Etsy, Inc. (ETSY) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the Truist Securities Tech, Internet & Services Conference 2021. I'm Naved Khan, senior internet analyst at Truist Securities, and I'm very pleased to host Josh Silverman, Etsy's CEO; and Rachel Glaser, the CFO of Etsy. In this virtual fireside, I'll be going over business- and industry-related topics. If you have any question you'd like me to ask, you can e-mail me and we'll try to get that in as well. Before we begin, I have a disclaimer to read, and I believe Rachel also has a disclaimer to read. So let me just go through mine, and I'll pass it over to Rachel. So this video call is arranged by Truist Securities Research for use by institutional investors and issuer clients as defined by FINRA. If you're not an institutional investor or issuer, please disconnect at this time. For required disclosures, please see our website at truistsecurities.com or our equity research library. With that, I will pass it on to Rachel.

And I'm not going to read, I'm just going to mention that we'd like to refer you to the safe harbor statement on Etsy's Investor Relations website. Thank you.

Okay. Perfect. So with that, maybe let's get right into the topic and some of the things that are top of mind for us and maybe for a lot of the investors as well. So maybe I'll start with you, Josh. So it's been a pretty eventful last 12 months for most of us. And if I look at the gains that Etsy has made in some of the key metrics over the last year, like new user growth, reactivation of some of the existing users that you had, the level of engagement that we've been able to drive up, how many years do you think we have leapfrogged ahead in this evolution of Etsy's platform?

Well, in mid-2018, we laid out a 5-year aspiration. So a goal for where we get by 2023. And broadly speaking, we have achieved that in 2020, so I guess you might say it's pulled in about 3 years of growth for Etsy. What we feel really good about is we obviously added a bunch of new users in 2020. In fact, we were adding 1 million new users a week through many weeks of 2020. And we reactivated millions and millions of users, people who maybe had shopped on Etsy years ago but hadn't shopped on us recently, came back in 2020 and shopped on an Etsy that's really new and improved. And we saw, for our current active buyers, their engagement grow on Etsy as well. So for every class of buyer with other engagement growth, and really good experiences [indiscernible] and other things shows that customer satisfaction is really high. Etsy sellers rose to the moment and are delivering really great experiences to buyers at a time when buyers are paying a lot of attention. And we think that both...

Yes, that makes sense. And then, Josh, maybe staying on this topic, but sometime last year, I think like maybe mid of last year, you said that based on some of these trends, you thought that the addressable opportunity for Etsy starts with a T, not billions. So give us your updated thought on that? And what do you think Etsy needs to do to realize that longer-term goal?

Yes. Etsy participates in almost every retail category. It's easier to talk about where we don't participate. We don't really participate in consumer electronics. We don't participate in food delivery or travel. But all of the big retail categories, home furnishings, clothing, apparel, jewelry, accessories, gifts, arts and craft supplies, pet supplies, Etsy has an enormous amount of variety for sale in every single one of those categories. And so we think at $10 billion-or-so of sales in 2020, we are a tiny, tiny fraction of e-commerce landscape. We think that's incredibly exciting to know how Etsy is different. And all of a sudden, Etsy is part of the conversation all the time. And I'm sure that each of you noticed now that when you're talking with friends, you'll hear, "Oh, I got this on Etsy" or "I'm thinking about doing this on Etsy" or now the word Etsy is just coming up a lot more often and it's not that we are available in categories we weren't before, it's that the awareness of Etsy is now much, much than it was. We are fourth most visited e-commerce website. In the U.K., we're top 5. And it feels like there are some inflection points we had as we move from top 20 to top 10 to top 5 of just on the tip of the tongue more, and therefore, being a place people come more often. Where do I think we can go...

I'm going to -- Josh, your Internet is a little bit spotty, so I'm going to jump in where I think you were about -- you're frozen at the moment. So -- or I think you forgot to go. Josh, your Internet is coming in and out, so I'm going to see if I can finish off the answer to the question. And then maybe you can reboot.

