Etsy, Inc.

Hi, everyone, and welcome to Etsy's fourth quarter and full year 2020 earnings conference call. I'm Deb Wasser, VP of Investor Relations. Joining me today are Josh Silverman, CEO, Rachel Glazer, CFO, and Gabe Ratcliffe, our Director of Investor Relations. Today's prepared remarks have been prerecorded. The slide deck has also been posted to our website for your reference. Once we are finished with Josh and Rachel's presentations, we will transition to a live video webcast Q&A session. Questions can be submitted via the Q&A window chat displayed on your screen. Feel free to use it at any time as it will remain open throughout the entire conference call. I'll be reading your questions, and Gabe will help me try to get to as many as we can. Please keep in mind that our remarks today include forward-looking statements related to our future performance, including our financial guidance and key drivers thereof, the impact of COVID-19 on our communities, business, and strategy, and the potential impact of our marketing and product initiatives. Words such as anticipate, continue, expect, and will, as well as similar expressions, are intended to identify forward-looking statements. Our actual results may differ materially from these forward-looking statements. Forward-looking statements involve risks and uncertainties, some of which are mentioned in today's earnings release and which are more fully described in our quarterly report filed with the SEC on October 29, 2020, and in subsequent reports that we filed with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we undertake no obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our IR website, along with the replay of this call. With that, I'll turn it over to Josh.

Thanks a lot, Deb. And hello, welcome, everyone. 2020 was no doubt a transformative year for Etsy, a time when circumstance met preparedness, highlighting the agility of our model, the dynamism of our team, and the power of our differentiated strategy. Etsy emerges transformed, a larger and stronger marketplace as a result. We understand that the stakes are high. Millions count on us now more so than ever, and I'm proud of our impact. We helped to create economic opportunity for our sellers and led from the front on many important social issues. As a marketplace that gets better as it gets bigger, we believe that Etsy is now even better positioned to lead into the future. When we look at our 2020 results, They were spectacular. Consolidated GMS was $10.3 billion, up 106% on a currency-neutral basis. Consolidated revenue was $1.7 billion, up 111%, with an EBITDA margin of approximately 32%. Said differently, we roughly achieved our 2023 aspirations in 2020. Rachel will provide more insights on Q4 in just a moment. But we're proud of our inclusion in the S&P 500 as yet another signal of the importance that the Etsy marketplace is playing in the global economy. And in fact, speaking of the global economy, 2020 was an extraordinary year for e-commerce overall as the growth rate of e-commerce roughly doubled as much of the offline world shut down. And as fast as e-commerce grew, Etsy grew much, much faster. In fact, Etsy grew almost two and a half times as fast as e-commerce. We had to change the y-axis of the graph just to accommodate it. Etsy is gaining meaningful share versus e-commerce because where the world is racing to offer the same thing priced maybe a little cheaper or shipping just a little faster, Etsy offers something truly unique, something truly special. And we're now seeing the power of that difference. That growth helped Etsy to become one of the most visited e-commerce sites in the United States. In fact, we were the fourth largest retail e-commerce site by monthly visits. And we've become one of the most recognized e-commerce brands in the United States. People suddenly mention Etsy in the same breath as much larger retailers like Walmart or Target or eBay. And it's not just in the U.S. In fact, in the fourth quarter, International accounted for over 40% of all of the GMS on Etsy. I'd like to take a moment to talk about the United Kingdom, which had a truly breakout year in 2020 with a growth rate of 189% year over year. As fast as Etsy grew, Etsy UK grew much, much faster. And Germany, our second largest e-commerce market, also more than doubled in 2020. What I'm most pleased about is the percentage of e-commerce on both of those sites that's local, that's domestic, where both the buyer and the seller are located in the U.K. or in Germany, respectively. In the U.K., now more than 70% of trade is local. That means for people in the U.K., Etsy is very much a domestic platform where there is a sufficient vibrancy of both supply and demand for people to be able to come there for everyday needs. And we're seeing that in Germany. And I think that really speaks well to the power of our international opportunity overall. Why? Well, one important reason is the ability of the Etsy marketplace to meet rapidly evolving buyer needs. 