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

Great. Good afternoon, everybody. Thank you for being here today. I'm Nick Jones, an internet analyst here at Citi. If you need my disclosures, please email me or our corporate access team, or we can send those to you right away. If you have questions, there should be a text box, please submit there, and I will receive them online and happy to ask them on your behalf. We're really excited to have Etsy here today. We have CEO, Josh Silverman; CFO, Rachel Glaser. And we're going to dive into some questions. But first, I'm going to give it to Rachel talk about the safe harbor.

Just real quick, just referring to our safe harbor that is posted on our Investor Relations website, and I'll turn it back to Nick.

Great. Well, I think we should dive right in by talking about kind of the massive surge on traffic that Etsy saw over the last kind of 12 to 18 months. Buyers, sellers, GMS, all of those grew really well through that period. The platform also showed on Nimble, it could be a seller draperies selling face masks. The impact of COVID persist to a lesser degree today, Etsy has been able to continue growing GMS, even while lapping tough comps from last year. So can you talk about what you've learned about your marketplace, the sellers and the buyer behavior throughout the pandemic and what you're learning today, and how things look from here?

Absolutely. So first, we're really pleased that at the time when the world needed us most. Etsy could organize cottage industry of sort of our Dun Kirk moment to organize cottage industry to come to the rescue. And I think we've got more conviction than ever that, the size of our TAM is massive and that when the whole world is moving in 1 direction of trying to compete with Amazon sort of head-to-head, Etsy offers a really distinct alternative that meets a lot of people's needs a lot of the time. And so if one were to go back to our Investor Day, from 2018, and we talked about our TAM and we talked about our market opportunity, we're not saying anything different, we're saying the same thing. We just feel like we've had the opportunity to really show what we can do. And to give a couple of examples there, to really demonstrate how often Etsy is relevant across so many different categories. And at a time when -- the world had to suddenly stop and think where can I go to get this where it's likely to actually be in stock and available to ship, Etsy came to people's mind a lot because across so many categories again and again, Etsy does have what you want. And it's got -- made just for you and at a really fair price. And not only in a lot of purchase occasions, but with more and more frequency. So we're really pleased with the fact that even in a world where the people are going back to moving around outdoors and many off-line shops are open again, and most people have inventory in stock and ready to ship, we announced that, that frequency was up significantly in the second quarter. So if you look at a year ago, Q2 of 2020, people had very, very few choices and they had to turn to Etsy. In Q2 of 2021, people went back to having almost infinite choice and yet they wanted to come back to Etsy and GMS per active buyer was up 22% and year-over-year. It's no surprise that we pulled forward a bunch of new buyers during the pandemic. We were acquiring 1 million new buyers a week during many weeks of the pandemic. So it's no surprise at all. that, that number has slowed down fairly significantly, but it's been more than offset by the gains that we've made in frequency. And so we're growing positive comps over what we think are probably the toughest comps in the industry, we think Etsy grew faster than any e-commerce site we track last year. And yet over the toughest comps in the industry, Etsy had positive comps in Q2, and we feel great about that. And we guided to positive comps again in Q3.

Great. As variants emerge, creating ongoing uncertainty just for the broader economy, how is that impacting your near-term strategy for the business, if at all?

Sorry, can you say that one more time?

I lost my WiFi for a moment, and I wasn't sure where in the process you were in answering the question, but I'm back. Sorry about everyone. Let me jump into that. So we've been very deliberate about leaning into investments to continue to grow our core marketplace. We put up really high margins throughout 2020 and continue to have high margins, but we've been talking very much about wanting to reinvest and we see so much opportunity for growth that we got to higher margins than we really wanted to earlier. We continue to see a lot of volatility in the macro. So not only week to week, but month-to-month as the pandemic continues to impact business reopenings, consumer ability and other things like that. So we're really focused on long term and are investing for the long term and controlling the things we can't control. We can't -- there's no road map for what a pandemic looks like and how that volatility could affect our business. In fact, we showed at 1 point compared states and countries reopening to how that affects our GMS in the market, and there really was no pattern recognition there was not a clear cause and effect of 1 to the other, but intuitive or natural to expect that as businesses reopen and there's plenty of places to shop offline as well as online more so than there were a year ago, that, that would naturally affect people's online shopping and also more choice for where to spend money in general, whether that's travel or dining out or other forms of entertainment. So that's intuitively logical our guidance that we gave in the last call assumed there were no further lockdowns. And so we're trying to sort of walk the line with being realistic and conservative in what we give, but also don't have a crystal ball on how that uncertainty could affect our numbers.

