Etsy, Inc.

Hi, everyone, and welcome to Etsy's second quarter 2024 earnings conference call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been prerecorded. Joining me today are Josh Silverman, CEO, and Rachel Glazer, CFO. Once we are finished with the presentations, we 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 Form 10-Q, and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we may 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, and good afternoon, everyone. We're pleased that Etsy's consolidated results came in at the high end or ahead of our guidance. GMS was $2.9 billion, down about 2.1% year-over-year on a consolidated basis. Revenue grew 3% to $648 million, and we posted a very healthy adjusted EBITDA margin of approximately 28%. Etsy Marketplace GMS was down about 3.2% year-over-year, a 210 basis point improvement from our Q1 performance of negative 5.3. Etsy Marketplace's record high level of approximately 92 million active buyers held up very well in another challenging quarter for our type of goods. While we continue to face stiff macro headwinds, we're making meaningful improvements to the customer experience, which we believe are beginning to inflect the curve along our journey to get Etsy back to growth. We also announced today that Rachel is planning to retire. She's been a strategic partner and a key to the tremendous success Etsy's achieved since 2017. I believe every CFO wants to be measured on results, and Rachel has so much to be proud of in that regard. Beyond the numbers, Rachel leads with optimism and heart, helping craft our culture and our team's operational excellence. She's built a strong team, and I'm grateful she chose Etsy to serve as the culmination of her impressive career. Our entire community will continue to benefit from the impact she's made. We're going to have some more time together and we'll stay focused on driving Etsy's success. You'll all have ample time to chat with her over the coming months as we launch a search for her successor. And of course, we'll share updates with you at the appropriate time. As a reminder, our key focus for 2024 is to continue to build consideration for Etsy to help buyers think of us more often by making it easier to find the best stuff, driving association that there are great deals on Etsy and making shopping on Etsy more convenient. We're working to make Etsy more of a go-to shopping destination, and in particular, to really lean into what makes Etsy different and special. And we're making excellent progress in our bold initiatives to do just that. As you know, we've evolved our way of working in 2024 to shift some of our focus from building incrementally better customer experiences to investing in the creation of more big bang, truly engaging experiences and moments onsite and off. Since 2017, Etsy's operating model has been quite unique in that teams were tasked to bank GMS in a very disciplined way to drive valuable incremental improvements to the customer experience. This worked extremely well for us, and I believe has been a key contributor to our remarkable success, including being able to maintain a very large part of our extraordinary pandemic gains. Given our much larger scale and the increasingly crowded and promotional e-commerce landscape, we're now allocating a significant portion of our efforts to bold, integrated initiatives that combine product improvements and marketing in novel ways. We're working backwards from what great customer experiences look like and are laser-focused on driving buyer engagement, not just conversion. I'm really excited to update you about how this new way of working is driving the success of several key 2024 initiatives, including in gifting, our work to highlight quality on Etsy, plans for our new Etsy Insider Loyalty Program, and work to make our Etsy app the center of our customer experience. Starting with gifting, which is proving to be a winning theme, better on-site gifting experiences combined with clear and engaging marketing initiatives for seasonal and evergreen gifting and specific campaigns for product innovations such as our new gift teaser video messages worked together to deliver excellent second quarter performance in this strategic investment area. Site-wide GMS for purchases identified as gifts grew 4% on a year-over-year basis and significantly outperformed the overall Etsy marketplace. Further, Etsy's gifting performance surpassed that of the pure-play competitors we've been tracking for benchmarking purposes, and our U.S. Mother's Day, Father's Day, and graduation performance meaningfully outpaced the NRF's forecasted performance for these events. Video gift teaser messages weren't our only product innovation in the second quarter. We launched gift lists and reminders, allowing you to track ideas you have for a loved one's special event, and then of course reminding you to make the purchase. And new occasion pages, curated for things like anniversaries, birthdays, and so on. In addition to GMS growth, we're utilizing monthly U.S. buyer surveys to gauge the impact of our gifting strategies, and this data shows a significant year-over-year increase in prompted consideration of Etsy for gifts. We're also tracking an increase in perceptions that Etsy makes it easy to find a great gift. Of course, gifting initiatives