2020 search trends highlight the dynamism of our marketplace. For example, in March, when the offline world largely shut down, demand for essentials on Etsy exploded, and our sellers almost instantaneously rose to meet those needs. And as trends evolved throughout the year, from nesting and home office to home furnishings to outdoor events and reimagined events, things like virtual graduation ceremonies or lawn celebrations, our sellers were there to create and to deliver. In fact, if you can imagine it, it's very possible that people came to Etsy to make it and to buy it. All of this resulted in dramatic growth across all of our buyer segments. Etsy added twice as many new buyers in 2020 as they did in 2019. In fact, there were many weeks in 2020 where Etsy added more than 1 million new buyers per week. And we reactivated 22 million lapsed buyers. These are buyers who hadn't shopped at Etsy in at least a year. And they've come back to Etsy in 2020 at a time when they really needed us most to find that Etsy is better in so many ways than the last version of Etsy that they might have visited possibly years ago. I'm particularly excited about the growth of habitual buyers. Habitual buyers were yet again our fastest growing segment in the fourth quarter, and habitual buyers grew 157% year over year. 2020 was also a year when we grew the pie for many of our sellers. In fact, many of our sellers had their best year ever in 2020. JMS per seller was up 22%, while we simultaneously grew active sellers by 64%. We, of course, work hard to support our sellers by driving more sales. We also work hard to support our sellers in many other ways. For example, as governments in the United States and Europe drafted legislation to support our economy, ETSI was a very vocal advocate, making sure that governments remember that independent workers, people like sellers on ETSI, also matter and that we need to design our legislation and our economic reform with them in mind. Speaking of working hard, I'm incredibly proud of our team and how well they transitioned under very trying circumstances at a time when they suddenly need to work entirely remote and face all of the stresses that everyone is facing in the external environment. Our team rose to the challenge and were more productive than ever. As one example, experiment velocity grew 16% year over year, while we simultaneously had higher hit rate than we did in the prior year. What that means is that each team was working hard and making a lot of progress, making the product experience on Etsy even better. In addition to that, site traffic was up very substantially. And what that means is that the productivity of every team is automatically higher. The ROI of every squad is higher. We continue to make investments aligned with our right to win that we believe are making the product experience on Etsy materially better. For example, we've talked a lot about the importance of search and discovery on Etsy. And here we show some examples of how the search experience continues to get better and better. Our initial investments in dynamic ranking and semantic gap have laid the foundation for personalized search, which is making it easier for buyers to find what they're looking for and to be inspired from among our over 85 million items. Buyers are now scrolling through fewer listings, which is making search less overwhelming and more rewarding. And of course, it's about so much more than just search. We continue to make investments to improve the product experience in many, many ways. Two examples in the fourth quarter were the launch of installment payments and the ability to filter searches around expected delivery dates. So you can see just items that are going to arrive within your timeframe. And just as our product experience improved, so has our brand awareness. We made significant strides in marketing in 2020, expanding the visibility of our brand globally. Our brand team launched five different creative campaigns in the U.S., the U.K., and Germany with a record number of impressions and share of voice to cut through. And we expanded our performance marketing and our CRM campaigns very materially, equipping our teams with more resources and better tools within our MarTech stack, and turbocharging the success of our performance marketing campaigns through our offsite ads program. Our top of mind awareness has grown, and we have so much room yet to grow it further. I also want to take a minute to highlight some of the critical infrastructure investments we make that maybe aren't as obvious to the outside world, but are so important to our success as a business. For example, I'd like to give a shout out to our member services and trust and safety teams. In early spring, demand on Etsy suddenly, instantaneously, and unexpectedly more than doubled. And of course, that created a dramatic increase in customer support and trust and safety tickets. And our team rose to that challenge and delivered against the very high levels of customer satisfaction that our customers expect and deserve. That's only possible because of the tooling and the infrastructure and the capabilities that we have built as a team over the past several years. And in addition to providing high-quality customer support, we work very hard to make customer support at Etsy ever more human. In fact, in the fourth quarter of 2020, 73% of customer contacts were handled real-time, meaning either voice or chat, which is quite a dramatic change from where we were just two years ago. Two years ago, we described to all of you our long-term right-to-win strategy, which propelled our growth in 2020 and is more relevant than ever. We're building upon that momentum to deepen and