Etsy, Inc.

Hi, everyone, and welcome to Etsy's first quarter 2026 earnings conference call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been pre-recorded. Joining me today are Kruthi Patel-Goyal, CEO, and our CFO, Lani Baker. This quarter, we've changed our earnings process to feature a shareholder letter, which we encourage you to read in detail, and have shortened our prepared remarks to enable more time for Kruthi and Lani to to take questions from our publishing sell side analysts. We hope you find that this shift helps drive efficiency and transparency in our process, both for us and for all of you. Please keep in mind that our remarks today include forward-looking statements related to our financial outlook, our business and operating results, as noted in the shareholder letter 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 shareholder letter 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 shareholder letter posted on our IR website, along with the replay of this call. With that, I'll turn it over to Kruthi.

Thanks, Deb, and good morning, everyone. Thank you for joining us. I stepped into my first quarter as CEO after more than 15 years at Etsy with a deep understanding of what makes this marketplace special and a clear view of where we can unlock more of its potential. At our core, Etsy has a differentiated value proposition that remains deeply resonant with buyers and sellers. Our focus is now translating that strength more consistently into the customer experience. Over the past year, we've been clear about what needs to change and the priorities that we're executing against to close that gap. Namely, expanding how and where buyers discover us, connecting them with items that feel personal and relevant, and building relationships that go beyond transactions. That's how we drive engagement and frequency and ultimately turn the uniqueness and scale of our marketplace into a lasting advantage. In the first quarter, we saw encouraging signals that this strategy is beginning to take hold. All of our key performance indicators came in at or ahead of our expectations, with GMS at $2.5 billion, up 5.5% year-over-year for the Etsy marketplace, revenue of $631 million on take rate of 25.7%, and adjusted EBITDA of $185 million, or a 29.3% adjusted EBITDA margin. And more importantly, we're starting to see early positive changes tied to customer behavior on Etsy. Active buyers grew sequentially for the first time in two years. We delivered year-over-year growth in new buyers and active sellers. GMS per active buyer grew year-over-year for the first time since 2022. And momentum in our mobile app continued to strengthen. These are early indicators, but they matter. They show the marketplace is getting healthier. And we have confidence this will translate into the top line over time. Because creating real value for buyers and sellers is what ultimately drives value for the marketplace. Let me briefly remind you how we're thinking about the business. Our strategy is built around four priorities. Showing up where shoppers discover, matching them with the right inventory, retaining and rewarding our most valuable customers, both buyers and sellers, and amplifying human connection, one of our core differentiators. These aren't independent initiatives. They operate as a system. Discovery and matching bring buyers in and help them find items and shops they love. Loyalty and human connection give them reasons to come back. We believe that investing in this system is how we'll rebuild frequency over time. Today, we're seeing the clearest progress in discovery and matching, where coordinated investments are already driving meaningful impact across both the customer experience and our financial results. Our app is the centerpiece of this transformation. It's where personalization, machine learning, and direct relationships come together most effectively. And we're seeing that show up in the numbers. App GMS is continuing to significantly outpace non-app growth and now makes up about 47% of total GMS, expanding 240 basis points year over year. Mobile app GMS was up 11.2% year over year in the first quarter of 2026 versus up 6.6% last quarter. As we keep improving the app through levers like better personalization, more effectively using our own marketing channels and increased adoption, we see a clear opportunity to continue to grow app share and drive frequency over time. This matters because app users engage more deeply, convert at higher rates, and come back more often. It's one of the clearest indicators that our flywheel is starting to turn. When it comes to matching, we talk a lot about search. And that's because Etsy's core job is to help shoppers find things that feel personal, relevant, and worth coming back for. Historically, our systems prioritized what was most likely to convert in the moment, often favoring popular items over the ones that were truly tailored to a specific buyer. We're changing that. We're shifting toward a more personalized, relevance-driven approach, powered by machine learning and AI that better understands what a buyer is looking for right now and their taste over time, and the vast inventory offered by sellers on Etsy. We're already starting to see positive signals from models that bring these elements together, with early tests showing improvements in add-to-cart rates and conversion. We're also expanding the role of our personalized home feed. In Q1, we introduced AI-generated buyer profiles that help us go beyond a shopper's past activity with the goal of expanding the categories they explore and inspiring new purchases. And finally, we're strengthening our direct