Q1 2025 Etsy Inc Earnings Call - Q&A

Investor Relations and joining me today in Brooklyn, or Josh Silverman, CEO and Lanny Baker CFO today's prepared remarks have been prerecorded, including comments from our new President and Chief growth Officer, <unk> Patel Goyal. Once we are finished with the presentation, Josh and Lanny 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.

Forward looking statements involve risks and uncertainties some of which are described in today's earnings release and our most recent periodic report 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 also during the call.

We 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 with that I'll turn it over to Josh.

Josh: Thanks, Tim and good morning, everyone. Thank you for joining us as we are navigating our business through fairly unprecedented an incredibly dynamic times I feel grateful to be part of the team here at Etsy, where our marketplaces support entrepreneurial sellers, whose products resonate with and are truly loved by consumers offer differentiation.

Josh: Is it a non commoditized merchandize feature remarkably responsive and diverse supply, which has demonstrated powerful resiliency over multiple major global economic and supply chain shocks in recent years. We're best in class talent comes to work every day drawn by our positive impact helping to drive success.

Josh: For creative entrepreneurs, and who are working with urgency to get us back to growth and where we have the security of an extremely strong financial foundation.

Speaker Change: And so he has a strong track record of navigating turbulent macroeconomic conditions and we're confident in our ability to keep adapting we're staying nimble and leaning into our strengths. So we can provide a global haven for self expression, even in uncertain times I also feel fortunate to have our new leadership team in place including <unk>.

Speaker Change: <unk> kolbert, who rejoined the etsy marketplace as CTO. After two years of helping Deepak achieved tremendous success. We believe that we have a deep bench of seasoned pros, who can lead with confidence move.

Speaker Change: Moving to our first quarter 2025 results and CS performance was in line with the outlook. We shared in February and we came in a bit ahead on take rate and adjusted EBITDA Lanny will explain the results in more detail a bit later I'll spend most of my time today reviewing the progress we're making on our journey to reignite core etsy marketplace growth followed by <unk>.

Speaker Change: <unk>, who will share early insights on how she's thinking about etsy as go forward opportunities.

Speaker Change: Our teams are executing a balanced portfolio of product investments to drive in your Gms improvement and materially evolve. The overall etsy customer experience. We believe these efforts are beginning to fuel a stronger customer relationship flywheel powered by new experiences that capture more and better data, which feeds advanced artificial.

Speaker Change: Fishel intelligence and machine learning to deliver deeper personalization to drive buyer engagement and frequency over time step.

Speaker Change: Stepping through the spokes of the flywheel first we're working to evolve our app surfaces to be more browsable, our new shop tab makes it easier than ever to browse and navigate more than a dozen categories and to shop by key purchase occasions, such as gifting and weddings, even and especially if you arrive not knowing exactly what youre looking for.

Speaker Change: I'd encourage you to check out these experiences.

Speaker Change: Last year's gifting initiatives showed us just how much buyers respond to curation such as our gift ideas and lists are learning that directly shaped current efforts to supercharge overall discovery on etsy on.

Speaker Change: On April 9th we launched a new discovery centric shopping experience, which you may have seen featured at the recent Google Cloud next conference. This experience Leverages, what we call our guitar real curation, a powerful blend of AI, driven scalability and the knowhow of our world class merchandising team.

Speaker Change: Z experts spot the latest trends and find high quality relevant items, then our engineers you've used machine learning to scale the collections listings and finally llm's help align the aesthetic cohesiveness of the collection. So that it includes a variety of product and meets our standards for quality listings benefiting for.

Speaker Change: Last year's quality efforts now millions of buyers can see beautiful scroll friendly collections tailored to trends styles and occasions, showing the world of possibilities on Etsy reason.

Speaker Change: Recent AI advances enabled us to build an experience where the trends are shopper sees and the items that appear highest for them within each curated collection are based upon their individual activity, including purchased and viewed items. We're just getting started creating truly personalized browsing and discovery journeys and bill.

Speaker Change: Leave it will be genuinely game changing for etsy.

Speaker Change: I'm excited to tell you about the real progress were making on our mobile app in the first quarter buyer conversion rate on the App increased year over year and the App Gms significantly outperformed non app Gms in fact, the App reached an all time high of 44, 5% of total etsy marketplace Gms.

Speaker Change: We saw an upward year over year trend in monthly active users and increases in app downloads for first time users and the apps more browsable design means we're collecting more and better insights into customers' interests inclinations tastes and habits, all of which can be fed into smarter more powerful L. O M.

Speaker Change: <unk> to generate even more engaging and personalized experiences overtime.

Speaker Change: Second alongside our browsable content, we've made significant improvements in how we get to know our customers previously we only looked at organic search data to power. Our search models now we're working to also incorporate AD and recommendation data. This is already giving us about a third more data so far this year.

Speaker Change: Compared to our previous Siloed approach. This is leading to deeper insights better model training and closer ml team collaboration we're also improving our ability to recognize individuals' shoppers even if they haven't signed in we're better connecting the dots between first and third party data to more accurately predict.

Speaker Change: Buyer, LTV and Taylor engagement and retention strategies for different segments. This will help us create an etsy that will ultimately feel like your personal boutique every time you visit us well.

Speaker Change: We're already seeing signs of success here, our personalized homepages get nearly double the engagement of non personalized homepages and with the help of machine learning during the first quarter, we increased the share of personalized E mail and push notifications by over 10 percentage points with a b tests confirming a clear lift in engagement.

Speaker Change: Compared to prior more generic content.

Speaker Change: We also conducted our first ever testing of Jenny I created personalized marketing copy in Q1 and are optimistic that this can unlock significant gains in the quarters to come.

Speaker Change: We also had some other wins in the quarter to further fuel. The flywheel. For example, we enabled etsy experiences within third party AI based shopping platforms, including participating in the research preview of opening is operator and enabling in App purchase in Microsoft Co pilot, we believe that being selected.