strengthen in each of the four areas that make up our right to win. We didn't pivot to meet the demands of 2020. Rather, we doubled down on this strategy, which has allowed us to meet the demands in 2020 and we believe will continue to strengthen our business for years to come. We have a deep passion for the Etsy community, specifically our buyers and sellers who come to Etsy to express themselves or to turn their creative passion into a business. We believe that the opportunity is large. The shift in customer behavior has brought more sales online, and we know that for almost every purchase occasion, we have something delightful on Etsy to offer. In 2021, our focus areas will be centered around things that continue to differentiate the Etsy experience from all of the other players in e-commerce. In search and discovery, our big tracks of work involve making it easier to find just the right thing, even when you don't have the right words to describe it, and helping to surprise and inspire people, being a place where buyers can come and browse, lean back and find inspiration. Personalization is a very important focus, helping people to find things they didn't even ask for, but know it when they see it. And we've barely begun to unpack the opportunity in personalization. We'll lean into this in superhuman ways, combining the latest of AI with human curation, leveraging the power of our community and our team to help curate items and use those to train models to become ever more personalized. We want to leverage the distinct power of our growing community to help make Etsy less overwhelming and made just for you. And we'll do all of this in ways that make Etsy even more human. For example, leveraging video. Unlike most products, every item on Etsy comes with a story. Every seller has his or her own story, and video is a powerful way to tell those stories. Plus we can show buyers how the items look, how they feel, even how they sound. This is a great example of how we have so much more runway to more richly connect buyers and sellers. And once you find just the right item, you need the confidence to be willing to buy it. In 2021, we're going to be very focused on the post-purchase experience, being transparent about when you can expect an item to arrive, being purposeful about when to communicate that in the purchase journey, making sure our sellers have all the right information that they need to meet the deadlines, and letting buyers know that we have their back in case anything goes wrong. As we work to become a habit for buyers, it becomes even more important that they trust us and see Etsy as reliable. We'll have so much more to tell you about our product roadmap as we progress throughout the year, but we couldn't be more excited about what's on deck for 2021. And I'd like to take just a minute to talk about Reverb, another example of the beauty of a two-sided marketplace, especially when combined with strong execution in product and marketing. Reverb also had a fantastic 2020, growing faster than their market. And the company recently laid out their rights to win, their long-term strategy with key differentiators, which mirror Etsy's own and show just how much opportunity there is to grow the Reverb platform. I also want to highlight our virtuous cycle and the progress that we've made in our economic, social, and ecological pillars to benefit all of our stakeholders. Etsy has always believed that being a good citizen makes us an even stronger and more resilient business. And 2020 demonstrated that people are looking to shop their values. They're looking to put their money where their heart is. And they hold businesses to a higher standard. Since announcing our impact strategy in 2017, we've continued to evolve and update our goals. We're incredibly proud of the progress we made in this past year, but we're not resting on our laurels. We're setting some aggressive new targets for 2021 and beyond, creating a more diverse, equitable, and sustainable marketplace and supply chain to expand our economic impact. ETSI's economic output is now similar to the city of Houston. We're continuing to build on our diverse and inclusive workforce at ETSI and at Reverb. I'm proud of the fact that, for example, we doubled the percentage of our leadership team that are underrepresented minorities. And we sourced 100% of our electricity from renewables. We've set a new goal, which is to be net zero emissions by 2030. Most importantly, you'll be able to read more about in our soon to be filed integrated annual report, where we're now using both the SASB and the TCFD frameworks to help you better track all of our strategies and progress. As we look forward over many years, we continue to believe that e-commerce is consolidating around fewer and fewer scaled e-commerce platforms. And we believe that Etsy is better positioned than ever to be one of those few scaled platforms, a brand which rises above the rest by standing for something truly unique and different, standing for the individual creators and for keeping commerce human. I believe Etsy can and should be a massive force in the world. The world has taken notice and we have strong conviction that our opportunity is bigger than ever. I'd like to close by thanking our team once again for their passion, their creativity, and their conviction. And now I'll turn it over to Rachel.

