Etsy, Inc. ($ETSY)

Let's get started. Good afternoon, everyone. Thanks for joining here today. And my name is Nikhil Devnani. I'm Bernstein's U.S. emerging Internet analyst. I cover a range of marketplace businesses, one of them being Etsy. It's my pleasure today to be hosting Lanny Baker, CFO of Etsy. Lanny, welcome back to the [indiscernible].

Thank you. It's good to be here.

Before we get started, I want to remind everyone to please refer to the Etsy Investor Relations website for the safe harbor, and if you want to submit any questions for this session, you can do so via the QR code. And for those of you newer to the story, just to level set, Etsy is a global e-commerce marketplace, last year did about $10.5 billion in gross merchandise sales, or GMS, supported about 87 million active buyers and 5.5 million active sellers. Lanny, Etsy has been under, I call it, "new leadership now." You've been a CFO for about 1.5 years. Kruti took over the CEO seat earlier this year, but she's obviously been at the company for longer than that. And you're on this journey of getting business back to more durable and consistent growth. So under this newest team, right, what are the strategic priorities for you? And what are you doing differently today versus what's been done in prior years?

Well, let me go back just one click and say that Josh Silverman, who led the organization for 7 or 8 years, put in place a team that really was able to rise as we move on to be our Executive Chairman. So we also have a new Chief Product and Engineering Officer in [ Rafe Colburn ], and a relatively new Chief Marketing Officer in Brad Miner. So it is a new team of leaders coming together. James Osman leads our Customer Support and customer operations team is relatively new to that role. So it is a new team coming together. And we did a deep diagnostic of everything that was going on in and around Etsy and had been taking place over the past 5 or 6 years. We did that in early 2025 as a team together. And we really focused on understanding the customer experience. And I'd say the biggest change that this new leadership team is focused upon is really listening to and embracing the needs, the desires, the preferences, the interest of the Etsy customers, both our buyers and our enormous seller community that are really fundamental to this 2-sided marketplace. And that diagnostic led us to a series of 4 main strategic priorities that we saw over and over and over again in the customer research and the data that we analyzed in the competitor valuations that we did. And those 4 priorities are: number one, to show up where our customers are and improve the discovery of Etsy as a place to start your shopping expedition or shopping mission. The second area of focus has been to improve the match that we deliver when people come on to Etsy when we respond to their search queries, we want to respond with high-quality items that are well tailored to their specific search query, but also to their personal characteristics, needs, traits and profiles as we can understand those. The third element of our strategy is to do -- to put a much stronger emphasis on customer retention and customer loyalty. And what that looks like is elevating the focus that we have on trust and on safety and on customer support and issue resolution. It's developing loyalty programs. It's a whole ecosystem of things that builds in the mind of consumers trusting reliable relationship with Etsy that will bring them back for a growing number of product experience of shopping experiences. The final pillar of our strategy is we really recognize that Etsy has something that is really unique in the e-commerce world. We stand for creativity and craftsmanship and a human connection in e-commerce in a way that really nobody else does. But those core characteristics, the differentiated Etsy are not legible in our product experience, in our outbound e-mails in our just user experience from soup to nuts or at least they haven't been. So those are really the 4 main priorities that we're focused on. And I think they map to thinking about the customer, the buyer journey from awareness and discovery and acquisition into the Etsy experience, then the engagement by showing them a personalized and relevant experience, the conversion by showing -- by bringing them easy ability to purchase those either from us and then a loyalty experience on the back end that makes them come back in the future. Those are our priorities. And it's gratifying that they've started. It's just been a really initial way to produce some green shoots of improvement in the health of the overall marketplace.

That's a great overview, and I want to come back to some of those strategic pillars. Maybe if we can start with the outlook you've given for this year. You've talked about the business growing each quarter this year. that's against a compare that's tougher as well as the year goes on. So what's driving the confidence in the outlook, which externally feels like an improved outlook, at least the willingness to look out over a longer duration and give guidance, right? What's driving that improved confidence?

