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

Good morning, everyone, and welcome to our next session. For those of you who are just tuning in, I'm Maria Ripps, Internet analyst here at Canaccord. And I couldn't be more excited to introduce Josh Silverman, Etsy's CEO; and Rachel Glaser, CFO. Josh, Rachel, thank you so much for joining us today.

Thanks for having us.

Thanks for having us. May I just jump in with the reference to our safe harbor which can be found on our Investor Relations website.

Awesome. Josh, Rachel, you've both been with the company for about 4 years now. And by the way, Josh, since you joined Etsy's Board in 2016, the stock is up more than 15x. The company -- the platform has been transformed a lot over that period of time, including better overall consumer experience, more intuitive search and brand investments. So as we get started here today, can you spend a few minutes talking about how has the platform evolved over the past few years? And what are some of the key strategic priorities for the management team over the next couple of years?

Absolutely. First, thanks for having us. It's great to be here. We have been really obsessed with the buyer experience and making the buyer experience a really great experience, which in turn, makes the seller experience a great experience because what sellers really want, first and foremost, is buyers. And that is the virtuous flywheel of a 2-sided marketplace. So we have been really focused on making it easier for people to find the things that they want to find among the tens of millions of items for sale on Etsy, making it easier for them to buy the thing they just found and making it easier for the buyer and seller to have a connection that feels really human because our mission is Keeping Commerce Human. And I think that's more important now than ever. And I think we are clearly making a lot of progress. Etsy is a much better shopping experience than it was a few years ago across every one of those dimensions and still with a lot of room to go. And a couple of data points that maybe are interesting. Habitual buyers, which are our most loyal buyers, they're people who shop 6 or more times and spend $200 or more in a 12-month period. Habitual buyers in 2020 were up 157% year-over-year. We now have 6.5 million habitual buyers. And for buyers who shop 2 or more times on Etsy, they shop an average of 5x now on Etsy. And in fact, Etsy added about 37 million new buyers in 2020, twice the number of new buyers that we added in 2019. So a lot more people are finding Etsy. And when they find Etsy, they're finding Etsy to be a really exciting, satisfying experience, which we think is great and really important. Our focus areas going forward are search and discovery to make it still easier and there's so much more to do to make it easier to find what you love on Etsy. And within search and discovery, we've made a lot of progress when you know the words to put into our search engine, to provide you back really relevant search results. But there's so much more to do when you don't have the language, when you don't know the exact words, or when you don't have a specific item in mind and you just want to be inspired, which happens all the time, and so much more for us to do in personalizing the search and discovery experience. There's much more for us to do in trust, giving you confidence that the item is going to arrive on time, giving you confidence that we'll have your back in case the very rare occasion that something goes wrong, and so much more to do on human to make the connection between buyers and sellers, the connection between buyers and buyers, the connection between sellers and sellers to make all of that feel even more human. So I couldn't be more excited about our road map and opportunity in the years to come.

That's a great overview, Josh. And so the pandemic has had a tremendous impact on e-commerce as a whole and on Etsy in particular. Maybe can you share with us some high-level thoughts in terms of what changes do you think maybe more transitory as opposed to we should be sort of longer lasting?

