Etsy, Inc.

Hi everyone and welcome to Etsy's second quarter 2025 earnings conference call. I'm Deb Wasser, VP of Investor Relations. And joining me today for our pre-recording are Josh Silverman, CEO, Lanny Baker, our CFO, and Kruthi Patel-Goyal, President and Chief Growth Officer. 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'll present both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release and our slide deck posted on our IR website, along with the replay of this call. With that, I'll turn it over to Josh.

Thanks, Deb, and thank you all for joining us. I'm pleased to review our second quarter 2025 results, which exceeded top-line expectations with adjusted EBITDA margin in line with guidance. Lanny will detail the financials shortly. I'll focus on performance drivers, and then Kruthi will put further definition around our key near-term growth initiatives. I'm really encouraged that our performance in the quarter is directly related to the strategic shift we made midway through last year. As you may recall, we changed our ways of working, challenging ourselves to make Etsy a more delightful place to shop and not just to buy. We centered our teams on elevating the holistic customer experience, a concept best illustrated by our customer relationship flywheel. By creating more intuitive, browsable app-first services built on a foundation of more robust customer insights, we can understand our customers' interests more deeply. This, in turn, fuels the powerful LLMs essential for building a truly -for-you shopping journey, a recommendation-driven approach that proved highly effective at Depop, and which Kruthi will detail further. Today, we're seeing early, promising signals that our flywheel is gaining speed. We're fueling re-engagement through product improvements and owned marketing channels, helped with discovery on-site, complemented by increased paid social investment where people discover off-site. These focused efforts, combined with external factors like favorable competitive dynamics and paid search and relatively stable consumer spending, helped the Etsy marketplace deliver a quarter that exceeded our prior expectations, with GMS down .4% -over-year, a notable improvement from the prior quarter. And while we're, of course, not satisfied with the -over-year decline, we do believe this sets us back on a path to growth. Complementing this, Depop reported an excellent quarter, with GMS growth accelerating to 35% -over-year, reaching an annualized run rate of $1 billion in GMS. In the U.S., GMS grew 54% -over-year, positioning Depop as the fastest-growing player in this large online fashion resale market, and by a wide margin. Now in Q3, we've started to build on this momentum with accelerated marketing investments geared towards driving awareness across an even bigger audience through more diverse channels and community-led programs. As we embark on Depop's next chapter of growth, I'm pleased to announce that Peter Semple, previously the company's chief marketing officer and acting CEO, has been appointed the permanent Depop CEO. Peter is an exceptional leader who deeply understands the Depop brand, customers, and needs of the business, and has a passion for the Depop community. Moving back to Etsy, the app is key to our flywheel. Today, it's not just different than a year ago. It's markedly better, more intuitive, more inspiring, and a lot more browsable, with the introduction of multiple new features you can see by simply opening the app homepage. We're tracking user perceptions of our work in real time, and during the quarter, survey results indicated an increase in app visit satisfaction across all buyer frequency segments, with shoppers reporting greater ease of browsing. Equally encouraging, data indicates a jump in buyers who say, I'm loving every second of my visit on Etsy today, and more buyers agree that we're consistently showing high-quality items. As the app user experience and consumer perception have improved, AppGMS has outpaced non-AppGMS growing year over year in the second quarter and rising to almost 45% of total GMS. We believe these indicators show we're moving in the right direction as we aim to make the Etsy app a source for discovery and inspiration early, not just at the end of your journey when you're ready to buy. And there's more to come. Our pre-holiday product development roadmap includes improved app navigation, better buyer-seller conversations, more informed browsing, and substantially improved matching models to pick the best content for you. In addition to making our experience more browsable, we're harnessing what we learn about our buyers, proving we get them by delivering more personalized content via owned marketing channels, including email and push notifications, which are becoming increasingly powerful drivers of customer connectivity. In the second quarter, we grew attributed GMS from these channels by a third year over year, driven by higher open rates, which we achieved by including more personalized content in our messages. In Q2, about 40% of our email and push communications were personalized, and by year end, we're targeting to have nearly every one of these communications tailored to each buyer, which we believe will add fuel to our organic flywheel over time. When it comes to agentic shopping, as you've heard me say before, we believe Etsy is uniquely positioned to benefit due to our seller's massive set of unique and highly differentiated inventory. While still very early days, we're actively engaged to best position Etsy as a winner in agentic shopping. Third-party data points to that opportunity. A recent report shows, while overall volume is small, Etsy is already one of the top retail e-commerce recipients of agentic chatbot traffic. And in another proof point of how we're viewed in the space, we were featured in Apple's 2025 Worldwide Developers Conference as part of an update to visual intelligence, which builds on Apple intelligence to help users do more with what they see across their iPhones. By seamlessly integrating into this experience, Etsy makes it easier than ever for users to discover and shop for unique handcrafted items. In closing, we're encouraged by our recent performance and working with urgency and a clear vision to get back to where we believe we belong, an e-commerce market share gainer. With that, I'll hand it to Kruthi to detail our near-term priorities.

