Etsy, Inc. (ETSY) Earnings Call Transcript

Hi, everyone, and welcome to Etsy's Third Quarter 2026 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been prerecorded. Joining me today are Kruti Patel Goyal our CEO; and our CFO, Lanny Baker. Please keep in mind that our remarks today include forward-looking statements related to our financial outlook our business and our operating results, as noted in the shareholder letter posted to our website for your reference. Our actual results may differ materially. As you review our shareholder letter and 10-Q, please keep in mind that on July 30, we completed the sale of Depop. Etsy's results in those documents and on this call are presented on a continuing operations basis, while Depop's results are presented within discontinued ops. Forward-looking statements involve risks and uncertainties, some of which are described in today's shareholder letter and our most recent periodic report and which will be updated in future periodic reports that we file with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's shareholder letter posted on our IR website, along with the replay of the call. With that, I'll turn it over to Kruti.

Thanks, Deb, and good morning, everyone. Thank you for joining us. 2026 has been a year of meaningful transformation for Etsy. We started the year with a clear understanding of what needs to improve and a focus set of priorities to make that happen. At the same time, we've become clearer about what truly differentiates Etsy, the creativity of our sellers, the care and craftsmanship behind what they make and the human connection that gives those items meaning. And increasingly, we're bringing these together making Etsy a better place to shop while also making what sets us apart more visible and valuable to our customers. I'm proud of the progress we've made so far and even more optimistic about the opportunities still ahead. We're bringing more buyers to Etsy and lending them in an experience that is more personalized and relevant, helping them discover a quality items and sellers. We're making our marketing investments more effective, enabling us to show up in new places and build relationships with both new and existing audiences. And we're improving the support experience for our buyers and sellers, an important part of building trust and meaningful relationships that extend beyond any individual transaction. After 3 consecutive quarters of accelerating growth this year, I have increased confidence that our business is now firmly in growth mode. We have real momentum and clear evidence that the changes we've made to how we operate and invest in the marketplace, are translating into stronger fundamentals and more durable performance. Etsy's marketplace GMS was $2.6 billion, up 8.8% year-over-year. Revenue was $692 million, a take rate of 26.2%. And adjusted EBITDA was $210 million or a 30.4% margin. What's especially encouraging is that we're seeing improvement across both sides of the marketplace. Active buyers grew year-over-year for the first time in 2 years and our focus on improved customer relationships is driving an acceleration in growth in GMS per active buyer. Our active seller base grew at its fastest rate in 2 years with improving retention, signaling the relevance of Etsy to creative micro-entrepreneurs. We're still benefiting from some external GMS tailwinds, but importantly, the contribution from our strategic initiatives is accelerating. Our app continues to perform well. Paid marketing is becoming more efficient and organic traffic remains healthy. And our work to improve search and discovery is servicing higher quality, more relevant inventory, which we believe can truly transform a experience over time. Lanny will cover GMS drivers in more detail shortly. We hope you've seen the updates on our near-term priorities covered in our shareholder letter. I'll cover a few that I'm most excited about. Last quarter, we shared how we were testing ways to make our sellers and their creative processes more visible to buyers. Our latest Android test and supporting research show that doing so builds buyer trust, confidence and perceived value. We're now building on these learnings as we look to bring human connection more deeply into the shopping experience across platforms. By weaving together things like seller stories, craftsmanship details, buyer reviews and opportunities for connection. We aim to help buyers understand not just what they're purchasing, but who's behind it, how it's made and what makes it special. Our goal is to make the value our sellers create more visible at every step, building the trust and connection to differentiate Etsy and bring shoppers back. Our investments in discovery and matching are increasingly contributing to GMS momentum. By using AI and machine learning to more deeply understand shoppers' tastes and interests, we're helping buyers find what they want and discover things they didn't know they were looking for. And we're seeing tangible proof points. For example, by the third quarter, we estimate that personalization improvements alone contributed approximately 2 percentage points to our annualized year-over-year growth rate. We've made progress against the seller experience from helping sellers create and manage listings and customized products to enabling shared shop access, providing clearer financial insights, expanding our [ heels ] process and making Etsy Ads easier to manage. We're also experimenting with how AI can make running an Etsy shop easier. Our AI-powered seller assistant currently in beta, provides personalized insights based on Shop's unique data and shares actionable ideas for what to focus on next. For buyers, we're continuing to test different ways to recognize and reward loyalty that includes testing a program where buyers are in stamps towards rewards for actions that brought in and deepen their relationship with Etsy, like supporting sellers across categories and regions. We're also scaling premium support experiences for our top buyers ahead of the holiday season, while expanding general support availability across the marketplace. And lastly, the strategic shifts we've made in marketing have been an important part of our progress this year. I'd highlight 3 areas where we've made meaningful changes. First, we're evolving how and where we reach shoppers. Our brand campaigns are reinforcing what makes Etsy different while we're finding new ways to connect with younger audiences and show up for the additions that matter to buyers. Second, we're getting smarter about how we bring our inventory to shoppers. Improving how we understand and service our listings across paid search, social, SEO and our influencer and affiliate programs. So more people discover items that are relevant to them. And third, we're making our own marketing much more personal. We're combining the scale of AI with the creativity of human curation and storytelling to deliver content that feels more relevant to each individual. Another important area of focus is how we're using AI to make commerce more human. We believe AI will fundamentally change how people discover and shop and we are leaning in that change. For Etsy, the opportunity is to use this technology to help buyers discover that feel uniquely right for them and to help our sellers reach more customers and grow their businesses. And there's an interesting paradox here. As AI makes it easier to create and replicate products at scale, we believe the human creativity, craftsmanship and connection that have always made Etsy special will matter even more. As we head into the final stretch 2026 and develop our growth plans for 2027, we have even greater confidence that our priorities and focused execution are creating a healthier, highly differentiated marketplace and positioning us to capture more of the enormous opportunity ahead. I would also like to acknowledge our announcement this morning that Lanny will be leaving Etsy in early March. I am so grateful for his leadership and judgment and especially for his partnership during my first year as Etsy's CEO, as we've navigated this important and transformational time for the company. [indiscernible] Etsy with stronger momentum for the future. I'm excited for what is ahead for Lanny and wish him all the very best. We've engaged an executive recruiting firm to assist in the search for a new CFO to be based here in Brooklyn. With that, Lanny will review our results.

