Hi, everyone, and welcome to Etsy's third quarter 2023 earnings conference call. I'm Deb Wasser, VP of Investor Relations. Joining me today are Josh Silverman, Chief Executive Officer, Rachel Glazer, Chief Financial Officer, and Jessica Schmidt, Senior Director of Investor Relations. Today's prepared remarks have been prerecorded. This slide deck is also available on our website for your reference. After Josh and Rachel's presentations, we will move to a live video webcast Q&A session. I will be reading questions from covering sell-side analysts, and Jessica will assist me in addressing as many questions as possible. Forward-looking statements involve risks and uncertainties, some of which are detailed in today's earnings release and our most recent Form 10-Q, and these will be updated in future periodic reports filed with the SEC. Any forward-looking statements we make during this call are based on our current beliefs and assumptions, and we do not have an obligation to update them. Additionally, during the call, we will present both GAAP and non-GAAP financial measures, which will be reconciled to GAAP financial measures when available in the appendix of today's slide deck on our investor relations website, where a replay of this call can also be found. With that, I'll turn it over to Josh.

Thanks, Deb, and good afternoon everyone. Before we begin, the last few weeks of conflict in the Middle East have been devastating for impacted communities and beyond. Etsy has taken actions that can most directly and immediately help our sellers who live in the impacted region, including covering their existing balances as of October 31st, which represents a contribution of about $1 million, and we're providing additional resources to help sellers manage their shops during this incredibly difficult time. Turning to our results, Etsy performed in line with expectations for modest to top-line growth and strong profitability continued. Consolidated GMS was $3 billion, up 1.2%, compared to last year. Revenue grew 7% to $636 million, and our adjusted EBITDA margin was again very strong at 28.6%. As you all know, there's been significant pressure on consumer discretionary product spending, as high inflation, elevated interest and mortgage rates, splurges on experiences, and declining savings balances have meant that there's little leftover for many consumers after paying for food, gas, rent, and child care. These issues are magnified for lower-income buyers, and we feel the impact on the Etsy marketplace. We're also experiencing an increasingly competitive retail environment with a very heavy emphasis on deep discounting and, in some cases, competitors investing at potentially unsustainable levels in marketing and promotions. While the headwinds we're facing at this moment in the cycle are undeniable, I'm pleased that once again, performance green shoots for the Etsy marketplace were evident in the third quarter. GMS grew about 1% versus the prior year and the prior quarter. We had another new record in active buyers, now at 92 million, with slight growth in U.S. active buyers as well. And buyer additions were up over 6% year-over-year. On a sequential basis, we reported accelerated international growth and an improving trend in GMS per buyer and flat performance in habitual buyers. In this very challenging environment, it's more important than ever that we bring our A-game competing hard to win our share of consumers' wallets. And we are. We believe that overall, we're at least holding our market share gains and that our product and marketing investments are making a difference for buyers and sellers. We've been laser-focused all year on knocking down barriers that stop buyers from shopping or shopping more often on Etsy. We know that buyers turn to Etsy most often for low-risk items, but we believe our opportunity is so much larger than that because we know that Etsy can offer high-quality merchandise at a great value in a way that is both reliable and convenient. We've been hard at work to break down brand barriers so that buyers will think to shop with us even more often across a wider range of purchase occasions, leading to significantly improved consideration beyond just those low-risk items and ultimately market share gains. Throughout 2023, we've moved boldly and with great urgency to address these areas, making strong progress to deliver a significantly better experience we can shout from the rooftops this holiday season. I'll explain each area further. With over 120 million items for sale, we've got millions of beautifully crafted items we believe are perfect for almost any person or occasion. Our opportunity is to organize and curate the experience to help get you to the very best of Etsy quickly and easily. We're moving beyond relevance to the next frontier of search, focused on better identifying the quality of each Etsy listing, utilizing humans and machine learning technology so that from a highly relevant result set, we bring the very best of Etsy to the top, personalized to what we understand of your tastes and preferences. For example, from the start of the year, we're tracking to a nine-fold increase in the number of human-curated listings on Etsy, to over 1.5 million listings by year-end. We're also utilizing machine learning models designed to determine the visual appeal of items and incorporating that information into our search algorithms. Frankly, our timing on this work is important, with more competition than ever offering low quality, same as everyone else, mass-manufactured merchandise. There's also a huge opportunity to evolve the Etsy experience so that we show buyers a more diverse set of options when they search for open-ended head query items, such as back-to-school. On the left of this slide, you can see an example of how a search for back-to-school items looks on Etsy. We generally show multiple very similar versions of customized pencils, stickers, lawn signs, and so on, all mixed together. This is suboptimal as it offers buyers only a few main ideas on the first page of search and requires a ton of cognitive load to distinguish between virtually identical items. We've recently launched a variety of experiments with the help of Gen AI to evolve these types of head query searches. As we move into 2024, when a buyer searches for broad queries, we expect to be able to show a far more diverse and compelling set of ideas, all beautifully curated by organizing search results into a number of ideas for you that are truly different and helping to elevate the very best items within each of these ideas, we can take a lot of the hard work out of finding exactly the perfect item and help build frequency as we highlight the wide range of merchandise available on Etsy. Another critical part of highlighting the good stuff and leading into our competitive differentiation is doing a better job than ever to enforce our Etsy seller house rules. In the race to the bottom of commoditized commerce, it's never been more important that Etsy stands apart showcasing items that meet our policies and stand for keeping commerce human. Handmade policy takedowns are up over 120% for the third quarter. I'm also pleased to say that in just a few months of work, we've nearly cut in half the percentage of visits where a buyer comes across a violating listing based on our constant sampling of the marketplace. So while buyers don't come to Etsy looking for mass-manufactured merchandise, it's critical we do an ever better job elevating the best of Etsy to keep Etsy special in the minds of our buyers