Etsy Stock

All right. We are going to get started. Good morning, everyone. Thank you all for joining us today. I'm Maria Ripps, Internet analyst here at Canaccord Genuity. And it's my pleasure to introduce Lanny Baker, Etsy's CFO. Lanny, thank you so much for joining us today.

Well, thank you. It's great to be here. It's good to be in Boston, and we really appreciate being included in your conference, first thing in the morning. It's a super slot. Thanks for everybody showing up today, and we really appreciate your coverage.

Perfect. Awesome. Thank you so much. So you've been at Etsy for about 1.5 years now. Maybe can we start by reflecting on the company's progress during this time? And what are you most excited about? And I guess, how would you compare this to kind of what you expected when you took on the CFO role?

Yes. Well, it's been a great privilege to be at this company. It is a really exciting business. I'll tell you one of the big changes when I joined, we had two other businesses that we have since sold. We've done about $1.5 billion in asset sales that have allowed us to raise capital to buy back stock. And -- but the real fruit of that has been allowing us to very much focus all of our attention on the Etsy marketplace, which has so much potential.

And so I'm really excited about that. I feel -- I joined a company that had a couple of different assets, and now we're very, very, very focused. We have a new CEO in Kruti Patel Goyal, who has been with Etsy for 16 years. She was there in various service and product roles before going over to one of the businesses that we just sold in the U.K. called Depop, which is a it's a clothing resale business. She took that business from sort of growing a little bit to growing really fast. In fact, by the time we sold it, it had gotten bigger for 3 successive years, and it was growing at over 100% a year. So she did some magical work there. And the work that she did there really was focused on the customers. So she's come to Etsy and led the company through a really deep diagnostic of like how are we doing with buyers and sellers. And this is what I'm most excited about.

We've sort of realized that what Etsy stands for in the minds of both sellers and definitely buyers is kind of three key things. There is a creativity, there is a level of craftsmanship, and there is a human connection at Etsy that you just don't see anywhere else in e-commerce. And I think those characteristics in a day and age where people talk about what's going on with AI and sort of the sort of technology sort of exhaustion that we all feel, like those things that separate Etsy really are like at a human level, they really resonate. And the whole company is very focused on how do we make those characteristics legible across everything that we're doing. And as we're doing that, it's been very exciting, Maria, to see that a focus on those three things is not only improving some of the customer metrics, but it's just starting to influence the financial performance of the business in a favorable way.

So what I'm really focused on -- what I'm really excited about is this company is very focused in a really big market. And I guess, relative to my expectations coming in, gosh, I thought we would have those other assets. And it was -- we got a great price for them. I was a little surprised by -- certainly surprised by the bid that we got for the Depop business. But when opportunity knocks, you got to answer the door, and we're really happy to have the focus we have on Etsy now.

Great. And you made some really good returns there between you announced the transaction and you actually completed the transaction, which was great.

Yes.

So you also recently announced the changes to your sort of organization at the time when the business has actually seen increasing momentum. Can you maybe talk through the rationale behind the restructuring? Why now is the right time and how it positions Etsy for the next sort of phase of growth?

Sure, sure. So for anybody who isn't aware, when we reported our earnings results last week, which were, I think, pretty good. We can talk about those too. But we also announced a reorganization in the company. And it meant that we are going to -- what we have separated with about 220 employees. Most of those people are in our product and engineering organization. It's our largest organization. So it's kind of natural that that's where the biggest sort of place of change has been. But really what the rationale for that was not at all about cost performance. Our revenues are accelerating and our margins are moving upward and our free cash flow is great and our balance sheet looks better and better. So this was not motivated by any kind of like financial or business or secular urgency.

It really was a reflection of the fact that a year ago, when Kruti came in, we established a new strategy that was going to very much focus on the customer experience and really paying a lot of attention to how buyers and sellers were interacting with Etsy. We are now about a year into that, and we're seeing some really promising results from it, both work that we've done on marketing to show up where customers are and bring them into Etsy in bigger volumes, work that we've done in the product to make it more personal and relevant, work that we've done on loyalty and retention, all these things are starting to really work. And so we have a lot of -- we have growing conviction in this strategy.

And that led us to say, okay, do we have the right organization to really pursue this strategy over the next 3 to 5 years? And the answer was no. There were still portions of our organization that were oriented more toward where we had been previously, which was in comparison, I would say, a little bit more focused on conversion through the Etsy commerce funnel. We've got conversion to a very finely honed and very high-performing level, where we're shifting now a little bit more to acquisition and activation and engagement and retention of customers. And when we look at that, there are certain skills that we just didn't have as deep as we want to have them. So what we've done is we've like pulled down some of the resources dedicated to where we were so that we can increase the skills where we need to go and increase the investment where we need to go. And probably the biggest place, while we've reduced the headcount by 220 people, I would guess that a year from now, we'll be back up by 100 people or something, maybe even a little bit more than that.

And a lot of that hiring will be in machine learning and sort of the cutting edge of technology because the place where we think we have the most sort of room to invest internally at Etsy is in improving our ability to understand our customers, understand our inventory and do a better job of matching the two. So machine learning will be a big area of investment for us going forward. And we're -- so really, I would say, read the reorganization as an endorsement of the strategy working and the company being proactive to say, well, there's more we can do with the strategy. It's got more legs and with a little bit more investment reorientation of our team, we're going to be able to go further.

Yes. So related to that, your margin is already pretty strong. So how are you thinking about sort of restructuring and then investments sort of back in the business? So how should investors think about sort of long-term profile of the business?

Yes. I'm a recovering research analyst. So I spend a lot of time fiddling around with DCFs and valuation models and those kind of things. And one thing I see about the Etsy business is that I think for the value for shareholders of an incremental unit of growth in this company, which really hasn't grown the top line very much in the last 3 or 4 years versus an incremental unit of profitability, and we've got 30% EBITDA margins and 80%, 90% of that turns into free cash flow. There's a lot more value to be created from creating incremental growth versus incremental profitability.

So this reorganization is not about trying to like cut costs and drive that down to the bottom line. It's really about to free up room to invest in areas that will accelerate our top line. And so we're really strong believers that the best way to grow like the free cash flow of the business and the shareholder value is through long-term sustainable, strong revenue growth rather than margin. So our approach is to like -- this is not coming from like an effort to try to drive profitability. It's really we think it will be fuel for revenue growth down the road with the investments that we'll make, not only in people, but there's also some R&D that we'll do. We've got a little bit more room to experiment around the edges with things that we've wanted to try and sort of see how they play out in terms of is that something we should really put more investment dollars behind.

Great. So let's talk about your strategic priorities, which are discovery, matching, loyalty and human connection. How are those initiatives sort of working together to improve marketplace performance? And where are you seeing sort of the strongest evidence that those initiatives are working and translating into sort of healthier buyer behavior and GMS growth?

Sure. So those four priorities really came from the diagnostic that we did 1.5 years ago, where we spent a lot of time looking at customer feedback, customer behavior, both buyers and sellers. And what we realized was we were not -- Etsy wasn't showing up where people were starting their shopping missions. Like we were very deep in search, but we were not super present in social media. Then when people -- so that was like the discovery. We need to do a better job being present where they're discovering where they're going to shop, like I found Etsy. And then when they came on to Etsy, we wanted to make sure that we were doing a good job of matching them and not just showing them like 52 items that resemble the one they bought last week, but starting to understand those customers.

And then with that, we thought we could move into like loyalty where they would feel, hey, I'm going to come back to Etsy. And the final piece is really this like element of differentiation around I bought from a human being. God, that's amazing. Like I know the story of this mill in Upstate New York that created whatever I bought it as part of the story that I have on my wall or and the gift that I'm giving. And that's really essential to Etsy. So those are the four priorities, elevating that differentiation, building better loyalty, matching and discovery. And how are we doing with your question? We're pretty excited about it. We're having more -- it's easier to move the needle, I think, on discovery because you move your ad dollars from where they were to a new place.

But beyond that, where we've changed the landing pages, we've changed the creative. And we're really excited. We've got accelerating growth in gross additions of new customers and reactivated customers. That's accelerated for a couple of quarters in a row and that looks really healthy. As people are coming in, the next question is, are we matching them with inventory that they're interested in. And one of the things we look at there is kind of a nonfinancial metric is how many times do they repeat in the next 14 days coming back to Etsy? How many times do they buy again within the next 30 days. And those 2 indicators of engagement of relevance are starting to inflect and looking really encouraging to us.

So we're certainly bringing more people in. We're seeing them engage with us a little bit more deeply. We have work to do on the loyalty side. But for the first time in, I think, 3 years, last quarter, our habitual buyers, those are people who buy 6 times a year and our repeat buyers, those are people who buy 2 times a year. Those 2 really important cohorts of our most valuable customers started to grow sequentially for the first time in 3 years. And that's kind of indicative of the loyalty. So we're seeing people come in and start new missions. We look at that a lot. If you come in looking for one category or one item or one occasion, can we spur something -- you came to buy a housewarming gift and you're looking at all these wonderful things and then you shift to like buying something for your own home. Those like mission like migrations are really important. We watch that really carefully. We're starting to make some progress there.

So we're encouraged about. We have a long way to go. But like as I said, at the top, we really like the strategy. We think it makes a difference. It's working for our customers and it's starting to work for the financials of the business.

Yes. Very good. So perhaps you could touch on the role, the mobile app is playing. And It seems like it continues to outperform sort of the overall marketplace.

It does. Our mobile app, I guess there are a couple of things about the mobile app. We have about 47% of our gross merchandise sales is coming from the mobile app. That's lower than a lot of the people that we would benchmark against. I think a number in the like high 50s to 60% is kind of where you like to see it. It doesn't really matter like from a profitability perspective, where the GMS comes in on the mobile app or on the desktop or on the mobile web. But it does matter for the LTVs because the mobile app experience is so much better.

It's so much more personalized. It's all logged in usage. And our mobile app really has been the like sandbox of innovation for us, all the ideas that we've had around relevance and targeting and personalization, we've pushed the mobile app first. So last quarter, total GMS grew by 7% or 8% and the mobile app GMS grew by 12% or 13%. And it's been accelerating and widening that margin. What we're seeing -- we've changed up the home screen, and we're seeing people with the content that we're showing on the home screen is much more dynamic. We now have 65 million buyer profiles. And in the last 12 months, we've had a total of just under 90 million buyers. So something like 2/3 of our buyers we profiled. And we've got about 3x as much data in each one of those profiles today as we did a couple of years ago.

And those profiles, as people come into the mobile app, we light them up right away, and we know what they've looked for in the past. We know what people like them have looked for in the past, and we're giving them a much more personalized home screen, and we're seeing much better engagement with that home screen. So the mobile app is this like it's a showcase in many ways for all the things we're trying to do around personalization and relevance and loyalty and activation. And we're really encouraged by it. It just keeps -- it kind of keeps getting better and better.

Great. So in your earnings call last week, you talked about marketplace being healthier today than a year ago. As you think about sort of some of the building blocks of GMS, right, active buyers, frequency, AOV, what gives you sort of the most confidence in the sustainability of this growth?

Yes. So coming into this year, we're seeing some things turn, but we're pretty nervous. And as we move through the year, I'd say our conviction about the sustainability of some of the progress we're making has really risen. Our business model is pretty simple. It's how many buyers come in, how many -- how frequently do they come back and what do they spend each time they have an order. So we look at buyers, frequency and average order value. And this year, we've started to see an inflection after 3 years or so of decline in buyer count.

We've now got 3 quarters in a row of sequentially improving buyer count. And we're still down a little bit year-to-year on -- well, actually, on buyers, we've now gotten a place where we're pretty much even year-to-year. But I think over the last few quarters, we've started to grow that, and we have confidence that the stuff we're doing on discovery and on personalization will help us continue to grow the buyer number.

Frequency is a really hard metric to drive. There are so many different dynamics that are at play within frequency. If you do super well bringing in brand-new customers, that's probably in the short run, going to dilute your frequency. And so there are like all these different factors going on. But we're starting to see, for the first time, some improvement sequentially in frequency, and that's really encouraging. That is probably the single biggest lever in the model long term. And that's why we're focused on loyalty and differentiation because getting people to sort of think of Etsy more often, come back more often, understand its relevance across more occasions is really central to our business. So we're starting to see some progress there.

On average order value, we've had a kind of a surge in average order value over the last year. The inflation environment and then tariffs and then the expiration of the de minimis exemption last year, all those things have led sellers to adjust their listing prices on Etsy upward. And so along with that, our average order value has floated up a little bit. I would say at the start of this year, anything that you saw in average order value on Etsy, which is growing kind of mid-single digits, anything you saw was really external factors. As we moved into the third quarter and the second half of this year, more of the growth in average order value is coming from things that we are doing. And the most important -- and we're not doing that to drive average order value. We really trust our sellers to set the right prices.

But what we've realized is we're not always showing the most relevant results to people. And if we show really high quality, really high relevance results, often those are like some of the best most finely crafted, most differentiated items on Etsy, and they carry a little bit higher selling price. So there are a couple of points of GMS growth that we're delivering right now that are coming from things that we are doing internally to better manage the quality of what we're showing to customers and that quality is being rewarded with customers saying, yes, it's exactly what they want. So that all feels pretty good.

Great. So you made a number of changes to your marketing approach over the past year. Can you maybe talk about how the marketing mix has evolved? What has structurally improved from an efficiency standpoint? And how those changes are helping you to reach the buyers you are targeting, especially younger buyers?

Yes. The marketing mix is -- it's like a project that is never done. You're always sort of refining it and changing it, altering it. And what we realized kind of 1.5 years ago is that we were overinvested relative to where we thought we should be in search and in 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 like 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're very strong there, but we keep getting stronger. That's been wonderful.

And then on the social media side, we've -- 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. We're -- 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 that 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 e-mail. 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. And that -- so last quarter, we had really good operating leverage on the marketing line. Even like the percentage of GMS that came 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 of 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. Yes, I get those push notifications all the time.

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

So moving on to your outlook. You raised your full year guidance quite a bit as we move 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 that sort of reflects tougher comparison and sort of moderating external tailwinds versus anything that you are doing and seeing internally?

Yes. You're right. When we started the year, as I said earlier, we were like 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 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 of 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 0 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 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, 6, 7 points of more difficult comparisons in the second half of this year than there it 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 haven't been -- there have been some new tariff news, but not as much of a like 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 we're -- 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 like nonfinancial metrics. We think those continue to get better. But for the short term, for a couple of quarters, comparisons will look a little bit more tricky.

Got it. So capital allocation has been another area of focus for -- 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?

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, there isn't -- we don't see huge incremental investments that we should be making like 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 4 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-light 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 3 years or so, we bought back 25 million shares. We have -- just last week, we got another $2 billion authorization to buy back stock on top of $500 million that we had left on the prior authorization. So we are armed for bear to keep investing in the Etsy business, investing through the P&L as we have been and then investing excess capital back into sort of leveraging investor returns with that 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, I think, gross leverage somewhere like 3x EBITDA, but we'll keep a lot of cash on hand to service the next year, 1.5 years of redemptions. And anything that's above that, well, our intention right now is to keep buying back stock. If we come on something that seems like it would 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 like we have a big M&A strategy or it's really about like 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 around the human connection behind the sale, around the creativity and the craftsmanship with 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 profit we have into accelerating the 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, Lanny.

Thank you. Appreciate it.

Thank you for joining.

Hi, everyone, and welcome to Etsy's Second 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, including statements related to our financial outlook, our business and our operating results. Our actual results may differ materially due to risks, uncertainties and other important factors as noted in the shareholder letter posted to our website and in our most recent periodic reports. 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 both GAAP and non-GAAP historical financial measures, which are reconciled to GAAP financial measures in today's shareholder letter posted on our IR website, along with a replay of this call. With respect to our outlook, a reconciliation of adjusted EBITDA margin guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from adjusted EBITDA.

As you review our shareholder letter and 10-Q, please keep in mind that on July 30, we completed the sale of Depop to eBay. Etsy's results in those documents are presented on a continuing operations basis, while Depop's results are presented within discontinued operations. I also want to note that Reverb, which we sold in June of last year, is included in Q2 2025 continuing operations, whereas Q2 2026 reflects only the Etsy Marketplace. This makes year-over-year continuing operations results not directly comparable, and we have included Etsy stand-alone marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations. Financial results presented on this call cover our continuing operations or the Etsy marketplace only.

With that, I'll turn it over to Kruti.

Thanks, Deb, and good morning, everyone. Thank you for joining us. Since I stepped into this role, I've been clear about 3 things. Our greatest strength is our differentiation as a human-centered marketplace. We have a massive market opportunity ahead of us and realizing that opportunity requires clear strategic focus and disciplined execution. Our second quarter results reinforce our conviction that this focus is translating into stronger marketplace fundamentals and accelerating growth.

