Etsy, Inc. (ETSY) Q2 2025 Earnings Call Transcript

Etsy (ETSY) reported Q2 2025 results that exceeded top-line expectations, with consolidated GMS declining a moderated 2.6% year-over-year excluding the divested Reverb, reflecting a strategic shift towards enhancing customer experience and app engagement. The Etsy marketplace saw GMS down 5.4% YoY, an improvement from Q1, while Depop accelerated significantly with 35% YoY GMS growth, reaching a $1 billion annualized run rate. The company's take rate expanded to 24%, and adjusted EBITDA margin was 25.1%, reflecting increased, ROI-positive marketing investments in app-centric experiences, personalization, and paid social leveraging AI. Etsy anticipates further sequential improvement in GMS growth rates in Q3, guiding consolidated GMS to $2.6-$2.7 billion and maintaining adjusted EBITDA margin around 25%, signaling continued strategic investment in growth initiatives, particularly for Depop, to drive long-term value.

Analysis

Etsy's Q2 2025 results indicate a significant inflection point, with strategic initiatives beginning to yield tangible results. The consolidated Gross Merchandise Sales (GMS) decline moderated to 2.6% year-over-year (excluding the divested Reverb), a marked improvement from the 6.2% decline in Q1. While the core Etsy marketplace GMS was still down 5.4% YoY, this also represented sequential improvement. The standout performer was Depop, which saw its GMS growth accelerate to 35% YoY, reaching a $1 billion annualized run rate and validating its recommendation-driven model. Management's focus on enhancing the customer experience through the app is proving effective, with app GMS growing year-over-year and now accounting for 44.8% of total GMS. The company also demonstrated tactical agility in marketing, increasing spend by 16% YoY to capitalize on favorable competitive dynamics in Google PLA and successfully deploying new segmentation tactics that lifted GMS. Furthermore, investments in personalization are driving a one-third YoY GMS increase from owned channels like email and push notifications, a high-margin source of reengagement. The expanded take rate of 24%, up 200 basis points YoY, was driven by strong growth in on-site ads revenue.

The forward-looking guidance reinforces this positive momentum. The Q3 GMS forecast of $2.6 to $2.7 billion implies a further narrowing of the YoY decline to approximately -1.9% at the midpoint. The guided 25% adjusted EBITDA margin reflects a deliberate capital allocation strategy: maintaining a high-20s margin for the mature Etsy marketplace while accelerating investment in the high-growth Depop platform. This, combined with a $335 million share repurchase in the quarter, signals strong management conviction in the company's long-term growth trajectory, underpinned by a clear focus on technology-driven personalization, app-centric engagement, and the cultivation of its high-potential Depop asset.

Key Decisions for Investors

• Investors should view the sequential GMS improvement and positive Q3 outlook as strong evidence that the company's turnaround strategy is gaining traction, warranting a closer look at the stabilizing core business and its path back to growth.
• Depop's accelerating 35% GMS growth represents a significant, high-growth asset within the portfolio; its performance and the increased investment allocated to it should be monitored as a key driver of future consolidated growth and shareholder value.
• Note the strategic decision to maintain a ~25% consolidated EBITDA margin to fund Depop's growth; it is critical to track the core Etsy marketplace's ability to sustain its guided 'high 20s' margin to ensure investments are fueling growth rather than offsetting margin compression.
• While ROI on increased marketing spend appears strong, investors should recognize the partial benefit from temporary competitor pullbacks in ad auctions and focus on the sustainability of GMS gains driven by core product improvements in the app and AI-powered personalization.