In the paragraph, Deb Wasser, VP of Investor Relations at Etsy, introduces the company's Q2 2024 Earnings Conference Call and introduces the speakers, CEO Josh Silverman and CFO Rachel Glaser. She reminds listeners that the remarks will include forward-looking statements and that the actual results may differ. She also mentions that the company will present both GAAP and non GAAP financial measures and provides a link to the slide deck and replay of the call. Josh Silverman then discusses the company's performance, with GMS down 2.1% and revenue up 3%. He also notes that the Etsy marketplace's active buyers remained strong despite a challenging quarter.

Etsy is facing challenges in the market, but they are focused on improving the customer experience and have announced the retirement of their CFO, Rachel. She has been a valuable part of the company and will continue to contribute until her successor is found. The company's main focus for 2024 is to increase consideration for Etsy as a shopping destination and to highlight what makes them unique. They have shifted their approach to investing in more engaging experiences for customers. Since 2017, their operating model has been focused on driving valuable improvements to the customer experience.

The company's focus on creating great customer experiences has contributed to their success, and they are now implementing bold initiatives to continue this growth. They are prioritizing gifting, and their efforts in this area have led to strong performance and outpacing competitors. They have also launched new features, such as gift lists and reminders, to make the gifting experience even better for customers.

Etsy is focused on improving the gifting experience for customers by creating occasion pages and using surveys to gauge the impact of their strategies. They are also working on initiatives to highlight the best of Etsy and differentiate themselves from other marketplaces. This includes using language models and AI techniques to improve search and recommendations, as well as featuring the diverse and unique merchandise of their sellers. The search team is making progress in moving beyond just relevancy and also highlighting the best of Etsy.

Etsy has taken steps to diversify and improve the quality of listings seen on page one of search results. This benefits both buyers and sellers, as it allows for more visibility for small and medium shops. In addition, Etsy has made changes to their marketplace to reinforce their identity as a platform for unique, original items made by real people. This includes updating their listing labels to better reflect the role of the seller in the making process.

Etsy has categorized their listings into four creativity standards and has received positive feedback from sellers. They have launched a marketing campaign to highlight the quality and uniqueness of their sellers' items and to showcase the personal touch of each seller. The campaign includes various assets targeting different audiences and platforms. The team is excited about these changes and sees it as a step towards improving the quality of their platform.

Etsy is investing in their app to engage existing buyers and attract new ones, with the goal of making it the primary platform for shopping. They are also launching a new buyer loyalty program, which will offer benefits such as free shipping and item discounts. The program will initially be available to a select group of US buyers in beta form.

The speaker discusses the potential for Etsy Insider to drive buyer frequency and engagement on the platform through the use of AI and data infrastructure. They highlight some of the specific use cases for AI in product development, such as curating merchandise and improving on-site shopping experiences. The speaker also mentions the success of targeted marketing initiatives in increasing GMS for demifine jewelry. They express confidence in the team's progress and their continued focus on what makes Etsy unique.

Rachel Glaser, on behalf of the company, discussed the financial results for the second quarter of 2024. Consolidated GMS was down 2.1% with a slight FX headwind, while revenue increased by 3% and adjusted EBITDA was $179 million. The divestiture of Elo7 had a small impact on the results. The Etsy marketplace faced ongoing challenges in the macroeconomic environment, resulting in a 3.2% decline in GMS. However, strong performance from Depop helped offset this decline. Revenue growth was primarily driven by payments and offsite ads, with Etsy Payments now used for 98% of GMS. A new seller onboarding fee also contributed to a nominal revenue increase.

The new fee implemented by Etsy, along with their trust and safety efforts, has helped reduce fraudulent activity on their marketplace. Consolidated services revenue grew by 1%, with Depop shipping label and ads revenue leading the way. Etsy Ads also saw modest growth, resulting in an improved take rate of 22%. Consolidated adjusted EBITDA margin was 28%, higher than last year due to leverage gained on employee costs and costs of revenue. However, there was a non-income tax expense in Canada that impacted GAAP, G&A, and consolidated net income. Consolidated product development spend decreased by 6% due to workforce reductions.

