Etsy, Inc.

Hi, everyone, and welcome to Etsy's third quarter 2025 earnings conference call. I'm Deb Wasser, VP Investor Relations, and joining me today for our pre-recording are Josh Silverman, CEO, Krithi Patel-Goyal, President and Chief Growth Officer, and Lani Baker, CFO. In addition to our quarterly results, we have some exciting news to review regarding our leadership transition. Once we are finished with the presentation, we will take questions from our publishing sell-side analysts on video. Please keep in mind that our results today include forward-looking statements related to our financial guidance, our business, our operating results, and our leadership transition, 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 or slide deck posted on our IR website, along with the replay of this call. With that, I'll turn it over to Josh.

Thanks, Deb. Before we dive into our third quarter results, I want to acknowledge the news we announced earlier today. After eight and a half years as Etsy's CEO, I've decided that this is the right time for me to hand over the leadership baton to the next generation. Therefore, we'll be transitioning over the next few months and I'll become executive chair while the fabulously talented Kruthi Patel-Goyal takes the reins as our CEO effective January 1st. It's been an incredible privilege to lead Etsy through several chapters of evolution and transformation, from the turnaround of 2017, to managing through the hyperscaling of the pandemic, to steering us back towards growth again in a more app-centric, discovery-centric world. We've adapted and evolved with creativity, agility, urgency, and heart, all while keeping our sellers at the center of everything we do. Now, in our third decade, Etsy is entering a new phase, one focused on harnessing AI to further personalize and transform the shopping experience in ways that were previously unimaginable. It's an exciting moment and perfect timing, I believe, for fresh perspective and a new leader. As you know, following an incredible two-year run as Depop's CEO, reigniting their growth, I asked Kruthi to return to Etsy last year as Chief Growth Officer. Kruthi's been a key part of Etsy's leadership for over 15 years, and she brings deep knowledge of and passion for our mission, marketplace, customers, and community. Since coming back and ramping up, she's already made a significant impact on the business, evolving our strategic priorities, redefining how we measure success and shifting how we work. She's also already taken on leadership of many of our day-to-day operations. So it's natural and an exciting next step for her to become Etsy's next CEO. If I was the right person to lead Etsy's last chapter, Kruthi is the right person to lead our next. Our board of directors has been deeply engaged in our succession planning and wholeheartedly endorses her appointment. I also want to acknowledge Fred Wilson, who's been a part of our growth journey since 2007, first as a board member and then as chair. He's been an absolutely incredible chair, passionate, wise, and highly engaged. I couldn't have asked for a better partner, and we're thrilled that he will remain on our board. On a personal note, serving as Etsy's CEO has been the honor of a lifetime. While I'm incredibly proud of the results and the growth we've delivered as a team, what I'll remember most is the impact we've had on the lives of our sellers and buyers and our role in preserving creativity and human connection in a world increasingly shaped by automation and commoditization. And I'll continue to love hearing, I love Etsy, every time I hear the Etsy brand mentioned. I've always found purpose in leading through transformation, and I'm excited to make room for new growth, both for Etsy and for myself. Thank you for the trust and confidence you've placed in me. I'm confident Kruthi will similarly earn your trust as our next leader. With that, let's turn to our results. We're making steady progress improving our performance in 2025, with our third quarter results exceeding expectations on all three key financial metrics, GMS, revenue, and adjusted EBITDA. I'm pleased to report that GMS for Etsy and Depop combined returned to year-over-year growth, with further sequential improvement expected at the midpoint of our fourth quarter guidance. Etsy Marketplace results improved sequentially as we continue to see that the customer-centric priorities Kruthi has defined are starting to gain traction. GMS improved approximately 300 basis points sequentially to $2.43 billion, down 2.4% year-over-year. In addition to the impact from these initiatives, there were some exogenous factors which also impacted our results, and Etsy once again proved its resiliency. It gives me tremendous comfort that we benefit from such a dynamic and fundamentally sound business model. Depop's third quarter growth accelerated about 400 basis points sequentially, with GMS up 39.4% year-over-year to $292 million. New user growth and improvements to buyer conversion were primarily responsible for 59% year-over-year growth in Depop's US GMS. And while not a meaningful growth driver in the third quarter, Depop launched its largest ever brand campaign, targeted at raising awareness in the U.S. We're really excited that Peter and his team are continuing to build on the foundation that Kruthi built at Depop, which has led to the great momentum the business has seen over the past two years. That said, we're all clear-eyed that there's significantly more work to do. So I'll turn the call over to Kruthi.