Well, I think we've seen 3 waves happen during the pandemic. The first is people can't shop, can't spend money on services like travel and dining, and so they're disproportionately spending in retail. Second, they can't spend money offline in retail on malls and on the high street where they can't as easily or it's not as fun. So disproportionately within retail, they've been spending on e-tail. And third, for Etsy, Etsy has gained very meaningful share versus e-commerce. So as fast as e-commerce grew in 2020, and it grew at an incredible rate, e-commerce grew in the United States, many analysts estimate by about 40% year-over-year. I never thought I'd say 40% year-over-year growth for all of e-commerce. Etsy grew 2.5x that. Etsy grew -- was growing at 100%. And so we gained very meaningful share. The thing I have most conviction about is I think a lot of people discovered Etsy last year or rediscovered Etsy last year and discovered that it's a better way to shop. So to your question of what trends do I think are lasting? I think people want to connect with the seller directly. I think they want to have a more human buying experience in a world that feels ever more commoditized, where there's more stuff that's produced super cheap, will arrive in your house really fast and then being a landfill 2 seconds later. I think people want to maybe buy fewer things, but have those things mean more. I think they want something that's made just for them. I think they want something that expresses their identity and isn't just part of that sort of sea of sameness that everyone else is wearing the same thing or has the same piece of home furnishing. I think that trend, I think people have discovered that there's a better way to shop. And I think that, that trend is going to be lasting. I think e-commerce is going to be much bigger forever because of the fact that many people experienced e-commerce during 2020 in a new way, in a really powerful way and saw how satisfying e-commerce is. So I think e-commerce is a great place to bet. And I think Etsy, I hope and believe, will outpace e-commerce. In the near term, what I don't know and what I don't know any of us know is as people can go back to spending on travel and dining, how much will that eat into the wallet share that's currently going to retail? If people get the chance to go back to a mall, are they going to be super excited just to be in a store again or not? I don't know in the near term. What I do have a lot of confidence in is the medium and the long term, I think, both e-commerce and Etsy are better positioned as a result.

And I guess to that point, Josh, as the economy is opening up, sort of you obviously have exposure to certain verticals like weddings and parties that could see heightened sort of spending as a result. But more broadly, how does Etsy plan to keep consumers engaged on the platform?

So I'll jump in with this one. So we really see -- I think everyone agrees that frequency is a huge opportunity for Etsy. We saw some significant improvements in frequency. For the longest time, we had been saying that about 60% of our buyers came to Etsy only 1x per year and 40% came 2 or more times a year. And every year, we would -- maybe 10 basis points of improvement, 20 basis points of improvement. And suddenly, in 2020, that jumped to 48% of our buyers coming 2 or more times a year. And that in fact, the average for that group is 5x a year. So we're -- that's one of the metrics Josh talked about, habitual buyers being our fastest-growing consumer segment and that's growing at a really steady clip. And in fact, the 2 or more time people are coming -- becoming habitual much faster. So frequency is a huge opportunity for us. And we will -- we have been leaning into, and we'll continue to lean into that with our products investments and our marketing investments. So on products, and Josh can spend some time talking about this in a bit, but product really things like search, where we make it much easier to find what you're looking for right away by recommendations that we provide but also by better search algorithms so we can infer what you might be looking for, personalize the results so that we're giving you something that you're looking for right away. And on the marketing side, we really continue to invest to make our marketing technology stack much more sophisticated. So we are able to offer customized promotions. We're able to dynamically target and bid for specific buyers and bid up to what we think their lifetime value is rather than a generic lifetime value. And those things are, I think, will spin the virtual flywheel of getting frequency to continue to improve.

That's great. And I think back in 2019, you quantified your target addressable market at $100 billion, which was e-commerce spend across relevant categories and 6 core geographies. And I know we just added India to that bucket as well. But do you have a view on how COVID may have changed that assumption? And how have the use cases for Etsy maybe changed over the past year?

So yes, I can start on that one. So when we put our TAM out in early 2019, what we were trying to prove out was you can haircut it all you want, but it's still an enormous addressable market and we were barely taking our share of it. So we haircut it by things like -- we're in many, many markets, but we just looked at top 6 [ analyst ], then let's just look at our top 6 categories. And in fact, let's just look at the online components of the top 6 categories and the top 6 markets and sort of distilled it down to the smaller TAM. And if anything, in 2020, what we've learned is that there's no barrier between online and offline. People easily made that jump from, okay, retail is closed. Well, I'm going to go buy all the things I need online. And so that haircut of saying, let's just look at the online component of things just dissolved. And when we really look at -- we take off all the barriers, we're in many more markets than 6, we're in over 50 categories. We think that TAM really begins with a T, not a B. And it's still -- the point is it's enormous, and we're -- we did about $10 billion in 2020, so we're less than 1% of this enormous addressable market. And we're seeing tremendous growth in key categories like home and living, for instance, grew over 200% in 2020. And -- sorry, 200% for our Cyber 5 and over 120% for -- in all of 2020. So it's enormous, I think, growing faster than e-commerce in general. Overall, we think that we grew 2.5x faster than e-commerce. And so anywhere that we are in a category where we have significant depth and breadth of product, which we do, we have 80 million items for sale, we have a real good chance of competing in those categories. And so COVID pandemic has taught us that people are now thinking of Etsy as top of mind in their consideration set. And we believe we'll continue to be able to hold that place with consumers.

