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

Good afternoon, everyone, and thank you for joining us. My name is Nathan Feather, and I'm Morgan Stanley's small and mid-cap Internet analyst. I'm excited to be joined today by Josh Silverman, Etsy's CEO; and Rachel Glaser, Etsy's CFO. Thank you both so much for joining us.

Thanks for having us.

Thanks for having us. May I just quickly direct people to Etsy's safe harbor that can be found on our Investor Relations site, and cross that off my list. Now you can proceed.

Great. Well I have one, too. So for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.comresearchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, let's begin.

So I want to start a little bit more high level. It's been around 7 years now since you both joined the executive team at Etsy. But the marketplace and certainly the environment you're operating in have changed a lot over that time frame. And so can you talk to the key areas in which the platform has improved since you arrived? And looking forward, how do you see the market opportunity and what's your strategy to capture it?

Yes. Great. Thank you. So if we go over back to 2017, Etsy was -- had about 2 million sellers, about 30 million buyers conducting about $3 billion of sales on Etsy. And sales growth had decelerated every quarter for, I think, 7 or 8 straight quarters. When Rachel and I joined, we were 2 quarters away from having no growth. And what the market concluded was, I guess Etsy is about as big as it can be. It's fully exploited its TAM and -- so I guess, that's it. And within a very short amount of time, we were able to reaccelerate growth to 20% and then the pandemic happened. And when you fast forward to today, we have about 6 million sellers, about 92 million buyers who conducted about $12 billion of trade just in the core Etsy marketplace. So we've tripled in sellers. We've tripled in buyers. We've tripled in GMS in just 6 years. And a fun fact in 2017, when we joined, Etsy did $440 million of revenue. Etsy did last year, $750 million of EBITDA. So for those who thought in 2017 that we were about as big as we could be, I think we've demonstrated that the market opportunity is vastly larger than some people thought. Here we are again today and we have grown quite a lot. And yet the last couple of years, we have not grown. And some people are wondering is Etsy then as big as we can be. It sort of feels like 2017 all over again. So I think we are at the very early stages of what Etsy can be. And how did we reaccelerate growth in 2017? Well, we made it easier to find things among the vast selection of things that are available to find. We made Etsy more convenient by making shipping prices easier and shipping prices go faster. We increased trust in the marketplace. We made the marketplace even more human while investing in marketing to make Etsy more considered as a purchase. And when I sit here today, the opportunity on those same levers to do so much more is vast. There's over 100 million things for sale on Etsy right now. And getting you to the thing you want is a huge opportunity for us. When we look at things like advances in GenAI and machine learning, the opportunity to truly have a dialogue to help you to understand what you're looking for and get you to the perfect thing. The perfect thing for you is on Etsy. We've just got to get you there and technology continues to improve to help us get a lot better. We still have a ton of opportunity to get the packages to you faster, get the shipping prices to be even better. We have a ton of opportunity to drive more trust. We have a ton of opportunity to make the experience feel more human. And perhaps probably, most importantly, to drive a lot more consideration. Etsy now is the second most popular e-commerce site in America by active buyers. Only Amazon had more active buyers than us, I believe, last year with our 92 million. But most of those buyers still buy on Etsy relatively infrequently and many people didn't buy an Etsy at all. Only 1 in 3 women shopped on Etsy last year in the United States, only 1 in 10 men. And when you ask them why not, they said, "Well, I just didn't think of it." So building consideration continues to be a huge opportunity, and we -- I very much believe the best is yet to come.

Well, I think it's a great intro. And looking a little more near term, you've been navigating a relatively challenging macro over the past year. And as a result, Etsy didn't grow but some others did in e-commerce last year. Can you break down why you think that was?