Thank you, Josh, and good morning, everyone. Since returning to Etsy earlier this year, I've been reminded at every turn that this company is built on something rare in e-commerce today, creativity, human connection, and purpose. So it's an incredible honor to be named our next CEO. I'm deeply grateful to our board for their confidence in me and to Josh for his leadership, mentorship, and support over so many years. He's led Etsy through extraordinary growth. Our customer base, GMS, revenue, profitability, and market cap are all multiples larger than when he started. But Etsy isn't just bigger. Etsy's better and well-positioned for our next chapter of growth. We'll continue to work closely together through this transition period, and I'm so pleased that Josh will remain a sounding board for our executive team and me as our executive chair. I'll now cover our four strategic priorities, which are working together to deliver tangible value to our customers and support sustainable growth. We're showing up where shoppers find inspiration, matching them with items that feel tailor-made for them, working to deepen loyalty across our community and amplifying what sets us apart, the creativity and authenticity of our sellers. Each priority fuels the next, creating a cycle of discovery, engagement, and connection that truly differentiates Etsy. starting with showing up where shoppers discover. We know today's shopping journey isn't linear. People find inspiration everywhere. To capture this behavior, we're meeting shoppers in more of those moments with content that feels personal and relevant. A great example of how we're capitalizing on the evolving shopper's journey is our partnership with OpenAI, which gives us an early foothold in a fast-growing, high-intent discovery channel and helps to create another seamless path from inspiration to purchase. In September, Etsy became the first live partner for their Instant Checkout feature, allowing users to buy items on Etsy directly through ChatGPT. We now provide a dedicated product feed that enables eligible purchases to be completed seamlessly within the chat experience, processed through Etsy payments. This integration was designed to ensure buyers know it's Etsy. When a customer purchases a product through Etsy and ChatGPT, they'll see the Etsy brand mark, information about the human seller, and an order confirmation from us. Agentic visits represent a small slice of e-commerce traffic today, but they're growing quickly, and early analysis suggests that these buyers come to Etsy with higher purchase intent than those from traditional search. And over time, we believe these types of integrations will drive incremental growth and, importantly, brand consideration for Etsy. Another example of how we're showing up where shoppers discover is our marketing approach this holiday season. As we've told you, we're significantly reallocating our brand marketing spend away from linear TV into upper funnel channels intended to spark engagement and inspiration, such as social video and streaming. You'll see us highlight the many ways people shop, decorate, and celebrate, how they're discovering the trends shaping the moment or honoring the traditions at the heart of the season. Because shopping on Etsy isn't about checking a box. It's about finding something that makes someone feel seen and reminding the world that the most meaningful items come from real people. Of course, once we get shoppers' attention, the experience on Etsy has to deliver. We've made strong progress improving the Etsy app. In Q3, AppGMS outperformed non-AppGMS by 13 percentage points, a meaningful indicator that our work is beginning to pay off. This progress reflects a series of thoughtful improvements, from a redesigned home screen central hub of what's new and relevant, to simpler navigation that helps shoppers reach key features faster, to a completely reimagined discovery feed powered by a new recommendations model designed to anticipate what each shopper might love next. Early results are encouraging. Engagement on our app home screen is up significantly, and app home GMS grew 20% year over year in the third quarter. Advancements in AI and machine learning power much of this work and are central to how we match shoppers with the right items. Over the past few months, we've made meaningful progress in our machine learning capabilities, particularly in two areas that are core to Etsy's differentiation, buyer understanding and item understanding. In buyer understanding, we've developed new models that more deeply interpret our users' interests through a combination of advanced ML and emerging LLM techniques. These models now power our app discovery feed, where they've already driven double-digit increases in engagement metrics and have also demonstrated positive impact in our emails and our web homepage experience. In item understanding, we've strengthened our ability to extract richer insights from listing images, enhancing how we represent and connect inventory. This improvement has delivered measurable conversion gains across search and ads with further opportunities ahead. Rafe and his team's rapid time to market on these initiatives has been excellent, and we're excited to continue testing and iterating. Turning to our most valuable customers, starting with our buyers. We see strong opportunity not only to deepen loyalty with our top buyers, but also to nurture customers with the potential to become them by making shopping on Etsy easier and more rewarding. In the near term, we're piloting targeted offers for our most active buyers and launching the latest beta iteration of the Etsy Insider Loyalty Program, reimagined with our top buyers in mind so they feel rewarded every time they shop, with shipping discounts and 5% back in Etsy credit on every purchase, all while seeking to deliver sustainable economics for Etsy. From my perspective, one of the most important elements to our long-term success will be Etsy's ability to continue to attract creative entrepreneurs and support their ongoing success. Because their creativity and innovation is what makes the Etsy experience like nowhere else. Since becoming Chief Growth Officer, I've been connecting weekly with many different groups of sellers. And it's clear we can better help them spend less time managing and more time creating. We've launched new AI-powered tools to help sellers generate listing titles and draft buyer messages, two of the most time-consuming parts of running an Etsy shop, and improved issue resolution with increased access to live, knowledgeable support. We're pleased to see that our efforts are starting to make an impact. For example, seller satisfaction scores are up more than 10 percentage points from this time last year. Finally, we're amplifying our competitive differentiation, the human connection at the heart of our marketplace. It underpins and is intertwined with each of the other three priorities. And while we see abundant opportunities to weave human touch more deeply into every part of the Etsy experience over time, we've started with simple, high-impact updates that bring sellers and their stories closer to buyers, like adding richer seller information directly onto listing pages. Early test results show that these changes are helping buyers trust listings faster and make purchase decisions with less friction. In closing, thank you to our employees, our community, and to all of you for your confidence and partnership. I'm excited to take the helm come January. While we've been showing continued improved performance, there is so much more we need to do. You'll hear more from me as I continue to evolve our vision and plans for the business. And with that, I'll turn the call over to Lani.