Speaker Change: As early research partners for both of these top agenda AI products is indicative of our unique and compelling offering which is quite exciting as they potentially become more prevalent and helping people to shop.

Speaker Change: We're encouraged by the trends we're seeing in terms of increased user engagement outperforming gms on the App and stronger contributions from owned marketing channels, such as push notifications and other more personalised strategies as well as in paid social.

Speaker Change: Much of the progress we're making is just the tip of the iceberg of what we're creating in terms of new customer experiences and we expect these to stack over time and support future growth.

Speaker Change: I want to take a few moments, particularly with global tariff regulation still influx to revisit what makes etsy unique and special first.

Speaker Change: Sellers in our marketplace include over 5 million creative micro entrepreneurs from around the world most our solo entrepreneurs working from their home with 90% sourcing their supplies domestically.

Speaker Change: Second the diversity of listings on Etsy is massive with more than 100 million items touching well over 100 retail subcategories and historically, we've seen high replacement rates. If one item isn't available something similar very likely is meaning that if there are bottlenecks in one part of the world we have sellers elsewhere.

Speaker Change: Who can fill the gaps for example, right now there are more than 60 million items available to ship from U S sellers alone with thousands of sellers in every state.

Speaker Change: And third our business model has been especially resilient in times like these we don't manufacture hold or price inventory and sellers pricing on etsy has been relatively stable over time, even during times of major price volatility elsewhere.

Speaker Change: Our model has proven its strength, both operationally and financially time and time again.

Speaker Change: To specifically address the shifting tariff landscape, we established a small operational task force focused on creative solutions for our community. So that the remainder of our team can keep their eye on the prize working to get Etsy Gms growing again there.

Speaker Change: This slide highlights how recent actions, we've taken including easier local search and filtering for buyers and ongoing education and policy support for sellers. We are of course monitoring the ricochet impact of higher global tariffs on consumer spending in our core markets, particularly with regard to the cost of items people purchase every day.

Speaker Change: And how this may impact demand for consumer discretionary items.

Speaker Change: Onto our subsidiaries starting with Deepak with cruise he transitioned into her role as <unk>, President and Chief growth Officer Deep hops, Chief Marketing Officer, Peter simple is stepping in as interim CEO are thoughtful and strategic leader Peter is the right person to guide the business, while we continue our deep CEO search.

Speaker Change: <unk> deep up once again delivered very strong topline growth with its best Gms quarterly performance since we acquired the business in 2021 and setting a record for seller acquisition.

Speaker Change: The U S was again, a key driver where deepak remains the fastest growing online retail apparel platform.

Speaker Change: As you saw from our recent announcements we've made the decision to divest reverb from our portfolio. During the last five plus years reverb has done a fantastic job cementing the brand as the online destination for secondhand musical gear. We're excited for them to embark on this next chapter with Great New partners, who are deeply ingrained in the musical.

Speaker Change: Instruments sector. This transaction will enable us to further focus on driving growth for Etsy and Deepak.

In closing at Sea's mission to keep commerce human has never been more relevant the work, we do matters and his impact on millions of creative entrepreneurs around the world. We are laser focused on making etsy, a starting point for special with that I'll turn it over to Christie.

Christie: Thank you Josh I'm really excited to be back at Etsy and to have the chance to speak with you all today.

Christie: I've been fortunate to have been part of Etsy is growth and evolution over the last 13 years.

Christie: Many have across the company during that time from leading trust and safety to heading our seller business to serving as chief product Officer, and most recently CEO of Dupont.

Christie: And Deepa, we built an app first experience with more than 90% of our sales happening at that serves our customers from inspiration to purchase.

Christie: To do this we prioritize investing in our recommendation engine that reflects our deep understanding of our buyer's tastes and preferences, helping them better discovery and explore their individual style.

Christie: And for sellers, we focus on making it simpler and more efficient for them to lift and sound powered by our machine learning capabilities.

Christie: Secondly, this work has led to a more engaging more effective experience on both sides of the marketplace deepening our connection with our community powering deposit growth and the secular fashion economy.

Christie: The success of this work is clear and the increases you see here in our active users their engagement with our App and ultimately in our Gms growth.

Christie: My time at deep Hep has only deepened my appreciation for what it makes the marketplace. So special it's dynamic adaptable and can impeller real people, while delivering real economic opportunity.

Christie: And as Josh mentioned, our market places like Etsy is also uniquely suited for a world where customer behavior is shifting faster than ever.

For the past few months I've immersed myself in the business and reconnected with our teams quickly getting up to speed on our investment strategy and operations.

Christie: And looking ahead to the remainder of 2025 and beyond I believe our biggest opportunities will come from our ability to give shoppers more compelling reasons to choose any of our competitors rooted in our differentiation.

Christie: And to build a more personalized more delightful shopping experience that strengthens our relationship with our buyers and deepens our partnership with our sellers.

Christie: Because we all know when they win we win.

Christie: We know Theres meaningful work ahead of us to realize this potential and reignite growth and I'm excited to bring a fresh perspective as we build on the magic that makes it so special.

Christie: With that I'll hand, it over to Lanny to cover financial results.

Lanny: Thanks, <unk>, it's a pleasure to connect with you all today.

Speaker Change: While the first quarter was challenging Jim S was consistent with our expectations.

Speaker Change: <unk> delivered a small beat on take rate and adjusted EBITDA margin.

Speaker Change: After the end of the quarter, we announced the sale of river, our musical instruments marketplace for $105 million in an all cash transaction that values the business at a mid teens multiple of trailing 12 months adjusted EBITDA.

Speaker Change: We took a noncash impairment charge of $102 million associated with that anticipated transaction, which is reflected in first quarter 2025 net loss.