Absolutely. So first, when we look at the top line macro, things look like they're holding up pretty well. But when you ask the average consumer, they say they feel really bad about the economy. And we see this, for example, in a lot of polling data. Why is it that Biden is so unpopular? People are really upset that they feel like they're not doing well when all the sort of consumer spend data looks relatively healthy. Well, when you inspect a little more closely, the share of wallet to essential items, particularly food is dramatically higher than it was just 2 years ago. So people's wallet is smaller. They've spent down the savings they've built up in the pandemic. Their credit card balances are as high as they've ever been. And the essential items that they need to shop for are a lot more expensive than they used to be. So people are very focused right now on value. What is the cheapest way for me to buy largely essential goods? And so the winners in that are the people who are selling essential goods cheaply, primarily Amazon and Walmart. If you look at the growth in e-commerce product sales, it is almost entirely Amazon and Walmart, who sell essential products relatively cheaply. And if you look at their earnings, what they are saying is what's driving their growth is essentials and the headwinds are discretionary goods. It's also true, I think that during the pandemic discretionary goods probably took a disproportionate share of wallet because you couldn't travel, because you couldn't dine out. And we are still in a rebalancing phase. But this is a moment in the cycle. And it is not, I think, forever, that these moments in the cycles last. Being old enough to have managed businesses through multiple cycles, cycles come and cycles go. It's the nature of cycles. I will point out that when you look at our comparables, Etsy's 4-year CAGR is 25%. eBay, I think, is negative 1%. Wayfair, I think, is 5% or 6%. Amazon next best of breed is 11%. So Etsy with a 25%, 4-year CAGR has some pretty tough comps. But what I'm really pleased about in that, what I think it demonstrates is we went for a period of time when you really couldn't shop, you couldn't shop offline, you couldn't travel, you couldn't dine out. And even wanted to buy goods online, everybody was out of stock or the product was stuck on a boat coming from China. Etsy was one of the few places you could spend money where everything worked as normal. So tens of millions of people had to shop on Etsy because they had very, very few other choices. Fast forward to today where it's all changed, where you've got all the headwinds I talked about in the macro. Last quarter, we had the highest number of active shoppers in our history. We had more active shoppers last quarter than we did during the worst moments of the pandemic, and the active shoppers last quarter spent 20% more on average than they did pre-pandemic. Now they spent 29% more in the peak of the pandemic than they did before pandemic. So okay, when the government is funneling money in your wallet and you've got nowhere else to spend it, Etsy is getting disproportionate share. But the share that we've been able to hold even now, even in the worst of the headwinds for what feels like all the tailwinds have become strong headwinds, we've held almost all of the gains. I take great heart in that in terms of confidence for the future.

If I may add just a quick note on that is that also during the pandemic, we started to bring in more buyers that were in lower household incomes. We still skew towards higher household income, but many more in that under $100,000 per household income category. Those buyers were benefiting significantly from all the stimulus that the government was providing them. And those same buyers are the ones that are most constrained now in a heavy macro headwind.

Okay. Great. Well, and to build directly on that, just want to hear what you're doing in '24 to reaccelerate growth even in a challenging macro? And it would be helpful as well talking specifically to the 1Q '24 and 2024 guidance and what you're building in from a macro perspective.

So I can talk a little bit about the portfolio of initiatives. And then, Rachel, if you want to deal with guidance. Yes, so we have a bold and exciting portfolio of initiatives, there's a lot under our control and we are focused on what we can control in this environment. And so to tick them off just very quickly, we're leaning heavily into gifting and Gift Mode. It's our plan to launch a loyalty program in the later part of this year. We are focused on making shipping faster, in particular, cutting at least 2 days off the time it takes for a package to arrive, making shipping costs more predictable for both buyers and sellers and expanding cross-border trade, while at the same time evolving our search engine to have an even greater focus on elevating quality and giving sellers agency. And those portfolio of initiatives, I think, are all meaningful, and I think can very significantly uplift our customer experience.