In the second quarter, Etsy's revenue per headcount continued to grow and outperform its competitors. This was due to increased marketing spend, particularly in paid social channels. This shift in marketing mix is expected to support buyer retention and frequency rather than new buyer acquisition. In addition, the company saw improved GMS performance compared to the first quarter, with a third of the growth attributed to the Easter holiday timing shift.

In the second quarter, the initiatives invested in by the company led to a sequential improvement, with stronger sales for Mother's and Father's Day despite macro pressure on consumer spending. While there was a slight decline in GMS excluding US domestic, there was growth in paper and party supplies and toys and games. The number of active buyers remained resilient, with over 6 million reactivated and 5 million new buyers. Habitual buyers decreased, but retention rates were slightly better. GMS per active buyer also showed signs of stabilization. The company believes these metrics show that Etsy remains relevant to consumers on tight budgets. Depop continues to be a source of growth in the re-commerce apparel sector.

In the second quarter, the company experienced strong growth in GMS, driven by the US market. Depop made changes to their fee structure to benefit both sellers and buyers, following similar changes in the UK earlier this year. Reverb also saw growth and launched a new feature to showcase discounted music gear. The company has a strong cash reserve and has been using it to repurchase stock. They have also seen a modest acceleration in GMS and expect a decline in the low single-digit range for the third quarter.

The company expects their Q3 '24 consolidated take rate to be similar to Q2 and their adjusted EBITDA margin to be around 27%. The pressure on the Q3 margin is due to a shift in timing of costs, exploring new marketing channels, and hiring for app investments. They anticipate their full year 2024 consolidated adjusted EBITDA margin to be at least as high as 2023, with the Etsy marketplace having a larger share of revenue and adjusted EBITDA in Q4. The CFO also announced his plans to retire and expressed pride in the company's accomplishments and appreciation for the executive team and finance team.

The speaker expresses confidence in the organization and their successor as they transition out of their role. They mention plans for travel and continued support for the company. A question is asked about the new seller classification program and its potential impact on buyer conversion and marketing. Another question is asked about increasing seller prices.

Josh Silverman, CEO of Etsy, discusses the changes in the company's search engine and how it will impact conversion and frequency. He believes that showing a broader variety of items and sellers will attract more customers and increase their return rate. However, Etsy is not involved in setting prices for sellers, but they do provide market information to help them. Silverman also mentions their focus on emphasizing the artisanal craft role of Etsy sellers and giving them more pricing power through features like video demonstrations of their making process.

Rachel Glaser and Josh Silverman discuss the potential for increased frequency to drive up lifetime value and get the marketing flywheel going again. They also address a question about the shape of GMS (gross merchandise sales) growth recovery in the second half of the year, noting that macro conditions have been volatile and could continue to impact performance. They mention external data showing both positive and negative trends, and highlight other events such as the presidential election and democratic competition as potential factors.

The new loyalty program being introduced by Etsy is targeting occasional shoppers who only make a few purchases a year. The goal is to turn these customers into habitual shoppers by offering value and potentially eliminating shipping costs. The company is excited to test the program and is funding it themselves.

Etsy's new loyalty program will not be funded by the seller and will rely on fees charged to buyers, as well as emotional rewards like exclusive deals and product releases. The pricing for the program is not yet announced, but it is expected to be in the range of the cost of a latte per month. The program is currently in a limited beta phase and will evolve over time to ensure profitability. The program is not targeting loyal buyers, but rather occasional shoppers, and is expected to have a minimal impact on margins in 2024.