Speaker Change: First quarter 2025 consolidated G. M. S was $2.8 billion down approximately six 5% year over year with FX, representing an 80 basis point headwind versus prior year.

Speaker Change: Betsy marketplace, Gms was down eight 9% and down eight 1% on a currency neutral basis.

Speaker Change: Meanwhile, de pop continued to deliver very healthy growth in buyers sellers and G. M S, which benefited consolidated Q1 results.

Speaker Change: And reverb year to year, Jeremy Metz performance was similar to that of the core etsy marketplace during the first quarter.

Speaker Change: Despite the G. M. S decline first quarter consolidated revenue increased by approximately 1% year over year to $651 million.

Speaker Change: Breaking that down marketplace revenue decreased one 8% year over year, reflecting the decline in G. M S.

Speaker Change: Partially offset by increases in payments revenue and at C and D pop as.

Speaker Change: As well as sellers setup fees, which we raised to $29 for new sellers in the U S.

Speaker Change: Services revenue grew seven 7% year over year with strong growth in onsite ads revenue at both Etsy and Deepak.

Speaker Change: Adjusted EBITDA was $171 million for the first quarter, representing a 26, 3% margin up.

Speaker Change: Up 30 basis points year over year and ahead of our guidance.

Speaker Change: The primary factor behind that expansion in adjusted EBITDA margin was leverage in G&A, where we saw a reduction in bad debt non income tax expense and other costs in the quarter.

Speaker Change: This was partially offset by modest deleverage in cost of revenue due to slightly higher cloud costs related to ml and search development as.

Speaker Change: As well as the cost of free shipping associated with our shopper loyalty beta program.

Speaker Change: And she continues to realize a healthy take rate reflecting.

Speaker Change: The significant value, we deliver to participants in our marketplaces.

Speaker Change: Consolidated Q1, 'twenty twenty-five take rate improved to 23, 3%.

Speaker Change: With the increments shown here producing take rate expansion beyond our guidance of approximately 23%.

Speaker Change: And an increase of 170 basis points over the 21, 6% take rate reported in the same period last year.

Speaker Change: And in product development spending was up slightly year over year to $111 million.

Speaker Change: It remained flat as a percentage of revenue.

Speaker Change: We've increased our product development head count modestly from a year ago with consolidated revenue per head continuing to expand on a trailing 12 month basis.

Speaker Change: First quarter consolidated marketing spend decreased 1% year over year to $189 million.

Speaker Change: We reduced brand spend coming off last year's debut of the Etsy marketplaces, new gifting experiences.

Speaker Change: And we increased performance marketing spend year to year with a growing emphasis on social media channels.

Speaker Change: Our rois in paid social are not as high today as what we achieve in search MPLA. However, we're making steady gains inefficiency and etsy marketplace Gms from paid social increased meaningfully in the quarter.

Speaker Change: This progress enables us to underwrite greater social investment for Etsy, where we are optimistic about fueling the buyer engagement flywheel via social as Josh described earlier.

Speaker Change: Turning to Etsy marketplace, Jim S performance in active biometrics, we anticipated a challenging first quarter as we work through the impact of last year's shifting resources and strategy.

Speaker Change: Coupled with ongoing external pressure on consumer discretionary spending.

Speaker Change: As a result.

Jim S: See marketplaces year over year, Jim S performance in Q1 was similar to that of the fourth quarter.

Jim S: U S buyer Gms represented about 75% of first quarter Etsy marketplace Gms.

Jim S: With both U S buyer Gms and non U S buyer Jim S. Performing similarly to Q4 of last year, when removing the FX impact from the latter figure.

Jim S: Well Gee of us in each of our top six categories declined year over year.

Jim S: Based on data from consumer edge, we believe we performed in line with or slightly better than our pure play peers in four of those categories.

Jim S: We also benefited from Etsy has strengthened positioning as a great place to shop for gifts with gifting Gms outperforming non gifting gms in the quarter.

Jim S: <unk> and marketing efforts to enhance Etsy is gifting experience provided a tailwind during the Valentine's day shopping period.

Jim S: And mother's day in the U K was another gifting bright spot with year over year growth in G. M S.

Jim S: Betsy marketplace active buyer metrics remain muted during the quarter with continued strength in buyer reactivation and year over year declines in all other metrics Gms per buyer now at $120 declined three 5% year over year similar to the trend in recent quarters.

Jim S: <unk> continues to be the driver of the decline in Gms per buyer.

Jim S: As well as a target of our product and marketing initiatives.

Jim S: We generated $35 million of free cash flow in the quarter as seasonally higher fourth quarter payables led to greater first quarter cash outflows.

Jim S: For the trailing 12 month period, our free cash flow was a very healthy $685 million.

Jim S: During the first quarter, we allocated $189 million to repurchase of Etsy shares with.

Jim S: With nearly a $1 billion in cash at the end of the period and expecting continued strong free cash flow generation.

Jim S: We believe we have the financial flexibility to continue share repurchases to manage our debt balance and make ongoing investments in the business.

Jim S: Before I move to our outlook, we thought it would be helpful to provide additional context on etsy marketplace trade lanes, and how tariffs may impact our business.

Jim S: At present, that's used direct tariff exposure appears to be relatively low given the just over 1% of G. M. S comes from U S imports of items purchased from sellers in China.

And our sellers tell us they primarily sourced their supply locally.

Jim S: In fact, the majority of the Etsy marketplace Gms comes from local within country Commerce and.

Jim S: And we saw the benefit of this advantaged during the pandemic and supply chain bottlenecks that impacted international trade a few years ago.

Jim S: Our current trade search situation is highly fluid.

Jim S: And it's challenging to confidently predict when and where specific tariffs will go into effect or how those tariffs may impact demand more broadly.