Thank you, Josh, and good morning, everyone. Since stepping into my new role as Chief Growth Officer, I've had the unique opportunity to re-immersed myself in the Etsy platform and experience with a fresh perspective for my leading depop to develop our approach to tackling the opportunity ahead. My focus has been on translating these observations into actionable priorities to set us on a clear path to sustain growth. We believe that there is immense opportunity ahead that can be unlocked by addressing the needs of our customers across multiple touch points in their journeys. To achieve this, we've reoriented our customer-facing teams from product development and marketing to customer support and trust and safety to work in lockstep aligned around four shared priorities to improve the customer experience. These four priorities are showing up where shoppers discover on and off Etsy, matching shoppers with the right inventory through even better machine learning, retaining and rewarding our most valuable customers, and further amplifying the human connection you can only find on Etsy. Let's start with how we're showing up where our customers discover. We want shoppers to engage with Etsy naturally across all the places they spend time. Social platforms, mobile apps, search engines, and AI tools. As just one tangible example of our efforts, while brand media has worked very well for Etsy in terms of driving -of-mind awareness, we've made meaningful shifts in our brand media mix. By the fourth quarter of this year, we'll dial down our linear cable TV investment to an estimated low single-digit portion of our U.S. brand media spend. It was about a third of that spend in Q4 2024. And we'll have dramatically shifted to OTT, audio, digital video, and other streaming platforms, which will represent about 65% of our Q4 brand spend, up from about 40% a year ago. We've also meaningfully increased our use of partnerships and influencers to build awareness and credibility. As Josh covered, these efforts go -in-hand with our work to build a better app experience, so that when we reach buyers, they land on an engaging, intuitive shopping experience that both inspires and enables them to browse and explore. We're also focused on advancing our machine learning models. While our greatest asset is our sellers vast collection of over 100 million listings inspired by their creativity, it also presents our biggest challenge in terms of delivering search results and recommendations that show we truly understand our buyers' tastes and needs. As our CTO, Rafe Colbert, has rejoined the business, he's observed that while our previous search ranking models were trailblazing in many ways and did an excellent job organizing our inventory, they're not the right fit for where the future of personalized shopping experiences are headed. And the power of today's technologies make what was previously impossible, possible. So we're retooling our ranking platform to more effectively leverage capabilities of LLMs in generative AI, allowing us to understand our listings, users, and their activity much more deeply as we work to deliver better search results. And we're creating more diverse and engaging recommendations by scoring items across a very broad range of interests and clustering them to capture non-obvious connections, to encourage discovery. We believe these investments will help us get significantly better at matching and predicting buyers' interests over time. This approach has proven very successful at Depop. As sales have steadily increased, buyer recommendations have become a significant driver of growth, with the share of purchases from recommendations doubling since the end of 2022. This creates a virtuous cycle. The more buyers discover items they love, the more insights we gain to improve our recommendations models. Ultimately, this positions Depop today not just as a place to find an item, but as a source for inspiration and discovery. We want shoppers on Etsy to feel this sense of delight every time they visit, by not only matching them with the perfect item, but also by surprising them with unexpected special finds throughout their journey. Our third focus is on retaining and rewarding our most valuable customers, both buyers and sellers. They contribute the most to Etsy's success, and by recognizing and incentivizing them, we aim to foster stronger loyalty. For buyers, we're developing a portfolio of tactics that will allow us to build experiences that resonate with different buyer segments. Those new to Etsy are repeat buyers, and of course, our habitual and already most loyal customers. The portfolio will likely include reward programs, targeted offers, nudges, and more. As a first step, we're evolving our Etsy Insider Beta Loyalty program, which has shown excellent results at driving frequency and consideration, yet didn't provide scalable economics in its V1 iteration. So by this holiday season, we'll launch a V2 program to an expanded buyer set, including our top buyers, enabling us to test and iterate on a refreshed set of rewards and benefits. We also see a significant opportunity to recognize and reward our most committed sellers by evolving our offerings depending on where a seller is in her business journey with Etsy. This year, we've already launched foundational improvements in tooling, including to our Shop Manager dashboard, to better and more quickly serve seller needs. In the coming months, we'll roll out AI-enabled tools to boost efficiency, all in service of empowering our sellers to focus more on creating or curating goods, delighting our customers, and growing their businesses on Etsy. And finally, true to our mission, we're re-centering around what truly sets Etsy apart. Seller creativity, human connection, and meaningful experiences. As a marketplace, we enable transactions, but as Etsy, the experience shouldn't feel transactional. What makes Etsy stand apart from other e-commerce platforms is the genuine connection shoppers can make with the real people behind the products they're buying. Discovering the stories, creativity, and passion of our makers. Understanding not just what they're purchasing, but who made it and why it matters. So, while most marketplaces push sellers into the background, we have the opportunity to bring sellers to the forefront. We're finding ways to better highlight the sellers behind the items and create more seamless connections between them and buyers throughout the shopping journey, from the listing page to the custom order process and direct conversations. Unprompted awareness, customer satisfaction, and engagement scores will be some of the success measures we'll be tracking along the way. I am so excited by what we're doing to demonstrate Etsy's value and potential by focusing on these four priorities. And with that, I'll turn it over to Lanny.