Go ahead and takeover, Rachel. Thanks.

So I think Josh was about to say we -- you correctly pointed out that we recharacterized our TAM as something that begins with a T, not a B. I will point out that when we initially gave an estimate of our TAM in the spring of 2019, we were trying to make the point that no matter how you slice it, it's an enormous number of which we're barely penetrated, and we brought the number smaller and smaller to be able to make that. And what we've done in the last year and what the opportunity has shown us is that we are in far more countries than 6. We are in far more categories than 6. People are definitely shopping offline and online ubiquitously. That's the pandemic has shown us that people can easily make that transition, and they're not thinking about whether I'm going to shop online or off-line today, they're thinking about the event for which they're shopping. And so when you take off all of those discounts and filters that we have put on, you end up with a much, much larger number in the trillions. And then we've laid out our top 6 categories in each of the last few quarter earnings presentations. The top 6 grew 80% of all of the GMS for Etsy, and grew 85% in the past year, but there's another 50 categories that are also obviously growing more than that because our overall growth exceeded that 80%. But even in a category like home furnishings, which in the 5 days between Thanksgiving and Cyber Monday, grew over 220%, and for the year, grew over 120%. That, alone, is an enormous multibillion-dollar TAM, of which we are a tiny player today. And so people are beginning to -- having come into Etsy, either they're new to Etsy or they were reactivated because of the experience of the pandemic, I need to find a mask or I need to shop, and I can't go to my mall. They're being reactivated and realizing that Etsy has tremendous depth in some of these enormous categories that each one of them are their own standalone categories. There's tremendous room for growth in each one of those, along with the tail of the other 50 categories.

It makes sense. Anything to add there, Josh? I see you're back. Want to test your audio mic.

Let's test my mic, and I'll only say that Rachel and I talk 20 times a day, and we can complete each other's sentences. So if my connection is not good, take it from her and it's perfect. Thank you, Rachel.

And we can hear you loud and clear. So I think you sound fine, probably fixed it. But -- yes. So maybe, just on that topic, so Josh, is there an opportunity you see that maybe you can drive up awareness even more viral word-of-mouth possibly people sharing more on Instagram or Facebook or maybe kind of a Pinterest-like effect almost where you see a P embedded on many sites, and it's kind of people understand what it is, something similar?

Yes, the old phrase, make hay while the sun is shining. But we're making as much as we can, but we are really leaning into awareness marketing. Etsy is front of mind for a lot of people. And so we are really investing in television advertising in a way that we've never done before. And we're investing in performance marketing in a bigger way than we had ever done before. On the performance marketing side, it's very easy to measure the ROI of each dollar spent. And so we're really careful about investing to the optimum point in that curve. Demand has been so high in places like Google and Facebook that naturally our performance marketing rises. But we've been really pleased to see that as we've been running TV campaigns, responses to those TV campaigns have been really terrific. And it looks like we're getting a really good return on investment. So we keep investing deeper and deeper in TV advertisement. And particularly, advertising that emphasizes our points of difference that emphasizes how we connect with people as people. Etsy does stand for something really different. We're not just another retailer. We're not competing just by being 2% cheaper, we're shipping 1 hour faster. And we really want people to understand human connection. And so you're seeing that big time right now on TV in the United States. And increasingly, we're starting to test in the U.K. and Germany as well to see if that kind of advertising can accelerate our growth.

Yes. It makes sense. Let me shift gears here a little bit and talk a little bit about product. So for 2021, this year, you have outlined certain discovery as one of the focus areas. And can you maybe just go over some of the things you might be doing there that can lead to more improvement on that front.