If I can I just pile on that just for a second. Most things that you would buy online, you can buy on Etsy. You can't buy consumer electronics, you can't buy car batteries. There are some things that are only mass-produced that you can't buy on Etsy. But most things you buy online, you can buy on Etsy. And almost everyone is playing Amazon's game, right? They're trying to sell the same products that are available on Amazon. And so ultimately, the game is, can I somehow ship it faster or sell it cheaper? And good luck. I mean that's going to be a really tough game to play. Etsy is doing something truly different. When you want an alternative to Amazon, Etsy is a true alternative to Amazon. And I think the world is consolidating to fewer and fewer places to shop. And if Etsy can be one of the primary places you go when you don't want to buy it on Amazon, I think that opportunity is absolutely enormous.

That's a great point and maybe sort of continue -- to continue with this theme. Do you see some of the platform evolving to include more sort of less special products? And do you actively discourage sort of nonspecial sellers from engaging with the platform? Or how are you really thinking about that dynamic?

No and yes. Etsy is a platform for people who've made the product or people who've designed the product and are working directly with the people who've made the product. It is not a platform for distributors. It is not a platform for things that are mass produced, where you're just reselling someone else's product. And what does that mean? That means that for everything on Etsy, you can have a direct conversation with the seller and say, I love that dress, but can you make the hemline shorter? Or can you do it in this color instead of that color? I love that coffee table, but can you make it with this wood or in these dimensions. Can you imagine having that kind of conversation with Amazon or Macy's or...

I can't.

It's a different buying experience. And then when the package arrives, it arrives with a handwritten note from the seller. You can't do that if it's fulfilled by Amazon. Amazon's got the package in the warehouse, there's no way to slip a handwritten note in. And by the way, most things on Etsy are actually made for you, made to order. So they can't be stored. They can't be warehoused. And so we're -- again, we're playing a different game, and it's really important that our brand stands for something different. Now special is in the eye of the beholder. So for example, you might want a rolling pin to just roll bread, you make bread every day. It's just a utility for you. You don't care and you need it tomorrow. Go to Amazon. That's perfectly great. Or you might want a rolling pin that has your grandmother's recipe embossed on it so that when you roll bread, you see your grandmother's recipe in her handwriting. That's available for sale on Etsy. So special is in the eye of the beholder. I've got a little playing card deck next to me. And it's in a wood -- a handmade wood case that was hand-carved by a friend of mine. So maybe you just want a cheap deck of playing cards or maybe you want it hand-carved. Special is in the eye of the beholder and almost every product category, you could have something made just for you. And by the way, at a price that's really reasonable and fair. And so we think special can be something that happens every day. And I think that in the pandemic, a lot of people realized that they could get everyday essentials on Etsy. And so that opened up our TAM, I think, a lot as well. Bread making, for example, suddenly became a huge thing. Everyone decided that they want to bake bread. Gardening became a really huge thing. Guess what, you can buy bread-making yeast on Etsy. Now you're going to buy that culture from a baker who's really passionate about it, who's been cultivating that yeast for years and wants to tell you about it and wants to trade recipes with you. If you're buying gardening supplies, these varietals have been grown. These hybrids have been made by people that really care about that, and you're going to have a real connection with them. So I think even in the every day, we can inject special.

Yes. That's great. I wanted to switch our conversation here a little bit and talk about brand building and marketing. And Rachel, you touched on that a little bit. So your marketing strategy has been evolving on several fronts over the past few years. First, I'd like to ask you about sort of your brand positioning and investments. You really started investing in brand just a few years ago, I think, in late 2018. And our sense is that since then, consumer awareness of the platform increased meaningfully in this pretty short period of time. So with that, sort of where do you see the Etsy brand today? And what are some metrics that you used to sort of understand it? And how are you thinking about sort of continued investments to further elevate it from here?

