Etsy, Inc.

Hi, everyone, and welcome to Etsy's second 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 Kruti Patel Goyal, our CEO, and our CFO, Lani Baker. Please keep in mind that our remarks today include forward-looking statements, including statements related to our financial outlook, Thank you for joining us. also during the call will present both GAAP and non-GAAP historical 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 respect to our outlook, a reconciliation of adjusted EBITDA margin guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis to the high variability, complexity, and low visibility with respect to the charges excluded from adjusted EBITDA. As you review our shareholder letter and 10-Q, please keep in mind that on July 30th, we completed the sale of Depop to eBay. Etsy's results in those documents are presented on a continuing operations basis, while Depop's results are presented within discontinued operations. I also want to note that Reverb, which we sold in June of last year, is included in Q2 2025 continuing operations. Whereas Q2 2026 reflects only the Etsy marketplace. This makes year-over-year continuing operations results not directly comparable. And we have included Etsy standalone marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations. Financial results presented on this call cover our continuing operations or the Etsy marketplace only. With that, I'll turn it over to Kruti.

Thanks, Deb, and good morning, everyone. Thank you for joining us. Since I stepped into this role, I've been clear about three things. Our greatest strength is our differentiation as a human-centered marketplace. We have a massive market opportunity ahead of us, and realizing that opportunity requires clear strategic focus and disciplined execution. Our second quarter results reinforce our conviction that this focus is translating into stronger marketplace fundamentals and accelerating growth. We're encouraged by our progress and increasingly confident in our ability to create long-term shareholder value, reflected on our improved outlook for 2026 and our new $2 billion share repurchase authorization. Just as importantly, we continue to see significant opportunity to further strengthen relationships with our buyers and sellers to drive long-term marketplace value. So today, I'll share how our strategic priorities are improving performance, as well as how we're evolving our organization to lay the foundation for Etsy's next stage of growth. Starting with our performance, second quarter GMS and revenue growth accelerated on a sequential basis, and we delivered healthy flow-through of revenue growth to adjusted EBITDA, again demonstrating the strength of our business model. Etsy Marketplace GMS grew year over year for the third consecutive quarter, reflecting continued improvement across Marketplace fundamentals. GMS was $2.6 billion, up 7.5% year-over-year for the Etsy marketplace. Revenue was $668 million, with a take rate of 25.9%. And adjusted EBITDA was $195 million, or a 29.2% adjusted EBITDA margin. We're beginning to see how our four priorities reinforce one another to improve marketplace health and performance. Discovery and matching help buyers find and connect with the right items, while loyalty and human connection give buyers more reasons to return. Together, these enable lasting relationships between buyers, sellers, and Etsy. We're seeing very clear signal that these efforts are improving our performance. Active buyers improved, growing by 350,000 sequentially to approximately 87 million, roughly stable on a year-over-year basis. Gross buyer additions accelerated, and habitual and repeat buyer cohorts, our most valuable buyers, each showed slight sequential growth for the first time since 2023. Trailing 12-month GMS per active buyer grew 2.8% year over year to $124. And while higher seller listing prices remain a contributor, our work to elevate higher quality items on and off-site is increasingly playing a role. While purchase frequency remains below prior year levels, the year-over-year decline moderated compared to the first quarter, an early, encouraging signal that we're improving the overall customer experience. And our app continues to be a key growth driver, with mobile app growth accelerating sequentially, up 12.5% year-over-year, and visits per monthly active user and orders per visit both increasing year-over-year. and we continue to see evidence of a healthier seller base, including year-over-year seller growth and stronger retention of prior-year active sellers. We have a lot to cover today, so I won't review each of our priorities and the level of detail they're discussed in our shareholder letter, but here are a few updates I'm most excited about. Thank you for joining us today. and more of Etsy sellers' unique inventory. Third, we're reaching younger buyers much earlier in their discovery journey by evolving the channels, content, and experiences where Etsy shows up. One example is our Olivia Rodrigo partnership, which combines an in-person activation with an exclusive merchandise collaboration. And our investments in YouTube and TikTok drove a fivefold increase in visits in those channels from millennial and Gen Z audiences in the first half of 2026. Finally, we're continuing to evolve how we build loyalty across the marketplace, from testing new approaches for buyers to developing new ways to recognize and support the sellers who best represent what makes Etsy unique. Over the past year, we've sharpened our strategy, strengthened execution, and are encouraged by the progress we're seeing across the marketplace. We've inflected Etsy's year-over-year growth trajectory from high single-digit DMS declines in early 2025 to mid-single-digit growth anticipated for the full year 2026, a more than 10 percentage point improvement in performance. As a result, we have even more conviction in our strategic direction to build the Etsy we envision. At the same time, we've gained additional clarity about the organization we'll need to deliver it. So we're announcing a restructuring of parts of our organization and a reduction of our workforce with most of the changes concentrated in our product and engineering group. We're changing our structure with fewer silos to reduce handoffs and with flatter, faster teams built to solve more broad and complex problems. And we'll invest more deeply in the skills and capabilities we need to accelerate execution and impact. This is not a cost-cutting move. It's about leaning in during a period of strong momentum so that we can move faster and execute with even greater focus. We are deeply grateful to our departing colleagues for their service, dedication, and contributions, and we're committed to supporting them through this transition with care and respect. We know these decisions have a real impact on people's lives, and we didn't make them lightly. They reflect our conviction that focusing our investments in our team is the best way to build a stronger Etsy. One of my responsibilities is to make decisions not only for the Etsy we are today but also the Etsy we want to become. That means paying close attention to how the world around us is changing. Buyers are discovering products in new ways, sellers have access to increasingly powerful tools to build their businesses, and the expectations they have of Etsy continue to rise. By investing in the capabilities that matter most for the future of the marketplace, we believe Etsy will be better positioned to innovate more quickly and ultimately deliver more value for our customers, community, and shareholders. Thank you for your time this morning. I'll turn the call over to Lani for more insights on our Q2 performance, our outlook, and the financial implications of our restructuring plan.

