Etsy, Inc.

Hi, everyone, and welcome to Etsy's first quarter 2025 earnings conference call. I'm Deb Wasser, VP of Investor Relations. And joining me today in Brooklyn are Josh Silverman, CEO, and Lani Baker, CFO. Today's prepared remarks have been prerecorded, including comments from our new president and chief growth officer, Kruthi Patel-Goyal. Once we are finished with the presentation, Josh and Lani 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 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 morning, everyone. Thank you for joining us. As we're navigating our business through fairly unprecedented and incredibly dynamic times, I feel grateful to be part of the team here at Etsy, where our marketplaces support entrepreneurial sellers whose products resonate with and are truly loved by consumers, offer differentiated and non-commoditized merchandise, feature remarkably responsive and diverse supply, which has demonstrated powerful resiliency over multiple major global economic and supply chain shocks in recent years, where best-in-class talent comes to work every day, drawn by our positive impact helping to drive success for creative entrepreneurs, and who are working with urgency to get us back to growth, and where we have the security of an extremely strong financial foundation. ETSI has a strong track record of navigating turbulent macroeconomic conditions, and we're confident in our ability to keep adapting. We're staying nimble and leaning into our strengths so we can provide a global haven for self-expression, even in uncertain times. I also feel fortunate to have our new leadership team in place, including Rafe Colburn, who rejoins the Etsy marketplace as CTO after two years of helping Depop achieve tremendous success. We believe that we have a deep bench of seasoned pros who can lead with confidence. Moving to our first quarter 2025 results, Etsy's performance was in line with the outlook we shared in February, and we came in a bit ahead on take rate and adjusted EBITDA. Lani will explain the results in more detail a bit later. I'll spend most of my time today reviewing the progress we're making on our journey to reignite core Etsy marketplace growth, followed by Kruthi, who will share early insights on how she's thinking about Etsy's go-forward opportunities. Our teams are executing a balanced portfolio of product investments to drive in-year GMS improvement and materially evolve the overall Etsy customer experience. We believe these efforts are beginning to fuel a stronger customer relationship flywheel, powered by new experiences that capture more and better data, which feeds advanced artificial intelligence and machine learning to deliver deeper personalization to drive buyer engagement and frequency over time. Stepping through the spokes of the flywheel, first, we're working to evolve our app services to be more browsable. Our new Shop tab makes it easier than ever to browse and navigate more than a dozen categories and to shop by key purchase occasions, such as gifting and weddings, even and especially if you arrive not knowing exactly what you're looking for. I'd encourage you to check out these experiences. Last year's gifting initiatives showed us just how much buyers respond to curation, such as our gift ideas and lists, a learning that directly shaped current efforts to supercharge overall discovery on Etsy. On April 9th, we launched a new discovery-centric shopping experience, which you may have seen featured at the recent Google Cloud Next conference. This experience leverages what we call algatorial curation, a powerful blend of AI-driven scalability and the know-how of our world-class merchandising team. Etsy experts spot the latest trends and find high-quality, relevant items. Then, our engineers use machine learning to scale the collection's listings. And finally, LLMs help align the aesthetic cohesiveness of the collection. so that it includes a variety of products and meets our standards for quality listings, benefiting from last year's quality efforts. Now, millions of buyers can see beautiful, scroll-friendly collections tailored to trends, styles, and occasions, showing the world of possibilities on Etsy. Recent AI advances enabled us to build an experience where the trends a shopper sees and the items that appear highest for them within each curated collection are based upon their individual activity, including purchased and viewed items. We're just getting started creating truly personalized browsing and discovery journeys and believe it will be genuinely game-changing for Etsy. I'm excited to tell you about the real progress we're making on our mobile app. In the first quarter, buyer conversion rate on the app increased year over year, and the app GMS significantly outperformed non-app GMS. In fact, the app reached an all-time high of 44.5% of total Etsy marketplace GMS. We saw an upward year-over-year trend in monthly active users and increases in app downloads for first-time users. And the app's more browsable design means we're collecting more and better insights into customers' interests, inclinations, tastes, and habits, all of which can be fed into smarter, more powerful LLMs to generate even more engaging and personalized experiences over time. Second, alongside our browsable content, we've made significant improvements in how we get to know our customers. Previously, we only looked at organic search data to power our search models. Now we're working to also incorporate ad and recommendation data. This is already giving us about a third more data so far this year compared to our previous siloed approach. This is leading to deeper insights, better model training, and closer ML team collaboration. We're also improving our ability to recognize individual shoppers even if they haven't signed in. We're better connecting the dots between first and third party data to more accurately predict buyer LTV and tailor engagement and retention strategies for different segments. This will help us create an Etsy that will ultimately feel like your personal boutique every time you visit us. We're already seeing signs of success here. Our personalized homepages get nearly double the engagement of non-personalized homepages. And with the help of machine learning, during the first quarter we increased the share of personalized email and push notifications by over 10 percentage points, with A-B tests confirming a clear lift in engagement compared to prior, more generic content. We also conducted our first-ever testing of GenAI-created personalized marketing copy in Q1 and are optimistic that this can unlock significant