Thanks, Josh, and thank you, everyone, for joining us for our Q4 earnings call. My commentary today will cover consolidated results, key drivers of performance, and Etsy standalone results where appropriate. On a consolidated basis, Etsy's fourth quarter GMS grew 118% to $3.6 billion. Revenue grew 129% to $617 million, and we delivered adjusted EBITDA of nearly $192 million, capping off a strong year where we achieved industry-leading growth and record profitability. Etsy's standalone Q4 GMS grew 127% to $3.4 billion. Our disciplined investment strategy and strong execution drove more adjusted EBITDA in the fourth quarter than in all of 2019. Topline growth exceeded our Q4 guidance, which had projected a steeper decelerating GMS trend due primarily to two factors. First, masks contracting as a percent of overall GMS, and second, the uncertainty of consumer spending patterns and global economies related to the pandemic. As Josh mentioned earlier, international growth was robust in 2020. In Q4, consolidated international GMS expanded 500 basis points sequentially to 40% of overall GMS. International GMS was up 140% on a constant currency basis and was driven in part by strong trends in the UK and Germany. Our fastest growing trade route in the fourth quarter was once again our domestic sales between buyers and sellers within the same country. It's also worth noting that we are disclosing UK revenue, which is based on the location of the seller, for the first time as it was more than 10% for 2020 at $196 million. We're adding India as a core market, bringing our total focus markets to seven, given heightened investments we've been making to build the foundation of incredible inventory from creative entrepreneurs in that country. Etsy had an exceptional holiday as the shopping season started earlier and growth rates exceeded prior years, providing a meaningful tailwind in the quarter, setting some exciting records, as shown on this slide. We told you on our last call how we would be investing heavily in product and marketing to make Etsy a wonderful holiday shopping destination, and these investments really paid off. Etsy's peak holiday shopping day was Small Business Saturday. Growth was up 150% year-over-year, and we generated over $50,000 in GMS per minute. This is especially important as it gives the more than 4 million small businesses on our platform relevance and a voice during this important time in retail. We also continue to see growth in our top six categories with homewares and home furnishings, our largest and fastest growing category, growing 226% during the five days of Thanksgiving through Cyber Monday. All of the work we've done to keep Etsy top of mind and ensure we could handle the surge in activity enabled us to deliver great results. Not only did our holiday season start earlier, we also peaked higher and sustained strength longer than in prior holiday periods. We saw continued strong growth across many of our categories to end 2020, especially in our top six, which for all of 2020 represented over 80% of Etsy GMS growing 85% year over year. You can see the full year category growth on this slide. Globally, Etsy's growth is distributed in over 50 different retail categories. Outside of the top six categories, full-year growth was 115% in excluding mask sales, powered by segments such as toys and games and pet supplies. As expected, mask sales continue to contract as a percent of overall GMS to 4% in Q4, down from 11% in Q3 and 14% in Q2. a trend which we expect to continue. Following the steady trend of 93% year-over-year growth in Q2 and Q3, non-mask GMS growth accelerated sequentially to 118% in Q4. In addition, we're seeing very healthy underlying trends for mask buyers. Of the 3 million mask-only buyers in Q3, approximately 50% returned in Q4 for a non-mask purchase. This is up 12 percentage points compared to Q3, a great signal that we are retaining and converting buyers who are coming to Etsy for some of their essential purchases. Consolidated Q4 revenue was driven by growth in both marketplace and services revenue. In particular, key drivers were GMS volume, Etsy payments, Etsy ads, and offsite ads revenue. Etsy ads, off-site ads, and our expanded Etsy payments platform combined helped to sustain take rate at 17.1% in Q4, a quarter where historically take rates contract due to seasonality. We continue to make strides in bolstering our advertising products and initiatives to help sellers drive velocity in the marketplace and take control of their success. On a consolidated basis, on-site Etsy ads and Reverb's bump offering grew 74% year-over-year, with both marketplaces improving our ad platforms that enhance the functionality and user experience for sellers and show more relevant ads to buyers. Etsy's off-site ads continued to yield encouraging returns, with opt-out rates remaining less than 2%. We're optimizing return and channel mix for our sellers listings, now incorporating buyer segment information in the signals we send to our ad partners, including differentiated LTVs to drive