Thanks, Kruthi. And hello, everyone. It's a pleasure to connect with you today. We're encouraged by Etsy's second quarter performance, which reflects traction in key investment areas, as well as a strong execution in a dynamic environment. And as we'll get to in a few moments, we expect continued improvement in growth comparisons in the second half of the year. As we review our results today, please keep in mind that we completed the sale of Reverb on June 2nd. As a result, our reported 2Q results include two months of Reverb contribution in 2025 versus a full quarter contribution last year. In our press release and slides, we have provided Reverb's historical GMS and revenue so you can more easily understand the impact of the sale and separate that from the results of our ongoing business. Second quarter 2025 consolidated GMS was $2.8 billion, down .8% year over year on an as reported basis. Excluding Reverb from all periods, second quarter 2025 GMS was approximately $2.7 billion, down .6% year over year. This compares to a .2% decline in consolidated GMS in the first quarter of 2025 when calculated on the same basis, excluding Reverb. The improved second quarter consolidated GMS comparison reflects healthier trends at Etsy, an acceleration in GMS growth at Depop, as well as favorable foreign currency comparisons. Consolidated revenue increased by approximately 4% to $673 million. An adjusted EBITDA was $169 million, representing a .1% margin. The absence of Reverb in the final month of the quarter represented a minor benefit to the adjusted EBITDA margin for Q2. Turning the focus to Etsy Marketplace second quarter GMS, after a softer start to the quarter, which was magnified by a shift in Easter timing, we saw more favorable GMS trends across the remainder of the quarter. For the full quarter, Etsy GMS was down .4% year over year, .5% points better than the Q1 GMS comparison. FX provided a 90 basis point benefit to GMS in Q2, and on a currency neutral basis, Etsy's GMS was down .3% year over year in Q2, compared to down .1% in Q1. As Kruthi mentioned, strengthening the retention and loyalty of our best customers, both buyers and sellers, is a top priority. Trailing 12-month active buyers in the Etsy Marketplace stood at $87.3 million at the quarter's end, down .6% year over year, and .3% sequentially. Because it looks backward across a year, this is a bit of a lagged indicator, and an inflection from our new product and marketing investments may take a few quarters to materialize. We reactivated 6.5 million buyers in the second quarter, up .8% year over year. We added 4.8 million new buyers in the quarter, and our trailing 12-month number of habitual buyers was 6.1 million at the quarter's end. Trailing 12-month GMS per buyer was $120, showing signs of stabilization, as the measure held steady sequentially, while still pacing .9% lower year over year. Monthly GMS per buyer trends strengthened over the course of the quarter, inflecting into positive year over year comparisons in May and June, even on an FX-adjusted basis. As Josh highlighted, our app was a bright spot this quarter. Downloads remained strong, monthly active users were 7% higher than a year ago, and app GMS grew year over year in the quarter. The proportion of Etsy GMS generated on the app increased to 44.8%, three percentage points higher than a year ago. We're focused on expanding the Etsy app because of the highly personalized and direct customer relationships it creates. GMS comparisons in most of our top six categories improved on a sequential basis, yet remained down versus last year. Third-party data from Consumer Edge indicates that we performed in line with, or better than, our PurePlay US peers in five out of the six top categories. We saw bright spots in gifting, personalized items, weddings, and vintage items, each outperforming site-wide GMS. Etsy Marketplace active seller count, also a trailing 12-month figure, was flat sequentially at 5.4 million. Importantly, we're bringing onboard sellers more likely to be successful on Etsy. A higher percentage of current active sellers have made a sale in the last 12 months versus before we introduced the onboarding fee. And the number of new sellers who made a sale in the second quarter grew year over year. Moving on to consolidated revenue, which was split about -30% between Marketplace and Services. Marketplace revenue decreased .5% year over year, primarily reflecting the decline in GMS, offset by growth in both Etsy and Depop payments revenue. Services revenue grew .3% year over year, with very strong growth in on-site ads revenue at both Etsy and Depop. Etsy ads delivered notable value through improved relevancy, serving better quality of ads for sellers, which we were able to monetize accordingly. Consolidated Q2-25 take rate improved to 24%, meaningfully ahead of our guidance. Take rate expanded 200 basis points over the 22% reported in the same period last year, driven primarily by the factors I just outlined, and aided by a slight tailwind from the investiture of Reverb, which was a lower take rate business. Consolidated product development spend declined by .3% year over year to $112 million, gaining leverage as a percentage of revenue. The primary source of leverage came from stock-based compensation costs, which declined year over year. For the Etsy Marketplace, our team's velocity, as well as experimentation GMS win size, are in line with or ahead of where we were this time last year. Second quarter consolidated marketing spend increased 16% year over year to $212 million, representing .5% of revenue, primarily due to increased performance marketing spend versus the prior year, including search engine marketing, PLA, and paid social. While deeper marketing spend reduced the margin flow through from our revenue beat, we believe this was a sensible and opportunistic investment in our future. Allow me to explain. First, competitive spending patterns in the Google PLA markets were helpful to the Etsy Marketplace during the second quarter. While CPCs were relatively stable, we gained a higher click share in auctions to drive more productive spend, and we leaned into investments in an ROI positive way. We believe we caught some momentum from this dynamic, but that's only part of the story. During the quarter, we successfully implemented a new segmentation tactic to optimize Google shopping listings. This approach allowed us to prioritize listings with more click history and higher investment returns, thus providing Google with a stronger performance signal, which resulted in significant lifts to both GMS and revenue. We'll continue expanding this segmentation tactic in the United States and are also testing it in the UK. Second, we continued to lean into paid social and sharpening our efficiency in this channel, with Etsy Marketplace attributed GMS from paid social increasing meaningfully in the quarter. As Kruthi stated earlier, making Etsy more visible in all the places where shoppers discover products, particularly on social platforms, is a core strategic imperative. The progress we are making enables us to underwrite greater paid social investment for Etsy with partners such as Pinterest, Meta, and TikTok. We also accelerated our creator collective spend by nearly 50% sequentially in Q2, primarily directed at influencer marketing. And third, owned marketing channels, including email and push, that allow us to deepen our connections with buyers are becoming meaningful high growth drivers of attributed GMS without an associated investment in external ad spend. We believe these direct and personalized interactions with our customers will have a multiplier effect over time, helping boost loyalty, retention, and lifetime values among the buyers we attract. Turning to our financial position, we generated $90 million in free cash flow in the quarter, and $635 million in the trailing 12 months. We ended the quarter with $1.5 billion in short and long term cash, and approximately $3 billion in convertible debt, including the $700 million issued in June. We were pleased with the execution and attractive terms secured in that transaction, which provides added financial flexibility to manage upcoming convertible maturities. We repurchased a total of $335 million, or 6.4 million shares of Etsy stock in the quarter, including the $150 million repurchased in connection with the transaction. Our leadership and board have conviction in Etsy's future and the value of our shares. With expectations for continued healthy free cash flow generation, we're confident in Etsy's financial flexibility to continue to share our purchases, manage our debt balance, and make ongoing investments in the business. Moving to our outlook, we're pleased to see compounding impacts from our product and marketing investments as we head into the second half of the year, and the accumulating benefit of these initiatives underpins today's outlook. In contrast to recent practice, we're providing a specific dollar range for GMS guidance, and this reflects our view of a relatively stable macroeconomic environment, as well as a desire to provide outlook clarity through the reverb divestiture, which muddles -over-year comparisons. We currently expect Q3 consolidated GMS to be between $2.6 and $2.7 billion, which at the midpoint would represent further -over-quarter improvement in the -to-apples growth rate. We expect that Q3 consolidated take rate will be approximately 24.5%, and consolidated adjusted EBITDA margin will be approximately 25%. Our margin guidance reflects sequential expansion and strong profitability for the core Etsy business, where we are managing adjusted EBITDA margins to the high 20% range. This is consistent with what we've delivered in the past, yet is now being paired with accelerated investments at Depop. We're really encouraged by our progress, and we're optimistic that disciplined and strategic investments at both Etsy and Depop, two marketplaces which offer consumers something truly different, will drive sustained long-term growth and shareholder value. Thank you for all your time today. I will now turn the call over to the operator for Q&A.

