Etsy, Inc.

Hi, everyone, and welcome to Etsy's fourth quarter and full year 2025 earnings conference call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been prerecorded. It's my pleasure to introduce Kruthi Patel-Goyal for her first call as CEO, and of course, to have our CFO, Lani Baker, here as well. Once we are finished with the presentation, Kruthi 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 Form 10Q, 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 website, along with the replay of this call. With that, I'll turn it over to Kruthi.

Thanks Deb, and hello everyone. I'm excited to be here with you today, 50 days into my role as Etsy's new CEO. This morning, I want to primarily focus on three things. What we're doing to improve the performance of our core marketplace, why I'm confident in these actions, and what you can expect as we go forward. But first, I'll take a few minutes to review yesterday's announcement of the definitive agreement we signed to sell Depop to eBay for $1.2 billion in cash. This transaction will allow us to focus exclusively on the compelling opportunity we see in front of us to grow the Etsy marketplace in ways that matter most to our buyers and sellers. We believe it's a great outcome for Etsy shareholders and a positive next step for all involved. Of course, it's also a bittersweet moment for me personally, given my time as Depop's CEO. I am incredibly proud of what the Depop team has built, a truly differentiated brand and product grounded in clear purpose and strong community. We've been proud to support Depop's evolution, helping it reach the next generation of shoppers and become the fastest growing fashion resale marketplace in the US. And we believe that eBay's desire to invest in Depop will further strengthen its position in the circular economy. Lani will cover more specifics on the transaction a bit later. Now back to Etsy. When I returned last year as Chief Growth Officer, I conducted a deep diagnostic of the business to better understand the root causes of recent growth challenges and where our biggest opportunities are. I spent time speaking directly with buyers and sellers, listening closely to our teams, and pressure testing what I was hearing with customer research, data insights, and trend analysis. The number one takeaway for me was that Etsy's value proposition for buyers and sellers remains differentiated and deeply resonant. At the same time, the diagnostic made clear that we hadn't translated that strength consistently through our customer experience. For instance, we saw that buyer appreciation for what makes Etsy special remains high, but perceptions of differentiation have softened over time. As our sellers' inventory has grown significantly in both scale and breadth, we haven't reliably helped buyers understand what they're seeing, why it belongs on Etsy, or how to find the right item for their intent. That clarified a major opportunity. If we get better at how we match buyers to the right items and make the human story behind our sellers more visible, we can turn our scale back into an advantage and reassert what makes Etsy distinct. As another example, we've seen our buyer demographics aging, with older users growing faster than younger ones. Our research shows that's not an appeal problem, it's a presence gap. Hence our work to improve our app and shift our marketing mix to more intentionally engage and acquire younger shoppers. We'd been weighted toward lower funnel moments, showing up once a buyer already has something specific in mind. The opportunity is to move earlier, and in some cases before a mission even begins, using inspirational content to spark shopping journeys, not just respond to them, in the places and formats where discovery increasingly happens, especially for younger buyers. On top of that, frequency and retention, even among our most valuable buyers, have not been where we want them to be. We've become much more effective at closing a transaction, but under-invested in creating reasons to return. Optimizing for conversion alone isn't enough. Long-term growth requires making Etsy a destination for inspiration, discovery, and ongoing engagement. Finally, it was clear that as Etsy grew, a disproportionate share of our investment went toward improving core e-commerce table stakes. Things like conversion, price competitiveness, reliability, and shipping. Those investments were necessary, but not sufficient. And we didn't invest enough in the aspects of Etsy that make Etsy feel special and different. I believe that trade-off helped us compete more effectively on fundamentals, but it has also limited our ability to fully capture demand for unique, meaningful commerce and unlock more of the e-commerce TAM. These learnings directly shaped the strategic priorities we introduced last spring, designed to turn Etsy's strengths into more durable, long-term growth. As a reminder, these four priorities are showing up earlier in the shopping journey, increasingly meeting customers at the start of their missions, wherever they begin, Working to get much better at using machine learning to match buyers with the right items, mirroring their interests and their intent, so we can turn the abundance of our marketplace into a clear advantage. Deepening loyalty with our most valuable customers so they feel seen, appreciated, and genuinely valued. and leaning into the human connection that differentiates Etsy. So shoppers experience the stories, creativity, and passion that make every item and every purchase feel special. Alongside these priorities, we've made important changes to how we operate to drive clearer focus and better execution. At a high level, we've reorganized the company around customer outcomes rather than functional silos. We consolidated product and engineering so teams own end-to-end experiences and can move faster and with clearer accountability. We unified the teams responsible