Jim S: Additionally, potential changes to the de Minimis exceptions could be important given that the substantial majority of our Gms comes from items priced under the 800 dollar exemption threshold.

Jim S: Currently there's no formal process to collect and remit tariffs for these items and it's unclear how long it might take the United States government to establish such a process or how that might ultimately influence U S. Consumers' willingness to purchase goods impacted by the change.

Jim S: Against that backdrop. The good news is that we believe there is inherent strength and diversity provided by the Etsy marketplaces global seller base and robust trade lanes in fact within our top categories. There are active listings from sellers and over 100 countries.

Jim S: And as Josh mentioned, we've historically seen a very high replacement factor come into play when one country or region is impacted.

Jim S: As this pie chart shows about half of Gms comes from U S buyers purchasing from U S sellers are strictly domestic gms.

Jim S: About a quarter or so of our Gms comes from buyers in the U S purchasing from sellers outside the U S or from U S sellers shipping items to buyers outside the United States.

Jim S: Imports into the U S represent the vast majority of this slice of the pie and within that no single countries U S. Import G. M. S comprises more than 4% of total etsy marketplace, Jim S with a very high level of country diversity.

Jim S: The remaining quarter or so of G. M. S comes from transactions in which both the buyer and the seller are based internationally.

Jim S: Note that specific tariffs are not really in play for D pop given a very small percentage of gms coming from U S Cross border trade.

Jim S: There are quite a few unknowns for how tariffs may impact our business beyond the trade lane implications and whether the de Minimis exception, when we remove beyond China.

Jim S: These include competitive pricing impacts to peer supply chains, and other competitor factors some of which could prove to be tailwind for us.

Jim S: That said a key consideration is the degree to which higher tariffs may impact consumer demand.

Jim S: Packaging overall expenditures and discretionary wallet share turning to our outlook note that it does not include the impact of the reverb transaction, which we expect will close in coming months.

Jim S: This guidance assumes macro conditions, which have been challenging for us for a while remain roughly consistent for the remainder of the quarter starting with G. M. S. We currently anticipate that second quarter consolidated Gms will decline at a rate similar to potentially slightly better than the year over year.

Jim S: Percentage decline experienced in the first quarter.

Jim S: We continue to be encouraged that the product and marketing strategies, we have been pursuing and which are showing the progress described today can drive improved etsy marketplace Gms as we move through 2025 and beyond.

Jim S: We expect that Q2 2025 consolidated take rate will be similar to that of the first quarter and that consolidated adjusted EBITDA margin will be approximately 25% for Q2.

Jim S: Reflecting higher year over year marketing spend as well as higher year over Europe people costs associated with annual compensation increases and hiring.

Jim S: We take comfort in the inherent strength resilience and diversity of Etsy business and we intend to remain nimble in the event the conditions changed materially.

Jim S: You all for your time today I'll now turn the call over to the operator for Q&A.

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

Jim S: When it's your turn you will 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'll hear your name called and you May I mean, your video and audio and ask your question.

Speaker Change: As a reminder, we are allowing analysts one question we.

Jim S: We will wait one moment to allow the QD form.

Jim S: Our first question will come from that should I take this area with Wolfe research.

Jim S: So it is shining a smoker you let us in a moment.

Jim S: Hello, I'm getting here.

Speaker Change: Yep, we can hear you okay. Thanks, Josh and Lanny I guess my question is on outlook. So first is on a full year outlook in the prior quarter and your outlook included and could be I'm, sorry, and your outlook include Ed and improving gms trend through the year.

Speaker Change: Could you. Please update your thoughts on that and then second question is on the second quarter EBITDA margin Guide is it fair to assume that you are now leaning in more on social media platforms with marketing spend and is that in any way driven by what youre seeing that APAC based advertisers, perhaps pulling back end.

Speaker Change: We're leaning into that opportunity. Thanks, a lot. Thanks.

Speaker Change: Sure as we look at the course of this year.

Speaker Change: It's important to set the kind of macroeconomic.

Speaker Change: Economic backdrop, the macroeconomic backdrop has been challenging for etsy for for a considerable period of time and our outlook right now anticipates that there's no major change that things on the macro front stay relatively consistent with where they are today now as we look across the course of this year, we've said previously and again today.

Speaker Change: We feel encouraged about our ability to improve growth over the course of the year that's built on.

Speaker Change: A few factors first of all the product and marketing work that we've been doing we'll stack and accumulate as we go through the year. So work that we're doing on the App and on the gifting experience and on personalization in our product those those benefits we're starting to see today those will continue throughout the year that gives us some encouragement on the marketing side.

Speaker Change: Improvements in social marketing performance the repeat Reengagement work that we're doing to bring back reactivating prior lapsed buyers showing very good progress. We grew the number of reactivated buyers this quarter by over $6 million and those typically have a much higher LTV in the next.

Speaker Change: 12 months after we reactivate them. So those kind of pieces of progress are incorporated in our view for the full year.

Speaker Change: The macroeconomic environment could change and it's hard to call that at this point in time, but we're focusing on the things that we can control in our product in our marketing and feel really good about their ability to contribute as we go throughout this year on the second quarter our margin target.

Speaker Change: The we share today Youre right, we will see some deleverage on the marketing line last year in the second quarter was kind of a low ebb and our marketing spending as a percentage of revenue and so that makes it a little bit of a tougher comp in the second quarter of 2025.

Speaker Change: And you asked specifically about paid social we are making some really encouraging progress. There. So we mentioned in our prepared remarks at a higher percentage of our performance marketing spend was in paid social we think that's really encouraging in terms of meeting buyers where they are we're learning how to use paid social better. We're also learning how to use the full.

Speaker Change: Funnel of paid social better so not just bottom of the funnel, but how can mid funnel really helped to power bottom of funnel. So we're encouraged by that.

Speaker Change: Another piece of your question was.