efficiency. In the second half of 2020, 9% of Etsy standalone GMS earned an offsite ads fee. This effective increase in take rate enables us to invest more on behalf of our sellers while maintaining our ROI threshold. From a seller's perspective, the return on ad spend is in the range of six to eight times on the high end for any ad product. And this is a risk-free investment since a seller only pays the fee when she makes a sale. Gross margin was 76%, up 920 basis points compared to last year, and continue to benefit from our shift to offsite ads, which delivers incremental revenue without an equal offset in cost of revenue. And to a lesser extent, the change to Reverb's transaction fee also expanded gross margin in Q4, since this was the first full quarter of consolidated P&L benefit. We're scaling our investments in two ways, both in marketing and product development. On this slide, we've shown you marketing as a percentage of GMS versus buyer growth to illustrate how we scaled marketing to drive returns. As you know, we've been leaning in more heavily to upper funnel channels in particular, and these investments are having the desired impact. For example, in the fourth quarter, we saw year-over-year improvements in prompted and unprompted awareness and positive gains in several key brand metrics. We also track monthly movement in brand familiarity, emotional closeness, relevance, and everydayness, and are seeing strong progress here as well. I want to highlight some specifics around our Q4 TV investments. As mentioned last quarter, we ran two separate TV campaigns during the holiday period, one aimed to drive purchases and another designed to build brand affinity and deepen the emotional connection to Etsy. Both campaigns, in addition to various other efforts in media and PR, earned Etsy's marketing team a spot as one of AdAge's marketers of the year alongside some of the world's most well-known brands. Overall, both campaigns outperformed our expectations, driving visits and conversion rate and ultimately incremental GMS, despite an increase in CPMs as many retailers stepped up spend to close the year. Q4 consolidated marketing spend was $211 million up 151% year over year. Brand marketing spend, which include television and digital video, was 23% of our consolidated marketing spend in Q4 and 24% in Q4 last year versus 18% in Q3. This represents approximately $49 million of the spend in the fourth quarter. In our performance marketing channels, we've rapidly scaled our spend as a result of offsite ads. Performance marketing spend was $147 million, up 193% year over year and up 65% compared to last quarter. We're also hard at work improving our own channels, building out use cases for our new CRM tools, such as personalized emails or targeted push notifications. We're investing to drive efficiencies in each and every channel across the funnel to bring in new buyers and drive frequency. The other lever for improvement in GMS is our investment in product development, which you can see illustrated on this slide. This spend drives higher conversion rate from new and repeat buyers and increased frequency. The impact of this investment is evident both in our GMS growth, our experiment velocity, and accelerated hiring, with a larger product development investment as seen on our PML. We ended the year with 1,414 employees, an increase of 14% compared to last year. As Josh mentioned earlier, we're getting twice the leverage from our product teams with an ambitious investment roadmap. Moving to our operating metrics, we are really pleased with the continued increases in new buyers and reactivation of our large base of existing buyers. For example, in the fourth quarter, active buyers grew 77% year over year to approximately 81 million for the Etsy marketplace and a 92% increase in new and reactivated buyers. GMS per active buyer on a trailing 12-month basis grew 13% year-over-year, driven in part by habitual buyers, which grew over 157% in Q4. This is up from 100% growth in the third quarter, the third quarter of sequential acceleration in this valuable segment. Also, 11% of repeat buyers in Q3 became habitual buyers in Q4, and we now have 6.5 million habitual buyers. In addition to our habitual buyers, many of our other buyer segments exhibited tremendous growth. For example, repeat buyers, those who made purchases on two or more days in a 12-month period, grew 97% to 32 million, approximately 20 percentage points faster than overall active buyers and a sequential acceleration compared to last quarter. 