It's a great question, Maria. So you're talking about that we invested in brand starting in 2018. And I think what you're referencing is we started investing in upper funnel. So when we think of upper funnel, it can be -- we've done linear TV, it can also be digital video and all forms of video. But we actually -- our initial forays into that upper funnel were all measurable because we call them direct response. So we were focused more on here's what Etsy sells, here's reasons why you might come to Etsy, come to etsy.com, with that kind of messaging. And it was really only just recently in the last quarter of 2020 wherein alongside, in parallel with that direct response form of upper funnel, we added true brand marketing, which was the emotional connection you might feel to Etsy. And we ran 3 ads, everybody has their favorites, but there was one featuring Shiori, a name that was for an Asian American, hard to pronounce, could never find her own personalized name necklace in any of the stores, but you can get it personalized on Etsy. There was a gay black couple that they were celebrating their Christmas personalized ornament from a family member. And there was an ad with grandparents having to celebrate Christmas far away from their grandchildren. And those were really about how you feel about Etsy. And so the upper funnel market indeed has really helped us build awareness of Etsy and has driven a lot of traffic that the combination of the 2, of brand and the other form, the direct response, has been really very powerful. We have sort of a 3-legged stool on how we measure these things. So we have a lot of quantitative models that we use internally to triangulate how we think the spend is performing. We use panel data from a company called iSpot, and then we have a third-party media buying firm that has their own proprietary model. And we triangulate those 3 different methods. On top of that, we also look at -- we do our own brand research. And so we are looking at things that are measuring every aspect of the funnel, starting from top-of-mind awareness to unaided awareness to purchase intent. And we've seen some very nice positive movement along each part of the funnel. But I think we're still very early days. For instance, we only just started to test in Europe. And so we'll -- and we saw good results from that, and we'll continue to test. And then there's other aspects of the funnel. So we haven't -- we've also just begun to put the middle part of the funnel to work, which is generally involves paid social campaigns. And so they all work together and sort of we call that sort of integrated marketing approach where they all work together, and all boats rise when you have all pieces of funnel working together.

And you've been pretty successful with your habitual buyers over the past year, and you shared with us some numbers. I think in the past, you shared with us that about half of your buyers engage with the platform just once a year, I think you call them occasional buyers. Can you talk about this largest group of buyers for you? And does stronger brand awareness help to increase engagement with this group of sort of buyers? And sort of what's the strategy to increase frequency among these customers?

I think higher top-of-mind awareness has been very helpful. So to put a fine point on it, in 2017, 2018, 2019, roughly 60% of buyers would buy once a year and 40% would buy more than once a year. And for those once-a-year buyers, unlike other e-commerce sites I've been involved in, they were reliable once a year. They'd come back every year, but it was usually for the same occasion. I think of Etsy only for Mother's Day, and that's where I go to buy a Mother's Day gift. Or I only think of it for home furnishings and I'll only go there for that. Or I only think of it for baby supplies and I only go for baby supplies. I only think of it for my wedding, and I'm just going to go there for wedding. So what I take a lot of heart in is that there are literally hundreds and hundreds of use cases out there that have these sort of single-issue shoppers, if you will, or single-category shoppers. So we don't need to invent new categories. We don't need to convince people that we can be good at baby or wedding or whatever. There are tens of thousands, hundreds of thousands of people who already love us in those categories. What we need to do is string together for people, okay, you loved us for wedding, come to us for baby, then decorate the apartment, then Mother's Day, then on and on and on and on. And I think that at a time when there were fewer places to shop online, people had to stop for a minute and think, where can I go to get this? And in that pause, Etsy won. Because in that pause, people think, "Oh, I wonder if Etsy has that," and they go and look and sure enough, almost always, we do. And we've got a delightful version. Our sellers have something really great to offer. So it's helping people to think of us in purchase occasions that they hadn't thought of us before. And actually some of the top of funnel television advertising that Rachel had talked about, some of the TV ads we've been running are very intentionally designed to shoulder tap, to show you all the different use cases that Etsy can meet. And we're very pleased with the progress. So in 2020, 52% of people shopped once and 48% of people shopped more than once. So there's a 700 basis point decline in onetime shoppers. And as I mentioned earlier, of the people that shopped 2 or more times, they shopped an average of 5x. So there are plenty of occasions to come to Etsy. And the more you get to know us, the more you realize you can be coming once a month, you can be coming once a week. So I think an ambition for us to be a starting point for product search, start on Etsy, I think, is a great ambition. We have a ways to go and get there in terms of consumer awareness and loyalty, but I think that's the right ambition for us.