for trust and safety and customer support under one leader, protecting our community while delivering fast, thoughtful help when it matters most. And we realigned marketing from a channel-first model to a customer-first one, with teams anchored to outcomes like frequency, trust, and lifetime value, rather than optimizing individual channels in isolation. The result is an organization with clear ownership of customer outcomes and fewer handoffs, built to move faster and execute more consistently against our priorities. That increased focus and execution is beginning to show up in our results. Our goal last year was to return our core marketplace to growth, and we achieved that in the fourth quarter. While we still have work ahead, the trajectory is clearly improving. From the first to the fourth quarter of last year, Etsy's marketplace GMS comparisons improved by nine percentage points. And Q4 US buyer GMS grew for the first time in four years. As Lani will cover in more detail, our consolidated Q4 performance met or exceeded our expectations across the board. We delivered record revenue, and we did so while continuing to invest for growth at both Etsy and Depop, all while maintaining very healthy profitability. This performance reinforces our confidence that the changes we've made so far are working and that we are headed in the right direction. For example, the work we've done on our app is making it our most personalized and engaging platform, with year-over-year GMS growth accelerating to 6.6% in Q4 and homepage clicks per visit increasing 14% year-over-year and GMS share continuing to grow. Our personalized owned marketing programs are doing a better job engaging buyers, with push and email clicks up more than 25%, while message volume stayed disciplined. And satisfaction with our customer support is improving for both buyers and sellers, with particularly strong gains on the seller side, up 15.5% since last year. These are all indicators that we are on the right track, which is why we're doubling down on our priorities for 2026. We have a clear plan to drive more visits, better engagement, higher conversion and spend, and healthier retention. What matters now is continued discipline and execution, quarter after quarter. When we do that well, we feel confident that those investments will compound into the kind of sustainable growth we all believe Etsy is capable of. Growth rooted in Etsy's differentiation and unique value to our customers. Etsy began with a simple belief that technology should empower creative entrepreneurs, not replace them. Just over 20 years later, we're at an inflection point, one where the power of AI technology has the potential to make commerce on Etsy more human than ever, enhancing our differentiation and strengthening our unique customer value. On the seller side, AI is already helping to automate routine tasks, so sellers can spend more time on what only humans can do, creating, designing, and connecting with customers around the globe. On the buyer side, it's making discovery easier and more relevant, helping Etsy show up in more of the moments where inspiration begins. At the same time, AI-powered and agentic shopping presents meaningful opportunities for the unique items on Etsy to shine. These tools offer deeper insights into our listings, enabling our sellers' items to starkly stand out against the sea of impersonal, undifferentiated, mass-produced goods. So we're moving fast to stay at the forefront of this inflection point. Since our last call, we've expanded our agentic shopping partnerships, adding integrations with Microsoft Copilot and Google, as well as an agentic payments agreement with Stripe. While still a very small part of our overall traffic in GMS, agentic traffic to Etsy and Q4 was about 15 times what it was last year, underscoring just how rapidly this channel is emerging. and early indicators support our hypothesis that agentic discovery can be additive to our ecosystem. Using ChatGPT as an example, we're seeing evidence that in addition to bringing new buyers to Etsy, a meaningful share of buyers engaging through ChatGPT have a prior relationship with us, including lapsed buyers, indicating that agentic shopping could be a great unlock for retention and better lifetime value. Orders originating from ChatGPT also tend to skew higher value compared to some of our more mature acquisition channels. And in addition to instant checkout sales, we're seeing strong engagement with listings on Etsy resulting from ChatGPT discovery. There's a lot on our AI and agentic commerce roadmap. With these important partnerships, as well as through the development of product experiences on Etsy, and we'll keep you informed of our progress. Wrapping up, I want to be clear about what you should expect from me. We have more work to do to return Etsy to sustained, durable growth. My intention is to earn your confidence over time with clear priorities and transparency about what we're learning along the way. At the same time, we'll continue to shape Etsy's longer-term direction by leaning into what makes this marketplace truly distinctive, human creativity and meaningful connection. I've been a part of two significant Etsy turnarounds already. First, starting in 2018 as Chief Product Officer, when we began to significantly uplevel our shopping experiences that enabled tremendous growth. And more recently, running Depop, where we identified and deepened the platform's core differentiation and value proposition through improved personalization and discovery. In both cases, the biggest unlock wasn't a single bold idea or strategic initiative. It was sharp focus and strong execution, pinpointing what matters most to customers and building the operating discipline to deliver consistently. That's the muscle we've been strengthening to deliver another turnaround, one which propels Etsy to our next great chapter. With that, I'll turn it over to Lani.