Definitely. And well, one of you [Technical Difficulty] me if my internet connection gets unstable, and then Rachel will take over here? Okay. Great. Yes, we have made tremendous progress on search, and we showed some of that in our most recent earnings call. We showed data about how the item you want to eye is much more likely to be on the first page of search result now than it'd be, how you have much less need to reformulate search queries now than you used to. All of that are really encouraging signs. If you know the words to enter into our search to the good stuff quickly. But most people don't know the right words to put into a search engine. And there's more than 80 million things for sale on Etsy. The variety of availability in Etsy is truly mind-boggling. And so helping you to find the good stuff when you don't even know the words to put in a search engine is a big focus for us. And I think it's going to make Etsy even more available to a lot more people. And so things like being able to look at some photos and say that's the style that I like. And now that we know your style, say, "Okay, well, these are the kinds of home furnishings or clothing that you might look like." Things like complete the look, here's 1 or 2 things you've bought in the past. Here are other things that complete that look either in terms of personal [Audio Gap] or clothing or home furnishings that might complete your look. We're just starting a track of work now around personalization. So as decently as 4 months ago, everyone who typed in the same search query on Etsy, got the exact same sort of results. And now just in the past few months, based on your history and my history, we'll get different search results even if we put in the same search query. And that personalization work is something that I think is going to be very fruitful for years and years -- now are developing richer and more robust models that are showing a lot of the opportunity for us to inspire you with things you didn't even know you wanted or show you the exact right collection of items based on your very specific taste and style is a huge opportunity for Etsy, where we're just going to keep getting better and better. And by the way, it's something where the kinds of technology that we need to use are quite distinct from our sites. For most e-commerce sites, almost all e-commerce sites, everything they sell maps to a catalog. And the type of search technology you use to search a catalog for relevant queries where you have a lot of structured data, is very different than the world in which Etsy operates, where it's 80 million things that don't map to a catalog in for which we don't have structured data. It's a really hard challenge. But as we get better and better at it, we further differentiate ourselves from even big players like Amazon or eBay or Google, who are very good at product search are not going to be as good at this very specific corner of the product search universe where we invest our efforts.

Got it. And so maybe just sort of a related topic on this. So you have introduced some of the enhancements to the product in the last 12 months, 15 months-or-so, or maybe 18 months, right? So this is an effort that's been ongoing. How do you look at the success of these? How do you measure the success? Do you have an ROI threshold? Or what are the things to look at? And some of the things I think I can point to is like you introduced safe searches, you introduced favorites and less. How do you evaluate the success?

Yes. For most of the squads on Etsy, they're given a customer problem and they're given a GMS target. So make search feel more personalized, and do it in a way that unlocks $60 million of GMS this year. And that team will create -- they'll create new machine learning models that are personalized, and they'll test them. And they don't need to ask for permission, and they don't need to spend a ton of time for separating. They just try it. And if it works, they keep it. And if it doesn't work, they roll it back. And that allows us to have really good velocity and really good customer focus while still having accountability for every single team. Not all of the metrics inside of the company are incremental GMS. We also look at things like repeat purchase rate and repeat visit rate. So you mentioned, for example, saved searches and favorites. Those have been a big focus area of ours just in the past 6 to 12 months. We've been focusing on those because the opportunity for a visitor to leave bread crumbs about themselves that allow us to give them a better experience next time, we think is really valuable. So we've really been amplifying our efforts around favorites and safe searches as just 2 examples. When you come, you may not buy something this visit. But if you've read 3 items and you create safe searches, now we have something to talk with you about an e-mail. Here's some of the items you favorited that are now on sale [Technical Difficulty] back to the site. I think my Internet connection might get unstable, Rachel, why don't you take over?

Yes. Okay, I'm going to take over, but I might not say exactly the words Josh was going to say. So he started to talk about measurement a bit. So we are one of the -- I knew it that your question was coming from, how do we know if they're profitable. And so we test everything, and we know that something is either going to be a GMS win or a GMS neutral on product -- on, I'd say, the majority of our product investments. But we make investments in a lot of other things that are foundational, that we do not expect GMS to be a win. And those might be in areas like we implemented the cloud that might have thank goodness, we invested in the cloud because when we had a huge surge in demand last spring, our ability to serve all that traffic and continue with a good customer experience could only have happened because of that investment in shoring up our foundation. But a good 50% of what we experiment with is not GMS positive and so we're really willing to make those bets and to give the team a great deal of flexibility. Another way that we measure things is we've been showing our revenue per head and how far below benchmark we are. So we actually generate way more revenue per head than we ought to, meaning we ought to be investing more in people than we have been. And so we're in...