and sellers. We're all aware of what an incredibly promotional environment this is. We pivoted our road map this year to invest significant resources into highlighting the great value Etsy sellers can offer. Many consumers don't realize how cost-effective it can be to buy directly from the maker, even when buying something produced just for you or in very small lots because there are not layers of distributors and middlemen taking markups along the way. But our sellers don't have pricing departments, giving them insights into things like how best to price each item and how or when to use promotions. So we need to be the ones to provide those insights and be their advocates. We're helping sellers by providing information so that they can set their own appropriate and sustainable prices and offer promotions that make sense. During the quarter, we began initial limited testing of new features such as a pricing optimizer that provides real-time information on market prices for similar items and a cost recovery insight feature for heavy users of sales and offers. We've also improved the way that sellers can put items on sale and provided insights that will help them understand how to use those sales in a way that can drive GMS. We continue to elevate seller-funded sales using a series of evergreen promotional content throughout the quarter, such as our best of home at 40% off sale, five-star gifts under $30, back-to-school basics under $50, and so on. Seller sales, coupons, and urgency signals drove well over $100 million in incremental GMS during the quarter. We told you on our last call that we would pull out all the stops to help Etsy sellers compete and win. And in September, we ran an Etsy-funded 48-hour promotion in North America and Europe. The sale impacted GMS, had a positive ROI, and created a nice bump in reactivation of lapsed buyers. Buyers loved our Get 5 promotion. In fact, we saw an increase in average order value during the sale period as buyers spent more than the $25 minimum needed to use the coupon. We'll continue to test and optimize new marketing approaches, including Etsy-funded offers in a disciplined and ROI-focused way. If buyers are unsure whether an item will arrive on time, if they lack confidence in the fit or quality, or if they're unsure if someone will have their back when something goes wrong, it provides a lot of friction, causing shoppers to buy on Etsy less often. The good news is we've made so much progress against these metrics in the recent past. As you can see on this slide, which represents our greatest hits in improving reliability and convenience. We've driven a tremendous increase in coverage for estimated delivery dates, better tracking of packages, big improvements in on-time delivery, and transparent return policies and information. But perception has not kept pace with reality, and we need to close that gap. We know that generally, buyers have a great experience on Etsy. So in addition to doing this work, we need to disrupt buyer perceptions even further so that they can see Etsy as a convenient and trusted place to shop. And we'll do that in a big way this holiday season, as I'll explain in a moment. Only 12% of buyers will name Etsy top of mind as the place to shop for gifts. And association levels are much lower for other major categories like home and living and style. We believe our efforts to improve quality, value, and reliability will significantly improve consideration for Etsy starting in these important categories and purchase occasions. Our Etsy hazard campaign is an important component given direct messaging and call to action alongside a significant amount of on-site product work, such as our new wedding, baby, and gift registries, new home and living category pages, and more. Building this type of brand association to help buyers and potential buyers understand the when and why of Etsy is a long-term play, and I'm confident that a powerful combination of better on-site experiences and off-site amplification build Etsy's consideration over time. It's game time for holiday. And thanks to all the work I've just described, I think our offering is the most compelling we've ever had, and we're ready to win. Our message this holiday season is that we will make you a gifting hero, helping you find the exact right quality gift at a great value for the special people in your life, all while supporting independent makers. No one has a better opportunity to own gifting than Etsy, and what better time than the holiday season. So here are some of our new initiatives. First, we've launched a new and improved curated gift finder now available in our app and featured more prominently on mobile web. Second, our new deals tab replaces our updates tab in our app, making it easier to find personalized deals and amazing gifts at an affordable price. And third, we'll continue to selectively test Etsy-funded offers while optimizing our return on investment. And last but certainly not least, we couldn't be more excited about our holiday plans to market in the U.S. that Etsy gifts will be delivered on time or your money back. Our estimated delivery date performance and Etsy purchase protection program enable us to stand behind purchases and work to disrupt buyer perceptions. Here is one of our new TV campaigns, all of which aim to disrupt buyer perceptions of Etsy this holiday season. Shifting to our subsidiaries. Depop had a great quarter. GMS and revenue both grew double digits on a year-over-year basis with growth in active buyers sparked by strong new buyer growth in the U.S. Depop's success can be attributed to compelling product and marketing investments, which have accelerated growth alongside an increasing flywheel impact from higher transaction velocity and improved user experience. We're continuing to broaden Depop's appeal to feel more accessible to a wider audience, emphasizing value even more in the buyer experience while further streamlining the seller experience. While Reverb's GMS was down modestly in Q3, the business outperformed the musical instrument industry while also improving take rate and growing revenue compared to Q3 of 2022. Reverb enhanced the buyer experience by expanding search and category filters, improved negotiation tools, and increased the prominence of promotions and price drops to help buyers more easily find the perfect piece of gear for their budget. There's no doubt that this is an incredibly challenging environment for spending on consumer discretionary items. It's therefore important to acknowledge that the volatile macro climate is going to make it challenging for us to grow this quarter. While there are many things we can't control, there's still a lot we can. So we are obsessively focused on those. All of us at Etsy feel a great responsibility to deliver profitable growth; growth for our millions of sellers, for our shareholders, and for all of our stakeholders. Our team is working passionately and with the highest level of urgency. And I'm more excited about our current roadmap and the progress we've made this year than at any time in my tenure. We're confident we're working on areas that will positively impact Etsy in the months and years ahead. We believe our TAM is enormous. Our market share remains small. Our value proposition is highly differentiated, and we're solving for something no one else is: keeping commerce human. We're keeping our eye on the prize and look forward to getting back to strong growth again as we move through this cycle. Thanks for your time. I'll now turn the call over to Rachel.