2020 was an unprecedented year as all of our buyer cohorts inflected higher during the period. Slide 35 shows 2020 GMS per buyer and the year-over-year growth from each of our last five cohorts. We're pleased to see that our older cohorts, such as the 2015 cohort who have been on the platform for five years, generated the highest GMS per buyer and grew as fast as our more recent cohorts. For our newer cohorts in 2020, we've seen a meaningful improvement in their purchase behavior. Approximately 22% of new buyers in 2020 became repeat buyers within 60 days of their first purchase, up from 16% in 2019. These data points are indicative that the underlying trends in our marketplace continue to improve. Moving to the balance sheet, as of 12-31, we had $1.7 billion in cash, cash equivalents, and short-term investments, in addition to a $200 million revolver that's currently undrawn. In Q4, we repurchased $78 million of our stock, or 618,841 shares, at an average price of $125 per share. We've now completed the November 2018 buyback program, repurchasing approximately $200 million of stock or roughly 3 million shares at an average price of $64.80. Our board of directors recently authorized a new $250 million stock repurchase program. And turning to our outlook, while it is our normal practice to provide annual guidance as a basic framework for our business, given the continued uncertainties facing Etsy, e-commerce at large, and global macroeconomic conditions that impact consumer spending, we are only providing guidance for Q1 at this time. We currently estimate Q1 consolidated GMS to be approximately $3 billion, up about 115% to 125% compared to Q1 of last year. Revenue of $513 million to $536 million, up 125% to 135% versus last year. An adjusted EBITDA of $168 million to $178 million, with a margin in the range of 32% to 34%. In giving this outlook for Q1, we have the benefit of nearly two months of the quarter already in the books. January was very strong, but it was clear to us it was helped in part by a tailwind from stimulus checks. We want to call this out, as we do not currently expect to have this same tailwind in Q2 and, in fact, can already see that February relative to January is less strong without that boost from stimulus. Furthermore, the recent weather events in the South and the Pacific Northwest had a very clear impact on our GMS in the past week, another reminder that certain unpredictable macro events beyond our control are apt to create volatility in our performance. As you update your models and think about the cadence of growth for 2021 and beyond, we'd like to remind you of a few things. During the latter part of Q1, Etsy will lap a period of negative growth rates that spanned from mid to late March 2020. The outlook I just gave for Q1 includes several weeks of comping this low point. Then, as you recall, on April 2nd of 2020, we saw the start of significant unprecedented growth initially catalyzed by demand for face masks. In total, 2020 face masks exceeded $740 million, with $346 million in Q2 and $264 million in Q3. While face mask versus non-face mask GMS trends have certainly been encouraging, our expectation is that year-over-year quarterly growth rate comparisons will be challenging when you eliminate the face mask sales from your forward models. In 2020, Etsy growth outpaced the broader e-commerce sector. While we are not giving the full year guidance today, it may be informative to look at third-party data and research on how they are projecting growth for the industry this year. It suggests that for the sector, Q1 2021 growth will be approximately in line with Q4 2020, and that the industry will start to more rapidly decelerate starting in Q2, with the majority of incremental growth for the year realized in the first quarter. It remains our ambition to continue to outgrow e-commerce, propelled by the underlying changes we've seen in the marketplace and the heightened awareness of our differentiated brand. However, we also know, we hope, that as the world opens up later this year, consumers will soon be able to spend more of their money on travel, dining, and entertainment, and this will create some headwind in Etsy's growth relative to 2020. Last note on the revenue outlook. Historically, there is some favorable seasonality to our first quarter take rate. This year, we also benefit from offsite ads, additional Etsy payment geographies, and Reverb's higher transaction fee. As we think about the quarterly cadence of take rate throughout the year, Q1 may represent the high watermark for 2021 take rate. On expenses, two points to keep in mind. First, we want to reiterate that our revenue per headcount is significantly higher than our peers and results in margins that are stronger than we want, given the many opportunities we see to invest for growth. So as you think about expense trends and margin drivers, keep in mind that we are investing in talent and accelerating our pace of hiring in 2021 with a particular focus on product and engineering. Second, we exceed the revenue threshold in many international geographies for collecting and remitting digital sales tax. This obligation will grow as our business continues to expand. We have more conviction than ever to invest in our business for the long term, building top of mind awareness in the hearts and minds of consumers and continuing to gain market share. We're building on our momentum and we expect to continue to capitalize on our large market opportunity. Thank you for your time today. I will now turn the call over to Deb so we can take your questions.