We're encouraged by our progress and increasingly confident in our ability to create long-term shareholder value, reflected on our improved outlook for 2026 and our new $2 billion share repurchase authorization. Just as importantly, we continue to see significant opportunity to further strengthen relationships with our buyers and sellers to drive long-term marketplace value. So today, I'll share how our strategic priorities are improving performance as well as how we're evolving our organization to lay the foundation for Etsy's next stage of growth.

Starting with our performance. Second quarter GMS and revenue growth accelerated on a sequential basis, and we delivered healthy flow-through of revenue growth to adjusted EBITDA, again, demonstrating the strength of our business model. Etsy marketplace GMS grew year-over-year for the third consecutive quarter, reflecting continued improvement across marketplace fundamentals. GMS was $2.6 billion, up 7.5% year-over-year for the Etsy marketplace. Revenue was $668 million with a take rate of 25.9%.

And adjusted EBITDA was $195 million or a 29.2% adjusted EBITDA margin. We're beginning to see how our 4 priorities reinforce one another to improve marketplace health and performance. Discovery and matching help buyers find and connect with the right items, while loyalty and human connection give buyers more reasons to return. Together, these enable lasting relationships between buyers, sellers and Etsy. We're seeing very clear signal that these efforts are improving our performance.

Active buyers improved, growing by 350,000 sequentially to approximately 87 million, roughly stable on a year-over-year basis. Gross buyer additions accelerated and habitual and repeat buyer cohorts, our most valuable buyers, each showed slight sequential growth for the first time since 2023. Trailing 12-month GMS per active buyer grew 2.8% year-over-year to $124. And while higher seller listing prices remain a contributor, our work to elevate higher-quality items on and off-site is increasingly playing a role.

While purchase frequency remains below prior year levels, the year-over-year decline moderated compared to the first quarter, an early encouraging signal that we're improving the overall customer experience. And our app continues to be a key growth driver, with mobile app growth accelerating sequentially, up 12.5% year-over-year and visits per monthly active user and orders per visit, both increasing year-over-year. And we continue to see evidence of a healthier seller base, including year-over-year seller growth and stronger retention of prior year active sellers.

We have a lot to cover today, so I won't review each of our priorities in the level of detail they are discussed in our shareholder letter. But here are a few updates I'm most excited about. First, we're making Etsy's core differentiation more consistently visible and tangible throughout the experience. We're bringing creativity, craftsmanship and human connection to the forefront across both the marketplace and our brand marketing, which celebrates being human and the way Etsy sellers bring meaning to moments that matter, big and small.

Second, we're making Etsy feel much more personal through richer buyer profiles, real-time personalization and search and fresher content that helps buyers discover new shopping missions and more of Etsy sellers' unique inventory. Third, we're reaching younger buyers much earlier in their discovery journey by evolving the channels, content and experiences where Etsy shows up. One example is our Olivia Rodrigo partnership, which combines an in-person activation with an exclusive merchandise collaboration. And our investments in YouTube and TikTok drove a fivefold increase in visits in those channels from millennial and Gen Z audiences in the first half of 2026.

Finally, we're continuing to evolve how we build loyalty across the marketplace, from testing new approaches for buyers to developing new ways to recognize and support the sellers who best represent what makes Etsy unique. Over the past year, we've sharpened our strategy, strengthened execution and are encouraged by the progress we're seeing across the marketplace. We've inflected Etsy's year-over-year growth trajectory from high single-digit GMS declines in early 2025 to mid-single-digit growth anticipated for the full year 2026, a more than 10 percentage point improvement in performance.

As a result, we have even more conviction in our strategic direction to build the Etsy we envision. At the same time, we've gained additional clarity about the organization we'll need to deliver it. So we're announcing a restructuring of parts of our organization and a reduction of our workforce with most of the changes concentrated in our product and engineering group. We're changing our structure with fewer silos to reduce handoffs and with flatter, faster teams built to solve more broad and complex problems. And we'll invest more deeply in the skills and capabilities we need to accelerate execution and impact.

This is not a cost-cutting move. It's about leaning in during a period of strong momentum so that we can move faster and execute with even greater focus. We are deeply grateful to our departing colleagues for their service, dedication and contributions, and we're committed to supporting them through this transition with care and respect. We know these decisions have a real impact on people's lives, and we didn't make them lightly. They reflect our conviction that focusing our investments in our team is the best way to build a stronger Etsy.

One of my responsibilities is to make decisions not only for the Etsy we are today, but also the Etsy we want to become. That means paying close attention to how the world around us is changing. Buyers are discovering products in new ways. Sellers have access to increasingly powerful tools to build their businesses and the expectations they have of Etsy continue to rise. By investing in the capabilities that matter most for the future of the marketplace, we believe Etsy will be better positioned to innovate more quickly and ultimately deliver more value for our customers, community and shareholders.

Thank you for your time this morning. I'll turn the call over to Lanny for more insights on our Q2 performance, our outlook and the financial implications of our restructuring plan.

Thanks, Kruti. Great to connect with all of you today. Kruti already covered Etsy marketplace GMS and our headline metrics, so I'll focus on revenue, profitability, capital allocation and our outlook. Revenue was $668 million in the second quarter, up 6.2% on a continuing operations basis and 9.3% for the Etsy marketplace stand-alone. Revenue growth accelerated in tandem with GMS strength and both marketplace and services revenue at Etsy delivered solid year-over-year growth, increasing 8.4% and 11.2%, respectively.

Take rate remained healthy at 25.9% for the second quarter, up 130 basis points year-over-year, including an approximate 80 basis point benefit from the Reverb divestiture. Meanwhile, Etsy marketplace take rate also expanded year-over-year, primarily driven by Etsy Ads, where we're using machine learning to enhance relevance and improve seller budget pacing. Offsite Ads also contributed, benefiting from a tilt in paid marketing activity toward higher monetizing channels.

On the operating expense side, we remained disciplined in the second quarter while continuing to invest in areas with the clearest evidence of attractive returns. As Etsy marketplace GMS growth has improved, we have gained leverage across marketing, product development and G&A. Nearly half of the year-to-year growth in Etsy marketplace revenue flowed through to adjusted EBITDA in the quarter, creating room to fund our top priorities while sustaining healthy profitability.

Turning to capital allocation. Our balance sheet remains strong. As of June 30, 2026, we held $1.3 billion in cash, cash equivalents and short- and long-term investments. And we continue to generate significant cash. On a continuing operations basis, we converted 81% of adjusted EBITDA to free cash flow during the quarter. And on top of this, we received $1.4 billion in cash proceeds from the sale of Depop at the end of last week.

Many of you have expressed interest in when or how we would step up our share repurchases given the cash coming in from the sale of Depop. I'm pleased to report we've already done so. During the second quarter, we stepped up our buyback program and repurchased approximately $250 million in stock. That was roughly 70% more than the first quarter and reduced the outstanding share count by approximately 3.9 million shares. At quarter's end, we had $578 million remaining on our current Board-authorized share repurchase program, and we're announcing today a new $2 billion share repurchase program.

The additional authorization reflects our growing confidence in strategic execution and will enable us to continue the return of excess capital to shareholders and accelerate our buyback program with the proceeds from the sale of Depop. As outlined in our shareholder letter, the Restructuring Plan will reduce the size of our workforce by roughly 220 employees or approximately 12%.

Following the restructuring, our headcount is expected to be approximately 1,600 people. We expect to incur approximately $35 million in charges, largely made up of cash expenditures associated with severance payments, employee benefits and related costs. We anticipate that the charges will be incurred and the execution of the restructuring plan will be substantially complete by the end of the third quarter of 2026.

Now turning to our outlook. We currently anticipate that Etsy marketplace third quarter GMS will be between $2.53 billion and $2.58 billion, representing year-over-year growth of approximately 4% to 6% for the quarter. We expect third quarter take rate to be approximately 26% and adjusted EBITDA margin to be within a range of 28% to 30%. For the full year, we now expect the Etsy marketplace to sustain a bit stronger GMS growth momentum across the second half of the year than we anticipated previously.

Accordingly, we anticipate that GMS growth at Etsy will be in the mid-single-digit range for the full year 2026. We currently expect full year take rate to be roughly equal to what we reported in the first half of the year, and our full year adjusted EBITDA margin outlook tightens upward to 29% to 30%. We expect the restructuring to lower operating costs in the near term, and we've incorporated an expected benefit into our increased full year adjusted EBITDA margin outlook. We believe that higher GMS and revenue growth sustained over time can create far greater absolute cash flow and shareholder value than can margin expansion alone.

Accordingly, our objective in the restructuring is to not only extend the expense discipline we've demonstrated historically, but also to position ourselves to build the organization necessary to execute our strategy and accelerate growth in the years ahead. Specifically, we intend to deepen our expertise in strategically critical areas across product, engineering and customer operations with a particular focus on expanding and strengthening our team's machine learning skills.

We also plan to explore additional R&D investment in new product capabilities, marketing initiatives, customer trust and international growth to accelerate our learnings in 2026 and inform our plans for 2027. We will be purposeful and disciplined in the investments we make, and we remain committed to maintaining the very attractive profit margin profile of our business.

With that, we'll now turn it over to the operator to take your questions.

[Operator Instructions] Our first question will come from Rick Patel with Raymond James.

Congrats on the progress. Can you dig deeper on what you think are the most effective drivers of strong and improved GMS growth in Q2? What's working? And where do you see the most opportunity for improvement? And second, can you provide additional color on the initiative to improve discovery among young buyers? How will you tackle this? And are you seeing early signs of progress?

Thanks for the question, Rick. First of all, I think what I would say is that what we're seeing is the result of strong execution against a clear set of strategic priorities. And the results that we're seeing are exactly what we thought we would, what we expected when we laid out these priorities. Just as a reminder, they are not -- you shouldn't think about them as independent initiatives. They are designed to reinforce one another to create a stronger marketplace over time. And we're seeing that market -- those marketplace health indicators in the quarterly results that we shared.

The clearest examples of how this is working are how our product and marketing improvements are working together to drive growth this quarter. So first, at the top of the funnel, our marketing is becoming more efficient at bringing buyers in. We're continuing to see strength in own channels like SEO, and we've improved our PLA performance really meaningfully through better segmentation and bidding strategies that direct spend towards our highest quality inventory and bring in the right buyers more efficiently.

Then once those buyers arrive, they're landing on a meaningfully better experience as a result of the on-site product improvements that we're making. We've made really steady improvements across discovery and matching from real-time search personalization to more relevant recommendations and a fresher home feed. So these are examples of improvements that are helping buyers find more relevant inventory, discover new shopping missions and really engage more deeply with Etsy over time.

And then I think the third part of this is that as buyers are engaging more, we are developing a richer understanding of what they're looking for and what makes them tick. That's powering richer buyer profiles that we highlighted in our shareholder letter, and they're now covering over 65 million buyers. And that makes -- if you think about it, that means every subsequent visit that these buyers make more relevant and more personalized, and that creates the flywheel that gets stronger over time.

And I'd just call out that, again, the app is probably our clearest proof point of how this is all working together. Our app GMS growth accelerated again to 12.5% year-over-year. We saw stronger engagement this quarter with both visits per monthly active and orders per visit increasing year-over-year. And it's just a great example of how the work that we're doing across both marketing and product are working together to drive that flywheel.

And then the second question, Kruti, was, can we provide additional color on the younger buyers?

Yes. What I'll say about our younger buyers, we saw some really nice improvements this quarter in terms of how we're engaging them. And I'll start out by saying our research showed that our value proposition resonates with this younger audience as much as it does with older audiences. But what wasn't happening was that we weren't showing up where these shoppers are discovering and with relevant content as much as we could. And that's really where we've been focused.

So you see that in the shift in our marketing investments, shifting our investment to social channels to OTT, the channels that are -- the places that younger shoppers shop and really focused on both putting in front of them content that is more relevant and showing up in cultural moments that are really relevant. So the work that we're doing on Creator Collective to engage influencers to elevate and curate the content that we have on Etsy for these younger buyers and the example of the partnership that we're doing with Olivia Rodrigo, which is a really innovative partnership that's incredibly relevant to this audience.

Those are all examples of how we're really approaching that younger audience differently, and we're seeing great traction, particularly on channels like YouTube and TikTok, where we've meaningfully increased our reach to that audience segment.

Your next question will come from Nathan Feather with Morgan Stanley.

Two, if I may. First, in terms of AOV gains that you've seen here, historically, we've seen more limited uptake from sellers. How sustainable do you think that can be if trade changes normalize? And then on the buyer split, it's really encouraging to see repeat individual buyers take a step forward here. How can we think through -- what have been the key elements that have allowed that to stabilize? And what's the run rate to start to get that to grow as a portion of the mix relative to the one-off buyers?

Sure. Thanks, Nathan. On AOV, what we've seen over the last, call it, year, year plus is the effect of the tariffs that went in a year ago and then the expiration of de minimis and then getting through the holiday season, and sellers seeming to kind of readjust their pricing led to a series of waves of increases in listing prices that don't always -- don't necessarily flow through to average order value. But we have seen our buyers be very receptive to those price changes. And so what's happened on the listings prices has, over time, come through to average order value.

There's another dynamic, and there's been a little bit of less so in the last quarter, but in a couple of prior quarters, there was a little bit of foreign currency translation tailwind in there as well. But I'd say most importantly, the thing that's changing, sort of the new signal that started to emerge across 2026 is that the efforts that we've undertaken on relevance and quality that we are surfacing in the Etsy search results, is starting to present items that are higher quality with a little bit higher listings price that are better matches for what the customers are looking for.

And we're not making those changes in relevance and quality in an effort to drive AOV. We're really making them in an effort to better serve what our customers are looking for. But those improvements in the way that we're surfacing the best inventory is contributing on an increasing basis to the momentum that we have in AOV. So as you asked the question kind of forward-looking, I think that we are only getting started with things that we can do to continue to elevate high-quality items that really match what customers are looking for.

And then secondly, I think the sort of increases in listing prices that have been taken, I think those -- in our experience, those, I think, will turn out to be fairly durable increases. The year-over-year increase will probably slow down unless there are other stimulants that the sellers are reacting to. But the increases they've made in listing prices, our expectation is those remain pretty durable going forward.

Your second question was about the composition of buyer growth and the growing for the first time in 3 years, the little bit of progress that we made in active buyers and habitual buyers. And habitual buyers and repeat buyers are really just our most frequent buyers. And everything in our strategy is organized around making the whole product end-to-end experience better for our customers that brings them back more often and builds loyalty and through that drives frequency.

So you're seeing, I think, in those metrics, just that earliest hint of everything that Kruti talked about a minute ago starting to come to fruition. And how do we continue to drive that? Well, it's about showing up where they are. It's about giving them relevant results. It's about personalizing the experience. It's about rewarding them for being Etsy customers. It's about reaching back out to them through our own channels. It's about improving our product experience. So there's really not new news there, but there is, I think, new signs of progress that we are making.

And while those numbers are improving, I'm really -- we're excited at the same time that the gross addition number of new people -- of customers coming new into Etsy for the first time or coming back to Etsy has accelerated. So we kind of have this -- we're in a good moment right now where at the top of the funnel, we're opening it up a little bit wider. And then on our most valuable buyers, we're starting to see growth kind of on the back end of the funnel. And that's really what we've been driving for.

Your next question will come from Ken Gawrelski with Wells Fargo.

Maybe, if I may, could you talk about -- there's many new models of both distribution and kind of emerging use cases in e-commerce. And I'd love to get your take on how they may or may not fit with Etsy and the platform and your merchants. Could you talk about the opportunity in live commerce, one? And two, you're seeing players like a Whatnot, et cetera, that have kind of a unique take.

Maybe they're positive, maybe they're negative, but there's certainly different takes on the e-commerce experience, some of those B2C, some of C2C. But I'd be curious as to -- as you think about your seller base and maybe they're thinking about innovative ways to sell their products and market their products, how these may or may not fit with Etsy?

That's a great question. Thank you for it. We are -- one of our priorities is showing up for shoppers discover. And so this is something we're always thinking about. This is the driving force behind us partnering with AI, with agentic commerce and showing up in those channels. So as we're thinking about the full range of those distribution channels for our sellers, where as it relates to live shopping, in particular, look, it's a really interesting space that's been developing and evolving for a while.

And what we're seeing is that they're starting -- live shopping is starting to gain traction beyond the collectible space where it got -- where it was most popular initially. And we think that there's some potential opportunity for sellers like ours who have a really great story to tell, who have a lot to share about how they create, what they create that's relevant to a buying audience. So we're certainly open to exploring this, but we don't have plans at the moment to launch anything in live shopping. We think it's an interesting potential channel for sellers like ours.