Speaker Change: <unk> is our leaning into paid social related to team will in Xi'an pulling out of Google.

Speaker Change: So from what we understand they've pulled out of the Google auction in April we have actually not seen our CPC decreased.

Speaker Change: In in the month of April and it's important to remember that actually Walmart and Amazon along with target and ebay are the largest people we compete with for our P. L a share.

Speaker Change: And so it's not just T Mo and Sheehan and Theres a lot of moving pieces to see be seen so it's sort of hard to parse any one factor. Nonetheless, we continue to develop better martech to get more efficient and in particular to learn how to leverage paid social better and we're really encouraged by that.

Speaker Change: Our next question will come from Brian <unk> with J P. Morgan. Please send me a video and audio and ask your question.

Speaker Change: Great. Thanks for taking the questions really good to see the progress across the social commerce initiatives this quarter, especially on the App I'm just curious what's next on the App product roadmap you mentioned for deep hop right. The App is 90% plus of GFS. So just curious where the app can do in your view as a percent of G. M. S overtime. Thank you yeah, great. So.

Speaker Change: First our highest ever quarter of Gms to the App, 44.5%, we're continuing to see real penetration. There's a lot of our efforts to drive people from mobile web to the app appear to be showing some progress. So we're really encouraged by that I think there will always be a role for certainly the desktop because.

Speaker Change: Some people just want a larger format when theyre looking at particularly like a piece of furniture or something that's maybe a bigger investment.

Speaker Change: Mobile web over time, we'd love to see mobile web become a much smaller share of the app become a much larger share.

Speaker Change: And we're really encouraged by that and I would encourage folks on this call to pull out the app and try it and I think what you will see it as a much better shopping experience today than it was even six months ago and in particular, if you arrive on etsy without having a very specific idea of what you want to buy.

Speaker Change: Bye.

Speaker Change: We've been talking about being more browsable. There is a lot more browsable surface on Etsy, where we're just showing you inspiration in my opinion, it's pretty cool, it's pretty fun and I would encourage you to try it. The next step for US is it still the browsable experiences. We're showing you are still largely one size fits.

Speaker Change: They are here is really cool trends that you will see in the marketplace that most people find very interesting with very cool product in each of those trends that most people find very interesting that's that al guitar real content that we talked about the next step for us is to become a highly personalized in that so now how come.

Speaker Change: We pick which are the trends that you are most likely to like and even within that which are the items within those trends that you're most likely to like even based on just the behavior. You've exhibited in this same session and most of that is work yet to come that we are highly focused on right now and a lot of the work we're doing to create more broad.

Speaker Change: <unk> surface, there's a lot of the idea there is to learn more about your tastes and preferences as long as were highly reliant on you've given us a very specific keyword I'm looking for exactly this.

Speaker Change: We actually won't learn that much about you. So now we're creating a lot of these discovery surfaces that are giving us a lot more data about who you are that are going to enable us to take etsy. This vast soon.

Speaker Change: Superstore of everything and turned it into what feels like a boutique created just for you. That's what I want that's what we want the app to become.

Speaker Change: Our next question will come from the line of Nikhil that <unk> with Bernstein. Please go ahead.

Nikhil: Hi, there. Thank you for taking my question.

Speaker Change: Josh if we look at active buyer trends for the core Etsy platform and the habitual buyers.

Speaker Change: Decline looks like it's been a bit sharper over the last couple of quarters and based on the guidance on <unk> sounds like that might be continuing into Q2 as well.

Speaker Change: It's coincided with a sharper decline in active sellers as well year on year I know there have been efforts to cleanup listings on the marketplace and in recent quarters is there any concern that this is driving a loss of conversion events and pressuring some of the network effects that you typically would want to see in a marketplace like this thank you.

Speaker Change: Wanted to clarify your question is do we have any concern that the decline in active sellers is related to a driving causing the decline in active buyers. So that the question.

Speaker Change: The short answer is no we do not have a concern that that is true.

Speaker Change: We think that the decline in active sellers is an intended consequence of us putting a $29 new shop set up fee.

Speaker Change: And.

Speaker Change: Just two.

Speaker Change: Give context, the number of new sellers coming onto the platform had been growing and growing and growing for quite some time now.

Speaker Change: Many many of those sellers did not have the scale or will to ever become successful sellers on etsy and yet they were.

Speaker Change: Taking up space for other sellers that did demonstrate the scale and well so by putting some intended friction in the form of a $29.

Speaker Change: New shop set up fee, we are still letting the sellers that have the skill and well come through.

Speaker Change: But but have I've done a lot of work to mitigate the number of sellers that werent going to succeed what we see is that the number of sellers succeeding in making a sale.

Speaker Change: Is is substantially up.

Speaker Change: Tension of active sellers is up so the sellers on the platform are much more likely to be succeeding.

Speaker Change: And we've created a playing field for them that I think.

Speaker Change: Is healthier and that is all intended.

Speaker Change: So we are very comfortable with the path, we're on with with with active sellers, we want to make sure that we're serving active sellers that have both the skill and the will to truly contribute to the platform.

Speaker Change: Active buyer decline, it's down about three 4%.

Speaker Change: This this quarter.

Speaker Change: We believe that is due to macro that people just have a little less money to spend.

Speaker Change: The good news is when we talk to our buyers they love Etsy. So it's not that they have with etsy or churned from etsy.

Speaker Change: They just haven't bought something in the last 365 days and so we're working hard to make sure that we are leaning into the things that most differentiate etsy. So it may not be the cheapest place to buy something that may not be the place that shifts the fastest but we have things that are really compelling and really different from everyone else and we want to make sure we leaned into that we want to make.

Speaker Change: Sure that we show at CS highly personalized for sure. So we're showing you the things that you are most likely to love and we're doing that.

