In Etsy's Third Quarter 2024 Earnings Conference Call, Deb Wasser, VP of Investor Relations, introduced the presentation, mentioning that the remarks were prerecorded and that forward-looking statements were included. CEO Josh Silverman then reported on their financial performance, highlighting that despite challenges, Etsy saw a consolidated GMS of $2.9 billion, a decrease of 4.1% year-over-year. However, revenue increased by 4.1% to $662 million due to take rate expansion, and the adjusted EBITDA margin remained healthy at approximately 28%. Although the Etsy marketplace GMS declined by about 6% year-over-year, active buyer levels stayed strong at around 91 million.

Etsy has managed to maintain strong revenue and profitability despite challenging economic conditions by focusing on what differentiates them from competitors. The company has taken steps to enhance the customer experience by improving gifting, search quality, loyalty programs, and shipping. Instead of competing on price cuts, Etsy emphasizes quality, value, and reliability. They have invested in foundational improvements, aiming to boost customer engagement and experience as key success metrics, which they believe will drive growth.

Etsy has implemented changes across hiring, management, product development, and technology deployment to foster future growth, acknowledging potential opportunity costs. Key changes are seen in their app and search functionalities. They've revamped the app's homepage to inspire new shopping experiences without affecting conversion rates, reducing reliance on past purchase history and improving user experiences ahead of the holidays. Etsy is also increasing app downloads by prompting mobile web visitors mid-shopping. These actions have been successful, as seen in experiments leading to significant increases in app downloads, such as an additional three million downloads from a single prompt.

The company is enhancing its search algorithms and app presence to boost user engagement and downloads. They're using paid ads for app promotion and optimizing search results to showcase a diverse range of items, improving variety through Generative AI. Efforts have led to a 40% reduction in identical search results by including items with similar images. In terms of quality, the algorithms now consider factors like shipping rates, return policies, and customer service to ensure a satisfying purchase experience. These changes have improved buyer reviews and reduced refund requests, aiming to increase the frequency of visits and buyer engagement.

Etsy is enhancing its platform to provide better buying experiences by giving sellers more control over their search rankings. In August, they launched the Etsy Search Visibility page, offering sellers targeted actions to improve search positions, such as optimizing listing images, setting return policies, and adjusting shipping charges. This initiative has led to significant seller engagement, exceeding Etsy's adoption targets by 60%. Additionally, Etsy aims to evolve into a place where users come for inspiration, not just when they know what they want. They introduced creativity standards in July to emphasize original items and have worked on refining label accuracy to enhance the shopping experience.

This year's focus for Etsy has shifted towards enhancing long-term customer experience, prioritizing substantial changes rather than short-term metrics like conversion rate and GMS. They launched a human-centric marketing campaign featuring real sellers, which resonated with buyers by highlighting themes such as supporting small businesses and handcrafted goods. Etsy has also initiated a targeted loyalty program, Etsy Insider, directed at occasional buyers to boost engagement through a unique rewards system. Their gifting strategy has expanded, introducing more browsing options and increasing the adoption of gifting features. Etsy has rolled out physical gift cards in over 20,000 U.S. stores, including major pharmacies and retailers, to further support this strategy.

The paragraph highlights Etsy's efforts to grow its gift card business, seeing it as an opportunity, especially during the holiday season. The company's brand Depop has seen growth by removing U.S. selling fees, which led to increased listings and a successful marketing campaign reaching 70 million people. Meanwhile, Reverb is thriving in used gear sales, outperforming new gear sales, and partnered with Fender to offer certified pre-owned music gear. Overall, Etsy is focusing on differentiation and long-term growth through strategic initiatives and enhancing customer experiences.

The paragraph outlines Etsy's focus on enhancing customer experience and adapting to market conditions, rather than just relying on discounts and promotions. The company is preparing for a potential increase in demand for discretionary products. Rachel Glaser discusses Etsy's financial performance in the third quarter of 2024, noting a small decline in consolidated Gross Merchandise Sales (GMS) year-over-year due to the sale of Elo7. However, consolidated revenue increased by 4.1%, driven by strong performance from Depop and increased marketplace revenue through payment fee revenue. The divestiture of Elo7 posed a slight hindrance to GMS and revenue growth, but positively impacted adjusted EBITDA margin. Overall, the growth was supported by the expansion of Etsy payments, which now accounts for 99% of marketplace GMS.