Sure. We've had a couple of years of GMS declines and then stability and now we've moved back in the fourth quarter of last year and the first quarter of this year to a position of GMS growth on a year-to-year basis. And there's a lot of different drivers underneath that. You put your finger on something quite important, which is for the first time in several years, we have given a full year outlook for not just the next quarter, but sort of what we expected this year. And I think our answering that question, our willingness or our confidence to look a little bit further into the future, resides atop the early progress that we are making with those 4 priorities I talked about just a moment ago. And where the priorities are starting to show up. Our business is a pretty simple one. There are 3 components to our top line. How many buyers do we have? How frequently do they purchase? And what's the average order value? And we are starting to see some signs of progress across each of those different drivers of our business. Now we control the first 2 of those, the buyer count and the order frequency a bit more than we do the average order value that -- prices are set by our sellers. And we don't -- we have some -- I'll talk about a little later. We have the ability to influence that. But primarily, we focus on the customer experience in a way they'll grow the number of customers and keep them coming back more often. And the priorities I talked about that went in place midyear 2025 and have been gradually building some momentum, gave us a point of view that we are starting to see the initial signs of what can be durable, sustainable, long-term growth in GMS, built to top a healthier buyer base and stabilizing and hopefully improving level of frequency amongst those buyers. So there have been some changes. There are other components of it. We've had -- we've been migrating more and more of our user experience to our mobile application. And our mobile application is this wonderful platform where kind of obviously, people are logged in as users, and we have an ability to capture so much data about not only what they purchased, but what they looked at, what they flipped past what they dwelled on, how we can present stuff that might spur new shopping missions for them and really begin to understand their test that logged in mobile experience is the -- it's a great incubator for a great like test bed for us to apply all the things we want to do to create that real person experience. And that -- the mobile app grew in the first quarter. GMS to the mobile app grew 11% year-over-year. total GMS grew 5.5%. Now the mobile app is getting close to 50% of our business. It's 47% of GMS. A few years ago, it was in the low 40%. And as we're getting more and more people on to the mobile app, we have more visibility about it. We know about them. We know where they're going to come back. We know how to bring them back, and that's helped us also have a little bit more visibility. There's some other things beyond the mobile app that have been really important to us. We've developed with along so that a much stronger push -- set of push marketing channels that are company-owned channels, both our outbound e-mails to buyers and users and our push notifications to the mobile app. What we love about those 2 channels is they're very, very personalized and very, very personalizable -- and there's no third-party media company that we're paying. There's nobody standing between Etsy and that direct relationship with the customer. So when we these channels with more targeted messages, we're finding great response rates to those. So all those things are kind of interconnected with everything I talked about in terms of the strategic priorities. But as those priorities are starting to yield like real product efficacy improvements, it's giving us a bit more confidence. We're not at the level of growth that we want to be at yet -- but it's giving us a little bit more confidence to look forward a little bit more and provide investors with a little bit clearer set of inspections for the next 12 months.

Does the mobile app so cultivate the opportunity to introduce customers to newer categories or newer use cases or improve their on-site experience in a way that was tougher to do before?

Absolutely, absolutely. And primarily, the fact that it's logged in usage on the mobile app is great for us understanding who it is. I think there's a demographic component, quite honestly, to the mobile app as well. It's younger users. And so much of e-commerce today happens on a mobile phone rather than a desktop. So it's not only -- I'd tell you many ways, the mobile app is just the more commonly native environment for e-commerce activity. What we're finding with the mobile app is the ability to create a landing page for you, your home screen is custom-built for you as a user. And that personalized home page is providing increases in clicks and engagement, conversion, GMS. And that's just the tip of the whole product experience. It's also in the mobile app. We've been able to launch tabs and sliders that can start to take people across the breadth of Etsy inventory. One of the things about the way that people engage with Etsy is, certainly, there are people come in who have a very specific product or an item that they're looking for and they come in through a keyword search. But often, that item that they're looking for is associated not so much with just that item, but it's an occasion. I'm going to be a house guest or I'm having a baby or my colleague is getting married. And those occasions are wonderful opportunities when we recognize that somebody's come to Etsy for one of those occasions to market the cross-category breadth of our of our inventory, which is really unique amongst marketplaces like ours. And the mobile app provides great format and framework for us to begin to expand those shopping missions in an occasion-based and personalized way that is really hard to do with an unlogged-in user on the desktop who just wants to get -- to close out that transaction. So that's really helping us.

And where are you broadly on this journey of systematically collecting data and knowing more about your customer to be able to have that more personalized shopping experience for them?

I think we're pretty early. We're really excited about the progress we made. And 1 of the reasons why I'd say we're early 50% of our users have the mobile app and 50% don't. And so we've got an opportunity to get more -- which we make steady progress on, which are making steady progress and getting more people on the mobile app. We're getting more sophisticated about the -- how we use the space on the mobile app to not just drive conversion, but to learn and gain valuable insights about the users. And this is a place where ML and AI are helping us more quickly make inferences about the profile and the preferences of those consumers, then we would be able to without those tools at our availability. So we're in early stages. I would say, we've been at it for a couple of years, maybe getting close to a couple of years now, but this is a runway that looks to us like it's really long from here. There's a lot of opportunity for us to get better in this game.

