Change: Crawling past interesting stuff, where did you pause what did you dive into what did you move quickly passed we get much much more data about a much broader set of customers and that data tells us things like what style do you have what types of inventory interest you. It probably starts to tell us things like do you own a pet or.
Speaker Change: Do you have a child in the house what types of.
Speaker Change: Categories interest you. So when you come back and search on Etsy, we can apply all of that because we know so much more about you to make that that experience. So much more tailored to you we can take etsy and turn it into a really personalized experience and this is not.
Speaker Change: The work that's never been done before we have a lot to learn from folks like Tictoc, and Instagram and Pinterest and others on this but there's been a lot published on how to do this well that we think we can learn from and really accelerate our growth in doing that I think we can also move up the funnel what our customers tell us is.
Speaker Change: I Love Etsy, I, just didn't have a need and what they mean by that as I go to etsy, when I've looked everywhere else and I Couldnt find it then I go to Etsy.
Speaker Change: And for sure we have it but we have so much more for you to instead of being the last place you go when you can't find it anywhere else we want to be engaging you regularly in fund inspirational experiences so that when you're ready to buy something we already have you. There we don't have to spend as much to get you back for many retail.
Speaker Change: I think that would be a pipe dream. The idea that people are going to come and spend time just to be inspired or to discover but for etsy. It's a natural we are the home of creativity. We are the home of self expression. We have so much interesting content from interesting creators that I think on etsy, it's actually a very natural fit and our customers.
Speaker Change: It's a very natural fit we have a lot of opportunity. There. We're just beginning in that and I'm incredibly excited.
Other area I'm Super excited about is quality really understanding what the best of Etsy is that's obviously an eye of the beholder thing, but <unk> start to give us insight into the beholder. What are your tastes and then what does look like quality to you what does appear more artisanal more craft did not just us.
Speaker Change: But is this LLM that I spoke about in the in the recorded part of the call. For example, it can look at a picture and say what are the specific skills that would be required to make this product Oh well. The wood is joined in a way that requires a very high level of craftsmanship. So this is a particularly artisan.
Speaker Change: <unk> product that kind of thing wouldn't have been possible, even three years ago. So I think our ability to identify and elevate the stuff that is most unique and interesting on etsy is at the knee of a curve.
Speaker Change: Right now and I'm really excited to see what that can yield.
Speaker Change: I appreciate it I think.
Speaker Change: Thank you guys so much.
Speaker Change: Operator.
Speaker Change: I appreciate all the interest thank you all very much.
Speaker Change: Okay.