Thanks, Kruti. It has been a great privilege to work with you and to contribute at the crucial stage of Etsy's development. You've brought clarity of focus and a vision of differentiation that are just beginning to have their impact on the marketplace and the business. I'm excited to help close out what's been a pivotal year and I will do all I can to support a great transition once the company's next CFO has been identified. Turning to our results. I'll start by reviewing our GMS performance in the quarter. Importantly, as our momentum has accelerated since the start of 2026, internal efforts to improve marketplace health and further elevate Etsy's differentiation, are beginning to play a larger role in the composition of GMS growth. Active buyers returned to year-over-year growth for the first time in 2 years, increasing 1% to approximately $88 million on a trailing 12-month basis. Sequential growth also accelerated, with active buyers increased by approximately 540,000 compared to 2Q '26. Third quarter gross buyer additions grew 6.2% year-over-year continuing to benefit from strong new buyer acquisition and reactivation. While trailing 12-month retention amongst existing buyers also began to improve. Habitual and repeat buyers increased modestly on a sequential basis, encouraging evidence that progress is broadening across acquisition, reactivation and retention. GMS per buyer increased 3.9% year-over-year on a trailing 12-month basis, marking the third consecutive quarter of growth. In addition, this important barometer of marketplace health accelerated sequentially. The impact of our initial -- of our internal initiatives is continuing to scale and play an increasing role in average order value growth, while purchase frequency remains modestly down year-over-year. The internal initiatives driving these trends include: number one, improving search relevance for buyers through greater personalization built on richer buyer profiles and inventory insight; two, promoting a stronger selection of high-quality items by increasing the weight of quality signals within search and recommendations. Three, better managing the prominence of physical versus digital items based on what we can understand about buyer intent. And four, differentiating our offering around special occasions where people may be willing to pay a little bit more for just the right item. Looking forward, we seek to continue to grow our wallet share by helping shoppers discover more of the unique high-quality inventory on Etsy, whether that translates into more valuable orders, more frequent purchases or both. Moving to revenue and take rate. Higher GMS drove strong revenue growth of 10.9% year-over-year in the third quarter. Total revenue reached $692 million with marketplace and services revenue, both contributing to growth, increasing by 9.1% and 15%, respectively. Take rate was 26.2%, up 50 basis points year-over-year primarily driven by further enhancements to Etsy Ads and to a lesser extent, contribution from offsite ads. Etsy Ads is becoming an even more effective tool for sellers to reach buyers as improvements to our matching and ranking models increased ad relevance and drove higher click-through and conversion rates. Better budget-pacing mechanisms also help sellers direct more of their spend toward the most valuable opportunities. Strong revenue growth, together with the impact of our restructuring in August, translated into adjusted EBITDA of $210 million, growing 14.6% year-over-year and representing a 30.4% adjusted EBITDA margin. Adjusted EBITDA grew faster than revenue for the second consecutive quarter, and we remain disciplined in managing operating expenses while continuing to invest in areas that we believe support Etsy's long-term growth. Marketing remained an important area of investment and expense grew as a percentage of revenue year-on-year as we leaned into driving profitable GMS growth. Excluding restructuring charges, product development expense gained leverage year-over-year, reflecting lower stock-based compensation and employee-related expenses. Looking ahead, we expect to sustain Etsy's healthy adjusted EBITDA profitability as we gradually add product and engineering head count and capabilities to support our long-term growth. As of September 30, 2026, Etsy held $2.5 billion in cash, cash equivalents and short- and long-term investments. Proceeds from the sale of Depop, which closed on July 30, 2026, and contributed to our cash balance at quarter end. Subsequently, on October 1, 2026, we paid $649 million in cash to settle the remaining aggregate principal amount of our outstanding 2019 notes and reduced the company's total outstanding debt. We generated strong free cash flow during the quarter. Net cash provided by operating activities of continuing operations for the 3 months ended September 30, 2026, was $243 million. And on a continuing operations basis, we converted 112% of our adjusted EBITDA into free cash flow during the quarter. We further accelerated the return of capital to shareholders repurchasing approximately $395 million in stock and reducing the outstanding share count by approximately 5.2 million shares during the third quarter alone. We currently have $2.2 billion in authorized capacity for future share repurchases and anticipate continuing to repurchase shares at an accelerated rate to further reduce the outstanding share count. Turning to our outlook. We currently anticipate that overall macroeconomic factors remain relatively consistent. Foreign currency is a modest growth headwind and prior year comparisons become less favorable in the fourth quarter. In that context, we currently anticipate that Etsy Marketplace fourth quarter GMS will be between $3.46 billion and $3.52 billion, representing year-over-year growth of approximately 5% to 7% for the quarter. We expect fourth quarter take rate to be approximately 25.6% and adjusted EBITDA margin to be approximately 30%. For the full year, we now anticipate that GMS growth will be approximately 7%. Take rate to be about 25.8%, and our full year adjusted EBITDA margin outlook moves up to roughly 30%. In sum, we are very pleased with the progress we've made in 2026. The marketplace is getting healthier, and our strategy and execution have aligned, we've driven significant outperformance compared with our expectations at the beginning of the year. With that, we'll now turn it over to the operator to take your questions.