That's a good problem to have.

Yes. And we also look at the unit of development as a product -- as a product squad, usually made up of a product manager and something in the neighborhood of 6 to 8 engineers, a designer and analyst and somebody on QA, and that's a squad. And so we can look at for the squad for all of the GMS that they produced in the year. What's the ROI on a product development unit of labor. And we do see that, that overall, even though many things don't prevail and become something that we roll out into production, that they are ROI positive usually within 1 year. So sometimes not ROI positive in the year, but within 1 year, they are ROI positive. So we also look at GMS on an annualized basis, not what we banked in the quarter. And those things, as Etsy tends to do, are tracked somewhat mathematically and scientifically, while also wanting to give a lot of room for people to make bigger bets that may not show up as a GMS win ever or a GMS win right in that current year.

Yes. That makes sense. Maybe one last question on this product topic. So I think for this year, you mentioned curation as one of the initiatives. Is this something that you've tested already? And you're looking to kind of roll it out more broadly? And in terms of like just scaling up curation, so there is a human element to that. And then there's sort of a problem of scaling it. So maybe talk about that and how should we think about this?

Yes. I'm going to start just because of Josh's Internet connection, although he's probably going to be able to give you a better color than I will on this one. But yes, curation is a wonderful way to -- we have 80 million unique items. So one way we can make that findability of things and improved conversion rate is with machine learning and a search algorithm itself. The other way is more on the human element and getting more people -- give it a more personalized result. So when you're looking for ceramic vase, and I'm looking for ceramic vase, we might get incredibly different results because we're learning things about sort of the type my tastes and my average order value and other things we can discern about you demographically. But the other way is through human curation. And we really haven't yet harnessed the power of our sellers who can start to come up with curate -- sellers and buyers start to curate their own collections of things, my favorites. Josh might want to follow my favorites because he decides he really likes my taste a lot. And if he's seeing what I'm curating for myself, he may perhaps want to follow me, and those are -- then we can start to take people's collections and serve those up as a sort of starting off point for people. And same thing with our sellers who have a tremendous amount of savvy and they're creators, and so they might start to curate their own collections of others -- of other sellers that they follow. And so that's just sort of very, very early days and our ability to cull down that $80 million sort of very broad-based set of results, things where you can start to have lifestyle for Boho, lifestyle for contemporary modern and being able to follow things like that, sort of like if you've seen other websites you want to search on contemporary home and you're going to get a bunch of contemporary results shifted out from the noncontemporary results.

Anything to add there, Josh? You can test audio mic also right now.

No. I think that was perfect. I've moved to a new room, maybe this will make a difference. Let's see. That was great.

Okay. So -- and maybe just on the -- I think this is more a question for Rachel, but feel free to [indiscernible] as well, Josh. If you think about your growth and Etsy's growth versus e-commerce, your ambition is to obviously grow faster than the broader e-commerce. And looking back in the last 12 months, I think you met that by almost factor of 3x. So if we -- as we are sort of coming out of this pandemic, and the associated tailwinds and things look more normalized maybe in 6 months from now or 9 months from now, how should we and investors think about the growth drivers from here on? And how are you thinking about that?