Thank you, Kruthi. When I joined Etsy, I told our investors and analysts how much I have admired Josh's stewardship and transformation of this incredible business. I want to thank Josh for leading the company to where we are today and setting Etsy up for what comes next. And I can speak on behalf of the full executive team that we are incredibly excited to be part of this next phase of our journey with Kruthi as the CEO. As we review our results, please keep in mind that we completed the sale of Reverb on June 2nd, and we've provided Reverb's Q3 2024 GMS and revenue so you can more easily separate the impact of that sale from the results of our ongoing business. Third quarter consolidated GMS was $2.72 billion, which exceeded the top end of our guidance range, driven by better than expected results at both Etsy and Depop. Excluding Reverb from all periods, consolidated GMS grew 0.9% year over year, and consolidated revenue grew 6.1% year over year to $678 million. Adjusted EBITDA was $172 million in the third quarter, representing a consolidated adjusted EBITDA margin of 25.4%. Within that, Etsy marketplace margin was just shy of 30% for the quarter, and Depop's margin declined sequentially as we began to accelerate brand marketing to expand Depop's opportunity, particularly in the US. Etsy Marketplace GMS was down 2.4% year over year in the third quarter and down 3.2% year to year on an FX neutral basis. While we're not satisfied with any decline in Etsy GMS, we are encouraged that year to year GMS comparisons continued the momentum established earlier this year and improved by another 300 basis points from Q2 to Q3. Importantly, we believe that initiatives aligned with the four priorities that Kruthi described earlier were critical factors contributing to that progress. On the tariff and trade lane front, we experienced some pressure on our U.S. import trade route during the quarter. However, sequential improvement in our U.S. domestic trade route helped offset the impact. The expiration of the de minimis exemption at the end of August weighed on performance immediately thereafter, and our business stabilized as we moved through the quarter, resulting in only a modest headwind to quarterly results. While we remain cautious about the potential impact of tariffs and trade restrictions, especially on consumer discretionary expenditures, we are encouraged by Etsy's resilience and responsiveness thus far. We believe we have benefited from the massive amount of inventory on the marketplace and a very high replacement rate on disrupted items. As we've mentioned, we have an abundance of US-based supply, including over 60 million active US listings. And we've been highlighting domestic inventory to US buyers for some time. Additionally, our team has been extremely proactive in providing non-US sellers with information, advice, and viable alternative solutions to help them continue shipping into the US. Etsy's active buyer count was 86.6 million on a trailing 12-month basis, down 5% year over year, and 0.8% lower sequentially. We attracted 4.8 million new buyers in the third quarter and reactivated another 6.6 million lapsed buyers. Combined, new and reactivated buyers totaled 11.4 million for the quarter, a slight improvement compared to the second quarter. GMS per active buyer was $121 in the third quarter, and this trailing 12-month figure has been stable year to date. When we look more closely at GMS per buyer trends on a month-by-month basis rather than a trailing 12-month basis, we've seen encouraging improvement since April 2025 with higher average item values as well as improving purchase frequency per buyer. Slicing GMS performance according to estimated household income, we saw a favorable year-over-year inflection across all income levels in Q3, with the strongest performance among our highest income buyers, which is consistent with the US consumer spending trends we are all reading about. GMS comparisons across most of our top six categories improved sequentially. We saw particular strength in vintage home and living, jewelry above $100, and wedding and engagement rings. Kuthi mentioned the great progress we're making with the Etsy app, and I want to underscore the importance and the effects of this focus. In the third quarter, on average, Etsy's app users visited roughly five times more often than our non-app users. They viewed three times more pages per visit and were one and a half times more likely to convert with a purchase. As we've said before, the app platform allows us to deliver a more engaging and personalized experience, form stronger, more direct relationships with buyers, and increase customer lifetime value. With that in mind, we were pleased to see app downloads grow 9% year-over-year, with even faster growth in downloads among new buyers. Mobile app GMS accelerated to mid-single-digit year-over-year growth in the third quarter, and the app's contribution to total GMS increased to 46%, compared with just under 45% a quarter ago and 42.8% a year ago. Shifting to the seller view, following stabilization last quarter, active sellers grew 1.7% sequentially in the third quarter, leading to a moderation in the year over year decline. In fact, both US and international seller counts began growing again on a sequential basis. The number of new sellers who made a sale in the third quarter of 2025 saw strong double digit year over year growth. In addition, the percentage of total sellers with a sale in the last 12 months increased year over year, rebounding from the Q1 2024 trough. Moving to revenue performance, consolidated revenue was $678 million, up 2.4% on a reported basis, which includes reverb in the prior year period. Services revenue grew 12.7% year over year, driven by growth in onsite ad revenue at both Etsy and Depop. Etsy ads delivered another quarter of meaningful growth, supported by model enhancements that optimized seller budget pacing and improved ad quality and relevance, while Depop continued to expand its boosted ad offering across the platform. Marketplace revenue decreased 1.7% year over year, largely reflecting the impact of the reverb divestiture, which removed that contribution from consolidated results. Consolidated third quarter take rate improved to 24.9% ahead of our guidance and up 90 basis points sequentially. Compared to one year ago, consolidated take rate expanded by 220 basis points, reflecting the divestiture of REBURB and the benefit of the growth in services and ads revenue that I just outlined. Consolidated product development spend increased by 5.7% year over year to 113 million, growing slightly as percentage of revenue, as shown on the left of this slide, and reflecting an increase in the number of dev employees on a year over year basis. We continue to be disciplined and focused in our hiring, with the majority of our engineering hires this year allocated toward growth initiatives. Third quarter consolidated marketing spend increased 6% year to year to $208 million, representing 30.7% of revenue. The increase in consolidated marketing spending was driven primarily by incremental brand investment at Depop. Etsy marketplace spend was up only slightly from the prior year. As shown on the walk on this slide, Etsy's marketplace marketing spend gained leverage year over year as a percentage of consolidated revenue, whereas Depop's marketing spend lost some leverage, netting to a slight deleverage on a consolidated basis. Within Etsy Marketplace marketing strategies, we remain highly encouraged by our own marketing channels. Email and push notifications combined with enhancements to our app are allowing us to deepen our direct connections with buyers. And these channels are becoming meaningful, high growth drivers of attributed GMS without an associated investment in external ad spend. We also optimized our paid social portfolio through targeted mix shifts informed by incrementality testing, making us even better able to target higher value audiences. In addition, we shifted low funnel efforts to zero in on new and lapsed buyer audiences and expanded mid and upper funnel investment in high performing channels like TikTok. Lastly, while competitive spending patterns in the Google PLA auction were helpful during the quarter, we continue to reap the benefits of our own data feed optimizations and advanced PLA segmentation strategies. Turning to our financial position, we generated a very healthy $200 million plus in free cash flow in the quarter and 635 million in the trailing 12 months. We ended the quarter with $1.6 billion in cash and investments and approximately $3 billion in convertible debt. We repurchased 2.1 million shares of Etsy stock at a total cost of roughly $120 million. Taking a longer term view, you can see in the chart on the right that we've reduced our share count by 17% since December of 2023 through our stock buyback program, delivering significant value to our shareholders. Moving to our outlook, which assumes a stable macro environment from where we are now, although we recognize that there is a higher than normal degree of uncertainty about consumer spending into the holiday season, both in the US and overseas. We currently expect Q4 consolidated GMS to be between 3.5 and $3.65 billion, which at the midpoint would represent further quarter over quarter improvement in the apples to apples growth rate. We expect that our Q4 consolidated take rate will be approximately 24.5%, primarily reflecting some seasonality. Consolidated adjusted EBITDA margin will be approximately 24%. reflecting stable, strong profitability for the Etsy marketplace, paired with a significant sequential increase in brand marketing investment at Depop, which will compress margin performance. This investment in Depop is discretionary and opportunistic, arising from our excitement about the scale and growth of the apparel resale market, as well as Depop's own very encouraging momentum. As the business is now at an annualized run rate of... EPOP's nearly 60% year-over-year GMS growth in the United States is built on top of similarly strong growth in both buyers and sellers. And we see a meaningful opportunity to increase awareness and penetration across a broader demographic range of buyers that are coming into the vintage and resale markets. Thank you all for your time today. I'll 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've been promoted, you will hear your name called and you may unmute your video and audio 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 Maria Rips with Canaccord. Please go ahead.