Speaker Change: On the App and those are the things, we think drive buyer love and buyer engagement over time, I'll conclude just by saying that well active buyers are down slightly this quarter and we are certainly disappointed by that and working with urgency to get that number up they are still very near the all time high that they were.

Speaker Change: At the peak of the pandemic, so we more than doubled the number of active buyers.

Speaker Change: At a time when people had really few if any alternatives and had to shop on etsy. The vast majority of those people are still shopping on etsy and have still shopped on etsy, even the last.

Speaker Change: 365 days total active buyers as is is is down I think six or 8% from our all time high during peak pandemic times, we're working now with focus with urgency to give those people more opportunity to come back more often so now we grow again from this base.

Speaker Change: Jump in with just a little Nit if that's okay. The percentage of sellers, who made it that was I just want to clarify that and then those new sellers percentage of new sellers, who are making a fell within the first 90 days is also I just want to clarify that.

Speaker Change: I was just going to say on the habitual buyer point.

Speaker Change: The vast majority of the habitual buyers are still buying frequently on etsy, it's theirs.

Speaker Change: Threshold, there of a number of transactions or a dollar value of transactions that somebody can go below but like the numbers that you're seeing on habitual buyers I think are reflecting not.

Speaker Change: Some leaving Etsy, it's just us broader consumer dynamic around purchase consumer discretionary spending is being reflected in that number.

Speaker Change: As stable as a percentage of Gms, that's about 42%. Okay next question.

Speaker Change: Our next question will come from Bernard Mckiernan with Needham. Please go ahead.

Bernard Mckiernan: Great. Good morning, Thanks for taking the question just wanted to touch on the take rate guidance for Q2, its flat sequentially normally we see sequential improvement throughout the year. So just any puts and takes you can provide there would be very helpful. Thank you.

Speaker Change: As we look at the take rate over the course of this year. We're lapping a couple dynamics that have helped us grow the take rate year over year.

Speaker Change: The listing and the introduction of the new seller fee is one of them and we've made some really strong progress on etsy ads and its contribution to the take rate over the last year, that's reflecting work that we've done to improve relevance and improve our ability to utilize the budgets that sellers are telling us they're willing to spend.

Speaker Change: And to get that visibility on etsy.

Speaker Change: And as we've as we've been able to do that while keeping the seller return on AD spend really consistent.

Speaker Change: And so as we look at the rest of this year, we've made some really good strides.

Speaker Change: Our outlook is it will keep things pretty consistent across the road since you're lapping a couple of those.

Speaker Change: Price related service related increments that are benefiting take rate over the last few quarters.

Speaker Change: Our next question will come from Michael Martin with Moffett Nathanson. Please limit your video and audio and ask the question.

Michael Martin: Good morning. Thank.

Speaker Change: Thank you for the question I wanted to follow up maybe money on the gross margin headwind.

Michael Martin: From free shipping.

Michael Martin: So you do talk about.

Speaker Change: Now in search development, just wondering if you can maybe quantify that.

Speaker Change: It's our fault for not really listening to I guess last quarter. When we got maybe a little overly excited on gross margins because of the way you talked about like the abundance of sellers, bringing some of the potentially bad was down. So anything you can quantify on some of the gross margin headwinds, maybe how big stripping could grow.

Speaker Change: It can be a margin headwind would be really helpful. Thank you sure.

Speaker Change: As we look at the you're right in this quarter the gross margin year to year comparison, the two factors that created a little bit of deleverage there were higher.

Speaker Change: It's in cost service compute costs for search and for machine learning and we'll continue to lean into that over the course of this year. So there could be a little bit of deleverage from those search and machine learning costs over the course of the year, it's not dramatic but it's important to the product experience that we're delivering on.

Speaker Change: The loyalty front that was a similar.

Speaker Change: Increment to the cost of revenue this quarter similar.

Speaker Change: Similar to the impact from the search and machine learning that I just talked about.

We'll manage that program. It is in beta test right now, we're continuing to learn about retention about its impact, which so far has been really encouraging.

Speaker Change: On purchase frequency and helping us identify who our best customers are what their how far we can go and servicing them and driving loyalty through that kind of a program. So we'll continue to manage that program over the course of this year it'll be a it'll be a bit of a headwind for us over the course of the year I don't expect that it will grow dramatically from where it is in this quarter.

Speaker Change: And our next question will come from Ken Goralski with Wells Fargo. Please limit your audio and video and ask a question.

Speaker Change: Thank you and good morning, everyone appreciate it.

Speaker Change: First I want to thank you for for all the data on the cross border side, maybe correcting some of our our information there. So I appreciate that.

Ken Goralski: Hey, Ken.

Speaker Change: Two quick questions. Please first.

Ken Goralski: Yeah, I hear everything you're saying.

Ken Goralski: And it seems like as prices start to rise.

Ken Goralski: Certainly imports into the U S across the board you seem well positioned I guess, how do I juxtapose that with your constant currency Gms guide for <unk>, showing some moderation right. Some further decline.

Ken Goralski: Relative to <unk>. That's question one and the second one is more medium term is as you think about driving more buyer frequency greater buyer frequency could you just talk about that.

Ken Goralski: Kind of path to get to there from a lot of the engagement efforts you have now may have some depressing effects or impacts on conversion and the short term could you just talk us through maybe Josh.

Ken Goralski: We should think about the path.

Ken Goralski: Throughout the year.

Ken Goralski: Sure.

Ken Goralski: As we think about the trade lanes.

Ken Goralski: Imports in the United States have been have held up really well and then fairly strong through the first part of this year.

Ken Goralski: We've seen greater softness in our international markets and I think that's that's.

Ken Goralski: Local macro economic conditions in those international markets is softer for sure than in the United States right. Now so that's reflected in our second quarter, a little bit softer just international to international trade trade lanes than than in the United States more so that then.

