The paragraph is an introduction to Etsy's fourth quarter and full year 2024 earnings conference call. Deb Wasser, VP of Investor Relations, welcomes participants and mentions that the prepared remarks have been prerecorded. Alongside her are CEO Josh Silverman and new CFO Lanny Baker. The call will include forward-looking statements regarding Etsy's financial guidance and operating results, with a warning that actual results may vary. The company will discuss both GAAP and non-GAAP financial measures. Josh Silverman then acknowledges that 2024 was a challenging year where Etsy did not meet its high standards and expresses a commitment to improving the marketplace's performance.

The article discusses Etsy's strategic shifts for 2024, focusing on enhancing customer experience and strengthening their unique market position rather than competing on low prices and fast delivery. Despite a 4% decline in consolidated GMS from 2023, Etsy achieved record revenue of $2.8 billion and strong profitability with an adjusted EBITDA of $782 million. The company aims to build on foundational improvements made last year by prioritizing quality, reliability, and discovery in their app. Although this shift resulted in missed GMS opportunities worth several hundred million dollars, Etsy believes it sets them up for long-term success by emphasizing creativity and artisanal products over the low-cost, high-speed model.

The paragraph discusses Etsy's strategy to enhance its marketplace by differentiating its offerings and improving the buying experience. In 2024, Etsy laid the groundwork to emphasize quality, using a quality score in search algorithms that factor in reviews and shipping performance. This encourages sellers to improve, fostering a "race to the top" and leading to better customer experiences and reviews. For 2025, Etsy plans to make the quality score more dynamic, incorporating uniqueness and competitive pricing, and is testing advanced technology to evaluate craftsmanship. Increasing purchase frequency remains a focus for growth.

In 2024, Etsy enhanced its shopping experience for gifting, resulting in higher gifting GMS compared to the overall site. They improved gift card offerings, marketing, and shopping ease, with plans to focus on key gifting occasions in 2025. Etsy will also capitalize on the market for personalized items, which are significant to its sales, by improving seller tools and buyer functionality. Their loyalty program, Etsy Insider, launched in closed beta, shows promise in increasing purchase frequency and engagement, particularly through its free shipping benefit.

In 2025, Etsy aims to refine its economic model by reducing marketing costs and enhancing customer engagement through improved targeting and efficiency. The company plans to shift from traditional TV advertising to digital platforms like connected TV and paid social media. Etsy will leverage machine learning to enhance product listing ads and communication via push notifications and email, tailoring messages to customer behavior. A significant focus will be on the Etsy app, which, though a high-converting channel, represents growth potential in app usage compared to competitors. Enhancements include optimizing app interfaces for better user experience and more effective discovery tools, positioning Etsy as a primary destination for unique shopping experiences.

Etsy is launching a revamped navigation system with a new shop tab focused on enhancing discovery and inspiration for buyers. This shift aims to create a more engaging and personalized shopping experience by collecting extensive data on browsing behaviors, such as what users hover on, swipe past, or enlarge. Unlike their previous "spear phishing" approach, which focused on high-intent, purchase-driven data, this new strategy seeks to gather broader insights into user interests to better predict preferences and intentions using advanced models and LLMs. The goal is to offer a more personalized and engaging experience, akin to window shopping in a curated store, enhancing the overall Etsy shopping experience.

The paragraph discusses Etsy's approach to leveraging large datasets and LLMs to create more personalized and effective marketing strategies across various channels, aiming to enhance buyer experiences and support seller growth. It highlights the unique nature of Etsy's seller base, noting that most are individual businesses, predominantly women, many of whom sell exclusively on the platform. Despite a decline in active sellers due to new setup fees and safety enhancements, the quality of the seller base has improved, with more sellers making sales. The text also mentions Depop's strong growth, especially in the US, describing it as the fastest growing fashion resale platform. Depop's success is attributed to a blend of cultural trends and individuality that appeal to younger consumers, and improved product matching of buyer intent and seller supply.

The paragraph discusses recent developments and leadership changes within Etsy and its subsidiary, Reverb. Kruthi Patel, Etsy's new president and chief growth officer, is transitioning back from her role as Depop CEO, with a strong focus on growth strategies and Etsy's mission. Reverb reported a slight decrease in gross merchandise sales (GMS) but managed to outperform the musical instrument industry by introducing affordable offerings like the Reverb outlet. As Etsy approaches its 20th anniversary, the company highlights its commitment to creativity and its community of buyers and sellers. The text also mentions the appointments of Lanny as CFO, who brings significant marketplace expertise, and Brad Miner as chief marketing officer. Additionally, the company has started a search for a new chief technology officer, with internal leaders temporarily filling the role, as the team remains dedicated to enhancing Etsy's platform and maintaining its human-centric approach to commerce.

