Josh Silverman:

Thanks, Deb. And good afternoon, everyone. We're pleased that Etsy's consolidated results came in at the high end or ahead of our guidance. GMS was $2.9 billion, down about 2.1% year-over-year on a consolidated basis. Revenue grew 3% to $648 million and we posted a very healthy adjusted EBITDA margin of approximately 28%. Etsy marketplace GMS was down about 3.2% year-over-year, a 210 basis point improvement from our Q1 performance of negative 5.3%. Etsy marketplace's record high level of approximately 92 million active buyers held up very well in another challenging quarter for our type of goods. While we continue to face stiff macro headwinds, we're making meaningful improvements to the customer experience, which we believe are beginning to inflect the curve along our journey to get Etsy back to growth. We also announced today that Rachel is planning to retire. She's been a strategic partner and a key to the tremendous success Etsy has achieved since 2017. I believe every CFO wants to be measured on results, and Rachel has so much to be proud of in that regard. Beyond the numbers, Rachel leads with optimism and heart, helping craft our culture and our team's operational excellence. She's built a strong team, and I'm grateful she chose Etsy to serve as the culmination of her impressive career. Our entire community will continue to benefit from the impact she's made. We're going to have some more time together, and we'll stay focused on driving Etsy’s success. You'll all have ample time to chat with her over the coming months as we launch a search for her successor, and, of course, we'll share updates with you at the appropriate time. As a reminder, our key focus for 2024 is to continue to build consideration for Etsy to help buyers think of us more often by making it easier to find the best stuff, driving association that there are great deals on Etsy, and making shopping on Etsy more convenient. We're working to make Etsy more of a go-to shopping destination and in particular, to really lean into what makes Etsy different and special. And we're making excellent progress in our bold initiatives to do just that. As you know, we've evolved our way of working in 2024 to shift some of our focus from building incrementally better customer experiences to investing in the creation of more big bang, truly engaging experiences and moments on-site and off. Since 2017, Etsy's operating model has been quite unique and that teams were tasked to bank GMS in a very disciplined way to drive valuable incremental improvements to the customer experience. This worked extremely well for us and, I believe, has been a key contributor to our remarkable success, including being able to maintain a very large part of our extraordinary pandemic gains. Given our much larger scale and the increasingly crowded and promotional e-commerce landscape, we're now allocating a significant portion of our efforts to bold, integrated initiatives that combine product improvements and marketing in novel ways. We're working backwards from what great customer experiences look like and are laser-focused on driving buyer engagement, not just conversion. I'm really excited to update you about how this new way of working is driving the success of several key 2024 initiatives, including in gifting, our work to highlight quality on Etsy, plans for our new Etsy Insider Loyalty program, and work to make our Etsy app the center of our customer experience. Starting with gifting, which is proving to be a winning theme. Better on-site gifting experiences, combined with clear and engaging marketing initiatives for seasonal and evergreen gifting, and specific campaigns for product innovations, such as our new gift teaser video messages, worked together to deliver excellent second quarter performance in this strategic investment area. Sitewide GMS for purchases identified as gifts grew 4% on a year-over-year basis and significantly outperformed the overall Etsy marketplace. Further, Etsy's gifting performance surpassed that of the pure play competitors we've been tracking for benchmarking purposes, and our US Mother's Day, Father's Day, and graduation performance meaningfully outpaced the NRF's forecasted performance for these events. Video gift teaser messages weren't our only product innovation in the second quarter. We launched gift lists and reminders, allowing you to track ideas you have for a loved one's special event, and then, of course, reminding you to make the purchase. And new occasion pages, curated for things like anniversaries, birthdays, and so on. In addition to GMS growth, we're utilizing monthly US buyer surveys to gauge the impact of our gifting strategies, and this data shows a significant year-over-year increase in prompted consideration of Etsy for gifts. We're also tracking an increase in perceptions that Etsy makes it easy to find a great gift. Of course, gifting initiatives will remain front and center as we move into the all-important holiday season. Moving on to bold initiatives we're making in quality to ensure we highlight the very best of Etsy, differentiating ourselves in a sea of commoditized merchandise. We stand for keeping commerce human, and we have an enormous conviction that doing this in a way that no one else can is our most important competitive advantage, and that these initiatives represent a tremendous unlock for buyer consideration. We mentioned on our last call that we're using large language models and GenAI techniques to better understand both the shopping mission you're on, as well as our seller's inventory along these four key focus areas, suppressing and removing items that violate our policy, upranking better quality listings and search and recommendations, and better curating and organizing our marketplace. I'm extremely proud to report on the fantastic progress our search team is making to move beyond our historical focus on solving for relevancy in search, when you know what you want and can't find it anywhere else, to new initiatives meant to also highlight the best of Etsy and feature the incredible diversity and uniqueness of our sellers' merchandise. In the past, our search algorithms ranked each listing individually based on likelihood to convert, which often resulted in buyers seeing far too many similar items rather than a more holistic set. Here's some powerful data. We roughly cut in half the percentage of searches where a high percentage of listings seen on page one are from a single seller. We reduced the percentage of searches that have two or more listings that may appear identical by over 70%. We're incredibly excited about what this might mean for future visitation, as buyers see a more diverse and higher quality set of listings each time they visit Etsy. In addition to helping buyers, these initiatives also support our sellers, given how important it is that we nurture the best of Etsy across our seller base. Our latest search experiments resulted in approximately 70% of shops having more visibility in search, with the share of search impressions from small and medium shops increasing by nearly 30%. Later this summer, we'll empower sellers by giving them more agency and actionable insights than ever before into factors like listing quality and completeness that can impact how they show up in search. Connected to this work and to further allow our sellers unique items to shine, we've made some bold changes to our marketplace to reinforce who Etsy is so that everyone who comes to Etsy understands why we're different and special. We know that people love what Etsy represents as a marketplace that offers original items made by real people and that being a place that supports small businesses and offers original goods are Etsy's top drivers for consideration and relevance. Yet in the past, the label handmade was the default, applied to any listing which wasn't vintage or craft supplied, even while our policies allow for the inclusion of items that were designed or personalized by the seller, but not made with their own hands. This lack of distinction could be confusing for both buyers and sellers. So on July 9th, we announced a series of updates to our listing labels to be clearer about why items belong on Etsy and elevating the role of the seller in the making process. We've labeled virtually all of Etsy's listings along four creativity standards. One, physical items made by a seller by hand, or using personal or computerized tools. Two, items designed by a seller using their own designs, yet produced by a production partner. Three, hand-picked items, which can include vintage items, items from nature, and certain collections of items that a seller personally curated for sale. And four, items sourced by a seller, specifically in the categories of craft supplies or party supplies, along with items that are personalized by the seller. We've already seen lots of love from our sellers related to these new standards, with overall high engagement and positive sentiment in our community spaces. Many sellers even amplified the news and shared the campaign on their social media channels. In the spirit of moving boldly as we make these meaningful changes to highlight the quality, diversity, and differentiation of our sellers' most unique inventory, and feature the seller's role in the creation of each item, we simultaneously launched a 360 degree marketing campaign touching owned, earned, and paid channels to reinforce Etsy's quality, originality, and humanity. When you shop many of our competitors, you don't know who or where you're buying from. With Etsy, the sweater is stitched by Jessica. The glassware is handmade by Chad. And the table is built by Tiffany. Our new social creative tells a deeper story on the role of our sellers and their love for their craft. We've created dozens of assets that range in style based on the audience, platform, and goal. Here's our new hero brand spot for TV, streaming, and YouTube, which shines a spotlight on what makes our sellers so magical. [Video Presentation] The team and I couldn't be more excited about the changes we've made and how we're telling the world about them. Note that this is just one, albeit large, step in our quality journey, with much more to come. I firmly believe that we will look back at this initiative as one of the most important factors which reignited Etsy's growth. We mentioned last quarter that we're making significant investments in our app to engage our existing active buyers, capture more new buyers, and help encourage more engagement and browsing, which we believe will in turn convert into loyalty and sales. Our app continues to lead both desktop and mobile web in terms of GMS growth and represented about 42% of the GMS in the second quarter, providing an excellent opportunity for low-cost, native traffic acquisition, particularly given it's our highest converting platform. We've launched and are leaning into optimizing our app store position, running paid ads for app downloads, featuring app download prompts on our mobile website, and utilizing our owned channels in CRM. We're working to make the Etsy app our marquee customer experience, shifting most buyer usage to the app rather than mobile web or desktop, and drive frequency and engagement with lower intent shoppers who come just looking for ideas and inspiration, while continuing to convert buyers who are on a clear shopping mission. And speaking of frequency and engagement, I'm excited to unveil some details of our new buyer loyalty program, another bold move for Etsy in 2024. Etsy Insider will be launched invitation-only to a highly targeted group of occasional US buyers in beta form in mid-September. We've accomplished a lot so far, including many rounds of research and competitive audits to inform our program and rollout. We've focused on developing key benefits for buyers that highlight both the emotional and the rational characteristics of Etsy's unique value proposition and are in the process of finalizing our pricing strategy for launch. Our beta program is buyer fee based and will include free US domestic shipping on millions of items, item discounts, first access merchandise, and more. We'll test, learn, and iterate, and are optimistic that over time, Etsy Insider can be a needle mover, driver of buyer frequency and Etsy love. I've said before that I believe Etsy has more to gain from advances in AI than most of our e-commerce peers, especially given the incredible breadth and uniqueness of our seller's inventory. And we've been investing to unlock this value across almost every area of our business. This slide highlights 20-plus use cases in product development alone. We're fortunate to be building upon a strong base with many years of investment in leading edge ML and data infrastructure talent and systems allowing us to move quickly. A key foundation of the discovery and engagement work I've discussed today has been powered by our investments in AI. For example, to better curate merchandise to improve the buyer experience and drive GMS, we're making it easier for buyers to find quality listings for mid-price jewelry, known as demifine, by having human experts determine what jewelry attributes are most important to a buyer's search, think material, gold purity, or hot trends, then utilizing GenAI to infer those attributes to create new search discovery modules and pathways, and incorporate this into on-site experiences such as landing pages. While this search is very much in progress, these better on-site shopping experiences, combined with targeted marketing initiatives, such as tailored social media content, CRM efforts, and improved data feed curation for paid and organic search, contributed to a 9% year-over-year increase in GMS for demifine jewelry in the quarter. I'm really proud of the strides our team is making so far in 2024. We're confident we're working on the areas that will meaningfully impact Etsy in the months and years to come. We're leaning in more than ever to what makes Etsy, Etsy. We're nowhere near being as big or as successful as I believe we can be, nowhere near achieving our full potential. This is inspiring and motivating to us all. I'll now turn the call over to Rachel.

Operator:

[Operator Instructions] Our first question will come from Jason Helfstein with Oppenheimer. You may now unmute your audio and video and ask your question.

Jason Helfstein:

So, before I ask the question, I want to say this is probably where our third rodeo, so maybe there'll be a fourth. I think going back to, was it home.com or…

Jason Helfstein:

No, but it probably moves home store, right?

Jason Helfstein:

Anyway, so it's definitely been a blast over the years.

Jason Helfstein:

So, question. So, Josh, I want to dig into the new seller classification program. When do you think you'll be able to tell if ultimately when it improves buyer conversion, which then ultimately presumably gives you confidence to lean more into marketing and kind of just get the flywheel going. So that's just a timing question. Second, any thoughts on getting your sellers to raise their prices? Thanks.

Rachel Glaser:

And just add a note to the frequency comment you made, because you asked about when it can get the flywheel going again. Increased frequency obviously drives up, what, life-time value. So we can actually get the marketing flywheel go in that way, more frequency is a good thing.

Deb Wasser:

Thanks, Jason. Operator, next question.

Jian Li:

Okay, I think that's me. Sorry, guys. Yeah, first, congrats, Rachel, on a really good run here. I just have a question on the shape of GMS growth recovery through the back half of the year. I guess like a couple of things, like how has macro changed versus three months ago? Has it gotten better or worse versus where you stood three months ago? And why wouldn't we expect GMS recovery to continue sequentially, given that you're leaning more into marketing in Q3 and all these product initiatives in the back half?

Deb Wasser:

Okay. Thanks, Jian. Operator, next question.

Nathan Feather:

Hey, everyone, and congrats, Rachel. It's been great working with you.

Nathan Feather:

A few quick questions on the new loyalty program going into beta. So first off, who's the primary customer you're targeting here? Is it primarily that repeat customer that maybe isn't habitual yet, but you think you could bring them over the line? And then can you talk through how you're thinking about pricing that program and the goals for profitability?

Rachel Glaser:

And just, Josh said it in his prepared remarks, but it's an invitation-only beta right now. So it's a very limited group of people and then we'll learn and iterate from there.

Deb Wasser:

Great, thank you. And yeah, we don't get invited because we're habitual.

Deb Wasser:

Great. And looks like we have the next -- operator, you want to just introduce the next one?

Shweta Khajuria:

Hello. Thank you for taking my questions. Rachel, it's sad to see you go and I wish you all the best.

Shweta Khajuria:

But at least from my side, definitely will miss you. Two questions, please. One is, just at a high level, if you could talk about, Josh, what do you think is the most exciting as you think about all these different initiatives and everything that you're launching for 2025? There is a lot of concern around consumer spend pulling back around competition, et cetera. So what would you say to those who are doubting that there could be positive growth for next year? And then second is a follow up on the prior question actually, how -- why did you decide on this strategy now on the subscription? And what was the reason for launching it now? Thank you.

Rachel Glaser:

And, Shweta, we're not giving 2025 guidance here, so the other part of your question was, do we see growth next year? We did show data on this call that talked about the categories where we see last quarter we were down in every one of our major categories along with many other competitors in each of those verticals. This quarter, we saw improvement in all of those categories except for one and two of them are actually flat and positive. So we're starting to see the green shoots that we want to see in the categories that are most important to us.

Josh Silverman:

Why loyalty now? Consideration is a huge focus for us. People love the experience when they're on Etsy but they only think of us, they only, very often, I think a way to think of Etsy is we're the place to go when you can't find it anywhere else. And we've been amazing at that and we've gotten better and better at that. And you know what? If you want it and you know what you want, we have it at Etsy. And we've gotten great at showing you it. And for a few years, there was a period of time when you couldn't find almost anything anywhere else. And we were the beneficiary. Since that time, we've done, I think, a remarkable job replacing almost all of that GMS with other GMS here at Etsy. But we want to move from being the place to go when you can't find it anywhere else at the end of your process to the beginning of your process. We want you to start at Etsy. I'm planning a wedding. I just had a baby. I'm redecorating my home. At the very beginning, we want you to start on Etsy. And we know we have so much opportunity there. And we've not been great there. We think we have an opportunity to become really great there. And I think that LLMs are going to really help organize this enormous corpus of listings we have to be understandable by humans, help to navigate it and make it a great starting point. So a loyalty program is a way of saying, hey, join our loyalty program and start your commerce missions. We want you to pay a little bit of money every month. And now that you've made that commitment, we want you to think every time you're buying something online, why don't you start that mission on Etsy? We tested paid and free together. And if you launch them together, they tend to cannibalize. The free tends to cannibalize the paid. So we thought better to start with paid, not saying we would never do a free. I'm saying we're going to evolve. We're going to test. But our consumer research suggested if you're going to test, best to start with a paid program.

Operator:

Our next question will come from John Colantuoni with Jefferies. You may now unmute your audio and video and ask your question.

Rachel Glaser:

Can I start with -- first of all, last year in Q2, we did pull back on marketing spend because we were running incrementality tests during that quarter. So the base was sort of not a normal base. So that's one of the reasons for the growth in this year's Q2 marketing -- performance marketing spend. We also spent a bit of time talking about, we've been able to, and we've done this throughout to test our way into two new channels. And we will test for a while until we can optimize to get them ROI positive. And we've been very happy and excited to see that on paid social and paid social video. Those are new channels for us and we've been able to bring them up to be ROI positive. And we showed a chart that shows that they're an increasing percentage of our total performance marketing spend. And that's not instead of PLAs and other existing channels, that's in addition. So we feel confident in those investments as well. And then the other things that we're testing is more markets outside of the US where we've seen really positive growth in some of the -- some of those countries that are non-core to our top six. And so that’s -- some of those are in the phase of incubating them and optimizing them to get them ROI positive. And some of them are actually producing at this point. Do you want to take the second part of his question? The second part, John, was how do we have confidence that those are, I guess, not be dilutive to margins over time?

Rachel Glaser:

And just one last note is that we did reiterate that we expect our full year margins to be at least as high as last year's margins. So we have confidence in the way the marketing dollars are going to flow for the rest of the year for us to be able to achieve those margins.

Operator:

Our next question will come from Rick Patel with Raymond James. You may now unmute your audio and video and ask your question.

Rachel Glaser:

Thanks, Rick.

Josh Silverman:

Yeah. So, the efforts we've had in place in the past continue in terms of having a robust toolkit for sellers. So they can put their items on sale. They can offer discount to a returning customer. If you've left an item in checkout, they can offer you a coupon to get you to come back and close. And we see sellers continue to use and adopt those tools. We, have, for example, as part of the loyalty program, deals and drops, we're going to be highlighting things that we think are really cool value and really special value. We want to lean more into discovery on Etsy, where we highlight things we think are cool and we don't put all the effort on the buyer to have to have the keyword in mind already and search for it. But the main thing I want to emphasize in this call is we're investing a lot more in the differentiation of Etsy. Who's the human behind the item and what was her role in the process and really elevating that. And I think there's a big opportunity in our user experience for us in the coming quarters to do a much better job centering the seller and her role. And in doing that, I think it can really emphasize how special this item is, how artisanal this item is, and give her more pricing power for the value that she deserves. And that's an area that we want to lean into as well. I think it's important.

Josh Silverman:

Yeah. So, look, if we look at our jewelry category, jewelry under $10 is under a lot of pressure right now. And there was a period of time when malls were closed. And so you couldn't buy jewelry many other places and Etsy sold a lot of jewelry under $10, but jewelry under $10 might have $5 of shipping. It's not obvious that, buying it on Etsy is going to be the place where we're going to shine. And I'm not saying there isn't wonderful jewelry under $10 on Etsy. There is. We have wonderful sellers who sell that. But demifine jewelry of let's say value between $1 and $200, we have amazing value there. And those items are growing quite nicely. For example, engagement rings on Etsy. You can buy a beautiful engagement ring made just for you, often to your specifications, for a price that's a fraction of what you'd pay in the mall. That's an area where we have real competitive differentiation. We have a real right to win, and we want to make sure that those sellers really get elevated and get a chance to shine. So we're leaning in a lot more there. It's another place actually to talk about LLMs. One of the challenges is we have such a diverse set of inventory there, that getting all of the attributes for all of those items labeled accurately has historically been a challenge for us. That's a task LLMs are doing quite well. So we've asked LLMs to go after our whole jewelry category and tell us what's the material, what's the carat, what's the weight of it. And it's doing quite a nice job and then allow us to do things like filter. What are the filters a customer would expect? How do we apply those attributes and create a more organized shopping experience starting in jewelry? And we're seeing LLMs there have a very nice effect.

Operator:

Our next question will come from Chris Kuntarich with UBS. You may now unmute your audio and ask your question.

Rachel Glaser:

So what we love about our model is that we have a very variable cost base relative to our fixed costs. So when we drive much higher GMS and revenue, a large percentage of that flows through to EBITDA. We demonstrated that for many quarters when we were in the peak of our pandemic wins that we were showing tremendous flow-through to the bottom line. And since then we've continued to maintain the Etsy standalone margins. Most of the contraction we've seen has come from the addition of our subsidiary. So we've really kept both those things steady, the amount of contraction from our subsidiaries and the amount of Etsy margin. And we've been doing that in spite of flat to down GMS and modest increases in revenue. So what we expect going into the last part of this year is we expect to see, we have a traditionally higher fourth quarter GMS and revenue because of holiday sales. So that happens against the backdrop of this relatively high variable cost base. So we see higher flow-through to bottom line during that period of time. And we see some things working in our favor versus last year where last year, for instance, we had the sequential from Q3 into Q4 on above-the-line spend, there was a bigger increase than we're expecting this year. Last year, we saw a higher cost of revenue related to fraud that we don't expect to see this year. And we've been working really hard on things like that in our trust and safety organization to make sure that we keep those costs as low as possible while also keeping our marketplace safe. So we feel very comfortable about the level of our margins. We are a very productive and very lean organization. We showed a slide in this deck that showed revenue per headcount. And when we've been asked in the past about, why not reduce your costs even further to expand margins? We think if we did that, it would be at the cost of GMS and revenue because we are such a lean organization and we manage every single head in our product and engineering organizations for ROI positive results. So we feel pretty good about how we're managing our cost space and the profitability that we're delivering.

Deb Wasser:

Do you want to squeeze in a quick answer to Chris's second question about the app? Who's using it and...

Deb Wasser:

Okay, we are almost at time, but I'm going to let -- Operator, let's get one more question in.

Michael Morton:

Perfect. Thank you. Congrats again, Rachel. I hope you enjoy the time. Two quick questions if I can. And one, Rachel, to follow up on your comment about fraud, you've highlighted that as a gross margin headwind, I believe, in the 10-K. So I was wondering if you could maybe quantify the effectiveness of the onboarding speed bump and how that's been a lift to gross margins and if it's something that we should expect going forward? And then my second question, I think, may be geared more towards Josh. And that's just talking maybe a little bit about the limiting factors for on-site ads. You've spoken that some sellers try to give you more money than you can allocate. Service revenue growth has decelerated, granted against tough comps. But just trying to think about the opportunity to grow that as a percentage of GMS or if we're at some type of structural limitation to the ad load? Thank you again for those two questions.

Josh Silverman:

And on Etsy Ads, the rate of ad growth slowed, but actually take rate still modestly expanded as a result of Etsy Ads. So I continue to think there's a lot of opportunity in Etsy ads. As we've shared before, most of the sellers big enough to be using Etsy Ads are, some of them are giving us more budget than we can use. Some of them are giving us less budget than we can use. So nudging some of them to give us bigger budget is a lever. The biggest lever continues to be picking the right ad to put in front of the right buyer because that's the win-win-win. It makes the buyer experience better. It keeps the seller ROAS high. And that's something we're always very focused on, making sure the sellers get money, get value for money on this advertising investment. And obviously it's great for shareholders. So we continue to get better at showing the right ad to the right buyer. And that's where we're going to continue to drive take rate up from the Etsy Ads product. And I think there is still plenty of room for us to continue. Just as our search engine keeps getting better, it's very related to the ads search engine, which is also going to continue to get better.

Josh Silverman:

I just want to close by saying again, Rachel, it's been a wonderful partnership. I know we're not done. We'll continue working together until the next CFO is seated. But as I told you privately, you have left large small shoes to fill. I'm really grateful for it.

Deb Wasser:

She’ll be here for a while and we'll see you all soon. So thank you all.

Deb Wasser:

Take care. Good night.

Rachel Glaser:

Thanks, Josh, and thank you, everyone, for joining our first quarter call. My commentary today will cover consolidated results, key drivers of performance and Etsy marketplace stand-alone results where appropriate. As a reminder, we divested Elo7 on August 10, 2023. So please take that into consideration when you compare year-over-year consolidated results.

Here, you can see that Etsy marketplace GMS was down across the board in our top categories. When we map our performance to the Consumer Edge data on the prior slide, we believe that we performed similarly, if not better, than peers in 4 of our 6 categories:

home and living, apparel, paper and party supplies and toys and games, and we underperformed a bit in jewelry and craft supplies. But overall, we see this as a tale of broad weakness in the types of merchandise we sell. We'd encourage you to remember that this comparison is a bit of apples to oranges in that Etsy sellers generally have not taken up prices in keeping with inflation as peer retailers do.

Maria Ripps:

So yes, first, kind of understanding that we're sort of in a tough environment right now for consumer spending, I just wanted to ask about the competitive environment. So it seems like the Temu sort of competitors started becoming more -- a little bit more aggressive throughout Q2 of last year. So as we start to sort of lapping that, do you anticipate maybe a more favorable or maybe a little bit more stable competitive backdrop? Kind of, is that becoming less of a headwind as we move through the second half of the year?

Joshua Silverman:

Yes, great questions. The team is making really good progress. I don't have any specifics to announce, but we are on track to launch in beta form in the second half of the year. And the focus is going to be on occasional shoppers and how do we take people that shop on Etsy occasionally and turn those people into more loyal buyers.

Debra Wasser:

I think he was having some issues before. So if you can't get him, we can go to the next.

Laura Champine:

So the question is about the implication that GMS improves as you move through the year? And I know that's not what you're saying for Q2. But upon what kind of macro changes that predicated, if any?

Laura Champine:

So just to make sure I'm understanding that correct, sort of a similar macro to what we're experiencing right now, but starting to see the impact of your own initiatives. Is that fair?

Laura Champine:

Got it. A quick follow-on, something that Rachel called out was positive friction with sellers with this incremental fee. And it's been, I think, 12 quarters in a row that your sellers have been outgrowing your buyers. Is that making it tougher for search to improve? And would you rather see a narrowing of that gap?

Joshua Silverman:

And I can't help but pile on because I'm really passionate about this. We've talked about the abundance of supply on Etsy a lot, but what does that look like in real life? When you search for something, we usually have thousands and in fact, often tens of thousands of relevant results. And the first page of search results might be 30 things that look very, very similar. And to a buyer, that's just a lot of cognitive load.

Michael Morton:

Perfect. Two questions, if I could. Jeff, you spoke to seller removal, I think, being a bit of a gross margin headwind. It was our interpretation, looking at some of the comments last year, that some of the fraud that was created in poor behavior from, like, noncompliant merchants could be actually like a gross margin headwind last year. So just curious, as you work through this process. If this could be a tailwind to gross margins as you get some of the noncompliant sellers off, who -- like, maybe elevated levels of returns that are, like, outside of Etsy's protection program?

Rachel Glaser:

And I just wanted to comment real quickly on, we've been doing takedowns, I don't know exactly how many quarters now, but was really leaning into it for at least the last 2 or 3, so we've gotten successively better at it. We've often talked about the substitution effect. So we take things down, it does not necessarily mean a 1:1 loss of GMS when we do that because we have so many listings on the site, but there's often very similar items that customers can substitute for that, but it does, hopefully, mean we're taking down low-quality GMS. So GMS that doesn't need -- that doesn't come with a high amount of chargeback or fraud or unpaid charges, we call it here. And the second thing I was going to say is that the gross margin impact may therefore be offset by improvements in the cost of revenue hits we're getting from some of the lower quality sellers that are on the site.

Joshua Silverman:

Yes. Most of the time, when we remove an item, there's another seller ready, willing and able to take that sale instead. And so when we talked about that 50 basis point hit, we've been really leaning in to -- and we've always taken down items for not complying, with not handmade. That's always been a focus. But we've been getting better technology and investing a lot in that. And as we've taken down, as we said in the call, millions of listings and tens of thousands of sellers, it has had about a 50 bp impact to, we think, our site, meaning sometimes it is not replaced, but most of the time it is. And frankly, that 50 basis points of headwind, we are happy to bear. We think it's a great investment in making sure that Etsy is different than -- and Etsy is Etsy.

Operator:

Our next question comes from Naved Khan with B. Riley Securities.

Joshua Silverman:

Yes.

Rachel Glaser:

There are things that went both ways that were beneficial to Q1 that won't repeat in Q2 and things that are beneficial to Q2, like Mother's Day, that didn't happen in Q1. Leap Day was -- we say [ 191st ] of an additional amount. So it's a pretty small de minimis, let's say, less than 1 point of benefit to Q1.

Joshua Silverman:

You point out some fair things. It is also true, as I think many of you know that the comps get a little harder each month this quarter. So May is a little -- last year, May was a little stronger than April and June was a little stronger than May. So we also consider that. And we're doing a lot of good things to make the business better, make the customer experience better. And we think that's important as well. So net-net, what we said is we think it'll be roughly similar, could be as high as the top end of low single digits or could be mid-single digits, particularly if discretionary gets even more pressured.

Joshua Silverman:

Yes. Great question. Thank you so much for that. So first, we find that someone who is an app and user produces about 75% more GMS than somebody who's not an app user. So we think having someone on the app is a really valuable thing. And we -- frankly, we leaned into this a fair amount in 2021, and in 2022 and 2023, it wasn't the big focus with competing priorities. It's a big focus right now for us again.

Operator:

Our next question comes from Trevor Young with Barclays.

Rachel Glaser:

So the guide we gave said that we -- the range of the guide was that we could be slightly positive -- slightly better than Q2, not positive, slightly better than Q2 or slightly worse than Q2, which I know is not very helpful. Our current forecast sees that or our current view is that we see some acceleration as we go through the year. But the cushion, the margin of error has gotten a lot narrower, which is why we're very cautiously giving you some giving you some perspective on what we are seeing.

Joshua Silverman:

I think what we said is a modest acceleration in the second half of the year.

Joshua Silverman:

Yes.

Joshua Silverman:

So that has been happening for about 6 to 9 months. And the reason we put that data point in there is just to give some sense that we're leaning in a lot, but there's still quite a high replacement rate. So even as we take things down we generally see another seller ready, willing and able to make that sale, but it has a slight headwind.

Operator:

Our next question comes from Ken Gawrelski with Wells Fargo.

Joshua Silverman:

Yes. I think that we -- the internal mantra we have been on for the past year is bold and fast. That we want to move to bigger, bolder, more eye-catching more tension grabbing releases and fewer of the more incremental steps that have been driving a ton of progress in a very ROI positive and very predictable way for the last 7 years is not what's going to catch consumer attention and drive that kind of step function change that we are looking for.

Joshua Silverman:

It's minimum viable product.

Joshua Silverman:

Pick your analogy, I've already messed up our language enough to...

Kenneth Gawrelski:

Understood. One quick follow-up just on the big game, I think you call it, spending. I almost said the super name. But the -- you now have 60 to 90 days to kind of judge the impact of -- in all brand spending. You really leaned into brand spending. What have you seen as the impact? Where has it worked? Where hasn't it worked? Is it frequency? Occasional buyers? What -- new buyers? What is it?

Kenneth Gawrelski:

No, no, I'm talking about the big game, but I'm also talking about brand advertising, like that big push on brand.

Operator:

Our final question comes from Mark Kelley with Stifel.

Joshua Silverman:

Okay. So the headline is that it was a bigger headwind to March than we expected and an equal better tailwind to April than we expected. We obviously knew when Easter was. We obviously forecasted in, and so it was just a bigger impact than we expected. And from what I can see from others, and I can't validate this, but -- from a little data. It looks like it might have been a bigger impact for us than for other people. And the truth is we have several hypotheses as to why, but no really great data.

Rachel Glaser:

I'd just add, it's not just Easter. It's spring break. And what happens when people go on spring break is they're spending money on travel instead of spending money on Etsy, and they're also traveling, so they're not shopping. And that shift, we think, had a pretty big impact, more so than we thought it would, on March. And so that's why, in a way, it's a tailwind to April because last year when they were traveling, and it was -- we get them back now because they're not traveling anymore and they're focusing on commerce.

Joshua Silverman:

Yes. And then what Rachel said, the leading hypothesis of ours that travel during that period impacted this holiday more than others. And it again speaks to the macro that people are just having to make tougher choices. And if they're spending discretionary budget traveling to see the family, it's just fewer dollars. They've got to make tougher choices and they're going to just have to spend less on discretionary product.

Joshua Silverman:

Yes. Well, large language models were really helpful for Gift Mode. So for example, there are 200 different persona in Gift Mode. And then within each persona, there are 3 to 5 different gift ideas and the ability to ask large language models, what are 200 examples of persona, and it wasn't quite this simple, but it does give you a head start on that.

Joshua Silverman:

Thank you all.

Josh Silverman:

Thanks, Deb. We're pleased to speak with you today about our recent performance, but more importantly, to preview some of our exciting initiatives for 2024. We've built an ambitious portfolio of growth initiatives, what we consider some very bold moves, while staying focused on protecting or expanding our overall profitability. We've done a lot to set Etsy up for success, making some difficult choices last year to be able to invest in our Vital Few with an eye to getting Etsy back to growth. We enter 2024 energized, with the right team, a highly relevant and differentiated Right to Win strategy, a disciplined investment approach and a resilient business model. Our focus will be to make Etsy even more Etsy, leaning into our core strengths to get even better at what we do, that is unlike anyone else in e-commerce. We had a strong finish to 2023 in the core Etsy marketplace, as well as at our subsidiaries, which collectively brought Q4 in a bit better than expected, as Rachel will review shortly. The Etsy marketplace performed well during the holiday season, with our highest-ever Cyber 5 GMS up about 4% year-over-year. Both Cyber Monday and Gifting Tuesday set new records. We know Etsy is a great place to shop for gifts and our focus on this message paid off. More to come on Gifting in a moment. With this strong finish to 2023, consolidated GMS was $13.2 billion, roughly flat with 2022. Revenue was a record $2.7 billion, up about 7%. Adjusted EBITDA was about $754 million. And free cash flow was very strong at about $666 million. Etsy's ability to deliver healthy revenue growth and strong levels of profit and cash flow gives us great confidence in the power of our special financial model and our ability to invest in long-term sustainable growth. 2023 was a banner year for our Etsy marketplace product development teams who delivered our highest-ever level of incremental annualized GMS. We dramatically improved experiences for buyers, making it easier to find what you're looking for, better at highlighting the best stuff, using new signals and nudges to drive conversion rate, improving reviews and recommendations, and developing new category purchase pathways and experiences. We built entirely new ways to feature handcrafted high-quality listings at great value. Our marketing team was also extremely productive, with memorable above-the-line campaigns contributing to our highest-ever level for buyer intent to purchase on Etsy in our top three countries, increased visibility for seller-funded promotions, scaled social spend and new tools for buyer engagement. All in all, a respectable year in a tough environment. By any measure, Etsy starts 2024 a much more meaningful e-commerce company than we were just a few years ago. We've doubled our buyer base, which has now grown on a year-over-year basis for four consecutive quarters. And buyers on average are still shopping more frequently and spending much more on Etsy now than they were before the pandemic. Our $12 billion in 2023 Etsy marketplace GMS was roughly $3 billion more than we outlined in the three-to-five year target we set in 2019. As you can see on this chart, after many years of over-performing our sector, it's been difficult to outgrow during the past few years, particularly given the tepid macro climate for consumer discretionary products. But this just means we have to work even harder and more efficiently to deliver accelerated top-line growth. So where do we go from here? Let's start with the size of the prize. We all know that e-commerce is a massive business still taking share from traditional retail. We estimate that the TAM in our core geographies and categories is $500 billion just online, with our market share sitting at just about 2%. So we still have a very long runway for growth. Most other players are competing head-to-head to sell the exact same merchandise, focused on selling at $0.02 cheaper or shipping it two hours faster, and this has resulted in the commoditization of the entire experience. But that's just not Etsy. While we have an opportunity to continue to enhance our offering to deliver on the table stakes e-commerce expectations, we also stand for something more

Operator:

[Operator Instructions] Thank you. Our first question will come from Nikhil Devnani with Bernstein. You may now unmute your audio and video and ask your question.

Josh Silverman:

Okay, so in terms of the magnitude of the growth, we gave you what we're comfortable giving you right now. So anything more than that, if we could have been more specific, we would have in terms of when do we get back to positive growth and et cetera. It's certainly our aspiration. We believe we have every right to be growing not just positive but faster than e-commerce. And we think, especially when our categories stop being under such pressure and when discretionary consumer product spend in particular stops being under so much pressure, that's going to be very helpful. We do think we outgrew our categories yet again, our pure-play competitors in our categories yet again in the fourth quarter. In terms of the product and marketing initiatives that we expect to drive a lot of growth, we laid them out in the call. And so first on consideration, that is the biggest thing; people thinking to look on Etsy. Because when they do think to look on Etsy, they usually find something really compelling. So Gift Mode is a great example of us giving you a moment in time when you should really think, I need to buy a gift, I want to go to Etsy. And gifting is an all-year kind of thing. It's not just Mother's Day and Christmas. There's birthdays, anniversaries, back-to-school and on and on. And on other key elements in consideration, we've said we're in early stages of planning a loyalty program, which is designed to drive consideration among loyal users, more value, more on quality and more on reliability. And I think that that portfolio of bold initiatives, I think can do a lot to continue to drive growth, combined with compelling marketing campaigns. We're going to continue to work through the funnel on really compelling marketing campaigns as well.