Ken Goralski: A current or a tariff related cross border dynamic.

Ken Goralski: And.

Ken Goralski: One more thing I'll say about the second quarter is just.

Ken Goralski: The comp versus last year is tough because of holiday date shifts. So flat is actually slightly up if you think about the date shifts. If we were to stay flat Q1 to Q2, it would still be actually really slightly up if you think about the date shift Easter.

Ken Goralski: Being a big dynamic there a little bit shorter shopping period into the mother's day this year than last year.

Ken Goralski: That creates a bit of a headwind in the second quarter relative to the first quarter than the tailwind from last year. So so yeah.

Ken Goralski: To the question about how to think about.

Ken Goralski: How this stuff stacks through the year.

Ken Goralski: The second part of your question.

Ken Goralski: There's really three things we're super focused on making sure we have the very best quality items that we are surfacing, but once it most differentiate etsy and are most likely to delight you, making sure we do it in a super personalized way. So it's the ones that you love not just the ones that generally people would love and third we do it in the App. So we own your.

Ken Goralski: <unk> and have a more direct relationship with you and we did a lot of work towards the end of last year to lay some important infrastructure for that so we had to rebuild our search engine in a way that had a quality score now we have that quality score now, we're just making that quality score a lot better we're doing things to really leverage that quality score we needed to free up a lot.

Ken Goralski: Screen real estate that we could use for these more browsable surfaces.

Ken Goralski: And we're putting friction in the mobile web to drive you to the App. These are all investments that we think are terrific investments that will pay off in spades in the medium term, but might have some near term headwinds. The good news is we did a lot of that work towards the end of last year and we continue to do some of it now, but we've laid a lot of.

Ken Goralski: That infrastructure and so now that the opportunity is how do we make that quality score a lot richer and a lot more robust how do we let our sellers know what actions they can take.

Ken Goralski: In order to boost their quality scores. So this quarter, we made the quality score more robust with more elements to it and we made it not a binary score, but I did dynamic sliding score and we've already seen the percentage of purchases with low reviews go down significantly as a result of that and.

Ken Goralski: We've added more feedback to sellers on what are the top actions. They can take to move their quality score. So we're starting to really figure out ways to leverage that quality score.

Ken Goralski: We talked about some of the new browsable surfaces.

Ken Goralski: And the App and again I would encourage you to go try it I think it's pretty cool I really do think it's pretty cool, but there are still things that are one size fits all cool and now we're gathering more data to start to be able to personalize those and we're starting to see some real traction in terms of being able to drive more people to the app. So.

Ken Goralski: Yes, they will continue to be tradeoffs and there will be continue to be some things we do that create some headwinds not just <unk>, but a lot of the work. We have now is how do we now optimize these brand new things, we've just launched and use them in order to drive growth and I am encouraged that I think we're going to see more progress on that front.

Ken Goralski: Okay.

Speaker Change: Our next question will come from Deepak <unk> with Cantor Fitzgerald. Please go ahead.

Speaker Change: Great can you guys hear me.

Hey, Josh Thanks, Thanks for taking the questions.

Speaker Change: So two questions from me first as you know pricing increases due to tariffs and perhaps some supply chain challenges come up and potentially other retail platforms and E. Commerce marketplaces kind of do you see opportunities to leverage the made in USA and maybe even pricing competitiveness under the new world on Etsy.

Speaker Change: Platform to perhaps create more awareness top of the funnel traffic and maybe build on new user base can you talk a little bit about.

Speaker Change: Just thinking about the opportunities there and then Lanny second one can you quickly give us an update on perhaps at six current category mix. So that we can get some good color on your potential exposure to what pockets of discretionary spending etsy has exposure to thank you very much sure. Thanks for the questions. So on the first one.

Speaker Change: We can and are leaning into the opportunity that etsy is relative value make it better.

Speaker Change: Particularly against sites, who have a lot of their products sold in made in China.

Speaker Change: Those prices May go up a lot.

Speaker Change: And Etsy is relative value proposition is.

Speaker Change: Could get significantly better in that case.

Speaker Change: So we already today have launched an on etsy.

Speaker Change: Opportunity to buy domestically so filters for domestic only feature highlights of sellers that are domestic sellers easy browse pass and we're working on all kinds of different ways. How do we make the UI make it very easy for people to shop locally and I want to point out not just in the U S where of course that matters, but in Canada.

Speaker Change: A lot of focus on that right now and in various markets in Europe. There's a lot of focus on that right now and guess what we have a lot of sellers in Canada. We have a lot of sellers in the U K, we have a lot of sellers in Germany, there's a number of markets and in.

Speaker Change: Outside of the U S, where we also can offer people the opportunity to shop domestically certainly that's true in the U S, where we have a really robust assortment. So we're not waiting.

Speaker Change: We're already working on promoting that opportunity.

Speaker Change: If the relative value, we're still very early in terms of what's actually going to happen with these tariffs and what's.

Speaker Change: What is the relative pricing going to be but there may be opportunities to lean in even more aggressively in marketing.

Speaker Change: Uh huh.

Speaker Change: Depending on how big the price differences are so we're going to be we're going to be.

Paying incredibly close attention to this as I'm sure you would expect and having a real bias to action around all of it I do think we are much better positioned than many to be able to not have the kinds of price shocks that many other people will have.

Speaker Change: And the countervailing factor is if we see inflation, if we see a drop in consumer confidence that's not good for etsy. So it's really hard for us to know right now how those two things will balance out.

Speaker Change: And from a category perspective, our mix hasn't changed from where it was last year. The top six categories remain our top categories that includes home and living apparel craft supplies and when we look at the when we look at those top categories in our top six categories and we compare our performance in the most recent 90 days.

Speaker Change: As to what our pure play competitors look like from third party data and some of our four of those six categories. We performed a little bit better now, we're still down year to year and we're not satisfied with that but we are pleased that things like the efforts, we have on gifting and around personalization.