Thank you, Kruthi. We have a lot of ground to cover today, so I'll dive right in. As we review our results, please keep in mind that we completed the sale of Reverb on June 2nd. We've provided Reverb's GMS and revenue for Q4 2025, so you can separate the impact of that sale from the results of our ongoing business. Fourth quarter consolidated GMS was $3.6 billion, up 2.4% year-over-year, excluding reverb. This was above the midpoint of our guidance range and up 1.3% year-over-year on a currency-neutral basis. Consolidated revenue was $882 million, up 6.6%, excluding reverb, reaching a new quarterly record. Adjusted EBITDA was $222 million, representing a consolidated adjusted EBITDA margin of 25.2%. Our decision to accelerate brand marketing investment at Depop was the largest factor behind the year-to-year contraction in consolidated adjusted EBITDA margin. Etsy marketplace adjusted EBITDA margin was slightly above 30% in the fourth quarter, our high point for the year, though slightly lower year-over-year, primarily due to higher cost of revenue as well as higher G&A expense. Etsy Marketplace GMS was up 0.1% year-over-year in the fourth quarter, our first positive comparison since Q3 2023. On a currency-neutral basis, Etsy GMS was down 1% year-to-year, which is a 220 basis point improvement from the third quarter's currency-neutral comparison and extends the positive momentum established earlier in 2025. While several factors have contributed to that sequential improvement, including easier comparisons, FX tailwinds, and beneficial competitive dynamics in the US PLA auctions, we believe that progress on the four priorities Kruthi described earlier is also contributing to better marketplace results. Notably, our trailing 12-month active buyer count in the United States increased slightly from Q3 to Q4, and U.S. buyer GMS grew 0.3% year over year, marking the first quarter of positive growth in four years. In the details of Q4, we see further validation of the notion that when Etsy leans in to its strongest points of differentiation, we win. with GMS strength concentrated in areas where we already stand apart. Etsy buyer engagement skewed toward personalized and sentiment-driven items with personalized gifts, artisanal finds, and milestone categories resonating the most with buyers. Home and living, our largest category, returned to positive year-over-year GMS growth, led by strength in high average order value subcategories, where Etsy has high-quality differentiated items, such as vintage home decor, rugs, and lighting. Mobile app downloads grew 4% year to year, and app GMS growth continued to accelerate in Q4. App users consistently visit more often, engage more deeply, and convert at higher rates than non-app users on average. And the app's contribution to total GMS reached 46% in Q4. That's five percentage points higher than at the end of 2023. Importantly, as Kruthi discussed, our app strategy is central to showing up earlier in the shopping journey, particularly with younger buyers. More broadly, Etsy marketplace customer metrics are also beginning to move in a healthier direction. The year-to-year rate of decline in active buyers improved for the first time in over a year, with active buyers largely flat sequentially at 86.5 million. our active buyer base benefited from improved acquisition and reactivation. We added 6.8 million new buyers and reactivated 10.4 million lapsed buyers for a combined total of 17.2 million gross additions, which is up 2.7% year-over-year and growing again for the first time in over two years. We had 5.9 million habitual buyers down 8.6% year-to-year, though the sequential quarter-to-quarter decline was a more modest 1.4%. Trailing 12-month GMS per active buyer was $121, marking the third consecutive quarter of stable to improving trends, and moving above the trough that we hit in the first quarter of 2025. The stabilization in GMS per buyer continues to be driven by higher average order value, while purchase frequency remains slightly lower than a year ago. On the seller side, we've begun to see healthier trends as well. We ended the period with 5.6 million active sellers, up 1.5% sequentially, reflecting an increase in both US and international sellers. Additionally, the retention of active sellers improved throughout the year. Turning to Depop, we delivered another quarter of excellent growth, with Q4 2025 GMS up nearly 38% year-over-year to a new record of $300 million. In the US, which is Depop's largest market, GMS grew 60% year-over-year. We saw initial wins from our surge marketing investment, including Depop's Taste Recognizes Taste campaign, with U.S. brand awareness accelerating even at this early stage of investment. I'll take a couple minutes to provide additional information about our agreement to sell Depop to eBay. The sale is currently expected to close in the second quarter of 2026, subject to regulatory approval and certain closing conditions. The cash consideration to Etsy is to be paid at closing, and in keeping with our capital allocation approach, we plan to use the proceeds of the transaction for general corporate purposes, continued share repurchases, and investment in the Etsy marketplace. Etsy will continue to own and operate Depop through the completion of the transaction. However, Depop will be classified as a discontinued operation and its results will be separated from those of Etsy's continuing