Lanny Baker expressed enthusiasm about joining Etsy, highlighting the company's strong track record and strategic execution from 2017 onwards, which has enhanced its consumer scale and profitability. Despite a 6.8% year-over-year decline in consolidated GMS to $3.7 billion in the fourth quarter, largely due to prioritizing long-term initiatives and a shorter holiday shopping period, Etsy achieved a 1.2% increase in consolidated revenue, reaching a record $852 million. Depop's strong performance contributed positively to the Q4 results. Baker believes Etsy is well-positioned to leverage advancements in ML and AI to enhance its marketplace.

In the fourth quarter, Etsy achieved a record adjusted EBITDA of $251 million, a 6% increase from the previous year. Despite a 1.4% decline in consolidated marketplace revenue due to lower GMS, revenue was bolstered by increased payments revenue and a new seller onboarding fee. Services revenue increased by 8.1%, with Etsy ads notably enhancing the take rate to 22.8%, surpassing expectations. Gross margin improvements, particularly from reduced fraudulent activity, contributed to a 29.4% adjusted EBITDA margin, exceeding the anticipated range. Additionally, product development spend decreased by 5%, with its share of revenue dropping to 15.8% in 2024 from 17.1% the previous year, thanks to a reorganization in late 2023.

In the fourth quarter, Etsy's consolidated marketing spend rose by 9% year over year to $285 million, constituting 33.5% of Q4 revenue. This increase included more spending on paid social channels, while slightly reducing brand spend from the previous year. For the full year, marketing efforts rose by 13%, accounting for 30.5% of revenue. Despite a pandemic-related surge in buyers, Etsy continues to successfully attract and reactivate buyers, ending the year with nearly 90 million buyers. The company reactivated around 29 million lapsed buyers throughout the year, with 10 million in Q4 alone, and acquired 7 million new buyers globally in Q4 and 24 million for the year. Geographically, US buyers made up a majority of Etsy's Gross Merchandise Sales (GMS), accounting for 74% of full-year and 75% of Q4 GMS, with non-US buyers contributing 26% and 25%, respectively.

The paragraph discusses Etsy's financial performance and strategic outlook. In the fourth quarter, non-US buyer Gross Merchandise Sales (GMS) underperformed compared to US buyer GMS, reflecting challenging international conditions and a trend of lower spend by lower-income buyers throughout 2024. Despite a decline in top categories, there was growth in subcategories like personalized clothing and vintage jewelry. Etsy ended the year with $1.2 billion in cash and invested significantly in stock repurchases, reducing its share count. The company generated over $780 million in adjusted EBITDA, with a strong conversion to free cash flow. Looking ahead, Etsy anticipates a similar year-over-year GMS decline in the first quarter of 2025 as seen in the last quarter of 2024.

In the first quarter, the company expects a reduced benefit from prior year product launches due to a shift in product investment strategy. However, there are positive signs, such as strong Valentine's Day sales, and subsidiaries are expected to boost GMS growth. The Q1 2025 take rate is projected at 23%, influenced by ad improvements, payment expansion, and a new seller onboarding fee. The adjusted EBITDA margin is anticipated to be 25-26%. Looking beyond Q1, GMS performance is expected to improve, aided by easier year-over-year comparisons, positive results from foundational investments, and an accelerated product experimentation plan. Although there will be modest deleverage in product development spending due to a focus on AI and ML hiring, the company intends to maintain stable marketing spending relative to revenue, emphasizing ROI-driven spending reallocations.

In the paragraph, Etsy discusses its strategies for improving its gross merchandise sales (GMS) and adjusted EBITDA margins, projecting stronger performance in the latter half of the year. The company emphasizes a commitment to maintaining strong financial performance, generating healthy free cash flow, and investing in differentiating factors for long-term growth. The narrative then shifts to a question from Eric Sheridan of Goldman Sachs during a call, inquiring about the lessons learned from Etsy's 2024 marketing initiatives and how these insights will influence the allocation of marketing resources across channels in 2025. He also asks about the expected return on this marketing spend, noting some implied variability in returns as mentioned by a person named Lanny toward the end of the year.