Good morning. It's great to see you. Thanks so much for taking my questions and pretty congrats and Josh, best of luck with the transition. I guess I just wanted to ask about your open AI partnership. Is this integration available to all US sellers and how do you prioritize listings that are included? And maybe secondly, can you maybe help us think through sort of the performance fee? Since Etsy is covering this fee, is it fair to think about this sort of as extension of your off-site ads? Or are there any sort of transaction costs on your end that you will not be incurring sort of to compensate for this additional fee? How should investors think about this?

Great, yeah, I'm happy to start. Thank you, Maria. First of all, we are incredibly excited about the opportunity for Etsy in a world of agentic commerce. And being the first partner to partner with OpenAI, we think is a demonstration of the fact that we see a ton of opportunity where many others in e-commerce, I think, are feeling the need to play more defense. For many people in e-commerce, they're selling the exact same product that's for sale in many other places. And it just becomes a game of who can sell it cheaper and ship it faster. And agentic commerce is going to unearth that for for buyers. Etsy has something genuinely unique and different to offer. And so we think it's incredibly exciting that this is an opportunity for many consumers to raise consideration of Etsy and a lot of purchase occasions where they may not have. thought of Etsy and for the big model builders, they're interested in really unique pools of data, which Etsy offers unlike most and a really strong engineering culture that can actually keep up with them. And so our ability to be at the front edge of this we think positions us really well to help shape what agentic commerce can be, what kinds of data they're ingesting, how they're presenting it to their buyers, how our brand is presented, for example, which is very important to us. And so, you know, being at the table early, we think is really critical. Maria, specifically to your questions, OpenAI and the others will scrape Etsy and organically provide Etsy listings as part of their organic experience. But if you want to actually purchase, the way that works, we provide a data feed directly to OpenAI that they consume. And the products that are in that data feed, which is the substantial majority of Etsy's products, that actually allows a buyer to actually complete the transaction within OpenAI. And importantly, that still goes through Etsy's payment rails. So it still shows up as a guest checkout on an Etsy customer. And it's very clear to the customer that they're buying from Etsy. We pay a commission, a success-based transaction fee to OpenAI for each of those purchases. And it's not unlike what we would pay to an influencer, for example, or an affiliate. So it's a CPA-based transaction fee. At this time, we are not passing that through to our sellers. So it's not part of our offsite ads program. And we'll consider, as time goes on, how to think about that.

Your next question will come from Steve Forbes with Guggenheim.

Good morning, everyone, and congrats all around. Maybe for Kruti and Josh, maybe love to hear maybe from Kruti on this one. Given the recent changes, you mentioned sort of improvements in engagement on the app. I'd love for you maybe to just expand on that, sort of what you've seen on the engagement front given the changes in screen real estate towards discovery. And I'm curious, any initial thoughts on how the recent learnings are impacting or informing your product development plans for next year as we continue this return to growth journey and hopefully continue to see GMS trends improve next year?