So before I talk about guidance, let's just ground you in how we finished 2024. So in the fourth quarter, we finished the fourth quarter up about -- sorry, down about 1.5%. So still down, but getting closer to flat. EBITDA margins up a little bit, 27 and change and revenue up 7%. So all in all, a pretty good year for Etsy on almost -- or a little bit more than 2x the size we were in 2019. The guidance we gave for Q1, we said that we've been experiencing mid-single-digit declines in the very first month, 1.5 months of Q1. We guided to low single-digit to mid-single-digit decline. Partly the upward trend we were seeing for the second half of the quarter on GMS was that we have adjusted some of our -- we did some incrementality testing on our performance marketing that adjusted our ROI thresholds down a little bit, letting us spend a little bit more. And we expect that to give us some fuel for the rest of the quarter. We said that the take rate for Q1 would be between 21% and 21.5%. We finished 2023 with about 21%. So that's a small increase in the take rate, and from there, you can figure out what the revenue guide was. And on the bottom line, we said it will be approximately 26%, reflecting a pretty heavy investment in the launch of Gift Mode, particularly a big game advertising piece that we did. We still have not given full year guidance, but we did give some tea leaves. And we said that we thought for the full year, we would be -- that Q1 would be the low point for the year. We said that you can expect about the same take rate for revenue for the full year. And that on the bottom line, they would be -- our margins would be at least as high as they were in 2023. Do remember that we also have 300 basis points of contraction from our subsidiaries. So that puts Etsy at 30% margins or higher. Just one point on that. And I don't want to steal any thunder that you might add. But in the peak of the pandemic, our margins were 37%, I believe, in Q3 of 2021, just demonstrating that our flow-through to EBITDA is very high when we can't reinvest it fast enough. Right now, we take a lot of the incremental revenue that we have, and we reinvest it in growth initiatives.

Okay. Great. And I also want to touch on one of the hot topics for investors right now, which is the potential impact of a few Chinese-based exporters such Temu. So can you talk through the impact that you believe it's had on your marketing strategy and the mitigating steps you've taken there? And do you believe you've seen any impact on organic demand or traffic?

I'll just start by saying, I think there's a few thousand people in the world who really are very -- put Etsy and Temu in the same bucket, and they have one thing in common. They're all asset managers. I just think it's hard to talk to any customer out there and say what brand you associate with Etsy and have them come up with Temu. So I'm just somewhat shocked by the amount of focus we get from investors and obsession on this one brand. I think Temu is a sign of the times. The times are that people are right now incredibly focused on getting deep discounts on essentials. And even when they're shopping, if they have money left over for discretionary products, for discretionary products as well. It's a sign of the times. But the idea that Temu is somehow a direct competitor and the biggest bet to Etsy feels vastly overstated to me. One thing to consider, the purchases on Etsy are highly considered purchases. When you're buying on Etsy, you're buying for a special occasion. You're buying a gift for someone else you care about, you're buying some jewelry or a dress for yourself to go to a special occasion, you're buying something to decorate your home and you want it to feel special. 70% of purchases on Etsy have more than 2 visits -- have 2 or more visits required to make that purchase. More than half of our purchases have 3, 4, 5, sometimes 10 visits. These are highly considered purchases. It's not an impulse buy or something that just you bought because it happened to be cheap most of the time. And you're buying on Etsy because it feels special because it's made just for you. If I had to pick a brand that was the polar opposite of Etsy, Temu is the closest I can think of to the polar opposite of Etsy. Now there's no question that they're investing so much that they're having an impact on the entire ecosystem. So for example, they're pouring money into Facebook and Google at such a frenetic pace and with what feels like so little focus on ROI that they are single-handedly changing the cost of the deep part of the auctions in which we tend to participate, the long tail of the auctions in which we tend to participate. And that means it's having at the margin a slight effect on our ability to invest in some of the performance channels at the scale we historically have or would like to. It's at the margin, and we ship to TV where we also see very good performance, where we're very ROI-driven and which are very big channels. But I would also remind people that one of the great things about Etsy is that roughly 80% of the sales on Etsy come from free channels, people who go to their -- launch the app themselves or go to their browser and type www.etsy.com or respond to our e-mails because they are already active customers or come to us because they went to Google and typed in Etsy. So the fact that we have a very substantial brand and have a lot of direct traffic means we're not dependent downstream on performance channels and have a lot of control of our own destiny as well.