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking you to be promoted to a panelist. Please accept, wait a moment, and once you have been promoted, you will hear your name called, and you may unmute your audio and video and ask your question. As a reminder, we are allowing analysts one question. We will wait one moment to allow the queue to form. Our first question will come from John Colantoni with Jefferies.

Great. Thanks for taking my questions. So it looks like the sequential improvement in Etsy's GMS trajectory resulted from moderating declines in buyer spend. Can you talk a bit about what helped drive improved spending and help explain why you're able to deliver that spending improvement despite habitual buyers continuing to moderate? Second question, Lanny, this is probably for you. You're talking to managing the Etsy marketplace to a high 20s EBITDA margin, which is below the 30% plus margin you've talked to in the past. Talk about what's driving the margin compression in your core business and whether high 20s represents a near term or longer term target for operating that business. Thanks.

I'll go to the first question. So we are pleased with the progress we made in the quarter. As you pointed out, there's some real sequential improvement in GMS versus the first quarter. And what I'm particularly encouraged by is that it's really very directly related to the strategic priorities we've been talking about and leading into. There's four particular things we did, we drove this quarter that were helpful that there's a couple of things that were external factors that were also helpful. First, we were successful in driving more Etsy buyers to use the app and to make that app experience even more delightful. So monthly active users are up 7% year over year. And the app is now noticeably more browsable. So as Ruthie talks about becoming a starting place for inspiration and not just an ending point when you are ready to buy, we're seeing some encouraging green shoots there. The second thing is that we have made real progress with our owned channels, particular push and email, getting our current buyers to come back and visit more often. That is largely driven through making those messages a lot more personalized. The third area we're making progress is leading into paid social, where we want to be where people are discovering and seeking inspiration in the first place. In places like Instagram and YouTube, Pinterest, TikTok are areas where we think we've been under penetrated in the past and we are closing that gap and we're really encouraged by that. Fourth is PLA and I'll talk about some external competitive dynamics in a second. But in addition to that, we've made some MarTech investments that are really bearing fruit, in particular, being able to prioritize in the Google PLA auction listings that we have history around that we know are likely to deliver high ROI. And that's a structural improvement in our PLA program that we think is very sustainable. In addition to those four areas of progress, there were a couple of external things that helped as well. In particular, there were a few periods of time when some combination of Amazon, Timu and Shien pulled out of the Google auction. That was a small tailwind. And consumer spend stabilized after what was a very volatile April. Consumer spend stabilized in May and June and that was helpful. What we're particularly encouraged by is that these trends have largely sustained and I think that's why we have a guide for the third quarter that shows sustained continued progress.