Josh Silverman discusses the company's marketing strategy across different stages of the sales funnel. At the top, they are shifting focus from linear TV to digital platforms like YouTube TV to follow customer behavior. In the mid-funnel, they see a major opportunity to target consumers who are planning life events but haven't decided on specific purchases, by enhancing browsable online surfaces. Investments in research and development that started in 2024 are aimed at improving channel profitability. At the bottom of the funnel, the focus is on improving machine learning to optimize product visibility on platforms like Google and Facebook, ensuring that promoted items represent Etsy well and are more likely to convert, leveraging AI and ML for further optimization.

The paragraph is part of a discussion during an earnings call, where Etsy executives are addressing marketing strategies and expectations for the year. They mention their goal to shift consumer behavior by encouraging earlier engagement with the Etsy platform, which they believe will benefit the company. The marketing budget is expected to remain consistent as a percentage of revenue unless there's an improvement in return on investment (ROI), in which case they may increase spending. An analyst, Youssef Squali, then asks about the factors that could enhance Etsy's marketplace performance and possible growth in Gross Merchandise Sales (GMS) by year-end. He also inquires about the decline in active sellers and its impact on GMS growth. Josh Silverman, Etsy's CEO, begins to address the first question.

The company has not provided a full year forecast but is optimistic for improvement after the first quarter. Last year, they shifted focus from short-term Gross Merchandise Sales (GMS) driving efforts to enhancing the overall customer experience, which resulted in an opportunity cost of hundreds of millions in GMS. They believe these efforts will yield future benefits, as seen in higher five-star reviews due to better product placements. As they enter 2025, they plan to balance their strategy by returning some focus to short-term GMS growth while maintaining the improved customer experience, with new initiatives beginning at the start of the year.

The paragraph discusses Etsy's focus on traditional near-term growth and operational improvements, particularly in driving gross merchandise sales (GMS). Lanny Baker highlights a reduction in seller count, which has led to an increase in successful sales, attributed to a more selective seller acquisition process ensuring sellers have the necessary skills and commitment. This optimization aims to enhance Etsy's diverse product offerings, supporting long-term GMS growth. The challenge is to effectively present this selection to consumers, boosting repeat purchases. Additionally, Josh discusses priorities for 2025 and mentions the competitive landscape of ecommerce platforms, where factors like price and delivery speed are crucial.

In the paragraph, Josh Silverman discusses Etsy's strategy for navigating economic challenges and boosting growth through 2025. He acknowledges that improved consumer confidence would be beneficial but emphasizes Etsy's focus on differentiating itself by offering unique, quality products at fair prices, rather than competing on price and speed. Silverman highlights Etsy's commitment to sustainability and its potential role in the global supply chain. He also notes that the recent advancements in large language models (LLMs) provide Etsy with new opportunities to enhance its offerings and brand identity.

The paragraph discusses Etsy's strategy to enhance its platform by identifying and promoting high-quality, artisanal items and value-priced products. It emphasizes the importance of recognizing top sellers who excel in customer service. Etsy aims to create more browsable spaces to entice users to explore different categories, such as demi-fine jewelry, which is competitively priced and of better quality than typical mall offerings. The conversation shifts to the potential impact of changes in tariffs and the repeal of the de minimis exemption, with uncertainty about which countries and tariffs will be affected. This uncertainty makes it challenging to predict changes in the competitive landscape and their implications for the platform.

The paragraph discusses Etsy's relative advantage in the face of potential tariffs and trade frictions compared to competitors with higher dependencies on Chinese imports. Josh Silverman notes that Etsy imports mainly from Europe, with 75% of purchase activity in the U.S. and 25% being imports, primarily from Europe. While European tariffs could affect them, many of Etsy's goods fall under de minimis thresholds, reducing the impact. Etsy's platform is considered resilient to global shocks due to the local sourcing of raw materials by sellers. This adaptability and resilience is viewed as beneficial for Etsy. The paragraph concludes with the transition to the next question by Curtis Nagel from BofA Securities.

In the paragraph, Youssef Squali and Curtis Nagel discuss Etsy's ads and their impact on the company's gross merchandise sales (GMS) and take rates. Josh Silverman, addressing their concerns, explains that Etsy ads are generally neutral or beneficial to the GMS and are designed not to harm the buyer experience. He highlights that the Etsy ads team focuses on improving the GMS and take rates through good experiences that drive sales for sellers. Silverman also mentions that their charges, such as the listing fee and commission, have remained stable, and most fees are optional, suggesting that lowering the take rate isn't seen as necessary. The emphasis is on providing value-added services that sellers choose to opt into, creating a mutually beneficial situation.