So I'm going to answer from 2 vectors really. One is from the perspective of new versus existing versus reactivated buyers. And that's -- the first point is that we -- between -- if you add new and reactivated buyers that increased 92% in the past quarter. But if you take all of the existing buyers and the growth and the growth of existing cohort is extremely strong as well because we've given a lot of data to support increased frequency of that entire base. So we want to talk -- we want to think about not only the new buyer is something that helps GMS grow with that entire base coming back more often. We talked about our habitual buyers, which are the buyers that come to us 6 or more times a year and spend $200 or more in a year, grew to -- grew 157% in the last quarter. That key rate, I think it was up 100% in Q3 and something in the 60% range in Q2. And the transition from a repeat buyer, somebody who comes twice a year to a habitual buyer also accelerated. So that 11% of our repeat buyers became habitual buyers, and that's up from 7% in the quarter before. So that's one area of growth is continuing to activate that -- the very strong cohorts that we have in addition to attracting new. The other way to look at it is from the vector of -- and how we plan our year is the base business. So if everybody just went home and we didn't develop anything new, how much do we think we would grow. We have a pretty good handle on from a few different statistical measurements what that business would do. Then we can layer on top our marketing efforts so how much can marketing actually drive new and repeat purchase behavior? And then layer on top of that, our product efforts. And so we plan our year to layer all of those things on. We haven't given guidance for the full year, but we did give guidance for Q1, and we know that those efforts continue to drive increased visitation to Etsy, increased conversion rate once they visit. And then from that base, more repeat visits because we're making things easier to find. We're getting people to across categories. We have a lot of data to suggest that, that cross category activation is happening. And from there, that's where we're going to get continued growth. There are some specific product initiatives that -- in that product category that we think will be particularly instrumental in the increased frequency and I think there's many, many initiatives that would roughly fall into 2 important buckets. One is in search. And the other is in what we define as the post-purchase experience, meaning once you've -- to settle on an item, do you know that you're going to get it on time? Do you know that you're going to get it at all? What happens if you don't get it? Or it comes damaged? Or it wasn't as described in the picture that? That whole stream of work is really important to building trust with our customers so that they'll have a good experience and continue to come back. And on the search side, which Josh described very nicely before, personalizing that result much more -- your question about curation is a good one in there, too. So that 80 million items is not a frustrating challenge, it's a wonderful adventure, and you find all the wonderful things that Etsy has. So it's really a lot of the work that we're doing, not all of the work, but a lot of it kind of focuses on those 2 big friction points that still exist in Etsy's shopping experience.

Okay. And then there is a view out there that as the economy reopens, people are spending more time outside maybe or traveling or whatnot. Traveling to -- or maybe work commute in case it comes back. So any thoughts on how that may affect the online engagement or not? I mean how should we -- what are you thinking about this? And how should we be thinking about it?

Yes. So very probably -- I mean, very short answer is very probably it will affect not only Etsy, but other online commerce players at least initially, people have a lot of pent-up demand for things like travel and dining out a theater and other kinds of ways to spend their dollars. And even when it comes to shopping, they haven't been able to go out into physical retail for quite some time or as much as they would have liked to, I will say. So we don't really know. I mean, I don't think anybody has the exact perfect formula for it's going to be exactly X on this date. It's why we refrain from giving full year guidance. However, we do feel like we have -- we believe that we've made sort of a permanent inflection point in the awareness of Etsy in the consideration set. And we are a top 5 site now in the U.S. and in the U.K. as well. And that -- and people are not only aware that Etsy exists, but the range of things that Etsy can provide. And so shopping reasons for purchase are not going to go away even when the economy reopens. And so we sort of strive to be to maintain our position as top of the consideration set. I believe we've put down the foundation for that to be true.

Got it. And then a question for Josh, maybe it's more high level, but Etsy has always drawn more women to the site. So your demographics are very skewed to women. Do you need men to start visiting the site? Or that's not really an area of focus? And in any case, most of the decisions are making -- are made by women and in the household. So you don't really see in that way? How should we think about it?

Well, I do believe it's true that most shopping decisions are made by women in the household. I remember data when I was at American Express that about 72% of purchase decisions in the household were made by women. Nonetheless, that leaves a lot of decisions made by men and men shop as well. And so I do think that's a big opportunity area for Etsy. Historically, we have been very focused on women, but over 80% of our purchases are made by women. So I think, in time, the opportunity to focus on meeting the male demographic as well presents more opportunity for Etsy to expand.