Thanks, Josh. And thank you, everyone, for joining our third quarter call. My commentary today will cover consolidated results, key drivers of performance, and Etsy Marketplace stand-alone results where appropriate. As a reminder, Reverb, Depop, and Elo7 were all reflected in our consolidated financial results and KPIs for the third quarter of 2022 with Elo7 divested on August 10, 2023. Etsy delivered $3 billion in consolidated GMS, which increased 1.2% year-over-year, our first positive GMS growth quarter since Q1 ‘22. Revenue increased 7% year-over-year to $636 million, and adjusted EBITDA was $182 million, up nearly 9% from the third quarter of last year. Note that Elo7's mid-quarter divestiture resulted in small headwinds to both GMS and revenue and was modestly accretive to adjusted EBITDA margin. Given the volatile macroeconomic landscape that continues to impact consumer discretionary product spending, we believe these results demonstrate the underlying strength of our brand and consumer relevance. Our year-over-year consolidated GMS growth was positive each month of the quarter, driven by strong Etsy Marketplace growth in several of our top international markets and continued active buyer expansion, as well as meaningful acceleration at Depop that outpaced consolidated growth. The FX headwinds that impacted our business in the prior seven quarters reversed in the third quarter, providing a 130 basis point tailwind. GMS for our subsidiaries increased in the third quarter, driven by the strong growth at Depop I just mentioned and partially offset by softness at Reverb. Within our consolidated year-over-year revenue growth of 7%, consolidated marketplace revenue grew 4%, due to an increase in the volume of GMS, including growth in payment speeds for Etsy, primarily driven by a mix shift to more international transactions that yield higher fees, growth in subsidiary payment fees, as well as growth in revenue from offsite ads. Services revenue remained a standout contributor to growth, increasing 16% year-over-year. Etsy Ads was the primary driver of this strength as we optimized our XWalk functionality to better value potential listing conversion and pricing into our ad ranking system, allowing us to show more ads in our search results without negatively impacting our conversion rate. We delivered a consolidated take rate of 20.9% and in line with the prior quarter and modestly above the take rate implied at the midpoint of our quarterly guidance. Even while continuing to invest in product and marketing, our consolidated EBITDA margin expanded 40 basis points year-over-year to a very strong 28.6% and above the high-end of our guidance and our highest level since the fourth quarter of 2021. This strength was driven in part by leverage in product development spend. Our subsidiaries represented about a 300 basis point to 400 basis point headwind to our consolidated adjusted EBITDA margin in the third quarter. We are very pleased with our ability to continue to balance disciplined ROI-focused investments and strong profitability. We are pleased with the excellent returns on our product development spend this quarter, Etsy Marketplace product initiatives delivered approximately 40% more product launches than in the prior year with very healthy win rates. Looking at the quarter's product development spend, we reported a 5% year-over-year increase to $114 million in the third quarter, gaining 30 basis points of leverage year-over-year partially due to lower employee compensation and professional services costs. Our consolidated headcount declined year-over-year due to the Elo7 divestiture, although we increased our core Etsy headcount a bit as we usually do this time of year to invest in important growth initiatives, particularly those that highlight Etsy's offering of high-quality merchandise with great value and convenience for buyers. On a trailing 12-month basis, Etsy Marketplace revenue per average full-time headcount for the third quarter was about $1.3 million, well above the approximately $800,000 for the Etsy Marketplace in full-year 2019 and some of the highest amongst our peer group. Third-quarter consolidated marketing spend increased 9% year-over-year to $161 million. While the increased competitive environment drove CPCs up, we continue to execute against our disciplined ROI-focused strategy. Our consolidated performance marketing spend increased 16% year-over-year as we expanded Etsy marketplace spending in several channels. We've also been making significant progress scaling paid social, which, as a proportion of our total marketing mix is now approaching a similar level to our peers. Our consolidated brand spend decreased 4% year-over-year as we pulled back a bit to run incrementality tests in select Etsy markets. During the quarter, we were on air in our top three core markets and tested TV advertising in Austria and Switzerland. Our site-wide promotional event drove incremental GMS and was funded with a small amount of marketing dollars delivering a positive ROI. During the quarter, revenue from off-site ads offset approximately 35% of our Etsy Marketplace performance marketing spend. Moving to our Etsy marketplace GMS and buyer metrics. During the third quarter, Etsy marketplace GMS increased 1% year-over-year to $2.7 billion. This increase was driven by a higher number of orders in FX tailwind and healthy growth in select international markets. Q3 GMS was relatively stable with modest year-over-year growth in each month of the quarter. While our GMS trends began to soften in late August, our increased marketing investments supported our positive growth through September. However, towards the end of September and through October, similar to overall U.S. e-commerce trends, our GMS growth turned slightly negative as the consumer discretionary product spending headwinds worsened. While we are pleased that our business returned to modest growth, we experienced the following key headwinds, macroeconomic challenges that pressured consumer discretionary product spending, particularly for lower household incomes and a higher competitive retail environment focused on deep discounting. Using U.S. census average household income data by ZIP code, our estimates support continued GMS pressures from buyers with household incomes under $100,000, and whereas GMS from our buyers with household incomes over $100,000 increased. Further, while representing a small segment of our buyer base and U.S. households in general, we estimate that GMS from our buyers in the top decile of household income increased over 20% year-over-year in the third quarter, a positive indicator that Etsy's overall growth can improve as macro conditions stabilize over time. International markets continue to represent a bright spot for Etsy, with GMS excluding U.S. domestic, up 7% in the third quarter, led by a return to positive growth in the U.K. as well as healthy growth in Germany and France. We also saw strength in other non-core countries such as Switzerland and Austria. In this economy, we are seeing that mass merchants who sell essentials and whose brands stand for low prices and deep discounts are