ETSY INC Q3 FY2024 earnings call

• Josh highlighted solid consolidated revenue and profit despite challenging GMS for Etsy marketplace. • Focus on driving consideration among customers by highlighting Etsy's quality, value, and reliability, including elevating gifting, prioritizing quality in search, fostering loyalty, and improving shipping. • Made progress in app revamp, search algorithm improvements using GenAI for diversity and quality, launched Etsy Search Visibility page for sellers, introduced creativity standards, and a loyalty program. • Depop saw GMS growth in the U.S. after removing U.S. selling fees and marketing campaigns. • Reverb partnered with Fender for Fender Certified Pre-Owned on Reverb.

Consolidated GMS was $2.9 billion, down about 4.1% year-over-year. Revenue grew 4.1% to $662 million. Etsy marketplace GMS was down about 6% year-over-year, but active buyer levels remained solid at ~91 million. Depop has been a top line performer with GMS growth accelerating. Reverb saw used music gear sales growth in the U.S. outpace new gear sales. Revenue contribution: Etsy marketplace contributed to the revenue growth, with take rate expansion benefiting the top line. Depop and Reverb also contributed to the overall performance.

• Fourth quarter consolidated GMS will decline in a low to mid-single digit percentage range year-over-year. • Q4 '24 consolidated take rate is estimated to be 22.3%, a slight step down from Q3 '24. • Consolidated adjusted EBITDA margin will be in the range of 28% to 29% ahead of prior year Q4 performance. • Full-year consolidated GMS down roughly in the low single digits, but driving revenue growth and strong adjusted EBITDA profitability.

• Macro headwinds impacting consumers' budgets and wallet share. • Mindshare events like elections, sporting events, and hurricanes creating headwinds. • Uncertainty around U.S. general election impact on consumer psyche and holiday spending trends. • Potential impact of shorter holiday shopping season on GMS.

Q: Could you speak to the leverage you're driving in product development?

A: Josh discussed the process of prioritizing customer experiences that translate to lifetime value, using squads as the unit of work, leveraging reduction in force for leverage, and incremental hiring in areas like app engineering and machine learning. Rachel added on being disciplined about investments and optimizing cost per FTE.

Q: Any color on the business quarter-to-date and what's implied at the low end versus the high end of the GMS guide for the fourth quarter? And elaborate on physical Etsy gift card launch.

A: Josh mentioned holiday season is later and shorter, election impacting early November, gift card is baked into guide with potential upside but slow build. Rachel noted accounting for gift cards as revenue is recognized on redemption.

Q: What are the one or two areas that could move the needle in enhancing consumer experience?

A: Josh emphasized consideration through refactoring screen real estate to spark new shopping missions, using GenAI in search to show more diverse and relevant items, and progress made in app and search improvements.

Q: How do you think about the right margin level for Etsy and the inspiration from Depop?

A: Josh talked about balancing growth and profitability, data-driven approach, and Depop's strong performance with GMS growth over 30% YoY, validating portfolio strategy. Rachel added on Depop's U.S. growth and relevance in promotional market.

Q: What are your expectations for the first holiday season with gift mode and how are you measuring success?

A: Josh said measuring by absolute GMS, pleased with gifting GMS growth, launched great product features, and will market heavily. Rachel clarified tracking is by gifting GMS as buyers can consume elsewhere.

Q: On Etsy Insider and seller reaction, and initial takeaways?

A: Josh said early days, limited population, seller concern on margins, positive reaction, and loyalty programs take time to evolve.

Q: Q score and GMS headwind from mobile app and web changes?

A: Josh said Q score was neutral to conversion rate, mobile web changes have modest headwinds but are ROI positive for long-term consideration.

Q: Categories pressure and buyback appetite?

A: Josh noted pockets of value like demi fine jewelry, Rachel talked about buyback flexibility with $1B authorization and leveraging free cash flow.