relationships with buyers through own channels using better timed and more relevant push and email communications to drive higher engagement. Turning to loyalty and human connection. Our most valuable buyers and sellers drive a disproportionate share of our marketplace, and we're focused on earning their continued engagement. For buyers, we see an opportunity to both deepen loyalty and retention with our most valuable customers and to nurture those with the potential to become them by making shopping on Etsy easier, more rewarding, and giving them more reasons to come back. We believe that long-term loyalty isn't built through a single program or initiative, but across every interaction. So our approach spans the full experience, from more personalized recommendations to targeted offers to programs like our Etsy Insider Beta. We're also moving toward more intentionally serving our highest value buyers. And importantly, we're expanding ownership of our loyalty initiatives across product, engineering, marketing, and operations because all of those moments together determine whether a customer chooses to return. For sellers, we're looking to reduce friction and enable growth with plans to build on our AI-powered tools to simplify listing and shop management so they can spend more time creating and connecting with buyers. And for both buyers and sellers, we're strengthening trust through improvements to Etsy purchase protection and better support for our top customers. The final part of our strategy that I'll discuss today leans into what makes Etsy fundamentally different, human connection. Buyers come to Etsy not just for what they buy, but for who they buy it from. This is one of our most defensible advantages and one that we haven't fully delivered on. We've begun taking a more structured approach to understanding how seller identity, craftsmanship, and stories influence behavior. And we now have early evidence that when we make those things more visible, buyers engage more deeply and make decisions with greater confidence. So you can expect to see us integrating those elements more directly into the core shopping experience this year. We are also intentional early movers in agentic, deeply focused on developing integrated experiences. We're encouraged by early engagement and traffic signals from Etsy's integrations with OpenAI, Microsoft, and Google. And we recently developed an integrated Etsy app for ChatGPT. At the same time, we're testing conversational AI experiences directly on Etsy because we see agents as a powerful way to simplify discovery and decision-making for both buyers and sellers, particularly when paired with our own data and insights. In Q1, we built two agents, one focused on helping buyers find the perfect gift and another that brings together insights for sellers to make better decisions, access the right resources, and reduce operational friction. These are early examples of how ML and AI can make the marketplace meaningfully better for our customers. Just as importantly, they're allowing us to move faster, building and iterating in weeks, not months, which helps us learn more quickly and drive growth. Stepping back, we've now delivered two consecutive quarters of year over year Etsy marketplace growth, and our outlook points to growth again this quarter. But our progress won't always be linear. There's still a lot more work to do. What gives me confidence is not just what we're seeing in our metrics, but what's driving them. We have a clearer understanding of how Etsy works at its best. We're rebuilding the marketplace based on that understanding, and we're executing with greater focus and discipline than we have in the past. Etsy has always stood for something different, creativity, human connection, and meaningful commerce. As technology evolves, we believe these qualities matter more, not less. Our focus now is simple, execute against what we know works, measure progress clearly, and build the foundation for durable growth. With that, I'll turn it over to Lani.

Thanks, Kruthi. Great to connect with all of you today. As Kruthi just described, we've had an encouraging start to the year, and I will discuss some of the drivers of that progress, as well as what it means for our outlook going forward. As you review our shareholder letter and 10Q, please keep in mind that on February 15th, we entered into an agreement to sell Depop to eBay for $1.2 billion. We have received regulatory clearance for the transaction in the United States and Germany, and reviews are in progress and on track for other markets, including the UK and Australia. We expect to close the transaction by the end of the third quarter of 2026. Given the pending sale, Etsy's results are presented on a continuing operations basis, while Depop's results are now presented within discontinued operations. I also want to note that Reverb, which we sold in June of last year, is included in Q1 2025 continuing operations, whereas Q1 2026 reflects only the Etsy marketplace. This makes year-over-year continuing operation results not directly comparable, and we have included standalone Etsy Marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations. Kruthi covered our top KPIs, so I'll provide a bit more color on Etsy Marketplace GMS, which advanced to solid year-over-year growth in the quarter. Q1 26 Etsy Marketplace GMS was up 5.5% year over year, which represents a 540 basis points improvement to the GMS growth achieved in the fourth quarter of 2025. On a currency neutral basis, GMS growth was 3.6%. Progress in both product development and marketing are beginning to translate into underlying improvements across