Great. So maybe just taking a side step back and just focusing on brand awareness, and that's been a topic that's come up at maybe get you more top of mind for shoppers, how do you think the brand awareness for us has changed over the last 18 months? Does it seem like is now more top of mind even as things are reopening or still quite -- is there still kind of runway there to continue to improve that?

Yes and yes. There's no doubt Etsy as much more top of mind than it was before, and there's a very significant opportunity to continue to improve. So just to put some numbers around that, in the United States, aided awareness has moved from 86% a year ago to 90% in Q2 of 2021. So even a year ago, if you told someone have you heard of Etsy, they say, "Oh, yes, I think I've heard of that." Unaided awareness has moved more significantly. It moved from 38% a year ago to 47% in Q2 of 2021. So it's a 9 percentage point gain in unaided awareness in 1 year. That's a lot. And yet still, more than 50% of people, if you say, where can you go to shop online, aren't going to come up with the name Etsy, at least not on the tip of their tongue. And yet, Etsy is a top 5, most visited e-commerce destination. So if you look at the other 5 most visited online e-commerce destinations, the name Amazon, the name Walmart, the name eBay and these names are going to be on the tip of people's tongue, right? So we are in the rarified category with the biggest names out there, and yet we -- still not quite on the top of the tongue. And the biggest opportunity for us in the U.S. is really consideration where you say, who are you considering for your next purchase, only about 30% of people name Etsy. So we have a huge opportunity still. And what gives us a lot of optimism is the Net Promoter Score for Etsy is really high. When you ask how they feel about Etsy, shoppers who shopped at Etsy generally love Etsy. So it's not that they don't love us. It's that they are thinking of us in the moment. And we've made progress over the past year, but still with a lot of room to go. As I move around the world, Germany is an area that we took a bet on recently. We said, let's try leading into TV earlier, TV investment, TV advertising earlier than we normally would. And so we've been investing in television advertising. And in the second quarter, the first quarter we'd ever run TV advertising unaided awareness of Etsy moved from 17% to 22% in one quarter, a 5 percentage point gain in one quarter. So we feel great about the gains we've been able to make there. And we think, obviously, 22% unaided awareness, there's still a ton of room to go in Germany, which is a fantastic e-commerce market. And last, I'll just touch on the U.K. where 2020 was really a transformative year for Etsy in the United Kingdom. And Etsy is now a top 5 e-commerce destination in the U.K. as well.

Okay. Well, Maybe staying on international markets, you have sellers from all over the world, and you're really focused on 6 core markets, U.S., France, Germany, U.K., Canada, Australia. More recently, you've added India as a seventh core market. Can you just have the opportunity you see in these markets? You touched on U.K. and Germany, but maybe also give an update on India from both the seller and buyer side?

Sure. So about 2 years to go, we decided to put boots on the ground in India to bring more supply onto the Etsy marketplace. And the reason that we decided to do that was we saw that when buyers buy from Indian shop, the buyer's lifetime value goes up. So what that suggests is that Indian sellers are bringing really unique inventory at good prices on to the marketplace, and we don't take that for granted. $5 million sellers 100 million items. It's not every day that sellers are bringing something that's truly unique onto the marketplace. So we felt like there was a real opportunity there. And so we have had people in India, going often from village to village to start to explain Etsy and also to vet the sellers and make sure that what can be a really wonderful artisanal experience could also be really bad labor condition is in a factory that we're not interested in supporting. And so the ability to have boots on the ground there and make sure that we're bringing the right kinds of sellers on has been something that's been important to us. We are exploring the demand side in India. It's obviously a very interesting market. It's a very large market. It's growing very quickly. There's complexities around payments, there's complexities around regulation. There's a number of complexities there. So I'd say we're exploring what that might mean if we wanted to bring demand onto the market in India as well.

Great. That's really helpful. Maybe...

Just real quick on international. We just acquired a company called Elo7 in Brazil. Etsy had no real presence in Brazil previously, and there's a lot of cross-border issues around Brazil and United in states of Brazil and Europe. And so we're excited to plant a flag in Brazil through Elo7, which we think is a great brand in a market that's really well positioned for growth.

Great. So then maybe taking a step back and just thinking about the total addressable market, and I think this is a question you get a lot of investors kind of constantly wonder like what is the right way to frame actually total addressable market. How is your view of the addressable market evolve, particularly as you saw the marketplace act in a very nimble way during COVID and as you made some acquisitions has your view of the opportunity evolved over time.