Your next question will come from Marvin Fong with BTIG.

Congratulations on the progress. I'd love to double-click on what Lanny was saying about investing on new products. Should we kind of think about that as going deeper in the initiatives that you're already exploring, including AI or without giving up the store, would you -- are you exploring just completely different products outside of your existing strategy?

And then just a question on -- now that we've seen gas prices kind of go back and forth, giving us a little bit larger sample set. Are you seeing any kind of impact from that -- the rise and fall of gas prices on your business in terms of buyer behavior?

I'll take the first part and then pass to you. Look, the way that I would think about this is that over the last year, we've gotten much more confident in our strategic priorities and the drivers of long-term growth. We're seeing really great evidence that shows that our work across discovery, matching, personalization is really working. That's what you're hearing.

So when we say we're going to invest more, I think this is related to the changes that we've made in our team, we have greater clarity about the organization, the capabilities that we need to build on that momentum and drive even more value for our buyers and sellers. And so we're going to be continuing to deepen our investment and our focus on our strategic priorities to continue to deliver and build on that momentum.

Yes. I would just add to this, zooming out a little bit, when you think about what's going on in live commerce or you think of what's going on in resale commerce, there is really exciting growth happening in these places where there's some real innovation, both in the product and in the user experience and in the marketing. And it's growing the overall size of the market. These are not zero-sum opportunities. There -- and that really encourages us that as we continue to innovate on what makes Etsy differentiated, we can build on the growth that we've already started to build.

On your second question about gas prices, yes, they've been up and down. And it's hard to look at any one dynamic on the consumer side in isolation. I think it stands to reason that there is some impact from higher gas prices on consumer spending. But our consumer demand held up pretty well across the second quarter. We saw growth in GMS in the United States as well in -- amongst U.S. buyers as well as non-U.S. buyers. And we saw accelerated growth across, in particular, U.S. import -- U.S. buyers and imports was a strong channel for us in the quarter.

And really across all household income segments, we saw good numbers in this quarter. The high end is growing a little bit faster than the lower income households are. But as you sort of zoom out and try to -- I would -- there's not a discernible impact right now from gas prices. But I think our consumer demand picture has held up really well throughout the second quarter.

Your next question will come from Maria Ripps with Canaccord.

First, I just wanted to ask on workforce reduction, which is largely across product and engineering. But then at the same time, you're calling ML as kind of the core of discovery and personalization to sort of accelerate growth further from here. Can you maybe give us a little bit more color on sort of how smaller teams move the road map faster? And sort of what specifically are you choosing to stop doing that you focused on before?

Yes. So first of all, I'll just say that we -- what we did is we asked teams to think about what the team they needed were to deliver on our biggest growth ambitions. And starting with what the structure of the team was that they needed, what the skills were that they needed and what the talent was they needed. And when we looked across product and engineering, we saw an opportunity to really simplify the organization, and that's where the streamlining comes in, really this opportunity to reduce overlap by bringing teams together around shared problems or shared capabilities. And that's what enables our product and engineering teams to move forward with more speed and more focus.

The other part of that is this change allows us to reshape our talent mix around the capabilities that matter most for the next phase of growth. And that's really about continuing to deepen our investments in discovery and matching and personalization. And so that's going to be about building really strong cross-functional teams and deepening our machine learning expertise so we can translate advancements into stronger -- better experiences at scale. So we really see this as an investment in execution and in concentrating our talent where we can have the greatest impact.

Your next question will come from Anna Andreeva with Piper Sandler.

This is Noah on for Anna. Just wanted to follow up on some of the drivers by category. You mentioned gifting and personalization is working well. Curious what you're seeing in your bigger product verticals as well. And then just a follow-up on gross margin. You've seen some compression on the higher compute costs. Should we expect that pressure to continue in '26 and just any way we can think about that?

Sure. Let me start on the gross margin side of things. We're really happy with the gross -- where the gross margins are for the business. It's a healthy low 70s percent number. The -- we've seen a little bit of compression year-to-year, and it's not coming from compute. We are balancing the customer experience around trust and safety, around refunds, around other pressures on the marketplace to really deliver the best experience to customers, and we're making -- and there's some cost in there that shows up in cost of revenue.

On the hosting and compute side, what we are spending more money this year, obviously, on AI and on usage of AI and on compute. But the overall spending that we're doing on hosting and bandwidth and technology is exactly where we thought it would be this year, and we've been able to find offsets in other places and shifting usage patterns allow us to absorb the cost of the incremental compute without going higher on our overall sort of infrastructure cost. So we feel really comfortable about our ability to continue to manage that AI cost, hosting bandwidth cost as we look forward. Remind me of your first question.

We just some more color on the drivers by product category.

Verticals.

On the verticals, we have reported at the end of the year how we do in categories. We've sort of moved away from that on like a moment-by-moment basis because our -- it's not necessarily how our buyers come to Etsy in a category. They come to Etsy for an occasion. And we can talk more about how we did across -- this is an occasion-laden quarter, and we did really well on those occasions. I would tell you, like if you look across our categories, we grew in every one of our top categories, and we grew faster than our peer benchmarks in those categories in this quarter, including our biggest categories.

So -- but I think that strength in categories is less reflective of like something we're doing in a specific jewelry versus Home & Living than it is the way that we are showing up for our buyers in the right demographics across occasions.

Great. Thanks, Lanny. It was U.S. was that data point for outperformance, but I just wanted to be clear. Okay.

Your next question will come from Bryan Smilek with JPMorgan.

I guess, Kruti, great to see Etsy getting into the zeitgeist here and targeting newer demographics. Can you just talk about how you can translate this brand activation towards more international markets as well? And then just more broadly, can you share a bit more color on their LTV profile and conversion relative to some of your other legacy cohorts?

The -- so of the younger buyers, the LTVs are...

Younger buyers.

Yes. I mean the younger buyers have a little bit lower LTVs, but they have a lot higher growth rate in the LTVs because they're moving through life changes in compensation and other household formation and things like this that really give them -- in the near term, the LTV may not be as great, but the potential for growth in that cohort is really, really attractive. And that's why we and others really go after it. And so we're pleased with sort of the beachhead that we are establishing, building those relationships today as we're bringing more of them into our business. And the first part of the question was?

The part of the question was about how we would be taking -- I think it was getting more zeitgeist kind of things selling internationally. Was that what it was related to, Bryan?

He's probably on mute.

I mean, I think that the approach that...

Your line is re-enabled if you need to respond.

No, I think we got it. I was just going to say that I think that the approach that we're taking with younger buyers is one that we think works globally. So there's not a specifically different approach that we're taking internationally. So we're just going to keep doing more of what's working for us with these younger buyers.

Your next question will come from Nick Jones with BNP Paribas.

One on enhancing buyer profiles in the letter covering 65 million buyers. I think it's 3x kind of the data points. I noticed the 65 million buyers is above kind of the repeat and initial combined. So I guess, can you speak to what the funnel looks like to kind of aggregate these data points and what it would take to kind of drive that 65 million buyer number a bit higher?

First, I would just say that we can build these buyer profiles for all of our buyers. They're just richer. They get richer and richer, the more that you engage with us. So we see the potential for buyer profiles for all of our buyers. Obviously, we look at broader data than just your buyer profile if we -- if you're a relatively infrequent or newer buyer. What we think is exciting there is all of the applications of where we can use that buyer profile to personalize your experience and make it richer from the recommendations you get in your app home feed to the marketing that we send you to how we personalize your search results.

And so it's not just that we are able to extend the coverage of these buyer profiles. It's that we're collecting more and more valuable data in them and that we're able to apply them in more and more places in your experience end-to-end.

Your next question will come from Michael Morton with MoffettNathanson.

Maybe one on the -- in the shareholder letter, you talked about growing direct relationships with our most active buyers by optimizing how you communicate with them and deliver kind of more timely and relevant, I guess, recommendations. Kruti, I was wondering from someone being on the outside, could you give us some examples of what this looks like because we've all seen how powerful like the big buyers can be on these larger platforms, how this will play out in the acquisition and I guess, like reactivation of these big active buyers?

And then just a quick one for Lanny on some of the cost savings from the reorganization. Sounds like you're letting this flow through to the bottom line. I was wondering why not reinvest even more in marketing or if there's diminishing marginal returns there or anything along those lines would be great.

The first one, Kruti, was growing direct relationships with our most active buyers.

Oh, it's how we're optimizing our communications. Look, the way that this should play out is we're really playing with 2 things with our most active buyers, the relevance of the content that we show you, the personalization of the content that we show you, the freshness of the content that we show you and how frequently we show it to you. So sometimes it's even more valuable to send fewer communications, especially to our most active buyers who are engaging with us all the time. And we're looking at that across both e-mail and push and then really all of the channels where we're connecting with you.

So that's how I would think about that optimization work that we're doing around engaging with our most active buyers. It's because we have so much great information and content on you. We want to make sure that we're optimizing every touch, and we have the frequency right as well.

Michael, the reorganization is not intended to structurally alter Etsy's long-term margin profile. What we're really seeking is a more focused organization suited to execute on our strategy and with all the strengths and skills that we think we need over the coming years. And if we have those things, as we get those things, I think they pay off in growth, health of the marketplace, differentiation of Etsy. And ultimately, the durability of growth comes from really having that more focused and really rightly suited team.

So we will be reinvesting some of the savings, if you will, into our people, into engineering talent, product talent, customer operations and some of the R&D projects we talked about earlier. I think the kind of margin growth that we really like is the margin growth that comes from revenue and GMS growth. And in this quarter, 50% of the revenue growth went down to the bottom line. That is -- that's the stuff that really we believe creates shareholder value. So that's what we're aiming for. And you talked about marketing. This is a quarter in which we got a good deal of leverage, and we're pretty proud of it in the marketing channel and in our marketing activities.

But I want to make the point, we are earning our growth there, not buying it. We have increased the efficiency in our more mature channels, i.e., search and PLAs. We are making ongoing learnings and having some nice wins in our less mature channels like social. We're being prudent about managing and optimizing the mix of those channels. And I frankly think some of the messaging that we're doing in our brand campaigns, in our PLA relevance, in our social media is also contributing there. So what we're seeing is we're just getting more GMS per dollar.

And actually, that doesn't -- that's not declining marginal return. That's increasing marginal return, and that's sort of causing us to lean in on marketing. So we're -- I don't want to send a signal at all that we are tapped out on investment. We're just at a point right now where we're having some really good gains in efficiency in marketing, I think sets us up to continue to use that as a driver of growth in the future.

Your next question will come from Shweta Khajuria with Wolfe Research.

Could you -- just a follow up on something that you were talking about earlier, Lanny, which is on marketing spend. Could you please talk to, if anything has -- what specifically has changed in your marketing spend where you're seeing spend and strategy, where you're seeing best returns on that spend? And how much of that runway do you have left ahead of -- to drive potentially new and reactivated buyer growth?

And second is if you could please talk to mobile app users and how their engagement is different and where you see runway for growth coming from app users as we think about frequency over time?

Sure. On the marketing front, I'll get into the details of kind of the mix and the channels and things we're doing there. But one of the secret weapons is the owned channels that we have of push and e-mail and the mobile app, where your question was how are we using these channels to bring -- attract new customers and bring them back. Those owned channels have been really effective in helping us bring people back very efficiently. So that's also happening in our greater marketing portfolio.

But in the places where we're spending media dollars in marketing, the competitive dynamic in PLA has gotten -- has changed over the last year as Amazon has pulled out. But the bigger driver right now are internal wins that we've made in our marketing technology, particularly the way we segment the PLA feeds that we give to Google, the way -- the information that we give them around listings is helping them, I think, place our listings with better, more competitive bids in a broader number of auctions. And we call it PLA segmentation, the way we're segmenting our feed is really helping us strike some really good advances right now in the performance of our most mature, most well-developed, most predictable marketing channels. That's been great.

While that progress is happening, it allows us to make flex and test and move around other parts of the overall portfolio. And in terms of portfolio shifts, I would say we are getting -- we've talked about pushing a lot of money into social at times to then figure out what works best and then optimizing, and we're making some good gains right now optimizing our social channels.

And the one other shift is moving away from like linear and some of the older television or video advertising that we've done toward more targeted streaming and services like that has helped us go after the right audience. And we're really happy with that. So performance on our own side in PLAs has been a big driver, and that's allowed us a lot of flexibility to move around the rest of the portfolio and find ways to be more efficient and find new opportunities to grow.

And then the second one is on app and app engagement.

Yes. So yes, I think the question was what's working in the app and how -- where do we see potential going forward. And so look, we're really pleased with the growth acceleration that we saw in Q2 in the app, up 12.5% year-over-year. We're now at about 47% of total GMS coming from the app. We think that's really healthy, and we think there's more room to grow. What's working really well, what I would say is the work that we're doing across the board is showing up with particular strength in the app for lots of reasons that I talked about where our most engaged, most valuable users are already, and it's where we have we have the ability to personalize with even more depth.

So what's working? I'd say, first, better discovery and matching. We talked about richer buyer profiles. They're really improving the content that we can show you in home feeds and push notifications that bring you back into the app. The second thing I would say that's happening on the app is we're really improving the freshness of our feed. So the newness and the diversity of the -- of what we're showing in a way that's really improving engagement. The team made a really big shift in terms of reducing the prevalence of things that were recently viewed or engaged and in place of showing you much fresher, newer listings.

And what we're seeing is that, that's driving feed favoring, listing views, new searches. And excitingly, it's broadening consideration. We're seeing people -- we're seeing buyers on the app starting more new shopping missions. And so all of that is really exciting. In general, we're seeing just much more engagement, more strong signs of engagement in the app with visits per MAU improving, orders per visit improving, feed favoring, like I said, new mission starts. So all really strong indicators of how what we're doing is working in the app, and I think bodes well for the future in terms of continued opportunity there.

I would just add that the bulk of the GMS growth, the primary driver of app GMS growth is existing app users purchasing more. And the second behind that is new to Etsy buyers coming into the app for their first-time purchases. Those are really healthy incremental signs of reflections of the work that we're doing on both the marketing and the product experience.

Your next question will come from Ygal Arounian with Wedbush.

Can you hear me?

Yes.

Yes.

Somehow it says my line is still on mute, but -- okay. I wanted to dig into the tech investments, particularly around ML. That's something you guys have talked a lot about. So what's kind of evolving here on that? And how does that tie into agentic commerce? Maybe more specifically or if you want broadly on third parties, too, but how you're building it to the Etsy platform directly?

Sure. So in terms of our investment in ML, the way you should think about that is we're continuing to invest more deeply in what's working. And what's working is discovery, matching and personalization. And the investments that we're making as a result of reshaping our teams is really about strengthening our talent to do more of what's working. So that's how I would think about the ML investment.

In terms of AI, I think there are a couple of parts to this. The first thing I'd say is that we see the biggest opportunity for AI on Etsy itself. It's really about using AI to make Etsy much, much better at connecting the right buyers with the right sellers. So we're applying AI across all of these areas that I just talked about, discovery, matching and personalization to really better understand what buyers are looking for, to better understand our buyers, to better understand our inventory so that we can surface the most relevant inventory from the full breadth of our marketplace. That's where we think AI is really going to deliver the most value over time because it makes Etsy feel more personal and help more of our sellers and more of our inventory get discovered.

And then in terms of off of Etsy and the opportunity there, it's still a really important priority for us to make sure that Etsy is showing up wherever shoppers discover. So we're continuing to partner with these major AI platforms because we want to be in there and learning and evolving our experience as consumer behavior and adoption evolves. So that's where we continue to focus there. I'll say that traffic from agentic experiences is still less than 1% of our overall traffic. We're still seeing the same things that we shared last time. There's higher intent, higher average order value traffic. So that's what's happening there.

The third thing I would say about AI is we're experimenting actively with AI-native shopping experiences on Etsy itself. We've shared that we think that there's a really interesting opportunity to use these conversational interfaces to get more context more quickly to understand intent in any given shopping mission. And so the work that we've done on our gifting assistant is a good example of that. It gives buyers a more natural conversational way to express what they're looking for, and it's helping us learn actively in that space. So I guess to sum it up, what I'd say is like across AI, I think about it in 3 ways, making Etsy more personal, making Etsy more discoverable and then learning how this next generation of shopping experience is going to evolve.

Your next question will come from Youssef Squali with Truist.

Lanny, maybe starting with you. The 50% flow-through from incremental revenue to adjusted EBITDA in Q2 is pretty impressive. Maybe talk about the biggest drivers there and just the sustainability of that as we look into the second half and into 2027, particularly on the back of this latest RIF.