And one comment there is that Etsy has been competing with Amazon and other e-commerce since our inception. We don't own shopping. What we own is special, differentiated shopping. So Temu and SHEIN and others are -- they're other places to shop, but that just helps us differentiate ourselves even more.

Well, there is one place where it seems like there's some overlap, which is the merchandise on Etsy versus some of those mass monetized marketplaces. So how are you addressing this? And then what are you doing to protect the marketplace against bad actors?

Yes. So we believe that the vast majority of it -- of items for sale on Etsy comply with our policies, handmade policies, product safety, trademark and other. And there are always some items that slip through our defenses and may exist on Etsy. That doesn't mean they're visible in search. And so we have a set of defenses to try to keep them from coming on the platform. And then if they're on the platform, we also have a set of defenses to try to make sure that we are elevating the items that really stand for the Etsy brand. People do not come to Etsy wanting or expecting mass-produced items, and we invest very significantly. Last year, we invested about $50 million in trust and safety controls in order to identify, suppress and kick off sellers and items that do not comply with our policies. And the state-of-the-art in machine learning is getting better and better to perform a task that previously only a human could perform, which is to look at an item and to determine whether or not it's handmade. And across 100 million items with 6 million sellers, there's no amount of humans you could throw at that and do it at our scale. But the machines are getting a whole lot better. We've been making very significant investments in it, and we're seeing a lot of success. So we shared in recent earnings calls that, for example, the number of items we've -- and sellers who were kicked off the platform last year grew by 150% as our controls have gotten a lot better. The number of noncompliant items that anyone ever saw in search got cut by 50% just from the middle of last year in time for the holidays. And that number continues to decline and get smaller and smaller and that's because of advances in machine learning and continued investments that we're making. I'll also say that it's very encouraging to me that we're seeing no negative impact to GMS as we are identifying and kicking off even more of these noncompliant items. It's not what customers want on Etsy. It's not what they're trying to buy on Etsy. And so our interests are entirely aligned in getting these items off the platform. We do a generally -- I think we are quite successful at it and are getter and better.

Okay. Great. Well, shifting over to something maybe a little bit more exciting, the recent launch of Gift Mode, your assistant for finding the most relevant gifts you can on Etsy. So you also ran a Super Bowl ad supporting the product along with some in-app marketing. First off, can you remind us what portion of purchases at Etsy you believe were intended as gifts? And then can you also talk through early consumer adoption of Gift Mode and how you're planning to build that out so it's meant to become the place for gifting?