Thanks, Kruti. Great to connect with all of you today. Kruti already covered Etsy Marketplace GMS and our headline metrics, so I'll focus on revenue, profitability, capital allocation, and our outlook. Revenue was $668 million in the second quarter, up 6.2% on a continuing operations basis, and 9.3% for the Etsy Marketplace standalone. Revenue growth accelerated in tandem with GMS strength, and both marketplace and services revenue at Etsy delivered solid year-over-year growth, increasing 8.4% and 11.2%, respectively. Take rate remained healthy at 25.9% for the second quarter, up 130 basis points year-over-year, including an approximate 80 basis point benefit from the reverb divestiture. Meanwhile, Etsy marketplace take rate also expanded year to year, primarily driven by Etsy ads, where we're using machine learning to enhance relevance and improve seller budget pacing. Offsite ads also contributed, benefiting from a tilt in paid marketing activity toward higher monetizing channels. On the operating expense side, we remained disciplined in the second quarter, while continuing to invest in areas with the clearest evidence of attractive returns. As Etsy Marketplace GMS growth has improved, we have gained leverage across marketing, product development, and GNA. Nearly half of the year-to-year growth in Etsy Marketplace revenue flowed through to adjusted EBITDA in the quarter, creating room to fund our top priorities while sustaining healthy profitability. Turning to capital allocation, our balance sheet remains strong. As of June 30, 2026, we held $1.3 billion in cash, cash equivalents, and short and long-term investments. And we continue to generate significant cash. On a continuing operations basis, we converted 81% of adjusted EBITDA to free cash flow during the quarter. and on top of this, we received $1.4 billion in cash proceeds from the sale of Depop at the end of last week. Many of you have expressed interest in when or how we would step up our share repurchases given the cash coming in from the sale of Depop. I'm pleased to report we've already done so. During the second quarter, we stepped up our buyback program and repurchased approximately $250 million in stock. That was roughly 70% more than the first quarter, and reduced the outstanding share count by approximately 3.9 million shares. At quarter's end, we had $578 million remaining on our current board-authorized share repurchase program, and we're announcing today a new $2 billion share repurchase program. The additional authorization reflects our growing confidence in strategic execution and will enable us to continue the return of excess capital to shareholders and accelerate our buyback program with the proceeds from the sale of DPOP. As outlined in our shareholder letter, the restructuring plan will reduce the size of our workforce by roughly 220 employees, or approximately 12%. Following the restructuring, our headcount is expected to be approximately 1,600 people. We expect to incur approximately $35 million in charges, largely made up of cash expenditures associated with severance payments, employee benefits, and related costs. We anticipate that the charges will be incurred and the execution of the restructuring plan will be substantially complete by the end of the third quarter of 2026. Now, turning to our outlook. We currently anticipate that Etsy Marketplace third quarter GMS will be between $2.53 and $2.58 billion, representing year-over-year growth of approximately 4% to 6% for the quarter. We expect third quarter take rate to be approximately 26%, and adjusted EBITDA margin to be within a range of 28 to 30%. For the full year, we now expect the Etsy marketplace to sustain a bit stronger GMS growth momentum across the second half of the year than we anticipated previously. Accordingly, we anticipate that GMS growth at Etsy will be in the mid single digit range for the full year 2026. We currently expect full-year take rate to be roughly equal to what we've reported in the first half of the year, and our full-year adjusted EBITDA margin outlook tightens upward to 29-30%. We expect the restructuring to lower operating costs in the near term, and we've incorporated an expected benefit into our increased full-year adjusted EBITDA margin outlook. We believe that higher GMS and revenue growth sustained over time can create far greater absolute cash flow and shareholder value than can margin expansion alone. Accordingly, our objective in the restructuring is to not only extend the expense discipline we've demonstrated historically, but also to position ourselves to build the organization necessary to execute our strategy and accelerate growth in the years ahead. Specifically, we intend to deepen our expertise in strategically critical areas across product, engineering, and customer operations, with a particular focus on expanding and strengthening our team's machine learning skills. We also plan to explore additional R&D investment in new product capabilities, marketing initiatives, customer trust, and international growth to accelerate our learnings in 2026 and inform our plans for 2027. We will be purposeful and disciplined in the investments we make, and we remain committed to maintaining the very attractive profit margin profile of our business. With that, we'll now turn it over to the operator to take your questions.