In this paragraph, the speaker introduces the next question from Shweta Khajuria with Wolfe Research and thanks Rachel Glaser for her time. Shweta asks two questions, one about the economic outlook and the other about the subscription strategy. The speaker responds by saying that they are focusing on what they can control, which is providing a unique customer experience and not getting pulled into the race to the bottom. They are leaning into what makes Etsy different and positioning themselves for success in 2025.

CEO Rachel Glaser is excited about the green shoots in gifting and the quality work being done on Etsy. They have seen encouraging performance in Mother's Day, Father's Day, and graduation. They are focused on elevating the highest quality items on Etsy and will be launching a dashboard for sellers to track their quality and service level. This will create a "race to the top" for sellers and enhance the buyer experience. Glaser is confident in the growth potential for next year, as they have seen improvement in all major categories except for one. Deb Wasser also addresses the question of why loyalty is important now.

Etsy CEO Josh Silverman explains that the company's focus on loyalty is due to their success in providing unique products that can't be found elsewhere. They now want to be the starting point for customers' shopping journeys, and believe their loyalty program will help achieve this. They have tested both paid and free options, but have decided to start with a paid program and may consider a free option in the future.

The company's consumer research suggests that starting with a paid program is the best way to test marketing strategies. In the second quarter, performance marketing saw a 31% increase, which is significantly higher than the growth of GMS. However, this increase is partly due to the fact that marketing spending was pulled back in the same quarter last year for incrementality tests. The company has also successfully tested new channels such as paid social and paid social video, which are now an increasing percentage of their total performance marketing spend. They are also testing new markets outside of the US, which have shown positive growth.

The company is seeing progress in their investments, particularly in paid social, which they believe will lead to higher engagement and ROI. They are also focusing on quality and loyalty to build a frequency loop. They expect their full year margins to be at least as high as last year's.

The company is confident in their marketing strategy for the rest of the year and expects to achieve their desired margins. They are also focusing on emphasizing value on the marketplace and working with sellers to offer discounts and promotions. They plan to highlight unique and personalized items and improve the user experience by centering the seller.

The speaker discusses the importance of emphasizing the special and artisanal nature of items on Etsy, particularly in the jewelry category. They highlight the success of demifine jewelry and the challenges of accurately labeling attributes for diverse inventory. They also mention using LLMs to improve filtering options for customers.

The speaker discusses the company's plan to improve the shopping experience in the jewelry section by utilizing certain attributes and the success of LLMs. The next question asks about sustaining the 2023 EBITDA margin in 2024 and the usage of the app, with the speaker emphasizing the company's variable cost base and the potential for higher flow-through to the bottom line during the holiday season.

The company is expecting a smaller increase in above-the-line spending and a decrease in fraud-related costs compared to last year, which will positively impact margins. The company is confident in their ability to manage costs and maintain profitability, and has always prioritized efficiency and productivity. The company's margins are currently at 30%, which is significantly higher than other marketplaces of similar size.

The speaker discusses the company's investment strategy and balancing value growth for stakeholders. They also mention the usage and impact of their app, with a focus on increasing lifetime value for users. The call ends with a question about fraud and its effect on gross margin.

The speaker asks for quantification of the effectiveness of the onboarding speed bump and discusses the limiting factors for on-site ads. Rachel Glaser responds by stating that while they have been effective in reducing fraud, they are constantly working to improve and have implemented multiple strategies. The seller onboarding fee has been modestly additive to revenue, but the main goal was to create a speed bump. They have also become more sophisticated in fraud detection, resulting in reduced reserves for fraud.

In paragraph 31, Josh Silverman discusses the success of Etsy Ads and the potential for growth in the future. He mentions that the rate of ad growth may have slowed, but take rate has still increased due to Etsy Ads. The company's focus is on showing the right ad to the right buyer to improve the overall experience and benefit both sellers and shareholders. Silverman also thanks CFO Rachel Glaser for her partnership and acknowledges her contributions to the company.

This summary was generated with AI and may contain some inaccuracies.