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

All right. Thank you. Good afternoon, everyone, and thanks for joining us at Raymond James 2025 TMT & Consumer Conference. I'm Rick Patel, senior research analyst covering digital commerce, softlines, retail and global brands here at Raymond James. I'm happy to host Etsy, which is a digital 2-sided marketplace with a focus on unique and handmade goods. Before we begin, I do want to point you to Etsy's safe harbor statement, which you'll find on their Investor Relations website. I'm thrilled to be on stage with Josh Silverman, who's been Etsy's CEO since 2017 and will be stepping down at the end of the year to become Executive Chair. And also Kruti Patel Goyal, who is currently Etsy's Chief Growth Officer and will become CEO this January. So congrats to both of you on the upcoming roles.

Thank you so much.

Thank you.

So thanks so much for being here. Very exciting news about the upcoming CEO transition. Josh, we recognize this is likely to be your last investor -- formal investor event at Etsy. What made now the right time to pass the torch to Kruti? And how do you envision your role as Executive Chair?

Yes. Thanks so much for having us. Thank you for getting Kruti's name right. It's great. TH, it's Kruti, but everyone pronounces is Kruti, sorry about that.

I appreciate it.

I'm heading in my ninth year at Etsy. And one of the most important things the Board does is succession planning. So you will be pleased to know, we've been very focused and thoughtful about succession planning for some time. And as we looked at the world and who we thought was the best candidate for the job, the Board has unanimous conviction that Kruti is the right person for the job. We've been giving Kruti more and more responsibility. She keeps knocking out of the park with everything we give her. And we had a Board meeting recently where we decided that she is definitely the next CEO. And once you decide she is definitely the next CEO, it was my opinion and the Board's opinion, we should announce that to the world and make it effective right away because what am I doing continuing to make decisions for legacy that we've already decided Kruti will carry on. So I just think it's sensible, good succession planning. That said, I couldn't be more passionate about Etsy and the opportunity in the future. I couldn't be more excited about Kruti and her leadership. We've had a wonderful working partnership for a long time, and I'm really excited to continue supporting the business for 2026 for 1 year, as Executive Chairman, where I'll be providing support to Kruti in every manner that she finds useful in whatever way she finds useful. But we talk every single day, and I think, it's a really nice partnership.

And Josh, for the benefit of new investors here, can you give us a quick overview about how you transformed Etsy pre-COVID and how it has evolved in a post-COVID period, just from a high level?

Sure. When I came into the business in 2017, growth had decelerated to flatlining and the world was very concerned that there was a lot of competition and that Etsy was about as big as it could be. And we had at the time about $2.5 billion of gross merchandise sales, a couple of hundred million dollars of revenue. We were a breakeven business. And most of the world had given up on Etsy and said we're about as big as we could be. And so we knew that wasn't true. We knew that Etsy could be far, far larger than it was at the time. And so collectively, we, Kruti was very much a part of this. We said what are the fewest things that really matter to reaccelerate growth in the business. And we really worked on making Etsy search a lot better so that we understood what you meant, not just what you said. And we optimized every single pixel on Etsy to drive you from landing on Etsy to converting to an actual purchase. And Etsy today does $10 billion of gross merchandise. It was 5x bigger by gross merchandise sales. It's 7 or 8x bigger by revenue. It's infinitely bigger by profitability, $750 million-ish of free cash flow last year. And -- so we've done a lot to make Etsy far, far bigger than what it was at the time. And here we are again at another moment where the world is worried that growth is -- that we've had a hard time growing in the past couple of years and that there's a lot of competition out there. But when I think back to what we did in the 2017 to 2019 period, we made Etsy an amazing place if you knew what you wanted and couldn't find it anywhere else. By optimizing search and optimizing for conversion, when you arrived on Etsy, having searched everywhere else, we got you to the thing. We have the thing you want for sure, and we got you there fast. Then the pandemic happened. And suddenly, everyone in the world had needs that they couldn't get anywhere else. Lots of people knew they needed something and couldn't find it anywhere else. So Etsy exploded during the pandemic. The few years post pandemic have been the Etsy holding on to the gains that it made through tremendous effort, but that has been in a tide that's been going out. When we look at Etsy pulling forward roughly 4 or 5 years of growth during the pandemic, we're about 4 or 5 years post the pandemic now. So I think the idea that swimming against the receding tide, hopefully, those days might be behind us. And Etsy can be so much more than just the place to go when you already know what you want, but can't find it anywhere else. We have such a huge opportunity to be a place of discovery to be a place that helps you figure out what you want on so many other occasions. And I think Kruti has got amazing ideas and plans for how to do that.