And maybe not to beat the dead horse here, but can you maybe help us understand how you guys think about balancing increase in marketing spend, especially on the back of clearly, what you're seeing is improving efficiency with the other decisions that you've made of the $2 billion buyback, which obviously is a huge step-up from what it was before?

So are we getting maybe the efficient frontier in marketing spend at this point until maybe we improve the user experience that much better before we lean more aggressively into marketing? Just helping us -- help us a little bit understand the puts and takes there.

Yes, sure. Let me -- good questions overall. Let me start with the incremental profitability. I don't -- look, any one quarter doesn't -- isn't set the model forever. And we had a great quarter and flow through this quarter. And I think what sort of built across the course of this year is the internal momentum and execution and the health of the marketplace has turned out to be a little bit better and a little bit more sustainable than we anticipated.

And what that did was drive better GMS than we expected. And when GMS grows unexpectedly, it's going to drive really good profitability characteristics for our business. And so I think you'll see the incremental margin sort of move back and forth across the ranges that the company has shown over time. But we really like the incremental profitability characteristics of the business. Oh, and PS, we really like the margin level that we have right now to start with.

And from the reorganization, our intention is not to, as I said, to like structurally lift margins. It's to like bring the team into more perfect alignment with the strategy in terms of the way it's organized, the way it's staffed, the skills we have on hand so that we can drive the revenue growth that ultimately produces everything else we've already talked about. So I mean, hopefully, those pieces will fit together for you as you look forward.

I think on your second question, which was about marketing and the share buyback, they're -- look, they're not mutually exclusive. They're really complementary. And it is, hey, we are becoming more efficient and more effective in our marketing, and that increases our estimation of the value of the franchise in the future, and that makes the buyback feel like a reasonable allocation of capital. And we just received a large incremental amount of capital from the sale of Depop. And we don't see a place where we could spend that in the business right now. And we think the right thing to do is return that capital to shareholders by shrinking the equity basis. As we've done -- I think over the last couple -- over the last like 3 or 4 years, we reduced the share count by almost 25 million shares.

So we feel really good about that investment we've made. And I'm going to go back -- you asked a question, Michael's question. I don't -- there is not a frontier that we are hitting up against in marketing. What we are seeing more so is that our marketing dollars are going further. And you know we are a company that doesn't set a marketing budget. It sets a return target. And if our marketing dollars are going further, that says the return is better, and that is, over time, going to lead us to continue to spend more on marketing and drive flywheel.

Interestingly and importantly, this quarter, our organic GMS that was not driven by marketing grew. So we've got -- that's nice to have the like fundamental underlying growth from SEO and from the app and from the owned channels and then be able to use marketing really efficiently with a good return on top of that to further extend our reach and our frequency is what we're all about.

The other thing that I would add on the marketing front is we see a lot of great opportunities to continue to lean into marketing. And I think we've really shown that this quarter. As we've gained efficiency in certain areas, we've leaned into others with a great effect, right? As we've seen efficiency in paid search, we've leaned into paid social. We've seen the impact of that in terms of our engagement with younger buyers on TikTok and YouTube. We've leaned into marketing partnerships like our Olivia Rodrigo partnership. We think there's a lot of great opportunities to continue to expand our reach and our relevance through marketing even as we make our more mature channels more efficient.

Great. Operator, I know we're almost at time, but I want to squeeze in one more. Can we call the next one?

Your final question will come from Oliver Lester with Arete Research.

Can you hear me?

Yes. We're good, Oliver. Go ahead.

Two for me. One is, I wanted to know whether you expect to see any impact from the recent EU de minimis changes. And my second question is just on Etsy Insider. I know that got a brief mention in the shareholder letter. Is there any kind of update that you can give us on the progress you're making there?

What's the time, Lanny? You want to do de minimis?

On de minimis, I don't think we'll see a big impact from it. And I will tell you that Etsy is at the forefront of helping sellers deal with all of those kind of changes. We have a great track record over the last year and really strong partners that we work with to help sellers navigate that changed playing field.

On Insider, we don't have a specific update. What I would say is what I've shared in the past, which is that we're thinking about loyalty and driving loyalty is much broader than one program or one initiative. We're starting to test more mechanics to drive that loyalty. Including free loyalty mechanics. But more broadly, the biggest thing that's going to drive loyalty is a better end-to-end user experience in the product. So that's where we're focused.

Perfect. Thank you, guys. Operator, I think that's it for us today. Thank you so much, everyone. We'll talk to you soon.

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

Thank you. It's good to be here.

Before we get started, I want to remind everyone to please refer to the Etsy Investor Relations website for the safe harbor, and if you want to submit any questions for this session, you can do so via the QR code. And for those of you newer to the story, just to level set, Etsy is a global e-commerce marketplace, last year did about $10.5 billion in gross merchandise sales or GMS, supported about 87 million active buyers and 5.5 million active sellers.

Lanny, Etsy has been under, I call it, "new leadership now." You've been a CFO for about 1.5 years. Kruti took over the CEO seat earlier this year, but she's obviously been at the company for longer than that. And you're on this journey of getting business back to more durable and consistent growth. So under this newest team, right, what are the strategic priorities for you? And what are you doing differently today versus what's been done in prior years?

Well, let me go back just one click and say that Josh Silverman, who led the organization for 7 or 8 years, put in place a team that really was able to rise as he move on to be our Executive Chairman. So we also have a new Chief Product and Engineering Officer in Rafe Colburn, and a relatively new Chief Marketing Officer in Brad Minor. So it is a new team of leaders coming together. James Osman leads our Customer Support and customer operations team is relatively new to that role. So it is a new team coming together. And we did a deep diagnostic of everything that was going on in and around Etsy and had been taking place over the past 5 or 6 years. We did that in early 2025 as a team together. And we really focused on understanding the customer experience.

And I'd say the biggest change that this new leadership team is focused upon is really listening to and embracing the needs, the desires, the preferences, the interest of the Etsy customers, both our buyers and our enormous seller community that are really fundamental to this 2-sided marketplace. And that diagnostic led us to a series of 4 main strategic priorities that we saw over and over and over again in the customer research and the data that we analyzed in the competitor valuations that we did. And those 4 priorities are: number one, to show up where our customers are and improve the discovery of Etsy as a place to start your shopping expedition or shopping mission.

The second area of focus has been to improve the match that we deliver when people come on to Etsy when we respond to their search queries, we want to respond with high-quality items that are well tailored to their specific search query, but also to their personal characteristics, needs, traits and profiles as we can understand those. The third element of our strategy is to do -- to put a much stronger emphasis on customer retention and customer loyalty. And what that looks like is elevating the focus that we have on trust and on safety and on customer support and issue resolution. It's developing loyalty programs. It's a whole ecosystem of things that builds in the mind of consumers trusting reliable relationship with Etsy that will bring them back for a growing number of product experience -- of shopping experiences.

Final pillar of our strategy is we really recognize that Etsy has something that is really unique in the e-commerce world. We stand for creativity and craftsmanship and a human connection in e-commerce in a way that really nobody else does. But those core characteristics, the differentiated Etsy are not legible in our product experience, in our outbound e-mails, in our -- just user experience from soup to nuts or at least they haven't been. So those are really the 4 main priorities that we're focused on. And I think they map to thinking about the customer, the buyer journey from awareness and discovery and acquisition into the Etsy experience, then the engagement by showing them a personalized and relevant experience, the conversion by showing -- by bringing them easy ability to purchase those either from us and then a loyalty experience on the back end that makes them come back in the future. Those are our priorities. And it's gratifying that they've started. It's just been a really initial way to produce some green shoots of improvement in the health of the overall marketplace.

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

Sure. We've had a couple of years of GMS declines and then stability and now we've moved back in the fourth quarter of last year and the first quarter of this year to a position of GMS growth on a year-to-year basis. And there's a lot of different drivers underneath that. You put your finger on something quite important, which is for the first time in several years, we have given a full year outlook for not just the next quarter, but sort of what we expected this year.

And I think our answering that question, our willingness or our confidence to look a little bit further into the future, resides top the early progress that we are making with those 4 priorities I talked about just a moment ago. And where the priorities are starting to show up. Our business is a pretty simple one. There are 3 components to our top line. How many buyers do we have? How frequently do they purchase? And what's the average order value? And we are starting to see some signs of progress across each of those different drivers of our business.

Now we control the first 2 of those, the buyer count and the order frequency a bit more than we do the average order value that -- prices are set by our sellers. And we don't -- we have some -- I'll talk about a little later. We have the ability to influence that. But primarily, we focus on the customer experience in a way they'll grow the number of customers and keep them coming back more often.

And the priorities I talked about that went in place midyear 2025 and have been gradually building some momentum, gave us a point of view that we are starting to see the initial signs of what can be durable, sustainable, long-term growth in GMS, built to top a healthier buyer base and stabilizing and hopefully improving level of frequency amongst those buyers. So there have been some changes. There are other components of it. We've had -- we've been migrating more and more of our user experience to our web or mobile application. And our mobile application is this wonderful platform where kind of obviously, people are logged in as users, and we have an ability to capture so much data about not only what they purchased, but what they looked at, what they flipped past, what they dwelled on, how we can present stuff that might spur new shopping missions for them and really begin to understand their test that logged in mobile experience is the -- it's a great incubator for a great like test bed for us to apply all the things we want to do to create that real personalized experience.

And that -- the mobile app grew in the first quarter. GMS to the mobile app grew 11% year-over-year, total GMS grew 5.5%. Now the mobile app is getting close to 50% of our business. It's 47% of GMS. A few years ago, it was in the low 40%. And as we're getting more and more people on to the mobile app, we have more visibility about it. We know about them. We know where they're going to come back. We know how to bring them back, and that's helped us also have a little bit more visibility. There's some other things beyond the mobile app that have been really important to us. We've developed with along side that a much stronger push -- set of push marketing channels that are company-owned channels, both our outbound e-mails to buyers and users and our push notifications to the mobile app.

What we love about those 2 channels is they're very, very personalized and very, very personalizable, and there's no third-party media company that we're paying. There's nobody standing between Etsy and that direct relationship with the customer. So when we those channels with more targeted messages, we're finding great response rates to those. So all those things are kind of interconnected with everything I talked about in terms of the strategic priorities. But as those priorities are starting to yield like real product efficacy improvements, it's giving us a bit more confidence. We're not at the level of growth that we want to be at yet, but it's giving us a little bit more confidence to look forward a little bit more and provide investors with a little bit clearer set of inspections for the next 12 months.

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

Absolutely, absolutely. And primarily, the fact that it's logged in usage on the mobile app is great for us understanding who it is. I think there's a demographic component, quite honestly, to the mobile app as well, it's younger users. And so much of e-commerce today happens on a mobile phone rather than a desktop. So it's not only -- I'd tell you many ways, the mobile app is just the more commonly native environment for e-commerce activity.

What we're finding with the mobile app is an ability to create a landing page for you, your home screen is custom-built for you as a user. And that personalized home page is providing increases in clicks and engagement, conversion, GMS. And that's just the tip of the whole product experience. It's also in the mobile app. We've been able to launch tabs and sliders that can start to take people across the breadth of Etsy inventory. One of the things about the way that people engage with Etsy is, certainly, there are people come in who have a very specific product or an item that they're looking for and they come in through a keyword search.

But often, that item that they're looking for is associated not so much with just that item, but it's an occasion. I'm going to be a house guest or I'm having a baby or my colleague is getting married. And those occasions are wonderful opportunities when we recognize that somebody's come to Etsy for one of those occasions to market the cross-category breadth of our inventory, which is really unique amongst marketplaces like ours. And the mobile app provides great format and framework for us to begin to expand those shopping missions in an occasion-based and personalized way that is really hard to do with an unlogged end user on the desktop who just wants to get -- to close out that transaction. So that's really helping us.

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

I think we're pretty early. We're really excited about the progress we made. And one of the reasons why I'd say we're early is 50% of our users have the mobile app and 50% don't. And so we've got an opportunity to get more -- which we make steady progress on, which are making steady progress and getting more people on the mobile app. We're getting more sophisticated about the -- how we use the space on the mobile app to not just drive conversion, but to learn and gain valuable insights about the users. And then this is a place where ML and AI are helping us more quickly make inferences about the profile and the preferences of those consumers, then we would be able to without those tools at our availability.

So we're in early stages. I would say, we've been at it for a couple of years, maybe getting close to a couple of years now, but this is a runway that looks to us like it's really long from here. There's a lot of opportunity for us to get better in this game.

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

I mean, in marketing speak would be consideration, engagement, conversion and retention. Those are like the textbook dimensions of it. I think one of the things that Kruti and we are really driving toward in terms of a change in the way Etsy is run, the way Etsy thinks, the way Etsy is organized, the way we operate, is that we are looking at the whole user experience as an ecosystem. It is not product does this and marketing does that and customer support does this. It's really all of those different functions that touch the customers and how they interplay with each other.

So when she's talking about an end-to-end experience, I used the word legibility earlier. She wants to make it legible that whether you're just coming for a single purchase or you're coming back to just browse or you're receiving a personalized notification form us or you're just seeing some of our advertising out in the wild, across all of those things, there is an end-to-end experience that speaks Etsy. That the products that we're showing, the way in which we're showing them, the emphasis that we place on showing the maker, the seller, the human being behind the good, all of those things sort of interplay together to really build Etsy's differentiation in a way that we think.

We really don't think anybody can match. And we think we've got a strong lead there. We've got a lot of opportunity to continue to advance that. And so we want to have an experience that speaks Etsy from the time you see the ad all the way through the time that you're invited back because we sent you a really personalized message. And we'll come back to those things I talked about in terms of the real essence of the brand.

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

Well, I think you put your finger on that's really important, which is Kruti talks a lot about moving from transactions to relationships. And instead of trying to capture as many transactions as we can and get you through to the click and the buy button and done as fast as possible. But to think alongside that, about building a relationship between you and Etsy, and so we're very focused on not just as we surface search results, not just that thing that is going to convert the fastest and the best today which will often lead your search algorithm to optimize for what's the most popular thing we can possibly show you, and it may not be the tightest fit, it might be the highest converting, but it may not be the tightest fit to what you're really looking at. It may not be personalized to you at all.

And so we are trying to put a little bit of the brakes on the historical emphasis on just show that, which converts fastest and best and lean a little bit more into who are you? What's the context of your occasion that you're looking for? What do we know about you? And with all of that information, what's the right item. And I think like structurally, we looked in the past often, we surfaced listings, what did you query and what is the item and we match the 2. The big change today is what did you query, what is the item and who are you and we match all the 3, and that's leading to better conversion rates, better customer satisfaction and a greater likelihood that the user comes out and says, hey, Etsy knows me. That was really cool. What they showed me as a search result, which you don't get when you're just optimizing for -- we don't know who you are, but most people like this item.

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

Yes, we're encouraged about where we are on active buyers. So last quarter, I think on a year-to-year basis, in the 12 months ending March compared to the 12 months ending March a year ago, we were down about 2% in the number of total buyers. But in the 12 months ending March versus the 12 months ending December, just before, we were up by $100,000 or a little bit more than that. And so that's the first time we've seen a sequential improvements in trailing 12-month buyers in 2 years, 2 years plus. And what's driving that is our -- you put your finger on it. The gross buyer -- the gross additions have really started to increase. I think we had a 7% increase in the number of reactivated buyers.

People who bought with us a few years ago, but then lapsed and hadn't bought with us for a couple of years, and we're now coming back. And we had our first increase in new buyers in several years. So -- and both -- and those numbers of new buyers and reactivated buyers, the growth rates there have been improving kind of quarter-over-quarter-over-quarter for the last 3 or 4 quarters. So we're seeing the top of the funnel start to improve in both new and reactivated buyers, the bigger long-term lever is retaining and driving the frequency of the existing ongoing buyers.

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

I think we've talked about our strategic priority on showing up where the buyers are. And new buyers, we discover them more in search, paid and organic search than anywhere else. And we have had a pretty good run in paid search over many, many years and also over the last several quarters. The competitive dynamic has changed in paid search a little bit. Amazon has pulled out of product listing ads, that's made Etsy be gain a little bit more visibility in product listing ads. And then behind that, in our paid search acquisition, we've had some marketing technology advances in terms of the feed that we provide, the segmentation of the listings that we provide to Google that are helping them surface more relevant ads in the slots that we are buying from Google in product listing ads. So we're doing quite well on the paid side.