generally gaining e-commerce share broadly at the expense of most others. So in order to drill down to Etsy's performance on a category-adjusted basis, on this slide, we compared Etsy marketplace GMS generated from our U.S. buyers versus consumer Edge's U.S. e-commerce retailer data for pure-play competitors in some of our largest categories. Encouragingly, this data supports the notion that we are gaining share compared to our pure-play competitors. Further, external credit card data we have studied indicates that even when including the largest mass merchants, we are holding our share of e-commerce on a category-adjusted basis, even in this incredibly pressured and discount-oriented moment in the cycle. As we look ahead, we're confident that Etsy has a significant opportunity to gain meaningful share in all of our top categories and beyond as we expand buyer consideration for Etsy and macro factors improve. Given our estimate that Etsy Marketplace's global GMS is only about 2.5% of the TAM for all of our relevant categories in aggregate, we continue to see a significant room to be a net share gainer in e-commerce over time. It's also encouraging that Etsy Marketplace's active buyers grew year-over-year for the third consecutive quarter to a new all-time high of 92 million, with growth accelerating sequentially to a 4% increase from 3% in Q2. U.S. active buyer trends turned modestly positive for the first time in seven quarters, and international active buyer growth remains strong, and we had a 9% increase in active buyers who identify as men. We added 6 million Etsy Marketplace new buyers in the third quarter, which was over 40% above our pre-COVID average quarterly new buyer additions, yet down 4% year-over-year. We reactivated 6 million lapsed buyers, up 19% year-over-year, with the vast majority of these reactivated buyers in the U.S. Our retention rates improved from the prior year and remain above pre-pandemic levels on a trailing 12-month basis, providing further evidence that our investments over the past few years have enhanced overall buyer engagement. Our number of habitual buyers was largely unchanged on a sequential basis at 7 million, an encouraging sign of continued stabilization in this metric. These loyal buyers accounted for 44% of our third quarter GMS, which increased slightly from the prior quarter. It's important to note that we retained a slightly larger portion of our prior year habitual buyers in the third quarter than in the second quarter. Our number of repeat buyers grew 3% year-over-year to nearly 37 million, also driven by the previously mentioned markets. Encouragingly, we upgraded more prior year active and lapsed buyers to repeat buyers in the third quarter than in any of the last six quarters. GMS per active buyer on a trailing 12-month basis for the Etsy marketplace continued to stabilize sequentially but declined 6% year-over-year to $127 in the third quarter. Overall, our GMS per buyer is 25% higher than the third quarter of 2019. As of September 30, we had $1.1 billion in cash, cash equivalents and short- and long-term investments. During the third quarter, we repurchased a total of $297 million in stock under our two board authorized repurchase programs, which together totaled $1.6 billion. So far, in all of 2023, we have repurchased $484 million of our stock or 5.5 million shares and our 2022 $600 million authorization is now complete. Our free cash flow this quarter was a strong $208 million. We continued to convert approximately 90% of our adjusted EBITDA to free cash flow on a trailing 12-month basis as our marketplace operates with minimal capital requirements. Now turning to our outlook. We are working vigorously to deliver growth this holiday season, yet we anticipate that it will be challenging to do so given a multitude of headwinds. These include many of those discussed today, such as pressure on consumer discretionary product spending, fairly cautious external forecasts about the holiday season and Etsy's category mix. In addition, we are seeing a highly competitive landscape for advertising with some competitors investing without an eye to ROI. To be clear, this is not a game we will play. Etsy's performance marketing spending models dynamically adjust, pulling back when we reach marginal return thresholds. So higher CPCs could naturally reduce our spend for paid traffic. And, of course, the world is now unfortunately faced with yet another significant geopolitical conflict, which could have implications for consumer spending. We believe some of these factors contributed to a deceleration in our Etsy Marketplace year-over-year trend line, particularly in the U.S., starting at the end of September and extending into a slightly negative trend line lasting through October. Last, a reminder that our guidance no longer includes Elo7 and represents a slight decrease to the top line. So please factor that into your models. With a month of negative year-over-year trends and limited visibility to help consumers will behave this upcoming holiday season, we're doing our best to land the plane with our guidance, which has always been our goal. Our current expectation is that consolidated Q4 GMS would decline in the low single-digit range on a year-over-year basis. However, if trends worsen, that could become a mid-single-digit decline. And if trends improve, GMS could be flat or even slightly up year-over-year. Obviously, with two-thirds of the quarter left to go and the all-important holiday shopping season having barely begun, it's tough to call it right now. We anticipate Q4 take rate to be approximately 20.8%, down slightly on a sequential basis due to normal seasonality. So you can use that to estimate our revenue range for the quarter. Recent expansion of Etsy Payments into new international markets is not expected to impact take rate in Q4 and will likely represent a modest increase for 2024. We are guiding to a consolidated adjusted EBITDA margin of 26% to 27%, with seasonally higher marketing spend being the primary driver of the sequential decline, although, of course, consolidated EBITDA dollars are expected to be up sequentially. We plan to increase investments in performance marketing both in the U.S. and internationally, will run select Etsy-funded promotions and invest in a powerful combination of brand visibility that includes TV, digital video, out of home, audio, and more. I'm super excited about our new Mission Impossible themed holiday creative, which is a great gifting call to action turning an impossible and stressful gifting mission into a Tom Cruise level heroic moment. With our subsidiaries expected to represent about a 300 basis point headwind to adjusted EBITDA margin in the fourth quarter, the core Etsy Marketplace margin implied in our guidance approaches our previously provided long-term target of 30%. In fact, on a full-year basis for the Etsy Marketplace, we expect to finish the year just a bit shy of being a Rule of 40 company, which many see as best-in-class performance. Thank you all for your time. I'll close by encouraging you all to check out our new gifting and deals features for your holiday shopping.