We're sort of talking about different components essentially of order frequency or order frequency improvement potential. Kruti, you talked about, I think, on the last earnings call really honing in on an improved end-to-end experience. So when you envision what an end-to-end experience is and what the stages are that make up that end-to-end experience. What are those key components? And what are the ways are you improving upon those different components?

I mean, in marketing speaker would be consideration, engagement, conversion and retention. Those are like the textbook dimensions of it. I think one of the things that Kruti and we are really driving toward in terms of a change in the way Etsy is run, the way Etsy thinks, the way Etsy is organized, the way we operate. is that we are looking at the whole user experience as an ecosystem. It is not product does this and marketing does that and customer support does this. It's really all of those different functions that touch the customers and how they interplay with each other. So when she's talking about an end-to-end experience, I used the word legibility earlier. She wants to make it legible that whether you're just coming for a single purchase or you're coming back to just browse or you're receiving a personalized notification forms or you're just seeing some of our advertising out in the wild. -- across all of those things, there is an end-to-end experience that speaks Etsy, that the products that we're showing, the way in which we're showing them, the emphasis that we place on showing the maker, the seller, the human being behind the good all of those things sort of interplay together to really build Etsy's differentiation in a way that we think. We really don't think anybody can match. And we think we've got a strong lead there. We've got a lot of opportunity to continue to advance that. And so we want to have an experience that speaks Etsy from the time you see the ad all the way through the time that you're invited back because we sent you a really personalized message. And we'll come back to those things I talked about in terms of the real essence of the brand.

And how do you highlight better listing quality on the platform? Because I think that's been one area of criticism of Etsy has been maybe the marketplace has been overrun in recent years by some inventory that isn't as unique or handmade, right? And this has been a big strategic focus to make sure that the quality of what people see is what they expect and to be able to build that human connection with sellers and discover different differentiated inventory. So how do you go about creating that experience?

Well, I think you put [indiscernible] that's really important, which is Kruti talks a lot about moving from transactions to relationships. And instead of trying to capture as many transactions as we can and get you through to the click and the buy button and done as fast as possible. But to think alongside that, about building a relationship between you and Etsy, and so we're very focused on not just as we surface search results, not just that thing that is going to convert the fastest and the best today which will often lead your search algorithm to optimize for what's the most popular thing we can possibly show you, and it may not be the tightest fit, it might be the highest converting, but it may not be the tightest fit to what you're really looking at. It may not be personalized to you at all. And so we are trying to put a little bit of the brakes on the historical emphasis on just show that, which converts fastest and best and lean a little bit more into who are you? What's the context of your occasion that you're looking for? What do we know about you? And with all of that information, what's the right item. And I think like structurally, we looked in the past often, we surfaced listings, what did you query and what is the item and we match the 2. The big change today is what did you query, what is the item and who are you and we match all the 3, and that's leading to better conversion rates, better customer satisfaction and a greater likelihood that the user comes out and says, hey, Etsy knows me. That was really cool. What they showed me as a search result, which you don't get when you're just optimizing for -- we don't know who you are, but most people like this item.

Active buyers is the other key component of GMS growth. And they were down a bit in the last quarter, but it seems like we've seen some stabilization, at least with regards to sequential trends in active buyers and even dynamics like gross adds are starting to look a little bit better. Are you optimistic that we are on the cusp of better active buyer growth from here?

Yes, we're encouraged about where we are on active buyers. So last quarter, I think on a year-to-year basis, in the 12 months ending March compared to the 12 months ending March a year ago, we were down about 2% in the number of total buyers. But in the 12 months ending March versus the 12 months ending December, just before, we were up by $100,000 or a little bit more than that. And so that's the first time we've seen a sequential improvement in trailing 12-month buyers in 2 years, 2 years less. And what's driving that is our -- you put your finger on it. The gross buyer -- the gross additions have really started to increase. I think we had a 7% increase in the number of reactivated buyers. People who bought with us a few years ago, but then lapsed and hadn't bought with us for a couple of years, and we're now coming back. and we had our first increase in new buyers in several years. So -- and both -- and those numbers of new buyers and reactivated buyers, the growth rates there have been improving kind of quarter-over-quarter-over-quarter for the last 3 or 4 quarters. So we're seeing the top of the funnel start to improve in both new and reactivated buyers, the bigger long-term lever is retaining and driving the frequency of the existing ongoing buyers.

Can we talk to both of those pieces new and reactivated with the new buyers, what went well in Q1, what -- and how do you think about the durability of that trend in new buyer growth?

