The paragraph introduces the first quarter 2025 earnings conference call for Etsy, led by Deb Wasser, VP of Investor Relations, with CEO Josh Silverman and CFO Lanny Baker present. The call includes pre-recorded remarks, featuring insights from new President and Chief Growth Officer Kruti Patel Goyal, and will conclude with a Q&A session from analysts. It mentions that forward-looking statements concerning financial guidance and business operations will be discussed, noting the potential for actual results to differ due to risks and uncertainties. Both GAAP and non-GAAP financial measures will be presented, with reconciliations available on their website. Josh Silverman then takes over the presentation.

The paragraph discusses how Etsy is navigating dynamic and uncertain times, emphasizing gratitude for a resilient and responsive marketplace that supports entrepreneurial sellers with unique products. It highlights Etsy's ability to adapt to macroeconomic challenges, the strength of their financial foundation, and leadership changes, including Rafe Colburn returning as CTO. Etsy's first-quarter 2025 performance met expectations, with take rate and adjusted EBITDA slightly exceeding forecasts. The company focuses on reigniting marketplace growth and improving the customer experience through balanced product investments, with leadership planning future opportunities.

The paragraph outlines Etsy's strategy to enhance customer engagement through an improved app experience and AI-powered personalization. The company has introduced a new, more navigable shop tab that facilitates browsing across various categories and occasions like gifting and weddings. Leveraging insights from previous gifting initiatives, Etsy launched a Discovery Centric Shopping experience, showcased at the Google Cloud Next conference, employing "algatorial curation" which combines AI scalability with expert trend-spotting. This enhanced experience enables personalized and aesthetically cohesive collections tailored to individual shopper behavior, showcasing diverse, high-quality listings to boost discovery and engagement on Etsy.

The paragraph discusses Etsy's efforts to enhance personalized browsing and discovery experiences on their mobile app, which has led to increased buyer conversion rates and app usage. The app's improved design and data integration from ads and recommendations have provided more insights into customer preferences, enabling more effective model training and collaboration. Etsy is also advancing its ability to recognize individual shoppers and connect first and third-party data to better predict buyer lifetime value and tailor engagement strategies. These improvements aim to make Etsy feel like a personalized boutique for users, with early signs of success already visible.

The paragraph highlights Etsy's recent advancements in personalized user engagement, including nearly doubling engagement on personalized homepages and significantly increasing personalized email and push notifications in Q1. The company is optimistic about the potential of using generative AI for personalized marketing copy, having already seen positive results. Etsy has also integrated with AI-based shopping platforms like OpenAI's operator and Microsoft Copilot, reflecting the company's distinctive offerings. There is strong user engagement and growth in owned marketing channels, with progress expected to continue. The unique aspects of Etsy's marketplace, including a large base of creative micro-entrepreneurs and diverse product listings, are emphasized as key strengths.

The article discusses Etsy's adaptive business model, highlighting its resilience through high replacement rates and stable seller pricing despite global disruptions. A task force was established to address tariff shifts, allowing the team to focus on growth initiatives such as improving local search and providing seller support. Etsy is monitoring the impact of global tariffs on consumer spending, especially on discretionary items. The article also notes leadership changes at Depop, a subsidiary, with Peter Semple stepping in as interim CEO. Under his guidance, Depop has achieved significant growth, especially in the U.S., and set a record for seller acquisition.

Etsy has decided to divest Reverb, a successful platform for secondhand musical gear, to focus on growth for Etsy and Depop. Kruti Patel Goyal, returning to Etsy, reflects on her diverse roles over 14 years and her recent experience as CEO of Depop, where she developed an app-centric marketplace. At Depop, the company emphasized a recommendation engine for buyers and streamlined processes for sellers, enhancing the overall marketplace experience and supporting growth in the circular fashion economy.