And Kruti, you've shown sequential improvement in GMS and engagement. What do you perceive as the keys to firmly getting Etsy back to sustained growth? And how will this show up when it comes to your top line priorities this January?

Well, first, thanks for having me. I'm really excited to take over and follow on the great work that Josh has done. That we've done together over the last many years. As he said, we are really proud of and encouraged by the sequential growth that we've seen over this last year. But I would say we're far from satisfied with it. We think there's a lot more potential, and we're excited to really unlock that over the coming year with the priorities that we've laid out. When I got back earlier this year, the first thing we really did was dig into our user insights and our market research to really deeply understand and diagnose what the challenges were with the business. And there were a few key themes that emerged for us. One is just how much -- as Josh was saying before, just how much the shopping experience or the context of shoppers has changed, whereas 8 years ago, people really wanted a great place to transact. The game was make search really efficient and make transacting really frictionless. What's changed through the pandemic to today is that people really want and expect a shopping experience, one where they can discover, be inspired, be engaged much more fully than ever before. And they expect this from all e-commerce. And so that context and set of expectations has really changed significantly. And then as we look at how Etsy has evolved, we've said -- we've made a lot of progress over the last few years in really closing the gaps in terms of e-commerce table stakes. The experience has gotten a lot better on many dimensions. It's made us a lot more competitive. And when we looked at our customer research, what they've told us was that they really value all the things that are unique and magical about Etsy, the humans behind the products, the uniqueness of our inventory. And we're really looking for us to bring that to bear more in the experience to set Etsy apart more from all of those other e-commerce experiences. And it was those deeper customer insights that led us directly to the priorities that we've laid out that are going to carry us into the next year and lead us back to sustainable, durable growth. And so the first of those is to be present to show up where shoppers are discovering when they're in inspiration mode. That's not just when they land on Etsy, it's actually when they're out in the world discovering on social, watching TV, all of those places where folks are looking for inventory that grabs them and engages them. The second is to be relevant. This is the core job of a marketplace to show inventory that really matches your taste, whatever context and whatever mode you're in. The third is to be loyal to really show our best customers who contribute the most to Etsy that we value them and that we're rewarding them. And then the last and most importantly is to be human. And that is really about elevating and bringing to the forefront the things that truly differentiate Etsy, not just the products, but the people behind the products and the role that they play. And so we're going to be laser-focused on executing on these priorities to bring the company back to sustained growth.

And Kruti, Etsy has talked about retooling search and recommendations using machine learning and LLMs. What progress have you made? And what's next?