I think we've talked about our strategic priority on showing up where the buyers are. And new buyers, we discover them more in search, paid and organic search than anywhere else. And we have had a pretty good run in paid search over many, many years and also over the last several quarters. The competitive dynamic has changed in paid search a little bit. Amazon has pulled out of product listing ads, that's made Etsy be gain a little bit more visibility in product listing ads. And then behind that, in our paid search acquisition, we've had some marketing technology advances in terms of the feed that we provide, the segmentation of the listings that we provide to Google that are helping them surface more relevant ads in the slots that we are buying from Google in product listing ads. So we're doing quite well on the paid side. In the first quarter, after a period of, I'd say, moderate small declines and kind of stagnation, our organic traffic through search has started to improve. There was a little bit of improvement in year-to-year numbers in prior quarters. But for the first time in a while, we've now moved back into positive territory on the organic side of search. And I think that reflects work that we've done. You talked about it a minute ago, working on our listings and the way the listings show up, we made some back-end changes to the, like, site architecture that help elevate the page rank of listings on Etsy. That's helped our search engine optimization traffic as well. So on the new side, I would say the biggest improvement -- the biggest driver has really been sharpening what's already been a very, very strong game at Etsy on the search, both paid and organic side. On the reactivated side, it's a little bit different story. I think some of the headline drivers of reactivation have been social media is a great channel we found for tapping people on the shoulder and saying, hey, you haven't thought about Etten a while. -- and you may not be searching for a product in a keyword box right now. But remember, Etsy, we have these -- the advertising that we promote through that channel has helped us go and tap people on the shoulder again. When they've come in off of that, we've done our best to either land them in or to drive them to our mobile app experience. And that -- the mobile experience is one that is just more personalized. It delivers a more relevant, more 2026 product experience and the lifetime value of a user on the mobile app is about 40% higher than the lifetime value of a user who has not adopted the mobile app, so as we're bringing back repeat visitors, reactivated visitors into the mobile app, the frequency that we're seeing from them and our ability to communicate with them has gotten better. And then once they're on that, we've reactivated them. We use those push channels that I talked about earlier, those owned e-mail and push notifications to the app to remind people about occasions that they bought from Etsy in the past or new things that have come on the market that seem to resonate with who we have profiled that buyer to be, and that has helped us not only bring the -- social media has helped us refine those buyers. And then the mobile app and our push notification -- our own media channels have really helped us stimulate the activity of those folks.

A couple of quick follow-ups there. One, on the point of mobile app LTV being so much higher. Is that a causal relationship you've seen over time with cohorts when you introduce so much of the mobile app that you tend to see the follow-through then in [indiscernible]...

Yes. I mean, for a long time, we thought it was a self-selection, but it is a causal -- causal thing at this point because the experience is just so different. And we've opened up this -- I talked a moment ago about push and e-mail, and they sound like, well, that doesn't sound like the biggest deal. A couple of years ago, our push and our e-mail and push channels did about half as much GMS, gross merchandise sales for us, as did our Google paid advertising through PLAs 2 years ago, it was about half as big. Today, those paid search through Google PLAs has grown and the size of our owned channels in terms of the GMS that they drive is now neck and neck with the Google channel. So that's part of how we have made it be a causal relationship that once we've got you, we're going to -- on the mobile app, and we know who you are, we can deliver you a better product experience that leads to better purchase activity down the road.

Has this experience and the progress that you just described, has it structurally changed your approach and philosophy around marketing, be it the mix or the strategy of how you deploy marketing dollars?

It has in a way, and that is that -- when you have a big channel where you're not paying a third party and it's a marketing channel that is driving GMS, it means that like the overall ROI on your marketing activities has improved because a big chunk of it is now effectively media costless. But setting that aside, we continue to run the paid part of our media marketing with an ROI-based approach rather than a budgetary approach, which is to say, we are constantly trying to improve and optimize the conversion that we get out of each dollar that we spend on Google on TikTok on Facebook on any other outlet. And when we find improvements, when we achieve improvements through those channels, that means our ROI goes up, that means our spend goes up. And so when we find moments in time where we're not able to improve our return on advertising through those channels, you won't see us grow our budget. But where we find moments and opportunities to improve our return, you'll see us put more money and maintain that return on investment. When you talked about mindset from a marketing, we are definitely -- we have been -- over the last 12 months, it hasn't been that hard to do, but we have really made a concerted effort to modernize our marketing portfolio. We had a lot of television advertising that we were doing 18, 24 months ago, linear cable and things like that. And that's all gone. We've moved those dollars into social media, into streaming into podcasts, where we're finding, I think, a more responsive audience, a younger but with more money to spend, more growth in their incomes. And that's been pretty helpful to us as well.