The paragraph highlights the success and future opportunities at Etsy, emphasizing the growth in active users and Gross Merchandise Sales (GMS). The speaker discusses the dynamic nature of marketplaces and Etsy's ability to adapt to changing customer behavior. They express optimism about developing a more personalized shopping experience to differentiate Etsy from competitors. The financial details reveal that while the first quarter was challenging, Etsy met expectations for GMS and exceeded take rate and adjusted EBITDA margin goals. Additionally, Etsy announced the sale of its musical instruments marketplace, Reverb, for $105 million, resulting in a non-cash impairment charge of $102 million reflected in the first quarter 2025 net loss.

In the first quarter of 2025, Etsy's consolidated Gross Merchandise Sales (GMS) were $2.8 billion, down 6.5% year-over-year, with foreign exchange as a negative factor. Etsy marketplace's GMS declined by 8.9%, but Depop showed strong growth, which benefited overall results. Despite the GMS decline, consolidated revenue slightly increased by 1% to $651 million, with marketplace revenue down 1.8%, offset by growth in payments and services revenue. Adjusted EBITDA was $171 million with a margin of 26.3%, driven by cost reductions in general and administrative expenses, though partly offset by higher cloud costs. The consolidated take rate rose to 23.3%, exceeding guidance and improving from the previous year's 21.6%.

In the article paragraph, Etsy's product development spending increased slightly to $111 million, with revenue per head also growing, despite modest headcount growth. Marketing spend decreased by 1% to $189 million, with a shift towards more economical social media channels, although returns on investment from paid social lag behind Search and PLA. Despite a challenging first quarter due to previous resource shifts and consumer spending pressures, Etsy's Marketplace Gross Merchandise Sales (GMS) from the U.S. constituted 75% of overall GMS, performing similarly year-over-year. While GMS in top categories declined, Etsy outperformed peers in four categories and gained from its stronger gifting positioning.

Etsy's gifting initiatives boosted sales during Valentine's Day and Mother's Day in the U.K., but the marketplace saw muted growth in active buyer metrics, with a decline in gross merchandise sales (GMS) per buyer. Despite this, the company generated significant free cash flow and repurchased shares, maintaining financial flexibility for future investments. Etsy's exposure to tariffs is minimal, as most of the marketplace's GMS comes from local commerce, with less than 1% of imports from China, mitigating potential trade impacts.

The paragraph discusses the complexities and uncertainties surrounding potential tariff changes and their impacts on the Etsy Marketplace. Currently, there is no formal process for collecting tariffs on items priced under the $800 de minimis exception, which could affect consumer demand. Despite this uncertainty, Etsy is optimistic due to its diverse global seller base. The platform sees a strong domestic market with half of its Gross Merchandise Sales (GMS) coming from U.S. buyers purchasing from U.S. sellers. Around a quarter of GMS involves U.S. buyers purchasing from international sellers, with no single country accounting for more than 4% of Etsy's total GMS. Additionally, about a quarter of GMS comes from international transactions between non-U.S. buyers and sellers. Depop, another platform mentioned, is less affected by U.S. tariffs due to minimal U.S. cross-border trade.

The paragraph discusses uncertainties regarding the impact of tariffs on the business, including competitive pricing and supply chain issues. The removal of the de minimis exemption beyond China is highlighted as a concern. The company is cautious about how higher tariffs might affect consumer demand and spending. Despite these challenges, they remain optimistic about their growth strategies and expect second quarter metrics, like consolidated Gross Merchandise Sales (GMS) and take rate, to perform better or similar to the first quarter. They anticipate a 25% adjusted EBITDA margin for Q2 2025, factoring in increased marketing and personnel costs. The company emphasizes its resilience and adaptability amidst changing conditions. The paragraph ends with a transition to a Q&A session with Shweta Khajuria from Wolfe Research.

In the paragraph, Shweta Khajuria asks about Etsy's full-year outlook and second-quarter EBITDA margin guidance, focusing on GMS trends and marketing strategies. Josh Silverman, responding to her, explains that Etsy is operating in a challenging macroeconomic environment but remains optimistic about growth throughout the year due to ongoing product and marketing enhancements. He highlights improvements in the app, gifting experience, personalization, and social marketing performance, as well as successful efforts in re-engaging and reactivating previous customers, which have led to an increase of over 6 million reactivated buyers this quarter, who generally show higher long-term value.