Yes. So about 20% of items purchased on Etsy, we believe our bought as a gift, bought for someone else. And we believe that this market is huge. We believe it's about a $200 billion TAM just in our core markets. So for example, in the United States, the average consumer spends about $1,600 per year on gifts. Only about 40 million of our 90 million buyers last year bought a gift on Etsy, and they spent only $39. If they were in that 40 million people who spent it -- who bought a gift on Etsy, they only spent about $39 on it. So even for people who bought a gift on Etsy, our share of their gifting wallet was very small, but there's 50 million Etsy shoppers who didn't buy a gift on Etsy and hundreds of millions of others for whom buying a gift on Etsy would be a fantastic first use case. Why are we so excited about gifting? When we talk to consumers in our biggest markets, even in the U.S. and the U.K., and we asked them, name a place to go for gifts. Only 1 in 10 of them unprompted can name Etsy. Now what better place is there to go for gifts? When you're buying a gift for someone, it's pretty high stakes. It shows how much you care about them, how thoughtful you are. You want to buy them that perfect gift that shows that you really know them and that it's something that's bought with care. Etsy is perfect. The other reason -- another reason Etsy is great is there's 100 million things for Etsy. So no matter what you're interested in, no matter how specific their interests or tastes are, we have it already for sale on Etsy almost all of the time. So Etsy is a fantastic place to go for gifts. We've always sold gifts. We've always talked about selling gifts on Etsy as one piece of our marketing strategy. What I've been concerned about in the past is being niched as only for gifts. And if we lean too hard into gifting, will people think that Etsy is only for gifts? And so the team pitched us over the summer on Gift Mode. And the idea is that buying for someone else is fundamentally different than buying for yourself in actually a whole bunch of ways. One, you know only a few things usually about the person. You know a lot less about their tastes than you know when you're buying something for yourself. Second, the recipient's experience is quite different. And how do you think about the recipient as part of this process? And how do you make it fun and exciting for them beyond just the day that they receive the gift? Dates always matter in a gifting experience. There's a hard date on which the item must arrive and that date is normally pretty short because most people procrastinate. How do we solve for that? How do we make shopping for someone else not screw up your own recommendations? The fact that your mother has a dog when you're searching for a gift for her, you don't want them to only see dog products when you're coming to Etsy and on and on. Lots of ways in which the experience is fundamentally different buying for someone else than buying for yourself. So the team pitched, let's launch Gift Mode. And when you are in Gift Mode, we will evolve the experience across all of those touch points to make it optimized for buying for someone else, which is fundamentally different than buying for yourself. What I love about that is you can be in Gift Mode and not in Gift Mode. We could be the best in the world of gifting without being niched as only gifting. And so we are really leaning into that. And we've launched a great experience, Gift Mode, which is, I think, a great first experience, but only a first experience that is going to continue to evolve and get better and better and better over the quarters and over the years as we establish Etsy as the very, very best place to go for all of your gifting needs. And we launched it at the Super Bowl, and we're really happy with the results that we've seen from that Super Bowl ad. But I would say that is the beginning not to kick off, not the mic drop. And so you should expect us to really lean into talking about gifting throughout the rest of this year, and I would expect even well beyond that.

Well, I want to talk a little bit more about that beginning and your Super Bowl ad, which you ran for the first time this year. Interested to hear what you thought were the results from that ad and any learnings you can apply to your overall marketing strategy going forward?

Yes. I'd start by saying that we had a big insight last year. We ran a TV ad around Etsy Lens. So we launched this product feature where you can take a photo of anything, and Etsy will find you similar items on Etsy. It's a really cool feature. And if you haven't tried it, I recommend that you try it, you'll be shocked. There's very few things you can find in the world that you can't find some version that could be made just for you on Etsy. It was a really strongly performing TV ad, meaning people who saw the ad visited Etsy at high rates. What was also interesting to us is very few of them tried Gift Mode. And what we took from that was...

Etsy Lens.

Etsy Lens. You said Gift Mode.

Sorry, I'm sorry. So many of them came to Etsy from the Etsy Lens, but very few of them tried Etsy Lens. Thank you. I'm sorry. And what we took from that was the novelty, the innovation in that ad made people think, "Oh, there's cool stuff going on at Etsy. I thought I knew Etsy, but some cool things have happened since I left. Let me go back and check out Etsy." Whether is was Lens or not that they wanted to check out. And our product development process has been exceptionally focused on value creation every week and every month. So every squad is focused on launching every single week, something that makes Etsy a little better. And over the course of 6 months, Etsy gets a lot better but in small increments along the way. Packaging that into things we can really talk about that have newsworthiness seems to really have impact on bringing consumers, and helping them to know that there's things about Etsy they don't yet know and they should come. And that was a core insight that led to let's make Gift Mode a big launch. Let's buy a big game ad, in part because we get in front of the biggest audience in the world, and the team did a great job. I think the Etsy ad, we are told was the most viewed ad of the entire Super Bowl. We were the ad that led you into the halftime show. So in the most viewed Super Bowl in history, we were the most viewed ad and that ad got really good remark -- really good feedback for really making consumers want to try Etsy. But again, it's just the beginning.