The paragraph details Etsy's financial performance and strategies that led to revenue growth. The company's marketplace revenue expanded due to new seller setup fees and offsite ad fees, along with increased transaction fee revenue from the Depop marketplace. Etsy improved its take rate to 22.7% in Q3 '24, surpassing previous guidance and last year's figures. The acceleration in the core Etsy marketplace's revenue was driven by optimized ad bidding, enhanced ranking models, and improved ad conversion rates. Despite challenging economic times, Etsy managed expenditure effectively, especially in product development, which saw a 6% year-over-year decrease due to workforce reductions. Revenue per headcount continues to grow, surpassing many industry peers.

In the third quarter, the company's consolidated marketing spend increased by 22% year-over-year, totaling $197 million. This rise was driven by higher marketing efforts for the Etsy marketplace and a significant increase in Depop's spending related to a U.S. fee change announcement. The company expanded mid-funnel marketing and newer performance channels, particularly paid social, which has positively impacted buyer reactivation. Although not yet fully optimized, paid social is aligned with the company's strategy to enhance discovery and inspiration for buyers. A reactivated buyer is more valuable, spending 40% more than a new one in the subsequent year. Meanwhile, consolidated brand spending grew by 21%, also linked to Depop's increased expenditure. Despite these efforts, the company faced challenges with a year-over-year decline in top categories and GMS in the U.S. and other non-U.S. trade routes, influenced by macroeconomic conditions affecting consumer budgets. However, there was modest growth in international non-domestic trade routes and U.S. imports.

The paragraph outlines several challenges and strategies faced by Etsy during the quarter. Personal discretionary spending has decreased from COVID peaks, and events like elections, sporting events, and a hurricane affected their business. Etsy focused on strengthening its core marketplace by improving item quality and the user experience, which has affected conversion rates. Despite these challenges, Etsy saw growth in certain areas, such as personalized items and back-to-school merchandise. The company's active buyer count remained stable, with a slight decline year-over-year. They reactivated over 6 million lapsed buyers and added over 5 million new buyers, though habitual buyers decreased by about 5% year-over-year. Etsy aims to drive growth by focusing on gifting occasions and evergreen purchases.

The article discusses Etsy's business performance, including a slight improvement in the retention rate of habitual buyers who make up 43% of their Gross Merchandise Sales (GMS), although GMS per active buyer decreased by 3.4% to $123 due to less frequent visits and spending per purchase. Etsy expresses solidarity with sellers affected by hurricanes by adjusting billing schedules and offering support. The active seller count decreased by 8.5% year-over-year to 6.2 million, attributed to a focus on quality and enforcement actions, which they believe benefits sales. Encouragingly, there's a rise in the percentage of sellers making sales and growth in regions like Ukraine and emerging markets. Etsy's financials include $1.2 billion in cash and investments as of September 30.

During the third quarter, the company repurchased $156 million in stock under their existing repurchase program, leaving $260 million available. They also delivered strong free cash flow of $204 million for the quarter and continued to convert 90% of adjusted EBITDA to free cash flow on a trailing 12-month basis. Net income was affected by a non-cash foreign currency loss. The Board approved an additional $1 billion stock repurchase program, seeing significant value in the company's shares. With $1.2 billion in cash and strong free cash flow, they have the flexibility for more share buybacks without hindering business investments. Looking ahead, fourth-quarter consolidated GMS is expected to decline slightly year-over-year. The company is optimistic about holiday gifting but acknowledges consumer pressure to prioritize discounts amid tight budgets. They will focus on highlighting gifting and value, maintaining their brand's emphasis on unique products. The impact of the U.S. general election on consumer spending remains uncertain.