Okay. Hi, everyone. Happy to be here this evening, and we're going to take your questions. We've got a bunch in queue, so I'm going to dive right in from Lee Horowitz at Deutsche Bank. Josh, you were able to impressively reaccelerate growth at Etsy when you landed the company back in 2017. The environment was much different than it is today, but what are the learnings from that initial time? And how can you apply that to getting Etsy growing from here?

Yes. Thanks, Lee. I appreciate the question. When I arrived in 2017, we had a lot of opportunity to improve our operations and our execution. A few principles: one, picking a few things and focusing on them, moving really fast, and making sure that every single dollar we spent worked hard to drive growth. And I think we continue to get even better at those things. When I look at the progress we've made this year, when I look at how much we've executed over the course of this year and how good our shopping experience is going to be this fourth quarter versus what it was last fourth quarter, I'm incredibly proud of what this relatively small team has done. So we stay very focused. We stay very urgent, and we work hard to make sure every dollar is working really hard. This is the toughest macro I've run this business in by far. And in spite of that, we think we have gained share against our pure plays. And even when you put mass discounters in, we think we're at least holding share within our categories. So even in this tough environment, I think we're more than holding our own. And I think that's because the team is executing with a ton of focus and with a ton of urgency, and we feel a huge responsibility to be driving growth for our sellers, for our shareholders, for everyone, and we're going to keep driving super hard to do that. Appreciate the question.

Great. Thanks, Josh. From an analyst at Citi, and it's a connected question. There remains growing concern from investors on the competitive environment in e-commerce. You touched on it last quarter, but are you seeing anything different from here, particularly from the newer Chinese entrants?

Now if I'd seen anything different, but there's no question that Temu and Shein are having an impact in the market. You don't get that big that fast without taking share from many people. And I think we and most players in e-commerce have had some impact. The other thing that is happening is they're spending a large amount of money on marketing, not clear that they're using ROI thresholds to do that. And so I think those two players are almost single-handedly having an impact on the cost of advertising, particularly in some paid channels in Google and in Meta. We are the opposite of Temu. If I had to think about what is the polar opposite of Etsy, I'd probably get pretty close to Temu. And so continuing to focus on the incredible quality of the merchandise for sale on Etsy at affordable prices delivered really reliably, I think the more people experience super cheap and super disposable, the more they crave something different and something better, and that's us. Even as they invest a lot in certain marketing channels, we have other channels we can invest in. We are not going to drive a race to the bottom. We're not going to invest unprofitably. But we are, for example, shifting some spend to TV. So if we can't invest as much in some paid marketing channels, there are other channels we can invest in, and we're going to keep competing, and I believe we can keep winning over time.

I would like to add a few points to what Josh mentioned. To emphasize, Etsy stands out as a unique marketplace where every transaction involves a real person. We are fostering economic empowerment, with the majority of our sellers being women who create handcrafted items that are often customized or personalized according to the buyer's preferences in a sustainable manner. This highlights Josh's remark about how we differ from some of the new mass merchant entrants, as these values are important to many of our buyers.

The next question is also connected from Mike Morton at Moffett Nathanson. During the quarter, there were some announcements to Etsy sellers from the trust and safety team about keeping Etsy special through doubling down on enforcement, adding more human reviews, and improving the integrity. We've observed a difference in recent weeks, and we were wondering if you could speak to any impacts it could have on GMS and how you would size the impact of the stepped-up enforcement that Josh, that's for you.