[Operator Instructions] Our first question is from Nikhil Devnani of Bernstein.

I wanted to ask a little bit about this -- the dynamic between app and non-app GMS. I think in the past, the app has sort of been the sandbox for all your personalization efforts and other self-help efforts and it accelerated first. Now we're seeing the non-app GMS also improve. I'm curious to the extent to which you've been able to extrapolate some of those same efforts to the non-app shopping journey or if it's something else driving that? And just if you could remind us the overall technical hurdle around data or otherwise to get the non-app shopping experiences to keep improving and keep up with what you were able to do in the app.

Thanks so much for the question. I think that your insight is exactly right. We started out using the app as a place to really test deeper personalization. And as we've talked about before, it's an area where we have a lot of information about users because they're all signed in. And so as we have learned about how to effectively personalize the experience, deliver much more relevant inventory and personalization, and we've expanded those learnings and that personalization work throughout across platforms and throughout the experience. We're seeing that show up more significantly on web as well as on app. There are no significant technical hurdles that I would call out. I think that it's just been about sequencing our work to where we can learn best before we apply it more broadly.

Our next question comes from Steven Forbes of Guggenheim.

Maybe just a question around gifting. Curious if you can highlight some of the key attributes that you're hoping the gifting assistant is going to solve or address including any friction points for the consumer -- and then I don't know if you can remind us what the percentage of GMS gifting represents for both the full year and the fourth quarter.