Operator:

Our next question comes from Ygal Arounian with Citi. Please unmute your audio and video and ask your question.

Rachel Glaser:

I can certainly jump on. I mean, so the way -- you're right that January was a little bumpy. And that's the -- sort of the baseline from which we are able to provide guidance for the rest of the quarter. The way we do our planning is we estimate the incremental GMS that would be generated from each discrete product and each discrete marketing investment that we make. So they start to stack on top of each other. And we do a pretty good estimation and testing before we build our forecast so that we have a pretty high confidence level in what we think those things will deliver. So what we're looking at that remains in the rest of the quarter, we feel good about being able to step incremental GMS from where we are today. We have experimented with our marketing spend. I mean, looking back a little bit in the early part of the quarter on some of our PLA spend, we're now back to our normal levels. So we think we'll get some incremental benefit from just the regular business-as-usual marketing spend. And you saw us do a very large, first time ever, big-game television ad that is -- that ad continues to run through the rest of quarters, winning some of the accolades and awards from the advertising world and starting to gain some traction. I think the - it takes - it's something like 7 to 11 views to actually create that stickiness of an ad. So we're excited about what that brand - the repetition of that campaign and that brand can do for consideration with our customers. And there's a lot of things we wrapped around that Drew Barrymore, our Chief Gifting Officer. And a lot of our promotional campaigns that we also laid down to attract people. So marketing and spend product, I think we expect to deliver GMS in the quarter.

Ygal Arounian:

Okay, great. So you might step back a little bit further into performance. Has the environment there changed at all?

Rachel Glaser:

Thanks, Ygal. Operator, next one?

Lee Horowitz:

Great. Thanks for taking the question. Maybe two, if I could. Josh, you highlighted two charts in the deck, one that shows the Etsy's share gains versus pure-play comps. It seems to stand somewhat in contrast to the overall e-commerce market where Etsy is growing more slowly. It seems that would suggest that big-box non-pure-play competitors are taking share of the overall. I guess, why do you think consumers are leaning into these platforms that, as you say, compete on shorter speeds, perhaps a couple of bucks in price and not leaning into things like product quality or uniqueness? And maybe how do you think that may evolve in '24 and beyond? And one follow-up, if I could.

Rachel Glaser:

Let me add just a couple of quick points about things that are happening that point specifically to January and Q1 activities that are happening in the macro world. One, at Christmas time, people get a lot of gift cards. And today, Etsy doesn't have a gift card program. And they come into January and they spend -- they go into retail and they spend their gift cards at places like Walmart and Amazon. Second, they are doing a lot of returns when they're going physically into the stores and doing a lot of returns. And the third is that big-box stores are doing all their clearance right now, so things are continuing to be at deep, deep discounts, as Josh just said. Those are three things that in, the early part of this year, Etsy really wasn't in the game on those three areas and, I think, affected our January's GMS to some extent.

Josh Silverman:

Well, the models automatically incorporate -- well, there's some lag. It takes a couple of weeks for them to experience the fact that conversion rates, for example, are down or up, for them to incorporate that. But things like weaker demand turning -- meaning, conversion rate goes down, the models all automatically incorporate that. Where we're always refining our understanding is we run an incrementality test. For example, on PLAs twice a year, we hold part of the pantry dark. And we look at if we hadn't bought that click, would we still have gotten it anyway? And it turns out that often, the answer may be yes. It also may be that if someone didn't click on Etsy, but they saw Etsy, it made them think, Etsy sells that, and they come without having clicked. And so you can over or under-attribute. And so several times a year, we actually run a test to determine, what we call incrementality tests, how much of the final sale value should we attribute to the fact that someone clicked on that ad. And that changes over time as well based on competitive environments. So we are constantly adjusting based on that. And another input that goes into the model is what do we think about things like future take rate. What you're paying today, would that impact the LTV of a buyer if you think your take rate might go up over time, or if you think you might get more or less frequency over time? So there's some amount of judgment you make, but the models do most of the work. And we really do try to let the models do the work so that we aren't tempted to irrationally over or under-invest in any given quarter.

Josh Silverman:

Right.

Operator:

Our next question comes from Shweta Khajuria with Evercore ISI.

Josh Silverman:

Yes, I'm happy to take the first, if you want to add. So, yes. So we laid out, - first, Shweta, thanks for the questions. And, that slide that had consideration and quality, value and reliability with key initiatives under each, that's a pretty good roadmap for some of the bigger levers of the year. There are a lot of other things we're constantly doing to just incrementally get better in ways that drive real measurable value. But the way we run this business is we task every squad in the company with a value-creation goal. So if you're working on shortening expected delivery date or surfacing higher-quality items higher in search, there's a customer metric, but there's also a, how much extra GMS does that need to produce? And the sum total of that for last year is we think the team produced about $1.5 billion of incremental GMS. We've tasked the team with more, even more efficiency than that this year. We continue to find ways to get more efficient, leveraging new tools and techniques, leveraging new processes. We're pretty agile and we work on getting even more agile and even more focused. And then with performance marketing and above-the-line marketing, we're also always working to get more efficient. And I'm realizing now is when I talked about how the algorithms are doing the work, I don't want you to think it's static. We also have multiple squads working on MarTech. And they're constantly focused on things like, how can we make our landing pages more efficient? How can we perform better in SEO? How can we make our bids, you know, even more sophisticated, segment our audience even more? So we're constantly driving efficiency gains from each of our teams and each of our dollar spend. And so what we've done is we've looked at our plan for the year, what we think it's going to deliver in terms of incremental GMS. The assumption on that, again, is what's going to happen with the baseline, and that is the part that's hard for us to know. So the risk in this plan is, you know, I think we're going to execute on the plan and I think we're going to drive a lot of value. And what's going to happen with the baseline and to what extent is that a tailwind or a headwind to us for the year is still yet to be known.

Josh Silverman:

And I just would add that I find the whole commentary on the year of efficiency interesting because every year is a year of efficiency for us, every quarter is a quarter of efficiency. There hasn't been a quarter or a year when we've said, screw it, let's just, you know, invest and hope for the best. We've been obsessed with efficiency and value creation per dollar invested for the seven-plus years that Rachel and I have been here. And so every quarter we are looking at, is there a way to squeeze more efficiency? Is there a way to cut more cost? And when we find an opportunity to cut costs, the first thing we look at is can we invest that -- reinvest that profitably to drive growth. What's going to really move the stock price is getting growth, getting GMS growth up again so that we're driving the multiple. That's what's going to drive growth, but we have to do with cost discipline. So what we're not going to do is invest irrationally, invest a dollar to get a dollar or less back. So when we see an opportunity to put that money back into something that's going to drive growth, we're going to do it. The result of that is a business where at the core marketplace on Etsy generates EBITDA margin right now over 30%. It's hard to find a marketplace of our size and scale generating EBITDA margins anywhere close to that. And we're very focused on also reinvesting for driving growth. And we're going to continue to make sure we balance those two with an emphasis on investing in growth when we think there's a good opportunity to do so.

Shweta Khajuria:

Thanks.

Operator:

Our next question comes from Steven Forbes with Guggenheim Partners. Please unmute your audio and your video and ask your question.

Josh Silverman:

Hi, good evening.

Josh Silverman:

Sure. I would say we don't have anything to announce yet. And I know that's not going to be very satisfying, but we pay a lot of attention to loyalty economics in a lot of places, having cited Amex, where not only does Amex run really big loyalty programs and things like membership rewards, but we partnered with when I was at Amex Delta and Starwood and a lot of other places. Had a chance to study a lot of loyalty programs. And thinking hard about, which are the ones that truly drive more return and truly drive more consideration, is a big focus for us. It's got to have both rational and emotional benefits. It can't be just rational. There's got to be some yearn to it. And the goal is to get people to consider Etsy more often. People love Etsy. Talk to buyers and they're all going to say, I love Etsy. Why didn't you shop in Etsy more often? I didn't think of it. So committing to some form of loyalty program, we think can get them to prioritize Etsy and say I'm in this loyalty program, I should stop by Etsy and see if they have something to offer. If we can just get them to stop by, and see if we have something to offer, the answer is going to be yes, a whole lot of the time.

Josh Silverman:

It has stabilized a bit. If you look at the last four quarters, GMS per active buyer have been relatively stable at $126. So that's good news. And by the way, that's up from about $100 before the pandemic. So in spite of all the headwinds, and everything we've talked about with the macro, still spending 20% more, more than 20% more than they were pre-pandemic. In the headwinds for the beginning of this quarter, when we said we were off to a slower start, AOVs are down slightly. So when we talk about starting from a low - down mid-single digit and guiding to - we think we will get back to low single digit, by the end of the quarter. One of the headwinds we're seeing is AOVs are down. The good news on that is, it means transaction volumes are actually holding up better than, what those numbers would suggest. Buyers are still coming and buying on Etsy. They're just even more price sensitive in this moment. And that, I think, is pretty consistent with what we hear with a lot of others.

Operator:

Our next question comes from Anna Andreeva with Needham & Company.

Rachel Glaser:

I'll take the first, you take the second. Okay. So the - we rolled out Etsy Payments to nine more markets. So that helps us a lot with incremental transaction fees that we just weren't getting before. And today, we launched the seller fee, which not only has the benefit of incremental take rate, which, by the way, completely is reinvested back in safety of the marketplace. But it creates - did you call it friendly friction earlier? Friendly friction so that we create a little speed bump, for not just any seller can create a listing for $0.20 and some kind of product. It's a moment to think about, well, I'm going to have to make payments fee. And that helps us with bad actors on the site, so that we get both the benefits of that.

Rachel Glaser:

Let me add a quick one to that. Just also when we see international business increase, we get a slightly higher take rate on Etsy Payments where the buyer and the seller are two different currencies, because we have a premium that we charge for that currency exchange. So that's another thing affecting take rate. And lastly, we did see nice lift from Etsy ads again, and we'll continue to see Etsy ads improvement, as we continue to make investments in the better - and better the search broad relevancy is for Etsy ads higher the conversion rate.

Anna Andreeva:

Okay. Thanks so much guys.

Deb Wasser:

Again and I think last one is going to be from Jason, right? Operator?

Rachel Glaser:

Hi Jason.

Jason Helfstein:

Hi, thank you. So two questions, really one is a question everyone's going to ask. How are you thinking about helping sellers correct - use correct pricing and not just undercut each other and just be more sophisticated with optimum listing prices? And the second, really, to ask, a common investor concern we hear is really around the ability to grow cohorts. Is it something you would provide in the future, perhaps like annual GMV, by cohort on the year of acquisition, I think would help people better understand...?

Josh Silverman:

Yes, you'll have it very soon. So it will be a stack bar every year. The class you joined in 2017, what have they delivered to the class in 2018 all that stuff. And what I think you'll see in those cohorts, just to start with that, is I'm used to, in a lot of e-commerce business, is seeing that ask until down over time. And what you see with Etsy is that it's been more of a smile curve. And we think that's really healthy. Obviously, the inflection drove just like a massive uptick and then a little bit of a settling back down, which makes everything a little messy, a little harder to make sense of. But the fact that the cohorts, do generally stack on each other really nicely, we think, is a pretty powerful part of what makes Etsy really compelling. And we've still just been experiencing a bit, of when you look at the stacking of those cohorts, dealing with the post-pandemic, slight compression coming out of the post-pandemic has -- just provides a bit of a headwind. On your first point…

Josh Silverman:

Yes. Helping with seller pricing. Great. Great question. So a couple of things. One, we've had a very big focus on not hand made. And we've shared in the past that the percentage of views that encounter an item that's not handmade is - I think the last time we gave an update, it was cut in half. We've made even more progress since then. So it's a very big focus of our, to make sure that mass-produced items are not visible on the site. It's bad for the brand. And it's not helpful for our sellers in terms of price competition. But another thing I talked about very briefly in the call, let me unpack that a little bit more, is really elevating quality even more in search results. And what I mean by that is our search algorithm today, is designed to pick items you're likely to buy, right? So the search algorithm using cutting-edge machine learning is saying, what's Jason likely to purchase. What we wanted to do is say, what's Jason likely to love, purchase and loved. And so forming more of a point of view around does the seller give consistently good quality service, is the item consistently delightful and that leading to frequent - more frequent purchases. Gaining that kind of fidelity and filling a point of view, what's the quality of photography here, what's the quality of the return policies? Does the seller consistently ship on time? And using that to create an explainable AI model, to rank who should be on top in search, we think can unlock a ton of value, especially as you then start to expose that to sellers, and say to sellers in order to rank higher, the way to do that is to get better on one of the following metrics. Here's how you're currently doing. And the better you do on these metrics, the better you will rank in search. That creates a race to the top. And I think that's an incredibly exciting thing that, we're going to do that we're very focused on right now. It's one of the initiatives I talked about this year, and I think that over the kind of next couple of years can have a very big impact. So Etsy does far, because our unexplainable machine learning model is incredibly sophisticated at picking the thing you're likely to convert most at. And so, we've got to come up with an explainable version of the model that doesn't do any damage at least, right, that can largely match our black box model. And then get better from there. And there's some R&D that needs to happen, and that's the kind of R&D that's happening right now.

Operator:

Thank you. That concludes the call for today. We appreciate your participation. Have a great evening.

Rachel Glaser:

Thank you.

Josh Silverman:

Thanks Deb, and good afternoon everyone. Before we begin, the last few weeks of conflict in the Middle East have been devastating for impacted communities and beyond. Etsy has taken actions that can most directly and immediately help our sellers, who live in the impacted region, including covering their existing balances as of October 31st, which represents a contribution of about $1 million, and we're providing additional resources to help sellers manage their shops during this incredibly difficult time. Turning to our results, Etsy performed in line with expectations for modest to top-line growth and strong profitability continued. Consolidated GMS was $3 billion, up 1.2%, compared to last year. Revenue grew 7% to $636 million, and our adjusted EBITDA margin was again very strong at 28.6%. As you all know, there's been significant pressure on consumer discretionary product spending, as high inflation, elevated interest in mortgage rates, splurges on [Zola] (ph) experiences, and declining savings balances have meant that there's little leftover for many consumers after paying for food, gas, rent, and child care. These issues are magnified for lower-income buyers, and we feel the impact on the Etsy marketplace. We're also experiencing an increasingly competitive retail environment with a very heavy emphasis on deep discounting and in some cases competitors investing it potentially unsustainable levels in marketing and promotions. While the headwinds we're facing at this moment in the cycle are undeniable, I'm pleased that once again performance green shoots for the Etsy marketplace were evident in the third quarter. GMS grew about 1% versus the prior year and the prior quarter. We had another new record in active buyers, now at $92 million, with slight growth in U.S. active buyers as well. And buyer additions were up over 6% year-over-year. On a sequential basis, we reported accelerated international growth and improving trend in GMS per buyer and flat performance in habitual buyers. In this very challenging environment, it's more important than ever that we bring our A-game competing hard to win our share of consumers' wallets. And we are. We believe that overall, we're at least holding our market share gains and that our product and marketing investments are making a difference for buyers and sellers. We've been laser focused all year on knocking down barriers that stop buyers from shopping or shopping more often on Etsy. We know that buyers turn to Etsy most often for low-risk items, but we believe our opportunity is so much larger than that, because we know that Etsy can offer high-quality merchandise at a great value in a way that is both reliable and convenient. We've been hard at work to break down brand barriers, so that buyers will think to shop with us even more often across a wider range of purchase occasions, leading to significantly improved consideration beyond just those low-risk items and ultimately market share gains. Throughout 2023, we've moved boldly and with great urgency to address these areas, making strong progress in order to deliver a significantly better experience we can shout from the rooftops this holiday season. I'll explain each area further. With over 120 million items for sale, we've got millions of beautifully crafted items we believe are perfect for almost any person or occasion. Our opportunity is to organize and curate the experience to help get you to the very best of Etsy quickly and easily. We're moving beyond relevance to the next frontier of search, focused on better identifying the quality of each Etsy listing, utilizing humans and ML technology, so that from a highly relevant result set, we bring the very best of Etsy to the top, personalized to what we understand of your tastes and preferences. For example, from the start of the year, we're tracking to a nine-fold increase in the number of human-curated listings on Etsy, to over 1.5 million listings by year-end. We're also utilizing ML models designed to determine the visual appeal of items and incorporating that information into our search algorithms. Frankly, our timing on this work is important, with more competition than ever offering low quality, same as everyone else, mass-manufactured merchandise. There's also a huge opportunity to evolve the Etsy experience, so that we show buyers a more diverse set of options when they search for open-ended head query items, such as back-to-school. On the left of this slide, you can see an example of how a search for back-to-school items looks on Etsy. We generally show multiple very similar versions of customized pencils, stickers, lawn signs and so on, all mixed together. This is suboptimal as it offers buyers only a few main ideas on the first page of search and requires a ton of cognitive load to distinguish between virtually identical items. We've recently launched a variety of experiments with the help of Gen AI to evolve these types of head query searches. As we move into 2024, when a buyer searches for broad queries, we expect to be able to show a far more diverse and compelling set of ideas, all beautifully curated by organizing search results into a number of ideas for you that are truly different and helping to elevate the very best items within each of these ideas, we can take a lot of the hard work out of finding exactly the perfect item. And help build frequency as we highlight the wide range of merchandise available on Etsy. Another critical part of highlighting the good stuff and leading into our competitive differentiation is doing a better job than ever to enforce our Etsy seller house rules. In the race to the bottom of commoditized commerce, it's never been more important that Etsy stands apart showcasing items that meet our policies and stand for keeping commerce human. Handmade policy takedowns are up over 120% for the third quarter. I'm also pleased to say that in just a few months of work, we've nearly cut in half the percentage of visits where a buyer comes across a violating listing based on our constant sampling of the marketplace. So while buyers don't come to Etsy looking for mass manufactured merchandise. It's critical we do an ever better job elevating the best of Etsy to keep Etsy special in the minds of our buyers and sellers. We're all aware of what an incredibly promotional environment this is. We pivoted our road map this year to invest significant resources into highlighting the great value Etsy sellers can offer. Many consumers don't realize how cost effective it can be to buy directly from the maker even when buying something produced just for you or in very small lots. Because there are not layers of distributors and middlemen taking markups along the way. But our sellers don't have pricing departments, giving them insights into things like how best to price each item and how or when to use promotions. So we need to be the ones to provide those insights and be their advocates. We're helping sellers by providing information, so that they can set their own appropriate and sustainable prices and offer promotions that make sense. During the quarter, we began initial limited testing of new features such as a pricing optimizer that provides real-time information on market prices for similar items and a cost recovery insight feature for heavy users of sales and offers. We've also improved the way that sellers can put items on sale, and provided insights that will help them understand how to use those sales in a way that can drive GMS. We continue to elevate seller funded sales using a series of evergreen promotional content throughout the quarter. Such as our best of home at 40% off sale. Five Star gifts under $30, back-to-school basics under $50 and so on. Seller sales, coupons and urgency signals drove well over $100 million in incremental GMS during the quarter. We told you on our last call that we would pull out all the stops to help Etsy sellers compete and win. And in September, we ran an Etsy-funded 48-hour promotion in North America and Europe. The sale impacted GMS had a positive ROI and created a nice bump in reactivation of lapsed buyers. Buyers loved our Get 5 promotion. In fact, we saw an increase in average order value during the sale period as buyers spent more than the $25 minimum needed to use the coupon. We'll continue to test and optimize new marketing approaches, including Etsy-funded offers in a disciplined and ROI-focused way. If buyers are unsure whether an item will arrive on time, if they lack confidence in the fit or quality or if they're unsure if someone will have their back when something goes wrong, it provides a lot of friction, causing shoppers to buy on Etsy less often. The good news is we've made so much progress against these metrics in the recent past. As you can see on this slide, which represents our greatest hits in improving reliability and convenience. We've driven a tremendous increase in coverage for estimated delivery dates, better tracking of packages, big improvements in on-time delivery and transparent return policies and information. But perception is not kept pace with reality, and we need to close that gap. We know that generally, buyers have a great experience on Etsy. So in addition to doing this work, we need to disrupt buyer perceptions even further so that they can see Etsy as a convenient and trusted place to shop. And we'll do that in a big way this holiday season, as I'll explain in a moment. Only 12% of buyers will name Etsy top of mind as the place to shop for gifts. And association levels are much lower for other major categories like home and living and style. We believe our efforts to improve quality, value and reliability will significantly improve consideration for Etsy starting in these important categories and purchase occasions. Our Etsy hazard campaign is an important component given direct messaging and call to action alongside a significant amount of on-site product work, such as our new wedding, baby and gift registries, new home and living category pages and more. Building this type of brand association to help buyers and potential buyers understand the when and why of Etsy is a long-term play, and I'm confident that a powerful combination of better on-site experiences and off-site amplification build Etsy's consideration over time. It's game time for holiday. And thanks to all the work I've just described, I think our offering is the most compelling we've ever had, and we're ready to win. Our message in this holiday season is that will make you a gifting hero, helping you find the exact right quality gift at a great value for the special people in your life. All while supporting independent makers. No one has a better opportunity to own gifting than Etsy and what better time than the holiday season. So here are some of our new initiatives. First, we've launched a new and improved curated gift finder now available in our app and featured more prominently on mobile web. Second, our new deals tab replaces our updates tab in our app, making it easier to find personalized deals and amazing gifts at an affordable price. And third, we'll continue to selectively test Etsy-funded offers with an optimizing our return on investment. And last, but certainly not least, we couldn't be more excited about our holiday plans to market in the U.S. that Etsy gifts will be delivered on time or your money back. Our estimated delivery date performance and Etsy purchase protection program enable us to stand behind purchases and work to disrupt buyer perceptions. Here is one of our new TV campaigns all of which aim to disrupt by our perceptions of Etsy this holiday season. [Video Presentation] Shifting to our subsidiaries. Depop had a great quarter. GMS and revenue both grew double digits on a year-over-year basis with growth in active buyers sparked by strong new buyer growth in the U.S. Depop's success can be attributed to compelling product and marketing investments, which have accelerated growth alongside an increasing flywheel impact from higher transaction velocity and improved user experience. We're continuing to broaden Depop's appeal to feel more accessible to a wider audience, emphasizing value even more in the buyer experience while further streamlining the seller experience. While Reverb's GMS was down modestly in Q3, the business outperformed the musical instrument industry, while also improving take rate and growing revenue, compared to Q3 of 2022. Reverb enhanced the buyer experience by expanding search and category filters, improved negotiation tools and increased the prominence of promotions and price drops to help buyers more easily find the perfect piece of gear for their budget. There's no doubt that this is an incredibly challenging environment for spending on consumer discretionary items. It's therefore important to acknowledge that the volatile macro climate is going to make it challenging for us to grow this quarter. While there are many things we can't control, there's still a lot we can. So we are obsessively focused on those. All of us at Etsy feel a great responsibility to deliver profitable growth. Growth for our millions of sellers for our shareholders and for all of our stakeholders. Our team is working passionately and with the highest level of urgency. And I'm more excited about our current road map and the progress we've made this year than at any time in my tenure. We're confident we're working on areas that will positively impact Etsy in the months and years ahead. We believe our TAM is enormous. Our market share remains small. Our value proposition is highly differentiated, and we're solving for something no one else is. keeping commerce human. We're keeping our eye on the prize and look forward to getting back to strong growth again as we move through this cycle. Thanks for your time. I'll now turn the call over to Rachel.

A - Debra Wasser:

Okay. Hi, everyone. Happy to be here this evening, and we're going to take your questions. We've got a bunch in queue, so I'm going to dive right in from Lee Horowitz at Deutsche Bank. Josh, you were able to impressively reaccelerate growth at Etsy when you landed the company back in 2017. And the environment was much different than it is today, but what are the learnings from that initial time? And how can you apply that to getting Etsy growing from here?

Debra Wasser:

Great. Thanks, Josh. From [Indiscernible] at Citi, and it's a connected question. There remains growing concern from investors on the competitive environment in e-commerce you touched on it last quarter, but are you seeing anything different from here, particularly from the newer Chinese entrants?

Rachel Glaser:

I just had just a couple of notes just to what Josh said. And just to reemphasize, Etsy is a very differentiated marketplace where we have a human being on the other end of every transaction. This is a marketplace that is -- we're creating economic empowerment. Most of them -- most of our sellers are women and they're handcrafting these items oftentimes customized or personalized to the buyer specification in a sustainable way. So to underscore Josh's point about being the opposite of some of the new mass merchant entrants, these are things that we really care about and matter to many of our buyers.

Josh Silverman:

Yes. So thanks for noticing. First, we're investing about $50 million in enforcement throughout our policies this year. We've hired a lot of people, and we also have been investing a lot in machine learning and machine learning is really helping us to be able to identify among the 120 million listings on Etsy, those that may not conform with our policy. Takedowns are up 140% year-over-year. And we've really been focusing on what percentage of buyers come across one listing or more that doesn't comply with our policies. So the fact that something exists on Etsy doesn't mean that it's seen. But what percentage of buyers will see a violating view we've cut that number in half in just the past four months. So I'm glad you're noticing, I think it is very noticeable and we think there's even more we can do. I'm also proud to say that we are seeing no deleterious effect to GMS from that. People don't come to Etsy wanting mass-produced product, and we're finding that as we do even more to suppress those listings on the site, the site experience only gets better. We only get more differentiated.

Rachel Glaser:

Yes, I think that the top line is that we're adding product development people that are -- were investing in them for growth. They are actually driving more GMS and revenue than the cost to have them in our overall cost base. So the biggest driver of product development costs coming down was employee compensation. A technical answer to it is also that we divested ourselves of Elo7. So there's a chunk of cost that came out of the product development line and because Elo7 was not profitable, you would have expected that cost to be higher than the amount of revenue they were generating. And then just a reminder that we really -- we measure our product development investment with an eye on ROI just like we do with marketing, and we invest in areas where we believe they're going to drive incremental GMS and they are, and we talked about how product development velocity increased -- the product -- number of product launches actually increased 40% this last quarter. So it's just a great demonstration of how we're getting return on the investment in product.

Josh Silverman:

Well, we haven't given 2024 guidance yet. But what I would say is we are always thoughtful about balancing growth and profitability. You have never seen us be a growth at all cost company or throw discipline to the wind. You've never seen us try to buy market share indiscriminately. So when -- I just was speaking about competition from some of the Chinese recent competitors. And if they drive costs up in the auction too much in performance marketing, let's say, we'll go to other channels. But we're not willing to bid higher than a keyword is worth. We also measure, as you well know, our product development and what value have they created our team, each squad in terms of additional GMS, additional revenue or cost savings. And I'm really proud of the team and how they're delivering. We talked about launches being up 40% year-over-year, but productivity is very high. We feel great urgency to be giving everything we can give right now to help our sellers grow at this time to deliver even more value to our buyers and even more value to our shareholders. And so the team is acting with great urgency and we are thoughtful and careful about hiring. We are thoughtful and careful about the investment we make in R&D to make sure that it is delivering it is driving growth. And we're going to keep doing that. When we see opportunities to invest to grow, we'll take them, but we're always going to do it with discipline and care.

Debra Wasser:

Great. And since we were on the topic of marketing, and you touched on this, but I'll just ask the specific question we got asked from Sharanjit Cheema. I hope I said that right, at D.A. Davidson. And I'll give this to Josh. Can you give your current thoughts on advertising, including your efforts on linear TV, OTT and digital advertising, including TikTok. We touched on it, but I might as well ask that.

Debra Wasser:

Okay. Great. Thanks, Josh. We have several questions about promotions, so I'm going to combine them. One is from Eddie Yruma at Piper Sandler, and one is from Nathan Feather at Morgan Stanley, but it's basically getting at how do we think our Q3 promotions went the Etsy funded promotions? And how do we think about those more as a go-forward marketing strategy? I think we could start with Josh on that one.

Debra Wasser:

Great. I like the icing on the cake. That's great. Rick -- next question comes from Rick Patel at Raymond James, Rachel. I'm going to give this one to you. Can you expand on new buyer ads? How much is coming from the U.S. versus international? And anything around categories and how people are spending when the new buyers come in?

Debra Wasser:

Great. There are two questions about sort of areas of interest that we have for investment. One is from Ashley Owens at Key and the other one is from Nick Jones at JMP, and I'll basically read a version of the combined question, which is for Josh. As you look out over the next couple of years, what are your priorities in terms of investments in mark-for-the-market place for buyers and sellers in search in other tools? And how do you see those types of investments inflecting frequency over time. I think that's really the net result of the question.

Debra Wasser:

Okay. Great. I'm going to jump to a question from Trevor Young and his team at Barclays. And it's related to our seller growth. So you've seen -- we've added over 1 million active sellers in the last three quarters. Can you talk about the levers that drive that strong growth? And Josh, I'll give that one to you.

Debra Wasser:

Great. Thank you, Josh. And the next one is for Rachel from Anna Andreeva at Needham. Question on take rate. You mentioned there could be an opportunity to still raise some of the fee structure at more Etsy and the subsidiaries. What is the sensitivity towards additional raises from the seller community.

Debra Wasser:

Okay. Great. We had a question in from Eddie Yruma at Piper Sandler, and it's really about the financials of Depot, which I want to ask Rachel. But I first want to ask Josh sort of what we're seeing in the business there, talk about the financial performance just in general of Depop and what do we think is attributing their growth? And then Rachel, maybe you can add on how we think about their EBITDA margin drag.

Debra Wasser:

Yes, Rachel, did you want to add anything there on that?

Debra Wasser:

Okay. And then, Rachel, while I have you, a question from Laura Champine at Loop. Is the Q4 GMS outlook in line with the quarter-to-date trend. I assume what she means through October. If so, what do you attribute a slowdown from the pace of Q3? And then she had asked us a connected question separately, which was, is it -- is it really coming from Etsy getting crowded out by other advertisers who may lack a hurdle rate to him their investments. that's one.

Josh Silverman:

The only thing I'd add there is everything Rachel talked about is GMS. So the GMS guide is down low-single-digits. Take rate is actually up year-over-year. You'll notice in our guide. And so a low-single-digit GMS would still be roughly flat, maybe even slightly positive revenue for the quarter.

Josh Silverman:

Yes.

Josh Silverman:

Thank you.

Josh Silverman:

Thanks, Deb, and good afternoon, everyone. Etsy's results landed in line with our expectations. Consolidated GMS was $3 billion about flat to last year, revenue grew 7.5% to $629 million and our adjusted EBITDA margin was again strong and 26.4%. GMS for the Etsy marketplace was about $2.6 billion this past quarter, about flat with the prior year. Digging deeper, we've seen many of our key metrics trending positively again. Our negative year-over-year growth rate improved sequentially, and even more important GMS grew year-over-year in May June and in July as well. Quarterly active buyers reached 91 million an all-time high and when adding new and reactivated buyers together, we saw healthy growth in buyer additions on a year-over-year basis. Additional green shoots included GMS growth outside of the U.S., improvement in trends in important category and early signs of stabilization in our GMS per buyer and habitual buyer metrics. Overall, this performance is quite encouraging especially given the tremendous gains we've maintained from our pandemic growth and the stiff headwinds we've continued to face in consumer discretionary spending. Economic cycles are just that cyclical. The Etsy brand stands for something different in a sea of sameness and I believe we've proven our resiliency. I'm confident that we're well set up for future growth as we continue to move through this cycle. On our last call, we explained that Etsy's 2023 product roadmap is focused on welcoming new buyers to the joy of Etsy, elevating the best of Etsy to keep buyers coming back, instilling trust when transacting with us and being the platform sellers love to sell on. As we progress through the year, we continue to prioritize our investments to ensure that we're funding the biggest, boldest, and most impactful initiatives on our roadmap to make our marketplace even more organized, curated, and reliable. Regardless of whether you're new to the Etsy experience, or habitual buyer, we know we have so much more opportunity to gain your mind and wallet share. We’ve made so much progress improving the relevant of our search results, our ability to find what you meant compared to what you searched for. We've explained some examples of these search technologies in prior calls, which are featured in this slide. The next frontier is to better identify the quality of each listing, so that from this relevant result set, we bring the very best of Etsy to the top. Our data shows that high quality listings attract a higher value buyer than our average listings, attract more repeat and habitual buyers, and most importantly, they often convert over 2 times better than other listings. We have a lot of opportunity here, and I couldn't be more excited about some of the progress we're already making, starting with our work in organization and curation. With over 115 million items for sale on Etsy, and our average search result yielding well over a 1,000 listings This incredible abundance continues to not only be one of Etsy's greatest strengths, but also one of our greatest challenges and where we have so much potential. Our product teams are helping buyers more easily navigate the breadth and depth of our sellers' inventory leveraging the latest AI advances to improve our discovery and inspiration experiences, while surfacing the very best of Etsy. These latest technologies, combined with training and guidance from our own talented team is making the superhuman possible in terms of organizing and curating it scale, which I believe can unlock an enormous amount of growth in the years to come. One great example, over the past quarter, we've more than doubled the size of our best of Etsy library, which is curated by expert merchandisers based on the visual appeal, uniqueness, and apparent craftsmanship of an item. We're now using this library to train our ML models to better predict of quality of items as perceived by humans. We're seeing encouraging results from first iterations on these models and I’m optimistic that this work will have a material impact helping us to surface the best of Etsy in every search. Finding the good stuff also comes to light in two other second quarter product launches, as does our focus on highlighting home and living, style and gifting purchase occasions. First, we launched a curated Shop the Look in home and living on our home page, which drove higher conversion rate. Second, buyer participation in our new Etsy wedding registry showed strong and steady growth from the May launch through the end of June, not only has this initiative driven buzz for Etsy through earned and social media, about 14% of registry GMS has come from new buyers and we're seeing higher than average order value from items purchased. Since the success of that launch, we've fast tracked our expansion to more categories including a baby registry, which will be live this month. In addition to solving for a buyer's tastes and preferences, we're also working on several compelling initiatives to better highlight specific Etsy seller merchandise, which fits an individual buyer's budget. We're starting to elevate great deals on Etsy, such as through prominent on-site promotional merchandising on our homepage. And we're developing a new feature on the Etsy app, which will help buyers find deals for items in which they've already shown an interest. There's no question this is a very promotional environment. So our team is pulling out all the stops to help Etsy sellers compete and win. Etsy's been on a journey to make shopping and selling in our marketplace more joyful and more reliable than ever before. We're doing this by focusing on quality, doubling down on enforcement and up leveling customer support. Specific to our trust and safety work, advances in ML capabilities have enabled our enforcement models to detect an increasing number of policy violations, which combined with human knowhow is starting to have a meaningful impact on the buyer and seller experience. Since Etsy purchase protection was launched about a year ago, we've reduced the issue resolution time for cases by approximately 85%, dramatically streamlining the service experience on the rare occasion that something goes wrong. Demonstrating to buyers and sellers that we have their backs in these key moments. The opportunity now is to ensure that more of our customers know about this, which is why you'll see us embed even more purchase protection messaging and customer touch points. We've got a lot of conviction that we can increase both frequency and AOV as we build consumer confidence in Etsy. We're always focused on helping our sellers grow and thrive. Towards this end, we're investing in our seller growth suite, a group of programs designed to give sellers personalized insights in the tools they need to grow their business in a sustainable way. One area I'm really excited about, we're running tests of a new price discovery functionality utilizing buyer demand data to help sellers think about how to price their items and when or how they might best use promotions as part of their mix. Our recently launched Make an Offer program currently focused on U.S. vintage sellers is another example of our investments to help sellers price their items appropriately, and especially challenging task in a world where items don't have MSRPs. And as we improve the seller experience, this in turn enhances the buyer experience as items on Etsy are priced appropriately, we facilitate better matches between our buyers and our sellers. During the second quarter, we held our annual engineering week designed for our engineers to connect, share ideas, learn new skills, and technologies. Of course, much of the focus was on the myriad ways we can continue to harness AI and ML Technologies in almost every customer touch point with the potential to further transform buyer facing experiences like enhancing search and recommendations, seller tools like streamlining the listing process and assisting with answering customer queries, improving fraud detection and trust and safety models, et cetera, the opportunities are nearly endless. But all of this innovation also takes time and effort and relies on our relatively small, but mighty team of ML experts, talent that is obviously in high demand. Historically, all new ML models have been created by this team of highly specialized data scientists. And the full process of creating a new model from cleaning and organizing the data to training and testing the model, then putting it into production could take as long as four months, that's why we kicked off a major initiative over a year ago. We call democratizing ML with the goal to streamline and automate much of this work, so that virtually any Etsy engineer can deploy their own ML models in a matter of days instead of months. And I'm thrilled to report that we're starting to see the first prototypes from this effort come live now. For example, if you're on the Etsy team working on buyer recommendations, you can now use a drag and drop modeling tool to create a brand new recommendations module without needing or ML team to build that model for you, it’s a great example of the, kind of, longer term infrastructure investments we've been making that we believe will pay very significant dividends over the medium term as we work to get even faster and more efficient as we scale. Turning to marketing. We've released a new Creator Collab with the award winning artist and entrepreneur, John Legend, featuring handcrafted home decor and wardrobe staples produced in partnership with female sellers from the Etsy Uplift Initiative and other underrepresented communities. To-date, we've seen this collection deliver above order value and strong awareness, engagement, and frequency. The 5th annual Etsy Design Awards has once again created wonderful buzz for Etsy. This year with the winners handpicked by Sarah Jessica Parker and Etsy's Dayna Isom Johnson. And early indications are that our Etsy has it campaigns in the U.S., U.K., and Germany that emphasize home and living, style and gifting are performing well and driving brand association for these purchase occasions. While GMS per buyer has shown early signs of stabilization, taking this metric to new heights is a top priority for us. With over a quarter of our GMS coming from buyers, who purchased again within 14 days of their prior purchase, one way we can influence this metric is to bring buyers back to the platform faster for their next purchase. We're leaning into this work in the second-half of 2023, including leveraging post purchase touch points, better outreach and promotional campaigns, and improvements to seller funded offers. Given all Etsy has to offer, we're highly confident that we can make Etsy a place where buyers want to shop with us much more than our average of three purchase days and spend significantly more than a $128 per year. Moving to our House of Brands, two weeks ago, we announced an agreement to sell our Brazil based handmade goods marketplace, Elo7 to Enjoei a Brazilian company, which operates an online marketplace for clothes and furniture. Our House of Brands philosophy has been to operate standalone marketplaces that together accelerate value creation for each brand and Etsy Inc. We evaluate each company's performance on a case by case basis, and given Elo7's performance over the past two years, due in part to the unique macroeconomic conditions in Brazil, as well as their small scale, it became clear that we needed a different approach for that business. We considered various alternatives and determined that the best to sustain the marketplace and it’s 1,000s of sellers would be for Elo7 to join force with a local like-minded marketplace. The transaction is expected to close shortly, and Rachel will review its financial implications in a moment. We remain committed to doing what is best for our remaining marketplaces and we'll invest with discipline in compelling long-term growth plans that further our global scale and shared mission. The Depop team is starting to see very encouraging signs of success, transforming the business by narrowing their focus and improving operations to reignite growth. In the second quarter, Depop delivered both GMS and revenue growth on a year-over-year basis. U.S. GMS growth accelerated by over 25 percentage points since the end of 2022, where we believe Depop is taking share. We believe this performance is a direct result of improvements in the customer experience and marketing efficiency, powered to a significant degree by Depop CEO, Kruti Patel Goyal’s, more streamlined focus, organizational structure, and processes. Product development velocity has remained strong, and the Depop team has been leveraging deep expertise from the Etsy, core marketplace to great effect. Some examples are shown on the slide, including new personalized buyer recommendations, greater search relevance, and new Make an Offer capabilities. Depop also expanded its performance marketing data feeds to additional listings, driving a strong increase in paid marketing contribution. Depop is building a playbook for community driven marketing, such as branded events, pop-up shops, and influencer marketing. We're seeing really encouraging signs the business is recapturing its mojo with significant opportunity to scale and drive improved profitability over time. Although macroeconomic factors are pressuring consumer discretionary spend, Reverb has continued to outperform the musical instruments sector over all. Similar to Depop, Reverb has increased its product experiment velocity to more quickly deliver better buyer and seller experiences with its best quarter ever in terms of the number of product wins. Reverb’s focus on affordability and helping musicians find good deals has continued. For example, we launched new offer and negotiation tools, making it easier for buyers to save money on a wide range of year. Over the last few years, Etsy has gone from a period where we grew tremendously with so many tailwinds at our back to a period of stiff headwinds and uncertain macroeconomic conditions. While we're cautiously optimistic for the near-term, the macroeconomic climate remains challenging, at least for the moment. Consumers continue to make very tough choices on where and how to spend their money, and we're fighting hard to help our sellers get their share. We're up for the challenge. We have an energized world-class team, who are all in on helping our sellers and Etsy grow. We couldn't be more proud that our already high employee engagement score increased 3% from lasty year and is now 6% above the industry benchmark. We're acting with focus, speed, and boldness and our work to reignite GMS growth in the second-half of 2023 and beyond. In fact, you'll see us making some big moves so that Etsy is even more special and a better place to shop for the holidays this year. Building on our Etsy has a theme, this year, we're working to better connect our brand and on-site experiences to become your gifting accomplice. In other words, helping our buyers to be gifting heroes. Buyers will see some new AI assisted ways to find crafted quality gifts for the loved ones at great value with even more confidence that these gifts will arrive on time. Our goal will be to help buyers gift better in 2023. We continue to believe that we're doing something truly important and different and are in the very early days of unpacking Etsy's enormous potential. Thank you for your time, and I'll now turn the call over to Rachel.