Got it. And I think another angle of your broader marketing strategy or customer acquisition strategy is Offsite Ads. So when you go out and sort of buy ads on behalf of your sellers, what platforms and outlets that are working best for you with the best ROI? Is it search, social, something else? And how important is Pinterest for you given what seems to be a strong overlap in target demographics there?

So you referenced Offsite Ads, and that's our program that we use our PLA budgets to buy product listing ads on behalf of all of our sellers. And when there's a successful sale on a seller's listing, the seller shares in the cost of that ad by paying a slightly higher transaction fee. So it's a success-based fee. They don't pay anything unless they've had a successful sale. And the -- that program right now is strictly Google and Facebook product listing ads with a little bit of Pinterest, a little bit of Bing, and we've just broadened that program to include our affiliate channel. So sellers get much wider distribution on a lot of smaller ad-based digital media platforms. Pinterest is a small component only because we only -- we'll only charge for an ad when there is a successful sale back to our sellers. So it's just not as large of a channel for us today. And we cast the net as wide as we can. Right now, the bulk of our spend for PLAs is on Google. And that's been a very high ROI yield for both us and for our sellers. And it's only PLA. So we also spend on SEM, both brand and nonbrand. That is not in the Offsite Ads program today. What happens, though, is effectively when we -- because we get a -- we share in the cost of that PLA with our sellers, we've effectively taken our take rate up by something like 1 point. And that enables us to spend more. We can -- we have more spending power and we maintain our ROI at the same time. So it's been a win-win for both sellers and for Etsy because we can spend more on their behalf in a way that drives more traffic to their sites.

Great. I wanted to ask you about sort of the competitive landscape. And Amazon Handmade launched in 2015, but they haven't really been a competitive threat to you. Why do you think they have not been able to build a sizable business in specialty goods? And what are some of the differentiating factors that give Etsy a competitive mode in this category?

First, I don't think that handmade is a market. I don't think anyone wakes up in the morning and says, I want to buy something handmade and anything will do. I want to buy a gift for my mother. I want to buy something to spruce up my apartment. I want to buy gardening. And the advantage of Etsy is that it's made just for you, is that you're connecting with the seller directly. It's a differentiator in many, many different markets. It's not a market, in and of itself. And brands stand for something. And Amazon very clearly stands for convenience and price, right? It's going to arrive very fast, and it's going to be cheap. And that is very different than what Etsy stands for. Etsy stands for connecting directly with the person that actually made the product, having a conversation, having a connection, getting a handwritten note. And so you can try to sprinkle a little bit of handmade pixie dust on Amazon. You can try to sprinkle a little bit of handmade in on other -- there's plenty of other e-commerce sites that will probably try to do this as well. But it doesn't change the fundamental ingredient of that brand, right? And so when someone walks into your apartment and says, "Oh, my God, I love that duvet, you have." And you say, "Oh, that's made by a seller in Turkey, and her family has been making that for years. And let me tell you about the fabric and let me tell you about the design, and I collaborated with her on the designs. I wanted to bring in some element of something in my house." It's just not what Amazon -- like, "Oh, I love that duvet. I bought it on Amazon." That's the end of the story, right? There's no and to that story. Etsy always has an and, right? Everything comes with a story. So I think our brand just stands for something really fundamentally different than what Amazon is doing. And frankly, what others -- all the other mass e-tailers are doing as well.

Got it. And sort of staying here with the sell-side of your decided marketplace kind of discussion, so you obviously have data insights into both supply and demand. And are you doing sort of selective outreach in marketing to certain sellers in certain categories? Is there sort of a merchandising function to proactively attract certain sellers sort of within -- again, within certain categories? And how do you go about that?