operations in our future financial statements. For historical reference, we've provided Etsy standalone GMS and revenue in the appendix to today's slides. For the full year 2025, DPOP generated $1.1 billion in GMS and $187 million in revenue. DPOP's lower take rate and negative adjusted EBITDA margins represented a drag of 80 basis points on our consolidated take rate and 350 basis points to consolidated adjusted EBITDA margins in 2025. With the excellent offer presented to us by eBay and in light of the significant opportunity we see at Etsy, we made the decision to sell Depop and fully prioritize our core marketplace. We believe that obtaining a strong value for Depop now and focusing on Etsy, where we believe we can achieve a higher rate of return on invested capital, will best enable us to maximize shareholder value in the long term. Circling back to fourth quarter consolidated financial performance, services revenue grew 9.9% year over year, while marketplace revenue grew 0.8%. Consolidated fourth quarter take rate was 24.5% in line with our guidance. Compared to one year ago, take rate expanded by 170 basis points. As outlined on the slide, the year-over-year consolidated take rate expansion reflects a step up from the divestiture, continued momentum in on-site advertising across Etsy and Depop, and broader gains at Depop overall. Turning to fourth quarter operating expenses, I'll start with product development, where spend was largely flat as a percentage of revenue. Higher employee costs were offset by leverage in other areas. In marketing, the increase in brand spending at Depop shows up as a key driver of the deleverage you see in our consolidated marketing line. At the same time, the Etsy marketplace delivered meaningful year-over-year leverage on the marketing front. That improvement is reflective of targeted shifts in portfolio mix and efficiency, cornerstones of our priorities. We leaned into favorable paid search dynamics, shifted linear TV spending toward OTT, YouTube, and TikTok, and targeted our paid social spend to new and lapsed buyers to drive incrementality and higher returns. Our investment into TikTok has been very effective, both from an ROI perspective and also in targeting younger consumers. Last, and definitely not least, we continue to drive stronger retention and engagement via our highly personalized owned marketing channels, which delivered meaningful incremental GMS and reinforced the effectiveness of these levers when used alongside paid channels. We plan to further these efforts with an expansion of new marketing channels in 2026. As of December 31st, Etsy held $1.8 billion in cash, cash equivalents, and short and long-term investments. In 2025, we generated $735 million in adjusted EBITDA, converting approximately 87% of that to free cash flow and returning more than 100% of free cash flow to shareholders through share repurchases. During the fourth quarter, Etsy repurchased a total of $133 million in stock, bringing total share repurchases for the year to $777 million, which reduced the outstanding share count by approximately 14.4 million shares over the course of the year. Now, for our outlook. As we've described, we believe that the priorities we've been executing against are beginning to turn the Etsy marketplace in the right direction. As we enter 2026, we have a focused set of product and marketing initiatives in flight and several early indicators of progress. However, we expect that the full impact of these efforts will take time to translate into stronger, sustainable growth. And all of this is reflected in the outlook we are providing today. With the anticipated sale of Depop and its classification as discontinued operations in our financials as of January 1, 2026, the guidance we're providing today relates only to continuing operations, or in other words, the core Etsy marketplace. We currently anticipate that first quarter 2026 GMS will be in the range of $2.38 to $2.43 billion, representing year-over-year growth of approximately 2% to 4% for the quarter. The anticipated step-up in Etsy GMS growth in Q1 2026 reflects the contribution of our four priority areas, as well as the effect of strong FX tailwinds and comparing against a particularly weak start to 2025. We expect the first quarter 2026 take rate to be approximately 25.5% and adjusted EBITDA margin between 28 and 30%. Looking beyond the first quarter, with a singular focus on the Etsy business, growing confidence in our operating priorities, and ongoing stabilization in customer metrics, we feel more comfortable to provide high-level commentary for the year. We've improved the Etsy Marketplace's annual GMS performance from down 6% in 2024 to down 4% last year, and we expect to further improve our performance this year, achieving slight growth for 2026, with positive year-over-year GMS comparisons in each quarter of the year. We currently anticipate that Q1 2026 GMS growth may be the strongest of the year due to currency tailwinds that are likely to moderate and comparisons that get less favorable beyond the first quarter. We expect that full year take rate and adjusted EBITDA margin will be roughly consistent with the first quarter view. We've assumed that macroeconomic conditions, particularly those impacting consumer discretionary spending, remain stable relative to where they are at present. Thank you all for your time today. We'll now take your questions.