The paragraph discusses Etsy's financial outlook for the fourth quarter of 2024, highlighting an estimated consolidated take rate of 22.3%, which is an increase compared to the previous year but slightly lower than the third quarter due to seasonal trends. The consolidated adjusted EBITDA margin is expected to be between 28% and 29%, showing improvement due to seasonal volume, cost efficiencies, and reduced marketing spend by Depop following a prior campaign. Despite macroeconomic challenges and a slight decline in consolidated Gross Merchandise Sales (GMS), Etsy anticipates strong revenue growth and adjusted EBITDA profitability, reflecting fair value for sellers and strategic investments for future growth. The paragraph concludes optimistically about Etsy's resilience and future prospects. Following this financial update, the call is handed over to the operator to facilitate questions, with the first question coming from Nick Jones of JMP Securities about Etsy's efficiency in product development amidst a relatively lower headcount compared to other platforms.

In the paragraph, Josh Silverman discusses how the company approaches investment decisions, especially in enhancing customer experiences to increase growth over time. The strategy involves both top-down and bottom-up processes to identify and prioritize initiatives that promise higher customer lifetime value, GMS, and revenue. Teams, known as "squads," are assigned tasks based on the quality of ideas generated. Despite a workforce reduction last year, the company is focused on productivity and foundational investments necessary for long-term growth rather than immediate gains. An example provided is the addition of a Q-score to their search functionality.

The paragraph discusses foundational investments aimed at improving marketplace performance and enhancing GMS growth by better matching customers with products they love. It involves extensive work by multiple teams to achieve GMS-neutral outcomes, focusing on improvements for the future. The company plans to hire more app engineers to enhance the app experience and is also expanding its machine learning team, reflecting strategic growth in these areas. Rachel Glaser adds that investment discipline involves optimizing the cost of full-time employees, highlighting development centers outside the U.S. where labor costs are lower.

The paragraph discusses strategies for balancing talent acquisition costs by hiring in locations with varied compensation levels, such as Mexico City and Dublin, while ensuring competitive pay through annual market assessments. Following this, Anna Andreeva inquires about business performance expectations for the fourth quarter, noting last year's trends and the introduction of a physical Etsy gift card. Josh Silverman responds, indicating that while specific updates on October's business performance won't be shared, the holiday season is expected to peak later and shorter this year, with significant emphasis on mid-to-late November and December's performance.

The paragraph discusses Etsy's strategic considerations related to the upcoming U.S. election and a shorter Christmas season, which may affect shopping behaviors. Gift cards are highlighted as a small but promising aspect of Etsy's business, with potential for growth over time. The accounting for gift cards involves recognizing revenue only upon redemption, which can vary in time. Additionally, people redeeming gift cards often spend more than the card's value, presenting an opportunity for Etsy to attract new customers and increase purchase frequency. They have also begun testing the option of refunding purchases to store credit.

The paragraph discusses Etsy's strategies for driving growth and improving the consumer experience. Refunds, gift cards, and stored value are noted for enhancing customer satisfaction and encouraging purchases. Rachel Glaser highlights a feature called "gift teaser" that helps ensure timely Christmas deliveries, even if the gift itself isn't received on time. The discussion turns to Etsy's focus areas: gifting, search, shipping, loyalty, and mobile apps. Josh Silverman expresses enthusiasm about improving "consideration" on the site by inspiring new shopping missions, which he considers a key area for impacting growth.

The paragraph discusses how advances in Generative AI (GenAI) are enhancing shopping experiences on platforms like Etsy. GenAI can identify the context of a search, such as a wedding theme when someone searches for "cake topper," and suggest other relevant products like table scapes and bridesmaids gifts. This AI-driven insight allows for better use of screen space to promote discovery and new shopping missions. The platform has adjusted its app homepage layout to prioritize discovery over recent activity-based recommendations, without significantly affecting conversion rates. This shift aims to expand customer engagement and increase consideration of the platform for a broader range of shopping needs.

In this paragraph, Nikhil Devnani from Bernstein asks Etsy's CEO, Josh Silverman, about the company's approach to balancing margin levels with growth, particularly in light of the successful strategy with Depop. Silverman explains that Etsy is focused on increasing its market cap by emphasizing growth, profitability, and free cash flow. He mentions recent foundational investments aimed at future growth and notes that the company is data-driven, looking for proof of return on investment before further increasing hiring or spending. Silverman emphasizes a balanced approach to investment, addressing concerns from a few quarters ago about possibly over-investing.