A - Deb Wasser:

Hey, everyone. Good evening. Thank you for joining us. I'm going to dive right into Q&A. First one, I'm going to give to Josh from Mike Morton at Moffett Nathanson. Looking beyond domestic buyer growth, can you discuss Etsy's expectations for the biggest contributors to GMS growth in 2023 and 2024, for example, do you see this from improved curation, international expansion or recovery in the software category -- in the softer categories such as home and living?

Deb Wasser:

Okay. Great, Josh. next one is from Laura Champine at Loop. I'm going to give this one to Rachel. What do you expect to be the ceiling on total take rate now that Elo7 is being divested and the rate seems to be naturally climbing on an organic basis?

Deb Wasser:

Thank you, Rachel. Alright, I'm going to move to the next one from Tom Forte at D.A. Davidson and this is going to be for Josh. Can you provide an update, on your M&A strategy and why was it the right time to divest Elo7? We've had quite a few questions about that and also related to our House of Brands, strategy going forward? I think we'll just -- I'll end the question there. And if you can just address those kind of two factors of it, it would be great. Thanks, Josh.

Debra Wasser:

Okay. Great. Thank you. I'm going to give this next one to Josh. Hold on a second. Give me one second. Okay, actually, for Rachel on a couple of guidance questions. The high -- it's from Lee Horowitz at Deutsche Bank. The high end of guidance suggests quarter-over-quarter growth of 40 basis points. In the past, back to school demand has supported growth in the low to mid-single-digit range. Why is it that you are no longer replicating past seasonality? Is it the continued pressure from the macro environment?

Debra Wasser:

There was a -- thank you, Rachel. There was actually another question related to guidance that was from Curtis Nagle at BofA. And it was really about -- we already answered the part about the midpoint and where it was hitting in terms of macro factors. But there was another one about whether our product categories had any impact, how we were thinking about product categories in the guidance. Did you want to answer that one as well?

Debra Wasser:

Thanks, Rachel. All right. Josh, I want to give you the next one from Maria Ripps at Canaccord. Recently, there have been reports of some sellers taking issue with the company's reserve system and its process for withholding and distributing funds. Can you first refresh us on what that policy is around payment reserves and why it's important to the overall health of the marketplace? And maybe comment on how you are addressing this cohort of sellers who are unhappy with the current policy.

Debra Wasser:

Okay. Great. Thank you, Josh. One from Ed Yruma at Piper Sandler. Can you talk about inflation, if any, observed on the marketplace? Does the pricing tool help sellers understand when they have pricing power? And could this help drive GMS? I'll give that one to Josh.

Debra Wasser:

Okay. Great. Rachel, I want to give you one from Shweta Khajuria from Evercore. Just to clarify the guidance comment that you made. Does the guidance assume August worse than July and September worse than August? She was just following up on that, and I think that's an important one we want to clarify.

Debra Wasser:

Thank you, Rachel. That's perfect. And then I'm going to give another one from Shweta since I have her right here. I'm going to give to Rachel also. Etsy ads once again drove revenue growth and take rate expansion. Where do you see the clear growth opportunity? Is it driving relevance, ad load, more sellers, something else? And maybe Josh wants to comment on that one, too. It's an exciting one. So Rachel you go first.

Debra Wasser:

Okay. Great. Did you want to add anything, Josh? Or are you good? Okay. Fabulous. And I'll go to the one for both of you from Ygal Arounian from Citi. I'll start with Rachel. Are you able to quantify the AI and ML investments? What they are and how they're impacting margins? And then perhaps -- and then connected to that, I'm going to have Josh talk a little bit about the benefits we're seeing from Gen AI and whether it's helping develop better product development velocity? And do you have any proof points yet that the AR tools are driving GMS growth? And sort of for both of your questions. Rachel, do you want to start? And then…

Joshua Silverman:

And then on how Gen AI might affect the customer, I would talk about internal and external customers for that. So there's a set of productivity potential benefits that come from Gen AI, for example, for our software developers. And I'm really pleased by the data we shared in this earnings call about just how much velocity continues to improve in spite of getting better. Velocity per squad continues to get better, and we're really excited about the value creation per squad we're seeing right now. So we continue to focus on making Etsy more efficient and more nimble even as we get bigger. Gen AI, things like CoPilot are going to be another tool to help with that. I would caution, I don't think we're testing, and we're leaning in and we're excited about it, and I think it's going to be helpful, but it's not the only thing. It's not a silver bullet. We're actually constantly looking at how can we streamline our processes, how can we be more agile and how can we get more productivity and more value creation out of every squad. I do think that the way that we measure value creation per squad in this company is part of our secret sauce. We've always been obsessed with that. I think it can be a tool that can really help our sellers. So for example, answering queries from buyers. Can it help to auto generate some suggested responses? But the seller is still going to want to look at that, put eyes on that before they send it. So it will be helpful for them, and we want to help sellers every way that we can, help them auto generate listings over time, things like that. Yes, maybe. It could be good again if it helps sellers save time, that's great. We wouldn't want to do anything that makes the cycle homogenous or boring, though, so we're going to be very careful about that. And more listings doesn't necessarily translate into more sales for Etsy. So if it's useful for sellers, we'll lean in. For buyers, the idea that the search experience can become more conversational, I think, can be a very big deal for Etsy, and maybe more for Etsy than for most people. I talked to two earnings calls ago now about how you don't walk into a store and shout, Dress blue, linen, to a sales agent. You actually have a conversation with them that has more context. And I think that's especially important in a place like Etsy, where we've got 115 million listings to choose from and no catalog. So the idea that it can be conversational, I think, can give a lot of context and really help. And I think a lot of the technology behind that is becoming a self-problem. What's going to be longer is the consumer adoption curve. What do customers expect when they enter something into a search bar? And how do they get used to interacting with chatbots? And what's the UI look like? And that's something that I think we're going to need to -- we're testing a lot right now. What do people expect? How do they like to interact with things? And in my experience now, having a few decades of consumer technology leadership, the consumer adoption curve is often the long pole in the tent, but I think over time, can yield really big gains for us.

Joshua Silverman:

Yes. Great. Thanks for the question. So let me talk about GMS per buyer in the U.S. and international. In the United States -- well, around the world, when the pandemic happened, most places you could shop shut down or were out of stock, and Etsy had enormous tailwinds. And during that time, in the U.S., we saw GMS per active buyer grow by over 30%. Since that time, there's been an onslaught of competition. There's been inflation and all the other things everyone knows about, and yet the GMS proactive buyer in the U.S. has stayed almost exactly the same. We've held almost all of those games. The declines we're seeing in GMS productive buyer are that we're growing faster in international than we are in the U.S., and we've seen a little bit of pullback in GMS per active buyer in international. I'm not mad about us growing faster in international. There's a lot of opportunity in international. There's a lot of buyers to be added in international. And the fact that we've done such a good job maintaining a GMS per active buyer in the U.S. in spite of these headwinds, in spite of all the new competition says, wow, people came to Etsy and they loved it and it was something really different. And now with a lot fewer dollars to spend and a lot more places to spend it, they are continuing to come back and spend in roughly the same amounts today as they were back then. As a platform from which to drive further growth, I take a lot of optimism, excitement, confidence from that. I talked at I think the first question about all the things we think we can do to grow and drive even more from there. But I take that as very encouraging. Rachel talked in the call -- in her part of the call about the difference we're seeing between households over 100,000 and households under 100,000. And we see this not just in Etsy results, but all around that it does seem like for households under 100,000, they're just under enormous pressure right now and having to make very, very difficult trade-offs in life. And if it's not something that's absolutely essential, then people are having a hard time prioritizing that, and we may be feeling some of that. We're still getting a pretty good amount of GMS proactive buyer from people under 100,000 considering the times we're in. But I would say cycles are cycles. And now being over 50, having lived through a few cycles myself, cycles are that. They come and they go, and we are in a tougher part of the cycle. And at the time we're in a tougher part of the cycle, and we are still maintaining the GMS gain to the pandemic and putting up EBITDA margins in the core of 30% feels like a pretty good business if this is what bad times look like, and I'm very optimistic that there's much better times to come.

Rachel Glaser:

I really -- we're super excited about what's going on internationally, and what we said on the call was that we've seen growth in non-U.S. markets up 5%. And we've been able to invest profitably in our core markets with performance marketing and within the U.K. and Germany with brand marketing as well. We've also been investing with performance marketing in our noncore markets. And we're seeing this lovely yield from that spend, where we're getting lots of visits in GMS coming from some of these noncore, especially Western European markets. So look, we'll stay tuned for that. We'll talk more about it. It's a nonhuman intervention kind of things, so we're able to spend there with a fairly light lift and with good ROI on our adjustment.

Joshua Silverman:

Thanks, Deb, and good evening, everyone. We're pleased to be reporting another quarter of healthy performance to start the year. Etsy's consolidated GMS was $3.1 billion. Revenue grew nearly 11% to $641 million and our adjusted EBITDA margin was again strong at 26.6%.

Debra Wasser:

Hi, everyone. I'm hearing an echo. Are we okay now? Okay. Great. I'm going to kick off the Q&A with the first question going to Josh from Anna Andreeva at Needham. Josh, great to hear about stabilization at core Etsy in March. Can you talk about what you are seeing quarter-to-date? And what is the low versus the high end of the Q2 '23 guide based on?

Joshua Silverman:

Yes. We're seeing good returns and success from our brand spend. So we tend to run brand in each of our 4 quarters. We're, I think, going to move to more of a pulsing strategy, but you should expect to see us continue to invest in each of our quarters, and I would expect the investment to be the heaviest in the fourth quarter as usual. But the strategic intent is really Etsy has it. That campaign, Etsy has it, is so important. The fact that Etsy sellers sell billions of dollars of home furnishings, it's our largest category. And when you ask people name 3 places to shop for home furnishings, only 3% of people unprompted will name Etsy. There is a massive opportunity.

Rachel Glaser:

Would love to. Thanks for the question. So first, let's start with active buyers overall being up to $89.9 million. So it's been -- it was positive in the quarter. And then we can shift to new buyers. We added 6.7 million new buyers, which is up 50% versus our pre-COVID levels. We reactivated 6 million buyers, which was up 21%, and those reactivated buyers are very valuable. They spend about 35% -- they have about a 35% higher LTV in the first year after repurchasing versus a new buyer. And then we can talk about active buyers on a trailing 12-month basis, remained above pre-COVID levels. So on a quarterly basis, retention trends improved both on a prior year basis and prior quarter basis.

Debra Wasser:

Rach, I think you bet -- that 200% something was probably -- was the year over a 4-year number?

Debra Wasser:

That's okay.

Debra Wasser:

Okay. And then the other part of the question was new buyers, U.S. versus non-U.S.

Debra Wasser:

Perfect. Thanks, Rachel. Well, I have you, I'm going to give you a question from Deepak from Wolfe Research. Can you comment on the inputs behind Q2 EBITDA margin guidance? With the GMS inching closer to positive growth -- positive -- is the deleverage largely driven by planned marketing investments or something else going on? And how do you think about the long-term returns on your investment?

Debra Wasser:

Okay. Great. Thank you, Rachel.

Rachel Glaser:

So the guide we gave for Q2 implies a sort of flat sequential take rate. We have seen growth in take rate coming a lot from Etsy Ads because we keep on making the product better. So we are investing in making the relevancy of a promoted listing as strong as the relevancy of the rest of our listings, and that drives click-through rate up, and we get a lot of -- you see it in the revenue line.

Joshua Silverman:

Yes. So I think it is the question, what gives us confidence. And what gives me confidence, first and foremost, is that we have a great product that meets a really wide variety of purchase occasions. We don't need to go and figure out how to be good at weddings or good at babies or good at home furnishings or good at style or good at pets or good at gifts or good at Mother's Day or other things. Hardly a week goes by when there aren't multiple good purchase occasions to shop on Etsy. So that's the first pillar of strength that gives me confidence.

Joshua Silverman:

Yes. And again, we're really excited about the progress at Depop, the Kruti and [ Raf ] and the leadership team there have really been making a lot of progress, and it's very exciting. So we talked in our prepared remarks about the increase in velocity. They are shipping a lot faster now to improve the customer experience, and they're doing it in a way that's highly focused on things that we think are really improving the quality of the experience overall, and it's showing up, as I said in the call, in terms of conversion rate already moving.

Joshua Silverman:

Yes. Great. So first, we're focused on democratizing ML generally at Etsy. So we have been using machine learning, a variety of machine learning techniques at Etsy for some time. We've built a really good infrastructure that allows us to be very agile at this. And we've got talent on the team that know how to use these tools. So now it's really about making sure that we have both the tools and the training and the process so that all of the engineers at Etsy can be using machine learning because it's applicable -- and I'm not speaking about generative AI more narrowly. I'm speaking with different types of machine learning techniques of which gen AI is only one.

Debra Wasser:

Okay. Great. Rachel, I'm going to come to you with a question from John Colantuoni at Jefferies. Last quarter, you provided some color around second half GMS expectations. Can you update us on your outlook for GM for [ 2022 ] to 2023.

Joshua Silverman:

Yes. There's -- in my experience, a lot of markets that do very well, international markets that are really well suited for a two-sided peer-to-peer marketplace like Etsy. The U.K. is the first place I'd point, where our penetration rates are now approaching those of the U.S. And by the way, I think the U.S. is in its early days. Only 1 out of 3 women shopped actively on Etsy in the most recent time we reported that and only 1 out of 10 men, and I think we have an opportunity to grow that a lot. And I think we have an opportunity to grow frequency a lot in the U.S.

Debra Wasser:

Okay. Great. Thanks, Rachel. Josh, given -- this one from Steve Forbes of Guggenheim Partners, given macro-related challenges, can you provide a preview of your Etsy Up event that's coming up soon?

Debra Wasser:

Okay. Great. I think that is a great note to end on. So thank you, everyone. Thanks, Josh. Thanks, Rachel, and we'll talk to you all in person and virtually soon -- very soon.

Josh Silverman:

Thanks, Deb. We're happy to speak with you this evening to share our latest performance and our outlook for the business. Once again, in 2022, our team was able to significantly improve the Etsy customer experience and do so in ways that had a meaningful and demonstratively positive impact on our financial metrics. We believe it's no accident that Etsy's performance has remained healthy in a volatile environment. We're also proud of the continued focus we've had over the past five years on profitable growth and cost discipline, which we believe serves us especially well today. Our ability to retain pandemic gains supports our belief in the relevancy of our Right to Win strategy, the focus and discipline of our investment strategy and the resiliency of our business model. The Etsy marketplace ended the year on a high note with strong holiday performance and accelerating year over three-year GMS in the fourth quarter. Etsy and our sellers helped make the season bright. GMS grew year-over-year on a currency neutral basis during Cyber 5. We had particularly strong days on Small Business Saturday and Giving Tuesday, supporting our belief that buyers associate Etsy with shopping small and making a positive impact. We pulled out all the stops to help our sellers have the best season possible, which included holiday ad campaigns in the U.S., U.K., and Germany, spotlighting well-crafted items for all budgets, types of people, and giftable moments, out-of-home campaigns in the U.K. and Germany; increased seller participation in our annual cyber sales event, educational moments, and optimized selling tools. And last, but certainly not least, our new Etsy purchase protection program, which enhances peace of mind for buyers and sellers. This strong fourth quarter enabled us to finish 2022, having delivered consolidated GMS of $13.3 billion, down slightly from the prior year; record revenue of $2.6 billion, up about 10%; and non-GAAP adjusted EBITDA of about $717 million, essentially flat with the prior year as we reinvested most of the Etsy transaction fee increase back into the business. Rachel will, of course, review the financials later on. From a top-line perspective, we're now nearly 3x the size we were pre-pandemic. And we've been careful about how we've grown our cost structure with an eye towards investing in the fewest, most important areas we believe will sustain and continue to grow the business. Visible in our profitable growth and strong free cash flow during what was undoubtedly a challenging year for e-commerce at large as well as for Etsy. I'm truly proud of our performance. And importantly, while we don't have a crystal ball, it's this sustained performance that gives us the conviction to believe that our discipline, focus and the size of our market opportunity sets us up well no matter what business conditions lie ahead. Investment in our core Etsy marketplace have really paid off, and you saw that as we went through 2022, maintaining most of our gains in the face of enormous headwinds. That performance is summed up here. We have nearly twice as many active buyers as we did in 2019. Shoppers are coming to us more frequently and spending more with Etsy, and we're continuing to build the Etsy habit. In addition to earning our place in buyers' hearts, we believe we've also deepened our relationship with Etsy sellers. We've seen seller cohorts retain much of the gains achieved during the pandemic even as the world reopened and e-commerce headwinds increased. Etsy's mission is to keep commerce human, and we believe that these past two years have shown that the customer needs we meet are both powerful and enduring and that Etsy offers something different. In addition to maintaining our gains, we did, in fact, grow in some very important ways last year. Just a few examples. Strategies to introduce more buyers who identify as men to the joys of Etsy resulted in 22 million male active buyers at year-end, up 124% since 2019 and now at our highest level yet. We reactivated 24 million buyers who lapsed over the prior 12 months, the most ever reactivated in one year. Germany was a standout performer for Etsy in 2022, with GMS increasing at a healthy double-digit growth rate and now over 4x larger than in 2019. That's pretty remarkable, especially given macroeconomic conditions in that region of the world. We made real progress in our newest core market, India, growing to over 120,000 sellers with approximately 5 million listings, over 30% of which, thanks to our investments in local payment options, are now available to local buyers. We're making important strides as we methodically build the foundation for a vibrant two-sided marketplace. We believe that these metrics are indicative of just how early we are in expanding our share of wallet in our estimated $2 trillion TAM and our mission to bring the world a true alternative to commoditized shopping. I'm also incredibly proud, once again, of how we cared for our people, our communities, and our planet in 2022. We come to work grateful to be able to support creative entrepreneurs around the world. And as a result, we continue to attract and retain world-class talent. Being part of a` community means that when one part is suffering, the rest of us try to step up and offer our support. And even now as we start 2023, Etsy has already stepped up to support sellers impacted by the California floods and, of course, by the devastating earthquakes in Turkey. As you'll see in our soon-to-be-filed 10-K, we continue to make excellent progress on our ESG goals, which remain very well aligned with our business goals. At our core, we believe people want to shop their values, and they want to work where they can make a difference. We know there's so much more we can do to connect our mission to keep commerce human to the impact our marketplaces make in the world. And we see this as an integral driver of growth for our entire house of brands. No Etsy presentation would be complete without our Right to Win slide. The strategy we unveiled in 2019, which remains robust and relevant today. We're confident that this strategy has enabled us to deepen our competitive advantages and gain market share over time and that our disciplined ROI-focused approach to investments in product, marketing, technology, and people has and will continue to pay off. Each year, we pick a select set of customer experiences where we believe we can make material improvements in ways that result in materially better experiences for buyers, more sales for sellers and better returns for investors. Etsy teams, often working in what we call a squad, are tasked with a single customer experience to improve in ways that achieve a specific financial target. For example, in 2022, we tasked the Etsy Ads team to make ads more relevant for buyers, while keeping seller ROAS above our target levels, which drove over $100 million in incremental annualized revenue, while improving the experience for our customers. Squads have a great deal of freedom to test fast and learn fast and a strong bias to action. They often push more than one release per week, typically to 50% of Etsy's audience, so we can quickly measure whether that release has demonstrably lifted GMS or moved the target metric. Importantly, we meet monthly to review the progress made by each squad. By doing this across our entire portfolio of work, we're able to understand the degree of payback we're getting or not from our investments. How they're impacting daily performance and adjust our work accordingly to ensure we're moving the ball forward to improve customer experiences and meet our targets. It's important to note, and as shown on this slide, that our teams work not only on the core buyer and seller experiences, we take the same approach across member services, trust and safety, payments, fulfillment, our Martech stack, site performance and enablement and so on. Last year, we said in order to earn a greater share of wallet, we'd centered our Right to Win investments on inspiration, having fun and engaging experiences that keep you coming back for more. Efficiency, helping you quickly and easily get in, buy and get out when you already know what you want; and reliability, ensuring a stress-free and dependable purchase. I'm going to run through some very tangible examples of how the approach I've just outlined shows up in our performance. A great example of how we made Etsy more inspirational is with buyer collections, a way for users to organize items into groups, which are easy to share or come back to later. In 2021, we set a goal to increase the number and usability of collections. And that year, 29 million collections were created. In 2022, we shifted focus from creation to display to make collections a more useful part of the buyer journey and to develop ways for our community to inspire each other. Our teams delivered excellent results, including a 20% increase in items being added to collections, a 36% increase in the number of shop follows, and a 12% increase in the number of items favored it. All of this makes our work to engage buyers and personalize their experiences even more powerful. In 2023, we plan to focus on making collections more inspiring and shoppable, building new avenues for buyers to discover, save and purchase items as well as to find and follow shops to get targeted sales and personalized updates. We made the Etsy buying experience more efficient. Improvements in the search experience drove lifts in site-wide conversion rate and average buyer spend. We improved the buyer experience in so many ways. One of my favorite examples from last year was putting an Add to Cart button directly on the search result page based on the insight that some buyers now feel they have enough information on the search result page to buy without needing to visit the detailed listing page. This made the buying experience faster and more convenient for those shoppers, while improving conversion rate and hence driving more sales for our sellers. Our team is particularly excited about last year's work to improve site performance. For example, we reduced page load times in search, which were cut by nearly one full second. These and other performance wins in 2022 drove nearly $100 million in incremental site-wide GMS. And we made so much progress making the Etsy experience more trusted and reliable. This included our continued efforts to provide more transparency around delivery times and launching clear listing level return policies. At the end of 2022, over 30% of Etsy listings had a policy of accept returns clearly visible at the listing level, up from less than 10% when we started focusing on clarity of seller return policies in the fall. And Etsy purchase protection is already impacting the customer experience. Resolution times for customer issues dropped materially as our customer effort score improved from 70% to nearly 90%. We have an equally disciplined approach to the payback we get on our marketing investments. Dollars spent in highly targeted and strategic ways to differentiate our brand, build awareness, attract new buyers, fuel engagement, and get buyers coming back. As you know, since 2018, we've leaned more heavily into upper funnel brand strategies through TV and digital video, to capture the hearts of millions of global buyers and create a flywheel that elevates the effectiveness of our other marketing channels. As you can see, these efforts have significantly moved the needle on brand awareness and loyalty and, in particular, on purchase intent, a critical leading indicator. While we've become a top 10 marketplace in the majority of our core markets, we continue to see so much opportunity to help buyers associate Etsy with more specific purchase occasions throughout the year. And to do so, both among those who already shop Etsy and those who don't. We've been getting strong returns from our brand spend in terms of in-period GMS as well as lifetime value of buyers. In addition to top of funnel brand work, we've deepened our investments and elevated effort throughout the funnel. Our team delivered $100 million in incremental annualized GMS by improving the data feeds to our advertising partners and affiliate channels, improving search engine optimizations. And fun fact, we drove about $100 million in incremental annualized GMS just from improving our e-mail campaigns. We're seeing positive returns from new channels like out-of-home and podcasting. We'll continue to lean into these carefully, testing and measuring ROI before going deeper. With all this progress, investors often ask if there's still more opportunity to improve the Etsy marketplace. Absolutely. We believe there are many millions of potential buyers around the world who should be shopping on Etsy, but aren't yet, and so much more opportunity to build the Etsy habit for those who already know and love us. For 2023, we've centered our Right to Win strategy and our team's work on these objectives. First, welcoming new buyers to the joy of Etsy. When we think about how we can foster continued growth over the coming years, we see new buyer growth as an important lever. We intend to meet new buyers where they are in the channels in which they're spending time and help them feel at home, no matter their interests or tastes the country they come from or how they came to us. Second, deepening buyer curiosity and engagement. This is really about how the Etsy experience gets better the more you visit, the more you engage, and the more you shop, such as advancing our personalization to delight you with our inventory and our purchase suggestions. Third, building trust when transacting with us. When you shop on Etsy, you're buying from one of 5 million creative entrepreneurs around the world. We want to make sure both new and existing buyers have peace of mind when buying on Etsy. Among other initiatives, we'll build on the foundation of Etsy purchase protection to help buyers and sellers have even more confidence in us, while we continue to invest in ensuring a trusted and safe platform. And fourth, being the platform sellers love to sell on, creative entrepreneurs have so much to juggle. We'll keep investing to help them manage their shops as efficiently and effectively as possible, so they get the absolute most out of their time and money while delivering the best possible experience to buyers. We have so much on our road map that we're excited to tell you about as we go through 2023. In 2022, we worked to integrate Depop and Elo7, which joined Reverb and Etsy in our House of Brands. While the performance of each marketplace differed, given their various stages of evolution and specific marketplace dynamics, we're excited to unlock the potential of each. In 2022, Reverb invested in optimizing conversion rate, delivering a more customized experience to different types of music makers and driving international growth. Similar to Etsy, Reverb maintained the vast majority of its pandemic gains in 2022 and continued to meaningfully outpace the musical instrument market on a three-year basis, yet still represents less than 4% of the total musical instrument market. Depop has become a community-powered fashion marketplace to buy and sell unique fashion with approximately 30 million registered users. While reopening, competitive dynamics, exchange rate fluctuations and other factors impacted Depop's 2022 performance, we believe it's still very early days for the resale opportunity. Kuthy and her team are focused on reigniting top-line growth by improving the core economics of the business, including the reach and relevance of search and discovery, improving the web buyer experience, embedding value signals and establishing trust to transact. For Elo7, the easing of the COVID-19 pandemic in Brazil last year led to a resumption of consumer mobility and, therefore, a return to in-person celebration in events, Elo7 sweet spot, and the business began to see some performance improvement. Key areas of investment for Elo7 during 2022, including conversion rate improvements and giving sellers access to faster and more affordable shipping. Elo7 also began testing an online marketing campaign aimed at driving brand awareness as it builds a broader marketing strategy. Similar to Etsy, we believe that Elo7 can expand its consideration set in the mind of Brazilian consumers, becoming a destination they turn to more frequently for more of life's special moments. Last year, we said it was our aspiration to make Etsy a starting point for your e-commerce journey. I feel even more confident that I did a year ago that this bold statement is the right aspiration for us. In our quest to achieve this, we'll remain hyper focused on doing something different enough that is better enough and matters often enough to win sustained customer loyalty. I want to thank our incredible global team for all your hard work making our marketplaces better places to sell and shop in 2022 and to our shareholders for your continued support. While the world remains a fairly unpredictable place, we've proven our differentiation and resilience, and that gives us a lot of comfort as we keep our eye on the prize. With that, I'll turn it over to Rachel.

A - Debra Wasser:

Hi, everyone. Nice to see you all again. Thank you for joining us. I'm going to kick it off right away with some questions. We've got quite a few in the queue. Start with Maria Ripps from Canaccord. This one is going to be for Josh. Investing in search functionality has consistently been a pillar of the Etsy growth strategy. Looking out over the next two to three years, what are your top investment priorities as it relates to search? With all the recent momentum in AI and large language models, could we see some type of chat-based search functionality integrated into Etsy at some point? And then briefly, how has your image search feature been trending?

Debra Wasser:

Great. Thanks, Josh. The next one is for you as well as from Jason Helfstein at Oppenheimer. There was a report out about items on your marketplace violating IP. It's probably something we've never paid much attention to since it's not why buyers go to Etsy, but a quick search looks like there could be some counterfeit items. Could you talk about what you were doing about IP violation? Most of us probably don't understand what a violation is. For example, if someone is selling a knit beanie with a Swiss logo or the word Nike, is that an IP violation?

Debra Wasser:

Thanks, Josh. The next one, I'm going to start with Rachel, and I think Josh might want to add on to this one a little bit. It's from Laura Champine of Loop Capital. What was the margin impact in Q4 of Etsy Purchase Protection? And then how do you expect it to impact the first quarter? And then maybe, Josh, we can have come back to you, and you can talk about Etsy Purchase Protection a little bit. Rachel?

Debra Wasser:

Josh, did you want to add anything else on Etsy Purchase Protection?

Debra Wasser:

Great. Thanks, both of you. I'm going to start this next one with Rachel, just to give us some stats, and then I'll turn it to Josh a little bit as well. From Lee Horowitz at Deutsche Bank. Now that we are through what is presumably the last COVID comp, should the expectation be that habitual buyers can grow from here? And what do you see as the key areas of product improvement in 2023 that you expect to drive cross-category shopping in habitual buyer growth? Maybe, Rachel, you want to start by just kind of reiterating what we said about habitual buyers.

Debra Wasser:

Josh, do you want to talk a little bit about initiatives focused on habituals and cross-category and all that?

Debra Wasser:

Okay. Great, Josh. Thanks. Planning a wedding for my daughter, so all the collections are happening right now. I'm going to go to Rachel. We got a question from Kunal Madhukar from Deutsche -- UBS, sorry. I want to make sure we clarify something we said on our prerecorded remarks, so this is going to be for Rachel. As you look for teams GMS growth in the second half, how much of that will come from growth in buyer count versus growth and spend per buyer. So I think we want to clarify what we actually said about the second half.

Debra Wasser:

Okay. Great. Thanks, Rachel. The next one I'm going to get to Josh to talk about a question we got from Ed Yruma at PSC. Can you talk about the drivers of new buyer growth in the Q4. Obviously, that was a good number. How can you lean into the strengths and drive strong new buyer growth again in 2023?

Debra Wasser:

Great. Thanks, Josh. I'm going to move to a question from Rick Patel at Raymond James, concerning our subsidiaries starting with Josh and then Rachel will come back to you afterwards. Can you expand on the most recent developments, Josh, for Reverb and Depop? And though Elo7, he didn't ask about it, and maybe touch on some new initiatives there. And then, Rachel, circle back with the profit question.

Debra Wasser:

Rachel, do you want to just touch on the profitability question?

Debra Wasser:

Thanks, Rachel. I know we're out of time, but we're going to squeeze in one more because we want to get to it. We got a question from Sean Dunlop at Morningstar, and it's really just about how -- what we're seeing in India. And can we talk about the early results and the road map from here, Josh, especially getting it to be going from a one-sided marketplace to two-sided?

Debra Wasser:

Great. Thanks, Josh. And with that, I'm going to call it. We look forward to seeing everyone on the road back in real life out there soon. Thank you all for joining us.

Rachel Glaser:

Thanks, everyone.