Well, what -- I think Rachel and I've been saying for the last 4.5 years since we've been here is it's difficult to quantify, but it's so large that it shouldn't play into and to our investment thesis over any time line that any investor is likely to have. And so if we were only in home furnishings like Wayfair, Wayfair says they have an $840 billion TAM. Home furnishings turns out to be Etsy's largest category, too. Etsy's sellers sold about $2 billion of home furnishings last year. So if we only sold home furnishings, no one would question our TAM. But unfortunately, we're in 50 other retail categories. And so we've tried to come up with contortions to make the TAM look small enough that people get comfortable. And we've said crazy things like imagine there were only 6 countries on the earth. Imagine that there is a real difference between online and offline shopping. And through all of that, we've tried to get the TAM down to small numbers like $200 million to $300 million -- $200 billion to $300 billion. But the pandemic exploded all of that. I mean, obviously, there is no difference really between online and offline shopping. Shoppers just want to buy a thing and where they buy it, does not define the market. Etsy obviously operates in many more countries around the world in just six. And we also said, imagine Etsy only operates in six categories. And of course, Etsy operates in -- Etsy sellers operate in many, many, many categories. So we know the TAM starts with the T and whether it's 1.7 trillion or 2 trillion or 1 trillion, I guess what we're asking is, is Etsy 0.5%, 1% or 2% of its total addressable market. And we could spend a lot of time and energy on that, and it wouldn't matter. What I would suggest is that Etsy addressable market is not a constraint to Etsy's growth in the next decade or 2 that we can imagine, and that's the time horizon -- that most investors tend to think with them.

And I would just add that the TAM relative to our recent M&A, Euromonitor puts the Fashion & Apparel category, which is one of our top 3 largest categories. It puts that at $500 billion, just on its own growing at about 40% CAGR. So buying Depop helps us penetrate that TAM that we already think we're in, a whole lot faster and it also extends the demographic. So our core demographic age is higher than Depop's, which is their core is 18.0 to 26.0, which was not part of Etsy's core. So it gives us greater breadth in the demographic part of the fashion category and helps accelerate our growth rate in that category.

No, I guess to build on that, there's a thesis out there that there's going to be 1 million different places to buy things. And there's a lot of -- there's hundreds of billions of dollars invested in that thesis that we're going to have a massively fragmented e-commerce landscape. I think that's exceptionally unlikely. And what we're seeing is, in fact, exactly the opposite, right? Commerce is consolidating around fewer and fewer brands. I think there's going to be Amazon. There's going to be maybe one Amazon look alike, that's strong enough to compete with them over time. And then there's going to be a very small number of alternatives to Amazon that are true alternatives to Amazon. And the opportunity for those few true alternatives to Amazon, I believe, is massive. And I think Etsy is very well positioned. Depop is very well positioned. Reverb is very well positioned to be one of those very few alternatives to Amazon.

Great. Well, as you touched on some of the acquisitions you made, Reverb Depop, Elo7, bolstering your exposure to certain demographics in certain geographies. Can you maybe touch on the funnel of opportunities you see from here? And should we be thinking along the same lines of demographics, category, geography in terms of the framework in which you're looking at potential M&A?

So I'm going to be guilty of repeating myself, but we like to look at M&A along a few vectors. So geography, the category expansion, which we've done -- or further category penetration, I should say, which we did with Depop, adjacent categories, which we did with river and then geography, which we did with both Elo7 and when we invested in DaWanda, which was a German marketplace, a few years ago. And then we also look at other opportunistic -- I can give 2 examples. So technology or IT investment or acquihire, so we've made a big -- I should say, big, small acquisitions preceded, Josh and my arrival at Etsy in Blackbird Technologies, which increased our footprint in data science and machine learning. And another example might be investments in seller services or the seller platform itself that gives some service back to the sellers that is easier for us to buy rather than build. And so we're always looking at those things. But we also look at our capital allocation, balance sheet allocation, not only for M&A but also for capital return to our shareholders, and we have -- currently have an authorization of $250 million from our Board to do share repurchase, and we've been doing that throughout the last couple of years as well. And so and we balance all of those things with what we can invest in organically versus where it makes sense to -- we can go faster or get something more efficiently through an acquisition.

Great. So maybe double-clicking a little bit on the integration of the acquisitions. You're further along with Reverb and some of the more recent acquisitions. Can you talk about your learning so far in kicking on Reverb? And how your views have evolved and how you and the team can execute against a multi-brand strategy, particularly as you maybe bring more in at a higher rate?