Yes. It's funny. We've talked about for many years the importance of machine learning and search and discovery, and there's a good reason for that. It is really the core job of a marketplace and particularly important and particularly challenging for a marketplace like ours that has such broad and such unique inventory. Our main job is to match shoppers with the right inventory and the right context at the right time. And so this has been an area of investment that's been really important, and it will continue to be an important area of investment for as long as we exist. And so we've made a lot of really great progress around search, around discovery, around recommendations over the last year. And what I'd say is, in the past, our recommendations really reflected the most recent information that we had about you and the marketplace. And so we look at your most recent interaction and show you more that look like that because, as Josh said, that's the most likely to get you to convert in this current interaction. What we're seeing with the advancements in AI and particularly capabilities of LLMs as they're evolving is the opportunities that, that opens up for Etsy, particularly a marketplace like ours that has such unique inventory, they make things possible that were really difficult, if not impossible in the past. So our ability to much more deeply understand buyers' tastes and interests as well as more deeply understand our inventory by leveraging not just the information that sellers give us, but things like photo -- the data from photographs allows us to better make much more nonlinear, less obvious connections. And so that's where we've been really investing a lot of time. And so what that means is that we're showing buyers things that match their interests much more effectively than we were in the past. And that's showing up in experiences like our App Home experience where we're seeing our new discovery feed delivering double-digit improvements in engagement. And so whereas a year ago, I might open the app and see a lot more rainbow colored candy necklaces, like candy bead necklaces like my last purchase on Etsy. Now I'll open up that app, and I'll see an endless feed of personalized stationery and gifts for kids and all of the things that represent -- and jewelry, all of the different things that I buy because it keys off of a broader set of behavioral data over a much longer time period. So we're leveraging these capabilities, leveraging more of the data that we have by users, and that's showing up in the traction and the engagement that we're seeing. And so what's next is we're just getting started. So there's a lot of opportunity to continue to improve these models that we're already seeing great traction and engagement with. And then taking these new models. I mean, in the last year, we've launched 3 brand-new models in a really short period of time. So we're executing faster than we ever have been before. So continuing to iterate on those models and then leveraging that content on more services in more places where we're engaging with shoppers. So not just on the app screen, but in our marketing content and in recommendations that we show you throughout the shopping journey. And we've seen really promising signs. We're moving really quickly with these initiatives, and we're seeing really promising signs from it already. So in our owned marketing channels, we've gone from a very small percentage of our -- of what we were showing you being personalized to now 80% of the content that you're seeing in push notifications and e-mail being personalized and delivering really impressive improvements in GMS for those channels. So we're excited about the road ahead with this.

That's great. And Josh, you said that you think agentic shopping could be as big a game changer for Etsy as Google Search and PLAs. Can you just expand on that? And how do you see AI reshaping Etsy's go-to-market strategy, particularly as it relates to the things that Kruti just mentioned around personalization and discovery?

Yes. I mean -- so in the last generation of Etsy, we were great at if you know what you want, you can't find it anywhere else. And so Google PLAs turned out to be a fabulous tool for that. I need a very odd-shaped throw pillow for my odd-shaped couch. So I go to Google and I search for that, right? And you're going to find that Etsy for sure has exactly what you want and you come to Etsy and you buy. It's that shoulder tap -- and it's -- over the years, people -- in 2017, most people didn't know Etsy. In the past few years, people know Etsy. They just didn't think of us in that moment. And so Google was incredibly helpful. Our challenge has been consideration. They don't think of us in the moment. And Google has been losing search share to other sources over the past couple of years, and that's been a bit of a headwind for Etsy. But the opportunity to work with agents to say, I'm looking for a really cool gift for my mother, for example. What those agents should do is they should go and bring you back some set of choice. They should say, here's 3 interesting options. Here's the thing that's probably cheapest. Here's the things that might ship the fastest. And here's something that's really novel or unique or one of a kind. In that world, Etsy is going to be surfaced far more often than people would naturally think of us. So we are a net winner, a net gainer. I very much believe in that. And what we've seen with our Google experience is that people very occasionally will actually click through and buy directly from the PLA. Most of the time, it will remind them, oh, Etsy has got cool stuff and drive incremental visits to Etsy, where they say, what else does that seller have for sale? What other sellers have similar things. They want to enjoy and swim in the discovery process on Etsy. And so I think that these agents will surface Etsy as an option far more often than people would think of Etsy themselves, and they will drive both incremental commerce and very much incremental visits to Etsy. We were the first to launch integrated shopping checkout with OpenAI. Us and Shopify together worked with their very first launch. And I'm excited about that and what that means because, one, Etsy is very interesting to the large model builders because we have a very large pool of unique inventory. It's hard to think of anyone on the Internet that has truly unique inventory at scale other than Etsy. So we are truly additive to them in their models in a way that almost no one else is. And we have a really good engineering team that can actually keep up with some of these companies that have really outstanding engineering teams. And so our ability to be one of their early partners to help shape what agentic commerce is, I think, this is a proof point that Etsy really is well positioned to help drive and lead what the future of agentic commerce should be.

And Kruti, on that point, as OpenAI's first live partner for instant checkout on ChatGPT, what have you learned so far about the buyer intent and conversion? And can you also refresh us on the fee structure and how you're working to protect Etsy's brand as you -- just given your direct-to-consumer relationships when they check out on ChatGPT?