In the first quarter, after a period of, I'd say, moderate small declines and kind of stagnation, our organic traffic through search has started to improve. There was a little bit of improvement in year-to-year numbers in prior quarters. But for the first time in a while, we've now moved back into positive territory on the organic side of search. And I think that reflects work that we've done. You talked about it a minute ago, working on our listings and the way the listings show up, we made some back-end changes to the, like, site architecture that help elevate the page rank of listings on Etsy. That's helped our search engine optimization traffic as well. So on the new side, I would say the biggest improvement -- the biggest driver has really been sharpening what's already been a very, very strong game at Etsy on the search, both paid and organic side.

On the reactivated side, it's a little bit different story. I think some of the headline drivers of reactivation have been social media is a great channel we found for tapping people on the shoulder and saying, hey, you haven't thought about Etsy in a while, and you may not be searching for a product in a keyword box right now. But remember, Etsy, we have these -- the advertising that we promote through that channel has helped us go and tap people on the shoulder again. When they've come in half of that, we've done our best to either land them in or to drive them to our mobile app experience. And that -- the mobile experience is one that is just more personalized, it delivers a more relevant, more 2026 product experience and the lifetime value of a user on the mobile app is about 40% higher than the lifetime value of a user who has not adopted the mobile app, so as we're bringing back repeat visitors, reactivated visitors into the mobile app, the frequency that we're seeing from them and our ability to communicate with them has gotten better.

And then once they're on that, we've reactivated them. We use those push channels that I talked about earlier, those owned e-mail and push notifications to the app to remind people about occasions that they bought from Etsy in the past or new things that have come on the market that seem to resonate with who we have profiled that buyer to be, and that has helped us not only bring the -- social media has helped us refine those buyers. And then the mobile app and our push notification, our own media channels have really helped us stimulate the activity of those folks.

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

Yes. I mean, for a long time, we thought it was a self-selection, but it is a causal -- causal thing at this point because the experience is just so different. And we've opened up this -- I talked a moment ago about push and e-mail, and they sound like, well, that doesn't sound like the biggest deal. A couple of years ago, our push and our e-mail and push channels did about half as much GMS, gross merchandise sales for us, as did our Google paid advertising through PLAs, 2 years ago, it was about half as big.

Today, those paid search through Google PLAs has grown and the size of our owned channels in terms of the GMS that they drive is now neck and neck with the Google channel. So that's part of how we have made it be a causal relationship that once we've got you, we're going to -- on the mobile app, and we know who you are, we can deliver you a better product experience that leads to better purchase activity down the road.

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

It has in a way, and that is that -- when you have a big channel where you're not paying a third party and it's a marketing channel that is driving GMS, it means that like the overall ROI on your marketing activities has improved because a big chunk of it is now effectively media costless. But setting that aside, we continue to run the paid part of our media marketing with an ROI-based approach rather than a budgetary approach, which is to say, we are constantly trying to improve and optimize the conversion that we get out of each dollar that we spend on Google on TikTok on Facebook on any other outlet.

And when we find improvements, when we achieve improvements through those channels, that means our ROI goes up, that means our spend goes up. And so when we find moments in time where we're not able to improve our return on advertising through those channels, you won't see us grow our budget. But where we find moments and opportunities to improve our return, you'll see us put more money and maintain that return on investment.

When you talked about mindset from a marketing, we are definitely -- we have been -- over the last 12 months, it hasn't been that hard to do, but we have really made a concerted effort to modernize our marketing portfolio. We had a lot of television advertising that we were doing 18, 24 months ago, linear cable and things like that. And that's all gone. We've moved those dollars into social media, into streaming into podcasts, where we're finding, I think, a more responsive audience of younger people with more money to spend, more growth in their incomes. And that's been pretty helpful to us as well.

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

You did something that really resonates with us, which is like it's always next year that the consumer environment is going to be a little bit clear, and it has been a challenging consumer environment for a long time. We -- in the first quarter this year for all the press and headlines and things that were going wrong, the consumer on Etsy held up pretty well. We saw better trends among high income households than we had seen in prior quarters. We saw better trends among lower-income households than we had in recently prior quarters. Higher income households are performing a bit better than lower income households. That's a story I think a lot of people see as well.

But so overall, the consumer was pretty resilient in the first quarter this year. I think the -- you asked a little bit about the sort of geographic mix. The United States was our strongest market in the first quarter of this year. But for the first time in a couple of years, we saw foreign currency-neutral GMS growth in our international business. Inside our U.S. business, so I'll give you 2 quick numbers. Half of our GMS is from U.S. buyers buying U.S. things and 1/4 of our GMS is from U.S. buyers buying things from outside the United States. So that's kind of how our business breaks down.

Last year, with the introduction of tariffs and the expiration of the de minimis, that import channel was not as strong, a kind of, as you would expect, we saw one of the wonderful things about the Etsy marketplace is it's so broad, and it's so diverse that there's often these like self-healing offsets. And so we saw a little bit of pressure on the import side, we saw the domestic market get a little bit stronger. As we came into this year, the import market, the U.S. import market strengthened in the first quarter from where it had been late last year. Overall, it looks to us like at least through the first quarter of the year, the consumer was -- our consumer was pretty healthy.

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

Yes. I mean, over the last several years, and we've had some periods through COVID and after where inflation has been pretty high, we have not seen Etsy sellers really take a lot of pricing into their -- raising their listings prices or trying to take higher average item prices. I would say that began to change a little bit in 2025 with the introduction of tariffs and sort of probably the compounding effect of inflation. I think that we started to see our sellers pass through increases in their raw material costs as well as some of the disruption from tariffs. And it really kind of went in a couple of waves. There was the initial wave around May -- April and May when the tariffs were in place, then there was a September wave of listing price increases associated with the expiration of the de minimis exception that had sort of exempted everything under $800.

And then early in 2026, I think kind of after the '25 holiday season was behind sellers, people sort of reassessing things for this year. We saw another little bump in listings prices. And our sellers have an acute sense of like what the clearing price is for the things that they are making. They have a really good understanding of their market. And I think what we're seeing from them is they're seeing their customer is accepting the price adjustments that they're taking. And I think we will see that these price increases, I don't think the rate of increase is going to be sustained, but I think the increases that have been made will probably be sustained at this level for a while.

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

So I would say the number of businesses that made a strategic decision 20 years ago to not be listed in Google is not that many. And there is a brand-new entry point to the e-commerce world emerging through agentic chatbots and through agents. In our point of view, our philosophy is that this is a brand-new way that customers are going to come into the e-commerce shopping mall and we very much want to embrace that and understand it and engage with it just like mobile and just like social and just like search, this is a new emerging consumer habit.

So our view is there is so much more to be gained from getting early onto the field, into partnership, into experiment, into test, into iteration, influencing the terms that are being set around how AI advertising works or native checkout works, which we've been doing, there's so much more to be gained from being on the field than sitting on the sidelines. So our approach has been take the risk, get active and partner with anybody and everybody. And we've learned -- I think our agenda here is learning, like learn as much as we possibly can. I don't think the ink is dry on the business models forever of AI, and we're here to learn as much as we possibly can.

And what we've learned is it looks to us like it's going to be an incremental discovery channel for consumers, and at least in the early days, it's consumers with really high intent and great average order value, and they come back and they're new users to Etsy and reactivated users. And that just tells us all those things to us like why would you not be involved in this game. So our philosophy is to lean in.

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

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

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

Well, let me start with the second one first, which is Etsy has never been about winning the race to the bottom. We are winning the race to special. We are winning the race to differentiate it to human connection and that is our lane and we're -- and we -- and if you look at things in that light, a new technology that is going to make it faster and clearer who is that single fastest, single cheapest seller. It's not going to be Etsy in most cases.

After you have that answer, you don't need 72 other answers, what you might want as a consumer is, if I don't want fastest and cheapest what are the other alternatives. And that's going to be a differentiated item, an item perhaps with more craftsmanship or more different level of quality, more personalizable or customizable, and those are lanes that Etsy really shines in. And that's how we're looking at that sort of industry shift that you talk about, about shifting moats. In some ways, I think the race to the bottom could actually widen the moat of Etsy because you're going to see so many other people dragged into that pit of like differentiation difficulty where we have so much to differentiate upon.

I think to your former question about the advertising model and about the take rate, our take rate is really reflective of the value that our sellers recognize or willing to bear for Etsy doing what Etsy does for them. And the list of things that we do for them is so long from payments to trust and safety ratings and reviews to the presentment that we give them, the advice that we give them, the social media like tools that we give them to market themselves, the visibility we give them on the web, the imprimatur of being listed on the Etsy marketplace relative to just having a shop randomly discovered somewhere else with no ratings reviews and very hard to tell whether that's a seller that I should trust or not for this very unique item.

Etsy brings a lot to the table. And it's on top of all of that value that goes way beyond ads that our take rate resides. And I'm really optimistic about our opportunity to use to sort of bring into the biggest opportunity for us from AI is to figure out how we use AI inside the Etsy experience on behalf of Etsy, but also fundamentally on behalf of our sellers, give them access to being listed on open AI, being highly visible in Google's AI products. You get that through Etsy, I think, more easily than you got it on your own, and helping them get visibility as this new customer channel open. So I think we feel like there is more to be gained from the expansion of discovery from AI and agents then there is to be feared about pressure on our take rate because our take rate sits on top, services that we bring and value that we deliver.

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

Well, I think I've talked a lot about personalized experience. And so it should feel -- Etsy should feel small. It should feel very local to you, very it should recognize you've got a young family, you live where you live, you have your background that you -- and it should really resonate in a very personal way to you. And I think we're getting -- we're moving in that direction, but we're not anywhere near yet the vision that we have for how different the product experience should feel for individuals and for groups of individuals. So that's number one.

I think in -- separately in the product experience, we are experimenting right now with how can we bring agents into the Etsy product experience. And one of the things that happens when people search in commerce with an agent is they don't type in 3 words, they type in a 3-paragraph description of what they're looking for. And that gives us a lot more context. So we have a gifting agent that was an agent that we launched that's sort of tailored for gifting occasions. You can find it if you're a logged-in user on the website, it's rolled out there pretty broadly across North America right now.

And it's an experience. I think you're going to see this more throughout Etsy and probably throughout a lot of e-commerce, where instead of typing in a couple of key words, like I said, you described I'm going to a weekend with somebody who I haven't seen for a number of years, and one of them has the 50th birthday, and we're going to play some golf, and it's going to be in this location. But I don't want -- I want to get a gift for all of them, but I don't want it to be XYZ. There's so much more context in that for Etsy to be able to work with, hey, here's a personalized solution. Here's a customized solution. Here's a unique and vintage solution for you.

So I think you're going to see us try to lean into a different mode of interaction and discovery that will bring forth the variety available on Etsy, that will showcase what's different about Etsy. There are individual sellers beyond all these things, and it will help people understand just the breadth of missions and shopping and categories and occasions that Etsy can be really relevant for.

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

Well, I mean, I think in the long run, the compute costs are going to reflect the prevalence of those tools in the product experience. And so if our customers are saying, these are great experiences, we're going to deliver the great experiences with the cost of the incremental compute. There are other things in our margin in the short term. There's a little bit of cost of compute, like you talked about. There's a little bit of managing fraud and exposure to refunds and things like that in there. But I don't think we're seeing -- I'm not anticipating right now like a step function change in the gross margin profitability of the business because those costs are being incurred to support incremental new higher converting market-expanding product experiences for us.

So look, we're going to manage all those things really carefully and efficiently as we always do. We're coming with pretty good profitability and great cash flow. We'll mind the spending that we do there to make sure there's a return on investment for that. We're also not going to be penny wise and pound foolish in the short run. We want to experiment. We want to learn. And we think there's -- for couple of basis points of gross margin, there's a lot to be learned that will be very valuable to us in coming years.

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

Well, I mean, look, we're going to -- I think we're poised to deliver a pretty nice improvement in revenue growth comparisons this year versus last year, an improvement in buyer trends and a bunch of new products this year with flat headcount from where we were a year ago. So our team is already getting more gas mileage out of some of the tools.

On the product side, in particular, the AI tools, I'm sure you're hearing this from a lot of companies. It's changing development cycles from quarters to months or weeks. We're able to launch and iterate things so much more quickly with the advantage of AI coding agents, which we've been -- we've pushed pretty hard to get our team trained and experienced and up and running on those. So it is improving the efficiency of our team. Our revenue per employee is about $1.5 million is pretty good relative to a lot of companies. We did not have a huge increase in our headcount during COVID, even though the size of the company doubled during that period of time. So we've continued to run pretty lean, and I expect us to continue to. And these tools are only going to enable us to be more productive.

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

Yes. So we'll spend this year, like roughly $400 million on product and $750 million on marketing. I don't think you're going to see any big leverage or deleverage in any of those -- in either of those lines this year. What I would say, if the $750 million on marketing was going to be bigger than that, it was because we found ways to hit our ROI target while spending more dollars. And so that would be a good story because there would be more GMS associated with that incremental spending.

And on the product side, we're pretty careful about the number of squads that we have and the number -- and the assignments that we've given them in terms of what they're working on. And for what -- for the priorities that I laid out a moment ago, there's nobody on our team who feels like with 25% more engineers will be able to go faster. We think we've got the right investment there right now for the priorities that we have. And so I like the mix that we've got. I don't think it's -- I don't think there's any big variation you should expect there. Within it, like we'll allocate the spending within that optimally, but I don't think there's any big change in the size of the envelope.

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

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

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

I think we're pretty early in the advertising opportunity on Etsy. The participation rate of all sellers in Etsy's marketing programs is low and has a lot of headroom that can still be tapped into. And the -- our utilization of the budgets that they give us is lower than 100% for sure. We've got a lot more -- what they tell us they are willing to spend on incremental orders, we are not yet able to deliver. And as soon as we can deliver that by doing a better job of finding customers and bringing them into Etsy, doing a better job of showcasing those advertisers wears effectively in a way that converts, there is money for -- that those sellers would gladly pay for that incremental order value.

So as we improve our ability to deliver a relevant personalized match and improve our ability to reach out to you when you weren't even thinking about Etsy and remind you of Etsy with a matching item. Those are great advertising opportunities for us to say we're driving more demand and we will -- there are a bunch of people who could service this incremental demand, and we'll give an advertiser a shot to be at the top of the pile of people who could service that incremental demand. So there are -- there's optimization of our search. There is getting more people into the program and there's doing a better job of utilizing the budgets that they are willing to spend. It gives us some belief that there's a lot of runway left in the advertising side of the business.

I would say -- so I want to make one point really clearly. Like our main focus right now is driving GMS growth rather than advertising growth or take rate growth, it's GMS growth and GMS growth coming from a growing number of buyers coming to Etsy more frequently. Half of our buyers buy one time a year, the other half by an average of 5x a year. And we think we can expand the total number of buyers or well over 100 million people who have bought on Etsy at some point in their life who did not buy on Etsy in the last 24 months. We're getting those people to come back. And then once they get them back, getting the purchase more than 1 time a year, is a far bigger focus for us than -- we're going to continue to focus on things like monetizing well through ads and using that in service of our sellers' needs. But the thing that sellers really want the most is just for the market to be growing overall.

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

Sure. So really quickly for those who don't know. Depop is the leading U.S. resale clothing marketplace. If you have kids on college campuses, I know that they know about Depop is placed to buy and sell clothes in part of circular economy that younger generations are totally a part of. Depop is growing in the United States at like 70% year-over-year and is a super thriving, healthy business. We love it. We saw some signs of promise and potential for that business about 12 months ago. We began to invest much more aggressively in driving Depop's emerging lead -- growth lead in that category and trying to get to a market share leadership position. Those initial investments really started to pay off, and we received an unsolicited offer from eBay.

At a valuation that we felt was compelling enough for us to at least stop the clock and sort of step back and think it through. And as we thought about it, and we looked at Depop's longer opportunity -- long-term opportunity, we love it, and we looked at Etsy's long-term opportunity. We love it even more. It has -- we think there is a really big opportunity to just focus exclusively on everything I just talked about on the Etsy marketplace. And we think eBay can be a wonderful owner for Depop. They've got inventory in the category that they can bring into what's really the best product experience in the category and continue to make a real leader out of that business.

And so it just looked to us like, hey, it's the right time. We signed a deal to sell it to them for $1.2 billion. We've got regulatory approvals now in probably 3/4 of the places that we need it, one more jurisdiction in the U.K. where we're expecting to get approval for the transaction, then we'll close and have pretty close to the whole $1.2 billion in cash proceeds added to our balance sheet. And I think our expectation right now is we'll deploy that as we've deployed a lot of excess capital over the years toward buying back stock in the company.

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

That's all I can think about.

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

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

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

Thank you, Nikhil.

Thanks, everyone.

Thank you.

Hi, everyone, and welcome to Etsy's First 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, CEO; and our CFO, Lanny Baker.