gains in the quarters to come. We also had some other wins in the quarter to further fuel the flywheel. For example, we enabled Etsy experiences within third-party AI-based shopping platforms, including participating in the research preview of OpenAI's Operator and enabling in-app purchase in Microsoft Co-Pilot. We believe that being selected as early research partners for both of these top agentic AI products is indicative of our unique and compelling offering, which is quite exciting as they potentially become more prevalent in helping people to shop. We're encouraged by the trends we're seeing in terms of increased user engagement, outperforming GMS on the app, and stronger contributions from owned marketing channels, such as push notifications and other more personalized strategies, as well as in paid social. Much of the progress we're making is just the tip of the iceberg of what we're creating in terms of new customer experiences, and we expect these to stack over time and support future growth. I want to take a few moments, particularly with global tariff regulation still in flux, to revisit what makes Etsy unique and special. First, sellers in our marketplace include over 5 million creative micro entrepreneurs from around the world. Most are solo entrepreneurs working from their home, with 90% sourcing their supplies domestically. Second, the diversity of listings on Etsy is massive, with more than 100 million items touching well over 100 retail subcategories. And historically, we've seen high replacement rates. If one item isn't available, something similar very likely is, meaning that if there are bottlenecks in one part of the world, we have sellers elsewhere who can fill the gaps. For example, right now there are more than 60 million items available to ship from U.S. sellers alone, with thousands of sellers in every state. And third, our business model has been especially resilient in times like these. We don't manufacture, hold, or price inventory, and sellers pricing on Etsy has been relatively stable over time, even during times of major price volatility elsewhere. Our model has proven its strength, both operationally and financially, time and time again. To specifically address the shifting tariff landscape, we established a small operational task force focused on creative solutions for our community so that the remainder of our team can keep their eye on the prize, working to get Etsy's GMS growing again. This slide highlights how recent actions we've taken, including easier local search and filtering for buyers and ongoing education and policy support for sellers. We are, of course, monitoring the ricochet impact of higher global tariffs on consumer spending in our core markets, particularly with regard to the cost of items people purchase every day and how this may impact demand for consumer discretionary items. Onto our subsidiaries, starting with Depop. With Kruthi transitioned into her role as Etsy's president and chief growth officer, Depop's chief marketing officer, Peter Semple, is stepping in as interim CEO. A thoughtful and strategic leader, Peter is the right person to guide the business while we continue our Depop CEO search. Depop once again delivered very strong top line growth with its best GMS quarterly performance since we acquired the business in 2021 and setting a record for seller acquisition. The U.S. was again a key driver where Depop remains the fastest growing online resale apparel platform. As you saw from our recent announcement, we've made the decision to divest Reverb from our portfolio. During the last five plus years, Reverb's done a fantastic job cementing the brand as the online destination for secondhand musical gear. We're excited for them to embark on this next chapter with great new partners who are deeply ingrained in the musical instrument sector. This transaction will enable us to further focus on driving growth for Etsy and Depop. In closing, Etsy's mission to keep commerce human has never been more relevant. The work we do matters and has impact on millions of creative entrepreneurs around the world. We are laser focused on making Etsy the starting point for special. With that, I'll turn it over to Kruthi.

Thank you, Josh. I'm really excited to be back at Etsy and to have the chance to speak with you all today. I've been fortunate to have been part of Etsy's growth and evolution over the last 14 years, wearing many hats across the company during that time, from leading trust and safety, to heading our seller business, to serving as chief product officer, and most recently, as CEO of Depop. At Depop, we've built an app-first experience with more than 90% of our sales happening in app that serves our customers from inspiration to purchase. To do this, we've prioritized investing in a recommendation engine that reflects our deep understanding of our buyers' tastes and preferences, helping them better discover and explore their individual style. And for sellers, we focused on making it simpler and more efficient for them to list and sell, powered by our machine learning capabilities. Collectively, this work has led to a more engaging, more effective experience on both sides of the marketplace, deepening our connection with our community, powering Depop's growth and the circular fashion economy. The success of this work is clear in the increases you see here in our active users, their engagement with our app, and ultimately in our GMS growth. My time at Depop has only deepened my appreciation for what makes a marketplace so special. It's dynamic, adaptable, and can empower real people while delivering real economic opportunity. And as Josh mentioned, a marketplace like Etsy is also uniquely suited for a world where customer behavior is shifting faster than ever. Over the past few months, I've immersed myself in the business and reconnected with our teams, quickly getting up to speed on our investments, strategy, and operations. And looking ahead to the remainder of 2025 and beyond, I believe our biggest opportunities will come from our ability to give shoppers more compelling reasons to choose Etsy over competitors, rooted in our differentiation, and to build a more personalized, more delightful shopping experience that strengthens our relationship with our buyers and deepens our partnership with our sellers. Because we all know when they win, we win. We know there's meaningful work ahead of us to realize this potential and reignite growth, and I'm excited to bring a fresh perspective as we build on the magic that makes Etsy so special. With that, I'll hand it over to Lani to cover the financial results.