Sure, I can start that out and then feel free to add on. So on the app side, you know, as you mentioned, we've made some meaningful investments in reshaping what the home screen looks like. And that's really intended to deliver on that first priority that we talked about, showing up in a way that really enables discovery on Etsy. And so what you've seen is that We've gone from what was essentially trying to guess exactly what it is that you wanted when you first opened the app to now giving you multiple windows and doorways into Etsy. And so you'll see that at the top of the home screen with that central hub that we mentioned where you can... not only pick up where you left off last, but look at things that are like what you favorited before or items that you've added to a collection before. And then below that, we've invested in ML to power a much more discovery focused feed of items that are really intended to anticipate what else you might like next that you haven't necessarily engaged with in the past. And that's been basically through leveraging new ML models that are really deciphering what interests you as a buyer might have and then connecting that to what items match those interests. And we're seeing a meaningful uplift in the engagement in the home screen, particularly through that feed. And we're really encouraged by that. How this is playing into our product development plans more broadly, we're really encouraged by the progress that the teams have made very quickly against all the core priorities, the strategic priorities that we've laid out. And we're really encouraged by the early traction. that we're seeing from them. We're seeing really great momentum and early indications of growth across metrics. And so what that does is that gives us confidence in the priorities that we have set and continuing to deepen our focus in those as we go into next year. Really, these four priorities address accelerating the entire flywheel for us through driving discovery, engagement, and connection in ways that we think are going to affect all of the metrics that drive our marketplace growth. And so the early traction that we're seeing is encouraging and indicates that we'll continue to invest across these four priorities.

And a couple of nuggets we gave in the call, people who've downloaded and are using our app visit five times more often than people that are web only. And in each of those visits, on average, they see three times as many pages. So they're visiting more often and their engagement is a lot higher. And as Kruthi's talking about that flywheel, that gives us an opportunity to get to know them so much better so that each visit we're able to become a lot more personalized. And we've talked for so many years about the consideration opportunity at Etsy, that people think of us for home furnishings, or they think of us for clothing, or they think of us for gifts. And we want them where we can serve so many of their needs. And of course, you can buy TV ads saying, think of us for lots of things. But the best way to do it is when you're on Etsy to show you not only the thing you came for, but also to expose you to really cool things you didn't even think to ask of. So you broaden your understanding of Etsy. And that's the flywheel where we're encouraged by the early results we're seeing from these efforts.

I'm going to pile on just to say that all of that also is powering our own media channels. And so the data that we're gathering about those app users, when they're visiting much more frequently, when they're looking at many more pages, when they're responding to the ML prompts that we are providing to them, is helping us profile them, which is helping us better target our outbound email and push notifications, which are quickly becoming more a really prominent and very high return marketing channel for Etsy. So the flywheel connects through the marketing as well.

Perfect.

Okay.

Okay. We love that question. Thanks, Steve. All right, next.

Our next question will come from Ana Andreeva with Piper Sandler.

Great. Thank you so much for taking our question. And let me add my congrats as well to Kruti and Josh. Josh, you will be missed. But yeah, congrats, guys. We had a follow up on the guide for the fourth quarter. So great to hear about the sequential improvement at CORE, ETSI, GMS. Are you seeing further improvement here in 4Q, just given the momentum of the initiatives? and the easy compares that the business is lapping. And just curious, talk about maybe how you approach the holiday, any specific opportunities for the business. We had a shortened holiday last year, which was not a positive. What could gift mode do this year? So curious on that. And then, Kruti, maybe it's early for this question, but Etsy's profitability is some of the highest among the peer set. Just strategically, do you think there's an opportunity to invest more just to reignite growth even faster? Or do you think it's important to preserve profitability?

Let me talk first about the outlook for the fourth quarter GMS. As we said, the consumer outlook remains uncertain. There's probably a higher degree of uncertainty around the consumer going into this holiday season than there has been for some prior seasons anyway. But our assumption is that the consumer health stays about where it has been year to date into the fourth quarter. So that's the underlying macroeconomic consideration. When we look at the progress we've made since the start of this year to where we are today, we believe a lot of that progress has been in reflection of the things that we've done on the initiatives that Kruthi talked about earlier. And we expect to continue to make that progress into the fourth quarter. So as you look at the ranges that we've outlined for the fourth quarter, as Josh said in his prepared remarks, at the midpoint of the outlook range, it would equate to a further sequential improvement in the year-over-year growth rate for a consolidated picture, as well as for the Etsy business. And we think that we provide a range. At the upper end of the range, it would probably be in a healthier consumer and more progress in our own initiatives. And the lower end of the range might mean a little bit more challenging consumer environment. We've really tried to provide you the best picture we have today with what the fourth quarter looks like. And that's what's put into our outlook.

For our holiday season, we've got a really exciting campaign plan that really leans into the humanity of Etsy. What makes Etsy really different than the fact that you are seeing what's special in the other person and recognizing what's meaningful in the other person. It's a really great set of campaigns that will be reaching people where they consume media now, which is very different than where they have in prior years. So we're really excited about that. And on gift mode in particular, it's really now deeply integrated into search and the core home screen. And so instead of having to go to a separate tab for it, it's really integrated into the core experience. And as we're getting better and better at recommendations with these new ML models, we're also getting even better at finding the perfect gift for you, both through edited and curated gift lists and then ML just for you. So we're super excited about that.