will remain front and center as we move into the all-important holiday season. Moving on to bold initiatives we're making in quality to ensure we highlight the very best of Etsy, differentiating ourselves in a sea of commoditized merchandise. We stand for keeping commerce human, and we have an enormous conviction that doing this in a way that no one else can is our most important competitive advantage, and that these initiatives represent a tremendous unlock for buyer consideration. We mentioned on our last call that we're using large language models and Gen-AI techniques to better understand both the shopping mission you're on as well as our sellers' inventory along these four key focus areas, suppressing and removing items that violate our policy, upranking better quality listings and search and recommendations, and better curating and organizing our marketplace. I'm extremely proud to report on the fantastic progress our search team is making to move beyond our historical focus on solving for relevancy in search, when you know what you want and can't find it anywhere else, to new initiatives meant to also highlight the best of Etsy and feature the incredible diversity and uniqueness of our sellers' merchandise. In the past, our search algorithms ranked each listing individually based on likelihood to convert, which often resulted in buyers seeing far too many similar items rather than a more holistic set. Here's some powerful data. We roughly cut in half the percentage of searches where a high percentage of listings seen on page one are from a single seller. We reduced the percentage of searches that have two or more listings that may appear identical by over 70%. We're incredibly excited about what this might mean for future visitation as buyers see a more diverse and higher quality set of listings each time they visit Etsy. In addition to helping buyers, these initiatives also support our sellers, given how important it is that we nurture the best of Etsy across our seller base. Our latest search experiments resulted in approximately 70% of shops having more visibility in search, with the share of search impressions from small and medium shops increasing by nearly 30%. Later this summer, we'll empower sellers by giving them more agency and actionable insights than ever before into factors like listing quality and completeness that can impact how they show up in search. Connected to this work and to further allow our sellers unique items to shine, we've made some bold changes to our marketplace to reinforce who Etsy is so that everyone who comes to Etsy understands why we're different and special. We know that people love what Etsy represents as a marketplace that offers original items made by real people. And that being a place that supports small businesses and offers original goods are Etsy's top drivers for consideration and relevance. Yet in the past, the label handmade was the default, applied to any listing which wasn't vintage or craft supplied. even while our policies allow for the inclusion of items that were designed or personalized by the seller but not made with their own hands. This lack of distinction could be confusing for both buyers and sellers. So on July 9th, we announced a series of updates to our listing labels to be clearer about why items belong on Etsy and elevating the role of the seller in the making process. We've labeled virtually all of Etsy's listings along four creativity standards. One, physical items made by a seller by hand or using personal or computerized tools. Two, items designed by a seller using their own designs, yet produced by a production partner. Three, hand-picked items, which can include vintage items, items from nature, and certain collections of items that a seller personally curated for sale. And four, items sourced by a seller, specifically in the categories of craft supplies or party supplies, along with items that are personalized by the seller. We've already seen lots of love from our sellers related to these new standards, with overall high engagement and positive sentiment in our community spaces. Many sellers even amplified the news and shared the campaign on their social media channels. In the spirit of moving boldly as we make these meaningful changes to highlight the quality, diversity, and differentiation of our sellers' most unique inventory and feature the seller's role in the creation of each item, we simultaneously launched a 360-degree marketing campaign touching owned, earned, and paid channels to reinforce Etsy's quality, originality, and humanity. When you shop many of our competitors, you don't know who or where you're buying from. With Etsy, the sweater is stitched by Jessica, the glassware is handmade by Chad, and the table is built by Tiffany. Our new social creative tells a deeper story on the role of our sellers and their love for their craft. We've created dozens of assets that range in style based on the audience, platform, and goal. Here's our new hero brand spot for TV, streaming, and YouTube, which shines a spotlight on what makes our sellers so magical.

What does a robot know about love? How to translate that leap inside the human heart into something we can see and hold. The fingerprints we leave behind show how determined we are to give the world a piece of ourselves. Etsy.