Josh Silverman:

Thanks, Deb, and good evening, everyone. We're pleased to once again be reporting strong results. Etsy's consolidated third quarter 2022 GMS was $3 billion. Revenue grew to $594 million and our adjusted EBITDA margin was again very strong. Etsy marketplace GMS was $2.6 billion this past quarter, compared with about $1 billion in the same quarter three years ago. And when adjusting for rather formidable currency headwinds, GMS for our core marketplace was up a bit on a year-over-year basis. We believe this performance is the direct result of the actions we've taken to put our larger size and scale to work, investing in our sellers and aiming to drive long-term growth in our active buyer base, with strategies designed to fuel awareness with new audiences, retention, reactivation and frequency. And these investments have really paid off. Not only is the Etsy marketplace over two times bigger than we were three years ago, but overall, we've held most of our gains. This speaks volumes to the work done by teams across Etsy, particularly within the context of a fully reopened world and ongoing macro challenges. In my opinion, this is a great setup for future growth. Another reason that we believe our business has held up so well in this post-pandemic environment is because in a world of mass commodities supplied by companies obsessed with speed and scale, Etsy is the antidote. Etsy offers something different, and we've continued to invest to bring even more joy to the very human experiences of selling and buying on Etsy. During the pandemic, tens of millions of buyers tried Etsy for the first time or for the first time in a long time. And our customer research indicates that most buyers were delighted with the experience. I've spoken with so many buyers who described how it was better than they expected or than they remembered, easier to find great products, easier to buy them and with a more trustworthy and reliable post-purchase experience. And of course, they found the human touch from our sellers to be so differentiated and special. So while millions came to us during the pandemic, because they had limited choices, it's clear to me that they're coming back again and again now because they want to. We're just getting started advancing our Right to Win, our playbook for ensuring that Etsy is the first stop when you want to shop your tastes and values. By simultaneously succeeding in all four of its elements, we differentiate our value proposition in a highly competitive environment. As we explained on prior calls, this year, we've organized our investments around making Etsy feel more made for you, more efficient and inspirational, making Etsy more reliable and continuing to support our sellers' growth by offering them more agency and scalability. Some of you have asked if we're running out of ideas to fuel future growth. In fact, the opposite is true. Even as the team has scaled significantly, we're seeing return metrics like incremental GMS produced per squad holding steady at very high levels. While our backlog of great ideas significantly exceeds our capacity. One of the needle-moving innovations I'm most excited about is the journey we're on to leverage personalization to better tailor Etsy to the tastes and needs of each buyer. Etsy buyers struggle with our tyranny of choice. For example, user feedback I saw recently from an Etsy shopper who complained about his search for lamps. '400,000 results? Hmm. No, thanks. I'm going to take a hard pass on that.' That's why it's so important that we narrow search results and get you to the good stuff fast, especially challenging since each person has their own idea of what the good stuff is. We need world-class search technology married with world-class personalization. Your search and discovery journeys, on-site experiences and e-mails, push notifications, app engagement all need to be relevant to you and the mission you're on, whether to find something for yourself or for a loved one, to find just the right thing that truly reflects your style and tastes or to just hang back and be inspired, which, of course, is also a very personal experience. In this way, we can make Etsy feel made for you. And because it's so challenging, our investments here are a key source of our competitive differentiation. Every quarter, we'll expect to make progress on this journey, and I'm especially proud of the progress we've made in the past few months. In our effort to get you to the good stuff fast, we began to incorporate signals into our search engine correlated with quality, such as seller reviews, on-time shipping performance, customer responsiveness and price. In this way, we don't simply prioritize items that match your search query, but rather items that are the most likely to result in a delightful purchase experience. I'm excited that this quarter, we added videos to search results. Similar to the add-to-cart button in search we mentioned last quarter, we're now able to bring highly differentiated information to buyers directly on the search result page without needing to click through to the listing, creating a very social shopping feel on Etsy that we believe can be inherently more personalized. We also had some early wins incorporating buyer tastes and interests to create more interpretable and personalized recommendations. For example, if we believe you like mid-century modern style and you do a search for lamps, we'd be more likely to show you lamps that fit the mid-century modern aesthetic. We're making great progress expanding search capabilities in non-U.S. markets, launching in-session personalized ranking to better rank order results, introducing dynamic information retrieval, which helps us to choose more relevant listings for you and adding neural models that help us to understand what you're looking for, even if you don't know how to describe it. And speaking of making it easier for buyers who may have trouble finding the right words to describe an item, just a few days ago, we launched a new capability for iOS buyers to take or upload a picture of an item and search on Etsy for items that are visually similar. Cool technology advances like this support the notion that you can find virtually anything on Etsy. And more often than not, that item will be different and more special than what you might find elsewhere. I'd encourage you to check it out around your own homes. It's a powerful way to see the breadth, depth and versatility of merchandise on Etsy. Our personalization journey is not just in product development. Our marketing teams are also doing great work here, contributing to the great buyer retention and reactivation we've had this year. We're finding so many ways to bring buyers back to Etsy, by reinforcing what our brand stands for in bold and creative ways and offering evermore relevant updates, triggers and pathways to keep you coming back. For example, this year, we've created a personalization engine that models and predicts the next best action a buyer should take on Etsy and then sends personalized content specifically to them, bringing to life a timely and relevant message. This might be a reminder to visit a shop you favorited, whose listing is now on sale, or go back to your cart to complete a purchase, or suggesting you favorite a listing you recently viewed so you can get alerted if it's about to sell out or go on sale. In addition to our focus on improving buyer experiences, 2022 has also been a year of tremendous investment in our sellers. We're always listening and trying our best to respond with care. In fact, every month, we hear from hundreds of thousands of sellers through research groups, surveys, forums and social channels, support lines and community events. It's been really encouraging for us to see that our seller sentiment metrics continue to trend favorably. We strive to understand our sellers' passions, their craft and the scale of their business better than any other platform. We provide affordable access to our global marketplace, scalable tools, support and services for shop management and growing customer relationships. And we elevate their unique items in a global marketing campaign that they could not create alone. A major area of focus is to give our sellers agency, the ability to understand what can drive their success, enabling them to act on that understanding and be rewarded for it in ways that ultimately grow their sales. One great example of how we do this is our Star Seller program, which provides sellers with a dashboard highlighting the metrics buyers care about, such as being responsive, shipping on time and getting great reviews. It then rewards with badging and increased prominence those sellers that best deliver in these key areas. The number of sellers in the program has increased over 150% year-over-year, and they represent a growing percentage of our GMS. Our data indicates that those sellers who have the badge earn about 18% more GMS than their similarly situated non-Star Seller counterparts. Even more importantly, we continue to see the Star Seller program positively impact responsiveness and shipping practices across the marketplace, resulting in an elevated experience for Etsy buyers. We're also continuing to give sellers insights to help them understand the macroeconomic pressures and think about creating pricing strategies for their listings, including adding systems for tracking their expenses and income, considering discounting in their pricing strategies and participations in sales events on Etsy. Being the platform sellers love to sell on, also means having their back when things affect their business that are out of their control. For example, when Hurricane Ian made landfall last month, we saw devastating impacts across Florida, where we have a meaningful concentration of sellers. We reached out to impacted sellers with guidance to help them manage their shops in the wake of the hurricane, and among other things, offered bill deferments and the extension of Star Seller status to ease their burden. As you know, we're on a multi-year journey to deepen buyer loyalty and trust, a journey we believe will bring even more buyers to Etsy and get them coming back more frequently. The Etsy Purchase Protection Program was launched August 1 as a set of policies built to ensure our customers, both sellers and buyers have a positive experience on Etsy. While it's early days, we're very pleased with how the launch has gone, helping to make shopping and selling on Etsy far clearer, easier and more reliable. Since launch, average resolution times for order issues escalated to Etsy have been cut in half, while customer satisfaction scores related to how we handle these cases have meaningfully improved. We've had conversion rate wins from adding purchase protection messaging on listing pages and in cart. And our customer support team is seeing positive trends across issues management and ticket volume. The program is off to a great start, well in time for the holiday season. Another key element of trust is returns. During Q3, we announced significant improvements, moving from having sellers set a single policy for their entire shop to allowing them to set return policies at the individual listing level. This is important, as sellers often sell a range of items, for example, some best sellers where returns are accepted and others personalized or customized where returns are not. These return policies have been developed as highly customizable parameters that can meet a wide array of sellers' requirements. And by quarter end, approximately 70% of global Etsy listings had a listing-level return policy, offering buyers a great deal more clarity in time for the holiday season. All of this work contributes to a KPI we're tracking for easy resolution rate, how all of our initiatives, such as delivery transparency, purchase protection and return policies work together to help us resolve buyer problems more quickly and easily, to instill a brand promise that you can trust and rely on. And I'm pleased to report this KPI has been steadily climbing all year. Moving now to our Super Bowl season, the holiday shopping period. We recently completed a survey to gain insights for how consumers in our top three core markets were thinking about the holiday season. Our data shows that while holiday shoppers and, even more so, Etsy buyers, will be looking for sales and discounts with an eye on affordability. Finding meaningful high-quality gifts is actually the most important to them. So we'll be leaning into our message of extraordinary, handmade, affordable this holiday season, reminding buyers that for gifting moments, big and small, Etsy has it. [Video Presentation] We're pulling out all the stops, as we do every year, to help make sure Etsy sellers have the best holiday season they can, particularly in the face of continued economic uncertainty. In September, we held Etsy Up

A - Deb Wasser:

Hi, everyone. Good evening. I'm going to dive right into questions. I know our prepared remarks went a little bit long, so thank you for bearing with us. First one, I'm going to give this one to Josh from Marvin Fong at BTIG. Last quarter, you lost about 1 million buyers -- Etsy buyers. But this quarter, you added 200,000 on a similar number of gross adds. Is it fair to say that churn improved this quarter? And if so, which of your key initiatives do you think is most responsible for that improvement in buyer retention?

Deb Wasser :

Great. Thanks, Josh. Okay. So the next, I have two questions on take rate, and I want to combine them. One is from Laura Champine at Loop Capital, and the other one is from Anna Andreeva at Needham & Co., and I'll give this one to you, Rachel. The guide seems to imply a negative take rate trend sequentially. Is that right? And what would account for that? First part of question. And the second part is how should we model the take rate going forward into 2023?

Deb Wasser :

Okay, great. Thanks, Rachel. Next one is also from Anna at Needham. Can you talk about the customer -- this is for Josh, can you talk about the customer reception of the Purchase Protection Program? And then I'll circle back with Rachel about a financial question related to purchase protection. But Josh, if you want to just talk about the overall reception that would be great.

Deb Wasser:

Yes. So they’re weakened, but the costs come in line for the third quarter was a specific question. How is it feeling versus the $25 million annualized run rate that we gave?

Deb Wasser:

Okay, perfect. Thank you. The next one is from Tom Forte at D.A. Davidson. Does in -- and I'll give this one to Rachel, I think. Does in-country buying and selling insulate you from changes in FX rates, for example, when there is a transaction between a UK buyer and seller? If so, does that lessen the impact on your performance from the strong dollar compared to e-commerce peers such as Amazon?

Deb Wasser:

Great. Thanks, Rachel. Next one is for Josh from Corbin Weyer at R.W. Baird. You had $1 billion write-down after only a year from these acquisitions. What are your learnings from this experience? And how should we get comfortable that this doesn't happen again?

Deb Wasser :

Thank you, Josh. Okay, Rachel, I'm going to combine a couple of questions on -- I'll start with one from Alexandra Steiger at Goldman Sachs on guidance. What key factors could create an upside or a downside surprise? The GMS trajectory in Q4 relative to your guidance, can you unpack the various building blocks that went into our guidance for the fourth quarter?

Josh Silverman:

And Rachel, I just want to jump in to clarify, when you say stabilization on a three-year stack, meaning relative to pre-pandemic, right?

Josh Silverman:

Yes.

Rachel Glaser:

Yes. So our seller -- we have given our sellers a lot more tools for them to behave more promotionally, particularly in times like a holiday season like Halloween, like back-to-school. And those tools have enabled them to take modest discounts. And they're in the forms of you shop from my shop, here's a 10% off on your next purchase kind of thing. I'd say modest. They're not very deep discounts. At the same time, Etsy has significantly increased its CRM capabilities. And we've been able to give some -- to put our own P&L to work modestly to also offer discounts. We use that kind of when -- we're putting our own P&L to work, we're using that same ROI lens that we do with all of our performance marketing in that we are also measuring if we give -- if we enable some kind of a discount, what is the impact on that and how much return visitation do we get or how much -- how do we influence the conversion rate from our sellers? So I would consider that that part of our marketing spend de minimis relative to the bigger pie that we're spending on performance marketing.

Josh Silverman:

Sure. And just to build on Rachel's point, we are seeing a lot more promotional activity from our sellers. The vast majority of that is funded by the sellers. The sellers are choosing to give very targeted discounts. A tiny piece of that is funded by Etsy. But the vast majority of the promotional activity you're seeing is sellers choosing to put certain items on sale for certain buyers. In terms of our marketing spend for Q4, Q4 is an important time to remind people that Etsy is really relevant for them. And so, we lean in, in the holiday season. We plan to lean in, in this fourth quarter like we have in other fourth quarters. So we're going to be running brand TV spots, which really tell the story of Etsy and why Etsy matters and why it's different, as well as more direct response TV ads, which really highlight the kinds of items you can buy on Etsy and the shoulder tap of very specific kinds of categories where we're relevant. And then, we typically see on the performance marketing side, things like search queries for gifts go up on Google. And so that naturally drives more performance marketing for us. But again, with all of this, we take a strong ROI lens. We look very much at what kinds of returns we're getting. So the performance marketing side, there's quite a lot of science. It's very dynamic and it tends to adapt, our models adapt within hours or days to what we're seeing in the market. The brand side is the piece where we've got to make some bets. And so, we think that this is the right time for us to be telling our story. We expect to be telling that story in the fourth quarter. We love the creative that the team has developed, and that's reflected in the margins and the guidance that Rachel gave.

Josh Silverman:

So, one of the great things about Etsy is, we just -- we have such breadth. So we have seven categories that have 15 million buyers or more, and we have 15 categories that have 1 million buyers or more. And what we take from that is, there are so many different occasions for which -- in categories for which Etsy is relevant. 15 million people are finding something to shop in that category. It's a pretty good chance that many, many people could find something relevant in that category. That's why I love that product that we highlighted a little bit in the earnings call, the new release we just did where you can take a photo of virtually anything and you'll see items on Etsy that are similar. I'd encourage you to give that a shot. I think you'll be quite surprised at how often we have a really great version of whatever it is here in the market for. I do think there's an opportunity for us to improve the shopping experience in many of those categories. So when you survey buyers and you ask them, name great places to shop online, more and more of them will come up with Etsy. And Etsy will be one of the first three places people name more often. But if you ask people, where do you go to shop for home furnishings, very, very few people will say Etsy. When in fact, we're not even a top 10 name there. And the number 10 name, 6% of people would name was Hobby Lobby and our research came up as the 10th and we weren't even 10th. We're somewhere less than that. And yet, it's our biggest category. We sold billions of dollars of home furnishings. And so it's about building those associations with very specific categories, jewelry, home furnishings, fashion, craft supplies, art and on and on, paper and party goods. We've sold pets, so many babies, weddings, so many great categories on Etsy, and it's about building those associations more broadly. We are leaning more into starting to verticalize those experiences more so that things like the taxonomy, so you have a better browse experience. And if you come to home furnishings, for example, and you browse, it doesn't feel like a lot of other sites you browse, where you're looking for a kitchen or a living room is typically what you get in a browser experience. Etsy takes you often very deep into very niche category. So we do think there's a real opportunity to up-level and you'll see us focus on that more in 2023.

Rachel Glaser :

Hi, Steve. Thanks for the question. And before I answer, I just have to give a second to Josh's point about how cool that Etsy Lens product is. Open your app, there's a little camera icon in the search bar and click on it and take a picture of anything in your household and you'll be able to find it on, see what Etsy has. That's like it's very cool. On the lessening the weight of our recent acquisitions, one thing I want to remind you, we've said a few times that collectively, our three subsidiaries are less than 15% of our total GMS. And they collectively there are almost immaterial to our bottom line. We do say that it's 400 basis points of drag on our margins. But you have to remember that even if they were breakeven, they are lower-margin businesses and they would still be dilutive to margins. So you can't do the math on that 400 basis points as a percentage of our revenue and come up with how much the investment is that we're making there. We really think that these investments we're making in the businesses are appropriate to enable them to grow, that's -- they shouldn't be spending less on investing for growth, because we own them that we should be a benefit to their growth, not the other way around. And they all operate now very similar to how Etsy operates, with a prioritization of focusing on the vital few, an experimentation culture, where they test their way into the things that are going to have the biggest impact. And they are always and probably forever will be optimizing how to make their -- how to be efficient in making the biggest bets and putting the investments in the view of things that are going to drive the highest growth.

Josh Silverman :

Thanks for the question. One thing we shared in the call is that we've scaled our team fairly significantly over the past two years. We have not been a growth at all cost company. And when revenue doubled almost overnight, we didn't double headcount overnight, because I don't think that would have been manageable growth. We couldn't have made sure that we were bringing in really high caliber people and that we were making sure that they had clear roles and responsibilities and all the things that -- scaling responsibly means doing at a certain cadence. And -- so we have taken a little bit of time to scale our team to catch up with revenue. I'm really proud of the fact that when we look at our productivity metrics, things like GMS per squad, that is as high as it's been for years. And so, what that suggests is that, where we are in the marginal return curve, we've significantly increased the team over the course of the past two years and yet they continue to add at least as much value, if not more, than we were seeing before the pandemic even on a per squad basis. We've got a ton of great ideas and the teams are doing a great job of executing those in a way that improves the customer experience and build shareholder value. If we look at the number of things we talked about in this earnings call, I'm really proud of Etsy Purchase Protection, all of the progress we made on personalization, the progress we made on CRM, the new marketing initiatives that we've launched, the new TV spots we've launched. And by the way, we had to cut four or five things on the cutting room floor, because the call was just too long. So this team is getting a lot done that is making a better customer experience and building shareholder value. We're doing it with urgency, and we're doing with what is still a pretty small team and we feel great about that. So we're not managing to a margin target, so much as we're looking at, as we scale, are we continuing to drive meaningful growth and measurable growth with the team that we have? We feel pretty good about the team right now, the size and shape of the team. And we'll keep an eye on as we go through next year. If we invest a little more, are we getting a little more? And make sure that we're always looking at profitable growth and finding the right balance there.

Josh Silverman:

Over time, I think we're going to continue to get both. I mean, I'm pleased with the fact that, while new buyer growth has slowed from the pandemic, very unsurprisingly, it's 50% higher than it was before the pandemic. And I think that's pretty exciting. And so there still are a lot of people out there in the US, in the UK and especially in the rest of the world who have not yet shopped on Etsy. And so, we think there's a real opportunity to add new buyers. And then reengaging lapsed buyers, 100 million lapsed buyers who've shopped on Etsy before, generally had a very good experience and just need to be reminded to come back or come back more often. So reengaging more lapsed buyers and adding more buyers, I do think there continues to be a runway there, but we think there's a big opportunity in frequency. And over time, I do think we have a big opportunity to get people to have more purchase days per shopper in more occasions. Again, seven categories have 15 million shoppers and yet very few people shop across all seven categories. And again, that -- take a photo of virtually anything and Etsy's got a great version of it. I don't think people realize how often we can serve them, and so I'm excited about that. And the last opportunity, the one we -- again, we've talked about in the past that we haven't put our shoulder against it and I'd say we're still not putting our shoulder against it. But average order value. As we get more trustworthy, as people get more familiar with Etsy, having them take larger purchases on Etsy, buying bigger stakes items, I do think is -- continues to be an opportunity for us as well.

Rachel Glaser:

Yes. I knew we -- I thought we were going to get out of this call with no inflation question. But just under the wire, we really haven't seen sellers. We do a basket of goods analysis and we haven't seen sellers take their pricing up in any material way. And we do try to help them think about pricing strategically and other things, but there's probably more we can do there. I will say that does make Etsy, relatively speaking, a value play relative to other places where we see prices going up significantly. And some of our creative ads kind of lean into that a bit, talking about you can really find something special, something that only Etsy has, or it's made especially for you and it doesn't break the bank at the same time. So it kind of is another differentiating factor for our marketplace.

Josh Silverman:

No, we feel really good about the progress. And again, if you'd asked us a year ago or two years ago in the midst of the pandemic, what would we hope for in terms of retaining buyers, retaining buyer spend, I'd say, I'm just delighted with how well our retention has been in light of people having so many more choices. And I do think it really comes down to the fact that they really like the experience and it's different, and being different in a way that's better matters. So we're grateful for it and we'll keep doing the best we can.

Rachel Glaser :

Thanks, everyone.

Josh Silverman:

Thanks, Deb, and good evening, everyone. We continue to experience striking changes in the global economy and consumer behavior this year. And as a result, our forward visibility is not substantially clearer than it was a quarter ago. Consumers have more choices for where to spend their time and money and disposable income is under more pressure than it's been in a very long time. In spite of these headwinds, we're encouraged by the tens of millions of shoppers that return to Etsy spending only slightly less with us in the second quarter of 2022 than they did a year ago, when choices were far fewer and economic conditions were a lot different. While markets naturally go through cycles, I'm energized by the agility of the Etsy team, the adaptability of our business model and our ability to deliver solid profitability in a quarter we're achieving top line growth was challenging. We have a lot of conviction that not only is e-commerce poised for meaningful growth over the medium term, but that each of the four Etsy marketplaces has a unique reason to succeed and scale, offering something truly important and different against a sea of sameness. That's why even through a challenging time, we've continued to invest in our people and our businesses. Making bold moves that we very much believe will set us up for continued future growth. And we've been able to do this while delivering strong profitability, thanks to the benefit of our discipline, scale and business model. The headline for our second quarter results is that despite really meaningful headwinds, we continued to hold the vast majority of our top line pandemic gains, while delivering strong profitability. In other words, controlling the things we can control. Our consolidated GMS was $3 billion, basically flat year-over-year and up 2.6% on a currency neutral basis. Also when adjusting for the currency impact, GMS for the Etsy marketplace was down only a few percentage points. Our consolidated revenue grew 10.6% and adjusted EBITDA margin was 28%. Before moving into our operating highlights for the quarter, I wanted to review our recently announced leadership changes with our Chief Product Officer, Kruti Patel Goyal moving to become CEO of Depop and Nick Daniel, VP of Product promoted to fill Kruti's former role. In her 11 years at Etsy, Kruti has led almost every function, including strategy, corporate development, international, trust and safety and seller services. Four years ago, I asked her to run our product organization and she's done a stellar job. She together with Mike Fisher, our Chief Technology Officer spearheaded Etsy's product development culture, building focus, customer obsession, agility, and accountability into the fabric of our operating rhythms. She's also built an incredibly talented bench of leaders. She's ready to be CEO of a great marketplace brand. And in my opinion, there's no one better positioned to take Depop to the next level. Kruti will move to London next month to join Depop's very talented leadership team. I'd also like to express my gratitude to de Depop's CEO, Maria Raga. Under her leadership, Depop has taken the world by storm and defined itself as a beloved culturally relevant brand. We wish her the best in her future endeavors. Nick Daniel joined Etsy eight years ago, and over the course of his tenure has led many of the most complex and value driving product initiatives in our portfolio. For example, the development and growth of Etsy ads and our offsite advertising program, scaling Etsy's marketing technology capabilities and launching our major push into personalization. Nick has the strategy chops to set a vision, the technical chops to ensure good execution and the leadership chops to attract and develop world class talent. I couldn't be more excited about these changes and I'm immensely proud of the depth of leadership talent we have at Etsy. We've been intentional about building and strengthening that bench over the years, putting on in a position to make moves like these. It also highlights the career adventure. We're able to offer our team and even more now with the addition of Reverb, Depop and Elo7. I believe that's one of the reasons why our engagement remains strong and attrition low, even in these more challenging times. Nick will now partner with Mike Fisher to lead the teams driving Etsy's right to win product development roadmap. As we've explained on prior calls this year, we're organized around making Etsy feel more made for you, more efficient [Technical Difficulty] Etsy more reliable and continuing to support our sellers growth by offering them more agency and scalability. We've directed more product teams towards active buyer growth, accelerated efforts to deepen personalization in the buyer experience and resequenced roadmaps to pull forward higher confidence retention and frequency drivers. Let's start with search. We currently have about 100 million items for sale in unimaginable selection. And none of it maps to a catalog. Most queries have more than 1,000 relevant search results. We need to get you to the good stuff fast, but each person has their own idea of what the good stuff is. That's why it's so critical that we not only have a world-class technology, but that we marry it with world-class personalization. In this way, we can make Etsy feel truly made for you. And along the way, build a competitively differentiated value proposition. We used to have only one search engine, which was great at finding search results, using text from the listing title, but was limited since it needed to find an exact or near exact text match in order to retrieve results. What we've talked about as the semantic gap. Over the past six months, we've gotten significantly better at leveraging multiple search engines simultaneously, each with different strengths. For example, some are better at head queries or tail queries or understanding the true meaning of phrases. We then intelligently blend the results, personalizing them with insights, from what you've done in the past. And as of very recently real-time data from the bread crumbs you've left during this particular [Technical Difficulty] the engines getting better, but we continue [Technical Difficulty] add to cart and search results made it easier and faster for buyers to find what they'd love, thereby creating a faster to purchase with less distractions. This change drove improvements in conversion rate and average order value, a testament to the fact that we’ve improved the quality of search and the information provided on the search result page, enough that some people are ready to buy without even needing to visit the seller’s listing page. Last quarter we mentioned that we have a portfolio of early stage visual discovery ideas. We’re testing to learn how we can engage buyers when they don’t know what they’re looking for and to make Etsy more visual, dynamic and inspirational, again, more made for you. In June, we held a live Etsy market shopping event on our app. In the days leading up to the event, buyers could watch trailer videos for each stream and set in-app reminders. The event featured 20 sellers streaming live from their studios, sharing their stories, process and styling tips. It’s a great example of ideas we’re testing and iterating on to help sellers reach buyers in new and authentic ways. Another visual discovery app experience during the quarter focused on helping buyers gain confidence in a purchase decision by highlighting the experience of other buyers by enabling buyers to leave video reviews. We’ve just started to collect video reviews and make it easier for buyers to access and engage with this content. And we continue to iterate on the explore feed to make it even better. We know that reliability has been an important friction point for buyers. If they can trust that the item will arrive on time, undamaged and as described, we believe we can unlock significantly more purchases from each buyer. Fortunately, our sellers generally do a great job delivering quality items at a fair price and we’ve made major progress improving metrics like on time arrival over the past two years. That’s why we couldn’t be more excited that our new Etsy Purchase Protection program goes into effect next week. It’s going to help make shopping and selling on Etsy far clearer, easier and more reliable. This program will protect sellers and buyers for qualifying orders up to $250 when the item doesn’t match the description, arrives damaged or never arrives. Etsy expects to invest approximately $25 million annually to cover refunds at no additional cost to sellers. And the refund process will become clearer, faster and easier for many buyers. You’ll see us get louder on these new policies as we go through the rest of the year, building up to the all important holiday season in Q4. And we’ve been doing more than ever to help our sellers grow. We’ve created an entirely new, simple and we believe very lovable Sell on Etsy mobile app, more maintainable and extensible with improved usability versus our legacy seller app. Key new features include the ability to purchase shipping labels and to receive a heads up when a repeat buyer is messaging you. We’ve incorporated new technology to enable the release of more functionality at a faster rate than ever before. Also during the quarter, we incorporated seller feedback into our Star Seller badge, making it more achievable for sellers that provide excellent customer support. We continue to invest to help sellers who have the skill and the will to succeed on Etsy. And we’re proud of the results. Well, we’re on the subject of helping our sellers to grow. This quarter, I also want to shine a spotlight on Etsy Ads. Over the years, we’ve made meaningful improvements to the availability of ads on our marketplace, the relevancy of ads we show to buyers and the tools we offer sellers to manage their spend and how we bid on their behalf. This product has been a win, win, win for our sellers, buyers and Etsy. Etsy Ads revenue has grown 516% over the last five years, even faster than Etsy Marketplace’s 253% GMS growth. We’ve continued to close the semantic gap by leveraging new machine learning techniques to capture intrinsic styles and properties, thereby providing more relevant ad inventory for buyers without compromising conversion rate. We also recently expanded Etsy Ads inventory to the homepage, while maintaining listing relevance consistent with organic search results. Seller budgets are up 80% year to date and we’re maintaining strong rows for them as well. We’ve ramped our investments meaningfully in Etsy Ads, as it’s an area where we see a long runway for continued growth. As you know, we’ve been hyper-focused this year on driving engagement and frequency. And one area I’d like to highlight is how we’ve been working to engage low frequency buyers. More engaged or habitual users are generally more adapted coming up with ideas and/or finding what they’re looking for, which is generally not how a low frequency buyer experiences Etsy. By making Etsy more accessible and hence giving novice buyers and experienced closer to that of habitual power users, we believe we can unlock significant frequency gains over time. And we’ve been making encouraging progress. Recent examples of wins include a revamped more diverse presentation of items above the fold on the homepage to generate interest and engagement and a revamped user interface prompting signed out buyers to download the app. Once again, app downloads had impressive growth up 53% versus last year’s second quarter. Our research and experimentation are giving us creative ideas for layouts that work to encourage scrolling by incorporating trending shops, searches and categories. All of which, of course, get far more powerful when combined with the personalization investments discussed earlier. This work is just at its infancy and will continue to tell you more about it as we make additional progress. Another important vector for our engagement and frequency work is our international efforts. Getting the flywheel turning in additional international markets, we believe we can unlock significant growth. Recall from the last call, the insight that penetration rates in the next 15 markets beyond the U.S. and UK are about 80% lower than those top two Etsy markets, a great data point to support our belief in just how early our growth journey really is. Some recent international wins include the launch of the first version of Localized XWalk in all our non-U.S. markets. We’re now applying this powerful search engine technology to optimize results to find the perfect listing for our non-U.S. buyers. Our fulfillment team has been hard at work moving the needle on expected delivery date, postal code coverage for non-U.S. orders and other transparency and confidence building initiatives. And we recently added another eight countries to the list of places buyers can buy now and pay later. So making Etsy more made for you and reliable, no matter where you are. Our research shows that one of the top reasons buyers don’t shop more often on Etsy is because we aren’t top of mind for enough purchase occasions or moments. That’s what gives us continued conviction in our marketing efforts. And I’m proud of the agility of our team, continuously adapting our strategies and creative to the market environment. With macro headwinds continuing to be strong in 2022, our team has modified our very successful Meant For You and Why Buy Boring campaigns to remind people of the many purchase occasions for which Etsy is relevant, that all important shoulder tap, while leaning into value and affordability. So the what and the why to shop Etsy during these times. The message in a nutshell is Etsy has home decor, fashion, jewellery and gifts it’s affordable and better on Etsy. We’ve also incorporated the messaging about extraordinary and affordable into our earned media engagements, our social channels and the marketplace itself. Our team has been really creative during this time utilizing our CRM tools, app notifications, emails and other on and offline techniques to drive buyer engagement and frequency. And we also had some great brand building earned media during the quarter from tried and true features, such as the Etsy Design Awards. Turning to our subsidiary brands. 2022 has been a challenging year for all three, each of whom faced reopening and other headwinds, similar to those faced by our core marketplace. Current business conditions, notwithstanding. We have a lot of conviction that we’re in the extremely early days of realizing value from our house of brands. Kruti will hit the ground running at Depop in September where she’ll be focused on incorporating our product development culture to increase product velocity with goals that will sound a lot like what she’s accomplished for the Etsy Marketplace, highlighting seller’s unique inventory, improving search and discovery, elevating the human connections on the Marketplace and making Depop more relevant to more of its target audience and building trust in the brand and of course, driving ROI focused marketing investments that deliver results. We believe Depop has fostered one of the most passionate communities in e-commerce and it has only scratched the surface when it comes to reaching its full potential. Reverb and Elo7 each have responded to macro challenges with creative approaches designed to set themselves up for future growth. Reverb helped buyers find their perfect instrument with updates to onsite search algorithms, localization enhancements, and improved domestic discovery in the UK. To meet buyer expectations on free shipping and returns, they helped buyers connect with sellers, offering customer services like free two-day shipping and 30-day return policies. In addition, Reverb built SEO-optimized landing pages and drove adoption of my collection, a feature that helps buyers track the value of their music gear over time. Elo7 improved the buyer experience by introducing signals and nudges into the purchasing journey, while expanding delivery carrier options for sellers to materially reduce shipping costs, increase speed, and improve transparency for buyers. Performance marketing remained an important focus as Elo7 continues to leverage the Etsy playbook for improving spent efficiency. Rachel will talk a bit about our business model, which we want to highlight today is one of the key factors that gives us comfort in uncertain times. We see multiple scenarios possible for the remainder of 2022, but even in downside scenarios, we believe we are well positioned to deliver healthy profitability. We'll keep focusing on the things we can control, driving great customer experiences, investing with discipline and care and helping our team to minimize distractions and focus on getting the job done. It's not an easy time for the world, but we take heart in the fact that our work has purpose, delivering value and economic opportunity for millions of sellers and giving tens of millions of buyers experiences they can't find anywhere else and most of all, the chance to keep commerce human. Thank you for your time. And with that, I'll turn it over to Rachel.

A - Deb Wasser:

Hi everyone. Good evening. First I want to start by saying, I know there were a couple of issues during the recording being played back. So if you go to our site later this evening, you should be able to find a fully loaded video with all the audio clear. And with that, I will start into the Q&A. Thank you all for submitting the questions. We’ll get to as many as we can. So I’ll start with Ed Yruma from Piper Sandler. Has there been a change in the seller base since you increased fees? I’ll start with that one for Josh.

Deb Wasser:

Great. Thanks, Josh. Next one came in from Kunal Madhukar from UBS. Given such a challenge, how easy or tough it is to scale into different languages and countries?

Deb Wasser:

Okay, great. Thanks, Josh. I’m going to give Kunal another one. The wallet may be early for the buyers you have added in the past two quarters in 2022. Is there behavior different from the new buyers you added during COVID? And how has behavior changed new buyers pre COVID to today? I think we had that one’s a good one for Josh. And then Rachel can add if you’d like.

Deb Wasser:

Okay, great. Rachel, well, you’re okay with that one, I think. Yes, we’ll go to the next one, okay. The next one is from Ed Yruma from Piper Sandler. Can you talk about the dynamics driving the reduction in GMS per active buyer? Is this a function of mix or are you seeing signs of a trade down? That one, I'll give to Rachel.

Josh Silverman:

If I can just jump in on that. So if you look at the total number of people who bought in the second quarter and divide the GMS from them by the number of buyers that were active. Year-over-year, it's about flat. And we think that's actually really encouraging in spite of reopening and in spite of inflation and all of the other economic headwinds, the buyers that are buying with us are spending about as much year-over-year. And that's roughly flat. We are seeing a very slight decline in the number of active buyers in Q2 relative to trailing 12 month. And again, no surprise that when people have a lot more options for where to shop and their pocket books are tighter, we might see some contraction in the number of active buyers, but actually all things considered were pretty encouraged by how those trends are holding up as well.

Josh Silverman:

Sure. The short answer is no, we are not seeing sellers take up their net prices to account for the higher input prices that they have. And so providing them more education and tools might well be a strategy. And it's certainly something we're taking a hard look at right now. We are also seeing a lot of discounting in the market, Walmart reported yesterday that they've got oversupply. And so they're having to do a lot of discounting it, it's moments like that when I continue to be grateful that our model does not require us to spend billions of dollars buying inventory in advance on the hopes that there will be demand for it when it finally arrives weeks or months later. But nonetheless, there is a lot of discounting in the market. So here's what we've seen. We've seen over the past five years, sellers take their headline list price up by about 9%. Now 9% a year in total, over five years, item prices have gone up by about 9%. We've also launched a lot of sales and promotion tools that our sellers can use to put things on sale and our sellers are using those tools and they're using them with increasing frequency. The result of that is actually that it completely offsets the increase in item prices, meaning that the net item price has been basically flat for five straight years. Now, our sellers, it also means our sellers are armed with the kinds of tools that they might need in a time like now, where there's a lot of heavy discounting and promotion where they can compete for that. And so we're happy that we're giving them tools to be able to compete and win, but it does mean that while many other retailers might be promoting, might be reporting revenue in GMS numbers that are benefiting from price inflation. Our sellers do not appear to be doing that at this time.

Josh Silverman:

Yes. Thanks for the question. I think that our staffing level is just about right. We're at about the right size and shape right now. We feel pretty good about it. And just to give some context, when our revenues more than doubled overnight in the second quarter of 2020, and then stayed at those elevated levels and grew. We did not throw caution to the wind and suddenly go on a massive hiring spree and hire super quickly. There's a certain cadence at which you can interview people well, make sure you're getting high quality people, make sure that they have a job. That's a clear, redefined job that their manager's ready for them. That they're well trained. There's a certain cadence at which we think you can responsibly hire. And so we let revenues lead. And what we said quarter-after-quarter is margins are higher than we like and we are more leveraged than we like. It's just that we can only hire at a certain pace. We also said, traffic is also doubled so every new product release that our team does has twice the impact because we're driving conversion rate on twice the traffic. And so revenues have led headcount, but headcount is caught up and Rachel showed a slide showing that now product development expense as a percent of revenue is roughly back to where it was before the pandemic. I do want to point out that those numbers include the acquisitions of Elo7 and Depop, both of those are earlier staged companies earlier in their life cycles. So they're not as leveraged as Etsy. But I think that when we benchmark us to our peers, we look good. And I think especially if you look at the Etsy standalone business, we think that we benchmark quite well relative to the peer set. So we're happy that we have been thoughtful and careful as we've gone. We've never been a growth at all cost company. We've always been disciplined about investments. But we think we're about the right size and shape right now. So we have slowed hiring as business conditions have slowed. We started to significantly slow hiring in the third quarter. We don't have a hiring freeze. We are still hiring but not at the same pace that we were in the first half of this year. And we think that's appropriate.