And then on the last part of your question, it is early to comment on the specifics there, but what I will say is that we have seen the profitability of our marketplace as a real strength of our marketplace, and we've always been really disciplined and thoughtful about our investments. And so I would point to Depop as a really great example of where we've been willing to make deeper investments where we think there's a lot of opportunity. And just to step back and talk about that for a moment, I'm really proud of what we've been able to accomplish at Depop. We went from three years of flat GMS to two years of accelerating growth. And over that time, we nearly doubled the scale of GMS and the number of active users and tripled the number of listings on the platform. And I think all of that goes to show that we've really achieved incredible product market fit. And the growth is not just momentum, it's sustained growth based on that product market fit. And so this is really the perfect time to be making that step up in investment against marketing DPOP to really increase the exposure that we're giving to people who may not have heard of DPOP before, but for whom the value proposition is really relevant and will resonate. And so I would just look to that as an example for us of when and where we think there are really great opportunities to invest more. We will absolutely take them. And we continue to see our profitability profile as a strength of the business. Perfect. We got all your questions in, Anna.

Thank you. Next one.

Your next question will come from Brian Smilick with JP Morgan.

Great. Thanks for taking the question and congrats on seeing the good improvement in execution overall. Kruthi, as you step into the CEO role, can you just elaborate a bit more on how you strategically are thinking about driving sustained GMS growth here? Is it more of the same execution or leveraging the DPOP playbook across product marketing or is there just anything else to keep in mind? Thank you.

You know, you're right. My focus is squarely on delivering robust, sustainable growth. And that has been my focus since the moment I stepped back here at Etsy from Depop. And so one of the nice things about the way that this transition is playing out is that I've had the ability to really lay the groundwork for growth over this last year. So you're already seeing the investments and the changes that we think are going to be really critical to driving growth next year and over time. You know, the way that I would think about it is that we stepped back and said, what are the things that we really need to do to strengthen the value proposition of Etsy for both our buyers and our sellers, our entire community? That's what really underpins the core strategic priorities that we've laid out. Really driving that flywheel of discovery, engagement, and connection, all with human connection at the center of what makes Etsy different. And I think we all feel very encouraged by the quick progress that we've made, the quick time to market against many of these priorities and the early traction that we're seeing. We are excited about the traction, but we're far from satisfied with the growth that we're seeing. So there is a ton of potential ahead. And because we see these working, you can expect us to continue to invest in these strategic priorities going into next year. Great. Thanks, Brian.

Our next question will come from Eric Sheridan with Goldman Sachs. You may now turn down your camera and audio and ask your question.

Thanks so much for taking the questions. Just wanted to come back to loyalty and rewards and sort of build on that as a broader conversation piece. What have been your key learnings so far as you've rolled out more loyalty on the platform? How do those learnings inform the innovation or iteration of loyalty you're announcing today that looks like it's going into beta this week? And how should we think about the GMS opportunity attached to loyalty over the longer term? Thank you.

Sure, I can start on that. Please feel free to add on. So look, at the core of this priority around loyalty is the idea that Etsy should get better and better for our customers as they use it more and more. That's true for buyers and sellers, but let's talk about buyers in this case, since you asked about the loyalty program. I think there are two main ways. that Etsy can feel like that, can feel like it's getting better as you use it more. The first is what we were talking about earlier, which is our investments in personalization. It's really the number one way that we can show our buyers that we really understand them, that we're paying attention to all of the signals that they give us, And that that's informing an experience that feels really tailor-made just for them, that we think drives engagement, the ongoing engagement and loyalty over time. Another piece of that is our investment in the Etsy Insider Loyalty Data Program. And as you noted, we're evolving that program into version 2.0 of our data. What we learned from the initial version is that the rewards that we offered both drove adoption of the loyalty program and drove a meaningful uplift in frequency of engagement and purchasing. And so that was a really important learning from this first version. What we're changing in this next version is we're really reorienting it to really focus on our more frequent buyers. So again, to that point of making sure it feels like you are recognized and rewarded for the time and investment that you make in Etsy. And so the changes that we're making are really around the reward structure, so that the benefits that you get are benefits that you experience with every purchase. So shipping discounts on every purchase, rewards, Etsy credit back, on every purchase. And what we're looking for is, again, to see continued adoption, frequency of engagement, frequency of purchasing, and over time, renewal rates in that loyalty program. So that's the goal. And as we learn more, we'll show that.

I would just say, thinking about the GMS opportunity, I would start out by thinking about Etsy generating $120 in GMS per buyer on a 12-month time frame. And our opportunity to increase purchase frequency through rewards and through incentives and through retention benefits That's a huge lever for us. We feel like that number of, you know, we know we've got plenty of customers who are spending five and 10 times that amount with us in a given year. And we're lining up programs and marketing and communication, personalization, all these things to induce more of our customers to think of Etsy earlier on. And the leverage point really comes back to that GMS per buyer in the long term.

Great. Okay, next question.

Your next question will come from Yusuf Squally with Truist.

Excellent. Thank you guys for taking the questions and congrats all around. So maybe first question for Josh or Kruthi, and this is really follow up to the prior question, but how do you balance the push for traffic from these gen AI platforms versus maybe direct slash mobile, where arguably the value that accrues to Etsy over time is higher. And then Lanny, can you maybe unpack a little bit more the nature of the investments planned for Depop in Q4, which will compress margins near term? Is this a one quarter type of phenomenon around the holidays, or is this more structural going forward? Thank you.