Okay. And if I have to think about where your brand awareness is focused, obviously, right now, it's -- the messaging is for the core demographic, so that could change. But if I have to also think about your sort of focus on moving or spending more dollars on upper funnel and maybe mid-funnel. And I look at some of the markets like the U.S., your scores are already very high. So how much headroom do you see to spend more money on channels that are upper funnel?

Our unaided awareness is definitely improving. But I think there's a huge opportunity. Most purchases are habit driven. And so if you tell someone, you need to go buy jewelry as a gift, you have 1 second, what are the 2 places you go to? You need to buy something to furnish your home. You have 1 second. What are the 2 places? We want to be that tip of the tongue. We want to be 1 of the very first 2 or 3 places you think of. And there's still a lot of room for us to build more top of mind awareness there.

Got it. And how do you see the balance between upper funnel versus mid-funnel? Where do you see more opportunity there?

Well, we're learning actually how they all work in combination. So a year ago, 2 years ago, when we were just starting TV advertising, we're measuring the TV channel independently of our performance marketing channels. And as we're getting more sophisticated, we're building multi-touch attribution models now that are starting to look at how the whole funnel works together in the different role that different advertising mediums play. But what you'll see in our television advertising right now is it's really designed to help emphasize the differentiation of Etsy and to build more of a sense of closeness and preference with Etsy, which is something that we think we have a right to earn. Again, unlike most people that are trying to sell you the exact same product as someone else, just 2% cheaper, Etsy really is a much more human connection. It's a much different way of shopping. And it's a way that people really respond to when we tell that story. So that's really what we're trying to do online.

Got it. And then maybe staying on the advertising topic. So smart tech or marketing technology, that has been a muscle that we are -- that we've been willing to lean on more and more. I spoke about it on the last call. How should we think about some of the changes that Google is planning to make with respect to audience targeting? Does it affect Etsy at all? Or you don't really see anything change for you?

That particular change could affect retargeting to some extent. I would say that the changes we've seen so far with regards to audience targeting with regards to IDFA, more potentially limit things we aren't doing a lot of but might want to do in the future. So more of an opportunity cost of what we might do relative to -- instead of having a big impact on our current investments. So -- and we care a lot about privacy as well. It's very important to our brand. So we're always going to be very careful and cautious about privacy. But what I'd say is that what we've seen so far, doesn't concern us a great deal in terms of our ability to continue to execute high-quality performance marketing.

And let me just add that as a reminder, that approximately 80% of our GMS comes to us through organic channels. It's a little misnomer because our spending on digital television and upper funnel marketing the traffic that comes to us from that, we count as part of the organic because it's coming to www.etsy.com. But just 80% is a large number. We spend as much as we can on paid channels where it's ROI positive, but we're not fully dependent on any of those channels for our success. And a great percentage of that performance marketing is on product listing ads, which are not impacted by the changes that Google is contemplating.

Got it. And then off-site adds, you're almost a year into it now. Maybe talk about some of the learnings that you might have had along the way. How it performed versus your own expectations? And also, right now, I think for Q4, at least, you disclosed that 9%, not Q4 but second half, 9% of the GMS was attributable to this. Where could this go? How high can it be?