Hi, everyone. Good to see you. We are ready to go. We have a lot of questions in the chat. box. I'll just dive right in. If you have any additional questions, feel free to add them in as well. The first question is from Rick Patel at Needham & Company. Can you update us on where you are in the personalization journey? What did you learn in 2020, and what can we look forward to in 2021? At what point will you have enough data and analytics to go beyond search and use personalization as a predictive tool? Josh, I think we should start with you on that one.

Great. Thanks for the question. Yeah, I mean, 2020 is really the first time that Etsy has started to be personalized in a meaningful way. And you're right that we started with search. I think we're in very early innings. And, you know, you can think about personalization very narrowly as knowing, for example, how we've started. What things have you searched for in the past? What things have you favorited in the past? You know, what have you bought in the past? And using that to inform your search results. But, you know, taking the aperture out, Further, having a deeper understanding of what that might imply of your sense of style and understanding things like what style are all of these 80 plus million items? What are other people who've bought these also been interested in? What might complete the look? Of this, it might not be that item at all, but it might be other things that match with that item. These are all areas of personalization where we have not really even begun. And so I think we have a tremendous amount of opportunity still to go. What we have learned, which is not surprising to us or anyone, is that it is actually valuable. Even in our first launches and personalization, it makes the experience better. It makes conversion rate go up. We're very optimistic about what it can do. So if I think about personalization to your point of where else can you go, search and discovery, which I would think of as a lean in, you type in a query at Etsy and we give you a more personalized set of results, is where we've started. Lean back. is another opportunity for personalization. So think, what kinds of recommendations can we present to you? What kinds of things can we show you that would inspire you that you didn't even think to ask for, but we happen to know that other people like you are interested? And the other bucket that I think is very exciting is offsite. When we are marketing to you, be it on Facebook or Google or elsewhere, the ability to know more about you and be even more personalized in terms of how we reach out to you is an opportunity that I think is large and will continue to get better and better over time.

Okay, great. Thanks, Josh. Next one comes from John Colantoni from Jefferies. GMS growth in the international business has been lagging modestly behind the U.S. until this most recent quarter. What were some of the key drivers of the acceleration in the international business during Q4, and what are some of the key learnings from that success that you can use as part of the broader framework to take advantage of the big opportunity outside of the U.S. in the years to come? Start with that, and then maybe we can have Rachel chime in a little bit, too.

Perfect. Okay, great. You know, one of the wonderful things about a two-sided marketplace like Etsy is that it gets better as it gets bigger. There's a virtuous cycle that's turning. And so the growth in Etsy in our core international markets has been strong in the past but was truly extraordinary in 2020. And if I look at the U.K. in particular, which really had a breakout year, it does feel like that virtuous cycle just turned more and more increasingly. So it appears to us that going from a top 20 e-commerce brand to a top 10 e-commerce brand appears to have a really positive impact on our business. And going from top 10 to top five has a really positive impact in terms of brand awareness in the market. And, you know, it makes sense because what's happening is we're bringing vibrancy. We're bringing more sellers with more items so you can shop domestically more. And we're getting more buyers, which brings more sellers. So, you know, part of what we're learning is what might be mechanisms where we can accelerate that brand awareness. How can we invest? There's a natural growth curve which we ride, but how can we invest to make that happen even faster? You are seeing us do things like brand marketing in both the UK and in Germany. And as we always do with Etsy, we're very data-driven, we're very experiment-driven, and we're looking at what's that doing to our flywheel on both the demand and the supply side, and how can we extrapolate that to think about ways to accelerate our growth even further in international markets.

And I don't have time to add. That was a perfect answer. I'd only add that we did invest more heavily in both the U.K. and Germany in the fourth quarter of this year, not only in brand but also in mid-funnel. So we used actually the entire funnel. We used a lot of our performance spend and some of that middle piece where we did social, and we were able to capture more of the audience specific to those markets with a personalized message for them in those markets.