I'm happy to start with the agentic commerce. You know, the great news for Etsy is I don't think that it's a zero-sum game. I don't think it's an or, I think it's an and. I think people are going to shop agentically sometimes. And when they do so, I think the smart agents are not going to say, here's the answer. Very rarely is there one right answer. I think they're gonna provide a range of choice. They're gonna say, for example, this is the cheapest thing you can buy. This is the thing that will arrive the fastest. And this is the thing that's most special or unique. And in that offering of here's a few curated choices, I think disproportionately Etsy is going to be presented and is going to win. and a lot more often than consumers on their own might have bought of Etsy. And in all of those presentations, whether they buy that particular thing from Etsy or not, they're gonna be constantly reminded, oh, Etsy has something to offer for you. And those customers are also gonna go and launch their app. It's gonna prompt people to think, oh, Etsy is so relevant for me so often. And I don't think in any near term future, people are going to, most people are gonna exclusively shop by agents. They'll use agents sometimes and they'll continue to use the app sometimes. And I think it's going to actually be a virtuous cycle that accrues disproportionately to Etsy's benefit.

And in terms of the marketing investment, thanks for that question. You know, Kruti said earlier, this is a really big market. We have a strong position. We have a product at Depop and a value proposition that we feel really good about. And it's an opportunity right now to really make this business quite a bit bigger and more valuable now. in the long term. And we're going after that pretty aggressively. The big opportunity for us in the near term, Yusuf, is to expand the awareness of this great product and of this great service. And so it's a brand campaign. It's not going to be concluded in three months. It'll carry over into the first half of next year. It'll take some time, frankly, for us to be able to really assess how we're performing. And we're committed to staying with that brand investment through the time that it'll take to be sure that we're really expanding awareness of that product. We really like the long-term opportunity here. So it'll be, it'll compress margins in this quarter and we'll continue to make that investment going forward. Now, if things look a lot better than we thought, we might step it up. If it doesn't look like it's going as we expect, we can be very maneuverable on our spending there. But our intention right now, given where we are and what we see in this marketplace is to invest there for the longer term play in that business. Over the last couple of years, as we've leaned into the product and improved it and grown users, and they've grown really quickly, that business has demonstrated an ability to deliver very high percentage of incremental revenue growth down to the bottom line. So we know, trust, and believe in its long-term profitability. We just really want to change its scale.

The cool thing on that is, there's a huge opportunity for the core Etsy business in the future, but there is also a huge opportunity in Depop. Can Depop be the Venmo to our PayPal? Depop, I think we think can be on its own a multi-billion dollar asset. And so what you're seeing is us take a discrete amount of investment dollars to invest in marketing, We think it's got a good chance of working. We'll be measured and disciplined about how we track progress there. If it doesn't work, we can turn it off. But we think it's likely to work, and we think there's huge potential for DPOP.

All right, next question. Your next question will come from Shweta Kajuria with Wolf Research.

Oh, Shweta, you're on mute, Shweta.

Shweta, it appears your microphone is open, but we're not able to hear you. You might just need to select a different input. Please click the up arrow next to your audio icon and select a different microphone. We're still not hearing you, Shweta. Why don't we go to our next questioner, and we will return to you. I'm back. Oh, there we go. We've got you. Oh, no. I'm so sorry, Shweta. We do not. All right. We'll come back to that if we can. OK. One moment. Our next question will come from Nikhil Devnani with Bernstein. Just a moment while Nikhil rejoins us. All right, Nikhil, feel free to unmute and ask your question.

Nikhil Devnani Hi there. Thanks for taking the question. And Josh, thank you for all the help over the years. And congrats to Kruthi as well. I wanted to follow up on the OpenAI theme. I think there's clearly some benefit that you and other marketplaces can realize in terms of incremental traffic and engagement and GMS, but investors are starting to worry longer term about what this means from a retention of buyer perspective and what it means for direct traffic and core profit pools for businesses like yours with onsite ads. So when you evaluated this partnership, how did you kind of think about the risk reward longer term of something like this?

Yeah, you know, I think Etsy is different than a lot of places in that we have a lot of confidence in our value prop and we have a lot of confidence in the importance of our brand. Etsy is a community of over 5 million unbranded sellers selling unbranded items. And we know that when they set up their own shop and try to market themselves, it's very, very difficult for them to rise above the noise. But the Etsy brand next to their shop really helps to instill confidence in buyers and helps to elevate their product, their shop. So we know that Etsy as a brand should be pulled through in the agentic experience. And when you're shopping with an agent, you want to see it's this seller powered by Etsy. And we have a lot of confidence in that value prop because we've seen it tested in the real world. So we know it makes sense to pull the Etsy brand through and have the Etsy brand be prominent. It's also been my experience from decades of doing this that customer behavior changes much more slowly than people think. We will have an app, I believe, for many years to come and people are going to shop agentically and both are going to be good and both are going to be complimentary. The great news here is that We think Etsy really does genuinely add a lot of value to our sellers and to our buyers. And I think that the agenda commerce is only going to help make that more prominent to customers and be a real win-win for all of us. The other thing is our position being an early adopter. which comes from the fact that we have such a large set of inventory and a strong engineering culture, means we're really at the table to help shape what this experience can be. How is it presented to the buyer? What do the economics look like? We are really at the table there. And I think that is exactly where you'd want to be in such a titanic ship like this.