The paragraph discusses the company's strategic focus on managing controllable elements like product and marketing, while acknowledging the unpredictability of the macroeconomic environment. It highlights that despite seeing a decrease in marketing spending as a percentage of revenue compared to the previous year, there is encouraging progress in using paid social media for performance marketing. The company is learning to utilize the full funnel of paid social marketing effectively, rather than just focusing on the bottom of the funnel. There is also discussion about competition with larger entities like Walmart, Amazon, Target, and eBay in the PLA (Product Listing Ads) space, despite recent exits from Google auctions by Temu and Shein not impacting the company's cost-per-click (CPC). The company is investing in better marketing technology (Martech) to improve efficiency and effectiveness in leveraging paid social media.

In the paragraph, Bryan Smilek inquires about future developments for the app product roadmap, particularly concerning its role in generating gross merchandise sales (GMS) for Depop. Josh Silverman responds, noting the app's significant contribution to GMS, which reached its highest at 44.5%. The company aims to decrease the share of mobile web in favor of increasing app usage, as the app provides a superior shopping experience compared to six months ago. Silverman highlights the efforts to make the app more "browsable" by offering inspirational shopping experiences. The next step involves personalizing these experiences, which currently are mostly uniform for all users, showcasing popular trends and interesting products.

The paragraph discusses Etsy's focus on creating a highly personalized shopping experience by understanding user behavior and preferences within a single session. The goal is to transform Etsy's extensive marketplace into a personalized boutique experience for each user. This involves developing discovery features that gather more data about users rather than relying solely on specific keyword searches. The conversation then shifts to a question from Nikhil Devnani about whether the decline in active sellers and efforts to clean up listings might be causing a decrease in active buyers and hindering the marketplace's network effects. Josh Silverman seeks clarification on whether Nikhil is asking if the decline in active sellers is causing the decline in active buyers.

Josh Silverman explains that the decline in active sellers on Etsy is intentional due to a new $29 shop setup fee, which filters out those lacking the skill or will to succeed. This approach has increased the success rate and retention of active sellers. Despite a 3.4% decline in active buyers, Silverman attributes this to broader economic issues, not dissatisfaction with Etsy. The focus is on emphasizing Etsy's unique offerings rather than competing on price or shipping speed.

The paragraph discusses Etsy's efforts to maintain buyer engagement and increase active buyers after a slight decline this quarter. Despite the decrease, active buyers remain near their pandemic peak levels, when options were limited. The company is focused on giving these buyers more reasons to return. Nikhil Devnani notes that the percentage of sellers making sales has increased, and more new sellers are making sales within their first 90 days. Josh Silverman adds that habitual buyers are still frequenting Etsy, though broader consumer spending patterns affect their purchasing behavior. Deb Wasser mentions that the percentage of Gross Merchandise Sales (GMS) from these buyers remains stable at around 42%. A question from Bernard McTernan follows.

In this paragraph, Bernard McTernan asks about the take rate guidance for the second quarter, noting it is flat sequentially when they usually see improvement. Josh Silverman responds, explaining that the take rate growth has been affected by past dynamics, such as the introduction of a new seller fee and improvements made in Etsy ads, which have enhanced their relevance and budget utilization without affecting the sellers' return on ad spend. He indicates that while they have made significant progress, they expect consistency in the take rate for the rest of the year, taking into account previous price and service-related increments. Michael Morton from MoffettNathanson asks another question focusing on the gross margin headwind from free shipping and queries about machine learning and search development, hinting at an oversight from the last quarter concerning gross margins due to seller dynamics.

The paragraph discusses the factors affecting gross margin, focusing on increased processing and compute costs for search and machine learning, which have led to some deleverage in the current quarter but are deemed important for product experience. Additionally, a loyalty program, currently in beta testing, is contributing to increased costs but has shown encouraging results in terms of purchase frequency and customer retention. The program is expected to be a manageable headwind throughout the year. The conversation then shifts to a new speaker, Ken Gawrelski from Wells Fargo, who expresses gratitude for the information provided and notes that the company seems well-positioned as prices rise and imports into the U.S. increase.