Rachel Glaser:

So thank you for the question. Performance marketing, as we’ve said, many times for us varies dynamically with demand. When we did our transaction fee increase, we were able to increase lifetime value. And so our models dynamically adjusted at higher lifetime value, we can spend more and spend deeper into the ROI curve. And on the other side – on the other hand, when demand is softer, it will dynamically pull back. So we saw both of those things happening in the second quarter where we had some decreased spending because of lower demand and on the other hand, being able to spend a bit more because of higher LTV. Said another way we would’ve spent less had we not had the higher LTV. So flash forward going forward, we have continued – we have this continued higher lifetime value. We can continue to lean into that ROI curve. And we will expect to – what we said on the call, we would expect to be spending more – we typically spend more in the second half of the year than we do in the first, a lot of that driven by the seasonality of higher demand as we get toward the second half of the third quarter and into the holiday season in the fourth quarter. And we also said that in addition to performance marketing, we would typically spend more on brand marketing in the fourth quarter also because demand is higher at that time.

Rachel Glaser:

Thank you, Anna. Let me take the offsite ads question first. Basically offsite ads is trending in line, it’s been about 1 percentage point of take rate improvement, give or take a little bit here and there, but we’re trending roughly in that same neighbourhood. On brand marketing, like I said, we typically do spend more on brand marketing in the fourth quarter, so relative – sequentially relative to the first half of the year. In the second half, we would expect to spend a little bit more on brand marketing year-over-year. I don’t think we’ve given a guide on that specific number, but we aren’t necessarily doubling down because we try to make brand marketing as dynamic as we do with performance marketing, meaning where demand – when demand is there, we’ll spend more. We did expand from the U.S. into the UK and Germany as well in the last year. We’ll continue with that because we’ve seen very high ROI on that spend as well as very positive brand marketing results with how well we resonate top of mind in those markets. So we attribute a lot of that to the success of the brand campaigns.

Josh Silverman:

Thanks to the question. We continue to think it’s early days and that Depop is a great brand with a great community and a great space. So we think that e-commerce is going to continue to be a big and important space, and we think Gen-Z is the place to be, and Depop is the choice of Gen -Z. So we continue to be excited and its early days for Depop and Elo7 as well. We think Brazil is a really exciting economy, a really exciting market. And having a foothold there we think is really important. We made these investments with an eye to the long-term, not the short-term and we are absolutely investing to have an impact there. So I think Kruti coming over to Depop brings tremendous knowhow. I talked in the call about her 11 years of tenure and almost every role at Etsy. We’ve also taken Etsy Alumni now run the technology team and the product teams and very talented leaders. I think it really speaks to the bench of talent that we have at Etsy that we’re able to do this kind of knowledge transfer and talent transfer. But they’re hard at work right now on accelerating the velocity and the measurability of the product work that we’re doing. One of the core cadences of Etsy that’s been so effective is really being able to look at what’s truly driving impact in GMS and focus our work on things that are truly unlocking gains. We’re building a lot of that into Depop really working on building performance marketing systems at Depop that can accelerate growth where we can be more measurable and attribute to ROI there. And so we’re encouraged by the work there and then more in search and discovery that we can do. And Elo7 also, there’s been a really terrific partnership. So for example, they’re making a lot of gains right now, getting shipping costs down through negotiations with carriers. They’re also seeing real gains with performance marketing and our ability to help them be more thoughtful about how and where to do their performance marketing. And so we’re very encouraged by our opportunity to add value. We think it’s early days and we’re excited for the future.

Rachel Glaser:

Happy to answer that question. So there’s one main reason I can cite that is suggests the sequential decline in Q3 margins from the guidance that we gave. And that’s because as I said on the call and as Josh reiterated here, even though we have slowed hiring for the rest of the year, we have been hiring steady as she goes for the last four to six quarters. And so we have sequentially more headcount, full quarter of more headcount in the third quarter than we did in the second quarter, including the headcount we acquired with the acquisitions of Depop and Elo7. In addition, we try to stay very competitive on our compensation. We do annual market assessment and we adjust compensation relative to what we learn from that market assessment and so we've stayed competitive in higher compensation costs and more people in Q3 versus Q2 drives the primary reason for the deceleration that's offset by a higher flow through of revenue from a higher transaction fee. We get a full quarter of that in Q3 as well.

Rachel Glaser:

That's good. And I think we have another question coming up with, yeah,

Rachel Glaser:

So we've talked a lot about this purchase – buyer purchase protection that we've recently just, just launched. We've talked about that being about a $25 million investment off our P&L on an annualized basis. So we'll be getting a partial quarter of that in Q3 that we did not have in Q2. That is something that has not to-date we haven't done a large marketing or promotional push, so that buyers better understand that we're offering as purchase protection. So right now that's a full expense on our P&L, and not necessarily being offset in the near-term with GMS. It is something over the long term that as we build trust in our brand, that we would expect to see some benefit that's the reason that we're doing is higher trust in the marketplace will remove one of the big friction points we have in repeat frequency and new buyers coming to the site.

Josh Silverman:

Only that I don't think it's a silver bullet that all of a sudden changes things, but brands that are known to have your back in gender loyalty and frequency. And we know that nagging voice in your head off what if it doesn't arrive or what if I don't like it, can be a real friction point on Etsy, particularly when you're buying, the nature of Etsy as you're buying an unbranded product from an unbranded seller. So we think that by backing it with the full faith and trust of Etsy we can give you the confidence and we think earn more frequency. If you think about the brands that are really famous for this didn't happen overnight. It's something you earn and people have an experience and you have their back and they tell their friends and it grows. But fortunately this is affordable for us, because our sellers generally do a great job and people as a percentage of our total volume, don't have a lot of really bad experiences, which is what makes it feasible for us to step into this gap.

Rachel Glaser:

Yes. So there, it hits two of my favorite charts in the slide deck. I'm not sure if you've been able to see them, but on one slide we did outline the walk for Q2, what we thought the primary drivers of the GMS decline was. And by far the largest decel was coming from what we call mobility. We're almost at all the way back to the mobility level, according to Google's mobility index that we were in Q2 of 2019 or well before the pandemic. So people are out, they're dining out, they're shopping online, they're traveling and that was the biggest decline in what we saw in Q2. And we would expect – we have no reason to believe at this point that there would be a big difference in that on our Q3 numbers. Now, the second favorite chart was the Q3 the monthlies that we gave implying where we are, that we're seeing this flattening between May and June, between June and July. And so at the high-end of our guidance, we're basically flat year-over-year on year-over-three year rather on GMS and at the low end of the guide, we see a continued slight deceleration, but at a slow on a softer slope.

Josh Silverman:

Great question. One thing I'll just say on top of Rachel's question, of course everything she said. FX is also something of a headwind, it's several percentage points in fact of a headwind to GMS. So just something to think about, I think in light of that even more encouraged by how well we're holding up. Considering part of this is just FX. So the ad load, we're really excited about the continued opportunity for Etsy ads over time. That team has just done a great job. And when we think about head count and hiring, by the way, we had a tiny group of people, one squad on that for the longest time, and now there's a few squads, but for a business that generates the kind of benefits that it does for the community, the kinds of revenue and profit, it's still a very small team. And so the question of ad load, have we covered every surface we could on Etsy, actually it's more complicated than it sounds because the answer is it depends on the quality of ads, right? If the quality of ads are as good as organic search results then you could imagine ad load being very high. If the quality of the ad product is much worse than organic, then anywhere you put ads comes at the expense of organic listings which would be better. So the relevance of the ads that we serve has gotten dramatically better over time. And as a result, there's less variance. In fact, there's often no variance between the GMS produced by an ad or the GMS produced by an organic listing. And as the relevance of ads gets better, as sellers – more sellers take up their budget that allows us to actually expand, ad coverage or ad load even more. They actually go hand-in-hand. There was a question asked about seller budgets, seller budgets are up 80% year-over-year on aggregate. So that I take is a nice testament that sellers are getting good ROAs relative to their expectations and what they want need from the program. That's an aggregate. But in fact, some sellers still achieve their full daily budget in the first hours of the morning. And so there's still room to go on getting more sellers to increase their budget. We still think there's a lot more we can do to make the search engine even more relevant. And as we do those things, we can expand ad coverage or add load even more.

Josh Silverman:

Thank you.

Joshua Silverman:

Thanks, Deb, and good evening, everyone. In recent years, it seems one of the only real certainties has been uncertainty. You could say it's the new normal. We believe that over the past 5 years, our team has demonstrated its agility and adaptability, and our business model has shown resiliency through many types of macro conditions. In Q1, we rose to the occasion once again to deliver solid results in a challenging quarter, maintaining almost all of the gains reported during the extremely strong year ago period. Our consolidated GMS was $3.3 billion, up 3.5% year-over-year or approximately 5% on a constant currency basis, with the Etsy marketplace GMS down about 2% as we lapped the exceptionally strong growth of the prior year. Consolidated revenue grew 5.2%, and our adjusted EBITDA margin was 27.5%. Rachel will cover the results in more detail shortly. Etsy experienced a tidal wave of growth over the past 2 years. As so much of the world shut down, we went from serving 2.6 million to 5.5 million active sellers and from 47 million to nearly 90 million active buyers, and etsy.com GMS grew from about $1.2 billion in the first quarter of 2020 to $2.8 billion this past quarter. We have provided a pathway to economic opportunity for millions and a meaningful alternative for buyers looking to not be just another cog in the complex and increasingly commoditized global supply chain. As we move from the COVID pandemic to what appears to be an endemic, people have regained their mobility. And with that, come so many more choices for where to spend their hard-earned dollars. This is a great thing for humanity, and I personally couldn't be more relieved to see it. It also means that in the near term, we'll have to fight harder and invest more to continue to earn and grow Etsy's share of wallet with consumers, which is the only way that our much larger base of sellers can keep growing their sales. We're up for it. The current macro climate makes the coming months more challenging to predict. However, over the long term, we continue to believe that the number of places to shop online will consolidate as the world continues to become more commoditized. The pandemic perhaps gave us the chance to preview what the world could look like for Etsy, where in a more consolidated, more commoditized future world, Etsy could flourish as one of the few meaningful alternatives amidst a sea of sameness. Through this change, our mission has remained the same, to keep commerce human. We continue to believe that the strategy we laid out for you in 2019 centered on our Right to Win, keeps us on the right course. The only change is that we have even more conviction that the opportunity ahead is enormous. We plan to go after that opportunity with focus, discipline and heart. Speaking of heart, the crisis in Ukraine weighs heavily on us all. Our thoughts are with everyone impacted in the region, especially Etsy sellers and buyers, as well as family and friends of our global team. Being part of a community means that when one part is suffering, the rest of us step up and offer support. To do our part, we've taken many steps to help Ukrainian sellers that are facing tremendous hardship. Our financial support, including providing listing credits and canceling current balances owed to us by sellers, totaled $4.6 million in the quarter. The ability to make sales is more critical than ever for Ukrainian sellers. While shipping physical goods has gotten challenging for some, many sellers have pivoted to listing digital items from printable art to embroidery patterns as a means to generate income. We've also had a groundswell of interest from buyers who want to directly support small businesses in Ukraine. Our team has been working hard to ensure our sellers feel supported and to promote their listings to buyers. In total, our Ukraine-based sellers made over $11 million in sales in March, an average of nearly $1,400 per seller with the sale. In 2019, we also laid out our levers for GMS growth, bringing more active buyers to the marketplace, getting them to shop more frequently and earning their trust on the larger as well as the smaller purchases. Since then, we've demonstrated that we can meet the everyday needs of millions of buyers across a vast array of purchase occasions, and that Etsy sellers have something delightful to offer. We've also driven our frequency forward in a meaningful way, but we have so much more to do. So I wanted to spend a little time today unpacking how we see these opportunities going forward. Etsy is sometimes referred to as a niche marketplace, implying that we aren't relevant to most people or at minimum, that we aren't relevant very often. I couldn't disagree more and believe that our recent performance proves just how relevant the Etsy marketplace is to almost every type of person over so many different shopping occasions. Let's take a look at the numbers. Starting with our current buyer base. We have about 89 million active buyers in nearly 250 countries. And just this past quarter, we acquired 7 million new buyers on top of the 73 million we added over the last 2 years. And moving to our categories. 15 Etsy marketplace categories each had over 1 million unique buyers in 2021. And of those, the 7 shown on this slide, each had over 15 million unique buyers, demonstrating that Etsy is relevant to a large audience across a wide range of categories and occasions. Digging into who these buyers are, according to our latest surveys and estimates, about 3/4 of etsy.com's U.S. and U.K. buyers identify as women and 1/4 identify as men. While we believe that gender identity is widely recognized as a spectrum, the following gender data relates to these 2 largest cohorts. Starting with our core women buyers. We estimate that about 30% of adult women in the U.S. and the U.K. shopped on Etsy at least once in the past 12 months. And of those women, about 58% bought on 2 or more days and roughly 56% purchased in 2 or more Etsy categories in that same period. In my opinion, there's nothing niche about that. The inverse of this data is that about 70% of women in our top 2 markets didn't shop on Etsy during this period, leaving a lot more opportunity to grow. Turning to the other roughly half of the world's population, those who identify as men. That's a huge population we began thinking about only recently. We estimate that about 10% of adult men in the U.S. and the U.K. shopped on Etsy at least once in the past 12 months. Roughly 37% of these men bought on Etsy on 2 or more days and 35% purchased in 2 or more categories over the same period. We recently conducted research to better understand men's shopping attitudes and behaviors, and learned that those who identify as men are as likely as women to be intentional shoppers, valuing handcrafted items, supporting small businesses, wanting to make a positive impact with their purchases or buying items that reflect their personality. Our data also supports that among prospective buyers who are aware of Etsy, there's no difference in likelihood to visit Etsy by gender. The top 3 reasons men give for not shopping on Etsy are very similar to the reasons women give, although all relate to awareness. Etsy hasn't come to mind. I haven't had a need for the types of items they sell, and I don't know what Etsy offers. We estimate 35% of our new U.S. buyers in 2021 identify as men. We're just getting started understanding these buyers and developing product and marketing strategies to help them learn the when and the why of Etsy, so we can come to mind more often. For example, we saw positive return on investment from some of our recent tactics using gender-neutral TV creative, with media placements on NFL and Hulu. And this year, we're piloting male influencer content to increase trial and trust in Etsy for buyers who identify as men. And we have so much more room to go on engagement and conversion. While nearly 90 million active buyers is impressive, we estimate that etsy.com had about 180 million unique visitors every month, meaning we can do so much better engaging and converting these visits. And we have over 100 million lapsed buyers. That's millions more who've already shopped with us, are familiar with us, but haven't shopped with us in the past 12 months. Turning to our geographic opportunity. Etsy's all-time buyer penetration remains below 50% across all 7 of our core markets. The majority of Etsy's active buyers are still in the U.S. And so far, most of the data reviewed today relates to the U.S. and U.K., our 2 largest markets. If you were to look more closely at some of our other core markets, such as France, for example, you'd find that our prompted awareness there is only about 40% compared to about 90% in the U.S. and the U.K., and conversion rate is 50% lower in France than in the other 2 countries. In fact, penetration rates in the next 15 markets beyond the U.S. and U.K. are about 80% lower than those top 2 Etsy markets. To size this more clearly, these 15 countries have a combined population that's 58% larger than the U.S. and approximately $20 trillion in GDP, similar to the U.S. This slide is not meant to signal any change in our near-term strategy to focus on our 7 core markets. It's only meant to illustrate our fervent belief that we have only just begun to scratch the surface of Etsy's long-term growth opportunity. In addition to the size of the prize from a total buyer perspective, another key growth lever is frequency. As I mentioned earlier, the Etsy Marketplace has something great to offer across so many purchase occasions. Over the 12 months ending March 31, 2022, 44 million of our repeat buyers purchased on Etsy an average of 5 purchase days, and of these, 8 million or so are what we call habitual buyers. Well, to be a habitual buyer, a customer only needs to make a purchase on Etsy on 6 different days and spend $200 in a year, our habituals actually shop an average of about once a month. They figured out the magic of Etsy. And yet there are still so many who haven't. In fact, even with all the progress in the recent past, half of Etsy's first quarter active buyers still bought only once during the trailing 12 months, and the vast majority of our habitual buyers are still in the U.S. We believe our frequency opportunity is still in its infancy. Our last lever of growth is average order value. What I mentioned earlier is earning buyers trust on the larger as well as smaller purchases, otherwise known as our cushion-to-couch strategy. Most of our efforts here are extensions of other -- right to Win strategies. And in fact, we've only done a few specific things over the years, such as multi-shop checkout and Buy Now, Pay Later, targeted specifically at AOV. We see significant opportunity to invest in cross-category experiences and things like Shop the Look, that we believe could drive big wins here in the future, as well as to give our sellers better tools to showcase the high-quality differentiated product and service so that they can be rewarded for it. Turning again to frequency and earning a greater share of wallet. We told you on our last call, we're centering our frequency investments on inspiration, having a fun and engaging experience that keeps you coming back for more; efficiency, helping you quickly and easily get in, buy and get out when you already know what you want; and reliability, ensuring a stress-free and dependable purchase. To the first point, many of our visits are from buyers who are on a discovery journey, and there's so much more we can do to make this a more fun and inspiring experience. Recent buyer survey data revealed that those who visited Etsy just to browse or seek inspiration are 1.3x more likely to say they'll purchase on Etsy in the next 3 months. Our teams have been hard at work on new discovery pathways designed to make the Etsy experience more visual, dynamic and inspirational for buyers and to elevate the stories our sellers are uniquely positioned to tell. For example, some of you have seen the beta version of our new Explorer feature on your Etsy app. It's an early iteration of making Etsy a starting point to window shop, discover and connect, a mall-like experience, if you will, featuring a continuous scroll of short videos made by sellers showing their items being made. Etsy sellers are already creating this content for other channels with nearly 15 million seller videos on the site at quarter's end. And buyers are interested in watching this content. It's pretty captivating. We're focused on making Etsy a unique place to build experiences at the intersection of a seller's imagination and a buyer's inspiration. It's early days in this exciting work. While some buyers come just for fun or inspiration, others arrive already knowing what they're looking for. For those visits, we need to make shopping on Etsy more efficient, less overwhelming and easy to navigate, so you can get what you need and get on your way quickly. We continue to improve search this past quarter by applying personalization to in-session browsing behavior for U.S. searches on etsy.com, capturing a buyer's short-term interests with a particular emphasis on improving conversion for signed out or new buyers. This connects to my earlier growth lever comment about how we engage the many millions of visitors who come to Etsy but don't become active buyers. We can now increasingly refine our search results while a potential buyer browsers in real time, leveraging signals we gained during the course of the visit to narrow in on today's shopping mission. In the past, we've needed a buyer to have previously engaged with Etsy to be able to personalize their results. This shift opens the door to better address the approximately 75% of etsy.com web visit traffic from buyers who were signed out or have never shopped with us. We're continuing to innovate our XWalk real-time retrieval engine to not only use billions more data points, but to simultaneously steer our search engine to optimize for specific attributes such as to help a buyer find a high-quality wallet that is brown and full-grain leather and available in time for an upcoming anniversary, as illustrated on this slide. We have enormous conviction that making Etsy a more trusted and reliable place to shop can be a big growth unlock. 3 in 5 Etsy buyers are unsure we would have their back if something goes wrong with their transaction. Similarly, sellers worry about times when something goes wrong through no fault of their own. And we want them to know that we'll support them. Later this quarter, we'll share our plans for investments in a new purchase protection program that will extend to both buyers and sellers in a generous way. We'll also be doing a lot more in 2022 to further last year's progress towards reducing time to resolution for customer support, ensuring that Etsy Handmade and other policies are enforced helping sellers better manage shipping settings and delivery dates to give buyers the information they need to make purchase decisions and more. We know that in order to gain more wallet share, we need to make Etsy more reliable. We simply can't become a habit unless we do better for our customers. We have so many other work streams focused on buyer engagement, frequency and trust. In the first quarter, we continued to engage buyers along their Etsy journey by further enhancing our app with new features aimed at increasing purchasing confidence, including driving buyers to reviews, enabling more ways to sort and filter reviews and collecting more review photos. Reviews have been a particularly rich work stream for us. In fact, since 2021, we improved our review rate by 50% globally, which we estimate has driven $200 million in annualized GMS. It's never been more important to be investing to stay top of mind with consumers to keep growing the pie for our sellers. We're investing even deeper in full funnel marketing to engage existing buyers, reengage our lapsed buyers and keep bringing new buyers to the Etsy marketplace. We've got many new marketing arrows in our quiver this year to better connect off-site and on-site experiences. So I'll just mention a couple about which I'm particularly excited. The first is our new Creator Collective Program, which leverages influencer and seller-generated content to bring new buyers to Etsy. We've also started to test performance marketing spend in rest of world markets beyond our core, including Italy, The Netherlands, Spain, Ireland, Switzerland, Belgium and Austria. So far, we've seen very encouraging results from these efforts. In the first quarter, approximately 50% of Etsy Marketplace paid GMS for these markets came from new buyers. As we've talked about, our above-the-line brand campaigns are focused on ensuring we continue to strengthen the Etsy brand in our top core markets, while finding efficient opportunities to expand and scale our reach in ways that will ultimately drive long-term growth. Here's a 30-second clip of one of several brand-new campaigns now running called Live in Original. You'll see us ramping up placements as we go through 2022. [Presentation]

Rachel Glaser:

Thanks, Josh. And thank you for joining us on our call. My commentary will cover consolidated results, key drivers of performance and Etsy Marketplace stand-alone results where appropriate. As a reminder, Reverb, Depop and Elo7 are all reflected in our consolidated financial results and KPIs for the first quarter. On a consolidated basis, our first quarter GMS grew 3.5% year-over-year to $3.3 billion. Revenue grew 5.2% year-over-year to $579 million, and adjusted EBITDA was $159 million with a 27.5% margin. On a currency-neutral basis, GMS increased 4.8% year-over-year. As we explained on our last call, the first quarter of 2021 was an anomaly, with 132% year-over-year GMS growth fueled by pandemic lockdowns and tailwinds from stimulus checks. Flash forward to the first quarter of this year, which was marked by a rebound in global mobility and headwinds from the highest inflation the U.S. has seen in over 40 years. Further, geopolitical events appear to be causing additional headwinds, particularly in Europe. We estimate that the direct impact of the crisis in Ukraine, including lost GMS from both Russian and Ukrainian sellers, was about 40 basis points versus the forecast when we set guidance for the quarter. In short, disposable income is lower and competition for share of wallet is higher across our markets. In that context, we're pleased with our consolidated GMS growth of over 200% on a 3-year basis. Moreover, we delivered better-than-anticipated adjusted EBITDA margins, demonstrating the strength of our marketplace model. So let me double click on our performance, starting with revenue. Marketplace revenue grew 3.4%, in line with GMS, while services revenue increased 11%. Within services revenue, consolidated ads revenue increased 14% year-over-year, primarily the result of continued improvements to ad relevance and expansion of ads in the buyer experience. Etsy Ads strength was a factor in driving consolidated take rate of 17.8% for the quarter, slightly ahead of the take rate of 17.5% implied by the midpoint of our first quarter guidance. Before closing out on revenue, let me discuss the recent increase to our transaction fee, which went into effect on April 11. We're committed to nurturing our marketplace in a way that enables millions of creative entrepreneurs to succeed. We're incredibly proud that over the past 2 years, the number of sellers on Etsy Marketplace has more than doubled and the number of listings is up 55%. With more sellers on the platform than ever, we need to continue to grow the size of the pie. This requires us to invest more to scale our platform and most importantly, bring them even more buyers than the almost 90 million we bring them today. When the fee change went into effect, we saw less than 1% of sellers go into temporary vacation mode. Active listings dipped less than 1% during that week and returned to the prior level when the week was over. Based on past experience and significant research leading up to the change, this was all within our expectations. The overall impact to our GMS for the week was not material and seller churn remains at normal levels quarter-to-date. At quarter end, we had well in excess of 95 million listings on etsy.com. And as you know, we have no shortage of items for sale. And while no one likes fee raises, we actually heard from thousands of sellers supporting our efforts to invest in them. We really value input from our sellers and are confident in our investment plans. We trust that sellers will judge us by our outcomes when they see the value we are able to provide. Turning now to our consolidated adjusted EBITDA. Our first quarter adjusted EBITDA margin was 27.5%, ahead of expectations, but well below the prior year. As we have described, the first quarter of 2021 was very strong GMS growth quarter, which drove commensurately high margins in last year's first quarter. This year, we have consolidated 2 new subsidiaries into our results, which were not in our prior year numbers. Neither Depop nor Elo7 are currently profitable. And they are, therefore, a drag on our bottom line consolidated margins. In addition, we continue to invest in headcount growth and increased compensation, including stock-based compensation, with the largest portion in product development. We also saw growth in our cloud computing costs due to increased development activity. Finally, there was about a $5.6 million impact to our adjusted EBITDA directly attributed to the crisis in Ukraine, including Ukraine seller support as well as bad debt expenses related to closing seller shops in Russia and Belarus. We are also investing in our subsidiary brands. While they are experiencing similar reopening headwinds and other macro factors, each made strides in product and marketing, incorporating the Etsy playbook into their own growth strategies. We summarized their recent focus areas on Slide 28. During the quarter, Reverb launched a new Google integration to further optimize performance marketing efficiency, as well as scaled tests of new advertising channels, which are realizing promising early results. At Depop, the recently launched Make an Offer feature, where buyers seamlessly submit product offers to sellers, led to a meaningful uplift in both conversion and frequency and was an encouraging needle mover for GMS. We also launched Depop's first-ever digital video campaign in select local U.S. markets. Early results are positive, showing an improvement in brand familiarity. And Elo7's expanded shipping options for sellers resulted in cheaper shipping costs and faster delivery times, improving the overall buyer experience and driving an increase in conversion. And for the Etsy Marketplace, we have a balanced portfolio of product initiatives, some of which we expect to deliver in-year GMS and others such as visual discovery, or improving the foundation for our development capabilities are expected to take a longer period to bear fruit. You can see on Slide 29, how we have scaled our product development investments over the past 4 years and how it has increased as a percentage of revenue in the first quarter of 2022. During the first quarter, we increased our consolidated marketing spend to $154 million, up from $151 million in the first quarter of the prior year. Our brand spend, sometimes referred to as above-the-line spend, represented 16% of our consolidated marketing spend, up from 13% in the prior year. For our Etsy Marketplace, we were on air during the first quarter of 2022 in our core markets, including a male-focused campaign, which shows signs of real promise in that demographic. We plan to expand placement of our brand marketing campaign for the Etsy Marketplace as we go through the year, particularly in the back half. First quarter 2022 performance marketing spend was down year-over-year as it dynamically adjusted with demand, and the decrease was partially offset by an increase in social media marketing spend. In terms of our performance marketing spend, we maintain our general rule of not leaving profitable marketing dollars on the table. And similarly, we don't chase unprofitable buyer acquisition or engagement. In addition to our investments in product and marketing, we have made deliberate bets in other areas such as investing in being a trusted brand. These investments are meant to ensure that our customers, both sellers and buyers, find a welcoming home and have a delightful shopping experience even post purchase. To that end, we are investing in the support apparatus we need to create a streamlined and efficient experience if something doesn't go right, including in compliance, both people and systems to keep the marketplace safe and advocacy efforts to support our sellers globally as the regulatory landscape evolves around privacy, taxation and content. I'll dive in deeper now on Etsy Marketplace performance on a stand-alone basis. During the first quarter of 2022, Etsy marketplace GMS declined 2% year-over-year and increased 177% on a year-over-3-year basis. That is when compared to the first quarter of 2019. The deceleration we started to experience in February 2022 worsened throughout the quarter, which we attribute to headwinds related to increased reopenings, high levels of inflation weighing on consumer purchasing power and consumer mind share loss due to the crisis in Ukraine and its reverberations throughout the global economy. From a geographic perspective, 45% of Etsy marketplace GMS in the first quarter of 2022 was from transactions where either the buyer or the seller or both were outside the United States. Non-U.S. GMS was up 5% year-over-year on a currency-neutral basis, which was driven in part by strength in Germany, offsetting weakness in the United Kingdom, which was facing much tougher prior year comparisons. Etsy Marketplace category performance was marked by strength in paper and party supplies for in-person events such as baby showers and birthday parties as well as in apparel and jewelry and accessories, consistent with reopening trends. We've seen strong buyer demand for fashion subcategories and travel-related needs, including tote bags, passport cases and backpacks. Wedding items are also a bright spot for year-over-year growth, including wedding party gifts, wedding favors and decorations. The Home & Living category declined slightly for the quarter on a year-over-year basis. Although we are seeing relative strength in items related to Outdoor & Garden, in fact, ERTs were particularly hot sellers in the quarter. We believe the diversity of our listings and Etsy's sellers ability to rapidly shift to meet changing buyer demands is an important competitive advantage, especially now. GMS per active buyer on a trailing 12-month basis for the Etsy Marketplace increased to $137, up 10% year-over-year and up 37% on a year-over-3-year basis. Etsy.com ended the first quarter with 89 million active buyers, largely flat to year-end, which includes 8 million habitual buyers and another approximately 36 million repeat buyers, those who made purchases on 2 or more days in a 12-month period, but were not habitual buyers. The stable performance across all of these buyer cohorts is encouraging, providing additional proof points that we are maintaining most of the gains we made during the pandemic, despite there being so many more options for consumers' time and money. 46% of GMS came from habitual buyers in Q1 '22. Our growth of habitual buyers in core non-U.S. markets held up well in the first quarter of 2022, including 55% year-over-year growth in habitual buyers in Germany. We're also pleased to see continued healthy new buyer acquisition and reactivation of lapsed buyers. In the first quarter, we acquired over 7 million new buyers almost 60% greater than the number of new buyers acquired in Q1 2020. We are also continuing to reactivate lapsed buyers. In fact, we reactivated a healthy 5 million lapsed buyers in the first quarter. Okay. So moving to our outlook. While in the second quarter of 2021, Etsy reported consolidated GMS growth of 13% on a year-over-year basis, GMS increased 178% from the second quarter of 2019. The strength in the second quarter of 2021 was partially driven by the tail of economic stimulus payments in the U.S., which hit consumer bank accounts in early April as well as high COVID case counts and low vaccination rates that continue to keep many at home. Contrast that with now, where mobility indices are approaching 2019 levels and pent-up demand may drive this even higher, meaning the possibility of more movement and travel and less time for at-home shopping. We also see increasing headwinds related to broader macroeconomic issues in our core markets impacting Etsy, Depop and Reverb. We started to see headwinds in February, which worsened in March and again in April as well as unusual levels of volatility in our weekly GMS performance. To be sure, it's been a bit of an unpredictable and volatile start to the year. As such, we currently estimate that our second quarter consolidated GMS will be approximately $2.9 billion to $3.2 billion, about flat at the midpoint compared to the second quarter of last year and up 179% compared to the second quarter of 2019. In a world of so many more choices, our guidance implies somewhere between a decline of low to high single digits for Etsy marketplace GMS year-over-year, retaining over 90% of the gains we have made over the past 2 years. We are forecasting revenue of $540 million to $590 million, up about 7% at the midpoint compared to the second quarter of last year and up 212% compared to the second quarter of 2019. We currently expect adjusted EBITDA margin of about 25%. Here are a few additional items to keep in mind as you model the rest of 2022. Assuming macro trends do not worsen, we would expect our GMS growth rate to improve for the second half of 2022, as we have said on our last call, with revenue outpacing GMS. We've outlined today that despite the near-term headwinds we are experiencing, we remain committed to increasing investments in core Etsy and our subsidiaries. The reopening and macroeconomic headwinds we experienced as a company are, of course, also being felt in the households and wallets of our small independent sellers. Our take rate increase enables us to lean deeper into marketing, product development and member support to invest for growth at a time when our sellers need it the most. We are playing through, as they say. I am noting this here so you can model second half adjusted EBITDA accordingly. In an environment where top line growth is constrained by external factors and with an intent to stay the course on growth investments, we would not expect margins to expand materially other than potential improvement in the fourth quarter. As always, we operate with an ROI discipline and expect that our current period investments will have a payback in the future. Lastly, for your models, we also expect our stock-based compensation expense to increase sequentially in the second quarter as a result of our annual refresh grants that were priced in March. Since this expense will now have a full quarter impact, we currently forecast approximately a $0.15 pretax impact to our second quarter EPS compared to the first quarter, assuming stable share count. Thank you all for your time today. And I'll now turn the call over to Deb, so we can take your questions.

Joshua Silverman:

Absolutely. Thanks, Maria, for the question. If the pandemic has taught us anything, it has really strengthened our conviction even more in the enormous size of the prize that we believe we have at Etsy. And just to dimensionalize for a second, in the second quarter, pre-pandemic, Etsy sellers sold $1.1 billion worth of product on the core Etsy marketplace. And at the low end of guidance, we're projecting for Etsy consolidated $2.9 billion worth of sales. Etsy has been transformed, and maybe that is a glimpse towards that future we keep talking about, where we say in the future, we don't think there's going to be an unlimited number of places to buy things online. Amazon is going to likely continue to succeed. And it's not likely that there's thousands of places selling the exact same thing as Amazon, trying to compete head-to-head with them. Etsy offers something truly different, something really meaningful across many categories and many purchase occasions relevant to many people as we talked about in this call. We think the size of that prize is absolutely enormous. And so we have our eye on that prize, and we're investing for that future time. The next couple of quarters, absolutely are turbulent. We're facing reopening headwinds, we've got a war in Europe, we've got inflation. It's turbulent times for everyone, but the strongest companies invest with conviction and discipline through turbulent times with their eye on the medium term. And we think the opportunity for Etsy is enormous, and we are absolutely investing for that. And this is, by the way, the time when our sellers need us most to be investing, and that's absolutely what we're doing.

Joshua Silverman:

Sure. So we announced a fee increase in mid-February, and the reaction from sellers was actually more muted than in prior fee increases. No one likes it when prices go up. But actually, the seller reaction was less negative than it's been in the past. And what we said before the pandemic was we have an enormous number of sellers with a huge amount of things for sale. And what they need is to bring us more buyers to bring them more buyers. That's more true now than ever. Etsy now has 5.5 million sellers. And they're counting on Etsy to grow the pie at the very moment when buyers have a ton more choice than they had even 3 and 6 months ago. They are feeling a lot more pressure in terms of their wallet, and they have the opportunity to travel, to dine out and to shop offline, it's even more important that we are investing to bring buyers to those sellers and have a really compelling offerings that our sellers can grow. It's the only way that our sellers can grow. And so what we've been hearing from thousands of sellers is we need you, Etsy to be investing to grow. And when our sellers sell in other places, and by the way, many -- most of the big ones do, they sell on eBay, they sell on Amazon, they have their own sites on Shopify or Wix, they sell on craft fairs. As we've said in all of our seller sentences, our sellers have a lot of choices in terms of where they can sell. And what they find and what we know is that the value on Etsy is greater. We provide more value than the other alternatives. That was true before the fee increase, it's true after the fee increase. While they have many, many places they can sell, they are more successful selling on Etsy. Our top sellers say that about half of their sales come from Etsy and half come from everywhere else combined, and it's because we invest to bring them buyers and buyers who care about handmade products, vintage products, artisanal products, buyers who care about keeping commerce human. So it's even more important now that we are investing to help those 5.5 million sellers grow. As Rachel shared, while there were a small number of sellers who managed to get quite a lot of media attention, in fact, less than 1% of sellers chose to put their shop on vacation mode during that week. We saw no material impact to sales for the week, much less for the quarter. And we saw no material impact to churn. And we think the reason is that the value proposition that Etsy offers is really compelling. And whether the transaction fee is 5% or 6.5% right now, what sellers really need is us bringing them more buyers so they can drive more sales and the pie gets bigger for everyone. Thanks for the question.