Sure. So first, just to knock out the point on pricing, we don't share details of the pricing model. But what I will say is that we have shared that where the structure is competitive with what we pay on other performance-based channels like affiliate partnerships or influencer partnerships. So that's all we can share there. In terms of traction, we're seeing really great growth, but it's very, very early days. And so I'd say I think that we are still seeing early adopter behavior that's hard to extrapolate very far out right now, but we are very excited about the potential of agentic channels for shopping and really to become a meaningful surface for discovery. And because that's the reason that we were so excited to be the first partner on instant checkout with OpenAI. I think, first, it really reinforces that we are going to show up where shoppers are discovering, not just today, but tomorrow. And this is really important because it is very early days. We don't know exactly how things are going to evolve, but being in these conversations early puts us in a position to really shape how that experience develops. And when you think about discovery, there are 2 things that are really important, that discovery phase of shopping, showing breadth, showing diversity and showing differentiation. And so that's why it's so important that we show up. But also in these conversations, we want to make sure that Etsy's differentiation shows up. So our brand mark shows up and the fact that items are coming from a seller, the seller is also represented there. And on instant checkout, the transaction goes through Etsy's payment system. And so what that means is we are -- not only when we show up, but through the course of the engagement with Etsy, we're establishing a direct relationship. Both with the buyer and Etsy and the buyer and the seller in ways that allows us to continue to highlight what differentiates Etsy, but also to provide a great experience post purchase and continue to develop and nurture those relationships. So we're excited about the potential, and we think we're really well positioned for the reasons that Josh said and also because of how we've implemented this -- because of the shape that the early implementation is taking and our ability to continue to not only get more exposure through this new discovery channel, but to continue to build new and deepen existing relationships with the customers that we get through this channel.

If I can just build on that a little bit. I mean we're taking a little bit of a different stance than many in e-commerce. They are playing defense. How do we have agentic shopping not disintermediate us? And we're playing offense. We want to lead. We want to be in the driver's seat. Why is that? Well, for almost every e-commerce site out there, they are literally selling the exact same inventory as available on 10 other websites. They know it, right? It's all mass produced in the same factory in Shenzhen, and they're just a distribution channel with the brand. And so agentic shopping is going to surface that. It's going to say, here's the product you want. There's 10 places that sell it. Here's the one that's going to sell it the cheapest. It is a race to the bottom for all of them, and they're scared, and I get it. Etsy is actually playing a really different game. We have very unique product made just for you by a seller. And so we have something unique and different to offer where agentic shopping actually is helpful to us in a way that positions us, I think, to play offense, not defense.

And Josh, can you talk about the mobile app and why it's important to get execution right in this channel. As you work to make Etsy a place to be inspired, how are LLMs reshaping the mobile app experience? And how are you measuring that success?

Yes, great question. So the mobile app is where the flywheel comes to life for us. And when I talked about our first generation of turnaround was really about how do we get Etsy to be the place you come and buy right now, buy, buy, buy. Our focus now under Kruti's leadership is much more around engagement. How do we use every interaction with you to learn more about you. So that Etsy becomes more and more personalized, more and more curated at every single engagement. And what does that look like? Etsy is 120 million things for sale. The mind can't really comprehend how much we have to sell. But if we could make Etsy feel like a boutique in Soho that you walked into that was curated just for you. And every time you walk in, it's fresh and new, but every single thing feels like it was handpicked for you. That would be amazing. That would be incredible. Hard to believe because it's so hard. But imagine there was a super human intelligence out there that actually could understand who you were at a really deep level and understand what these items were at a really deep level. Imagine that super human intelligence became available recently in the past year or 2. What could you do better and differently? Wouldn't that be amazing? So now we need to power that super human intelligence with more data, more interactions, right? The more you come and look at items and quickly brush past items and double-click on other items, the more you tell us, the more we understand your unique tastes and desires and interests. People who download our app, they visit 5x more often. They view 3x more items per visit and they're 1.5x more likely to buy. So by getting to the app, we are really powering so much more data that fuels a flywheel that drives so much more engagement, which over time, we think will lead to dramatically more lifetime value. And so we're taking that data in the app and using it to personalize the experience more and more in ways that we think are incredibly exciting.