John, with respect to the Etsy EBITDA margins, there's no big change in our outlook for the profitability of Etsy. We are managing to the high 20s, the very high 20s. And as we look into the third quarter, we're anticipating a step up in Etsy core margins in the third quarter from where they've been in the second quarter. We are investing in the near term in the app experience, in paid social, in the machine learning that will drive Etsy core marketplace back into a position of stronger GMS growth and revenue growth over the long term. And that revenue growth, as we've shown in the past, when the Etsy marketplace is driving growth, the incremental profitability of the marketplace model is really, really attractive. So no big change there. We're going to continue to manage it well while making investments that will drive the long-term growth of Etsy.

Thanks so much. Appreciate it. John, one thing I would just add is I hope that this management team has demonstrated tremendous discipline and focus on ROI. Every dollar we spend, whether it be on people or in marketing, we're super focused on that. And what we've always said is we don't manage to a target, a numeric target. We always look at what confidence do we have in the return on investment. And when we think there is an opportunity to grow more by investing, we'll take it. If we're not confident that we're getting a good return, we'll deliver those dollars to the bottom Thanks, John. Very

clear. Thank you.

Our next question will come from Chris Kentarich with UBS. Just one moment. Chris will be joining us shortly. Okay, Chris, feel free to go ahead and ask your question.

Great. Thanks for taking the question here. Maybe just on the app side of things, you call it out growth here. I think it's somewhere in the neighborhood of about 1% growth, sort of implying that this growth is being funded from the core business. So how should we think about where we're at today as more users shifting from a web-based solution to an app-based solution and the evolution and the steps that are going to need to sort of unravel here to this being a new source of incremental growth?

Yeah. What our data suggests is that when we get a buyer to adopt the app, we see their lifetime value go up and we've gained confidence that that's causal, not correlated. And it makes sense, right? The fact that Etsy is right there in your pocket. Whenever you have a spare moment, you can pull it out. And what we're starting to fight for now is time and inspiration. That when you're waiting for the subway or there's a commercial on TV, you pull out your app and we want you to go to Etsy and spend that time just being immersed in all of the different things that you can find on Etsy. One of the things we've talked about for some time is that buyers come to Etsy for one specific need. And too often we just meet that need and we show them things very related to that need. What we miss in that opportunity then is the chance to show them other things they didn't ask for that might spark their next inspiration or help consideration for other needs in their life. You came for home furnishings, but we also have pet products or baby products, right? So what you're seeing in the Etsy app today, and I'd really encourage everyone like pull out the app, look at the home screen. You're going to see a lot more screen real estate dedicated to surprising and delighting you with really cool stuff you didn't necessarily ask for. And we think by getting people in the habit of coming to the app, we see that we can engage them more often in more things. So we have been taking some of our mobile web screen real estate and dedicating it to pushing people to use the app. And we're seeing that drive benefit. We always do it with an eye towards LTV. We're not reckless about it, but it is going to some friction to our mobile web GMS in the spirit of driving more buyers to adopt the app. We're also using push channels and email channels and other things to drive people to the app. And those three channels is most of what's driving more growth in app users. We are also learning how to do paid app marketing more. Our paid app spend is up somewhat year over year, and our paid growth is up year over year. That is still the smaller portion of what's driving app growth, but it is something we're investing in and leaning into. The main point, though, is that we really want the app to be the hero, the centerpiece of most people's customer experience, because we think that's where the flywheel really works the best. You come to the app, we see what you engage with, we learn more about you, and we become even more personalized with every visit.

Great. Thank you.

Our next question will come from Anna Andreyeva with Piper Sandler. Please go ahead.

Hey guys, thanks for taking the question. This is Noah on Farona. Just a quick question on demand from the various household income courts. So is the higher end still relatively resilient for you and what are you seeing with the lower end consumer in terms of the demand profile there? Just a follow-up, can you talk about what drove that inflection you mentioned in TMS, in May and June, and what should we think of the initiatives resonating?

Thanks. I think with respect to the consumer backdrop, we've seen a slightly healthier consumer spend across all the different cohorts. Yes, the higher income households are a little bit healthier and stronger sequentially than lower, but both are better and they're not a dramatic difference between the two right now. We have not seen any big shifts in spending across those related to tariffs or trade announcements that have happened. And so kind of the general read is the consumer that we're seeing looks a little bit better, slightly better than it was perhaps three months ago with the higher income households a little bit healthier within that. In terms of the step up in our comparisons year to year in the second quarter versus where they were in the first quarter, it's really the things that Josh talked about earlier. It's the momentum in our mobile app, the things we're doing in paid social. It's progress we're making in our owned media channels to push and notify and email people and bring them back into the business, which you're seeing show up in some stabilization in GMS per buyer. The work that we're doing, we leaned into opportunistically some dislocation in the paid search marketplace to bump up Etsy's visibility. And on top of that, as I described, we had some real successes with some segmentation of PLAs that helped us improve the efficiency of the spending that we were doing there. So all the things we've talked about really kind of added up to what we consider that sustainable, accruing, building momentum that's coming from the initiatives that we're undertaking against the

Next question. As a reminder, when it is your turn, you will receive a prompt on your screen promoting you to a panelist. Please accept, turn on your audio and video and ask your question. Our next question will come from Marvin Fong with BTIG. Marvin is rejoining us. We'll take one moment.