Rachel Glaser:

Hello, everyone. Thanks for the question, Naved. So the lower margins reflect what we talked about as playing through. We're going to continue making our investments, even though we're seeing constraints on the top line. And first and foremost is really investing in our own people. So we are adding heads. We added heads throughout 2021. We've continued to grow headcount in 2022. And as a reminder, we've also added the headcount in from our recently-acquired new subsidiaries, Elo7 and Depop. And a lot of those people are pointed at product development. So product and engineering are a lot of the headcount adds. And they are really the growth engine of the company because they are creating all the products that is going to do exactly what Josh talked a lot about, which is increasing more active buyers and increasing frequency to get more GMS per buyer. That's the first bucket. We're also going to continue to invest in marketing. We showed you a clip of one of our new ad campaigns, but we're also running campaigns in the U.K. and Germany. We tested some above-the-line marketing for Depop in the first quarter, and we'll be looking to scale and optimize that program as well. And we spend on performance marketing dynamically. So we'll continue to lean into marketing where we see that the ROI is there. And then the third bucket is it's less visible to GMS in the short term, but we are spending a lot on our trust and safety and member support organization. We talked about really having our customers' back in a way that they can see it and feel it more so than ever. We'll talk more about that as we announce it externally, but we're excited about that, and that is an investment that hits the P&L in the short term. And so we believe that's a long-term payback. Another place we invest is in our -- as we have more product engineers, we're developing more. So we use more cloud computing and hosting costs. So some of those things, you don't see the direct relationship between those investments and GMS in the quarter, but we believe in the long-term benefit of making those bets.

Joshua Silverman:

Yes, absolutely. Thanks for the question. So let me start with just awareness, because one of the top things we hear about why did you not buy on Etsy more frequently is I just didn't think of it. So we continue -- we said that before the pandemic, we continue to see that as I just didn't think of it, should have had a VA. And so the television campaigns that we showed in the investment and above the line as well as the performance marketing investments that we're making are more important than ever to just remind people of all of the different purchase occasions for which we're relevant. And we shared, for example, 30% of buyers who identify as women in the U.S. and the U.K. shop in Etsy at least once and 58% of them shop more than one time. So we know we're relevant to a lot of people a lot of the time. If we take a second on those 8 million habitual buyers, they bought an average of 13x over the course of the last 12 months. So we know that we can be relevant to them very, very often more than once a month, and I know we shop on Etsy more than once a week. And I know plenty of people who do. So we know we can be a lot more relevant. What is it that differentiates those habitual buyers that are shopping once a month or more. They figured out the magic of Etsy. Not only do they think of us more often or we're front of mind, but they know how to speak Etsy. They know how to put the right words in our search engine in order to get the right results. And we got to continue to make it easier to get the average person who doesn't shop on Etsy all the time to get the kind of results that an expert Etsy user gets. And so the search engine is continuing to get better and better, which is super important. What we talked about in the prepared remarks about XWalk is really important. And to simplify it, instead of having one objective function like leather wallet, you can now search -- we can now optimize for multiple objectives at the same time. Leather wallet that's near me will arrive within this time and is brown. And the ability for the search engine understand plain English and convert it into things that people want is just getting better and better. We're also doing a better job of getting people to leave tea leaves of themselves to engage in lightweight ways that tell us about themselves, doing things like favoriting or adding things to list, which make us able to understand them better and therefore, provide better search and better recommendations for them in the future. I'm particularly excited about the work we're doing there for buyers who have low or no maybe visitors, people who've never bought on Etsy before or have only bought 1 or 2 things. That's a large amount of traffic on Etsy. We talked about over 180 million unique visitors each month on the Etsy website. And we're getting much better at taking someone for whom we don't have a lot of data and becoming much more personalized even for them. And I think that can do a lot more to drive conversion and to drive frequency. One of the things that we hear most from buyers is in order to make Etsy truly a habit, a go-to starting point for commerce, they need to trust us even more that we will have their back. And so while it's rare that something goes wrong on Etsy, buyers don't always trust that we're going to have their back. And in fact, that's one of the big value-adds that Etsy can offer relative to buying on an individual shop, is you haven't heard of that individual shopper that individual brand, but you've heard of Etsy. And so we build that brand. We build the trust of that brand, and we lend that trust to each of our sellers. It's one of the most important things that we do. It's part of why we do ask for and promote certain standards among sellers that we build a brand that stands for something. And so we mentioned that we'll be announcing something later this quarter, where we're investing to make sure that buyers know that we have their back and that sellers know that we have their back. So when the rare occasion that something goes wrong, people know that they're protected. And I'm really excited about what that can do for frequency over time. Those kinds of things aren't a silver bullet. We're -- immediately necessarily see GMS growth, but building a brand that stands for reliability, we know, we believe, can have very big dividends over time.

Rachel Glaser:

Thanks for the question, Marvin. So first of all, one thing I want to point out right at this -- at the start is to think about at the low end of our guidance, it's $2.9 billion. And in 3 years ago, so Q2 of 2019, we had $1.1 billion. So even at the low end of the guidance we gave, we have -- we are 3x -- nearly 3x bigger than where we were 3 years ago, and we were super proud of being able to have retained all of that growth. We did say on the call, I think maybe your question was written before I said it, and I know everyone's multitasking because there's so many people reporting today, but that we saw successive deceleration in GMS starting in about February. And we have seen that even in April. So it's been a pretty volatile and unpredictable quarter, pretty bumpy for a lot of people. It's part of the reason we gave -- we stayed with a wide range of our guidance and a reason why we're not still not giving full year guidance because there's just a lot we don't know and can't control. With that said, there's a lot of positive in the numbers that we gave. We talked about adding millions of new buyers in the last quarter, which was up 60% from the same quarter 3 years ago, and we have so much opportunity for growth as Josh laid out. So we're really pleased with the numbers that we're hitting, and we expect the other number that we gave in the guidance that we gave was that we would expect as we get to the second half of the year, generally, the second half is a bigger half than the first half, and we still expect that. And also the other fact pattern is that we're going to start to have lower comps in the second half of the year than we did in the first. So those things remain true, and we're just playing through with our investments and pleased with the results that we're delivering.

Rachel Glaser:

Great question. We love talking about marketing at Etsy. So first of all, this is a reminder for everybody, we don't really give our marketing teams a marketing dollar budget. We give them an ROI threshold on performance marketing. And so our spend will dynamically increase or decrease based on demand. And because as we talked about, had a bumpy first quarter with some deceleration in demand through the quarter, the spend dynamically pulls back on performance marketing. So we did see that happen. Offsetting that is we spent more on brand marketing. And I think we said it was about 16% of total spend in the quarter as opposed to 13% in the period a year ago. So that trend is happening. When we announced the price increase, the price increase takes up our take rate, so it takes up our ability to continue to spend deeper into the ROI curve without compromising our ROI thresholds. And we started to spend ahead of that. So we knew that the take rate was going to go up and we started to spend ahead of that even before the price increase went into effect. So in March, we started to spend at a higher level. And now that the price increase has been effectuated, we are spending -- we're able to spend more on the performance marketing. We haven't seen necessarily any increases in CPC. So it's not necessarily more expensive to spend to buy that to buy that traffic. But as we've said many times, we don't -- we won't spend beyond our marginal ROI. Lastly, I want to remind everybody that we have our off-site ad program, and that subsidizes about 40% of everything that we spend. That's just another way of saying we can spend even deeper into the ROI curve, it was effectively when we launched that program, wasn't a take rate increase, but it's a success-based model, so the sellers only pay that additional fee if they've had a successful sale. That subsidy we get is not seen in the marketing expense line, it's seen obviously in the revenue line. So that is another factor that sort of offsets our marketing spend allows us robustly where we go. And lastly, we are spending more on -- you saw the brand campaigns, and we'll continue to lean into our above-the-line marketing as we go through the year more heavily in the third and fourth quarters, as we typically do.

Joshua Silverman:

Thanks for the question. I appreciate it. And I appreciate the context behind the question because I think for the past maybe roughly 100 years, the world has been well schooled in the benefits of mass production. And there's been a lot of focus on mass production, making things cheaper. But it's also true that when something is produced in mass production overseas to get on a boat, to end up at a port, to get on a train, to get on a truck, to finally make it to your house, and there's maybe 3 markups along the way, the opportunity to buy directly from the person who made it without all those markups along the way, can offer that seller the chance, that maker the chance to earn a fair price and a fair living, while also offering great value to the buyer. So that's a story that we want to tell, and we want to make sure that the world understands. To be clear, Etsy sellers set their own prices. That's not something that Etsy is directly involved in. We have said in the past and it continues to be true that our sellers have so far on average, if you look at a basket of goods analysis, not chosen to take their prices up by much at all and far, far less than what you're reading in terms of consumer inflation. And as a result, the relative value proposition of things on Etsy is getting cheaper relative to the market, which can increase appeal for those products. Some sellers may also choose to raise their prices as their inputs go up, and that's perfectly fair and appropriate. It's a big market with 5.5 million sellers, each making their own decisions on that. But if they choose not to raise their prices, the value proposition of their items can get more compelling. Also, it can be very fair as the competition on and off Etsy, if their prices go up, that our sellers can take price and maintain margins, and that's appropriate as well. Either way, we think that our sellers have a tremendous amount to offer the market, and our job is to make the market aware of that great value available on Etsy, and we're investing with discipline and with conviction to make sure that the market is aware of that.

Rachel Glaser:

Lauren, thanks for the question. So it's a second half comment, and we -- the caveat there is that to whatever extent seasonality comes into play, that could expand margin slightly. Sometimes we see that happen in the fourth quarter. But I also want to take the opportunity to point out, we put up 27.5% margins in the first quarter this year. And harkened back to Q1 of 2021, our margins were in the 33% range. And I think at some point during 2021, we also delivered 37% margins. We really have full control because our costs are so variable with GMS [indiscernible] control over sort of how much margin -- how much we want to flow through to the margin line. And what we've said and we want to reemphasize is that we see so much opportunity for growth, that we are staying the course on our investment plan regardless of headwinds that might factor into the rest of the year. And those investments are really all around our people, which are the lifeblood of the company. They're incredibly important to us to actually unlock that growth in marketing, which we think really will unlock more awareness and frequency and in the marketplace to really support our customers and our sellers and their journey all the way through to the end of the purchase -- the point of purchase. And so that, our margin guidance that we gave reflects our intent to keep investing in those areas.

Joshua Silverman:

We're really [indiscernible] offline stores. Many states were in lockdown. And if you could go to offline stores, it wasn't very pleasant. And even online shops often had big supply chain challenges and it really highlighted the benefit of the Etsy model that we were not facing those headwinds. We had ample supply the entire time. Our sellers were doing a great job making great product, responding to the need and being ready to ship. And so Etsy was one of the few places that you could shop reliably for much of the past 2 years. And I'm delighted by the fact that the vast majority of our buyers are choosing to come back now at a time when they have so much more choice. When there is pent-up demand to travel and dine out and go to all of those stores that they weren't able to go to before. At the low end of our guidance, we say that we'll keep 90% of those purchases in spite of having tremendously more options in a time of inflation when you've also got more pressure on your wallet. So we're really pleased by the fact that people want to come back to Etsy. And I think they really see that we offer something really compelling and really different in a time that matters and in a way that matters. And we think that opportunity is huge, and we're going to keep investing to keep growing it.

Joshua Silverman:

Thank you.

Josh Silverman:

Thanks, Deb, and good evening, everyone. Etsy delivered a strong fourth quarter to wrap up an impressive 2021 with record levels of GMS, revenue and adjusted EBITDA. During the holiday season, when many retailers were struggling with congested supply chains, Etsy sellers brought the benefits of shopping small to scale. And in doing so, we further cemented our place in buyers’ hearts while deepening our relationship with our sellers as well. Etsy’s mission is to keep commerce human, and we believe that these past 2 years have shown that the needs we meet are both powerful and enduring. 2021 was another historic record-breaking year for Etsy. And while the pandemic introduced millions of people to Etsy for the first time, shoppers have loved the experience they’ve had with Etsy and are coming back for more, even in a world of greatly expanded choice. We’re incredibly proud of our full year performance, which you can see on Slide 3, with consolidated GMS of $13.5 billion, up 29.6% year-over-year on a currency-neutral basis. GMS for the Etsy standalone marketplace grew 29% year-over-year and 158% on a 2-year basis. Consolidated revenue grew 35% year-over-year, and our adjusted EBITDA margin was a very strong 31% despite the anticipated dampening impact on our profitability from our 2 new subsidiaries. Rachel will review fourth quarter details later on. While 2021 was not the return to normalcy that many of us had hoped for, it did indeed offer greatly expanded options for consumers’ time and money compared with 2020, and many more places, online and off, where you could shop. Yet, Etsy continued to gain market share. In 2019, we laid out a long-term goal to outgrow e-commerce. And you can see that we have done that very substantially. And evidence is mounting through our cohort and brand data that these gains were not transitory. We believe that Etsy offers the world a true alternative to commoditize shopping, that buyers and sellers value this alternative, and we are in the early days of expanding our share of wallet. We grew that market share by bringing new buyers to the Etsy marketplace and encouraging our existing buyers to shop more frequently. A few things stand out when reviewing our 2021 performance on Slide 5. We continue to grow existing buyers, reaching a record high of 90 million active buyers. We reactivated nearly as many buyers in 2021 as we did in 2020, which is, in my view, simply remarkable. And while new buyer additions didn’t quite keep base with 2020’s spectacular level, new buyers still grew by 84% in 2021 when compared with the pre-pandemic level of 2019. And the pandemic cohort has been sticky. 53% of all active buyers who made a purchase on the Etsy marketplace in 2020 made another purchase in 2021, and 37% of new buyers in 2020 made a purchase in 2021. 2021 frequency metrics also improved, with 49% of active buyers making two or more purchases, up from 48% in 2020 and 41% in 2019. And GMS per active buyer on a trailing 12-month basis achieved a record $136 in the fourth quarter. We have always said that frequency is a challenging metric to move. So we are especially proud of the cross-functional efforts that drove these results. We believe there are several factors, inspiration, efficiency and reliability that will contribute to making Etsy the go-to e-commerce destination for many more consumers. Our investments in each of these areas have really been paying off. Our teams beat their purchase frequency goals for the year with creative approaches, including app downloads, post-purchase experience improvements, updates and offers. We also exceeded our goals for visit frequency with triggers like app icon badging and push notifications. This slide captures some of the many ways we are engaging with buyers along their Etsy journey to keep them revisiting and repurchasing, and you can expect to see much more of these work streams in 2022. Search and discovery made some big leaps forward in 2021, and we’ve only just begun to make the Etsy marketplace feel more made for you. Leveraging XWalk, we’re continuing to narrow the semantic gap by relying less on listing taxonomy and more on buyer interests. At year-end, our XWalk engine was utilizing over 4 billion data points, a 50% increase from when we launched in the second quarter of last year. This means we can use 16x more real-time data to capture semantic, meaning across our inventory with XWalk than we could with our prior search capabilities. Putting a finer point on it, Etsy search is simply getting better. On this slide, you can see some of the great progress we’ve made in U.S. search. For example, by year-end, about 95% of search purchases came from items appearing on the first page of search, up 10 percentage points from the beginning of last year. During the fourth quarter, we incorporated various additional data such as estimated delivery dates, real-time in-session features and listing information to improve organic search results. We also began laying the foundation to apply XWalk to non-U.S. search, clearly, a lot more to come in 2022. We continue to make Etsy even more human in many ways. For example, seller videos, which are a very visible example of how we drive human connection and engagement on and off the marketplace, topped 13 million by year’s end. Etsy’s dramatic growth has also necessitated that we invest and improve in many other often less visible ways to connect our 90 million buyers with over 5 million sellers. We’ve made meaningful improvements in our member support and trust and safety processes with a combination of people and technology to help make these experiences more joyful, safe and streamlined. For example, in member support, we’ve invested in self-service, better dashboards and education for our sellers so they can more quickly resolve issues without our intervention. And in trust and safety, investments have included expansion of our content moderation team, investing even more deeply in our handmade and counterfeit item efforts and creating a dedicated machine learning engineering team to support these initiatives. The size of these combined Etsy marketplace teams increased by about 35% last year, and our total 2021 investment was in excess of $100 million. We’re planning to significantly increase our investments in these areas in 2022 as well as we believe effectively managing complex, very human peer-to-peer interactions at scale is a big differentiator for Etsy. Reliability was a major focus area in 2021, and we made great strides. We improved delivery transparency and provided buyers with more clarity and certainty around their Etsy purchases. Just one example of a small iteration with big impact was the fourth quarter addition of estimated delivery date to our search and ranking models, perfect timing to help buyers narrow their searches for items that could arrive in time for the holidays. We also use new, highly sophisticated models, including many thousands of data points on ZIP codes and postal carrier performance, to anticipate holiday delays and dynamically adjust delivery dates. We had nearly 100% U.S. listing coverage for estimated delivery dates, tracking coverage and origin ZIP codes in time for the holiday crunch. In addition, 90% of U.S. domestic orders that were estimated to be delivered on time for the holidays did, in fact, arrive on time, up significantly from the 2020 holiday season. You’ll be hearing more about our efforts to further improve reliability in 2022, including work to achieve more consistent and transparent results in our core non-U.S. regions and deeper initiatives designed to ensure that shopping on Etsy feels worry-free. We believe reliability is the cornerstone of a habitual shopping experience, remaining a key needle mover to drive top-of-mind awareness, loyalty and frequency. Etsy marketplace sellers continue to thrive, growing in total number and the success of their shops. Turning to Slide 10, for the full year, active sellers grew by 28% and more than doubled on a 2-year basis. And even more importantly, our seller cohorts retain more GMS in subsequent years on the platform. We’re continuing to innovate in areas that matter to our global seller community such as improvements to the onboarding experience, particularly for international sellers, and investing in our seller app. And our Star Sellers represented 31% of fourth quarter GMS, with the program gaining traction with international sellers during the fourth quarter. Today, we announced an increase to our base transaction fee from 5% to 6.5% effective April 11. We expect to invest most of the incremental revenue into marketing, seller tools and creating world class customer experiences. Etsy enables anyone with a creative idea to start a business and reach a built-in audience of millions of shoppers. We’ve demonstrated our ability to drive more sales and value for our sellers and believe that this represents a fair exchange of value between Etsy and our seller community. We see so much opportunity to continue to raise top-of-mind awareness and consideration for Etsy, among those who already shop on Etsy and those who don’t. We have become a top 10 marketplace for buyers in several of our core international markets. We are reaching new audiences in the U.S. and we have made significant progress staying more top-of-mind in order to bring existing buyers back more frequently. Starting at the bottom of the funnel, we have improved our performance marketing feeds and Offsite Ads. In the middle of the funnel, we’ve had great engagement with our social content. For example, over 1 million people watch the sellers’ colorful weaving reel that’s shown on this slide. And at the top of the funnel, our brand campaigns cut through the noise. As you know, we’ve leaned more heavily into upper funnel brand marketing strategies since 2018 through TV, digital video and paid social to create a flywheel that elevates the effectiveness of all of our other marketing channels. These efforts have significantly moved the needle on brand awareness and loyalty. Our U.S. Etsy buyer surveys indicate that since the fourth quarter of 2018, we have nearly doubled buyers’ loyalty. Prompted awareness is up 11 percentage points, and unprompted awareness is up 8 percentage points. When we first showed you this data, we said our goal was to move the needle on purchase intent so that we could build top-of-mind awareness and consideration in the minds of buyers. And we’ve done just that. Purchase intent has come a very long way, up over 100%. And visit intent has nearly doubled in that same period. We believe this data further supports my earlier comment that the pandemic will have a lasting impact on our brand. We are seeing great movement in our brand funnel metrics in the other core markets where we’re investing in top-of-funnel marketing. In the United Kingdom, unprompted awareness was up 10 percentage points year-over-year. And in Germany, that same metric has more than doubled. The vast majority of our brand spend is currently in the United States, United Kingdom and Germany. So you can imagine that we may decide in the future to take this strategy to other regions as well. In 2021, we also began focusing more on consumers who identify as male based on 2020 data that showed nearly 50% of male consumers in the U.S. were unaware of Etsy. We launched our first ever above-the-line campaign with specific media placements to reach broad male audiences and found these to be highly effective in building awareness and connection with the brand. We have also started to see some good efficacy from new channels like out-of-home, podcasting and highly targeted segmentation with our CRM tools. We see these all as important levers to further expand our buyer base in 2022 and beyond. 2021 was also a transformative year as we deepened our Right to Win strategy by identifying and integrating two great marketplaces that in many ways look like Etsy, creating a house of brands. As we look ahead, our North Star is to accelerate value creation for each subsidiary with the goal that the whole is greater than the sum of the parts. You will see on this slide some examples of fourth quarter 2021 product and marketing initiatives at Reverb, Depop and Elo7, which are indicative of how they are utilizing the Etsy playbook that has unlocked so much value over the past 5 years. I am also incredibly proud of how we cared for our people, our communities and our planet in 2021. We come to work grateful to be able to support creative entrepreneurs around the world. In this new reality, it’s even more important that we take care of our team with empathy, resources and support to help them stay happy and productive. We continued to attract and retain world class talent in 2021 with a keen focus on diversity. In our soon-to-be-filed 10-K, you will see some strong movement in the percentage of our leadership level employee population who identify as a member of an underrepresented community. I am also proud that Etsy’s attrition remains significantly below industry averages, a testament, I believe, to the power of our mission, the health of our culture and the care we take of our team. In addition, we created impactful initiatives to support sellers from underrepresented communities, such as our work with the Gullah basket weavers. We drove our climate work forward by setting ambitious 2030 net zero targets and launching sustainable packaging for Etsy marketplace sellers. We collected over 6.8 million donations in 2021 for the uplift fund, our Donate the Change effort that supports the dismantling of barriers to creative entrepreneurship. And we engaged buyers in the positive impact that they create by launching an impact tracker that delivers a personalized digestive year activities such as the number of supported shops, environmental impact and uplift fund contributions. People want to shop their values. We know there’s so much more we can and should do to connect our mission to the impact our marketplace makes in the world, and we see this as an integral driver of growth for Etsy. One of my favorite investor questions is when someone asks what my big hairy audacious goal is for Etsy. Well, it’s to make Etsy the starting point for your e-commerce journey. We understand that’s quite a bold goal given that to make that ambition a reality, we must and are competing against the biggest names in e-commerce and all of retail for that matter. But we believe we have a real opportunity to win. We believe that unlike most of the rest, we offer something truly different and compelling. We aren’t trying to sell you the exact same commoditized product just $0.02 cheaper or 2 minutes faster. And that’s why for the Etsy marketplace alone, we see a TAM of about $2 trillion. We believe there are many more millions of potential buyers around the world who should be shopping on Etsy and so much more opportunity to build the Etsy habit for those who already know and love us. To get there, we plan to inspire buyers with an Etsy that feels personal and made for them, like a friend who gets to know you better over time; make buying on Etsy worry-free; be the selling platform that drives seller and buyer loyalty; strengthen the foundation of our House of Brands to enable growth for each marketplace; scale our infrastructure and safeguards to efficiently and sustainably power our global growth and availability; and foster an equitable and productive environment for our people. In 2022, you will see us doubling down on increasing buyer frequency through product and marketing experiences designed to inspire and reengage with better personalization, habit formation, intelligent retargeting and strategic discounting. And we’ll be leaning into messaging that reaffirms our belief that Etsy turns shopping into a joyful expression of your taste and your values. We believe it’s possible to achieve our bold ambition based upon the highly differentiated nature of our marketplaces, the clarity of our strategy and the talent of our team. Our Right to Win strategy is more relevant than ever, both for Etsy.com and our subsidiary brands. And I’ve never been more excited about Etsy’s growth opportunities than I am today. With that, I’ll turn it over to Rachel.

Josh Silverman:

While we’re facing reopening headwinds we’ve long anticipated, we see these as short-term with significant tailwinds at our back. In a world that we believe has been forever transformed by the massive adoption of e-commerce, Etsy, too, has been transformed. Marketplaces get better as they get bigger, and we’re now more than 2.5x bigger than we were before the pandemic. We have many millions more buyers who love us and are coming back for more, tens of millions more unique listings from which they can shop. And our core Etsy brand is becoming a household name. And we have a capital-light business model that serves as a flywheel for long-term profitable investment. While wallet share may shift for a bit to out-of-home endeavors, people still need to buy things. And we believe Etsy is simply a better way to shop. It’s still early days for e-commerce, and it remains our goal to continue to outgrow the broader e-commerce industry on average and over time. It’s a massive opportunity, and we feel extremely well positioned to grab a bigger share. Thank you all for your time today. I’ll now turn the call over to Deb.

Josh Silverman:

Thanks, Deb. Those were prerecorded remarks we recorded a couple of days ago. And so I just need to start by acknowledging the events that are happening in the Ukraine today. The invasion of the Ukraine obviously weighs heavily on all of us. So we’re reporting our results as usual, but today is certainly anything but a usual day and wanted to acknowledge our hearts go out to our buyers and sellers and community in Ukraine and Eastern Europe as well as our global community that’s impacted by these events. Thank you.

A - Deb Wasser:

Okay. We will start with the question from Maria Ripps at Canaccord. I’ll start with Josh on this one. Increasing order frequency has been one of your top priorities, and it seems like you’ve been particularly successful driving that metric up for your newer cohorts. Can you just talk about whether that’s a reflection of all the improvements on the platform such as search, personalization, delivery transparency, etcetera or is it the type of buyers that you’re acquiring more recently? How – and how has some of this been leveraged across the buyer base – your wire buyer base, so frequency and products? Yes.

Deb Wasser:

Okay. Thank you. So Rachel, I’m going to take this one for you. We’ve gotten the same question from multiple people, Naved Khan from Truist; John Colantuoni from Jefferies; and others. What does the outlook assume for core Etsy GMS growth? And then the second part of that question is, can you help us further disaggregate how much of the slowdown is the result of an unusually difficult comparison in the year a quarter ago created by some transitory one-time events like tailwinds, like stimulus? And how much is really the ongoing impact of consumers adjusting their behavior as the world reopen? So I’ll let Rachel start, and then I’m sure Josh will probably want to pile on as well.

Deb Wasser:

Josh, do you want to add anything on that?

Deb Wasser:

Okay, awesome. From Kunal Madhukar from UBS. This one is for Josh. Can you talk about the TAM, especially in terms of how much of your market opportunity is handmade?

Deb Wasser:

Okay. Great. Thanks, Josh. This one is from Lauren Schenk from Morgan Stanley, and I’ll start with Rachel on this one. Is there any additional color you can share on how you’re thinking about full year EBITDA margin given all of the moving pieces such as our M&A, our fee increase and incremental investments?

Josh Silverman:

No. I think we mean this is 18.5% for Q2, three and four, right?

Josh Silverman:

That was great.

Josh Silverman:

Well, just to pick home and living for just a second, because it is an interesting one. We have said that, that has been our largest category. We saw an explosion in home and living during the pandemic. We saw an explosion in almost everything during the pandemic, but home and living more than even most, and it is now our number one category. It’s a very large category for us. Home and living is running roughly flat right now, just barely above zero in terms of growth rate. And I think that’s kind of amazing given that, again, this time last year, there was stimulus and there was lockdowns and you had no other – few other places – obviously, there were some, but a few other places to go to shop. So, the fact that we are growing over that and still keeping that spend, I think is kind of remarkable. Also true that there has been a lot of nesting that’s gone on for the past 2 years. And it’s fair to assume that people might have spruced up their current place about as much as they want to spruce it up. And when interest rates rise, people may move homes less, and that tends to be a headwind to home furnishings. And so I won’t be surprised to see home furnishings as a category face headwinds as we move through this year, and it is our largest category. But what we hear from buyers is they love Etsy, and they love the experience they have had on Etsy. And it feels different, and it feels compelling to them. So, the threat of offline, we are prepared to compete with offline. We are compared to compete with come who may. We do see that, first, our – we think that the category mix on Etsy is a real strength of ours. So for example, home furnishings right now is roughly flat. Weddings is growing in the mid-20s, mid-20%. And it’s a great example of we sell lots of things and lots of categories. And some of them are going to be headwinds, and some of them are going to be tailwinds. Now weddings is a much smaller category than home furnishings at the moment. But over time, that can change. What we are hearing from consumers, though, is general concern with their spending overall. Inflation is a concern with them. They don’t – aren’t getting stimulus checks now. By the way, people have to repay their student loans. There is $1 trillion of student loan debt out there that people haven’t had to pay for a while. There has been a lot of rent forgiveness that’s probably ending. So, there is a lot more demands for their wallet. And oh, yes by the way, they want to travel, and they want to dine out. And as Rachel said, why, so do all of us. So, we won’t be surprised to see more competition for consumer wallets generally where discretionary spend in retail and e-tail is going to have to fight a little harder against some other categories. But we are certainly compared to fight for the share of dollars that are going to discretionary retail and e-tail. We are ready, willing and able to fight for our share of that.

Rachel Glaser:

I think Josh was going to start, so I am going to follow-up.

Josh Silverman:

Great. Thanks for the question. We have said through the years that we are very disciplined at looking at the marginal return on the next dollar spend in marketing. And we do that with performance marketing. We do that above the line. And we are constantly testing in each channel PLA, social and whatnot. When we spend a little deeper, what do we get for it, and when we pull back, what do we get for it. It’s also worth noting that, that changes over time. Consumer behavior is changing. The competitive landscape is changing. The market rates for CPMs and whatnot are changing. And so we are constantly testing that. And when we find that the marginal return on the next dollar has maybe evolved and isn’t as good as we thought, we can pull back and be more efficient. And we are always looking to be as efficient as we can with spend. What we saw in the fourth quarter is we had a lot of tailwinds. Things were going very well. And the marginal returns on some of our spend, therefore, we are not as high, meaning the incrementality was lower. If we hadn’t spent that dollar, we still would have gotten the sale. So, we pull back. And that’s adjustment that we are always doing. It’s also worth noting that when we raise our take rate, as we announced today, the lifetime value of each interaction, each buyer we bring in or the repeat purchase goes up. And that allows us to spend deeper. And we think that’s a great thing for our seller community and for our marketplace as a whole.

Josh Silverman:

I think the big lesson is that we have an opportunity to be a starting point for commerce. I think that this period of time has caused all of us to be aware of the role we play in this global supply chain where things are mass produced at huge quantity far away to go on a boat, to go on a train, to go on a truck, to end up at your household, to have you look and be just the same as all of your neighbors and then end up in a landfill two seconds later. And I think we are seeing a rise of conscious consumerism where people really want to maybe buy fewer things, but have those things mean more, express themselves in their sense of style and taste, differentiate from others and maybe last longer and not end up in a landfill. And by the way, if you can buy it from the person who made it and have it be within your own state or within your own country and feel like you are supporting your local community, isn’t that nice. And does it even have to cost more, if you think about all the markups that happened from the time that product was mass produced until the time it ended up in your doorstep, there are four or five people that took markups along the way. So, when this maker makes it and sends it directly to you, maybe shopping small can actually give you great value as well as a sense of style. I think we are beginning to realize that there is a different way to shop that is often a better way to shop. And I am not saying for everything all the time. You are still going to need those commodities of life that you don’t care about at all. And you are going to use them, dispose of them, and that’s fine. But for a lot of purchases that we all make, there is a different way to show up. As I said, at least one package a week arrives from Etsy at my household just because we think to start at Etsy. As I said, our habitual shoppers are shopping at least once a month – on average, are shopping more than once a month on Etsy. And what’s different about them, I think it’s just that they have figured out that Etsy is a place where you can find many things. So, our opportunity is to help educate the rest of the market and to help train that Etsy can be a starting point for their e-commerce. And I think the opportunity there is absolutely enormous.

Rachel Glaser:

I was going to give some data, and he gave it. There is great habitual – in fact, Seth, you had a lot of the data in your question. And then the once per month is actually more than double what we are seeing from our – the average for our repeat buyers. So, there is significant value to the habitual buyer segment.

Josh Silverman:

Yes. So, on the inspiration level, you are starting to see us do more to present you with recommendations of things you hadn’t thought of or even things like continuous feeds of lean-back experiences where you can just see streams of all the really cool things on Etsy. So, for example, like video reels of things being made, which is really addictive and compelling. And we are making great progress in our recommendation engine to be able to inspire you with things that you are likely to like, but maybe hadn’t even thought to come to Etsy for. And that understanding things like taste and style would have been impossible years ago. But with advances in machine learning, we start to be able to intuit what your taste is and what of the 100 million things for sale on Etsy, other things that are – meet that sense of style. In terms of efficiency, obviously, the search engine getting better, and I shared some data on the dramatic gains we are making there, but getting you to the right item quickly. So, you feel like when you know what you want, you can get in and out quickly, that’s also very important. And reliability is critical. And I shared some data about how, over the holiday period, 90% of items arrived on time. Another data point we didn’t share, but I think is a great one, 98% of things that we said would arrive in time for the holidays arrived in time for the holidays. And that’s really critical that we do what we say and that you learn to be able to trust Etsy. And that can move us from being the occasional purchase where maybe you can afford for things to go wrong to being something that’s really your everyday tried and true. And we have made great strides there, and you will see us continue to invest meaningfully this year to make sure that buyers really know that we have their back and that they can buy on Etsy in a really worry-free way. And I don’t think it’s a silver bullet that all of a sudden changes things. But I think that over a period of months and years, as people really learn how reliable Etsy can be, I think it can dramatically change consumer behavior.

Josh Silverman:

Sure. So I would say that broadly speaking, Depop and Reverb are facing similar headwinds – reopening headwinds to Etsy. If we talk about Depop just for a second, the UK – and Depop has a lot of their business in the UK. Teenagers in the UK were literally locked in their apartments for 2 years. The lockdowns there were quite extreme. And they are now allowed to go out, and they are availing themselves of that, and I don’t blame them. I have got two teenagers in the home. I can relate. And so there are some reopening headwinds there that we have been expecting and aren’t surprised by and we think are going to be temporary. And then as teenagers get a chance to get outside again, they are going to want to refresh their wardrobes and get back on Depop in levels at and above where they have been. And Reverb similarly, there has been some reopening headwinds there, but all expected. Elo7 a little different, and that Elo7’s business is very event-based. And so their business is really centered around things like baby showers, [indiscernible] and things like that. And the vaccinations have been more broadly spreading through Brazil. We think that’s really encouraging. But people are not gathering together in numbers yet in Brazil. And so we think that, that is going to come – hopefully going to come real soon, and we will provide a real tailwind for Elo7. And so we will see what the coming months bring there. In terms of the marketing strategy, for Depop, we are leaning into above the line with Depop. We are testing that in the U.S. right now to really make their brand a little more front and center. We are also testing performance marketing for the first time with Depop. And so there will be some margin impact to that, but we think it’s great investment over time. We think it’s the right thing to do. We have a lot of faith and confidence in Depop and are excited to invest to grow that business and that platform.

Rachel Glaser:

Thank you everyone.

Debra Wasser:

Please keep in mind that our remarks today are concludes forward-looking statements related to our financial guidance and key drivers thereof. The uncertainty impacts the ongoing COVID-19 pandemic or its eventual abatement may have on our communities, business, strategy, or operating results. The potential impact of our strategic marketing and product initiatives, our ability to integrate and benefit from our acquisitions of Depop and Elo7, and their impact on our market opportunity, and on our future consolidated financial results. And the anticipated return on our investments and their ability to drive growth. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties which are described in today's earnings release, and our 10-Q filed with the SEC on August 5th 2021, and which will be updated in any future periodic reports 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. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our IR website, along with the replay of this call. With that, I'll turn it over to Josh.