Okay. Well, Rachel, I want to dig and kind of bring all of that together. How should we think about the different levers of growth here between retained buyers, new buyers, lapse buyers, along with frequency in AOV?

Great. So let me zoom out just a little bit. We -- internally, we think about -- our levers for growth are to bring in more buyers. Secondly, to bring in more GMS per buyer. Thirdly, more revenue that's unassociated with GMS and lastly, profit. And when we talk about more buyers, that's talking about not only new buyers, but reactivated buyers. As Josh said, we had the highest level of active buyers we've ever had, and we want to keep growing that number where -- to be a lapsed buyer. So you're no longer an active buyer. You only have to have gone 366 days and suddenly you're a lapsed buyer. And we have about 100 million lapsed buyers that we have opportunity to reactivate. We've been growing that reactivation number because we had such a huge amount of buyers that came to Etsy for the first time during the pandemic and who have -- now they're spending their money at the Adele concert or in Paris and we want them to come back to Etsy and buy that special gift for somebody. So we want to grow the active buyer number. There's still lots and lots of new buyers out there. Last call, we had 8 million new buyers. That's 8 million people that had never ever been on Etsy before. We are unpenetrated internationally. The next 15 markets outside of the U.S. and the U.K. are only 80% as penetrated as those 2 markets. We only have about -- Josh said 1 in 10 men that have shopped on Etsy in the last year and only in 3 women have shopped on Etsy in the last year. So lots of room to grow the buyer number. And then GMS per buyer is about getting people to come back to Etsy much more frequently. Right now, about 50% of our buyers come only once a year. And I can think of easily a reason, at least once a month to come to Etsy. That's a lot of what Gift Mode brings to the front and center that there's, well, regions for gifting every single day when you think about birthdays, anniversaries, birth, moving house, all the stuff. And so increasing frequency, but also increasing average order value with the number of items per order that people are buying with upsell and cross-sell and other ways to get people to spend more in the moment that they're on Etsy. So we're working on those things with equal effort. Nathan pointed out, what's happening with habituals and repeat buyers, as a -- [ definitionally ] a habitual buyer is somebody who comes 6 or more times in a year and spends $200 or more in a year. Those buyers represent about -- I think we've got 8 million habitual buyers and represent about 35% of our total GMS, so a very valuable cohort. So the definition is somewhat arbitrary, meaning they could come 5 times in a year, still spend $200 and suddenly they're not habitual anymore or they come in 6 times or more than 6 times but they spent $199, they fall out of habitual. What we see happening them as they -- they don't leave Etsy. They just get demoted to repeat that somebody who comes 2 times per year -- 2 to 6 times per year. So I'm less focused on those metrics because they're a little bit more like an output. What we really want to focus on is GMS growth. That's what we're working really hard to do, but breaking it down into more buyers, more GMS per buyer, more revenue and more profit.

That's helpful. Now let's flip over to the margin side. So after 3 years of contracting EBITDA margins, you've effectively put a floor on that for the guidance of at least similar margins in '24. What are the key puts and takes there that could lead to better margin performance? And then can you touch on the areas you are reinvesting about $90 million or $90 million in savings from the headcount reduction and other cost efficiencies.