The paragraph discusses Etsy's take rate expansion and future outlook. It highlights that Etsy has improved the selling experience, leading to sellers opting in and benefiting all parties involved, challenging the notion that take rate increases have to be a zero-sum game. Lanny Baker mentions that Etsy aims to maintain the take rate gains over the past year, with a first-quarter outlook suggesting a take rate of around 23%. Josh Silverman explains that Etsy ads historically show stable take rates until foundational investments improve models, suggesting sustainable improvements this year. Future plans include integrating quality improvements from Search into Ads to reduce duplication and enhance both features.

The paragraph discusses the dynamics affecting Etsy's habitual and repeat buyer base. Josh Silverman, responding to a question, indicates there are two main types of habitual buyers: those experiencing life events such as weddings or new babies, leading to increased purchasing, and those who have discovered Etsy as a go-to shopping platform. The former group sees a natural decline in purchasing after the life event concludes, and market factors like a decrease in wedding sizes contribute to this trend. The latter group includes users who consistently start their shopping on Etsy. The focus for Etsy is to enhance the buyer experience and develop their loyalty program by encouraging shoppers to begin their shopping missions on Etsy through improved discovery and browsing experiences.

The paragraph discusses Etsy's efforts to enhance the search experience for non-expert users, aiming to provide a fun and engaging browsing experience akin to those familiar with Etsy's search nuances. It mentions a slight decline in frequent buyers, attributed to reduced purchase frequency or spending, not user retention issues. The introduction of a loyalty program with benefits like free shipping is encouraging increased purchases. However, Etsy is focusing on understanding churn rates and ensuring that the loyalty program's unit economics are sustainable. The company is still working on expanding and optimizing the program and currently has a significant enough subscriber base to learn from.

The paragraph features a conversation from a conference call involving Mark Kelly, Youssef Squali, and Josh Silverman discussing Etsy's growth strategies. Mark Kelly asks why Etsy expects 2025 to be different from 2024, given similar messaging in the past. Josh Silverman responds by explaining that, unlike before, Etsy shifted its focus in the spring and summer to developing unique experiences and enhancing quality, rather than seeking immediate benefits. This strategic pivot was intended for long-term gains and may have resulted in short-term opportunity costs, impacting revenue by a few hundred million dollars, particularly in the latter half of the year.

The paragraph discusses Etsy's strategy for the upcoming year, focusing on balancing short-term conversion-driving efforts with continued investment in quality and differentiation to enhance customer loyalty. The company's leadership, including Josh Silverman and Lanny Baker, emphasize reverting some resources to core areas that have historically driven growth, while maintaining strategic initiatives like gifting, which have shown promise. The priority is positioning Etsy as a superior and unique alternative in the market, which they believe will lead to improved growth rates and set the stage for future success.

The paragraph is a transcript of a conversation during a conference call where company executives discuss their strategy to encourage more users to download and use their mobile app, which is seen as beneficial for both customer experience and the company's long-term health. Despite some intentional friction and potential conversion rate loss in shifting users from mobile web to the app, they report an encouraging increase in app downloads. The conversation then shifts to a question from John Colantuoni about areas of improvement in Etsy's marketplace aimed at returning to growth, with a request for examples of investment areas to achieve near-term growth in gross merchandise sales (GMS). Josh Silverman indicates he will address both short-term and medium-term strategies.

The paragraph discusses a strategy shift where the team has separated their efforts into two types of squads: one focused on driving short-term growth and conversion (near-term GMS) and another on building and enhancing new user experiences for the medium term (value creation). They launched new features recently and plan to refine these for better conversion. Additionally, they intend to use more machine learning in marketing to improve efficiency and reinvest in growth. In the medium term, the focus is on improving browsing experiences and enhancing the quality of recommendations, which have traditionally relied on high-intent signals like purchases, favorites, and cart additions, though these signals are infrequent.

The paragraph discusses Etsy's strategy to enhance its personalization by creating more engaging and browsable experiences for users, similar to platforms like TikTok and Instagram. This approach aims to gather more data on customer preferences, such as style and interests, to tailor their shopping experience more effectively. Etsy wants to shift from being the last resort for unique items to a platform that engages customers regularly with inspirational content, leveraging its brand as a hub for creativity and self-expression. This could lead to higher customer retention and reduced marketing costs.

The paragraph discusses Etsy's excitement about leveraging interesting content from creators and enhancing quality through technology. They believe Etsy is a natural fit for this innovative approach. There's a focus on utilizing Large Language Models (LLMs) to understand customer preferences and identify high-quality, artisanal products. This technology can analyze product images to assess the level of craftsmanship required. The paragraph conveys excitement about the potential to highlight unique and interesting items on Etsy, and concludes with expressions of gratitude from Josh Silverman and Brian Kraska for the interest shown.

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