Rachel Glaser:

Thanks, Josh. And thank you to everyone for joining us on our call. My commentary today will cover consolidated results, key drivers of performance and Etsy marketplace standalone results were appropriate. As a reminder, Weaver, Depop and Elo7 are all reflected in our consolidated financial results and KPIs for the third quarter. Against the backdrop of continuing volatility and uncertainty, Etsy CMS outperformed our expectations in the third quarter. And we see notable stability with significantly less impact from reopening dynamics than we had been anticipating. As we often say, we love our marketplace model for its capital light structure, with no logistics or warehousing, low infrastructure costs, the distributed nature of our sellers the diversity of their products, which offers significant reach and depth to satisfy increasing global demand. This model is proving to be resilient in today's economy as constraints on the global supply of goods increase and create supply chain bottlenecks and cost escalation in fulfillment. Etsy has unique positioning with over 5 million Etsy marketplace sellers distributed around the world. Most businesses [Indiscernible] and working from their homes. Further, over 90% of U.S Etsy marketplace sellers tell us that they source the materials locally and have limited overhead. As a result, we believe Etsy sellers stand ready-to-serve the world in ways many others can't. So how did this drive our results in the quarter? On a consolidated basis Etsy's third quarter GMS grew 18% year-over-year to 3.1 billion. Revenue grew 18% year-over-year to 532 million and adjusted EBITDA was $174 million with a margin of about 33%. Excluding the acquisitions of Depop and Elo7, but inclusive are Reverb per our guidance. Take rate was 17.5% and adjusted EBITDA margin was approximately 36%. The primary driver for the significant [Indiscernible] in adjusted EBITDA margin was sustained momentum in the Etsy marketplace's top-line growth, contributing significant flow-through to profitability. The majority of Etsy's GMS is derived organically. This quarter representing 83% of total GMS. We plan to provide you with GMS and select KPIs for our subsidiary businesses on an annual basis, so you will be able to track the success of our house of brands portfolio companies over time. But we do not plan to provide quarterly details. The Etsy marketplace remains the vast majority of our business. Reverb, Depop and Elo7 collectively represented approximately 12% of Q3 consolidated GMS as Elo7 closed on July 2nd and Depop closed on July 12th. Integration is going well, and our teams are collaboratively developing product and operating plans to drive future growth and profitability improvements. Our 2 new subsidiaries are experiencing slightly different market conditions at present. Depop is facing reopening headwinds similar to other e-commerce players, particularly as it compares to its enormous 2020 growth. And Elo7 has begun to see improved conditions in the Brazilian market toward the tail end of the quarter as more of the population became vaccinated. Last but not least, Reverb continues to outperform the musical instruments industry on a 2-year your basis. My next few slides will focus on the performance of the Etsy marketplace. During the third quarter of 2021, GMS grew 12% year-over-year, 24% year-over-year, excluding face masks and the take rate was 18%. GMS was underpinned by continued strength in our top 6 categories, led by homewares and home furnishings, our largest and fastest-growing category on a trailing 12-month basis, jewelry and accessories and apparel. Fall and Halloween themes drove buyer demand in Q3, as there was a notable uptick in seasonal home decor such as ornaments and seasonal accent items. Halloween also drove our apparel category as it is an annual purchase occasion for many of our repeat buyers. When you look at the monthly performance fee for the Etsy marketplace, excluding masks strength Q3 shown on the right of this slide, July 2 year GMs growth was 138%. August was also 138% and September slightly accelerated to 139%. It was more stable than we had anticipated when we set guidance in early August. At that time, it was reasonable to expect that reopening trends would have had a more material impact to online shopping behavior and Etsy's performance in the third quarter. While we don't yet have full Q3 data for e-commerce growth, on the left side of this slide, we've mapped our 2-year performance to an e-commerce benchmark, highlighting continued share gains. We've also continued to track the impact of face masks on our business and provide transparency around that. While face mask did gain some momentum in certain regions at specific times during the quarter due to changing COVID-19 guidelines. Overall, they represented less than 2% of Etsy marketplace GMS in the quarter. In Q3, non-mask GMS was up 138% on the two-year basis, relatively stable compared to prior quarters. This growth was underpinned by significant growth in the UK despite all mobility restrictions being lifted in the early in the quarter. This is quite encouraging, and we believe our brand is becoming more prominent and Etsy is gaining share in our largest core geography outside of the U.S Consolidated Q3 revenue was again driven by growth in both marketplace and services revenue. With Etsy ads, GMS volume, and the incremental benefit of Depop and Elo7, being the primary drivers. The average take rate for our subsidiary businesses is lower than the Etsy marketplace's and was approximately 10% in Q3, with marketplace fees representing the majority of their revenue. Transaction fee revenue, inclusive of all, fight ads grew 18% year-over-year, driven by higher GMS from frequency and average order value. In Q3, our offsite ads revenue offset nearly 40% of Etsy marketplace performance marketing spend, that contracted slightly compared to last year as we ran incrementality test and pulled back performance marketing on several chargeable channels. The reduced marketing spends from our incrementality tests also contributed to a reduction in clicks on Etsy ads, driving a modest contraction in take rate. However, Etsy ads revenue was up 28% as ad relevance continues to drive improvements in click-through rate. Our disciplined investments in product and marketing continued to deliver strong returns and serve as a foundation for future growth, with many initiatives focused on conversion rate and frequency. Q3 consolidated marketing spend was $132 million up 4% year-over-year, and contracted as a percentage of revenue 700 basis points sequentially. The Q3 spend reflects the pullback and performance marketing for our -- for our incrementality testing. After running successful television campaigns in the U.S., UK and Germany, we paused some campaigns for 2 to 3 weeks to measure the interaction effects between marketing channels and incrementality of our brand spend. In the fourth quarter, we're leveraging these learnings and applying them to our placements for the new holiday creative. We're also investing in other marketing programs in the Fourth Quarter, like expanding our Etsy Coupons tool to proactively target new buyers. We'll continue to leverage our CRM capabilities to segment and target specific buyers on and off CSC platform. Q3 consolidated product development spend was $74 million up 60% year-over-year, reflecting our success in expanding our team to invest in critical areas that we believe will increase GMS. As of the end of Q3, consolidated headcount was slightly over 2,300 up 70% year-over-year with much of this increase sitting in product development. Note that the large increase in consolidated headcount includes nearly 600 employees at Depop and Elo7. The competition for talent is fierce, but we have been pleased with our ability to attract, retain, and engage our employees in what has clearly become a very tight labor market. Similar to our marketing investments, we apply an ROI lens to product and engineering development spend. As shown on slide 23, we have significantly grown our product and engineering headcount and feel confident that we can generate a strong ROI even as we scale us spend. I'll also note that we continue to make strategic investments that don't directly generate incremental GMS, but that are necessary to effectively run and scale the business. These investment areas include development infrastructure and support, cloud costs, trust and safety, and financing compliance. We have seen very encouraging performance in all of our Etsy marketplace buyer segments, particularly on 2-year basis, as we comp prior year pandemic-driven peaks. In Q3, active buyers grew 30% year-over-year to 89 million stables with Q2, 2021. Repeat buyers, those who made purchases on two or more days in a 12-month period grew 35% year-over-year to 36 million. And habitual buyers, our most loyal buyers, remained our fastest-growing buyer segment up 65% for the Quarter to nearly 8 million, and up 237% on the 2-year basis. These 3 metrics for flexibility in our buyer base over the past few quarters, a signal we've all been looking for to gauge the retention of our 2020 cohort. We're also pleased to see healthy trends and stability within our new buyer cohorts on the Etsy marketplace. We acquired 7 million new buyers in Q3. Very strong performance considering how many millions of new buyers we have attracted in the past year. And still well ahead of our pre -pandemic quarterly new buyer acquisition rate. We're seeing particular strength internationally as Etsy new buyer growth outside the U.S. expanded as a percentage of total new buyer growth driven by investment in performance marketing in several new markets. In fact, new buyers outside of the U.S. have expanded 600 basis points year-over-year as a percentage of total new buyers. Even more noteworthy, new buyer repeat purchase rate was up 25% in 2021 compared to 2019, further evidence of our success driving frequency. When measuring the performance of the 2020 active buyer cohort, early data suggests they are all outperforming our historical cohorts as shown on Slide 26. In fact, of our 69 million active buyers in Q3, 2020, 56% made another purchase over the next 12 months. This compares to 43% for our historical cohorts, a clear improvement. And as we've talked about in recent quarters, we've also had great success reactivating buyers. For instance, in Q3, we reengaged 4 million buyers who hadn't made a purchase in over a year. With our investments in product and marketing, we are more able to reactivate a growing buyer base. We're very encouraged to see that when compared to the historical retention of active buyers over time, this newer cohort is significantly outperforming. GMS per active buyer on a trailing 12-month basis expanded to $132, up 20% year-over-year driven by frequency and AOV. Among our repeat buyers, we continue to see growth in the average number of purchase days per year, from 4.6 purchases in 2019 to 5.2 purchases in 2021. Including all buyer segments, buyers now buy an average of 3.1 times per year, which is up nearly 25% since 2019. Now moving to the Balance Sheet. As of 930, we had approximately $907 million in cash and cash equivalents, short and long-term investments in addition to a $200 million revolver that is currently undrawn. Note that the acquisitions of both Depop and Elo7 close in July and are reflected on the quarter ending Balance Sheet. Also, in the quarter, we had several uses of cash that did not impact adjusted EBITDA. These include approximately $32 million of transaction expenses related to our acquisitions of Depop and Elo7. A portion of which were accrued in the prior quarter, as well as the cash tax payment of approximately $60 million. In addition, we repurchased $54 million in shares during the quarter under our board authorized repurchase plan. Our model remains highly cash-generative, asset-light, and generally convert the majority of adjusted EBITDA into free cash flow. And now turning to our outlook. We currently estimate that our Q4 consolidated GMS, which will now include Etsy, Reverb, and a full quarter for Depop and Elo7 will be $3.9 billion to $4.1 billion, up about 12% at the midpoint compared to Q4 of last year. We expected our Q4 revenue will be $660 million to $690 million up about 10% at the midpoint versus Q4 of last year. And our adjusted EBITDA margin will be about 26%. Within our Q4 GMS guidance, we are forecasting very solid growth for the Etsy marketplace of high single-digit GMS growth, implying relatively stable two-year growth when compared to Q3. We think this is excellent, given our year-ago performance. Drilling in a bit more on our guidance, the holiday season has kicked off early on the Etsy marketplace than we have had a strong October. We note that during the month of October, keywords that have holiday terms in them have increased nearly 100% year-over-year. Buyers are anticipating longer shipping times driven by constraints in the supply chain. We recognize several important tailwinds, including external forecasts for strong holiday spending, consumer behavior that continues to rely on e-commerce. Now, becoming a habit, not a substitute. And entities distributed supply chain that maybe less impacted than others in this environment. On the flip side, we're also keeping an eye on several potential headwinds, including those associated with inflation, retail reopening, potential carrier constraints, and consumer confidence. It's important to keep in mind that Etsy's November and December year-over-year comps are challenging, so we factored this into our guidance as well. Within the context of our guidance, here are a few additional items to keep in mind. Note that 4% of Etsy's marketplace GMS or $133 million was from face masks in Q4 2020. And we expect face masks to be relatively inconsequential in Q4, 2021. Also, keep in mind that Depop and Elo7, while accretive to our top-line, will be with us for a full quarter. Meaning they will be dilutive to adjusted EBITDA margins similar to the impact they have in Q3 as we invest in their future growth. The majority of the contraction and take rates driven by our subsidiary marketplaces having a lower average take rate than Etsy standalone. Also, we expect an increase in amortization based on the allocation of purchase price for both Depop and Elo7. Refer to our 10-Q, which will be filed shortly for more details. You will see us stepping back up our marketing spend in the fourth quarter and hiring will continue to be at an elevated pace. As a reminder, in the fourth quarter of 2020, U.S stimulus checks were a significant boost to consumer spending that is not expected to repeat this year. Stimulus checks also remained an important factor in our elevated growth in Q1 2021 and a bit in the early part of Q2. So please keep the high growth levels in mind as you model 2022. Thank you all for your time today. I will now turn the call over to Deb so we can take your questions.

Joshua Silverman:

Thanks Deb and thanks to all of you who asked that. I think one of the most popular question on the earnings call award. We feel great about our Q4 guide. And let me start with, as Rachel said, we're off to a strong start in October and we feel great about that. Let's remember what we're comping. Last year we had a really solid October followed by a blow the doors out, November and December. And if we go back and remember why it was a tragic reason COVID cases were spiking dramatically. There were lockdown orders going in place in many parts of the country. Hospitals were overflowing. And as a result, people were largely trapped at home and had very few places for where to shop. And so, many people turn to Etsy, often for the first time with the lack of a lot of other options. And so, November and December last year were remarkable, and as a result, we delivered a fourth quarter at Etsy of a 111%, we're lapping a 111%, vastly outstripping most of the e-commerce. We're off to a strong start in October, we feel great about that. The comps get a lot harder in November and in December, what we've found is that looking at our growth rate relative to 2019 is the most helpful way to look at our growth rate. Because 2020 was so volatile with so many external factors. And so, if you look at the midpoint of our guidance, what we forecasted is that Q4 is absolutely stable to Q3. And we think that's great news. In a world where there is so much more choice, where people are moving about largely freely, where hopefully COVID cases continue to decline. And people are moving about and shopping wherever they want. They continue to choose to come back to Etsy again and again. And in fact, we're growing meaningfully over those remarkable comps from last year. So, we feel really good about the fourth quarter. Could it come in stronger even than what we've guided to? Absolutely. Could turn out that people are spending more that they're turning to Etsy, more and more than the trends we saw in October could continue in November and December. Could have turned out that October was a pull forward of the holiday. And a lot of people are spending much earlier in the holiday and November and December will turn out to be weaker months for e-commerce generally. Yes, that's possible. We live in a world of unknown. We're giving you the best guidance we have with the information that we have. And our main focus is to make sure that our customer our buyers and our sellers have a really good experience this quarter. So that's what's under our control and that's what we're focused on it. And again, I'm so delighted that so many people had such a great experience on Etsy back when they had relatively few choices that now that they have a ton of choices, they're choosing to come back to Etsy even more often. And I think that's incredibly encouraging.

Joshua Silverman:

Yes, digital marketing has continued to be very effective. Performance market has continued to be very effective for us. I know that there's a lot of discussion about CPCs going up a lot over the marketplace and other people's margins being under pressure with that. Etsy is so long tailed, that we have felt a lot less of that than others. So, we continue to see very strong returns from performance marketing. In terms of IDFA, I would describe that as a future opportunity costs to Etsy more than a present headwind. So really where IDFA is challenging is at least for us and I think for many others, for paid app marketing efforts. It's hard to tell when you spend money to market your app, how effective that performance marketing is. And truthfully, we've not been paying to market our app, so it's not a present headwind now, maybe we should be paying to market our App. Maybe that's something that would help us to grow even faster. We've talked about our earned efforts to market our app meeting through our own channels, through our free channels, we've been seeing great success marketing our app. So IDFA might be a headwind to the opportunity for us to be investing even more to market our app. But it hasn't been a material headwind to our present performance.

Rachel Glaser:

That one is good. Hi, Nick. Thanks for the question. We did say GMS per Active Buyer was up 20% in Q3 even though some of our buyer segments actually decelerated in the quarter. So, it was a really strong quarter for GMS per Active Buyer. One of the factors that drives GMS is frequency. So, more and more buyers buying more frequently, which is so heartening, so many of our cohorts are so much more choice in share of wallet. Reminder that the average number of purchase days for all us of our buyers increased from 3.1 -- is down 3.1, and that is up from 2.5 a year ago. And then for repeat buyers it went up to 5.2, another solid increase, up from 4.6 a year ago. So, we're seeing improvement in frequency across the board. It's still low. So, 3.1 is still far lower than we hope it can be. Your question was, could it be once per month and we see no reason to think that it couldn't be. Another important factors that habitual buyers were again, our fastest growing segment, and it grew 237% on a two-year basis and it represents about 40% of our GMS. That's really strong testimony to that the most important segment is growing fastest.

Debra Wasser:

Thanks both. Okay. The next one is from Anna Andreeva from Needham. It's 2-part question. I'm going to give the first part to Rachel. Can you talk about how we should think about seasonality of your new brands as we model out 2022 both on GMS and take rates?

Joshua Silverman:

And just to follow on that one to the take great being a little software typically on Etsy in the fourth quarter is what I would classify as a high-class problem. Transaction rates are based on purchases and advertising is based on views. And because conversion rate historically goes up in the fourth quarter, GMS grows faster than views. So, our sellers are happy to advertise. They're putting in a budget to advertise in their -- that's not the constraint. It's simply that GMS grows even faster than views which is another way of saying conversion rate is strong in the fourth quarter, which means buyers are finding what they like, which is going to be historic.

Joshua Silverman:

Absolutely. So, the priorities across the new subsidiaries look a lot like the priorities in Etsy. So, they're very much focused on increasing conversion rate through a better customer experience, and there's a lot of opportunities that Etsy has to help them. So, we're working closely with them looking at, for example, their search technology to figure out how we can deliver more relevant search experiences, and things that streamline the path to purchase so people can go from view to purchase even faster and more easily. And by improving the conversion rate, we improve the value of the visit. And that allows us to market more effectively, get a higher ROI. The other area that we're very focused on is helping them with performance marketing and marketing attributions so that we can lean more into performance marketing in a way that drives growth and drives value in an ROI positive way. Specifically looking at Elo7, they're very focused right now on shipping and how do they lower the shipping costs through increased relationships with carriers in Brazil, which we think is a meaningful opportunity. And also, as Brazil hopefully emerges from the pandemic, as vaccination rates are growing. There are people get back to events and the Depop business is much more event heavy than is Etsy or the other subsidiaries.

Joshua Silverman:

Sorry. Elo7. Yes, I'm sorry. Our Etsy or Depop or Reverb.

Joshua Silverman:

Yeah. I'd say our understanding of the app has evolved a bit. We've historically thought the app was the best place for experienced buyers to go. So, you start on the mobile web or on the desktop, and after you've made a couple of purchases, you migrate to the app. That works and definitely more experienced buyers are having a really good experience on actually, and we see that once they download the app, their engagement goes up in almost every metric. What's been an interesting finding over the past couple of quarters is even newer buyers seem ready to download the app and benefit by downloading the app. So, you're seeing us lean into marketing the app even for people who maybe haven't thought before, our first-time buyers. And we're finding for those communities as well when they download the app, we are seeing more engagement from them, and it does make sense that with the app, we have more opportunities to provide triggers for them to use the app through things like badging on the app to say there's 3 or 4 updates waiting for you and then driving them to an update's tab, which tells them, here's what's happened since you left. And then just a more dynamic and rich experience as possible in an app and not in mobile web. Due to some sense of proportionality, it was just this quarter that the app became the largest platform as measured by GMS, overtaking mobile web, and overtaking desktop. Mobile web is still the largest platform by visits. So, there's meaningful opportunities still for the app to grow, and it's something that we think we're only just beginning to really lean into and tap into its full potential.

Joshua Silverman:

Sure. I think consumer confidence has held up better than many of us feared. Our consumer spending has held up better than many of us feared. And that's certainly reflected in Etsy's Q3 results where you saw us come in over the top of guidance based almost entirely on the strength of the core Etsy business and the organic Etsy business. So, as you know, we pulled back on performance marketing to test incrementality. And even in light of that, the organic strength of the Etsy brand in this market is holding up really, really well. So, we're incredibly pleased by that. I would say we think it was reasonable to assume that as the world reopens. And then people had so much more choice, they would avail themselves of that choice and Etsy would face headwinds and we would see some deceleration. We expected that we think that's reasonable. It's been delightful to see that certainly relative to 2019, that hasn't been. In fact, the case and that we've seen a lot of stability in fact, GMS per active buyer growing. So, we think that's great. As I move around the other subsidiaries, Reverb is growing on a 2-year stack substantially faster than the musical instrument industry itself, which is great. They see a little bit more variability as musical instrument stores open and close and open again. They see a little bit more variability. But as we said with the Etsy marketplace with Reverb, we also find measuring them on a 2-year stack or measuring them relative to 2019 is the easiest way to forecast that business, and we continue to see it grow substantially faster than the musical instrument industry as a whole. So, we think that's great. Elo7 in Brazil has faced headwinds because a substantial part of that business is based on events, people buying things for birthday parties, for baby showers, or quinceaneras, or things like that. And obviously with the pandemic and lockdowns, there have been far fewer events. We did see towards the end of the third quarter. Vaccinations have been accelerating fairly rapidly in Brazil and towards the end of the third quarter, we did see the beginnings of an uptick in Elo7 as vaccination rates spread. And we think that that's really encouraging. At Depop, we also feel very good about their 2-year growth rate. And as we have talked about, they had an exceptional 2020 with over a 100% and far faster than all of the publicly traded re-commerce peers. As we expected, they did decline in the third quarter. And that was as expected and it's because their -- their population is disproportionately teenagers. It's Gen Z. And also, they are heavily weighted towards the U.K. where our teenagers were pretty much locked at home for a substantial part of 2020 and the stay-at-home orders really began to ease in the third quarter. And so, it's not surprising that teenagers after being locked at home for a year. Want to go out, want to be with their friends, want to go to the mall. And so, they're seeing some temporary headwinds from that. We continue to think re-commerce is an amazing space. We continue to think that apparel is the most attractive part of re-commerce, and we continue to think that Depop is the best brand in re-commerce and apparel. And again, we continue to feel great about their 2-year growth rate in the prospects for the medium and long term. And we're really excited to be partnering with all 3 of these brands to help them to unlock even more growth and achieve their full potential.

Rachel Glaser:

So overall, it's extremely validating that even as we scaled spend significantly over the past 18 months for getting the incremental return we expected, tweaks in tunes in various channels to make them more accurate are really helpful. We do that all the time to optimize. But nothing that changes the thesis overall. So, we learn it helps us optimize our model. We might change a threshold here and there based on what we learned. And you can see that by doing that, we actually left profitable growth on the table. So, we want to keep -- we have a very dynamic investment model and marketing where we spend up till when the last marginal dollar spend is no longer reaching our ROI thresholds, so it's very dynamic. It pulls back automatically depending on where we set the ROI threshold. And so, we'll keep investing using those learning stuff to optimize and grow the channels that we think are the most profitability.

Joshua Silverman:

Sure. Like to what Rachel said, that it's really encouraging that as we've increased our performance marketing spend, we continue to see good returns on that. And said differently, incrementality testing can sound like, what does that really mean? But it just means if we hadn't spent the money, might those people have found us anyway. And are we truly getting additive buyers for the money we're spending. We're constantly asking ourselves that question. I'm sure you're constantly asking it. Did you really need to spend that much on marketing? And we're asking that too and we're testing that. And we're testing at the margin, not just the overall thesis. The other thing I will add about the third quarter, is we did very little TV advertising. We were dark most of the third quarter on TV. We've just launched a brand-new campaign. We showed you one example of that campaign. And that campaign will be live for most of the fourth quarter. So, you will see us much more aggressively on TV in the fourth quarter, you will see us lean into performance marketing. We think our brand is super relevant all the time, but it's especially relevant during the holidays, we want to make sure that we're really in front of people. And the performance marketing works really hard for people that are already down the purchase funnel and thinking about buying something. What you are seeing in our TV ads as we also want the chance to tell our story. We want to remind people why we're different. We want to make sure we have an emotional connection with people. We want to make sure that there's organic love for the Etsy brand and people continuing to come directly to our brand and not only finding us downstream. And I will continue to point out how special we think that is of Etsy, that such a high proportion of our traffic comes direct to us and we're not downstream and dependent on other channels, which we think is a real strength. So, you should expect us to see lean -- expect us to lean more into marketing in the fourth quarter, as we typically do and as reflected in our merchant guidance.

Debra Wasser:

Rachel, while I have you, the next question is from Jason Helfstein at OpCo. Marketing spend was pulled in quite dramatically in Q3. What did you see that gave you confidence that demand will continue given the lack of performance marketing spend?

Debra Wasser:

Okay, great. The next one is from Ed Yruma of KeyBanc. You have historically had a Q4 that ends early at Etsy compared to other retailers. How do you feel about your ability to extend the holiday season [Indiscernible] this year? Josh, have at that one.

Debra Wasser:

I know we're at time, but we have a few more that I want to try to squeeze in here. First one is from John Clatoni (ph.) from Jefferies. It's truly about the Star Seller program, and how do we think that that could drive frequency? Yes. I'll just -- questions a lot longer, but also stuff it.

Debra Wasser:

Great. Thanks, Josh, we are over time, so I'm going to cut it there. If anybody has any questions, you know where to find us. Thank you all so much, and we will talk to you the other Quarter. Have a happy holiday everyone.

A - Rachel Glaser:

Thanks, everyone.

Joshua Silverman:

Thanks, Deb. And good evening, everyone. Etsy delivered a strong second quarter. I'm pleased to share highlights with you on our progress and our results. Consolidated GMS was $3 billion, up 10% year-over-year on a currency-neutral basis. In fact, non-mask GMS on an Etsy standalone basis grew 31% year-over-year, which frankly, I find remarkable given the extraordinary comps from last year. And on a two-year basis, this is 153% growth, also excluding face masks. Revenue grew 23% and our adjusted EBITDA margin was 26%. We feel great about these returns we're seeing as our investments ramp. We also announced the acquisitions of Depop and Elo7 during the quarter, which I'll talk about in just a few minutes. Our Q2 '21 performance is particularly impressive when put in the context of the year-ago period that we're comping. Remembering back to Q2 of 2020, brick-and-mortar stores were largely shut down with the exception of essential services. And even at those essential stores, lines were long and shelves were often empty. Even e-tailers faced similar challenges with many products out of stock and long shipping delays for the rest. And in the midst of this crisis, Etsy mobilized the cottage industry to the rescue. Etsy sellers had so much of what you needed and were ready to ship quickly, at a fair price, and without significant supply chain challenges. In fact, Etsy was one of the few places where you could shop with confidence and convenience in Q2 of 2020. As a result, we delivered the highest growth rate of any Company that we track in our sector. Flash forward to Q2 of 2021, and thankfully, things began to look dramatically different. While the situation is still evolving, people are moving about much more freely and beginning to travel and dine out again. Many brick-and-mortar stores have reopened. And there is a wide range of etailers ready to ship almost anything at your doorstep without delay. And even in the face of this renewed abundance of choice, again and again, shoppers chose to return to Etsy. In fact, about 90 million of them. And most importantly, they chose to shop with us more frequently. Given the massive pull forward in new buyer acquisition last year, it's no surprise that new buyer growth has decelerated materially in recent months. However, that deceleration has been offset by growth in GMS per active buyer which, as you know, is a big focus area for us. We're encouraged to see that shoppers loved the experience they've had with Etsy over the past year, and are coming back for more even in a world of greatly expanded choice. As Rachel will talk about further, we're extremely pleased with the strength and stability we're seeing in our cohort performance, and our conviction to invest in what we believe is Etsy's tremendous long-term opportunity. Turning to our most important focus area and job number one, growing the core etsy.com marketplace. We continue to make what we believe are very valuable long-term investments aligned with our Right to Win, driving continued material improvements in the customer experience in order to make Etsy even more special and deepen our competitive advantages. I'll now walk through some of the exciting progress we made in Q2. Starting with search and discovery. In our quest to close the semantic gap and create a platform that better understands our buyers' tastes and preferences, in Q2, our team created and launched a proprietary capability we call XWalk, a large-scale real-time graph retrieval engine that dramatically expands the amount of available data used to capture the semantic meaning and to improve the conversion rate by showing more relevant inventory to buyers. Every click and purchase on Etsy give us information about the relationship between users, queries, listings, shops, and more. And these events have long powered our ranking and retrieval systems. But due to the sheer volume of information, we could only use a relatively small slice of it. With the walk, we're now able to use nearly all of our relevant data to better capture semantic meaning across all of our inventory. For example, XWalk has significantly reduced the number of dead ends, which have queries that returned zero search results, unlocking over a million incremental searches that are delivering relevant search results. We're only at the very beginning stages of leveraging XWalk, which has many other applications beyond search. For example, making recommendations more relevant, providing better on-site marketing experiences, and improving technologies that keep the marketplace safe. Turning to Slide 7, in our efforts to amplify the human element of the Etsy marketplace. We've mentioned listing videos in our last few calls, and we're now starting to get real traction as they're incorporated throughout more and more of the Etsy experience, on-site and off. In fact, there are now nearly 8 million videos uploaded on Etsy. Listing videos are driving engagement on social, and we're seeing measurable wins from adding videos to the homepage. We're especially encouraged by the results our sellers are seeing from their process videos, which show how our sellers make their items and especially Etsy-like experience. Many buyers are viewing these videos and watching them to completion. In fact, listing and process videos drove a significant sequential increase in engagement on our social channels, up 700% quarter-over-quarter. Our third pillar is, of course, about trust. And we've -- as we've said, we're laser-focused this year on the post-purchase experience, and we're making great progress. This quarter, I'd like to highlight the gains we've made with delivery predictability, setting clear expectations for when items will arrive, and ensuring our sellers consistently meet those expectations. In the second quarter of 2020, only 73% of domestic orders on Etsy displayed an expected delivery date. In other words, before you place an order, almost 30% of the time, we couldn't tell you when you could expect to receive it. Origin Zip Codes, which tell us from where in the US an item is shipping, has also been an area of focus because they help us to more precisely estimate the time in transit. We've more than doubled Origin Zip Code coverage over the past year, which has cut 1 full day from the Expected Delivery Date, causing a meaningful positive impact on the conversion rate. While we aren't in a race to be the fastest, it's critical that we have transparent expectations that our sellers can meet reliably. This is a needle mover for us, as we deliver on buyers' expectations, they've tended to come back and make more purchases more frequently. We're targeting to get both of these metrics over 90% in time for the holiday season. Last quarter, we told you that we would be exploring ways to define "what good service looks like" for Etsy sellers, leading to last week's global launch of our Star Seller program. The program's goal is to recognize and reward our best sellers while motivating all sellers to deliver exceptional customer service. As part of this program, we've defined a set of customer service metrics that we know are critical to buyers, such as on-time shipping, 5-star reviews, and responsiveness to buy our combos. And we've set the bar for what good looks like all while providing a transparent dashboard to show sellers where they stand versus each of these metrics. We believe that this creates a race to the top for sellers who will understand [Indiscernible] Later this year, we'll [Indiscernible] ten, let's talk about our [Indiscernible] continuing investments designed to [Indiscernible] And in fact, the Etsy marketplace delivered a 22% [Indiscernible] full of initiatives. Highlighting just 2; first, we're continuing to see progress with buyer triggers. For example, adding a badge in the upper corner of the app icon, showing how many updates are pending, drove a meaningful increase in repeat visit rate. And second, we've created faster and easier ways for sellers to invest in deepening relationships with their buyers while driving frequency to Etsy. A great example is seller Thank You coupons. For example, get 10% off on your next purchase when you buy again from my shop which, during an experiment, saw a 170% improvement in uptake. Now, 11% of purchases include a Thank You coupon. As many of you know, the buy-on Etsy App has historically been our highest converting experience. In Q2, we began to test more prominent ways to prompt buyers to download the app at key moments in their journey. We focused on organic product improvements, and today, have invested very few marketing dollars to drive app downloads. We've seen major wins. For example, by promoting app downloads on the post-purchase Thank You page, encouraging you to download the app in order to easily track your order status. The results have been compelling. We're now running at about 1.3 million app downloads a month and have garnered 9 million downloads year-to-date. And Etsy is now the number 7 shopping app in the iOS App Store, the highest it's ever been. Most importantly, newer cohorts of app users are showing promising engagement signals based on their visits, favoriting, and purchase behavior. In Q2, new app users that made a purchase then went onto favorite and view listings, roughly 20% more than new mobile web users that made a purchase during the same timeframe. Turning to brand marketing. TV and digital video continue to be great tools to drive awareness and engagement with the Etsy brand. As we mentioned last quarter, our investments in the UK and Germany are showing encouraging results. Double-clicking on Germany, in addition to our TV and digital video investments, we worked with German personalities to support our Etsy HotSeat or Etsy Has Its campaign. We saw 5 points of improvement in prompted and unprompted awareness, expanded social reach, and generated over 4.5 million impressions in earned media during the campaign flight. Other benefits included an uptick in seller growth and a higher return on our performance marketing channels. We're very pleased with these results, which indicate that we're laying the foundation for growth in this important market. There are so many more product and marketing win I'd love to tell you about. But I also want to give some time to our other marketplaces. We now have four highly differentiated e-commerce marketplaces in our house of brands. And we couldn't be more excited to have found two more businesses that share our mission to keep commerce new. In addition to common missions, strong leadership teams, and performance-based cultures, each brand is connected at the core, with similar growth levers and requirements for success, such as sophisticated search technology, compelling on-site customer experiences, an efficient payment platform, value-added seller services, effective shipping options, strong brand and performance marketing capabilities, and a commitment to investments that protect the marketplace. As you know, we have deep expertise in each of these areas and we'll be implementing knowledge sharing loops to drive value creation across the brands all while enabling each to serve its customers in its own distinct way. First, turning to Depop on Slide 14. We believe Depop is the best asset in the resale space given its high user engagement metrics. The U.S. secondhand market opportunity is projected to double to $77 billion by 2025. And the resell portion of secondhand is forecasted to grow 11 times faster than retail clothing for the next 5 years. We're also seeing that young consumers are adopting secondhand fashion faster than any other audience. And Depop is the 10th most-visited shopping site among Gen Z consumers in the U.S. In fact, we think Depop is the potential to Etsy like Venmo was to PayPal, a new way to shop for the new generation. Let's take a look at a quick 30-second video that captures the excitement of Depop. Where do we want to take Depop? Just like we've demonstrated with Etsy and Reverb, we see significant opportunities to make focused improvements to the on-site product experience that we believe can expand the conversion rate. We'll also explore value-added services to drive monetization. We'll compare insights on how we've grown Etsy globally with localized experiences and focused investments to help Depop take its marketplace beyond its current core regions in the U.S. and UK. And we'll work to evaluate the efficiency of their marketing investments, focused on improving LTV, driving buyer and GMS growth, and enabling the business to invest more and similar or better returns compared to their current investments. Now, turning to Elo7. Elo7 is known as the Etsy of Brazil, a leader in custom and made-to-order merchandise. We now have a foothold in Latin America, a region with high barriers to entry, where we previously did not have a meaningful customer base. Elo7 is ranked as a top 10 e-commerce site in Brazil, providing us with a strong local brand, in the largest Latin American e-commerce region. E-commerce in Latin America is estimated to be less than 10% penetrated and is expected to reach approximately $160 billion by 2025. Brazil alone is forecasted to reach $50 billion in the same time period. Here's a quick glimpse of Elo7 through one of their TV ads. We hope you will agree that the similarities with Etsy are obvious. On Slide 19, you'll see Elo7's near-term priorities, which will focus on; optimizing conversion rate, prioritizing the roadmap to focus on initiatives that will inflect GMS and make the selling and buying experience easier; Marketing efficiency, leveraging Etsy know-how to further invest with a disciplined ROI lens, evaluating lifetime value, and customer acquisition costs. Seller transparency, giving sellers visibility into their performance metrics. And shipping, ensuring sellers have the very best options for fast and affordable shipping that buyers can rely on. We've just kicked off integration work for both businesses, so it's important to keep in mind that it will take multiple quarters and years to operationalize all of the many ways that we believe it can help Depop and Elo7 grow. And last, but certainly not least, Reverb delivered a solid quarter despite prior year comps that benefited from many competitors having to close their retail stores and warehouses. We're confident that the Reverb team is focused on the right areas and are excited about their future opportunities. In particular, this past quarter, we launched personalized recommendations and invited more music makers to add to their gear collections, which now includes over 175,000 pieces of gear from players across Reverb. This capability not only helps us to learn more about buyers and personalize their experience, but it also helps players consider selling their gear through a greater understanding of how much it's worth. We launched a new premium ad platform for Bump, and we formed a new international product team that delivered its first global-specific feature enhancements. Taking all of this together, we believe that Etsy is now an even more valuable Company with an even larger opportunity than we had before. We have a large and expanding TAM, and we're moving in a different direction in commoditized marketplaces. The pandemic proved to just how many purchases occasions Etsy is relevant for, and we have more confidence than ever in our core opportunity. Reverb has a compelling value proposition in musical instruments, and we see a clear path for future growth. Depop enables us to deepen our penetration into apparel, specifically in the exciting and fast-growing sector of resale. And Elo7 gives us a local presence in the large Brazilian market. Our ambition is driven by a true love of lightning in a bottle of peer-to-peer marketplaces and a well-defined investment strategy that, we believe, can drive strong top-line growth and profitability for these brands. Many of you have asked whether these deals are a sign of more to come. I can tell you that our primary focus now is to integrate Depop and Elo7 into the family while continuing to drive strong performance at Etsy and Reverb. We're incredibly proud of what our team has accomplished. And, hopefully, we've demonstrated to you that we balance our ambition with discipline, making thoughtful and strategic moves that build long-term value for all of our stakeholders. And with that, I'll turn it over to Rachel.