I think that when I think about our gifting assistant, it's really our first foray into bringing a shopping agent on site. And so the first application of that to give people a real sense of how to use it and when to use it, has been applying it to gifting. It's really been an opportunity for us to learn and experiment with a more conversational interface to understand how that enables people to shop more effectively. And it's been a really great learning tool for us. We're seeing this particularly effective in helping people when they have broader, more complex queries really effectively narrow down their search. And so as we are learning that, our next steps are going to be to expand both the use cases for this type of a shopping assistant and expand where you can access it throughout the experience rather than a single entry point to just better leverage this kind of an interface experience.

Yes. And in terms of gifting importance, we've always held the view that Etsy is this destination for really differentiated considered purchases where that human connection is important. And that's reflected in the fact that about 30% of our GMS comes from gifting where people are coming to us to try to find an item to give to somebody else. So it's a big portion of our business, and we continue to we'll invest in that and find ways to use personalization to tap into more of the gifting occasions that people have on their calendars.

Great. And everybody needs to try it a season, cool. Next question.

Our next question comes from Andrew Boone at Citizens.

I wanted to go to buyer frequency. Is there anything you can help us understand in terms of cohorts or various groups of buyers in terms of frequency. I'm a little bit surprised to not see this up given all the progress you guys have made in terms of personalization and the better product. So just help us understand that.

Sure. In our -- in the long-term drivers of our business, frequency is a very important one. And I think we have early signs of progress in buyer engagement that we're very encouraged by. Things like the responsiveness to recommendations that we make and clicks on those, the favoring of items and of sellers the usage of the app, the cross-category shopping experiences that were able to inspire through personalization, the repeat business activity are all early precursor signs of people starting to build deeper engagement with Etsy. At the same time, there are other countervailing trends. We've talked about it in the past, the addition of new and reactivated buyers into the mix, they tend to buy a little bit less frequently than the established buyers. The fact that as we elevate items that are truly special and differentiated often, they're at a little bit higher price point, and we're gaining share of wallet. And as prices are higher, people are a little bit more selective in what they're purchasing, those spending more on Etsy. As we look forward, I think we're very encouraged to start now to see for a couple of quarters in a row, growth in the number of repeat buyers and the growth in the number of habitual buyers. So those are early indicators of like building that habit frequency retention but we're not yet at a place where the sum total of frequency overall is moving -- is comping positively year-to-year.

I'm just going to underscore the point that as Lanny said, we see frequency as a really important long-term measure, but it's a hard thing to move materially quarter-to-quarter. So what we really look at internally is how effectively can we measure indicators of us making the experience more relevant, more engaging in period. And so that's why we've been looking at and sharing a lot of measures of engagement which we think are great examples of how we're doing that. And then again, over the long term, we're going to be focusing on converting engagement into greater purchase frequency. The other thing that I would just add is what we're seeing is in terms of the increasing GMS per buyer is that we are providing an experience that compels people to spend more with us over time. And so that's really the north star that we are looking at is are we gaining wallet share from our buyers. So that's the other thing that I would encourage you to think about.

Our next question comes from Eric Sheridan at Goldman Sachs.

Maybe if I can push on the theme of marketing and what was in the shareholder letter, can you just go a little bit deeper in the key learnings as you continue to diversify the channels with which you market to consumers? And how should we be thinking about the 2 sides of this, both in terms of what marketing can do in terms of driving increased volume on the platform, but also through the lens of marketing ROI over the medium term and how you translate some of those early learnings into how it might translate over a longer duration period of time?

Thanks, Eric. I'll start. Marketing in 2026 has had a really great year for Etsy. And I think at the like top and sort of kind of most extract layer, we've -- I think from a branding perspective, really started to successfully put forward the sort of notion of Etsy's differentiation around human connection. That's been in some of our brand work and in some of our online marketing messages. But when you get into the details of the like the more direct side of marketing, -- we've also had a really great year. We made some big progress in paid search by better segmenting the feeds that we provide to PLAs in particular, but that's also helped us across social. And then within paid social, we've been able to scale at really attractive ROIs, the spending that we do in places like TikTok and YouTube, which are expanding our reach to younger audiences and to new buyers coming into Etsy. So we had a -- we also, in the third quarter had a fabulous in real life event and activation we did with a music former you may know Olivia Aurigo. And that touched I don't know, was it 90 million total views of that activity. So kind of across the board, I think we're finding a real stride on the marketing front. And in the third quarter, our -- we increased our marketing spending on a year-over-year basis, but the GMS from marketing grew faster than that. Our ROIs improved year-over-year on our marketing spend in the third quarter. If you remember back to the second quarter, we got pretty good leverage out of our marketing spending in the second quarter. And what you're seeing there kind of plan across a couple of quarters is gains in efficiency established in the second quarter were effectively deployed to gains in growth and share in the third quarter. Our engine got more efficient, and we invested more behind it. And so we feel really good about the health and the position of our marketing complex at this point. We can go deeper into detail, but I think that gives you kind of a good high-level view of what's going on there.