Yes. So thanks for noticing. First, we're investing about $50 million in enforcement throughout our policies this year. We've hired a lot of people, and we also have been investing a lot in machine learning, which is really helping us to be able to identify among the 120 million listings on Etsy, those that may not conform with our policy. Takedowns are up 140% year-over-year. And we've really been focusing on what percentage of buyers come across one listing or more that doesn't comply with our policies. The fact that something exists on Etsy doesn't mean that it's seen, but what percentage of buyers will see a violating view. We've cut that number in half in just the past four months. So I'm glad you're noticing, I think it is very noticeable, and we think there's even more we can do. I'm also proud to say that we are seeing no deleterious effect on GMS from that. People don't come to Etsy wanting mass-produced products, and we're finding that as we do even more to suppress those listings on the site, the site experience only gets better. We only get more differentiated.

Great. Thank you. The next one I'm going to give to Rachel is from Anna Andreeva at Needham. Product development line item leveraged for the first time in several quarters. What drove that? And how should we think about the growth in that line item in the fourth quarter and into 2024?

Yes, I think the main point is that we are increasing our investment in product development by adding more personnel. These additions are contributing more to gross merchandise sales and revenue than their associated costs. The primary reason for the decrease in product development expenses was related to employee compensation. Additionally, we divested from Elo7, which reduced our product development costs since it was not profitable and incurred more expenses than revenue. We closely monitor our product development investment for return on investment, similar to our marketing efforts, focusing on areas that will lead to incremental gross merchandise sales, which they have. It's worth noting that our product development activity has significantly increased, with a 40% rise in product launches this past quarter, showcasing the return on our investment in product development.

And then there are two questions that I would say are very connected, one from Shweta Khajuria at ISI Evercore and one from Maria Ripps at Canaccord, really asking for some initial thoughts on 2024 in terms of marketing and product spend, how we balance growth and profitability, could we expect to see any margin expansion? How are we thinking about next year's macro? It's sort of a loaded question around all of the things for 2024 from multiple analysts. So I think I would start maybe with Josh and then Rachel, I think you'll have a lot to say or whichever one of you want to go first because I think there's probably both room for both of you here. Josh?

We haven't provided guidance for 2024 yet. However, I want to emphasize that we are always mindful of balancing growth and profitability. You have never seen us prioritize growth at any cost or disregard our principles. We're not a company that buys market share without caution. Regarding competition from some recent Chinese competitors, if they inflate costs too much in performance marketing, we will shift to other channels. We will not bid more than what a keyword is truly worth. We assess our product development by the additional revenue, gross merchandise sales, or cost savings each team generates. I'm really proud of how our team is performing. We've seen a 40% increase in launches year-over-year, and productivity levels are very high. We feel a strong urgency to provide as much support as we can to help our sellers grow and to deliver greater value to our buyers and shareholders. The team is working with great urgency, and we are careful and deliberate in our hiring and in our investments in R&D to ensure they drive growth. We will continue this approach. When we identify opportunities for investment to foster growth, we will seize them, but we will always proceed with discipline and caution.

I would like to add a couple of notes, starting with marketing. We have successfully expanded our marketing channels, particularly in paid social, where we've launched several campaigns and increased our investment to match many of our peers. Our customer relationship management (CRM) efforts have also scaled effectively, allowing us to send targeted emails to our buyers. Additionally, we've expanded internationally, attracting many new and returning buyers. While we've previously mentioned operating in three markets, we've also begun testing television advertising in Austria and Switzerland this last quarter. All of these initiatives have achieved our marginal return on investment thresholds. On the product side, which Josh may discuss further, we have leveraged machine learning to enhance the productivity and efficiency of our engineers, enabling us to develop and produce more quickly while reducing the payback period on our product investments. Our optimization efforts are ongoing, and we've significantly reduced costs associated with our Google Cloud investment as we continue to utilize that platform for cloud computing. This all factors into our calculations for return on investment regarding product development spending.

Great. And since we were on the topic of marketing, and you touched on this, but I'll just ask the specific question we got asked from Sharanjit Cheema at D.A. Davidson. And I'll give this to Josh. Can you give your current thoughts on advertising, including your efforts on linear TV, OTT and digital advertising, including TikTok. We touched on it, but I might as well ask that.