This quarter, we've changed our earnings process to feature a shareholder letter, which we encourage you to read in detail and have shortened our prepared remarks to enable more time for Kruti and Lanny to take questions from our publishing sell-side analysts. We hope you find that this shift helps drive efficiency and transparency in our process, both for us and for all of you.

Please keep in mind that our remarks today include forward-looking statements related to our financial outlook, our business and operating results as noted in the shareholder letter posted to our website for your reference.

Our actual results may differ materially. 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 both 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 this call. With that, I'll turn it over to Kathy.

Thanks, Deb, and good morning, everyone. Thank you for joining us. I stepped into my first quarter as CEO after more than 15 years at Etsy, with a deep understanding of what makes this marketplace special and a clear view of where we can unlock more of its potential.

At our core, Etsy has a differentiated value proposition that remains deeply resonant with buyers and sellers. Our focus is now translating that strength more consistently into the customer experience.

Over the past year, we've been clear about what needs to change and the priorities that we're executing against to close that gap. -- namely expanding how and where buyers discover us, connecting them with items that feel personal and relevant and building relationships that go beyond transactions.

That's how we drive engagement and frequency and ultimately turn the uniqueness and scale of our marketplace into a lasting advantage. In the first quarter, we saw encouraging signals that this strategy is beginning to take hold.

All of our key performance indicators came in at or ahead of our expectations with GMS at $2.5 billion, up 5.5% year-over-year for the Etsy Marketplace. Revenue of $631 million on take rate of 25.7% and adjusted EBITDA of $185 million or 29.3% adjusted EBITDA margin.

And more importantly, we're starting to see early positive changes tied to customer behavior on Etsy. Active buyers grew sequentially for the first time in 2 years. We delivered year-over-year growth in new buyers and active sellers GMS per active buyer grew year-over-year for the first time since 2022, and momentum in our mobile app continued to strengthen.

These are early indicators, but they matter. They show the marketplace is getting healthier, and we have confidence this will translate into the top line over time because creating real value for buyers and sellers is what ultimately drives value for the marketplace.

Let me briefly remind you how we're thinking about the business. Our strategy is built around four priorities: showing up our shoppers discover, matching them with the right inventory, retaining and rewarding our most valuable customers, both buyers and sellers, and amplifying human connection, one of our core differentiators.

These aren't independent initiatives. They operate as a system. Discovery and matching bring buyers in and help them find items and shops they love. Loyalty and human connection give them reasons to come back. We believe that investing in this system is how we'll rebuild frequency over time.

Today, we're seeing the clearest progress in discovery and matching, where coordinated investments are already driving meaningful impact across both the customer experience and our financial results.

Our app is the centerpiece of this transformation. It's where personalization, machine learning and direct relationships come together most effectively, and we're seeing that show up in the numbers. App GMS is continuing to significantly outpace non-app growth and now makes up about 47% of total GMS, expanding 240 basis points year-over-year.

Mobile app GMS was up 11.2% year-over-year in the first quarter of 2026 versus up 6.6% last quarter. As we keep improving the app through levers like better personalization, more effectively using our owned marketing channels and increased adoption, we see a clear opportunity to continue to grow app share and drive frequency over time.

This matters because app users engage more deeply, convert at higher rates and come back more often. It's one of the clearest indicators that our flywheel is starting to turn. When it comes to matching, we talk a lot about search, and that's because Etsy's core job is to help shoppers find things that feel personal, relevant and worth coming back for.

Historically, our systems prioritize what was most likely to convert in the moment. often favoring popular items over the ones that were truly tailored to a specific buyer. We're changing that. We're shifting toward a more personalized, relevance driven approach, powered by machine learning and AI that better understands what a buyer is looking for right now and their taste over time and the vast inventory offered by sellers on Etsy.

We're already starting to see positive signals from models that bring these elements together. With early tests showing improvements in add to cart rates and conversion. We're also expanding the role of our personalized home fee. In Q1, we introduced AI-generated buyer profiles that help us go beyond the shoppers past activity.

With the goal of expanding the categories they explore and inspiring new purchases. And finally, we're strengthening our direct relationships with buyers through own channels. using better timed and more relevant push and e-mail communications to drive higher engagement.

Turning to loyalty and human connection. Our most valuable buyers and sellers drive a disproportionate share of our marketplace. And we're focused on earning their continued engagement.

For buyers, we see an opportunity to both deepen loyalty and retention with our most valuable customers and to nurture those with the potential to become them. by making shopping on Etsy easier, more rewarding and giving them more reasons to come back.

We believe that long-term loyalty isn't built through a single program or initiative but across every interaction. So our approach spans the full experience. For more personalized recommendations to targeted offers to programs like our Etsy insider beta.

We're also moving toward more intentionally serving our highest value buyers. And importantly, we're expanding ownership of our loyalty initiatives across product, engineering, marketing and operations because all of those moments together determine whether a customer chooses to return.

For sellers, we're looking to reduce friction and enable growth with plans to build on our AI-powered tools to simplify listing and shop management so they can spend more time creating and connecting with buyers.

And for both buyers and sellers, we're strengthening trust through improvements to Etsy purchase protection and better support for our top customers. The final part of our strategy that I'll discuss today leans into what makes Etsy fundamentally different human connection.

Buyers come to Etsy not just for what they buy. But for who they buy it from. This is one of our most defensible advantages and one that we haven't fully delivered on. We've begun taking a more structured approach to understanding how seller identity, craftsmanship and stories influence behavior.

And we now have early evidence that when we make those things more visible, buyers engage more deeply and make decisions with greater confidence. So you can expect to see us integrating those elements more directly into the core shopping experience this year.

We are also intentional early movers in Agentec deeply focused on developing integrated experiences. We're encouraged by early engagement and traffic signals from Etsy's integrations with OpenAI, Microsoft and Google. And we recently developed an integrated Etsy app for Chat GPT.

At the same time, we're testing conversational AI experiences directly on Etsy because we see agents as a powerful way to simplify discovery and decision-making for both buyers and sellers, particularly when paired with our own data and insights.

In Q1, we built two agents, one focused on helping buyers find the perfect gift and another that brings together insights for sellers to make better decisions, access the right resources and reduce operational friction. These are early examples of how ML and AI can make the marketplace meaningfully better for our customers.

Just as importantly, they're allowing us to move faster, building and iterating in weeks, not months, which helps us learn more quickly and drive growth. Stepping back, we've now delivered two consecutive quarters of year-over-year Etsy marketplace growth, and our outlook points to growth again this quarter.

But our progress won't always be linear. There's still a lot more work to do. What gives me confidence is not just what we're seeing in our metrics, but what's driving them.

We have a clear understanding of how Etsy works at its best. We're rebuilding the marketplace based on that understanding, and we're executing with greater focus and discipline than we have in the past.

Etsy has always stood for something different, creativity, human connection and meaningful commerce. As technology evolves, we believe these qualities matter more, not less. Our focus now is simple: execute against what we know works, measure progress clearly and build the foundation for durable growth.

With that, I'll turn it over to Lanny.

Great to connect with all of you today. As Kruti just described, we've had an encouraging start to the year, and I will discuss some of the drivers of that progress, as well as what it means for our outlook going forward.

As you review our shareholder letter and 10-Q, please keep in mind that on February 15, we entered into an agreement to sell Depop to eBay for $1.2 billion. We have received regulatory clearance for the transaction in the United States and Germany, and reviews are in progress and on track for other markets, including the U.K. and Australia.

We expect to close the transaction by the end of the third quarter of 2026. Given the pending sale, Etsy's results are presented on a continuing operations basis, while Deep Hop's results are now presented within discontinued operations.

I also want to note that Reverb, which we sold in June of last year is included in Q1 2025 continuing operations, whereas Q1 2026 reflects only the Etsy marketplace. This makes year-over-year continuing operation results not directly comparable, and we have included stand-alone Etsy marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations.

kruti covered our top KPIs, so I'll provide a bit more color on Etsy Marketplace GMS, which advanced to solid year-over-year growth in the quarter. Q1 '26 Etsy marketplace GMS was up 5.5% year-over-year, which represents a 540 basis point improvement to the GMS growth achieved in the fourth quarter of 2025.

On a currency-neutral basis, GMS growth was 3.6%. Progress in both product development and marketing are beginning to translate into underlying improvements across marketplace fundamentals. And we also benefited from foreign exchange tailwinds and softer performance in the prior year comparable period.

Our key customer metrics are continuing to move in a healthier direction. Q1 '26 trailing 12-month active buyer count was $86.6 million, representing the first quarter of sequential growth in the past 2 years. Combined gross buyer additions, new plus reactivated were $11.9 million, up 4.8% year-over-year.

Encouragingly, GMS per active buyer improved sequentially for the fourth consecutive quarter and grew year-over-year for the first time since 2022, reaching $122 on a trailing 12-month basis. Purchase frequency remained modestly lower than prior year while average order value increased year-over-year.

Several factors, some of which we expect to be temporary contributed to higher AOV, including foreign currency exchange tailwinds and the expiration of the de minimis tariff exemption and subsequent seller listing price increases.

We anticipate that these benefits and the resulting impact to AOV will moderate as the year progresses. That said, product improvements have also benefited AOV, including changes to our search and discovery algorithms that better surface higher quality, more relevant and differentiated inventory.

Repeat buyer and habitual buyer figures, while still down year-over-year, continue to see sequential stabilization. On the seller front, Q1 '26 was the first period of year-to-year growth in total seller count since we introduced the seller setup fee.

Active sellers grew 3.3% to $5.6 million. Turning to take rate drivers. Our shareholder letter depicts the primary factors that help drive our quarterly take rate to 25.7% up 180 basis points year-over-year.

130 basis points of this increase was due to the impact of the River divestiture last June. Meanwhile, Etsy marketplace take rate expansion was led by Etsy Ads where we continue to benefit from machine learning-driven improvements to relevance and seller budget pacing.

Offsite ads and Etsy payments also contributed to take rate expansion. Although our current strategic priorities center on driving sustainable long-term growth in GMS. We're encouraged by the way, investments in ads, payments and services continue to provide durability to Etsy's take rate.

We're pleased to be executing against our near-term priorities while improving the ways we work. continuously looking for operational efficiencies and keeping a tight control on expenses.

This is visible in Etsy Marketplace operating expenses for the quarter with product development, marketing and G&A all gaining leverage on a year-over-year basis. In product development, modestly higher employee costs were offset by savings in other areas.

Marketing leverage was achieved by targeted shifts in portfolio mix to better meet customers where they discover and a continued focus on efficiency. Growth of GMS derived from Etsy's owned marketing channels also supported marketing leverage.

Turning to our strong first quarter balance sheet. Etsy held $1.6 billion in cash, cash equivalents and short and long-term investments at the end of the quarter. Net cash provided by operating activities of continuing operations was $102.5 million.

We converted 50% of adjusted EBITDA to free cash flow more than twice the rate of conversion realized in the year ago quarter. We also repurchased a total of $145 million of stock, which reduced the outstanding share count by approximately 2.7 million shares.

As of March 31, we have $828 million remaining on our current board authorized share repurchase programs. we took the opportunity in our shareholder letter to reaffirm and explain our approach to capital structure and capital allocation, which is based on four enduring priorities.

Number one, maintaining financial strength to fully support organic investment in the Etsy marketplace. Two, preserving strategic flexibility to selectively pursue opportunities to strengthen our business. Three, ensuring we effectively manage our financial commitments; and four, enhancing returns for our equity holders as made possible by our strong free cash flow generation.

Given this framework, the pending sale of DPO will allow us to further accelerate the direct return of capital to shareholders via repurchases. Turning to our outlook for the Etsy marketplace. We assume that overall macroeconomic factors remain relatively consistent and currency tailwinds moderate.

We also note that prior year comparisons will become less favorable as we move through the year. We currently anticipate that Etsy Marketplace second quarter GMS will be between $2.48 billion and $2.53 billion, representing year-over-year growth of approximately 3% to 5% for the quarter.

We expect second quarter take rate to be approximately 25.7% and adjusted EBITDA margin to be 27% to 29%. For the full year, we now anticipate that GMS growth will be in the low single-digit range as our outlook for the Etsy marketplace has improved relative to the full year commentary provided in mid-February.

Our updated full year view incorporates stronger-than-expected first quarter GMS as well as the progress we're making on our growth priorities. We continue to expect year-over-year growth in Etsy GMS in each quarter of 2026.

We currently expect full year take rate to be roughly equal to that of the first half of the year, and our full year adjusted EBITDA margin outlook of 28% to 30% remains unchanged.

We're pleased to be executing on our plan and delivering better results. And as Kruti stated right upfront we believe there is significant potential yet to be unlocked. And with that, we'll now turn it over to the operator to take your questions.

[Operator Instructions]

Our first question will come from Michael Martin with Matt Mason.

Thank you for the question. Clearly, I wanted to ask about the most impactful changes you've made to the app. In the letter, you talked about expanding the role of personalized home feed recommendations.

And I was curious, is this driving a measurable increase in frequency as you're putting the app in more buyers' hands, like as we know, I think for Etsy, growing frequency is the holy grow. So maybe any leading indicators you're seeing there within the app would be great to hear.

Great, thank you so much for the question. So you're right. We're really focused on the app. This is our highest value platform. As we mentioned, our app users have 40% higher LTV than non-app users. And that's because they visit more, they engage more deeply they convert at higher rates.

And so our focus has really been around making the app much more personalized and a much better discovery jumping off point. And so the work there has been really shifting what we show you in the app home feed from popular inventory to items that are really based on buyer interests that are going to inspire new discovery.

And so we're really excited about the work that we've done there and the evolution of that home feed. And it's starting to show real traction in engagement. And so as we talked about in the last call, we've introduced these new model that reflects much deeper buyer understanding.

Basically -- develops a profile of a buyer of MAP to your interest in has over time and then map those interest inventory so that we can present to you when you first open the app, inventory that clearly connects to your taste but introduces you to new shopping missions and to discover new categories.

And we're excited about the traction that we see there so far. It's definitely delivering deeper engagement and more engagement. And that's really the precursor to greater frequency. And so let's talk about frequency for a second. That was kind of the second part of your question.

Frequency is really our ultimate goal, and it's what our strategic priorities are designed to work together to drive -- we're not seeing it inflected yet because it really requires a full end-to-end experience shift, not a single fix, not a single platform fix.

And so maybe just pulling back from the specifics for a second, I want to explain what I mean by this. and how it relates to our priorities. So the first thing we have to do is show up consistently where our shoppers are with content that feels really relevant in the context to get them to consider and visit Etsy more.

Then we need them and match them with items that are really relevant personalized to them so that they engage more deeply. And then for all the inventory we show them, we want them -- we want to consistently highlight what makes that inventory really unique and valuable, really the human touch behind it, that gives buyers confidence to purchase more.

And then throughout, we have to show our buyers that we know them, that we value them because Etsy is getting better, the more they engage with us. So that they feel really rewarded for every interaction, and they want to come back again.

That's really the flywheel. This is what drives consideration, engagement, conversion, retention and really ultimately frequency. So at this point, we're still in the early stages of driving that consideration a deeper engagement.

That labor engagement is what you're seeing on the app, which we think is a really important early and encouraging sign. But it's going to take time for these changes to compound into sustained frequency and retention.

Your next question will come from Trevor Young with Barclays.

Kruti, maybe a bit bigger picture one. Core Etsy has a very healthy take rate for a transactional marketplace. How do you think about the path for take rate here for over, I don't know, maybe 3 or 5 years now that adds and payments have been pretty well optimized.

Are there new services you could offer buyers or sellers where there's a fair exchange of value which could push take rate higher? And then on the opposite side, what about opportunities to get a little more surgical on take rate to remove some of the friction in the marketplace that could maybe help drive purchase frequency.

Thanks for the question. Your question is about take rate, but let's talk about revenue first for a second because often, when we talk about take rate, it's about how we're really going to grow revenue. .

And so the first thing I just want to say is our focus is very much on growing revenue through GMS growth. We think that is the healthiest long-term lever to drive revenue growth. It's by getting more people to buy from Etsy more open.

We think we have a very healthy take rate, and we offer services that are really valuable to our sellers in the near to medium term, we're going to continue to invest in making those services better and more effective for sellers. And as we do that, we expect to see some modest improvement in take rate.

Certainly, over the longer term, we're open to exploring other opportunities for delivering new services that would be really valuable to our sellers, but that's not the focus right now. The focus is really on growing GMS growth to drive long-term durable revenue growth.

Your next question will come from Nikhil Devani with Bernstein.

I wanted to follow up, Kruti, on related topic around frequency. The letter talks about inspiring discovery beyond a shopper's immediate attend.