Yeah, one thing that I would add there is if you just like getting into the mindset of the consumer for a moment, it's really important that we are showing up where they are discovering. And this is a really great example of that. I think that we will continue to evolve as shopping behavior evolves. This is a great example. Josh, we mentioned earlier that the importance of our brand showing up in those moments, both to give buyers trust in the shops that they're looking at, but also every interaction through any channel, including agentic shopping, is a reminder of Etsy and the brand so that the next time you're shopping, you're reminded to consider Etsy. So we think that it actually creates a real virtuous cycle, whatever channels shoppers are shopping on.

Great.

All right. Thank you.

Next question. Hopefully we can get Shweta back.

Yes, for our next question, we'll return to Shweta.

Yikes.

Unfortunately, we still cannot hear you, Shweta.

Can she type it?

Yes, unfortunately, we still cannot hear you, Shweta, so we are going to go to our next. For our next question, we'll go to Igalarunian with Citi.

All right. Morning, guys. Josh, we'll certainly miss working with you and Groothy, congrats on the new role. Let's see, maybe just a quick follow-up first on the Gentic AI opportunity. And first, do you think, well, actually, I guess, first of all, I know it's super early. This might just be a very annoying question, but are there any early insights to what you've seen with the partnership so far? Things like cover rates or, you know, average selling price, things like that. And is there an Etsy ads or off-site ads opportunity with this as well? And then a follow-up question, just with the trends overall getting better here and starting to see some nice progress, I know we've moved away sort of from the house of brands mentality, but just wanted to get updated thoughts on M&A capital allocation. If there's more opportunities to just kind of the digital resale market, you know, grow here to kind of tag along with Depop. Thanks. I can take the opening if you want to keep it open. Sure.

So, yeah, not an annoying question at all. We're tracking very closely what's happening with data. the data from from Gentic Commerce. So what I'd say is, you know, with the with the partnership, we definitely saw a spike in, you know, purchases from that, but off of a very, very small base. And so good growth, but off a very small base. The early data is that the traffic coming from agents is higher intent than traffic even that we normally get from search. So the conversion rate is even higher. However, I would again emphasize that it's a very small data set still. And so while we are very optimistic about this over a period of years, you know, it's still very early data.

And from the capital allocation and your question about M&A and how's the brands, we've got two incredible brands in Etsy and in Depop. And if there were other brands that were similarly interesting and attractive, exciting to us, we might look at them. But we've been buying back our stock pretty aggressively over the last couple of years with a belief that the brands that we have have tremendous long-term value in them. We've changed the momentum, we believe, at Etsy. And we're not satisfied with where we are, but we've made some progress. And we think we've got the plans to get Etsy business into a stronger, long-term, sustainable growth mode. And Depop has got great growth under looking back and this really attractive opportunity right now for us to deploy more capital into it. I guess what I'd wrap it up by saying is we really like our financial resources, and we really like the assets we have, and we're going to keep leaning into them very aggressively right now.

Okay. Operator, I think we can get one more in. Your next question will come from Robert Coulbreth with Evercore.

Great. Thank you so much. Josh and Kruthi, congratulations to both of you on the transition. A couple questions. So just on the agentic commerce, Krithi, you spoke during the call about the tailwinds you're seeing from improved buyer understanding. Just wanted to ask if you think there's a continued opportunity there in agentic context. Do you think there's going to be a meaningful sort of agent-to-agent communication and associated optimization opportunity in those channels over time? And then, Lani, a quick follow-up. Can you just maybe help us size a bit the exogenous factors, the de minimis impact to the extent you saw it over the course of Q3. Thank you.

Sure, so I can start with, look, we think there are a lot of exciting possibilities ahead, both what you mentioned and others that we haven't even considered yet. I think our investment in deepening buyer understanding is going to serve us in any of those paths ahead with whatever opportunities present. The team has done a really incredible job moving very quickly to take advantage of the evolving capabilities of AI and LLMs to really deepen our buyer understanding in a way that is showing up most prominently right now in terms of the models that we're deploying on-site, so in our on-site and on-app experience, both across search and recommendations. And so those are some of the improvements to engagement that I mentioned earlier, especially on the app and some of the improvements to conversion on search and ads that I mentioned in the pre-recorded remarks. So we're excited about the possibility that that deepening buyer understanding opens up and we'll certainly leverage that as new opportunities come up in channels like a Gentic search as well.

Can I just build on that for just a sec? One of the ways that customers are trained right now is to give three keywords or two keywords. And Etsy has just an unusually vast amount of inventory of really neat things that are relevant. And people are suddenly being trained to give paragraphs of information and context. And that's going to be exceptionally helpful to us in getting you to the very perfect thing. So we're super excited about that.

On a quick tour of exogenous factors, the foreign currencies were about the same in the third quarter as they were in the second quarter. The competitive dynamic continued to allow us to gain opportunistically some search market share, as we described. And from a trade and tariff perspective, we've seen the resilience in that marketplace of stronger growth in U.S. domestic with a little bit slower growth in the international imports in the United States right around the couple of weeks of the end of the de minimis exemption, we saw a little bit of pause in the marketplace, but that came back and was a very modest headwind for the total quarter.

Great. All right. We are at time. Thanks, everyone, for your time this morning. Thank you.

Thank you.