So offsite ads just is a lesson in and of itself because as you recall, we launched, in the third quarter of 2019, with a totally different construct for that product and learned right away that it wasn't the best outcome for our sellers or for Etsy. And I love the fact that the company sort of wasn't afraid to say, we need to make a left turn here, and we did. So we relaunched it as 2 separate products. Our -- what we used to call promoted listings was relaunched as Etsy Ads, that's the on-site product and off-site ads was relaunched and went live in the second quarter of 2020 as a standalone product. CPA-based products, so the seller doesn't pay anything unless they have a successful sale. We bifurcated our seller base. So the sellers, the largest sellers that really make the market for Etsy that were important for us to keep in the program, it becomes mandatory for them to -- part of the terms of service of being a seller on Etsy, but we give them a discounted fee. And the vast majority sellers who are not the largest sellers are not required to stay in the program, and they do not -- they pay a slightly higher fee. And we've had less than 2% opt out from that group. So they could have opted out or they could have churned out but we continue to track less than 2%. So it's really exceeded -- we had hoped for the best, but planned for the worst, and it's really exceeded our expectation, the comments from the sellers in the forms are that they're getting a very high ROI. So the math looks out that it's about a 6 to 8x ROI for them, which is a very strong ROI compared to other ad products that they could have. The 9% chargeability that you refer to means that of all the product listing spend that we have about 9% of it is shared with sellers, which increases lifetime value. We're able to more, on their behalf, and maintain or even increase the ROIs in some cases. And we just added a channel for offsite ads. So we were formally only Google, Facebook, Bing and a little bit of Pinterest, I believe, as product listing ads. Now we've added our affiliate channel. So there's a much wider distribution of where a seller's product listings can be shown. And so we'll continue to think about optimization that way, like where can we place ads on their behalf, and how can we share cooperatively in the expense a bit.

Got it. We are fast approaching our time limit. So let me ask you a question around the outlook or just general commentary you made recently. So I think you said that Q1 could potentially be the high watermark for the take rate in 2021. Can you just maybe walk through some of the pieces of that? And how should we be thinking more in the puts and takes?

Yes. So there's a couple of things that we're lapping from last year. So we -- if you remember, we launched offsite ads. We didn't charge anything for it until May of 2020. So we have a high watermark from that -- the lapping of that in Q1. We also launched Etsy Payments midyear in 9 new countries. Midyear last year, we took Reverb's take rate up in the third quarter, I believe, of 2020. So that also impacts. So as we go through the year, we'll start to lap those things. Never say never. There's not really any planned pricing for this coming year. We always look at pricing changes as a fair exchange of value. If it's a service we can offer to our sellers, what's the right way to share in that service and what's the value to them versus what Etsy's share of that should be. So we'll always continue to find ways to optimize that value exchange. But for the moment, we wanted to give a clear guide that as analysts and investors are planning in the year to think about Q1 as the peak in terms of take rates.

So could it -- should we think about it as plateauing versus maybe even ticking down a bit? Or any further color there?

I don't know that we want to give any more color beyond that you wouldn't see take rate going any higher than it is in Q1, that's our expectation for the year. And then as we talk about product enhances growth opportunities, we can continue to update that point as we go forward.

Understood. And then maybe I'll end with this last question. So just on the -- on capital -- use of capital and your own priorities for whether it's going to be M&A or share buy back or other things? How do you kind of evaluate that? And look at that internally?

So we have $1.7 billion of cash on the balance sheet. We actually generated more free cash flow than our EBITDA was just because of the way the working capital moves around, particularly going from the fourth quarter to the first quarter, that does -- we don't -- we have a very capital-light business, so we don't really need our balance sheet to buy more distribution centers or buy more trucks for distribution or anything like that. And so we've always talked about sort of 3 big buckets on how to use the capital on the balance sheet. One is organic, which we've demonstrated through marketing investment, investment in our product development teams building -- moving ourselves to the cloud. M&A, which we demonstrated through Reverb, a very good example of buying into a category that we weren't in before. We did a geographic transaction when we did a deal with DaWanda the year before. IP through our investment in Blackbird Technology, where we helped -- accelerated our growth into machine learning. And then there's return of capital. We just had our Board authorize another $250 million of share repurchase as a go-forward, and we bought back, I think, a fair bit of stock in the past year. Happened to be at great prices, but the philosophy there was we issue equity as a form of compensation to our employees. That isn't free. Let's make our shareholders hold. And were purchased to offset the dilution that's created by that equity grant. And so those are our philosophies just as on an academic level.

No, that makes sense. With that, I think we're at a good stopping point. Josh and Rachel, thank you so much. Great to have you.

Thanks for having us.

Thanks for hosting us.

Thank you, everyone.

Take care.

You too.