With respect to the operating environment, it feels like every year, there's a new test for the consumer that we have to deal with it, right? This was supposed to be your, I'd say, tax refunds and more spending, and it was lower rates and all that, I think, was the optimism coming into 2026, but we've had to deal with higher energy prices as well as conflict in the Middle East. Have you seen any big shift in consumer behavior on the back of these macro or exogenous factors? And has there been any difference in how the U.S. versus international buyer base of Etsy has behaved?

[indiscernible] something that really resonates with us, which is like it's always next year that the consumer environment is going to be a little bit clear, and it has been a challenging consumer environment for a long time. We -- in the first quarter this year for all the press and headlines and things that were going wrong, the consumer on Etsy held up pretty well. we saw better trends among high income households than we had seen in prior quarters. We saw better trends among lower-income households than we had in recently prior quarters. Higher income households are performing a bit better than lower income households. That's a story I think a lot of people see as well. But so overall, the consumer was pretty resilient in the first quarter this year. I think the -- you asked a little bit about the sort of geographic mix. The United States was our strongest market in the first quarter of this year. But for the first time in a couple of years, we saw foreign currency-neutral GMS growth in our international business. Inside our U.S. business, so I'll give you 2 quick numbers. Half of our GMS is from U.S. buyers buying U.S. things and 1/4 of our GMS is from U.S. buyers buying things from outside the United States. So that's kind of how our business breaks down. Last year, with the introduction of tariffs and the expiration of the de minimis, that import channel was not as strong a kind of, as you would expect, we saw one of the wonderful things about the Etsy marketplace is it's so broad, and it's so diverse that there's often these like self-healing offsets. And so we saw a little bit of pressure on the import side, we saw the domestic market get a little bit stronger. As we came into this year, the import market, the U.S. import market strengthened in the first quarter from where it had been late last year. So Overall, it looks to us like at least through the first quarter of the year, the consumer was -- our consumer was pretty healthy.

And how have sellers been coping with this? Because it's been an inflationary backdrop. You talked about de minimis and tariffs, energy prices. I would imagine their desirous to maybe try and pass costs on, but it's a competitive marketplace. So how does all of that shake out in terms of how these sellers are running their businesses and what that means for the consumers and the other side of it?

Yes. I mean, over the last several years, and we've had some periods through COVID and after where inflation has been pretty high, -- we have not seen Etsy sellers really take a lot of pricing into their -- raising their listings prices or trying to take higher average item prices. I would say that began to change a little bit in 2025 with the introduction of tariffs and sort of probably the compounding effect of inflation. I think that we started to see our sellers pass through increases in their raw material costs as well as some of the disruption from tariffs. And it really kind of went in a couple of waves. There was the initial wave around May -- April and May when the tariffs were in place, then there was a September wave of listing price increases associated with the expiration of the de minimis exception that had sort of exempted everything under $800. And then early in 2026, I think kind of after the '25 holiday season was behind sellers, people sort of reassessing things for this year. We got another little bump in listings prices. And our sellers have an acute sense of like what the clearing price is for the things that they are making. They have a really good understanding of their market. And I think what we're seeing from them is they're seeing their customer is accepting the price adjustments that they're taking. And I think we will see that these price increases, I don't think the rate of increase is going to be sustained, but I think the increases that have been made will probably be sustained at this level for a while.

[ Agentic commerce ] is clearly the biggest theme in the sector right now, I'd say, for consumer Internet broadly. -- you've been an early partner to a lot of the major AI companies. What is the Etsy philosophy on working with these large-scale AI companies as partners. I think there's a debate in the market as to whether e-commerce marketplaces or consumer Internet businesses should be involved at all or whether they should almost gatekeep some of their services to protect at risk of -- the risk of disintermediation or term. But what is your general philosophy of working with these new channels?

So I would say the number of businesses that made a strategic decision 20 years ago to not be listed in Google is not that many. And there is a brand-new entry point to the e-commerce world emerging through a agentic chatbots and through agents. In our point of view, our philosophy is that this is a brand-new way that customers are going to come into the e-commerce shopping mall and we very much want to embrace that and understand it and engage with it just like mobile and just like social and just like search, this is a new emerging consumer habit. So our view is there is so much more to be gained from getting early onto the field, into partnership, into experiment, into test, into iteration influencing the terms that are being set around how AI advertising works or native checkout works, which we've been doing, there's so much more to be gained from being on the field than sitting on the sidelines. So our approach has been take the risk, get active and partner with anybody and everybody. And we've learned -- I think our agenda here is learning, like learn as much as we possibly can. I don't think the ink is dry on the business models forever of AI, and we're here to learn as much as we possibly can. And what we've learned is it looks to us like it's going to be an incremental discovery channel for consumers, and at least in the early days, it's consumers with really high intent and great average order value, and they come back and they're new users to Etsy and reactivated users. And that just tells us all those things to us like why would you not be involved in this game. So our philosophy is to lean in.