Yes. So we're very pleased with how Reverb went and that never was a test for us and can our knowledge know-how of how to run a 2-sided marketplace truly add value. And I want to start by saying we have a very clear set of criteria, and it's not a shortlist for what an acquisition target would be to look like. It needs to fit with our mission and vision about keeping commerce human. It needs to be about noncommoditized inventory, special inventory. It needs to be a true peer-to-peer marketplace where a very wide number of sellers are selling to a very large number of buyers. It needs to be a capital-light model, where we're not taking possession of the inventory. Etsy needs to believe that we have the ability to add real value for our know-how. We need to think we can get it at a fair price. And we think we've got the capacity to actually take that on. So if that sounds like a long list it is. We're patient and we're picky. And so we tested that out with Reverb. And we're very pleased with how that's gone. And in a recent earnings call, we shared how much value we think we've been able to unlock with Reverb. The very basic formula for making ice is to really focus on increasing the value of a visit through a lot of our know-how and how to drive conversion rate improvements, for example, to really get value per visit up and then be able to reinvest that in driving more traffic through better Martech, better marketing efficiency, better attribution technologies. And so by having the value per visit go up and be more efficient in acquiring visits, you can really make the flywheel spin more and more, particularly for 2-sided marketplace that's already very vibrant. So we think we've been able to add meaningful value to Reverb. We're pleased with that. Importantly, we thought the levers for growth at Reverb looked very, very similar to the levers for growth at Etsy. You need to run a payments platform that is safe and secure at scale across many countries. You need to have search and discovery technology that works really, really well. You need trust and safety, tools and technology that work really, really well. You need a really scaled performance marketing organization and performance marketing tools, localization and translation tools, et cetera, et cetera. All of the fundamental levers are the same. So our ability to relatively quickly add value, we think it was a thesis we wanted to test. We're pleased with Elo and with Reverb, and we're excited now to be partnering with Depop and Elo 7 to hopefully do something similar going from 2 brands to 4 brands is meaningful. And so we're really pausing now to make sure that we take the time to set up Depop in Elo 7 for success, and we're really going to be focused on those 2 companies at the moment. In addition, of course, our main job, which is helping the core Etsy marketplace to unlock its full potential.

And just on top of that last point that each of Elo 7 Reverb and Depop have really strong management teams of their own. So they run independently with our -- we call them craft circles, if you will, like we spend time with them on what we can that is additive to their own knowledge and help identify for them the places where we think there's the lowest hanging fruit or the highest opportunity to invest using the expertise on the Etsy side, but Etsy's management team is primarily focused on etsy.com, and their management teams are focused on their independent businesses.

Great. That's really helpful. Maybe focusing on core Etsy marketplace, you've attracted a lot of buyers and a lot of sellers rapidly for some time. How do you view the marketplace today? Is it more supply constrained, demand constrained? Is it -- on or truly about just getting more demand on and there's plenty of supply to go around?

Yes, definitely more demand constrained in the United States and for the most part, in the United Kingdom as well. It will vary a little bit by market. But in the United States, for some time, we've been saying, well, since Rachel and I arrived, we've been saying that we are demand constrained. And I think we really demonstrated that in the pandemic in 1 week, literally overnight in April of 2020, demand on Etsy doubled. And the sellers were able to effortlessly absorb that amount of extra demand. We didn't see delays in processing times or anything. It was effortless for our sellers to absorb a doubling of demand. Since that time, the number of sellers and the amount of inventory available for sale on Etsy has exploded. There are now over 5 million sellers with over 100 million things for sale on Etsy. So as fast as demand has grown, supply has also grown, and that leads us to believe that we continue to be very much demand constrained. And there are pockets where we definitely want to build more supply. So we do have some efforts in particularly some European markets in France and in Germany, for example, a couple of parts of the U.K. business where we're working to bring on more supply. And then we've already talked about India. But for the most part, once a 2-sided marketplace like Etsy, once it gets to scale, supply will find demand. So if we bring demand, the supply will find us.

Maybe switching gears to how you get demand. Something I thought was really interesting. You mentioned on the most recent earnings call was kind of the impact of TikTok and bio trends translating to sales on Etsy. For those who aren't as familiar with the space, can you discuss a few examples of how this has been a driver of growth for millennials and Gen Z consumers to the platform.