So we spend almost 0 on outreach to sellers to try to solicit new sellers to come into our marketplace. There's some exception to that as we've tried to invest a bit in India to start to make [ a move ] there. There are certain markets that when you look at the assortment, you can see where the gaps might be and there's sort of a minimum viable, what you need to get a robust 2-sided marketplace going. So we do a little bit there. And we have large seller teams. So there's over 12,000 seller teams and they help each other to educate each other and to -- and we'll support them a bit there. But we really don't have a lot of people that are marketing to sellers to get more product. We have a tremendous amount of supply. So our focus has been almost entirely on the demand. So we have over 4 million sellers. We talk a lot about we could lose a lot of sellers and we wouldn't really lose any GMS at all because there's so much supply and so many things that are like other things that there'll always be sellers to satisfy that demand. We do have a great merchandising function at Etsy. And what they do is to spend -- when we think about getting more personalized with collections and curated results and editors' picks. And so -- and they also help us a lot with what's trending. And so we use that a lot in our marketing efforts. We use that a lot for our own data so we can see how we're doing category by category and what things aren't performing, but it is not necessarily to fan the flames of more supply coming into the site. And I definitely think there's opportunity in certain categories, for instance, when you look at our female to male demographic, which has shifted a little bit during this COVID era to be a little bit -- having a bit more of a male demographic in, but we may be able to add product in certain categories to cater more to a male taste, but we won't do that. That will happen organically through sellers finding their way to our marketplace.

What are some of the categories that this sort of newer cohort of users are going after?

I don't think that the newer cohort are going after different categories than the other cohorts. And what's a bit tricky to unpack is almost everything has been for sale on Etsy for a very long time. It's just different things trend and become popular at different moments. So to be very candid, and I don't mean -- I'm sure the sellers will get mad. I didn't realize we sold baking supplies on Etsy until in the pandemic when suddenly, it exploded and we're selling tons of them and baking is hot. And if I go back and look, I'm sure we had thousands of sellers selling baking supplies. And I didn't mean them any disrespect, it's just among the 80 million things for sale. It's hard to keep track of and know of everything. But I think there are a few things you can't buy on Etsy. And it's easier to name the things you can't buy than the things you can, and they've always been for sale, just different things come in to vote. And I do think that highlights something really special about Etsy, which is the agility of the marketplace and the agility of the model. As things become popular, the Etsy seller base responds nearly instantaneously, usually within hours. And that kind of responsiveness is impossible in a world of mass-produced product, where you've got to come up with an idea for a product, then you've got to call a manufacturer probably in China, negotiate a deal, get it produced and get it shipped across the ocean and hope it doesn't get stuck in the Suez Canal, right? And in Etsy, you've literally got a maker who has an idea and pulls out her selling machine or her woodworking kit or whatever and makes and produces it. One fun example on Inauguration Day, when Bernie Sanders is grumpy sitting in the chair with the mittens, within a few days, Etsy sellers have sold $1.9 million worth of Bernie Sanders-inspired mittens and Vermont-type gear. And that kind of thing is happening every single day during the debates. When Mike Pence has the fly buzzing around his head, like literally within an hour, there's fly-inspired merchandise on Etsy. Like every single day, whatever is happening in pop culture is immediately reflected on Etsy. And it's just hard for anyone with a mass-produced supply chain to be able to respond in anything like that kind of time frame.

Got it. That's very helpful. I wanted to ask you about sort of broader platform improvements. And search and discovery has become such an important part of the e-commerce experience in a way sort of that doesn't only sort of differentiate the platform, but also keeps customers engaged and sort of drives conversion. You've done a lot of work in this area over the past few years. Sort of what are the most successful features that you implemented more recently that are helping buyers to find the right products?