Q - Debra Wasser:

Hi, everyone. Good to see you today, and we're going to dive right into questions. Okay. I'm going to start with Alexia Tsimikas from D.A. Davidson. We've had a lot of investors ask us about the impact of the economy reopening on Etsy. How should we think about the impact overall? And additionally, what categories are benefiting from the reopening, such as weddings, and what categories would you say are being negatively impacted? I think, Josh, we can at least start with that one?

Debra Wasser:

No, you got it. You got it. That's great. Thanks, Josh. The next one I'm going to take from Ana Andreeva from Needham. This one is for Rachel. A question on taking rate came in flat sequentially. What's driving the upside, excluding the new businesses to the second half and how do you think about the take rate opportunity, longer-term for Etsy?

Debra Wasser:

Great. Thanks, Rachel. The next one is from Eddie Yruma at KeyBanc. Josh, I'll toss this one to you. "You moved very quickly to bring selection inventory from DaWanda onto the core Etsy marketplace. Do you see the same opportunity existing with Elo7?"

Debra Wasser:

Great. Since we're talking international, we'll go next to a question from John Colantuoni from Jefferies. Last quarter, Josh characterized the advertising strategy in Germany as being different than in the U.S., because Etsy is leaning into brand marketing early on. After having success with your brand marketing campaigns in the UK and Germany, is the next step, to begin layering in more performance marketing spend, to take advantage of the improved awareness that you were achieving. Josh?

Debra Wasser:

I think for you. Yeah.

Debra Wasser:

Okay. Great. The next one I will take is from Laura Champine, from Loop. This one is for Rachel. what drove the decline in a mix of GMS from paid channels in the quarter?

Debra Wasser:

Okay. Great. Thanks, Rachel. Next from Nick Jones at Citi. Josh, we'll throw this one to you to start. Can you talk about the effectiveness Etsy has had in managing Reverb and the implications for its ability to manage Elo7 and Depop? And how many other opportunities might there be out there that could look similar to these, in terms of focusing on products or demographics or geography? I assume that means in terms of potential future acquisitions.

Debra Wasser:

Okay. Great. Thanks, Josh. I'm going to give a couple to Rachel that also have to do with Depop and Elo7, more on the financial side. So, from Shweta Khajuria from Evercore ISI; Rachel, could you quantify the impact from Depop and Elo7 included in the Q3 guide?

Debra Wasser:

Rachel, while I have you. Similar question -- similar topic from Jason Helfstein in Oppenheimer. "If we assume a 10% take rate for the acquisitions of Depop and Elo7, can that get us close enough to the revenue impact for the acquisitions as well in Q3?"

Debra Wasser:

Okay. Great. The next one is from Ygal Arounian from Wedbush. You added 8 million new buyers this quarter, after a big last 12 months of new and reactivated buyer ads. What is driving the continued uptick in new buyers strategically? And how is this behavior from this cohort similar or different? Maybe Josh, wants to talk about overarching new buyer behavior?

Rachel Glaser:

The only thing I'd pile on to that with is that our new buyer growth on a trailing 12-month basis we said was 40 million, so it's a really huge number. And we've talked about on this call and internally about the pull-forward effect of -- we acquired so many new buyers in a short amount of time that we were actually pulling forward new buyers that at our old rate, we would have acquired in future years. And just to remind you that you can only be a new buyer once. What we're seeing with new-buyer deceleration is 100% in line with what we expected, and we take -- we get excited and take great comfort from the fact that all of these buyers are coming to Etsy more often and shopping more frequently. The GMS per active buyer number up 22% in the quarter is super exciting to see.

Rachel Glaser:

Do you want me to grab it?

Rachel Glaser:

Okay. So, we're not giving any -- unfortunately, giving any guidance about what we're seeing in Q3 now. But, maybe, a simple way to answer your question is our guidance assumes that there are no further locked downs. So, of course, as we see what happens in the world, that may or may not change the forecast in the guidance that we've given.

Joshua Silverman:

Yeah, great question. Thank you for that. Yeah, the Star Seller program is really designed -- Yes, it will be an icon on people's shops. That will show up in a few months. We might do featured marketing around our Star Sellers. It might influence your prominence in search. We're going to experiment with a lot of things. But at minimum, it will be a badge on your shop to highlight to buyers that you're one of the very best sellers. I think one of the most important things it does though, is it provides agency to sellers to tell them very transparently, "Here are the customer service metrics that buyers care about the most, and here is what good looks like." And that sets a bar, an aspiration for our sellers of where they want to go and where we want them to go. And one of the things we hear from sellers over and over again is, "What can I do to be more prominent?" And if you look online, the tips and tricks they hear from a lot of others are like keyword stuffing, put more keywords in your title. That doesn't necessarily make the buying experience better. Do you ship on time? Do you answer bio convo -- buyer convos in a really timely fashion? Do you get 5-star reviews on your products? Those are things that buyers really care about and we want to focus sellers on those things. And so, the Star Seller program is a great example. And by the way, it's not the only way we can do this. But it is a powerful example of how we can really tell sellers exactly what they can do to be more prominent, and give them agency in their own success, in a way that creates a race to the top and lift itself up. And I'm really excited about this track-up work in the coming years.

Rachel Glaser:

Sure. So, no, we are not contemplating a decrease in conversion rate in frequency. We're really excited about the product and marketing initiatives that we have that are actually driving growth in those metrics. And you can -- as we've talked about and answered a few other questions, there's a deceleration in new buyers, largely associated with masks. Remember that in Q3 of last year, 11% of GMS came from mask sales, and new buyers were a lot of the mask buyers. So, those things go together. And that we have these really, really big numbers to comp. We said that non-mask sales in Q3 last year grew 119%, and we've roughly added $2 billion of GMS on a 2-year basis. So, these are really big -- big numbers to comp, and so it's mathematical gymnastics that we're doing, but with lots of underlying growth opportunities in the core business.

Rachel Glaser:

I'll take that one. Depop has a great payment structure today. And so right now, each business has its own CEO, they have their own operations. We want them to run and fully optimize their businesses. We are thinking about, loosely, where we can find optimizations maybe in 3 categories. First are things that are back-office like G&A, where we don't necessarily need to replicate certain functions in every single business and we can handle those things from a corporate perspective. Things like legal and finance and treasury and things like that. The second tier is things that we can operate as services across all of our brands. So, payments might be an example of that and we'll certainly explore that. There might be other things like member support, and trust, and safety. There might be other services like our ad network. And then there are things that we think need to be operated directly, and with innovation and creativity in those management teams, like product and engineering. And so, we're just -- again, we've only owned them for 2 weeks. We will look -- we continually will look for opportunities to optimize and scale as we grow. Payments might be one of those areas and we'll be happy to talk to you more about it as we dig into it.

Joshua Silverman:

Thanks very much for your interest. I think -- when I think back to a year ago, the question we kept getting was like, is this just a flash in the pan? All these people are coming to Etsy just because they have to. And are they all going to go away when the world reopens? And I'm not saying we fully post-pandemic or the world has completely reopened, but people have a lot of choices right now. And I couldn't be more excited about the fact that in a world of a lot of choices, Etsy is growing. And it's growing materially and people are coming back. They're choosing to come back more and more often to Etsy even when they have vastly more choices than they did before. And I think that's super encouraging for the future.

Joshua Silverman:

Thank you.

Joshua Silverman:

Thanks, Deb, and good evening, everyone. Q1 was another really strong quarter for Etsy in terms of its financial results and also in terms of its corporate citizenship. I'd like to start this evening by talking a little bit about some of those citizenship efforts. Etsy continues to speak out against racism and harassment. For example, in the first quarter, we donated $500,000 to support the AAPI community, and we continue to invest in highlighting the wonderful work of many different underrepresented sellers within our buyer community. For example, our partnership with the Gee's Bend Quilters from Alabama. I am delighted to report that many of the Gee's Bend shops sold-out within the first 24 hours of the launch of that initiative. Etsy also launched Donate to Change where buyers can round up to support the Uplift Fund, which provides a path to entrepreneurship for many different communities. And we had over 1 million buyers round up to support the Uplift Fund in just the last six weeks of the quarter. Third, Etsy continues to deepen its commitment to environmental sustainability, announcing our goal to be Net Zero by 2030. This continues to pave our pathway as a trail-breaker with one of the most ambitious targets of any of our peer group. As I said, our Q1 results were excellent. Consolidated GMS was $3.1 billion, up 128% year-over-year. And that's really the result of strength in the core and continued positive momentum in frequency. You'll also notice that we came in above the top of guidance, guidance that we gave in late February. Most of that overshoot relative to guidance was due to the impact of stimulus and Rachel is going to talk about that more in her section. The core business did great in Q1. Our customer cohorts continue to show that we are driving increased frequency and engagement from all of our different buyer segments. Etsy added 16 million new or reactivated buyers in the quarter for a total of 90 million active buyers up 91% year-over-year. And I am particularly pleased that our fastest growing segment yet again, was habitual buyers, our most loyal and engaged buyers. We now have 8 million habitual buyers, and that was up 200% year-over-year. Building on this expanded base. We are laser focused on driving frequency and of course, frequency can be driven in part by your marketing initiatives, things to make you more front-of-mind for customers. But it's also critical that we have a customer experience that in and of itself is engaging and drives activity. And so we've been launching efforts across the spectrum and depict just a few, [quizzes] are something we launched recently and that allows a buyer to come and tell us more about their particular tastes and their particular interests in a light and fun way that not only makes that visit more engaging in session, but it gives us important information to help bring that buyer back more often to have more satisfying experiences in the future. We've been working a lot on buyer triggers as well, things to notify people through app pushes, through emails and other things, that there is something new or interesting that's happening. For example, that an item you've favored it in the past has gone on sale. And when they come back to the site, we've been investing in an updates tab in the app. Think of that as your daily feed for what's changed since you've last been here. Maybe an item you've left in your cart has gone on sale or here is some new favorites that you might be interested in to add to your list. It's very encouraging to see that now 13% of app visits include a visit to the updates tab and 27% of those visits have buyers clicking on one or more of the listings that we include in updates. And the fourth pillar is strategic discounting where we've launched a tool that allows our team to rapidly test and then automate and scale different types of discounts to very finely tuned customer segments. So $5 off, for example, on your next purchase. I've never been more excited about our product roadmap. We continue to make investments that we believe are driving the long-term value, making the customer experience better. I know we show you this slide a lot, but it really is how we drive focus and prioritization within our product organization focused on each of these four pillars. We start within each pillar by saying what customer experiences do we want to focus on to truly uplift? We then ask what are the fewest initiatives that could have the most impact in those customer experiences. And then we assign very specific goals. So it's clear what success looks like, and here is what your constraints are to squads who are owned – who own the success of those different initiatives. So let me take a second now to show you the priorities within each of these four pillars for 2021. Within search, we have four focus areas. Personalization is about making Etsy feel more like it's made just for you. Buyer pathways is about making it easier to find the things you want, whether or not you would actually put a search query into the search engine and making sure that we have few, and hopefully no dead ends. Closing the semantic gap is about taking what you happen to enter into a search engine and interpreting that for what you actually meant you wanted. And of course, all of this relies upon an infrastructure that is fast and reliable and scalable. Double clicking on personalization, just to show you an example of that pillar, we launched the ability to personalize the search results recently, and we are seeing really encouraging gains from that, but we are still very much in the early innings, consuming more data to understand more about what that customer wants and then delivering through more sophisticated models, ever more personalized search results. But it doesn't end with just the search results themselves. We actually believe that over time, we can customize the entire experience. So here you see an example of how the layout itself might be different for two different customer segments. And our ambition over time is to create evermore finely tuned customer segments that are built through multivariate models powered by machine learning, so that Etsy truly feels made just for you. I'd also highlight on this slide a couple of the infrastructure improvements that have led to material gains in the past quarter. For example, the search infra team made the search results faster, which resulted in increases in click and conversion rate and we are able to expand the search results for long-tail queries, leading to more satisfying buying experiences there as well. What makes the Etsy marketplace truly special is that every item and every seller has a story and a story you'd actually be interested to hear. And there is nothing more powerful than video to help to tell that story. We also encourage conversations directly between the buyer and seller, something you'll see in few of any other marketplaces because those Convos help the buyer and seller to co-create, personalize or customize, or even just to form community. That's one of the things most different and special about Etsy, and we think investing in this pillar is critically important. One example of where we are leading in is in video itself. Sellers have now uploaded about 5 million videos to the Etsy site. That's up 36% quarter-over-quarter. And we are seeing very encouraging progress when a listing includes a video that buyers engage with it more click and even convert more. But the listing page is only the beginning of where we can be using video to tell the story of Etsy, tell the story of the item and to help people to engage even more often throughout the site. So expect to see more video in more places making the Etsy experience even more dynamic. The third pillar is trust and we have four focus areas within trust. First is speed expectation. That's making it very clear when you can expect the item to arrive. Second is delivery predictability. Where is this item in the fulfillment process being made or currently being shipped to you? Third is issue resolution, making it even easier to access support and know that we have you back on the rare instance that something goes wrong. And fourth is seller reputation. This is around giving sellers even more visibility into how they are performing versus key customer satisfaction metrics, as well as setting the bar for what good looks like, so that we create more of a sense of agency among the sellers for how they can drive success in their business and create a race to the top where the buyer experience improves as a result for all of our buyers. Taking seller reputation as an example and showing how we can apply that to fulfillment. On the left, you see a new dashboard we've launched within the seller dashboard. And here it shows the seller very clearly, which items are expected to ship today, which one ship tomorrow, which one ship next week. So they know exactly where they should be focusing their time and energy. We've also been focusing on dashboards that show how they are doing versus fulfillment expectations relative to our expectations of what good looks like. So that again, they focus their energy and we've set the standard together on how we can deliver a consistently great customer experience to our buyers. That feels predictable for all of our sellers. The foundation of Etsy's right to win is our sellers’ collection of unique items. I know I've told you in the past that 90% of buyers report that they come to Etsy for items that they can't find anywhere else. And in fact, one of the most special parts of Etsy is that most things on Etsy can be personalized and customized. And in fact, we find that buyers are 20% more likely to make a purchase when they are looking for customized or personalized items. So a focus for this year is going to be even more specifically highlighting and showcasing items that can be personalized and customized as well as streamlining that process of co-creation between the buyer and the seller. But of course, what good is this great collection of unique items if we don't tell the world about it. In fact, we launched a brand new campaign called Bye-Bye Boring, and I'd like to pause now to show you one of the spots in that new campaign. Given the performance that we've seen in the U.S. from our television campaigns, we are interested to see whether investments in television can actually accelerate our flywheel in some international markets and get us to scale even faster. So we are going to be experimenting, leaning in more in the UK and in Germany to see how above the line marketing can drive brand awareness and more visitation and get us spinning faster. I'd like to show you now an example of a campaign we are going to run in Germany. Germany is a market that's different than the U.S. and the UK. And then awareness there is substantially lower, although we are seeing very positive momentum. So there's more work that needs to be done to introduce Etsy to the German market. This campaign is called Etsy [indiscernible], which translates to Etsy Has It. Etsy also has the advantage of being beloved by many influencers. So we've created a scalable experience where influencers can curate or co-create their own set of items, and then market those items to their own communities that reinforces the desirability, the quality, the diversity, and the scarcity of items on Etsy, and allows Etsy to reach out to diverse communities in ways that feel highly personal, curated and crave-worthy. All in all, I couldn't be more excited about what's ahead for the Etsy marketplace. But speaking of couldn't be more excited. I'd like to take a moment also to give you an update on how things are going with Reverb. Reverb also had an outstanding Q1. GMS grew about 50% or about 5x faster than the musical instrument industry and Reverb continues to deepen its moat, serving as the primary marketplace for many musicians. Reverb’s four key focus areas for 2021 are going to be around personalization, around partnerships with brands like Fender to market new gear, deepening its investments in growth in international, and continuing to improve the customer experience. It's now been about 18 months since Etsy acquired Reverb, and we couldn't be happier with how that partnership has evolved. As you'll see on the left, Etsy has helped Reverb to expand its gross margins from 33% to about 53% and the purchasing power and scale of Etsy has played an important role in that. We've taken many of those gains and we've reinvested in marketing, and that investment in marketing has also helped to accelerate the growth of Reverb. But we are not just investing more, we are investing more efficiently, so you’ll see on the right that each dollar of marketing is driving more GMS through the incorporation of Etsy's tools and techniques to help make the marketing funnel within Reverb even more efficient. In closing, Q1 was another great quarter for Etsy. I couldn't be prouder of the team or more grateful to the whole community. And with that, I'll turn it over to Rachel.

A - Debra Wasser:

Okay. Hi, everyone. We're going to dive right in. We have quite a lot of questions in the queue. If we don't get to your question in the next half an hour or so, please feel free to email us at our address. So I’ll start with a question from Darren Aftahi from ROTH.

Debra Wasser:

I think we'll start with Josh for that one.

Darren Aftahi:

Okay. Great. Thanks Josh.

Maria Ripps:

With growth in habitual buyers accelerating so strongly, can you talk about the key drivers there? In addition to multiple search and platform improvements as we just discussed, is there anything else you would highlight from the category engagement standpoint that's driving the strong buyer engagement?

Joshua Silverman:

Well, ultimately in my prerecorded remarks, we are very focused on building more hooks into the experience to engage you and have you come back wanting more. And importantly having the site be very rewarding in terms of what's next. For those of you, and hopefully all of you use Etsy regularly, the Etsy homepage has been the rearview mirror for many years. You show up on Etsy, and it's things you've recently viewed or things you've recently favorited, or it's a bunch of things you've already done. We're moving much more now to show you more recommendations, more leaning forward, things you might like, things you haven't seen. Shops you’ve favorited. Here is three new items from those shops. And so we're both figuring out how to learn more about your tastes and preferences so we can provide better recommendations and then entice you with things that we think are going to be interesting to make you want to come back more and more. And part of that is of course the listing experience and recommendations. But part of that is things like video. And when we talk about videos, by the way, it's not just shooting that item from multiple angles. Some of the videos that we're finding are most mesmerizing are the making of videos. Customers seem very interested in how did you actually make this product and they can watch those for hours sometimes, its fun and inspiring and that's uniquely Etsy. You're not going to find that on other platforms. And so finding ways to really engage customers in the platform is something we're very focused on as well as all of the marketing efforts. And the television investment we're doing and the performance marketing investment we're doing also help to keep Etsy top of mind and really make us a place that people want to come back to. And I'm particularly proud that when we ask customers now in both the U.S. and the UK a very generic question, which is just, what are your favorite places to shop online? Etsy is now top 10 in both of those two markets. And that's the kind of thing we're going for, that we're top of mind and we're not like what's your favorite hand-made site, or what's your favorite place to go for niche? Just what's your favorite place to shop online? Etsy is now at top 10 site by our internal survey work in both the U.S. and the UK. And I think that's really encouraging. The second part of your question was about category mix. And I can guess like you can guess, what's going to happen with home furnishings? What's going to happen with events like weddings? What I would say is, one of the parts of the Etsy model that I like the most is that we can speculate a lot, but we don't actually do anything differently at Etsy. We have a 100 million items for sale on Etsy today. So whatever is hot tomorrow, there's an enormously high probability that we have it. And if we don't have it, it will be on the site within hours. And so our marketplace responds very dynamically to trends and our performance marketing system picks that up in largely real time. And boy, did we ever see that through COVID, right. We have an incredibly agile and dynamic marketplace. So unlike so many others, we're not sitting around guessing what's going to happen in June and buying inventory against that and putting marketing spend against that only to maybe be proven right, and maybe be proven wrong. We have a marketplace that naturally adapts. And we tend to work much more horizontally on making sure that the seller experience is really good, making sure that the buyer experience is really good and whatever they want to buy and sell in that particular moment is great by us.

Debra Wasser:

The next one, I think is for Rachel. This is from Lauren Schenk at Morgan Stanley.

Rachel Glaser:

Hi, Lauren. Thank you for the question. So we did say that Q1 would likely be the high watermark and the guidance we just gave at the midpoint implies that we're stable to the Q1 take rate, if not, just a little bit higher. Some of the things that are driving take rate improvement are Offsite Ads program, our Etsy Payments and our Etsy Ads, which are all stable and growing. And so we didn't give guidance for the full-year. I can remind you, though, that usually in the fourth quarter, we see the take rates might hit their lowest point, just because revenue relative to the very, very high conversion rate we get on transactions, GMS will increase significantly and our – and the non – the elements of revenue that are not variable with GMS, like listing fees and Etsy Ads will be relatively lower. So Q4 relatively low point in the year, Q1 and Q2 are stable and strong as we've guided.

Debra Wasser:

Next one is from Ygal Arounian from Wedbush.

Joshua Silverman:

Yes. I mean, obviously with the 100 million items for sale or more on the site now, it’s likely we've got it with the exception of a few categories that really aren't appropriate. So the main thing is keeping the main thing, the main thing, people need to have a great experience on Etsy. When they come, when they browse, when they shop. And I've talked a bit about some of the things we're doing to drive more engagement and keep you coming back, personalization, recommendations, videos. Let me talk a little bit about seller performance. I'm really quite excited about that as well. In addition, our sellers want agency, they want to know what they can do that will make them more successful. And we have the ability to do a better job telling them that. So the more we can provide them with, for example, a customer satisfaction scorecard, here are the five metrics that matter most to your buyers. And here's how you rank relative to other sellers relative to what good looks like. That will be very helpful for sellers. And it will let them know where to invest their precious time and energy. And in doing so, I have no doubt that the clearer we can be about what good looks like and where they are relative to that, the more they will rise to that opportunity and do a great job. And that creates a race to the top that makes the experience better for all of our buyers. And so some of the things we've already launched in that area are around fulfillment time. You as a buyer want to know when the item is going to come and then you want it to, it needs to arrive on time. And so you've seen us now on the seller dashboard launch very clear to seller, here is what needs to ship today. Here's what needs to ship tomorrow. And we've started to experiment with what's the easiest way to explain to sellers how they're doing on fulfillment, and what good looks like there. And you should see us do more and more of that. And I think that's going to be very helpful in terms of lifting all boats and making the buyer experience at Etsy better and better and better, combined with the marketing efforts that we're doing that are keeping Etsy top of mind, so that as we have a fantastic experience that delivers so often, we're there and we're planting the seed and we're building a habit. And us leaning into brand marketing right now is part of that. I think that's a – this is a fantastic time for us to be reinforcing what is unique and special and different about Etsy and how often we're relevant for buyers.

John Colantuoni:

Even after experiencing impressive growth and frequency and retention over the past year, average spend per buyer on Etsy is still less than the third of other key e-commerce players. I know it's not a perfect comparison, but can you talk about what initiatives you’ve been implementing to continue driving spend higher even from today's levels? And then assuming higher spending flows through to higher lifetime value over time, how should we think about the margin implications of spending to drive a more valuable buyer, particularly when a portion of those buyers are coming from the Offsite Ads program?

Rachel Glaser:

I can start, and I’d love just to weigh in. So I think one of the things that is really resonating with people through our marketing is why to come to Etsy and when to come to Etsy. And so we've talked before in the past about thinking about Etsy, not just for the cushions, but for the couch. And as we see more in the increase of habitual buyers and the significant increase in frequency, that's an example of people coming and really understanding the breadth of product that Etsy has to offer. I’ll also mention that the average order values are higher in Reverb, for instance. So as Reverb also grows, we get increase in higher spending items there as well. Higher average order values may imply that we have higher – some higher margin to invest there with our marketing. And so that works – the whole ecosystem will work positively in that regard. To date, though, the primary growth we've gotten from GMS has been more visits and higher conversion rates, and that's where our efforts have really focused. And that's where we're getting a lot of the value creation from the marketing investment.

John Colantuoni:

Okay. Great.

Nicholas Jones:

In the press release, you noted that Offsite Ads has expanded to include more affiliate channels. Can you touch on the puts and takes of optimizing your current channels versus adding more affiliate channels?

Debra Wasser:

So, yes.

Debra Wasser:

Okay. The next one from Jason Helfstein at Oppenheimer.

Debra Wasser:

Rachel, you just want to start with that?

Jason Helfstein:

Sure. Can you talk about the quarter-over-quarter acceleration in seller services? And how you see that playing out for the rest of the year?

Jason Helfstein:

Great. Perfect. Thanks Rachel.

Nicholas Jones:

As Etsy laps tough comps over last year, and you take stock of Etsy brand recognition pre-COVID versus today, how would you quantify and qualify the improvement of brand recognition in terms of Etsy being top of mind for shoppers?

Debra Wasser:

Yes. Josh, I thought you might want to add in there a little bit about Germany in case people didn't hear what you had to say on the – we had a slide in there. Yes.

Nicholas Jones:

Okay. Great. Thanks Josh.

Laura Champine:

Can you update us on your long-term margin expectation given that 2020 likely created several changes relative to your thoughts at the most recent Analyst Day, which was in 2019?

Laura Champine:

Perfect. Thanks, Rachel.

Shweta Khajuria:

Which of the product and marketing initiatives were most impactful in driving GMS growth, and importantly buyer frequency and habitual buyer growth?

Joshua Silverman:

Sure. There hasn't been one launch, that's been the big thing. And I do think that these tend to work collectively. So it is getting easier to find what you want on the site, meaningfully, easier to find what you want on the site. When you find it, it's feeling more human. And you're gaining more trust in the fact that it's going to arrive on time, it's going to be what you want. We'll have your back if anything goes wrong. And we're making it easier for our sellers to do their job servicing customers and taking away some of the administrative work and other things for our sellers. And those things in combination are leading to a really good experience, which is what matters in terms of having people come back more and more, and we're also projecting that more into the market through marketing, right. So I really can't point to one thing that was like the big thing. I'm happy about that because I hate to bet our business on one big swing for the fences. We think that working collectively and having this virtuous cycle spin our flywheel faster is a really healthy way to go.

Joshua Silverman:

Thanks so much.

Josh Silverman:

Thanks a lot, Deb, and hello and welcome, everyone. 2020 was, no doubt, a transformative year for Etsy, a time when circumstance met preparedness, highlighting the agility of our model, the dynamism of our team and the power of our differentiated strategy. Etsy emerges transformed a larger and stronger marketplace as a result. We understand that the stakes are high. Millions count on us now more so than ever and I'm proud of our impact. We help to create economic opportunity for our sellers and led from the front on many important social issues. As a marketplace that gets better as it gets bigger, we believe that Etsy is now even better positioned to lead into the future. When we look at our 2020 results, they were spectacular. Consolidated GMS was $10.3 billion, up 106% on a currency-neutral basis. Consolidated revenue was $1.7 billion, up 111% with an EBITDA margin of approximately 32%. Said differently, we roughly achieved our 2023 aspirations in 2020. Rachel will provide more insights on Q4 in just a moment. But we're proud of our inclusion in the S&P 500 as yet another signal of the importance that the Etsy marketplace is playing in the global economy. And, in fact, speaking of the global economy, 2020 was an extraordinary year for e-commerce overall, as the growth rate of e-commerce roughly doubled, as much of the offline world shutdown. And as fast as e-commerce grew, Etsy grew much, much faster. In fact, Etsy grew almost 2.5 times as fast as e-commerce. We had to change the y-axis of the graph just to accommodate it. Etsy is gaining meaningful share versus e-commerce, because where the world is racing to offer the same thing priced maybe a little cheaper or shipping just a little faster, Etsy offers something truly unique, something truly special. And we're now seeing the power of that difference. That growth helped Etsy to become one of the most visited e-commerce sites in the United States. In fact, we were the fourth largest retail e-commerce site by monthly visits and we've become one of the most recognized e-commerce brands in the United States. People suddenly mention Etsy in the same breath as much larger retailers like Walmart or Target or eBay. And it's not just in the U.S. In fact, in the fourth quarter, international accounted for over 40% of all of the GMS on Etsy. I'd like to take a moment to talk about the United Kingdom, which had a truly breakout year in 2020, with a growth rate of 189% year-over-year. As fast as Etsy grew, Etsy UK grew much, much faster. And Germany, our second largest e-commerce market, also more than doubled in 2020. What I'm most pleased about is the percentage of e-commerce on both of those sites that's local, that's domestic where both the buyer and the seller are located in the UK or in Germany, respectively. In the UK, now more than 70% of trade is local. That means for people in the UK, Etsy is very much a domestic platform where there's a sufficient vibrancy of both supply and demand for people to be able to come there for everyday needs. And we're seeing that in Germany and I think that really speaks well to the power of our international opportunity overall. Why? Well, one important reason is the ability of the Etsy marketplace to meet rapidly evolving buyer needs. 2020 search trends highlight the dynamism of our marketplace. For example, in March when the offline world largely shutdown, demand for essentials on Etsy exploded. And our sellers almost instantaneously rose to meet those needs. And as trends evolve throughout the year from nesting and home office to home furnishings to outdoor events and reimagined events, things like virtual graduation ceremonies or lawn celebrations, our sellers were there to create and to deliver. In fact, if you can imagine it, it's very possible that people came to Etsy to make it and to buy it. All of this resulted in dramatic growth across all of our buyer segments. Etsy added twice as many new buyers in 2020 as they did in 2019. In fact, there were many weeks in 2020 where Etsy added more than 1 million new buyers per week and we reactivated 22 million lapsed buyers. These are buyers who hadn't shopped in Etsy in at least a year. And they've come back to Etsy in 2020 at a time when they really needed us most to find that Etsy is better in so many ways than the last version of Etsy that they might have visited possibly years ago. I'm particularly excited about the growth of habitual buyers. Habitual buyers were yet again our fastest-growing segment in the fourth quarter. And habitual buyers grew 157% year-over-year. 2020 was also a year when we grew the pie for many of our sellers. In fact, many of our sellers had their best year ever in 2020. GMS per seller was up 22%, while we simultaneously grew active sellers by 64%. We, of course, work hard to support our sellers by driving more sales. We also work hard to support our sellers in many other ways. For example, as governments in the United States and Europe drafted legislation to support our economy, Etsy was a very vocal advocate making sure that governments remember that independent workers, people like sellers on Etsy also matter and that we need to design our legislation and our economic reform with them in mind. Speaking of working hard, I'm incredibly proud of our team and how well they transitioned under very trying circumstances. At a time when they suddenly need to work entirely remote and face all of the stresses that everyone is facing in the external environment, our team rose to the challenge and were more productive than ever. As one example, experiment velocity grew 16% year-over-year, while we simultaneously had higher hit rate than we did in the prior year. What that means is that each team was working hard and making a lot of progress, making the product experience on Etsy even better. In addition to that, site traffic was up very substantially. And what that means is that the productivity of every team is automatically higher. The ROI of every squad is higher. We continue to make investments aligned with our right to win that we believe are making the product experience at Etsy materially better. For example, we've talked a lot about the importance of search and discovery on Etsy. And here we show some examples of how the search experience continues to get better and better. Our initial investments in dynamic ranking and semantic gap have laid the foundation for personalized search, which is making it easier for buyers to find what they're looking for and to be inspired from among our over 85 million items. Buyers are now scrolling through fewer listings, which is making search less overwhelming and more rewarding. And, of course, it's about so much more than just search. We continue to make investments to improve the product experience in many, many ways. Two examples in the fourth quarter were the launch of installment payments and the ability to filter searches around expected delivery dates. So you can see just items that are going to arrive within your timeframe. And just as our product experience improved, so has our brand awareness. We made significant strides in marketing in 2020 expanding the visibility of our brand globally. Our brand team launched five different creative campaigns in the U.S., the U.K. and Germany with a record number of impressions and share of voice to cut through. And we expanded our performance marketing and our CRM campaigns very materially equipping our teams with more resources and better tools within our Martech stack and turbocharging the success of our performance marketing campaigns through our Offsite Ads program. Our top of mind awareness has grown and we have so much room yet to grow it further. I also want to take a minute to highlight some of the critical infrastructure investments we make that maybe aren't as obvious to the outside world, but are so important to our success as a business. For example I'd like to give a shout out to our member services and trust and safety teams. In early spring demand on Etsy suddenly instantaneously and unexpectedly more than doubled. And of course that created a dramatic increase in customer support and trust and safety tickets. And our team rose to that challenge and delivered against the very high levels of customer satisfaction that our customers expect and deserve. That's only possible because of the tooling and the infrastructure and the capabilities that we have built as a team over the past several years. And in addition to providing high-quality customer support we work very hard to make customer support at Etsy ever more human. In fact in the fourth quarter of 2020, 73% of customer contacts were handled real time meaning they're voice or chat which is quite a dramatic change from where we were just two years ago. Two years ago we described to all of you our long-term right to win strategy which propelled our growth in 2020 and is more relevant than ever. We're building upon that momentum to deepen and strengthen in each of the four areas that make up our right to win. We didn't pivot to meet the demands of 2020. Rather we doubled down on this strategy which has allowed us to meet the demands in 2020 and we believe will continue to strengthen our business for years to come. We have a deep passion for the Etsy community specifically our buyers and sellers who come to Etsy to express themselves or to turn their creative passion into a business. We believe that the opportunity is large. The shift in customer behavior has brought more sales online and we know that for almost every purchase occasion, we have something delightful on Etsy to offer. In 2021 our focus areas will be centered around things that continue to differentiate the Etsy experience from all of the other players in e-commerce. In search and discovery, our big tracks of work involve making it easier to find just the right thing even when you don't have the right words to describe it and helping to surprise and inspire people being a place where buyers can come and browse lean back and find inspiration. Personalization is a very important focus helping people to find things they didn't even ask for, but know it when they see it. And we've barely begun to unpack the opportunity in personalization. We'll lean into this in superhuman ways combining the latest of AI with human curation leveraging the power of our community and our team to help curate items and use those to train models to become ever more personalized. We want to leverage the distinct power of our growing community to help make Etsy less overwhelming and made just for you. And we'll do all of this in ways that make Etsy even more human. For example leveraging video. Unlike most products every item on Etsy comes with a story. Every seller has his or her own story. And video is a powerful way to tell those stories. Plus we can show buyers how the items look, how they feel even how they sound. This is a great example of how we have so much more runway to more richly connect buyers and sellers. And once you find just the right item, you need the confidence to be willing to buy it. In 2021 we're going to be very focused on the post-purchase experience, being transparent about when you can expect an item to arrive, being purposeful about when to communicate that in the purchase journey. Making sure our sellers have all the right information that they need to meet the deadlines and letting buyers know that we have their back in case anything goes wrong. As we work to become a habit for buyers, it becomes even more important that they trust us and see Etsy as reliable. We'll have so much more to tell you about our product roadmap as we progress throughout the year, but we couldn't be more excited about what's on deck for 2021. And I'd like to take just a minute to talk about Reverb another example of the beauty of a two-sided marketplace, especially when combined with strong execution in product and marketing. Reverb also had a fantastic 2020 growing faster than their market. And the company recently laid out their rights to win, their long-term strategy with key differentiators which mirror Etsy's own and show just how much opportunity there is to grow the Reverb platform. I also want to highlight our virtuous cycle and the progress that we've made in our economic, social and ecological pillars to benefit all of our stakeholders. Etsy has always believed that being a good citizen, makes us an even stronger and more resilient business. And 2020 demonstrated that people are looking to shop their values. They're looking to put their money where their heart is. And they hold businesses to a higher standard. Since announcing our impact strategy in 2017, we've continued to evolve and update our goals. We're incredibly proud of the progress we've made in this past year. But we're not resting on our laurels. We're setting some aggressive new targets for 2021 and beyond creating a more diverse, equitable and sustainable marketplace and supply chain to expand our economic impact. Etsy's economic output is now similar to the city of Houston. We're continuing to build on our diverse and inclusive workforce at Etsy and at Reverb. I'm proud of the fact that for example, we doubled the percentage of our leadership team that are, underrepresented minorities. And, we sourced 100% of our electricity from renewables. We've set a new goal which is to be net zero emissions by 2030. Most importantly, you'll be able to read more about in our soon-to-be-filed integrated annual report, where we're now using both the SASB and the TCFD frameworks to help you better track all of our strategies and progress. As we look forward over many years we continue to believe that e-commerce is consolidating around fewer and fewer scaled e-commerce platforms. And we believe that Etsy is better positioned than ever, to be one of those few, scaled platforms, a brand which rises above the rest, by standing for something truly unique and different, standing for the individual creators and for keeping commerce human. I believe, Etsy can and should be a massive force in the world. The world has taken notice. And we have strong conviction that our opportunity is bigger than ever. I'd like to close by thanking our team once again for their passion, their creativity and their conviction. And now I'll turn it over to Rachel.