Conference Transcript - ETSY 2026-08-12

Joshua Silverman, CEO

Linear TV, I'm embarrassed to tell you how many times Etsy's ads showed up on Murder, She Wrote, which is not the demographic that we are after. And we were really not playing a strong enough social game. And so what we did was we really tried to move a lot more of our overall allocation into social media. And it was pretty easy to move from linear TV to YouTube and to OTT and get to a much younger demographic. And what we're seeing right now is our reach and our traffic in Gen Z and millennials is up like 5x from where it was a year ago because of changes we've made in that marketing. On the search side, it's always been a great strength of ours. We have a really close relationship with Google, and we work really closely with them on how to optimize that channel. We have had some really nice wins this year. As we've gotten better on determining what's the most relevant item to show in response to a search, it's helped our click-through rates, it's helped our conversion rates, and what that allows, then our return on ad spending goes up, and if the return on ad spending goes up, we put more money into that channel. So we've had a great year in search, which, even though that's not necessarily where we, we're very strong there, but we keep getting stronger. That's been wonderful. And then on the social media side, we've, you know, it's like we had a lot of work to do to figure out, like, how do we interact with this channel? It's not search traffic, so it's not coming in as keywords. It's much more topical. It's much more opportunistic. So we've had to change some of the landing experiences, some of the where we bid and where we buy. But we're doing really well. That channel continues to grow for us. the returns that we're generating in the social channel are now approaching the return on ad spending that we get in search, which is awesome. TikTok has been a huge win for us. And then I just want to say one other thing. We have this like secret weapon, which is the CFO is my favorite part of the mix, which is the owned and operated media channels. So our push notifications and our email, we don't pay anybody else to deliver those messages. And it's a one-on-one direct relationship from Etsy to the customer, and that channel is such a huge beneficiary of everything we're doing on profiling our customers and delivering more relevant marketing and messages, and so that the owned and operated channels are growing really, really well. So last quarter, we had really good operating leverage on the marketing line. Even the percentage of GMS that came from from our marketing channels was at a peak, but the percentage of revenue that was being spent on marketing was lower than it's been for a couple years, which really attests to everything I just said, like optimizing the portfolio, getting the mix of channels right, and then getting the ads that you're delivering to really perform. So more to come. Like I said, it's always changing. There's always room to optimize it. You move everything over here, then you move it over there. But we've made a lot of progress. Great.

Speaker 1

Yeah, I get those push notifications all the time.

Joshua Silverman, CEO

Well, hopefully they're not just telling you to buy the thing you bought last week.

Speaker 1

So moving on to your outlook, you raised your full year guidance quite a bit as we moved throughout the year. That said, you're expecting some moderation in the second half of this year in terms of GMS growth. How much of this reflects tougher comparison and sort of moderating external tailwinds versus anything that you are doing and seeing internally?

Joshua Silverman, CEO

Yeah, well, you're right. When we started the year, as I said earlier, we were encouraged by the growth, but we were pretty cautious about it. As we move through the year, we've become much more confident. So our full year view, since the start of the year has come up a lot and it came up a bit in the last quarter, we kind of thought we would grow low single digits 90 days ago and now we think we'll grow mid single digits on GMS for this year. And we feel great about that. I think that our numbers do contemplate a little bit of a slower year to year growth rate in the second half of the year. and that really does not reflect any fundamental slowdown or loss of momentum. It's really a couple external factors. Number one, in the first half of this year, we got a nice currency tailwind that's worth a point or so on GMS growth, maybe a little bit more than that, and that will be a zero to maybe a slight headwind in the second half of this year. Secondly, our year-to-year comparisons get a lot more difficult. I said that we started to see some growth about a year ago from and the change in strategy. And so in the first half of this year, we're lapping the no growth period, and now we're starting to lap where things were getting a little bit better. So there's about, I don't know, six, seven points of more difficult comparisons in the second half of this year than there was in the first half of this year. And then finally, the growth that we've seen in average order value, the externally driven sources, like there have been some new tariff news, but not as much of a tariff shock, not as much of a trade shock as there was a year ago. So we think that the prices that have gone up because of those sort of geopolitical dynamics will stay where they have, but the rate of increase on sort of those external sources is slowing down. Fortunately, we're starting to contribute a little bit more to it. So I would say to you, at the end of the day, we don't expect a slowdown in buyers and in frequency and all the other non-financial metrics. We think those continue to get better. But for the short term, for a couple quarters, the comparisons will look a little bit more tricky.

Speaker 1

So capital allocation has been another area of focus, especially after you sold Depop. How are you thinking about sort of balancing investment in the business with returning capital to shareholders? And how should investors think about sort of the pace of buybacks going forward?

Joshua Silverman, CEO

We will spend $400 million plus on product this year. And we'll spend similar kind of numbers on the marketing side. When we look at the Etsy business, we don't see huge incremental investments that we should be making urgently in the Etsy business. It's really about focus. It's about narrowing what we're really paying attention to the customer experience and focusing on those four priorities that we just talked about, discovery and matching and retention and differentiation. And so there isn't like a big capital need in the business. It's a really capital-like business. So our EBITDA margins are close to 30%, and 80% or 90% of that turns into free cash flow, and it leaves us with a lot of liquidity. And so what we've done is, in the last few years, we've been buying back a lot of stock. I think we've, over the last three years or so, we've bought back 25 million shares. we have just last week we got another two billion dollar authorization to buy back stock on top of a five hundred million dollars that we had left on the prior authorization so we are armed for bear to keep investing in the etsy business investing through the pnl as we have been and then investing excess capital back into sort of leveraging investor returns with that without an additional capital. We've got a convertible bond coming due in 60 days. We pre-refinanced that a year ago. So we'll just pay that. Our intention is just to repay that when it comes due. And we'll carry, you know, I think gross leverage somewhere like three times EBITDA, but we'll keep a lot of cash on hand to service, you know, the next year, year and a half of redemptions and anything that's above that our intention right now is to keep buying back stock. If we come on something that seems like it'd be a great investment to supercharge the Etsy business, we could consider it but there's nothing on the drawing board right now that says we have a big M&A strategy or it's really about focusing on the performance of the Etsy business. We just think there's so much potential. There really isn't any other e-commerce player that has this lane that we have of differentiation around the human connection behind the sale around the creativity and the craftsmanship for the items it's just a really different product category than you're seeing elsewhere and we just want to keep investing in that and then plowing back what what profit we have into into accelerating the about equity returns for people great well we'll leave it there clearly a lot of momentum in the business thank you so much for coming Lenny thank you appreciate it thank you all for joining