Etsy, Inc.

Hi everyone and welcome to Etsy's second quarter 2025 earnings conference call. I'm Deb Wasser, VP of Investor Relations. And joining me today for our pre-recording are Josh Silverman, CEO, Lanny Baker, our CFO, and Kruthi Patel-Goyal, President and Chief Growth Officer. Once we are finished with the presentation, Josh and Lanny will take questions from our publishing sell-side analysts on video. Please keep in mind that our remarks today include forward-looking statements related to our financial guidance, our business, and our operating results, as noted in the slide deck posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release and our most recent periodic report, and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release and our slide deck posted on our IR website, along with the replay of this call. With that, I'll turn it over to Josh.

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

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