And Josh, Depop has been on a roll, particularly in the U.S., and you've stepped up incremental marketing investments as a result. Talk to us about how Depop fits under the Etsy umbrella overall and how we should think about the scale and duration of these recent investments.

Yes. Great. So thanks to Kruti and Rafe and the leadership team at Depop did a fantastic job at Depop and it is really cooking. We are really excited about the market for secondhand apparel, which is a very large and fast-growing market. We acquired Depop because it is a 2-sided marketplace like Etsy that is very asset-light, meaning we don't own the inventory, and it is about unique, special and creative. In this case, apparel, something that matters a lot to people. We are excited that Depop is quickly becoming a brand of choice for people in the United States and still has so much room yet to run. Depop is a brand the research shows young people 18 to 25 have a pretty good understanding of Depop now and a lot of love for it, and we've proven that the flywheel there really is working. We see that the value prop really resonates with other demographics in the United States and yet awareness is extremely low. So we've made a decision to do some surge marketing in Depop in order to build awareness for broader audiences, which we think is going to lead to quite a lot more adoption and significantly expand the addressable market for Depop. Like everything we do, we will test and learn our way in. We will not throw caution to the wind. We'll be looking to make sure that we are seeing good indications of return on investment. And we don't expect this to be a permanent change to Etsy's margin structure. This is a limited surge of marketing for a period of time to expand awareness for a business that we think has tremendous growth potential. I think could this be the Venmo to Etsy's PayPal? Very possibly.

And Kruti, you led quite the turnaround at Depop. Can you take us inside that journey? What were the key unlocks that reignited that growth? How do you view Depop's position in the resale marketplace? And what's the next big focus? Just curious if there's any synergies between Depop and Etsy that we should look forward to?

Yes. If I had to sum up the story of the turnaround at Depop, I would call it one of really clear focus paired with strong execution. And so when I showed up at Depop from Etsy, the brand and the business had a lot of great strengths already at the foundation. A really strong cultural resonance with young consumers that are really attractive and hard to capture. A differentiated brand positioning and a well-loved brand and proven product market fit. So we started with that, and then I dug in to diagnose what the key -- what the most important things were to customers that they were expecting from a secondhand fashion app. And a few things really emerged. One, it has to be really easy to list. Most of the customers are casual sellers, reselling things from their closets, the speed to being able to get something from your closet onto the app really matters, low friction, delightful experience. Second, price discovery really matters in secondhand commerce. Negotiation -- price negotiation is a big part of buying secondhand. And there was an opportunity to make that a lot easier and a lot more effective. And third and probably most important was discovery. And there are a lot of parallels we see here to the experience on Etsy. But in secondhand fashion, the alternative is you go to a local thrift store and you really dig and hunt through the inventory. And the advantage of shopping online on an app is the fast, easy, delightful discovery opportunity. And so understanding these key insights about what users need and expect was really the first step and then laser-focused execution on improving those and focusing on the audience that mattered most, in this case, in the U.S., where the biggest e-commerce market in the West -- in the Western world, having clarity of focus on those customer needs and the market that mattered most really drove our execution over the last 3 years. And we made some meaningful step changes in the product experience during that time. One that we've shared in the past about is the impact that, that work on discovery and creating a great engaging and inspiring experience on the app delivered. What we saw was that our recommendations got better and our search got better at the same time through those investments in machine learning in a way that not only drove conversion, but that then drove frequency as a result of that and drove new user growth after that. It really ignited the flywheel. And what we saw as a result is the great growth that we've talked about over the last couple of years in the U.S. In Q3, we grew 60%. Our GMS grew 60% year-over-year. We -- over the course of 3 years, we've doubled the scale of the business in terms of GMS and in terms of buyers, tripled the scale of our inventory and have become the fastest-growing secondhand fashion platform in the U.S. And so we've seen really great results from that focus, that really clear focus on execution. And there are a lot of really great lessons that we're taking from that and applying to the current context that we find ourselves in here at Etsy.

That's great. Well, that's all the time we have. So thank you so much, to Josh and Kruti for your insights, and thank you all for your interest. Happy holidays.