That's great. Thanks, Lanny. We'll take the next question.

Our next question comes from Rob Coolbrith at Evercore ISI.

Congratulations on the results into -- Lanny [indiscernible] terrific runs to the company. Just wanted to ask on the call out, Lanny, on digital versus physical goods prominence. Can you maybe give us a snapshot of how much of the marketplace today is digital, both in terms of GMS and maybe also in terms of ad revenue just anything further on just how you're thinking about the change in prominence.

Yes. We haven't broken out in the past. I don't think we're going do that today. We'll take -- we'll give it some thought. But I think 1 of the things that we found is that there were times where our search results were optimizing for conversion. We've talked about that in the past. And the digital items tend to sell at a lower price than the physical items do -- and as we've started to get better profiling data and understand better the intent of the buyer we're much better able to infer whether this is likely a buyer looking for a digital download or likely looking for a physical item. And just making small changes in the presentment of the physical items in those circumstances has really helped. I think the goal has been to better meet the buyer intent, and it's had sort of the bank shot outcome of shifting the mix a little bit, and it's actually been a little bit of a help to average order value as well.

Our next question comes from John Colantuoni at Jefferies.

Can you hear me? Okay. Great. Just wanted to ask a question on pricing. Shifting spend towards higher value items has been a key driver of growth. Can you highlight what you're doing here? And how you're thinking about the sustainability of this mix shift benefit into next year?

Yes. Great question. Look, I think as Lanny was just saying, we are focused not on driving price. We're focused on driving quality of the customer experience. And so a big part of that has been thinking through how we change our algorithms to not just optimize for conversion but to optimize for quality, making sure that we're delivering to buyers, what they're looking for, both in terms of the relevance and the quality in a way that delivers them a really satisfying experience. And so the work that we're doing around personalization is really coming through here. We've been more effectively leveraging both our understanding of our inventory and our buyers to deliver that more personalized experience across search, across recommendations and across marketing. And this is a place where we've been able to leverage the buyer profiles that we talked about on our last call both in terms of the breadth of those profiles and the depth of signals that we're using in those profiles, and that's really allowing us to personalize at scale across platforms. So that's really how I would think about your question. It's about delivering a higher quality experience. And that, I think that as a driver is what gives us confidence in the sustainability and the durability of those improvements.

Our next question comes from Bryan Smilek at JPM.

Kruti, really curious, can you just share progress across hitting top sellers in the feed. I think you did the Android takeover, which was very interesting and just the overall impact that top sellers going to the top of the algorithm have on just overall GMS and AOV on the platform.

The focus that we've had has been really on highlighting understanding the seller behind the item. It hasn't just been about top sellers to be clear. And so the work that we did on Android was really to help us understand what information and where in the experience what information about sellers, the role that they play, who they are and where in the experience seeing that information is most valuable. And I think that's a really interesting insight that we gathered there was that by showing that information through the experience it gives buyers not only a deeper understanding of what it is that they're buying, but it conveys more trust in a way that drives more engagement. And so we're looking at -- we're expanding those -- we're taking those learnings and expanding the application of that throughout the experience. Now more broadly, what I would say about sellers is that we're really encouraged by the growth that we're seeing on the seller side of the business. And I think that, that's evidence of the fact that our platform is becoming more valuable to our sellers. We saw seller growth, and importantly, we also saw GMS per seller growth this quarter. And so I think that we're providing value to sellers in a number of ways. We're investing in -- we're investing in our tools for them to reduce toil. We're investing in agentic experiences to help them run their shops and leverage their insights and data on platform more effectively. And we're really thinking about that end-to-end experience for sellers, including how we support them our investments in support and trust and safety. And so all in all, we think that this is really paying off in terms of both their engagement with Etsy and their performance that they're seeing on Etsy.

Our next question comes from Bernard McTernan at Needham & Company.

Kruti you mentioned in the prepared remarks external GMS tailwinds. Can you maybe define and quantify those tailwinds? And then on the internal tailwinds talked about 200 basis points of growth from personalization. Are there any other major products to call out helping that acceleration in organic trends?