Yes. That's a great question. Looking back at Etsy since 2017, we initially focused on performance marketing and made significant improvements in that area. We progressed to social media, social videos, and television marketing. While we've become more advanced in TV advertising, the cost of over-the-top (OTT) advertising has posed some challenges for us due to higher costs compared to linear TV. Consequently, we've prioritized investments in linear TV while working to find a sustainable way to incorporate OTT into our strategy. The benefits of OTT include better targeting and improved trackability, which we find encouraging. We're also concentrating on mid-funnel strategies, leveraging platforms like YouTube and paid social video to engage potential customers who may be planning significant life events, such as weddings or having babies. This approach allows us to build consideration among consumers who might not have a specific product in mind but are generally in the market for items. There are great opportunities for us to enhance our effectiveness in this area. We are actively investing and witnessing positive outcomes. For instance, we have begun to bring more creative work in-house, which has led to increased headcount while reducing agency fees. By insourcing our creative, we can produce mid-funnel content quickly and cost-effectively, enabling us to develop targeted, timely messaging. Additionally, it's important to note that Etsy is now a recognizable brand for many people. In the U.S. and the U.K., if you ask someone if they know Etsy, most will respond affirmatively. When asked what they think of Etsy, many will say, "I love Etsy." However, we need to challenge their preconceived notions, such as the belief that shopping on Etsy is more expensive because products are custom-made. In a competitive market where many consumers are seeking bargains, Etsy isn’t typically associated with discounts. We aim to communicate that, although Etsy is not a discount brand, we do offer millions of items at attractive prices. It's essential to reshape how consumers perceive Etsy, emphasizing that our products are not only beautiful but also affordable. The message of "arrives on time or your money back" might not be completely new, but it’s an important one for Etsy; many people are unaware of how reliable our sellers are in terms of timely delivery. Highlighting such claims is critical to changing customer perceptions and how we approach our marketing efforts.

Okay. Great. Thanks, Josh. We have several questions about promotions, so I'm going to combine them. One is from Eddie Yruma at Piper Sandler, and one is from Nathan Feather at Morgan Stanley, but it's basically getting at how do we think our Q3 promotions went, the Etsy-funded promotions? And how do we think about those more as a go-forward marketing strategy? I think we could start with Josh on that one.

Great. So the Q3 promotion was just $5 off of spend $25 or more and you get $5 off were great. We saw a nice little bump in GMS, and buyers really liked that; sellers loved it, and it was ROI-positive. It was a relatively small investment, and it worked terrific. Then in October, we ran $10 off $40 and it didn't work as well. It was not ROI positive; it pulled forward sales as much as it increased sales, didn't drive as much incremental lift. I could go a lot deeper into how did it work in one market versus another in one category versus another with new buyers for lapse buyers. But the point is we're learning. And this is a tool we'll have in our toolkit. I would expect we'll do more in the fourth quarter as we continue to test and learn with an eye towards testing and learning. The investments are something we put an ROI threshold on like anything else we do. But the vast majority of promotions on Etsy are seller funded. It's when sellers put things on sale. And the new deals tab in our app, for example, I'm really excited about it just launched. It's very early days, but buyers seem excited that there is a deals tab, one place I can go to find deals just for me and maybe something they didn't think of and associate with Etsy. So I think we have a lot of sellers who want to put things on sale. We can do a better job and we really are focused right now in giving them insights on how, when, and for how much should they put things on sale. And then us highlighting those things, that's going to be most of how promotions continue to work. But if Etsy can be the icing on the cake with some Etsy-funded things and make that a good investment, we're going to keep testing, and I'm optimistic that that's going to be a lever in our toolkit.

Great. I appreciate the added benefit. Next question comes from Rick Patel at Raymond James. Rachel, I'm going to pass this one to you. Can you provide more details on the new buyer ads? How much of this is coming from the U.S. compared to international? Also, can you share insights on categories and how new buyers are spending?

Sure. So first of all, we love our growth internationally, and we said up 7%. And so we're seeing that we're opening up new markets, which is fantastic. We've certainly seen a lot of new buyer growth coming from international, but we've also seen a material amount of growth coming from new buyers coming from the U.S. So really in both places that we haven't disclosed the breakdown of new buyers by geography. So that's as much as I can say there. And no, we don't really see any category differences by geographic market. It's sort of a universal appetite for all of our major categories along the tail of categories across all of the geographies.

Great. There are two questions about sort of areas of interest that we have for investment. One is from Ashley Owens at Key and the other one is from Nick Jones at JMP, and I'll basically read a version of the combined question, which is for Josh. As you look out over the next couple of years, what are your priorities in terms of investments in the marketplace for buyers and sellers in search and other tools? And how do you see those types of investments inflecting frequency over time? I think that's really the net result of the question.

Great. So thank you for the questions. We think we are in the early days of unpacking Etsy's opportunity. We think that we can gain a lot of share in our categories and versus e-commerce and through both adding new buyers and frequency. And there are four things we're really focused on right now. It's quality, value, reliability, and consideration. Starting with quality, value, and reliability. We've made a ton of progress on relevance. So whatever you enter in the search engine, we do a pretty good job of understanding what you meant in finding a set of results that are relevant to what you meant, maybe not what you said, but giving you a diverse set of ideas. What are the five or 10 best ideas for that provided it's a relatively generic thing like gift for mom or whatnot? Giving you a really good, compelling diverse set of ideas, and then picking the few best examples within each of those ideas is a big focus. I think we have a ton of opportunity to do better. So we don't just match you with the product you're likely to buy; it's a product you're going to love. And in the process, we show you the breadth of the kinds of things that Etsy can do for you. I think there's a ton of opportunity. And as we do that, we will get a lot more frequency. In terms of value, people assume that if it's mass-produced somewhere and lots of hundred thousand, it's going to be cheap, and it is. But it turns out that if somebody makes it just for you and there aren't three markups along the way, that also can be affordable and can be special. So highlighting the fact that you're getting great value on Etsy is something that is a big focus; helping our sellers price well, use promotions well. That's a big focus. And then on reliability, we've made so much progress on making sure items arrive on time, making sure there's clear return policies, making sure it's easy to fix things on the rare occasion that something goes wrong. We now need buyers to understand all the progress we've made, and we can continue to do better, making delivery windows shorter without losing the special nature of Etsy. So a lot we think we can continue to do on reliability. As we do better on quality, value, and reliability, we then need consumers to understand that we need to disrupt their consideration of Etsy so that we're in their consideration set a lot more of the time. Again, with only 3% of people, if you say, name a place to shop for home furnishings, only 3% of people can name Etsy. You say, name a place to shop for gifts, only 12% of people are naming Etsy. We think there's enormous opportunity there.