Thanks for mentioning that, Rachel. I'm going to build on that because, you know, we've talked about the opportunity in MarTech and how our MarTech capabilities can continue to get better and better. You know, we weren't using the most up-to-date APIs and data feeds with partners like Google and Facebook. uh in some of our international markets and so part of what we did in the latter half of 2020 is really update those data feeds which allowed us to be even more precise in our performance marketing and get better roi so a lot of things came together through 2020 that allowed us to really accelerate growth at a time when it really mattered but there continues to be a really good pipeline of opportunity for us to get better in martech for sure

Okay, great. I'm going to move to one from Ed Ruma from KeyBank. Can you provide a way to dimensionalize how broadly the consumer is shopping the assortment on Etsy? And are new and reactivated consumers shopping multiple categories? That's a little bit of a tag team one, I think.

I'll start. I think Rachel's given some data, and I think she can give some more. But we're really pleased by the fact that we are seeing cross-category purchase, and I think that's really encouraging. What we know is that almost anything you want to buy, you can buy on Etsy. Not consumer electronics. I mean, there's a couple, not travel. You know, there's a few things, categories out there, but... For the most part, things you need to buy and use, you can find them on Etsy. And our consumers are learning that more and more. One data point that Rachel shared is that 50% of people who were mask-only buyers in the third quarter came back and bought a non-mask item in the fourth quarter, which we think is really encouraging. So, you know, we do like what we see. And honestly, you know, during this time of COVID, people have had fewer options. So they've turned to Etsy more often. And they're generally delighted by what they see in almost every category. They're going to find a really broad assortment of products. They're going to find that they're priced well. And getting something made just for you with a handwritten note is just a better way to shop.

So I'll add just a couple of additional data points there. One that I really like is that two or more purchases, the percentage of buyers that had two or more purchases in 2020 was 48%. That's up from 41% a year ago. And when you look at that category of buyers that have two or more purchases, the average was five purchases. That was the first time we crossed five. So they're coming back. much more frequently. And then we talked about this last time as well, but the number of buyers that make cross-category purchases was 17% in 2020. So that's buyers that came from bought four or more purchases across two or more categories. And so we're really seeing people exploring. I love the metric that Josh just threw out there too about the non-mask buyers coming back another time. And that really shows that the new buyers that we've obtained and the ones that we've reactivated are really exploring and see and understand the breadth of product that we have.

Thanks, both of you. This one, next one, I think connects the dots on some of that. It's from Yagal Aronian from Wedbush. It's a two-part question. Etsy is now one of the few marketplaces growing volume in triple digits and seeing growth accelerate in Q1. What is Etsy doing differently that is allowing you to keep buyer growth and volume so strong? And then the second piece of the question is really specifically the different categories. Can you talk about specific category strengths? How sustainable do you think the home good category is for you? What are our expectations for weddings and bridal showers this year, which are typically important for you in Q2 to Q3? That's the many pieces. Maybe Josh, you want to start and then, yeah.

Sure. And let me see if I can remember it all. First, in terms of what we're doing differently, it's hard for me to say because I have a lot more access to information about what Etsy does than what our competitors do. So I can talk about what we're doing. And honestly, I think a big part of it is we stand for something different. There's a bunch of places you can go where you can buy the exact same thing as somewhere else, you know, and maybe it's two cents cheaper or arrive an hour faster. And that's not always what people are solving for. And so I think the fact that we own a space in e-commerce that I think is both different and important is meaningful. And I think that that means we have a real opportunity to grow share and continue to grow share over time. We're not following everyone else's playbook. And people are realizing more and more that Etsy is a different way to shop and I think a better way to shop very often. So that I think is the most important thing. We are firing on all cylinders as best we can. So I think our performance marketing team is doing a great job. I think our brand marketing team is doing a great job. I think our product Team has really been doing a lot of great work to ship great product improvements that make the customer experience better. You know, one of the things, one of the questions I get often is, you know, sort of in what inning are you or how much good stuff is left? at Etsy. One of the things that I mentioned in my prepared remarks is that hit rate went up. That's a fancy way of saying that a higher percentage of things we shipped in the fourth quarter had a really positive impact on the customer experience than in prior quarters. That would not suggest that we are running out of runway, rather that we're getting better and better at unpacking new opportunities as we go. So I think the team is executing really well against a business that's differentiated That's strong. There was another part of your question around category mix. Largely the same in the fourth quarter. I don't think a lot to report there. In terms of home furnishings, let's talk about that one for a minute. Yes, Etsy's growing much faster.