So I'm curious what trends you've seen or progress you've seen on cross-category shopping on Etsy and really introducing customers to more use cases and occasions on the platform if you were to step back and look at the progress made over the past couple of years, anything you can point to with respect to that trend line would be helpful.

Look, I think we're in really early days here, but we are seeing encouraging signs from the changes that we're making to the -- at Home feed in terms of really anchoring on buyers' tastes and interest and using that as a way to introduce them, not just to new shopping missions, but to new categories.

But certainly, very early days. I think more broadly, if you think about our approach to how we're serving buyers, One of the shifts that we've made that you've heard from us recently is that we really understand that buyers think about us for shopping missions that are largely horizontal.

So those span across categories. And so our approach is really -- has really been to serving those shopping occasion needs, more effectively.

We think that, that approach is also going to really help us show up in a way that's more relevant to more people, more of the time and help them consider different categories that are relevant to a shopping occasion.

Your next question will come from Maria Ripps with Canaccord. .

I just wanted to ask about active is return growth. So as we think about sort of key initiatives there, personalization, the mobile app, there was the largest sort of top final drivers.

Is there anything that kind of closer to the lower funnel initiatives that you can talk about? And then more broadly, how should we think about sort of the lag between product improvement and sustained growth inflection in active buyers?

When we think about active buyers, it really are two components. They are the existing recurring repeat users, and they drive most of GMS. And to the second part of your question, all the work we're doing on the product experience, the personalization, even things like customer service and support and trust and safety -- all of these are top priorities to build an environment for those existing repeat purchasers that is -- they become loyal to, they become familiar with and we can drive their frequency and engagement.

On the -- in order to get the total buyer pool growing, we have to do more than just serve well the existing buyers. We have to bring in more new buyers and reactivated more prior buyers on Etsy.

And that's why in our strategic priorities, we're talking about, we have so much focus on showing up where customers are starting their shopping missions.

And so we're really pleased with the momentum that we've started to see now in the number of gross additions between new and reactivated users -- it's been a couple of quarters now of positive year-to-year comparisons there, not only in percentage numbers, but the aggregate numbers of new people coming in today versus a year ago is starting to look better.

And that in the long term is what will really drive along with good retention of the existing buyers that accelerating growth on the new and reactivated front is what we're seeking. We've made some changes to our marketing mix to do that.

We've been talking about showing up much more strongly in places like social media. We've been talking about making refinements the way we show up in classic search results. We've been leaning out on the very frontiers of what's happening in gene commerce to make sure we're showing up there.

We've been emphasizing the mobile app, which we know is the way younger demographic shop. And all those things are starting to have an impact, and you can see that in the numbers that we're talking about. -- you get down into the smaller sort of nuance things. We've talked a little bit about TikTok has been a great channel for us since bringing in a much younger demographic.

And I think there's a lot more for us to do in that channel. On the sort of low funnel, social across some of the others we found that we're not always in social acquiring new users.

We might be -- and so we've modified our spending a little bit to really focus on activating new users and bringing back lapsed users. That's been a little bit less at the bottom of the funnel in social a little bit more at the awareness -- upper end of the funnel and social.

All these things are -- the changes we made today are -- we're going to continue to monitor those and be really disciplined and very ROI-driven and very focused on on what you -- sort of starting point of your question, which is in the long term, growing the active buyer count on Etsy.

Your next question will come from Nick Jones with BNP Paribas.

Great. I guess maybe one on internal AI at Etsy. -- if AI is going to kind of unlock bigger kind of more persistent context on our active buyer base. How should we think kind of like where you are and kind of the evolution of being able to build this kind of really rich contracts on a customer basis to build customization is there going to be kind of an impact on expenses as you maybe need to pay for more tokens or something to kind of deploy this to drive conversion higher? .

So I don't know if that question makes sense, but just curious on kind of where you are, like what inning it is in terms of using the technology to maybe drive a more meaningful improvement in conversion.

Yes. Great question. Thank you. So first of all, we see just so much exciting opportunity for us to leverage this technology to build a much better, much more personalized experience on Etsy. And the way that we think about it is that we need to bring together a really deep understanding of three things: -- our inventory, which, as you know, is very diverse, very unique, very broad.

And so we've made a lot of good progress there in terms of richer inventory understanding, leveraging LLMs. The second is fire understanding or understanding our buyers' interest and taste -- and understanding those over time, that's part of what you were just describing as that richer context that persists.

And this is where we're putting a lot of effort an investment right now, developing new models that help us understand about the profile of a buyer's taste.

I'd say that we're early here, but making really good progress mapping that understanding that deeper understanding of our buyers to our inventory. And then the third piece of this context is understanding your intent in the moment.

So for our understanding of buyer interest is something that we build over time. You're -- your intent in the -- is something that is more about in the moment in a session. And that is really, really critical context to help us marry all of those three things together to provide a really personalized and relevant experience every time you shop on Etsy.

We're still really early days here, but one of the exciting developments that we shared in the shareholder letter in the prerecorded plus was about the conversational agent that we've just introduced for buyers to help them find gifts.

This is a really great example of how we're using this new technology to get a lot more context through a single interaction that again, then if you think about marrying those three things together can allow us to provide a much, much richer, much more personalized and more effective experience.

So I'd say we're at different stages of maturity across all three of these areas, but making really good progress and really excited about the opportunity that they present.

To the sort of final bit of your question about managing tokens and the like, -- the way we think about it right now is we really want to embrace an experiment with these brand-new tools. And as Guy said, there's so many applications that we are -- we're really trying to be on our front foot and fund and invest and learn in this area as quickly as we can. .

As you know, we will manage the costs, and we will apply that which, hopefully, you recognize we do all the time, we apply a very rigorous ROI discipline. And so the investments we're making in AI and the features that we roll and the costs associated with the compute behind that is all going to be framed with reference to its impact on GMS growth and long-term user growth and frequency growth.

And we'll manage that with mine toward long-term profitability as we've done in so many other realms of our go-to-market.

Our next question will come from Marvin Fong with BTIG. .

I guess I'll ask the obligatory question about consumer health. I know you mentioned in the letter that trends are relatively stable. Is there anything to call out even at a granular level that you're seeing any impact from higher fuel prices?

And relatedly, -- it looks like we're going to have like some fuel surcharges in terms of postage costs. Is that -- do you expect any impact on your seller behavior as they try to manage that cost that's embedded in your guidance?

Yes. Thanks. As we said, the consumer environment has remained relatively stable overall. There's been an interesting sort of tension back and forth between some of the softer data and consumer polls and surveys being more soft and concerning.

And then the actual hard data that comes through from the consumer has held up. And that's kind of what we've seen. Our U.S. buyers have been resilient -- we've seen broad strength across various household income cohorts like others.

I think others have said, we do see some of the strongest growth in the higher-income households, but it's broad-based. I think if you go a little bit -- trying to go a little bit more granular.

One of the ways we look at it is segmenting our GMS by trade lengths and the U.S. domestic trade lane was the strongest at the start of this year. One thing that's interesting change is coming into this year from where we were last year, in the first half of last year, our U.S. import channel -- our trade lane was growing pretty well.

It's probably the fastest growing channel. That slowed down with the imposition of tariffs and we returned to positive growth in the U.S. import trade lane in the first quarter this year, which kind of goes back to the first year I said, which is the U.S. consumer remains fairly resilient.

Our non-U.S. currency-neutral GMS grew for the first time since 2023. So we're seeing some of that resilience overseas as well. U.S. buyers grew on a trailing 12-month basis. in the first quarter from where they were in the fourth quarter, and international buyers were about even in the first quarter with where they were in the fourth quarter.

So when you try to pull apart the impact of tariffs and the foreign currencies and tax returns that have been strong in the season, and the impact of oil prices, netting it all out, it's hard to point to any one thing, and that's a stronger comment than the consumers remain pretty resilient, and we remain cautious about the forward outlook.

One more thing that I would add, a little bit higher level about the macro environment is like, look, we're obviously in a period of high macro uncertainty on predictability. .

As Lenny said, we're really -- we're monitoring consumer confidence closely in the macro environment more broadly. But as we do that, our focus is largely on what we have control over.

So there are two things that I think about there. First is we're focused on building a culture of learning quickly and adapting in real time. We saw this in spades last year with our team responded to tariffs to the emergence of genetic commerce, like we're really confident that we can continue to do that.

And then second, -- we're focused on executing with clarity and discipline on our strategy, and that's about accelerating our product innovation, evolving how we show up for our customers, reinforcing trust through the entire experience.

We think that's what's going to really continue to reinforce the resiliency of our marketplace, as Lanny mentioned.

Your next question will come from Brian Smilek with JPMorgan.

Kruthi, curious to your thoughts overall, we've seen in the market open AI, potentially pulling away from constant checkout and focusing more on Discovery and SDK integration as you've launched your app within Open AI, can you just talk about the initial impact to conversions? I believe last quarter, we had talked about traffic being up multiples of what it was year-on-year.

But really, AI traffic is still driving more on-platform marketplace conversions. So curious your thoughts there on the shifted strategy by open for the question.

I just want to clarify the app is not launched yet. But I think overall, big picture, look, we think that shift really reinforces our hypothesis that we continue to think Gentech shopping can become a meaningful discovery channel for us over time, but the focus is really discovery.

That's reinforced by trends that are really consistent with what we shared with you last time we spoke, which is we continue to see strong traffic growth and high-intent traffic. So that's great. but it's still very, very small.

It's a fraction of a percent of our total traffic. And so again, that reinforces our prothesis that it could be a high-value discovery channel, but that's where it's best suited. But that's going to take some time.

That's over the long term. The other thing that I'll just say here is we continue to be really focused on early engagement being early movers here. It's very aligned with our priorities to show up where our shoppers discover. And we know this is going to be a really rapidly evolving space as we're seeing in real time.

Our focus, our commitment is to being where our customers are, so we can learn from that behavior in real time and adapt our experience with that you see us doing that already.

Your next question will come from Nathan Feather with Morgan Stanley. .

Ncourage the stabilization in habitual buyers. What are you seeing that's allowing that to finally normalize, especially as frequency hasn't yet inflected in the hall. And do you have line of sight to that returning to sequential growth through the year?

The activity you're seeing in terms of stabilization on habitual buyers, on repeat buyers and even on frequency and on many of the biometrics, I think is really the fruit of the things we've been focused on strategically that Kruti talked about that we highlighted in the shareholder letter and frankly that we've been talking about for several quarters.

Like what you're seeing in the numbers is just starting to see some of the initial early impact of the accumulating effort of last several quarters. One thing I want to point out about habits as you look at those, those numbers are still lower year-to-year.

They were pretty stable in the first quarter from where they were in the fourth quarter. And I think the next thing that hopefully plays out is stability turns into a return to some modest growth and equally stronger growth in the long term as we continue to execute on our strategy.

One thing it's important to remember is that the habitual buyer number is reflects a certain purchase frequency. And when that number goes down, it's pretty rare that, that habitual buyer has actually left Etsy -- and in fact, they've just kind of fallen below that purchase frequency threshold.

And with all the work that we're doing, we hope to bring them back above that threshold, and that's what really will drive that cohort to be a little bit bigger in the future.

Your next question will come from Bernie McTernan with Needham.

Great. acknowledging all the the good work that's going on within the app and double-digit growth on GMS.

But I wanted to ask about the non-AP, the acceleration sequentially was actually stronger outside the app. So I just want to see what's going on there, whether it's product or whether it's some of those marketing efficiencies that -- in paid search that are driving it.

It's a combination of factors. It is certainly the product work that we're doing that's having an effect across the whole system. .

And it's encouraging to see that, that product work -- that effort to be more personalized, to be more relevant, applied on all services has a sort of commensurate impact. It's having the biggest impact on the mobile app because that's all logged-in usage.

And we can really go the deepest and fastest there. I think also helping our non-app traffic, our marketing activities were really effective during the first quarter. We increased our marketing spend year-over-year, and we gained operating leverage in terms of GMS and revenue revenue operating leverage on the marketing line.

That's come from more efficient spending, mix optimization our owned channels becoming a bigger driver of activation and reactivation and some of the competitive dynamics, particularly in the paid search marketplace.

In both PLAs and search engine marketing, we leaned in. We spent a little -- we increased our investment there. Google has made some changes to the algorithms that they use to surface results, and that's helped us in that channel.

I talked a little bit earlier about what we're doing in paid social and in our sort of brand marketing on social -- and then really importantly, our owned channels, both the push notifications and e-mail continues to grow at double-digit rates year-over-year, in terms of driving GMS.

And that's great because there isn't double-digit increase in spending in that channel. And we've had some search engine optimization wins over the last couple of quarters. that are also feeding some of that strength you're seeing in the desktop and non-app environment.

Your next question will come from Ana Andrea with Piper.

Great. Thank you so much. Congrats. Nice to see a steady improvement in the business. We wanted to ask on the seller metrics. First quarter of growth really in quite a while now.

And Kruti, you mentioned a better retention of the seller base. in the shareholder letter. Can you talk about what are some of the key initiatives behind that that are resonating the most? And should we expect stability in the seller metrics as embedded in the guide?

Well, the sellers are a fundamental portion of our marketplace kind of obviously the breadth and depth of the inventory that they bring is really what makes Etsy differentiated.

We are in our product work, as Rise described, really trying to bring forward the human connection and emphasize the human element of creativity and craftsmanship that really differentiates Etsy sellers.

And so as we've done that, and our buyer base continues to grow we're starting to see improvement again in the seller count.

Look, I think more broadly, I would just say our -- we haven't invested deeply in the seller experience over the last several years, and that's somewhere where we're shifting more focus to going forward. .

And I think that we expect to see really positive impact from that. And really, what we're focused on is making it easier for sellers to do -- to manage their shops and to manage their listings.

These are some of the areas that take the most time but are not the most value add. So we was talking about human connection, really the most important things that our sellers can do to add value to the marketplace is continue to innovate at really that new inventory into the marketplace and continue to provide really great human service. to our buyers.

These are the places that we're really focused on investing in. I mentioned this in terms of some of the AI tools that we're launching, shopping shop management assistance, we've already talked about AI listing assistance.

These are areas where we continue to focus on making the seller experience better to drive that side of the flywheel of marketplace growth.

The retention of sellers has started to improve. And that is helping the overall seller number. We're seeing healthier quality of sellers -- more of the sellers are completing sales and having strong GMS results and a higher percentage of them are staying with us year-to-year-to-year.

So some of that product work that we've begun is the friction that we're taking out is starting to have an effect there on the telecon.

Your next question will come from the use of Squali with Truist Securities.

Lanny, with the mid-single-digit growth for Etsy Marketplace, GMS, you just put up in Q1, -- what are the main drivers pulling that growth rate to a low single-digit percentage expected for the year?

And with all the changes you're making, do you believe you have line of sight to positive active buyer growth this year? Just trying to get a sense of what's baked into your low single-digit percentage gyms growth?

As we described, the outlook is predicated upon a gradual improvement in the underlying fundamentals of the business as we've started to show over the last couple of quarters.

It will take us some time to get all the different metrics back into positive year-over-year territory. And we haven't commented on those very specifically. As we -- but that underlying -- we do anticipate that there'll be underlying fundamental improvement in sort of the core buyer metrics as we move throughout the year.

The comparisons do get trickier, more challenging later in the year than certainly they were in the first quarter. and we roll off of the foreign currency, very strong tailwind that we saw in the first quarter that will moderate as we move through the year.

And in the first quarter this year, our GMS was certainly helped by an increase in average order value -- and FX will slow down. We think that the increases in listings prices that corresponded with the end of the de minimis exemption and the implementation of our other tariffs.

Those increases are probably sticky price increases, but they -- we will lap the benefit of sellers having taken that up.

And also driving AOV have been product improvements that are helping us surface more relevant items, higher quality, higher value items, and that's contributing as well. So as we look across the course of this year, there's some mitigation in sort of the growth benefit of some of those external factors and continuation of the internally driver -- driven inputs to our growth creation.

Your next question will come from Shweta Kajaria with Wolfe Research.

Okay. Thank you for doing my question. Could you please talk about the balance of AOB and frequency. So when we think about frequency, you've now touched on this multiple times, including in your shareholder letter, that may take some time to see that inflection in frequency.

But from your prior data, how -- what is the lag that you see once you start seeing an improvement in some of the other fundamental metrics, whether it is buyer or buyer growth or engagement, when -- what is the time lag when you start seeing sort of that uplift in frequency?

And then similarly for retention, what are you looking for from personalized recommendations and targeted offers that gives you confidence in driving better retention?

One of the encouraging things that we've seen so far as we started this year is that despite the fact that the average order value has gone up, as I just described, our buyer numbers and our frequency numbers have been stable, if not improving. And that's nice to see that impact on user behavior even in an environment of slightly higher prices on Etsy and other places.