Okay. I'm going to address a question from Trevor Young and his team at Barclays, which pertains to our seller growth. We have added over 1 million active sellers in the last three quarters. Can you discuss the factors that contribute to that significant growth? Josh, I'll turn that over to you.

I would say that the current macroeconomic situation is challenging, but we haven't changed our approach to acquiring 1 million sellers. We haven't done anything different. It's a tougher environment right now, with many people looking to earn some extra income, and Etsy is an excellent platform for that. For anyone who creates things and wants to sell them, Etsy is unmatched. This situation reflects the great value we provide to our sellers.

Great. Thank you, Josh. And the next one is for Rachel from Anna Andreeva at Needham. Question on take rate. You mentioned there could be an opportunity to still raise some of the fee structure at more Etsy and the subsidiaries. What is the sensitivity towards additional raises from the seller community?

We work diligently to ensure that any changes to our fee structure provide tangible value to sellers, as well as benefits for buyers. There are a few ways we can increase our take rate. One way is by enhancing existing services, such as improving Etsy Ads, which helps us grow revenue from that product. Another example is Etsy Payments, where we’ve launched more markets, thereby increasing fees while supporting sellers in those regions. We could also consider introducing new services. Although we have no specific announcements today, we observe other marketplaces offering services that might be advantageous for our sellers, which we could explore. Additionally, we may implement price increases, but we would never make drastic changes to our pricing without careful consideration. We always ask ourselves how we would invest the additional revenue from a higher price point. Historically, we've successfully increased our marketing investment because of higher lifetime value, allowing us to use our funds effectively while maintaining high returns on investment. Consequently, as our marketing efforts have grown, so too has our gross merchandise sales. It’s a positive cycle that we value, and we constantly evaluate how to utilize these extra funds to benefit the marketplace as a whole.

Okay. Great. We had a question in from Eddie Yruma at Piper Sandler, and it's really about the financials of Depot, which I want to ask Rachel. But I first want to ask Josh sort of what we're seeing in the business there, talk about the financial performance just in general of Depop and what do we think is attributing their growth? And then Rachel, maybe you can add on how we think about their EBITDA margin drag.

I mean, Depop had a great quarter. Depop is doing great. Particularly in the U.S., Depop is doing fantastic in the U.S. right now. Again, I think this is the other side of a tough macro: Depop is a way to get very affordable clothes that doesn't have a negative impact on the environment, and that's very popular right now. The management team we put in place and the specific programs they're executing are working, the marketing programs that are executing are working. So it is the benefit of a portfolio as we hoped when we bought that company; having a portfolio allows you to benefit from different sectors of the economy at different times, and that's where we are seeing.

Yes, Rachel, did you want to add anything there on that?

Yes. The only thing I'd add is that when we talked about our guidance, we said that we expect in the fourth quarter, our subsidiaries to be about a 300 basis point contraction to our overall margins. That's down from the 300 to 400 basis points that we have been talking about previously due in part from the divestiture of Elo7, but also strong growth at Depop.

Okay. Rachel, I have a question from Laura Champine at Loop. Is the Q4 GMS outlook consistent with the trends we've seen so far this quarter? I assume she's referring to the data through October. If so, what do you think caused the slowdown compared to the pace of Q3? Additionally, she asked whether this is related to Etsy being overshadowed by other advertisers who might not have a specific benchmark for their investments.

So I think that's a yes. To reiterate the guidance we provided, we noted that we experienced growth every month in Q3, but we began to notice some softness towards the end of September, which has continued into October, resulting in slightly negative trends. The guidance we gave reflects that softness in October, and we anticipate seeing low single-digit declines for the fourth quarter. If the macroeconomic situation were to deteriorate, we have an extensive list of macro factors that everyone is aware of, particularly the declines in consumer discretionary product spending. To elaborate on that: we've observed growth in service spending and some stability and growth in durable goods. However, the area where Etsy primarily operates, non-durable discretionary goods, is under significant pressure and facing considerable headwinds from the macro environment. The increases in spending on non-durable goods are mostly in essentials and heavily discounted items. So, I would describe our current position as being in the calm before the storm. Additionally, we are experiencing considerable competitive pressure on advertising spend as the cost per click rises. Our model is to dynamically adjust and naturally reduce our spending, which will likely lead to fewer traffic and buyer acquisitions.

The only thing I'd add there is everything Rachel talked about is GMS. So the GMS guide is down low-single-digits. Take rate is actually up year-over-year. You'll notice in our guide. A low-single-digit GMS would still be roughly flat, maybe even slightly positive revenue for the quarter.

With very healthy margins, so…

That's a good way to end. We are out of time. Thank you, everybody, for your time, and we will be talking to you all as we go through the quarter and shop on Etsy for all your gifting needs.

Thank you.

Thank you.