Good morning. Thanks for taking my questions. So we'd love to hear some more about the personalized communication. So it's stepped up. It's still only 40%. I think you talked about getting that to almost everywhere by the end of the year. We'd love to just kind of understand what that lift you're seeing is in either conversion or GMS and just kind of talk about how that will roll out. What more features can you add as part of your roadmap for that in the coming years? And then just on payments, very nice growth there. I think it was up compared to down GMS. And just recognizing you're just about entirely penetrated on a geographic basis, just would love to understand what drove that growth. Was it new products or international business, whatever that might have been would be great. Thank you.

Yeah, great. I'm so excited to talk about personalization. Thank you for that question. So what drove the gains in our push and email notifications this quarter was more personalized things like more personalized titles and more personalized content. And you can imagine if you have an LLM write a title that's made just for you, it's going to feel more compelling. Also things like what time of day is the best time of day for you to receive this. We're making real gains in those and that is exciting. But the thing that's going to matter the most is are we actually pushing view content that feels like we really know you, we really get you. And there I would say we are early days with a ton of opportunity to do better. Etsy's personalization today is still largely based on listing to listing personalization. People who looked at this listing also tend to like these listings. And where the state of the art now has moved and again with the power of Geni, with the power of LLMs, you can start to say what kind of person is Marvin Fong? What do we know about him and where would we map him in the universe of buyers and where would we map all of our listings in the entire universe of our listings? And we can make much more non-obvious connections that will really delight where we feel like we really know you. And those connections might be things that feel like they're tailor-made for you, but maybe in an entirely different category that you've not shopped before. And that's something we can both deliver to you in push through things like email and push to get you back onto the site. Even more importantly, every visit we want the site itself, the content you're finding on the home screen for example, to become more and more personalized. So the home screen today has a lot of really cool browsable content. I'd recommend please go check it out. I think you'll see there's a lot of really great, really high quality stuff you can really get lost in. But what you'll find is when you come back again and again, it doesn't really show that it knows you and that it's getting better every visit. That is something that we think we can get a lot better at and we are in a big hurry to do that. And I think Wraith coming back from Depop with a lot of experience there and a lot of focus on how to drive that, we think that could be very important for us in the future.

On the payments front, there was a, you're right, it was a small benefit in this quarter. We're getting pretty close to the end of the road of getting our sellers to adopt and use Etsy payments, which we think is a nice value proposition for them. It simplifies their lives. It consolidates everything with Etsy. It means one less vendor for them. It's a cost that they were carrying anyway and we can provide our trust and safety and account management for them when they're on our payments platform better than when they're not. So we're pretty much to the end of the road. There are a couple more countries where we will have a little bit of benefit going forward. But we're really pleased with the way that payments has gone. And as I said, it's part of the value proposition we deliver to keep our sellers in a really strong, loyal relationship with Etsy.

Great.

Thank you.

Great. We'll go to the next one, operator. Our next question will come from Nathan Feather with Morgan Stanley. Please go ahead.

Hey, everyone. Really encouraging interaction in the quarter. I want to talk a little bit about the increased marketing spending to queue in the back half. Can you help us frame how much of that is attributable to the Etsy marketplace versus Depop? And then on the social media, social marketing spend, there's been a lot of investments in there in 2024. How should we think about the ROAS gap, if any relative to more traditional performance spend, something like Google shopping and how that's evolved over the past six quarters? Thank you.

Go ahead, start. Sure. Great. So we are starting in Q3 to really accelerate our investment in Depop. So I'd expect our Q3 guide incorporates an accelerated investment in Depop. In Q2, I would say that the investment between Depop and the core Etsy marketplace was more normalized. So the step up in marketing spend in Q2 was a function of really two things. One, there were some weeks when Amazon, Tmoo, or Shein, some combination of them pulled out of the Google auction, either partially or almost entirely. And in fact, I think there were a few weeks when all three of them were out of the auction. And the way that our performance marketing systems work, they're highly automated. And so we just naturally, if there's a visit we can buy profitably and it's available, we will buy it. So our marketing spend just expanded to fill that space. What we saw was that our CPCs during that period were roughly constant, but our ad coverage, we were getting more visibility on Google. And that was helpful. And that was profitable for Etsy. So there was some stepped up marketing spend as a result of that. I also want to add that we just made our tech better for Google. And so we're able to invest more profitably in Google. What our MarTech team is rewarded by is pushing up the ROI curve in general. How do they create better technology so that we get better ROI across our spend? And they made some progress there as well. And then in paid social, we're making progress. The way we always work is we have an R&D budget where we test in new channels. And once we figure out how to unlock performance in that channel, we will naturally scale to the point where we meet our own ROI threshold. And we're making progress in some of the paid social areas as well. So we're seeing a little bit of elevated spend in those areas. That's good news. That means we're diversifying our marketing spend even further. And in particular, we're showing up earlier where people are just starting to discover and seek inspiration. And when we talk about Etsy building consideration, which is our big challenge in the US and in the UK, this is the perfect way for Etsy to, I think, really do more to build consideration earlier in people's journeys.