Yes. So let me start there. So we've always been very judicious and careful and disciplined in our spend. So we said many times we're not a growth at all costs company. We invest for profitable growth. Even though we are $12 billion at our core, we still think we're relatively immature business in a total addressable market that's in the trillions rather than in just the billions, and we're $12 billion of it. So lots of opportunity to invest. But we still don't spend silly money. We're very -- we've been very rigorous. So that means even during the pandemic, when we -- margins were at 37% at one point, and we had room to invest, we were trying to pace the level of our investment commensurate with the growth we saw in our forecast. And we, at one point, I think in the early part of 2022, we actually slowed our hiring. We didn't do a freeze or a reduction in force at that time when many companies were, but we kind of looked where the puck was going and we said we better slow down the pace of our investment. And what we did most recently was we said, okay, we're going to have to do a little bit more invasive intervention in slowing down that the pace of our cost base. And we did a reduction in force that was about 12% of our total headcount base, we're now about 1,800 people. And we reduced other costs around benefits and our marketing investment by insourcing some of our marketing team, optimization of our Google Cloud costs. And we were able to reduce about $90 million from our cost base out of that total. We're still investing and we're still hiring. So we do expect -- and we're doing that so that we can get back to GMS growth, which is really the name of the game at about -- at a steady state, the flow-through of incremental revenue to EBITDA margins is about 60%. But most of the time, when we do a take rate increase or any other kind of top line growth, we'll reinvest the majority of that. It's usually about 80% back into things that benefit the sellers and benefit marketplace growth overall. So we know we have the levers to expand margin where we see fit. But for the moment, we're taking most of our incremental top line growth and putting it back into marketplace investments.

Okay. Great. And there should be runners coming around if anybody has any questions after this one. But first off, I want to touch on capital allocation. So generated about $665 million of free cash flow last year. You've got about $1.15 billion of cash and short-term investments on the balance sheet. And so how are you thinking about capital allocation next year? And how should investors think about share buybacks over the course of the year?

So we have $1 billion authorization for share repurchase that are authorized by our Board with about $750 million of that remaining as of our last call. If you look back at our capital return for all of 2023, we returned close to 90% of free cash flow. We have said in the past that we repurchase shares to offset the dilution created by the equity we grant to our employees. So we went beyond that last year and that, that would be our intent going forward as to not only be limited to offsetting dilution, but to -- at points in volatility in our stock when we think the price is below what we see as fair value, we would take advantage of those opportunities, too. We stop short of saying, "We commit to it, always will be this amount," but we -- you can look at our capital return and capital yield compared to many others, and I think that's a place where we've done very well.

Okay. Great. Any questions from the audience? Okay. Well, I've got plenty more to keep going on here. So I do want to spend a minute on Depop. You've successfully reaccelerated that asset to double-digit growth. What have been the keys to the turnaround? And any learnings from that you can apply to Reverb or the core business?

Yes. So look, management and execution matters, and we took some top-performing leaders at Etsy. [ Kruti ] is doing a fantastic job as CEO. Rafe came over as Chief Product and Technology Officer. Both of those are long-term Etsy alums, 10-year-plus Etsy alums who were really part of the turnaround in 2017 and really know the playbook deeply combined with some really talented -- a lot of very talented people, both in the leadership team at Depop. And everyone else at Depop who really have executed a very focused strategy around making it easier to find the great stuff on Depop, and making sure that you really are highlighting and servicing value on Depop. And we've seen a dramatic reacceleration in growth particularly in the U.S., which is a huge market. And the re-commerce Depop is re-commerce apparel. And the re-commerce sector of apparel is expected to go 3x the rate of retail apparel. And in a market like the U.S., which is a very big market, we think there's still a ton of room to grow. The other piece of it, I think good execution is a whole lot of it with the team in executing the playbook. The other piece of it is the very things that are causing headwinds for the core Etsy marketplace, I think are very strong tailwinds for the -- for Depop, which is at a time when people are really looking for deep value among essentials, the opportunity to buy apparel on Depop much more affordable -- much more affordably because it's used than buying new apparel is very attractive, and that's really working.

Okay. Great. Well, 2 more for you here. First one, Josh, what are the 1 or 2 things that you think investors most underappreciate or misunderstand about the Etsy story?

