Etsy, Inc.

Hi, everyone, and welcome to Etsy's first quarter 2021 earnings conference call. I'm Deb Wasser, Vice President of Investor Relations and ESG Engagement. And joining me today are Josh Silverman, CEO, Rachel Glazer, CFO, and Gabe Ratcliffe, our Director of Investor Relations. Today's prepared remarks have been prerecorded. The slide deck has also been posted to our website for your reference. Once we are finished with Josh and Rachel's presentations, we will transition to a live video webcast Q&A session. Questions can be submitted by the Q&A window chat displayed on your screen. Feel free to use it at any time, as it will remain open throughout the entire conference call. I'll be reading your questions, and Gabe will help me try to get to as many as we can. Please keep in mind that our remarks today include forward-looking statements related to our financial guidance and key drivers thereof, the impact of COVID-19 or its abatement may have on our community's business strategy or operating results, the potential benefits of our marketing and product initiatives, and the anticipated return on our investments and their ability to drive growth. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, which are described in today's earnings release and are 10-K filed with the SEC on February 26, 2021, and which will be updated in any future periodic reports 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 GAAP and non-GAAP financial measures. Reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with the replay of this call. With that, I'll turn it over to Josh.

Thanks, Deb, and good evening, everyone. Q1 was another really strong quarter for Etsy in terms of its financial results and also in terms of its corporate citizenship. I'd like to start this evening by talking a little bit about some of those citizenship efforts. Etsy continues to speak out against racism and harassment. For example, in the first quarter, we donated $500,000 to support the AAPI community, and we continue to invest in highlighting the wonderful work of many different underrepresented sellers within our buyer community. For example, our partnership with the Gee's Bend quilters from Alabama. I'm delighted to report that many of the Gee's Bend shops sold out within the first 24 hours of the launch of that initiative. Etsy also launched Donate the Change, where buyers can round up to support the Uplift Fund, which provides a path to entrepreneurship for many different communities. And we had over 1 million buyers round up to support the Uplift Fund in just the last six weeks of the quarter. Third, ETSI continues to deepen its commitment to environmental sustainability, announcing our goal to be net zero by 2030. This continues to pave our pathway as a trail breaker with one of the most ambitious targets of any of our peer group. As I said, our Q1 results were excellent. Consolidated GMS was $3.1 billion, up 128% year over year. And that's really the result of strength in the core and continued positive momentum in frequency. You'll also notice that we came in above the top of guidance, guidance that we gave in late February. Most of that overshoot relative to guidance was due to the impact of stimulus, and Rachel is going to talk about that more in her section. The core business did great in Q1. Our customer cohorts continue to show that we're driving increased frequency and engagement from all of our different buyer segments. Etsy added 16 million new or reactivated buyers in the quarter for a total of 90 million active buyers, up 91% year over year. And I'm particularly pleased that our fastest growing segment yet again was habitual buyers, our most loyal and engaged buyers. We now have 8 million habitual buyers, and that was up 200% year over year. Building on this expanded base, we are laser focused on driving frequency. And, of course, frequency can be driven in part by your marketing initiatives, things to make you more front of mind for customers. But it's also critical that we have a customer experience that in and of itself is engaging and drives activity. And so we've been launching efforts across the spectrum. And to pick just a few, quizzes are something we launched recently. And that allows a buyer to come and tell us more about their particular tastes and their particular interests in a light and fun way. That not only makes that visit more engaging in session, but it gives us important information to help bring that buyer back more often to have more satisfying experiences in the future. We've been working a lot on buyer triggers as well, things to notify people through app pushes, through emails and other things that there's something new or interesting that's happening. For example, that an item you've favorited in the past has gone on sale. And when they come back to the site, we've been investing in an updates tab in the app. Think of that as your daily feed for what's changed since you've last been here. Maybe an item you've left in your cart has gone on sale or here's some new favorites that you might be interested in to add to your list. It's very encouraging to see that now 13% of app visits include a visit to the updates tab and 27% of those visits have buyers clicking on one or more of the listings that we include in updates. And the fourth pillar is strategic discounting, where we've launched a tool that allows our team to rapidly test and then automate and scale different types of discounts to very finely tuned customer segments. So $5 off, for example, on your next purchase. I've never been more excited about our product roadmap. We continue to make investments that we believe are driving long-term value, making the customer experience better. I know we show you this slide a lot, but it really is how we drive focus and prioritization within our product. organization focused on each of these four pillars. We start within each pillar by saying what