Nathan, with respect to the Deep Pop spending, the one thing I just add is that that business is at a much earlier stage of development. So the marketing spending that we're doing there that Josh talked about that will step up, it's really more around driving awareness than it is kind of near-term conversion driving spend. So we have confidence that that investment will generate returns for us, user growth and GMS growth for Deep Pop down the road. But it won't be quite as quick, I don't anticipate, in terms of the responsiveness on the top line to the spending that we're doing to drive awareness.

Yeah. We're super excited about Deep Pop. And while Etsy has high awareness in the US and the UK and a couple of other markets, and the opportunity for Etsy to build consideration, one of the things we're so encouraged about with Deep Pop is it's growing very well, especially in the US, but awareness is still quite low across many parts of the population. And that we think is a fantastic opportunity. As we grow awareness, we think we can see really strong growth. The payback period may not be as fast, but we think there's a lot of opportunity. The TAM is very big, and we still see a lot of runway for Deep Pop.

Okay, cool. Thanks, Nathan. Let's go to the next one. Our next question will come from Trevor Young with Barclays.

Great. Thanks for the questions. First one, just as you've shifted squads at the start of the year back to more near-term GMS wins, can you size any of those early GMS wins, both in terms of 2Q, as well as what's baked in for 3Q? And then relatedly, how much of the hundreds of millions was foregone last year? Do you think you can claw back by later in the year or into next year?

What we said was that shift cost us several hundred million dollars of opportunity cost. As we look to the tail end of this year, I think we'll be able to recover that cost and begin, as we look further out, to get the real stacking benefit of having made those changes. You can see that stacking benefit coming through in things like the app and the progress we're making on machine learning and elsewhere. In terms of the short-term momentum, as we said, the velocity of our teams in terms of the experiments that they're launching each week, each day, and the size of the wins that we're seeing is back in very historically consistent ranges that we've seen before. So I think we're back in that game at a large size. We're not going to break out the individual size of those. We've enumerated some of the bigger successes. The PLA segmentation was a big one. And ongoing progress in improving our efficacy on paid social is another area where those teams are iterating quickly and producing really exciting short-term win results.

Great. Thank you.

Thanks, Trevor. Our next question will come from Navit Khan with B.

Riley. Great. Thank you very much. So Pruthi talked about expanding the Etsy Insider benefits. How should we be thinking about the cost of those benefits? Would it be funded, self-funded, or are you thinking about changing the pricing on the offering? Give us your thoughts on that. And then in terms of just the mobile GMS, it's great to see the numbers here. I'm trying to figure out how much of that is driven by new app downloads that have happened over the, let's call it, trading 12 months versus improving conversions with the existing mobile app users. If you can pass that out, that would be great. Thank you.

Great. And the first one, with Etsy Insider, we're acting very typically Etsy. We tend to not throw caution to the wind and do a big launch and just hope for the best. We tend to test and learn. And so we're testing and learning. And what we've discovered in the first version of Etsy Insider is we're really encouraged actually by the impact it's having on consideration and frequency. People who subscribe to the program are coming back to Etsy a lot more often. We're seeing real incremental gains in their purchase activity. The next thing we've got to figure out is how do we do that under economic architecture that works? And how do we do it in a way that can serve all of our customers, including our already most loyal customers, where we think there's a big opportunity to get, oftentimes, the place to get the most incremental activity is from the people who already know you and use you the most. And so we have already been bearing a little bit of cost for Etsy Insider in these last couple of quarters. And it has not been material to our margins because we're careful about how we test and learn things. We think we have a new version of the program that can lean into things people care about, like free shipping on millions of listings, but do that with a few more guardrails that can actually provide a ton of benefit, but also manage the cost a little bit better and expand through things like rewards on every purchase in some really exciting ways and make that available to even our best customers. And one of the things Kruthi talked about is really leaning into retaining and rewarding our best buyers and sellers. And we want to make sure Etsy Insider is really fit for purpose to serve our best buyers. And so I'm really encouraged by this next iteration. Like everything, we're going to be careful. We're going to test it and learn it. And when we look at rewards programs or loyalty programs that succeed in scale, what I observe is most of them, you iterate and incubate over a period of time, and then you figure out how to make it all work. And then it scales. And most of the most successful programs have followed that trajectory. I'm encouraged by the path that we're on.

And on the app, I think the key message on the app is that, as Josh said, it's a better experience. It's more personalized. It allows different surfaces in it that allow us to communicate at a much richer, very targeted level. And there's a different use case for the app that is just that sort of habitual shopping, starting out inspiration on the app that we think is really essential to the long-term positioning of Etsy in the minds and in the wallets of our customers. And so in the long term, the Etsy app, we think, is a better, more productive platform for our consumer relationships for all those reasons. In the near term, while we're driving people into it in their first arrival, they're going to be spending a little bit less than those who have already adopted the app in the course of a quarter, as you think about timing there. So right now, we're driving growth in app users. Those new app users are not spending as much as the established app users. But in the long term, as we get more and more of the users in the app, we think we have a great opportunity there to drive GMS per buyer and more loyalty and more retention.