In the paragraph, Josh Silverman discusses the company's performance, noting that U.S. imports have remained strong, but international markets are experiencing softness due to weaker local macroeconomic conditions. This is reflected in a slightly softer second-quarter outlook, influenced more by these conditions than tariffs. Additionally, the comparison to the previous year is challenging due to holiday date shifts, with significant impacts from Easter and Mother's Day timing leading to differences in consumer behavior. Despite these challenges, the focus remains on offering high-quality items and improving buyer frequency, even though some engagement efforts may temporarily affect conversion rates.

The paragraph discusses Etsy's efforts to enhance user experience through personalization and improvements in their app. They have rebuilt their search engine to incorporate a dynamic quality score, aimed at ensuring more personalized and delightful interactions for users. By driving more users to the app and refining the quality score with additional elements, Etsy aims to improve seller feedback and decrease low reviews. Although these changes present short-term challenges, they are expected to benefit Etsy in the medium term. There is ongoing work to help sellers understand how to improve their quality scores, with a focus on new app features that enhance browsing.

The paragraph is part of a dialogue during an earnings call, where Josh Silverman discusses Etsy's efforts to gather data and personalize offerings to increase app usage. He acknowledges both challenges and opportunities in optimizing new initiatives for growth. Deepak Mathivanan from Cantor Fitzgerald asks about leveraging "Made in USA" products amid pricing changes due to tariffs and supply chain issues, and Etsy's potential competitive advantage in such a scenario. Josh Silverman responds that Etsy can capitalize on its value proposition, especially against competitors with products sourced from China.

The paragraph discusses Etsy's focus on promoting local shopping by highlighting domestic sellers in regions such as the U.S., Canada, and Europe. The company is working on improving its user interface to facilitate local shopping and is monitoring potential impacts of tariffs and pricing differences. Etsy believes it's well-positioned to handle potential price shocks better than competitors, though it's concerned about how inflation and consumer confidence might affect business. Despite these uncertainties, the category mix remains unchanged, with home and living, apparel, and craft supplies as the top categories.

The paragraph discusses Etsy's performance in its top six categories over the past 90 days compared to its Pure Play competitors, indicating that Etsy did slightly better in four categories: home and living, jewelry, and crafts, supplies, and paper goods. Although the company is still down year-to-year and not fully satisfied, they attribute their relative success to efforts in gifting and personalization of products and categories. Josh Silverman acknowledges the resilience of Etsy's marketplace amidst macroeconomic shocks like pandemics, trade wars, or kinetic wars, emphasizing the strengths of Etsy's business model. Deb Wasser mentions a slide with category breakdowns, and the segment concludes with a question from Ygal Arounian of Citi about upcoming macroeconomic impacts, specifically changes in deminimus laws.

Josh Silverman discusses the impact of de minimis exemptions on Etsy's operations. Currently, these exemptions are set to remain everywhere except China, which is beneficial for Etsy as only a small percentage of their products involve American buyers purchasing from China. Silverman believes that the removal of these exemptions in China would not significantly affect Etsy, as buyers would likely find alternatives easily. This situation could negatively impact Etsy's competitors more, as they might face price increases. The maintenance of de minimis exemptions from Europe and Canada is also advantageous for Etsy. Silverman also notes that if de minimis were removed globally, his main concern would be delays in parcel trade rather than cost increases.

The paragraph discusses the efficiency and reliability of the Ukrainian postal service in delivering packages to the U.S. amid the ongoing war, highlighting the importance of developing data infrastructure to manage tariffs efficiently. It also speculates on the future of "agentic shopping," where smart agents help consumers choose products based on cost, speed, and uniqueness, suggesting that platforms like Etsy would benefit from offering unique, artisanal products compared to similar mass-produced items found on multiple sites.

The paragraph discusses Etsy's strong partnerships with major Generative AI providers, highlighting their interest in Etsy's unique data set and collaborative engineering culture. These partnerships, reflected in keynotes by these companies, position Etsy advantageously for future developments. The paragraph ends with Deb Wasser and Josh Silverman concluding the discussion due to time constraints, expressing gratitude to the participants.

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