Well, we talked about one, which is I think the Temu effect is vastly overrated, in my opinion, just from the amount of conversation I end up having with investors. It's a sign of the time and that sign of the time around a search for value is important. But Temu, a particular impact on Etsy specifically, I think, is really overstated. But I think taking a medium-term view of this business, we are owners of this business who are really invested in building this. There will be now and forever, a deep fight among those who are selling commoditized products to sell you that very same SKU a little cheaper or ship it a little faster. And have at it, let those people go to war all they want. The more they do that, the more consumers are going to crave an alternative to that, something which actually stands out, feels different, expresses your identity, expresses your care for someone else. There's going to be more and more of a need for that, and there's no one better positioned than Etsy to be that. So we're happy to have those people go to war and where our response is to make Etsy even more Etsy. And when I look at the trends in technology, the opportunity to leverage that technology, things like GenAI to make Etsy -- to get you to the good stuff even faster, to highlight quality even better, to make Etsy even more reliable. All of those things are tailwinds in our favor. We truly stand for something different. And I think in a world where people can remember only a few brands, what we do is important enough, often enough to earn one of those precious few brands you can truly remember that can drive a lot of organic traffic. We think that is an enormous opportunity. And we have never been growth at all costs. Every year has been a year of efficiency for Etsy. There's no such thing as a year of non-efficiency. There's not been a quarter when we've thought it doesn't really matter, let's just invest. We scrutinize every single dollar all along the way. Why did margins get to 37%? Because when revenue exploded, we looked at those dollars and said, we cannot put them to work profitably. And if we cannot put it to work profitably, we will let it fall to the bottom line. And that, of course, accounts for marketing dollars, but we treat our product and engineering dollars the same way. What is the value creation of every single squad? Is that squad delivering significant value with significant ROI? And we measure it, we are accountable for it. We care a lot about it. And fortunately, we have a business that scales really nicely that's incredibly capital-light -- and I think we can grow and invest for growth while also delivering market-leading margins, 30% EBITDA margins in the core. There's not another $2 billion in revenue marketplace with margins anywhere near ours. And I think it's because we care a lot about investing with discipline, the idea that scarcity breeds ingenuity, and just because you have the money doesn't mean you should spend it. Throwing more money at things doesn't usually mean that they go faster or better. And so we have the benefit of a great model, a great space and I think, a team that's really cares a lot about profitable growth and investing efficiently.

Okay. Well, let's wrap it on the opportunity for AI. Josh, how are you thinking about the ability for GenAI to really improve the search and discovery on the platform? And then, Rachel, do you need to invest more in AI-focused headcount or squads in order to reach that potential?

Great question. I think that over time, Etsy can be one of the largest beneficiaries and why? Because there's over 100 million things for sale on Etsy. And when you walk into a store, you engage with the sales assistant whose job is to narrow the world from a lot to a little for you. I'm looking for a TV, there's 500 for sale here. Show me the 3 that matter, what's different about them and why should I be interested in this one versus that one? Well, on Etsy, the scale of the challenge is so much larger. I'm looking for a gift for my mother. Okay, well, that narrows it down to 7 million or 8 million things on Etsy. Tell me 1 or 2 things about your mother, just 1 or 2, and we can now engage in a conversation. Okay, I like that, but actually her favorite color is lavender, not pink. She'd rather have cotton than silk. And the ability to engage in a dialogue can help get you to the very best thing faster and easier in a way that I think could be transformative. But it also gives us a lot of context if we knew that. Oh, it's for your mother, not for you. Oh, your mother's favorite color is the following. All of that can make Etsy better, not just now but in the future. So I think the opportunity for us in that space is enormous. Now in the near term, we measure latency and search by the millisecond and latency in GenAI is measured in seconds. So the latency of those experiments today is more than most consumers will bear. And consumers are not used to engaging with chat bots a lot. So we have experiments live today. We're learning a lot from them. But I think as fast as the tech is moving to make the GenAI experience smart, there's still going to be some things that are going to take a little bit of time to catch up before the experience is really fast and really intuitive for consumers. As that happens, I think we have a tremendous amount to gain.

I think we're on negative seconds. So thanks everybody for their time.

Okay, Josh, Rachel, really appreciate it. Thank you, everyone.

Thank you for your time.