customer experiences do we want to focus on to truly uplift? We then ask what are the fewest initiatives that could have the most impact in those customer experiences? And then we assign very specific goals. So it's clear what success looks like. And here's what your constraints are to squads who are owned, who own the success of those different initiatives. So let me take a second now to show you the priorities within each of these four pillars for 2021. Within search, we have four focus areas. Personalization is about making Etsy feel more like it's made just for you. Buyer pathways is about making it easier to find the things you want, whether or not you would actually put a search query into the search engine and making sure that we have few and hopefully no dead ends. Closing the semantic gap is about taking what you happen to enter into a search engine and interpreting that for what you actually meant you wanted. And of course, all of this relies upon an infrastructure that is fast and reliable and scalable. Double-clicking on personalization, just to show you an example of that pillar. We launched the ability to personalize the search results recently, and we're seeing really encouraging gains from that. But we're still very much in early innings, consuming more data to understand more about what that customer wants, and then delivering through more sophisticated models ever more personalized search results. But it doesn't end with just the search results themselves. We actually believe that over time we can customize the entire experience. So here you see an example of how the layout itself might be different for two different customer segments. And our ambition over time is to create ever more finely tuned customer segments that are built through multivariate models powered by machine learning so that Etsy truly feels made just for you. I'd also highlight on this slide a couple of the infrastructure improvements that have led to material gains in the past quarter. For example, the search infer team made the search results faster, which resulted in increases in click and conversion rate, and were able to expand the search results for long tail queries, leading to more satisfying buying experiences there as well. What makes the Etsy marketplace truly special is that every item and every seller has a story, and a story you'd actually be interested to hear. And there's nothing more powerful than video to help to tell that story. We also encourage conversations directly between the buyer and seller, something you'll see in few, if any, other marketplaces, because those convos help the buyer and seller to co-create, personalize or customize, or even just to form community. That's one of the things most different and special about Etsy, and we think investing in this pillar is critically important. One example of where we're leading in is in video itself. Sellers have now uploaded about 5 million videos to the Etsy site. That's up 36% quarter over quarter, and we're seeing very encouraging progress when a listing includes a video that buyers engage with it more, click, and even convert more. But the listing page is only the beginning of where we can be using video to tell the story of Etsy, tell the story of the item, and to help people to engage even more often throughout the site. So expect to see more video in more places, making the Etsy experience even more dynamic. The third pillar is trust. And we have four focus areas within trust. First is speed expectation. That's making it very clear when you can expect the item to arrive. Second is delivery predictability. Where is this item in the fulfillment process being made or currently being shipped? Third is issue resolution, making it even easier to access support and know that we have your back on the rare instance that something goes wrong. And fourth is seller reputation. This is around giving sellers even more visibility into how they're performing versus key customer satisfaction metrics, as well as setting the bar for what good looks like. so that we create more of a sense of agency among the sellers for how they can drive success in their business and create a race to the top where the buyer experience improves as a result for all of our buyers. Taking seller reputation as an example and showing how we can apply that to fulfillment, on the left you see a new dashboard we've launched within the seller dashboard. And here it shows the seller very clearly which items are expected to ship today, which ones ship tomorrow, which ones ship next week. So they know exactly where they should be focusing their time and energy. We've also been focusing on dashboards that show how they're doing versus fulfillment expectations relative to our expectations of what good looks like. So that, again, they focus their energy and we've set the standard together on how we can deliver a consistently great customer experience to our buyers that feels predictable for all of our sellers. The foundation of Etsy's right to win is our seller's collection of unique items. I know I've told you in the past that 90% of buyers report that they come to Etsy for items that they can't find anywhere else. And in fact, one of the most special parts of Etsy is that most things on Etsy can be personalized and customized. And in fact, we find that buyers are 20% more likely to make a purchase when they're looking for customized or personalized items. So a focus for this year is going to be even more personalized. specifically highlighting and showcasing items that can be personalized and customized, as well as streamlining that process of co-creation between the buyer and the seller. But of course, what good is this great collection of unique items if we don't tell the world about it? In fact, we launched a brand new campaign called Why Buy Boring? And I'd like to pause now to show you one of the spots in that new campaign.

Let's go!