And the early learnings on traffic sound generally quite positive in terms of intent and conversion?

They are. They are for sure. or less than 1% of our GMS. So we're not -- it's not conclusive evidence of a whole lot yet, but we like what we're seeing so far. And I think it's only going to get better because we're iterating at it all the time.

If we flesh out the bear case a little bit more, it's -- I'd say the worry that, a, you might have in the future some risk to the take rate of business models like yours because search increasingly starts to happen off platform, and maybe that puts some valuable monetization opportunities like advertising at risk. I'd say that's the first bucket of concern. The second bucket of concern is simply that you just reduce the barriers to switching between platforms, you make it easier for consumers to price shop across different marketplaces and retail websites, and so people worry that this is, in some way, shape or form, starting a race to the bottom in retail and e-commerce at large. I guess from your standpoint, why are those fears generally misplaced?

Well, let me start with the second one first, which is Etsy has never been about winning the race to the bottom. We are winning the race to special. We are winning the race to differentiate it to human connection and that is our lane and we're -- and we -- and if you look at things in that light, a new technology that is going to make it faster and clearer who is that single fastest single cheapest seller. It's not going to be Etsy in most cases. After you have that answer, you don't need 72 other answers, what you might want as a consumer is, if I don't want fastest and cheapest what are the other alternatives. And that's going to be a differentiated item, an item perhaps with more craftsmanship or more different level of quality, more personalizable or customizable, and those are lanes that Etsy really shines in. And that's how we're looking at that sort of industry shift that you talk about, about shifting moats. In some ways, I think the race to the bottom could actually widen the moat of Etsy because you're going to see so many other people dragged into that pit of like differentiation difficulty where we have so much to differentiate upon. I think to your former question about the advertising model and about the take rate, our take rate is really reflective of the value that our sellers recognize or willing to bear for Etsy doing what Etsy does for them. And the list of things that we do for them is so long from payments to trust and safety ratings and reviews to the presentment that we give them, the advice that we give them, the social media like tools that we give them to market themselves, the visibility we give them on the web, the imprimatur of being listed on the Etsy marketplace relative to just having a shop randomly discovered somewhere else with no ratings reviews and very hard to tell whether that's a seller that I should trust or not for this very unique item. Etsy brings a lot to the table. And it's on top of all of that value that goes way beyond ads that our take rate resides. And I'm really optimistic about our opportunity to use to sort of bring into the biggest opportunity for us from AI is to figure out how we use AI inside the Etsy experience on behalf of Etsy, but also fundamentally on behalf of our sellers, give them access to being listed on open AI, being highly visible in Google's AI products. You get that through Etsy, I think, more easily than you got it on your own, and helping them get visibility as this new customer channel open. So I think we feel like there is more to be gained from the expansion of discovery from AI and agents then there is to be feared about pressure on our take rate because our take rate sits on top, services that we bring and value that we deliver.

Can you speak a little bit more about the on-site experiences that are changing for buyers and sellers, leveraging these tools. If I go to Etsy tomorrow, a year from now, 2 years from now, what should I expect the experience to increasingly look like?

Well, I think I've talked a lot about personalized experience. And so it should feel -- Etsy should feel small. It should feel very local to you, very it should recognize you've got a young family, you live where you live, you have your background that you -- and it should it should really resonate in a very personal way to you. And I think we're getting -- we're moving in that direction, but we're not anywhere near yet the vision that we have for how different the product experience should feel for individuals and for groups of individuals. So that's number one. I think in -- separately in the product experience, we are experimenting right now with how can we bring agents into the Etsy product experience. And one of the things that happens when people search in commerce with an agent is they don't type in 3 words, they type in a 3-paragraph description of what they're looking for. And that gives us a lot more context. So we have a gifting agent that was an agent that we launched that's sort of tailored for gifting occasions. You can find it if you're a logged-in user on the website, it's rolled out there pretty broadly across America right now. And it's an experience. I think you're going to see this more throughout Etsy and probably throughout a lot of e-commerce, where instead of typing in a couple of key words, like I said, you described I'm going to a weekend with somebody who I haven't seen for a number of years, and one of them has the 50th birthday, and we're going to play some golf, and it's going to be in this location. But I don't want -- I want to get a gift for all of them, but I don't want it to be XYZ. There's so much more context in that for Etsy to be able to work with, hey, here's a personalized solution. Here's a customized solution. Here's a unique and vintage solution for you. So I think you're going to see us try to lean into a different mode of interaction and discovery that will bring forth the variety available on Etsy, that will showcase what's different about Etsy. There are individual sellers beyond all these things, and it will help people understand just the breadth of missions and shopping and categories and occasions that Etsy can be really relevant for.