The paragraph discusses the performance and strategy surrounding Depop, an entity under the Etsy House of Brands. Josh Silverman highlights Depop's significant year-over-year growth, especially in the U.S., and praises the leadership team for their contributions. The focus is on the secondhand apparel market, which benefits from the current promotion-heavy environment by offering brand-name clothing at discounts. This aligns with Etsy's portfolio strategy aiming to capitalize on the growing resale sector. Additionally, the paragraph transitions to Maria Ripps from Canaccord asking about expectations for Etsy's "gift mode" during the upcoming holiday season and the criteria for measuring its success.

The paragraph discusses how the company measures success in their gifting sector by focusing on absolute Gross Merchandise Sales (GMS). They have noticed that gifting GMS has grown significantly faster than the overall marketplace in recent quarters, indicating the effectiveness of their investments. The company has introduced new product features, such as a gift finder with more ideas, wish lists, and a gift teaser to enhance the gifting experience, even during a shorter shopping season. They are also launching a marketing campaign emphasizing gifts as a personal expression. Additionally, it is clarified that the company tracks gifting GMS rather than specific active buyers in "gift mode."

In this paragraph, Josh Silverman discusses the early stages of Etsy Insider, a program being tested with a limited group to explore its potential benefits and challenges. They are examining the appeal of free shipping and subscription to a loyalty program, while ensuring it doesn't negatively impact seller margins. Initial feedback shows buyers prefer free shipping but do not want sellers to bear the cost. The program is still in its infancy, and they are gathering data and insights.

In the paragraph, the speakers discuss the positive reception of loyalty programs on online marketplaces like eBay and Amazon, emphasizing the meaningful connection between buyers and sellers. They note that it takes time for these programs to evolve and fully scale. During a question and answer portion, Josh Silverman addresses concerns about the impact of changes on mobile app and web platforms, confirming that the Q score remains neutral in terms of conversion rate. They have introduced friction in the mobile web experience to encourage app downloads, resulting in 3 million additional annualized downloads. While there are some conversion rate costs, these are not significant, and the strategy is considered ROI positive. The main concern is the opportunity cost associated with these changes.

The paragraph is part of a conversation during a Q&A session, discussing Etsy's business strategy and performance. The speaker reflects on the decision not to focus solely on short-term GMS (Gross Merchandise Sales) wins but instead to invest in differentiating Etsy by highlighting its unique qualities, such as quality, diversity, and creativity. They believe these investments will foster better future growth despite some current declines in GMS. The conversation then moves to a question from Marvin Fong about potential trends and pressures in different product categories, though the specifics of his question are not fully detailed.

The paragraph discusses a company's financial strategy concerning share buybacks and capital structure. Rachel Glaser mentions that the Board has approved an additional billion dollars for share repurchases, allowing the company to increase buybacks beyond current levels while still investing in organic growth. The company has a strong balance sheet with outstanding convertible bonds but does not need to increase leverage currently to continue share repurchases. Josh Silverman adds that the business generates significant free cash flow, with $1.2 billion on the balance sheet, providing flexibility for capital use. He notes that there aren't many interesting areas for expansion, but there are pockets of real value worth considering.

The paragraph discusses Etsy's growth in the demi-fine jewelry market, highlighting its competitive pricing for handmade, real gold items compared to mall purchases. It notes that jewelry priced under $20 is facing challenges due to shipping costs. The discussion then shifts to a question from Brian Kraska, who inquires about drivers beyond advertising contributing to Etsy's financial performance. CEO Josh Silverman responds by highlighting Etsy's improved take rate by 130 basis points without affecting sellers' margins, emphasizing that increased take rates don't necessarily harm sellers.

The paragraph discusses Etsy's improvements in its payment and advertising systems, highlighting the benefits for both buyers and sellers. Etsy has enhanced its payment process, making transactions safer and maintaining sellers' margins while increasing its own revenue. The introduction of a seller onboarding fee has successfully deterred bad actors without affecting new seller sales. The company believes these take rate gains are sustainable and beneficial for providing valuable services. Additionally, Etsy plans to annualize payment changes made in 2024 by 2025 and increase revenue through offsite ads (OSA) by investing more in performance marketing.

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