Speaker Change: And the personalization not only of the product experience, but also the personalization in some of the categories of the items that you can purchase on Etsy are advantages that are helping us outperform others in the marketplace. So those categories, where we did a little bit better than what we would deem to be the competitive set include home and living our biggest category jewel.

<unk> was another one that was quite strong.

Speaker Change: <unk> strong craft supplies paper.

Speaker Change: And those kinds of goods so.

Speaker Change: The mixed overall hasnt changed, but we I think our product work over top of that mix is giving us some relative performance.

Speaker Change: Sorry, if I can pull up for just a SEC I just want to see.

Speaker Change: Say.

Speaker Change: We unfortunately are living in a world with more and more macro shocks delay global pandemics or a trade wars or actually kinetic wars.

Speaker Change: And through all of this the etsy marketplace has been remarkably resilient and I think that is a real benefit of our model.

Speaker Change: Something we care about a ton and I hope investors theyre paying.

Speaker Change: Paying attention to and hearing about as well the only thing I was going to add just whether there is a slide with the pie chart of our categories in the back of the deck.

Speaker Change: Next question.

Speaker Change: Our next question will come from Oliver <unk> with Citi. Please send me your audio and video and ask your question.

Oliver: Hey, Hey, guys good morning.

Speaker Change: Two to maybe first just expanding on the macro stuff with the minimus changes coming through.

Speaker Change: In a few days here and how you think about the puts and takes.

Speaker Change: There should be some tailwind, but I think there is some potential headwinds for you guys also just want to understand those and then Josh It's still really early may be too early to ask this question, but just with the.

Speaker Change: The AI shopping experiences that you talked about with open AI.

Speaker Change: Oh It was co pilot I don't even see that envision that change in E. Commerce over the next few years does that change for Etsy, maybe even things down.

Speaker Change: That might potentially change etsy ads and marketing approach.

Speaker Change: Here your thoughts on that yeah, great I love it okay on the first one.

Speaker Change: Yes.

Speaker Change: Current state of play and it could be different by three P. M.

Speaker Change: But the current state of play is that.

Speaker Change: De Minimis exemptions will remain at least for a while for every country, except China. So in China. They will remove the de Minimis exemptions and they'll remain everywhere else. That's a best case scenario for Etsy, we have.

Speaker Change: Roughly 1% of product on Etsy is Americans buying from China.

Speaker Change: I want to point out those are vetted sellers that comply with our policies. There are some in China, who actually really legit belong on etsy.

Speaker Change: If the prices there become unaffordable for that 1% of Gms, we think there'd be an extremely high replacement rate buying from from somewhere else.

Speaker Change: So we think we would not have any material impact from de Minimis going away. The China, that's not true of almost all of our competitors. They may see their prices go up a lot that would be good for etsy at least the first order effect will become spreadsheet. Similarly.

Speaker Change: So far de minimus exemptions will remain at least for a time from Europe and most of the U S imports are coming from European countries Encana.

Speaker Change: In Canada, so the maintenance of de Minimis is helpful for US there Shouldnt de Minimis go away all around the world. My concerns are actually more about the speed of parcel trade more than the price of parcel trade because it could create just very long backlogs to import any pre.

Speaker Change: Alex from anywhere and Americans are buying really cool product from Germans from bridge from Turkish people from Ukrainians and.

Speaker Change: Right now that's off to the Ukrainian postal service those folks are incredible in the midst of a war most of our Ukrainian sellers are able to ship a package from Ukraine to the U S and seven days and our prices are really good and the craftsmanship is really good so I'd hate to see that take two weeks or three weeks, which if you had to inspect those.

Speaker Change: Parcels by the way that's not economically rational to inspect a parcel that's only worth $50 that might O $4 or $5 of tariffs.

Speaker Change: It doesn't really make sense to inspect all of that so we need data infrastructure, that's going to allow for.

Speaker Change: The ability to.

Speaker Change: To more seamlessly figure out how much is owed who owns the money et cetera, and building that data infrastructure I think it will take some time. So hopefully if we are going to remove or moderate a modified de minimis. We do it in a way that allows for it to be efficient and us to use good data.

Speaker Change: And the second question, which is what happens in a world of a gentex shopping I think that's really good for etsy, because I hope what an agent would do a smart agent is it's going to go out and it's going to say here is the cheapest.

Speaker Change: Thing you want to buy this thing here.

Speaker Change: Here's the cheapest thing that can arrive the fastest and here's an alternative that might be customized personalized for you that is more artisanal that's going to be more unique and in that world, where I believe and hope agents are going to want to offer some level of choice.

Speaker Change: Think etsy isn't very often going to be a meaningful choice. What those agents should discover is they can visit 20 sites and what they are actually finding is the exact same product made in the exact same factory.

Speaker Change: And just and fulfilled through one of 20 different supply chains.

Speaker Change: And then Theres ABSSI.

Speaker Change: Actually have something different and I hope the agents will help customers to understand that and that'll be good for us I think it's interesting and encouraging that all of the large Jenny I providers are very interested in partnering with etsy, we havent, great access and great relationships engineer to engineer with.

Speaker Change: Those companies several of them have featured etsy in their keynote addresses recently and I think that speaks to the fact that we have a really unique dataset that is different than those companies are always thinking, whereas the unique pools of data Etsy has a really unique set of data. We also have a really good engineering team and really key.

Speaker Change: <unk> engineering culture, that's able to partner with those companies in a pretty sophisticated way so we want to.

Speaker Change: To be on the on our front foot on all of this and I think these these evolutions over time can be very good frenzy.

Speaker Change: We're gonna have to end it right there and we're just about at time and I don't want to take the next one over and over so we're going to end. It there. Thank you. So much. Thank you all.