marketplace fundamentals. And we also benefited from foreign exchange tailwinds and softer performance in the prior year comparable period. Our key customer metrics are continuing to move in a healthier direction. Q1 26 trailing 12 month active buyer count was 86.6 million, representing the first quarter of sequential growth in the past two years. Combined gross buyer additions, new plus reactivated, were 11.9 million, up 4.8% year over year. Encouragingly, GMS per active buyer improved sequentially for the fourth consecutive quarter and grew year over year for the first time since 2022, reaching $122 on a trailing 12-month basis. Purchase frequency remained modestly lower than prior year, while average order value increased year over year. Several factors, some of which we expect to be temporary, contributed to higher AOV. including foreign currency exchange tailwinds, the expiration of the de minimis tariff exemption, and subsequent seller listing price increases. We anticipate that these benefits and the resulting impact to AOV will moderate as the year progresses. That said, product improvements have also benefited AOV, including changes to our search and discovery algorithms that better surface higher quality, more relevant and differentiated inventory. Repeat buyer and habitual buyer figures, while still down year over year, continue to see sequential stabilization. On the seller front, Q126 was the first period of year-to-year growth in total seller count since we introduced the seller setup fee. Active sellers grew 3.3% to 5.6 million. Turning to take rate drivers, our shareholder letter depicts the primary factors that helped drive our quarterly take rate to 25.7%, up 180 basis points year over year. 130 basis points of this increase was due to the impact of the reverb divestiture last June. Meanwhile, Etsy marketplace take rate expansion was led by Etsy ads, where we continue to benefit from machine learning driven improvements to relevance and seller budget pacing. Offsite ads and Etsy payments also contributed to take rate expansion. Although our current strategic priorities center on driving sustainable long-term growth in GMS, we're encouraged by the way investments in ads, payments, and services continue to provide durability to Etsy's take rate. We're pleased to be executing against our near-term priorities while improving the ways we work, continuously looking for operational efficiencies, and keeping a tight control on expenses. This is visible in Etsy marketplace operating expenses for the quarter, with product development, marketing, and G&A all gaining leverage on a year-over-year basis. In product development, modestly higher employee costs were offset by savings in other areas. Marketing leverage was achieved by targeted shifts in portfolio mix to better meet customers where they discover, and a continued focus on efficiency. Growth of GMS derived from Etsy's owned marketing channels also supported marketing leverage. Turning to our strong first quarter balance sheet, Etsy held $1.6 billion in cash, cash equivalents, and short and long-term investments at the end of the quarter. Net cash provided by operating activities of continuing operations was $102.5 million. We converted 50% of adjusted EBITDA to free cash flow, more than twice the rate of conversion realized in the year-ago quarter. We also repurchased a total of $145 million of stock, which reduced the outstanding share count by approximately 2.7 million shares. As of March 31st, we have 828 million remaining on our current board-authorized share repurchase programs. We took the opportunity in our shareholder letter to reaffirm and explain our approach to capital structure and capital allocation, which is based on four enduring priorities. Number one, maintaining financial strength to fully support organic investment in the Etsy marketplace. Two, preserving strategic flexibility to selectively pursue opportunities to strengthen our business. Three, ensuring we effectively manage our financial commitments. And four, enhancing returns for equity holders as made possible by our strong free cash flow generation. Given this framework, the pending sale of Depop will allow us to further accelerate the direct return of capital to shareholders via repurchases. Turning to our outlook for the Etsy marketplace, we assume that overall macroeconomic factors remain relatively consistent and currency tailwinds moderate. We also note that prior year comparisons will become less favorable as we move through the year. We currently anticipate that Etsy Marketplace second quarter GMS will be between $2.48 and $2.53 billion, representing year-over-year growth of approximately 3% to 5% for the quarter. We expect second quarter take rate to be approximately 25.7% and adjusted EBITDA margin to be 27% to 29%. For the full year, we now anticipate that GMS growth will be in the low single-digit range as our outlook for the Etsy marketplace has improved relative to the full-year commentary provided in mid-February. Our updated full-year view incorporates stronger-than-expected first-quarter GMS, as well as the progress we're making on our growth priorities. We continue to expect year-over-year growth in Etsy GMS in each quarter of 2026. We currently expect full year take rate to be roughly equal to that of the first half of the year. And our full year adjusted EBITDA margin outlook of 28 to 30% remains unchanged. We're pleased to be executing on our plan and delivering better results. And as Kruthi stated right up front, we believe there is significant potential yet to be unlocked. And with that, we'll now turn it over to the operator to take your questions.