You have a high gross margin. It's been pretty stable. It nudged down a little bit in the last quarter. I think qualitatively, one of the things called out was compute cost. And as we talk about AI-driven shopping experiences, assuming I'm sure a lot of folks at Etsy now are using AI tools and their day-to-day workflows as well. How do you think about compute costs as AI becomes a bigger portion of this business? And how do you think about offsets to that as well?

Well, I mean, I think in the long run, the compute costs are going to reflect the prevalence of those tools in the product experience. And so if our customers are saying, these are great experiences, we're going to deliver the great experiences with the cost of the incremental compute. There are other things in our margin in the short term. There's a little bit of cost of compute, like you talked about. There's a little bit of managing fraud and exposure to refunds and things like that in there. But I don't think we're seeing -- I'm not anticipating right now like a step function change in the gross margin profitability of the business because those costs are being incurred to support incremental new higher converting market-expanding product experiences for us. So look, we're going to manage all those things really carefully and efficiently as we always do. We're coming with pretty good profitability and great cash flow. We'll mind the spending that we do there to make sure there's a return on investment for that. We're also not going to be penny wise and pound foolish in the short run. We want to experiment. We want to learn. And we think there's -- for couple of basis points of gross margin, there's a lot to be learned that will be very valuable to us in coming years.

You've always run very lean with a pretty tight engineering team, product team when you think about productivity enhancements on the back of these AI tools, what are you excited about? Is that freeing you up to do more with less? Any changing opinions on how to think about head count growth for this business longer term?

Well, I mean, look, we're going to -- I think we're poised to deliver a pretty nice improvement in revenue growth comparisons this year versus last year, an improvement in buyer trends and a bunch of new products this year with flat headcount from where we were a year ago. So our team is already getting more gas mileage out of some of the tools. On the product side, in particular, the AI tools, I'm sure you're hearing this from a lot of companies. It's changing development cycles from quarters to months or weeks. We're able to launch and iterate things so much more quickly with the advantage of AI coding agents, which we've been -- we've pushed pretty hard to get our team trained and experienced and up and running on those. So it is improving the efficiency of our team. Our revenue per employee is about $1.5 million is pretty good relative to a lot of companies. We did not have a huge increase in our head count during COVID, even though the size of the company doubled during that period of time. So we've continued to run pretty lean, and I expect us to continue to. And these tools are only going to enable us to be more productive.

When you think about broad investment buckets and the P&L of Etsy going forward, if you think about it as R&D on the product side versus sales and marketing. How do you think about the evolution of those buckets and what's required to sustain better growth for Etsy?

Yes. So we'll spend this year, like roughly $400 million on product and $750 million on marketing. I don't think you're going to see any big leverage or deleverage in any of those -- in either of those lines this year. What I would say, if the $750 million on marketing was going to be bigger than that, it was because we found ways to hit our ROI target while spending more dollars. And so that would be a good story because there would be more GMS associated with that incremental spending. And on the product side, we're pretty careful about the number of squads that we have and the number -- and the assignments that we've given them in terms of what they're working on. And for what -- for the priorities that I laid out a moment ago, there's nobody on our team who feels like with 25% more engineers will be able to go faster. We think we've got the right investment there right now for the priorities that we have. And so I like the mix that we've got. I don't think it's -- I don't think there's any big variation you should expect there. Within it, like we'll allocate the spending within that optimally, but I don't think there's any big change in the size of the envelope.

To go after your global business, you've got international markets, is there incremental headcount required to build out some of those international experiences and local experiences as well? Or can a lot of that just come through the centralized team?

A lot of it comes to the centralized team. I think there's some localized marketing that is helpful and required, but even that can be done fairly central. So one of the great things about our business is it's a very capital-light, very like boots on the ground light business. You said sales and marketing and that was like sales. We don't have any sales. It's -- we have marketing and customer support. That is for sure. But no, I don't -- there's not a -- from where we're looking right now, the international opportunity can be leveraged off of the core Etsy.