So first, let me say that the search problem on Etsy is very different than the search problem that other e-commerce sites are solving. So other e-commerce sites, almost all in just a product catalog, what is available for sale, and then they map SKUs or items to that product catalog. And that's what the world is going to look like if you're Amazon or if you're eBay or if you're Walmart or if you're Wayfair or if you're -- any of those kinds of people, you're going to have a product catalog and you're going to get a lot of structured data. Etsy doesn't have that product catalog. We have 80 million things for sale, but they're -- every single one is a snowflake. Every single one is unique. And so there is no master catalog. And that is a very different and very challenging search problem. And it's one that 10 years ago, before we had such compute available and machine learning technology, we wouldn't have been able to solve in a robust way. And now we suddenly are able to solve it in a very powerful way. And the fact that, that search problem is really different than what everyone else is doing, when we talk about Etsy standing for something different and where our source of competitive advantage is, we don't need to be the best in the world at search, that's Google. We don't even need to be the best in the world at product search, that's Amazon. We need to be the best in the world at this particular part of product search, which is the ultra-long tail of totally unstructured products and that we are investing mightily in. And so where have we made great progress? We've made great progress in closing what we call the semantic gap. So what we mean by that is translating the words you put into the search engine into your intention into the relevant items. So if I look back 4 years from now, we had a search engine that was very didactic. If you type in cocktail attire, it would only show items that had the words cocktail and attire in the title. And now if you type in cocktail attire, it will show a blazer. Because machine learning knows that blazers are cocktail attire or that little black dresses are cocktail attire. So that ability to use artificial intelligence to understand intent has been exceptionally helpful for Etsy. And we've gotten far, far better, and we published some data in our last earnings call, for those who are interested, showing the percentage of purchases that were actually presented on the first page of search. And in that, we're getting much, much better at. We still have a tremendous opportunity to get better. So personalization is something we're only just beginning now. We've just launched the first versions of personalization in search literally in the past 6 months. What does that mean? That means, Maria, you and I, if we both typed in cocktail attire, we would have seen the exact same search page -- search results page 6 months ago. Now we might understand that you're a woman and I'm a man and that your desires for cocktail attire are different than mine, right? Over time, where we want to go is to understand your specific taste and style. And your tastes are probably different than Rachel's or probably different than someone living in Paris or are probably different from someone living in Alabama. And how can we start to really understand taste and style and show you things that are really, truly curated just for you. How can we leverage the power of our community, tens of millions of shoppers, millions of sellers to curate collections. So there's hundreds of different curated collections of cocktail attire and you can find the collection that's right just for you. Things like complete the look. If you bought this dress, here's some jewelry that might go with it, here's some shoes that might be very interesting, right, here's a handbag. That kind of thing, I think, is also a huge opportunity for us. We are at the very, very early innings of doing that today. And all of that is only going to make shopping on Etsy even more satisfying.

Is there anything in terms of your product road map moving forward that you could share with our audience today?

I think on search, I would say we're very focused on inspiration and discovery right now. How can we show you things you didn't think to ask for, but will like and be delighted. And as we start to understand you better and go down the personalization journey, I think we can get a lot richer there. Etsy is not just a destination for shopping, it's also a destination for inspiration and entertainment. And I think there's a huge opportunity for us to do better there. In the pillar around human, there's a huge opportunity for Etsy to be more human. And I think, for example, video opens up a lot of opportunities there. Every item on Etsy has a story. And every seller on Etsy has a story. And that's very different than if you go to Amazon or other places. So we want those stories to be told, and video is actually a wonderful storytelling mechanism for that. Doing more to connect buyers and sellers through convos, making convos even easier, I think, is another path that's really important for human. Doing things like reviews, doing things like curated collections are all ways for people to feel part of the Etsy community and all of that, we think of as part of the human pillar for Etsy. And the third pillar is trust. And a big focus area for us for 2021 is the post-purchase experience. How can we give you, as the buyer, confidence that the item is going to arrive on time? And how can we make sure you know that we have your back in the rare instance where something goes wrong. The fourth pillar is our sellers' unique collection of items. And in that pillar, doing more to be very transparent with our sellers around what are the next 2 or 3 actions they can take to improve their shop and improve their customer experience. Maybe their photo quality isn't that good. Maybe they don't respond to buyer convos fast enough. Maybe the return policy is not up to snuff with the market. Maybe their pricing is out of line with the market. So we know a lot. In applying machine learning, we can inspect at scale and give sellers feedback on where they need to go next in order to improve their shop and that can improve their visibility and that can improve their sales. So sellers feel more agency around their visibility. And that becomes a race to the top that makes the buying experience even better.