Yes, absolutely. Etsy punches way above its weight in terms of social media following. First, let me say Etsy Punch is way above its weight in terms of organic traffic. So we're really pleased about the fact that the substantial majority of traffic comes to Etsy organically. And we talk a lot about our performance market in efforts, and they've been very important, and they've been very impactful and they drive a positive ROI, but it's still true that most people come to Etsy organically. And we feel great about that -- and that's very, very rare in e-commerce to have a brand that's powerful enough, different enough and relevant enough that people will actually remember it and go to it organically. Part of all that shows up then is in our social media following. So the number of followers that we have on Instagram, the number of followers that we have in different social channels is well outside of the size of our GMS. And it's because there's a lot of love for Etsy. So there are billions of mentions of Etsy on TikTok as an example. And as soon as something trends on TikTok, you see it on Etsy. So we mentioned in our last earnings call, Free Britney became a powerful social movement. There's a lot of people who care about Britney. And it seems like she's got a legitimate grid out there. And so within minutes of that starting to trend on TikTok, you see it on Etsy. And Free Britney Merch starts showing up on Etsy. And again and again, when moments happen in the cultural gestalt, you see them almost immediately when Vice President Pence was debating during the presidential election, there was a fly buzzing around his head. Before that debate was over, there was merchandise for sale on Etsy of Vice President, Pence for the fly buzzing around his head. It literally happens that fast. And I think part of that responsiveness, it's kind of funny or cute when you're talking about some of these small social media moments. But what we've seen is that tastes and trends change very quickly and very unpredictably. And the whole world of retail and e-tail is engaged in hiring people whose job is to guess what's going to be popular 6 months from now so that they can design it, build the supply chain for it offshore, source it, put it on a boat, hope the containers are available, which they aren't right now and have it arrive in stores at a time when that product is actually popular in the quantity in which that product is popular. It's a really, really hard business and I feel so grateful that we don't do any of that at Etsy. We don't have to guess. As soon as something becomes popular, our sellers list an item. If someone buys it, they list another. And so they're able to be immediately responsive without any of the kinds of supply chain issues or delays that traditional retail faces.

I want to touch on off-site ad. That's been an exciting solution offered to sellers. It's also helped as you move up this take rate a little bit. How much more runway do you have to continue increasing take rate with this solution, and what stage are you in kind of the efficiency and effectiveness of it for your sellers?

So just for those of you that don't -- aren't familiar with offsite ads. Etsy uses its own P&L to -- by product listing ads on -- primarily on Google. And what we've done is when there's a successful product listing and that results in a successful sale for a seller, the seller pays a higher transaction fee. So it's really a cooperative marketing program that's a CPA-based model. They don't pay anything unless they get a sale on it, so it's a win-win. For them, and we said 2 quarters ago that about 30% of our performance marketing dollars were offset by this increased marketing fee that -- or the transaction fee that we charge the sellers. And last quarter, we didn't repeat the number, but we said it continues to be healthy, less than 2% of sellers have opted out of this program. So it's -- if you do the math, on the transaction fee, they get charged, it is something like a 6x to 8x return on ad sale for them. So it's a very high ROI, and it helps Etsy's be able to spend deeper into the ROI curve effectively takes lifetime value up, and we get to maintain or even grow our ROI. So it's been a very successful program. We've added other channels into the offsite ads program. For instance, we added our affiliates in there and the Google Display Network. So we continue to be able to expand the places where we can buy product listing ads that they go into the program, and that helps it grow. It also grows from increased conversion rates. So the things that we do to help the seller increase conversion rate helps that the amount chargeable to grow as well. So we've really enjoyed the framework for that program. It's been very successful both for sellers and for Etsy.

Great. So maybe difference for you as well, Rachel. How do you think about investment decisions, maybe in marketing or acquisitions to facilitate growth versus kind of what you want your margin profile to look like over time?