We touched a little bit on on-site ads in an AI world, but just more broadly, when you step back, it is one of the tools for monetizing the marketplace. It is one of the key drivers. I think of the margin expansion we've seen over the years. Where are we in building out on-site advertising for Etsy? What's the runway for continued growth and adoption here? Whether you want to frame it in terms of penetration rate or product adoption or [ ROAS ] dynamics, whatever is most intuitive to you, but how do you feel about the growth runway for that advertising business?

We -- I think we're pretty early in the advertising opportunity on Etsy. The participation rate of all sellers in Etsy's marketing programs is low and has a lot of headroom that can still be tapped into. And the -- our utilization of the budgets that they give us is lower than 100% for sure. We've got a lot more -- what they tell us they are willing to spend on incremental orders, we are not yet able to deliver. And as soon as we can deliver that by doing a better job of finding customers and bringing them into Etsy, doing a better job of showcasing those advertisers wears effectively in a way that converts, there is money for -- that those sellers would gladly pay for that incremental order value. So as we improve our ability to deliver a relevant personalized match and improve our ability to reach out to you when you weren't even thinking about Etsy and remind you of Etsy with a matching item. Those are great advertising opportunities for us to say we're driving more demand and we will -- there are a bunch of people who could service this incremental demand, and we'll give an advertiser a shot to be at the top of the pile of people who could service that incremental demand. So there are -- there's optimization of our search. There is getting more people into the program and there's doing a better job of utilizing the budgets that they are willing to spend. It gives us some belief that there's a lot of runway left in the advertising side of the business. I would say -- so I want to make one point really clearly. Like our main focus right now is driving GMS growth rather than advertising growth or take rate growth, it's GMS growth and GMS growth coming from a growing number of buyers coming to Etsy more frequently. [indiscernible] buyers by 1 time a year, the other half by an average of 5x a year. And we think we can expand the total number of buyers or well over 100 million people who have bought on Etsy at some point in their life who did not buy on Etsy in the last 24 months. We're getting those people to come back. And then once they get them back, getting the purchase more than 1 time a year, is a far bigger focus for us than -- we're going to continue to focus on things like monetizing well through ads and using that in service of our sellers' needs. But the thing that sellers really want the most is just for the market to be growing overall.

You're in the process of selling Depop to eBay, can you remind us what the next stages are in that? And also why this was the right time to do that transaction?

Sure. So really quickly for those who don't know. Depop is the leading U.S. resale clothing marketplace. If you have kids on college campuses, I know that they know about Depop is placed to buy and sell close in part of circular economy that younger generations are totally a part of. Depop is growing in the United States at like 70% year-over-year and is a super thriving, healthy business. We love it. We saw some signs of promise and potential for that business about 12 months ago. We began to invest much more aggressively in driving Depop's emerging lead growth lead in that category and trying to get to a market share leadership position. Those initial investments really started to pay off, and we received an unsolicited offer from eBay. At a valuation that we felt was compelling enough for us to at least stop the clock and sort of step back and think it through. And as we thought about it, and we looked at Depop's longer long-term opportunity, we love it, and we looked at Etsy's long-term opportunity. We love it even more. It has -- we think there is a really big opportunity to just focus exclusively on everything I just talked about on the Etsy marketplace. And we think eBay can be a wonderful owner for Depop. They've got inventory in the category that they can bring into what's really the best product experience in the category and continue to make a real leader out of that business. And so it just looked to us like, hey, it's the right time. We signed a deal to sell it to them for $1.2 billion. We've got regulatory approvals now in probably 3/4 of the places that we need it, one more jurisdiction in the U.K. where we're expecting to get approval for the transaction, then we'll close and have pretty close to the whole $1.2 billion in cash proceeds added to our balance sheet. And I think our expectation right now is we'll deploy that as we've deployed a lot of excess capital over the years toward buying back stock in the company.

You answered my follow-up, which is how do we think about the proceeds?

That's all I can think about.

We've covered a lot of ground today, Lanny. How would you basically summarize for investors really the core focus, the opportunity set ahead of Etsy? What message do you want to leave investors with?

Look, the focus is we have these very clear 4 priorities, and none of them are going to be overnight like hockey sticks to growth tomorrow. But what we are working on is building a durable, sustainable long-term growth rate for this company built on a great personalized, modern customer experience that can be the platform for so much growth in the categories that we operate in. We really feel like we have a business that is super differentiated already. It's awareness. Awareness of Etsy is enormous, consideration of Etsy, remembering to come back to Etsy for that experience is the opportunity ahead of us. And we think by solving that with everything I've talked about today, we can make this a much larger company than it is today.

Great. With that, we'll leave it there. We are right at time. So Lanny, thank you so much.

Thank you, Nikhil.

Thanks, everyone.

Thank you.