Thank you.

Our next question will come from Jason Helstein with Oppenheimer. Please unmute your line, Jason.

Thanks, Henry. Two quick questions. So I guess, Lanny, have we reached the point where it is worth leaning into app acquisition on an incremental basis? And then number two, can you just be a little more specific with the guide? We're getting a bunch of questions. Are you expecting pro forma marketplace GMS X depop to improve on a -over-year basis in 3Q versus 2Q? And can you maybe give us like 100 basis points, 200 basis points? Just a little more help. Thanks.

Sure. Let's see. The first question, remind me. Leaning into app acquisition. Oh, we have that point. It's

really worth it.

What I would say is we are going to continue to lean more in. But I don't think you're going to see us go from zero to 60 overnight. It'll be gradual. We'll test. We'll iterate. We'll learn. The vast majority, I think, of the app downloads are still going to come organically. And that's how we'd really prefer to drive as much as we can. But yes, we will be leaning in there. But no big acquisition campaign that will really change financials, expenses in the near future. It's a very small percentage

of our

marketing. Yeah. It's a very small percentage of our marketing today. But yes, we like the LTVs that we're seeing there. And then on the outlook, I think the way to frame it is at the midpoint of our outlook for the third quarter, the year to year GMS comparisons would improve from on an apples to apples basis down about .6% in the second quarter to down about .9% in the third quarter. And that's better comparisons on both Etsy and continued very strong momentum on C-POP, which is growing a lot faster and a growing portion. So there's kind of a mix shift issue and a benefit there as well. Okay. Thank

you.

Great. Thanks. We want to get to one more if we can.

Michael?

Our next question will come from Michael Morton with Moffitt Nathanson.

Thank you. Good morning. I wanted to talk a little bit. Slide eight, you talk about Etsy as being the top recipient of agentic chatbot traffic. And a question we get a lot from investors is how is this new source of traffic behaving once it lands on site? Are you seeing greater intent, higher conversion, maybe less browsing? I know we're really early days, but just anything you can comment when you isolate that behavior. And then while we're on the thread of AI, another investor question is what opportunities, Josh, you talked about this in the one queue prepared remarks, but maybe a little bit more on AI copy and how that is making paid social a better source for you for traffic due to the fact that you might've had some structural limitations due to like depth of product, right? You have like a handmade product where there's only 20 of them. You can't do a huge campaign on paid social, but now if the barriers to entry come down, is this helping to unlock paid social for you?

Yeah, great. Okay. Thank you. I'm glad I get to talk about these. Agentic shopping. So we quote a similar web study, which said that Etsy is one of the top recipients today of chatbot shopping traffic. What I'd say is that the traffic numbers are still so small that it's really hard to parse it out and talk with any confidence about things like conversion rate. But when I really pull back, I think Etsy is really well positioned to be a winner in this. And the reason is that when you give your agent a mission, it's going to want to come back to you with a few choices. And what the agent is going to discover is that that same skew is being sold in a hundred different places, and it's going to help you pick the place that sells it the cheapest and ships it the fastest. And then it's going to want to provide alternatives. And the reason why the big model builders are so interested in working closely with Etsy is, I think, primarily two reasons. First, we have a really unique corpus of stuff for sale. And that's very rare. Everyone else is largely selling versions of the same thing. Etsy actually has something unique to offer. And I think agents are going to be able to surface to customers more often, hey, here's something you can buy that's going to be fast and cheap. But you might also want to consider Etsy, where it can be personalized just for you, where it's going to feel more special and unique. I think they can help to surface that kind of content, particularly if we are there helping them to think that through and having a seat at the table, which we're fortunate to be invited to have a seat at the table at many of these. The second reason is we have a strong engineering culture, and our engineers can really partner engineer to engineer with some of this really top talent and other companies and keep up with them. And I think that's been really important. And I'm grateful to our wonderful engineering team for doing that. To your second question around paid social, Jenny, I can be very helpful for that. And your point around personalizing the copy is one important piece of that. Another important piece, Michael, and what you talked about is we are incredibly broad, but not very deep. You can't usually sell 100 or 1,000 of anything because our sellers sold out by that time. So what we need is a landing experience that said you were generally interested in this. Here is a range of inventory on Etsy that meets your need. And being able to understand a consumer's mindset and then generate on the fly a really personalized landing experience is an important part of that. Gen. AI is going to help us enormously to do that. And so we're really excited to go from what today are going to feel like very rudimentary listing to listing. This is a listing. Here's other listings like that. To understanding really the context of, oh, you're in a wedding mode. And here's where in the process of the wedding you are. And here's a range of inventory to delight you. That's a kind of new frontier Gen. AI is only beginning to unlock that's just going to, I think, accrue particularly to Etsy's advantage.

Great. Thank you. And Mike, thanks for the question. We are at time.

Operator? Thank you all.

There are no further questions at this time. I'll turn call over to Deb for any closing remarks.

Great. We're good. Thank you. We'll talk to you all soon. Thanks for your time. Thank you.