So first of all, we have a very -- a great framework that we love at the company that Josh has coined called focusing on the vital fee versus the worthwhile manies. The first thing we do is we prioritize all the time because we can't be super met thousands of things at once. And then we also have had another framework that for the things that we've prioritized as important. We try to keep a balanced view of things that are foundational or sort of investing in the technical underbelly of the company versus evolutionary that we continue to optimize versus revolutionary try to balance that all the time. And then thirdly, we have a pretty good ethos of ROI rigor within the company. So we want to invest for growth. We don't mind letting that take a few quarters or investing for long-term growth. We don't -- we're not coin-operated, where we need to see the ROI within the quarter, but we have to have high conviction in that the return is going to be there. And sometimes that means making some bet style, our bets pan out. So for instance, we have a huge amount of our organization in investing in product and engineering, and we experiment with everything. And most of the experiments fail, but we have a very good framework for knowing what to win, what's the neutral and what to fail, and we only go forward with those that are either neutral or winners. And so we're very willing to make that investment of our resource to experiment and optimize for big ideas. We're very focused on frequency right now in our organic investments, and we have a large number of our product and engineering squads are focused on initiatives that are sort of trained on improving frequency. We've said earlier on this call and in the breakout meeting that we had earlier that we are also focused on. We use our balance sheet where it makes sense to use our balance sheet. We do so with the lens of the same fundamental philosophy that Etsy's P&L has, which is capital-light and businesses that don't require huge balance sheet -- deployment of our balance sheet for things like warehouses, fulfillment retail stores and so on. And that's been a good guiding principle for us, and our North Star then can continue to be we said 2 years ago that our long-term margin goals were to be 30% or higher at scale. And so that investment philosophy keeps that philosophy intact.

Great. You touched on investments in R&D, and you made various improvements to the platform. Recently and hoping to maybe touch on a couple. But first, can you talk a little bit about XWalk and the enhancements to search and benefits realized from this?

Absolutely. So XWalk is an investment we made when Rachel talks about foundational, it's a great example of a foundational investment where it allows us to do an 11-fold increase in the amount of data we process per query, who cares, why should I care? Well, in the past, order one of the big opportunities for Etsy is for most search queries on Etsy, we have over 10,000 relevant search results. What are the 30 we should put on the first page. And if we understood more about your tastes and preferences, we could start to understand which 30 out of 10,000 to put on the first page. We also need to understand more about the item itself, by the way, and what other items it relates to, and so the ability to do much more complex machine learning is foundational to that. So in the past where we might have in order to personalize your search result only looked at things like what item did you put in your cart or what item did you favorite? And that's a pretty scarce data set. Now we can start to look at things like which items do you dwell over longer than others. And if you look at what the state of the art is, how do Instagram or Pinterest or others do what they do, looking at the metadata around things like dwell time, turns out to be really important as just 1 example there. So we're now able to use a lot more data to provide a much more personalized experience, which we think will pay off in search and in ads and in trust and safety and in customer support in lots of places over and over, and that's an investment that took well over a year. But it's the kind of investments we're making and the kinds of things that are particularly important to Etsy and uniquely important Etsy that we're excited about. The other thing I would add to Rachel's great points about our investment framework so we're very, very focused on the marginal return of the next dollar spent. We obsess over that. And so we have been growing our team. But as we add more engineers, we look at for the next tranche of engineers, we've just hired the most recent tranche was the productivity, which usually is measured by GMS. So for every squad, how much extra GMS did they unlock. Has that productivity been consistent with what we've seen in the past. And we're really pleased about the fact that as we're scaling, we're continue to seeing -- we're continuing to see really strong productivity, which tells us that the very deep pipeline of great ideas we have that we've got a long pipeline of really great ideas, and we think a lot more work to do to continue to make the Etsy experience much better.

Just adding on to your question about XWalk, and it applies to all of the products investments that we make that are successful that we release to general audience. If they increase conversion rate, that increases lifetime value and the high that lifetime value goes, the more marketing dollars we can apply to it and maintain that ROI threshold. So they are a virtuous flywheel together product and marketing. And so XWalk is an example where we effectively increased conversion rate. We're giving a better search results. And so that investment ultimately helps us spend more on marketing as well.

Great. That's really helpful. Maybe we got, I think, less than 2 minutes here. So maybe 1 last question. Could you touch on the Star Seller program you launched and some insight on how the future work, and what value it adds for sellers and I guess, buyers in the end?

Absolutely. So the Star Seller program reward sellers who meet a clear and visible standard for excellent customer service. And in this case, we picked 3 metrics. We picked what percentage of your items get a 5-star review. How quickly do you respond to buy our convos, and do you ship consistently on time. And so sellers are always asking us what can we do to improve the visibility of our shop. And the more we can tell them explicitly what they can do, the better they can do it focusing their time and effort. So consider this the beginning of a race to the top, if you will, of Etsy, having a very clear dashboard for sellers that says, this is what buyers care about. Here's the bar for what good looks like and here's where you are currently relative to that bar. And so sellers can invest more time doing the things buyers care about, all sellers get better, it makes the buying experience on Etsy better. And we think it's one of the most powerful ways that we can continue to significantly uplift the experience for everyone.

Great. Well, this was really great. Josh, Rachel, thank you both for being here. This will conclude our fireside chat.

Thanks, Nick.

Thanks for having us.