Got it. I know we have just a couple of minutes left here. Maybe I ask you one question, and then we have a wrap-up question for you. So can you talk for a minute about sort of your international strategy? Are there any differences in terms of e-commerce behavior between sort of U.S. consumers and, let's say, consumers in the U.K., Germany? And sort of broadly, how are you thinking about your international strategy?

Yes. Getting a 2-sided marketplace going is exceptionally hard. That's why there's so few of them. The obvious chicken and egg problem that on the day you start, you have no sellers and no buyers. And a buyer will come and there's nothing for them to buy and a seller will come and there's no buyers to buy their stuff. Close to 100% of companies fail at that moment. And so our sort of special advantage in the early days is in the early days of entering a market, we can be an exporter and an importer, right? So in the country of Georgia right now, there are sellers who are selling on Etsy, and it's a wonderful way to reach a global market in a really cost-effective way. And so we build up a lot of sales there. And all around the world, we have sellers who are exporting. At some point, if we have enough sellers exporting and there's a vibrant local economy, we can start investing in bringing buyers. And now the buyer experience is better because there's actually stuff to buy that's domestic. And so when we talk about our core markets, the U.K., Germany, France, Canada, Australia, what we mean by that being a core market is we're investing in the buyer side as well to create a 2-sided marketplace. And if we look at the U.K., 70% of the purchases, more than 70% of the purchases in the fourth quarter of 2020 were domestic, meaning both the buyer and the seller were in the U.K. And while it's a cool experience every now and then to import something from another country, there's more friction. There's more stress around that. So if we can be perceived as a domestic marketplace, I think we grow a lot faster. And the U.K. is now -- the majority of items bought are bought domestic. In Germany now, more than 50% of items are domestic. And so that's the playbook we're really exercising is how do we build domestic vibrancy in each of these markets.

Great. Well, it's been a great discussion. And thank you very much, and we can't let you go without asking you our big question of the day, and that's for both of you. And the question is, what is one prediction about the e-commerce space that you think might surprise people over the next couple of years?

I'm happy to start. I think my prediction is that there will not be millions of places to go to buy things online. There will be very few places to go to buy things online. And maybe you'd say, why is that surprising, Josh? Well, first, why do I think that? The human brain can only remember a few brands. We just can't -- there's only a very, very limited amount of space to remember a brand. And so in order to get your brand remembered such that people actually go to you, that is a precious spot. And very, very few brands will ever achieve that. So for each of our individual sellers, going and trying to build a brand that people will remember and come to organically is a blade of grass in a tornado. It's just incredibly hard. That's our job is to create that brand that stands for something often enough that you'll actually come and then we lend that brand to our sellers. Why do I say that, that's surprising if it sounds kind of obvious? Well, there's like, I don't know, $400 billion or $500 billion of market cap betting against me, right? There are so many companies out there predicated on we're going to have all of these individual shops out there that are all individually thriving and successful in every part of the sort of stack that's required for each of them to go and set up shop and try to succeed. But ultimately, those stores are going to be downstream of someone bringing them traffic. And if you're downstream of someone bringing your traffic, be it Facebook, be it Google, those people get all the economics, and it becomes very hard to run the shop in a stand-alone way. So that's really the mission of Etsy. And that's why I feel we are so well positioned. I do think consumers want to be able to connect directly with small business. I do think they want to shop small, but there needs to be a brand that stands for that and uniquely stands for that, and that's what I think we are.

That's great. Rachel?

I will just add in negative minutes here that I have no idea. We only gave 1 quarter of guidance, not a full year of guidance just because they're so much unpredictable. But I will say that Etsy is extraordinarily well positioned to meet whatever comes because if anything, we have learned this year is that we are incredibly agile and our sellers are incredibly agile. We've invested in things like the cloud to enable us to be able to rapidly scale up when needed. And we did this year, our member support and trust and safety organization rapidly scaled up on a moment's notice. And so we've learned that we can -- we've added a whole other marketplace to our mix, too. We've learned that we are very agile and we can serve ourselves and other marketplaces pretty easily as our demand increases. So I'm looking forward to what the next 3 years will bring.

That's awesome. We're going to leave it here. Josh, Rachel, thank you so much for joining us today. We really appreciate it.

Thank you.

Thank you, Maria.