And so I think there are some early signs that the work that we are doing to drive retention and frequency through personalization through the mobile app, everything we've been talking about is starting to have a benefit -- and -- but I do think, as we look forward, we'll continue to see that benefit be there and compound over time.

See, it is challenging to predict with precision the exact timing of various inflections in that -- in various components of the frequency and the active buyer trend. So what I would say is expect -- we've stabilized. We've started to show growth in some areas.

And we'll keep you posted as the benefits of the work that we are doing through our priorities, can you just play through the mechanics of the model.

Yes. A couple of other things that I would just add are, it's hard to predict the exact timing, but we know that, that -- we're very confident in the continued growth, but we know that growth won't be linear. .

I think that's a really important thing to note. We've talked a lot about our priorities as taking a much more systematic approach that we expect to lift all of the key metrics behind -- that drive our GMS. So that's another reason that it makes it difficult to predict the inflection of any 1 of these metrics individually.

I would just also reiterate that we're seeing very early but very encouraging signals, the initial improvements that we're making around personalization across services like App home and marketing communications are very, very promising and are the precursor to driving other metrics, particularly to meeting into frequency and retention.

Your next question will come from Naved Khan with B. Riley.

Great. I just wanted to maybe dig into something you said earlier in answering question. I think it was for you see.

But wanted to talk about AOV. And if you were to kind of look at on an FX-neutral basis and strip width impact on the exemption of the demise exemption and its effect on list prices, would -- how would AOV growth look like, excluding these sort of extraneous factors?

I think if you strip out the things that you talked about you would find that there is growth in AOV coming from product optimizations that we have made in how we respond to buyer search inquiries.

To surface, we've talked about this for a long time, higher quality, more relevant items, incorporating the quality of the item into the search results ranking and what that's doing is it's elevating the average order value as we surface more differentiated, more unique, more in the eyes of the buyer more valuable items.

But as I said, most of the increase in AOB right now is coming from the other factors, foreign currency and listing price changes. But we do have our -- there is an influence from some of the product work that we're doing on AOV.

Your next question will come from Jason Holstein with Oppenheimer.

I want to ask goose around AI. I mean, obviously, every company is thinking how they should be deploying this at what scale, at what cost, right?

And how much kind of like doing it all internally versus consults. Can you maybe talk about where is Etsy right now in that kind of thought process? And at some point, like should we expect you to hear from you that like it's time to get much more aggressive around kind of bringing AI automation into the workflow of the business.

Yes. I think there are a couple of different parts of what you just said. Let me tackle them separately. So how much we do things internally versus leverage external tools. We've been -- first of all, I'd just say we've been very proactive in how we're thinking about AI and the potential impact for AI on the business. .

Really holistically. The place that we have all talked about the most is in terms of external partnerships, but we are being just as proactive in how we're thinking about deploying AI internally.

I talked a little bit about this before in terms of some of the on-site investments that we're making. And when I look -- when you think about the internal-external mix, we really actively leverage a hybrid of options, open source models, commercial models and our internal models, really balancing capabilities with costs -- and we expect to continue to do that.

We want to use the best tools out there to solve the problems that we're trying to solve. I think the other part of your question is how we're applying these tools internally to how we work, and we really see that is a space that is evolving very rapidly.

We see these tools as a real force multiplier across our internal teams. These are like power -- there's power tools that are powering how we're working across really every function.

And the biggest opportunity here is accelerating our build times -- our build cycles and time to learning. We have seen this already with the agents that we were able to launch in the last quarter really just built in weeks -- as we continue to see more of that opportunity to leverage tools to accelerate our work, we will deploy them actively.

I see this as a continued area to lean in and to invest rather than 1 big drop. So you can expect us to take that same kind of disciplined but very proactive approach to how we apply AI tools, both on the experience and internally with our teams.

Thank you, Kruti. Thank you, Lanny. I'm going to call it there. We don't have time to take a question and answer it. So we appreciate everyone's time this morning, and we'll be following up with all of you. Thank you all so much.

Good afternoon, everyone. Thank you so much for joining us. My name is Nathan Feather, and I'm Morgan Stanley's small and mid-cap Internet analyst. I am pleased to welcome today Kruti Patel Goyal, Etsy's CEO and Lanny Baker, Etsy's CFO. Thanks so much for being here.

Thanks for having us.

Thanks, Nathan.

Now before we begin, a few quick housekeeping items for important disclosures. Please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And then also, please refer to Etsy' safe harbor found on their Investor Relations website.

And with that, looks kick it off.

Kruti, you've been at [ Base ] -- or sorry, Etsy, for quite some time here. Many in the financial community are still just getting to know you though. What should we understand about your journey, leadership philosophy and how that perspective shapes your assessment of Etsy today and the plan to reaccelerate growth?

Sure. Thanks for having us. I'm glad to have the opportunity to chat with you all today. I have been at Etsy for a really long time. I just celebrated my 15-year Etsyversary a couple of days ago. I have been thinking about how much Etsy has changed from then until now. So when I joined in February of 2011, the company was just under 200 people. It was a little known brand. And we closed the year with about $500 million in GMS.

And you look at Etsy today and it's afar cry really on every dimension. We're a well-known and loved brand with just under 2,000 people, but we finished the year with $10.5 billion in GMS. And so over the course of that time, I've had the opportunity to not only see Etsy grow and evolve but also to play a lot of different roles across the company. I was our first Head of Trust and Safety. I ran our international team. I ran our seller services business, corporate and business development, and then I was Chief Product Officer. Before I went over and ran Depop for a few years and then, of course, came back.

And having all of those roles throughout that journey have given me the unique opportunity to really learn and understand Etsy's business through the eyes of our buyers and sellers through all of these different contexts, which gives me a really great perspective on the challenges and the opportunities that our customers face on Etsy.

And that experience for me has really reinforced a couple of things that inform my philosophy on growth. And that is when you really deeply understand your customers' needs, that allows you to solve those problems in a way that builds meaningful customer -- that allow us to -- that allow us to really build meaningful customer value that in turn is what drives long-term business revenue.

And I seem -- it might seem very obvious. It might seem really obvious that delivering customer value, deliver business value and then, of course, in turn, shareholder value. But sometimes, in these businesses, that gets lost a little bit in focus on delivering on an incremental metric in a quarter. And so when we have done that really well, I've seen it deliver incredible growth, both at Etsy and at Depop, where we took the business from 3 years of flat GMS to 3 years of accelerating GMS growth.

And so when I returned to Etsy last year, the first thing I did was run a really deep diagnostic, looking into our data insights, our research insights, talking to customers directly, talking to our employees internally to really understand what it is that's been holding us back from growing as a marketplace and that really directly led to the priorities that we're focused on today. We really need to do 4 things significantly better to reaccelerate the growth of the business.

And those are showing up where shoppers discover. We've gotten really good at the very end of the transaction and getting you to transact. But being present and being present with relevant content earlier in the discovery journey is really -- is the first thing. The second thing is getting meaningfully better at matching our buyers with the right inventory based on their intent in that moment. That context is really important. We think that this is going to be really unleashed by the capabilities of ML and particularly LLMs right now.

Customers, both our buyers, our sellers that we value them, showing them that we recognize and are willing to reward them for their investment in Etsy. And the last and maybe the most important is doing a much better job elevating and amplifying the differentiation of Etsy. And this is what we're calling human connection. And importantly, one of the things that we learned from our research with our buyers and our sellers is that they really value what makes Etsy unique and distinct. That combination of creativity, craftsmanship and connection, that's really only on Etsy, but it's showing up less and less over the years through our product experience and across our user touch point. We think there's a huge opportunity doing all 4 of those things well to really unlock the growth of the marketplace and reaccelerate our growth opportunity.

That's a great overview. And if we look back 12 months, the Marketplace has accelerated in each quarter over the past year. How would you define the primary drivers behind that improvement? And of the variety of things you talked about, what are the key things you need to execute on for GMS growth to be positive again each quarter this year?

Yes. So we're really encouraged by the magnitude and the trajectory of growth that we're seeing or improvement that we've seen over the last year. Over the last 4 quarters, we've seen really significant sequential improvement in growth going from negative 9% in Q1 to just positive in Q4. And we see that the evidence of that growth coming from a couple of areas, primarily our discovery and matching initiatives. The places that, that shows up most prominently in our experience are in our app and in our owned markets channel.

So in our app, we've been making a lot of investment in improving the discovery experience, both in terms of the UX and in terms of the recommendations that populate our discovery feed on that screen. And we're seeing engagement really significantly grow as a result. We're seeing clicks in our app home screen discovery feed up 19% year-over-year.

And then when you look at our owned marketing channel, so push an e-mail notifications, we're also seeing really massively improved engagement with those recommendations. Clicks were up 25% year-on-year as a result of the much more personal recommendations and content that we're populating that experience with.

And so all of that, of course, is powered by ML-driven recommendation. [indiscernible] big improvements in engagement, up 19%, up 25% that are really great indicators that the changes that we're making are meaningfully making the experience better in a way that's changing user behavior. And so we talk about these green shoots because we think they're really important evidence of roots beginning to take hold that give us confidence that the strategic priorities that we're focused on are the right ones. And that's why as we look ahead to 2026, we're doubling down on these priorities. We need to continue to execute with clarity of focus and confidence and consistency in these priorities to see continued growth and compounding of return on these investments going forward.

All right. That's great. And Lanny, buyer growth has improved in 4Q with gross adds up about 3% year-on-year, but frequency has remained under pressure. Can you talk to us about what's driving the improvement in acquisition and retention of customers? What's been limiting frequency growth and how you think about unlocking more durable sustained buyer growth?

Sure. First of all, thanks for having us. Really appreciate the opportunity to be here. I think the buyer growth progress that we had, which started to improve earlier in the year and then like, you pointed out, by the end of the year, comping positively in the net number of new buyers -- gross number of buyers brought on, really reflects the progress that Kruti referred to on showing up where our customers are. And I think if you're to be more specific, things that we've done in social media to really expand our presence there, the growing ability to convert social media usage and marketing into app usage and then retaining those users on the app. Our outbound push marketing channels are continuing to get better and better as we make progress in making the outbound messages more and more personalized. We see the response rates to them improve. And so I think what you're seeing in that new user gross addition improvement in the fourth quarter is really like one of the earliest signs of kind of the core strategic priorities that we have coming to light.

You asked a question about frequency. And I think it is -- I think you can break down our -- sort of the drivers of GMS in the 3 really simple pieces: the number of buyers that we have, the frequency with which they purchase and the average order value. We have the most influence over the first 2 of those levers. Our sellers do most of the work setting prices. we assist them with that. But really, we focus on the first 2 of those levers. And a lot of the priorities that Kruti -- all the priorities Kruti talked about are directed at those 2 things.

I think we're really excited about the fact that -- about the opportunity that resides in the fact that half of our users buy from us one time a year. And when we're bringing back quite a few reactivated users and in some ways, a reactivated user is just somebody with a lower purchase frequency even than 1 year. And so what we're trying to do to drive and change that purchase frequency is be much more personalized, be much more relevant, remind users of Etsy in places like social media and on streaming and other places where consumers are starting their shopping journeys today. As you know, we've made some, I think, pretty early and innovative pushes to be present in the early days of a agentic shopping and another place where we're trying to show up. So I think it's a sort of a 1-2 punch of being -- showing up in the places where the buyers are early in their journey and then having an experience on Etsy that is really personalized and does a good job of matching their interest with our inventory, their intent with our inventory.

And I think the better we do that, the more likely we are to get them to be repeat, consistent frequent users.

Let me touch on one more point. The mobile app has been really key to that. The mobile app -- when we get people on the mobile app, they come back more often. They look at more content, giving us more intelligence about who they are and what they're interested in. They convert better and their LTVs are about 40% higher than those who have not yet used the app. And about half of our customers are not yet using the app, so we see a lot of opportunity here.

And there's one thing in there that I want to double click on, which is the improved search and discovery. Now that's long been tenet for the company. And while you certainly made progress, it's still one of the key focus areas. And so help us think through, especially with some of the improvements from machine learning and AI perspective can unlock from you.

Yes. There's a good reason that search and discovery has been a focus for us. Matching is really the core value proposition of a marketplace. So it has been a priority. It should continue to be a priority forever more. I think that -- what's -- what's the difference today -- what's different today than before [indiscernible]

[Technical Difficulty]

So I was saying earlier that search and discovery is an evergreen priority us as it should be given that it's a core part of our value proposition. What's changed now versus before is the power of the advancements in AI and particularly LLM and the ability that they give us to really unpick some of the stickiest challenges for a marketplace like ours, with a really long tail of unique inventory that is broad and relatively shallow. And so the thing that has been hard for us is to really get this trifecta right, a deep inventory understanding, along with deeper buyer understanding and understanding of intent, so marrying inventory, interest and intent is the thing that really amplifies the value of the 100 million listings -- 100 million-plus listings that we have on the marketplace.

And it's really that advancement in technology that is going to allow us to do that much more effectively than we have in the past. And so just to talk about 1 example among those 3, when you think about buyer understanding for a long time, we've about how we're challenged by the sparsity of data because of the relative lack of frequency that we have in terms of buyer engagements. And what these -- what LLMs have allowed us to do is really build a much richer understanding and mapping of buyers to interest and inventory to those interests and then buyers to buyers and inventory to inventory in a way that enables us to have a much richer picture of what a buyer might be interested in.

We're using those buyer affinity models power these new recommendations models that I was talking about before that are making our app discovery experience and our owned marketing channels much more engaging. So that's just one example how we're really using the new power of that AI offers to make search and discovery a lot better and a lot -- than there was possible even a year or 2 ago.

That's very helpful. Now one of the big news points coming out of last earnings was the sale of Depop, and you've led much of the Depop rebound over the past few years. Can you talk through why now was the right time to sell that business?

Yes. Well, first of all, I'll just say that I continue to be a big believer in the resales category. I continue to be a big believer in Depop and the ability of that platform to capture more of the resale market. And I'm really proud of the growth that we've seen of Depop during the time that it's been a part of Etsy. As I mentioned earlier, we went from 3 years to flat growth to 3 years of accelerating growth, fastest-growing retail platform in resell fashion platform in the U.S. And I think that's really what drew the attention of eBay.

And so while the plan wasn't to sell the business, when eBay approached us with an offer, it caused us to take a step back and really take a fresh look at the opportunity to invest and the return on that, both across Depop and Etsy. And what we realized was a couple of things: first, that the biggest opportunity ahead of us is in Etsy, is in the core marketplace. And the second is that the valuation -- the value that we landed on was really a full value of the opportunity of Depop within Etsy. And so when we looked at those 2 things together, even though it wasn't the plan, it made it clear that this was the right transaction at the right time.

And so that's how we decided move forward. And look, we're really excited about the fact that this allows us to focus 100% of our investment of time, energy and resources in growing the Etsy marketplace.

Okay. Great. Now Lanny, the sale will result in about a $1.2 billion cash infusion to the company. It's about double your annual free cash flow. How are you thinking about allocating that incremental cash?

As we said at the time when we announced the transaction is that we anticipate using the proceeds for general corporate purposes for -- and as we've done in the past, managing our balance sheet and repurchasing stock. If you look in the last couple of years, we have bought -- I mean, last year, we bought well over 100% of our free cash flow in terms of buying back stock. And we've shrunk the equity base by almost 20% over the last 24 months. So we really think Etsy's equity as attractive value here. And as we look at our balance sheet, we've got a series of convertible notes outstanding. We're really pleased with it. We feel it's kind of an appropriate amount of leverage. The borrowing costs associated with those has been -- is fairly favorable. And I think Etsy has a healthy relationship, hopefully, with the capital markets that give us a lot of flexibility.

So we're looking forward to having those proceeds. And I'd say what we've done most recently has been buy back stock with excess cash, and we'll see when we get the money.

Okay. Great. Now you also guided to a 28% to 30% EBITDA margin for the full year. How are you thinking about balancing investments with profitability given the growth opportunity ahead? And what are the main puts and takes that could lead margin to deviate from that guidance?

Sure. So we -- you're right. For this year, we're anticipating that EBITDA margins will be in the neighborhood of 28% to 30%. That's the range that we laid out. That's pretty consistent with where they were last year. The lowest quarter was just a little bit under 28%. That was the second quarter of last year and the highest quarter last year was the fourth quarter, just a little bit above 30% for Etsy as a stand-alone business. So we're talking about a very similar range.

And I think that range allows us to invest healthily in our product experience and in our marketing. And if you look back at last year, as Kruti said at the outset, we went from GMS shrinking at a 8% or 9% rate year-over-year to being flat, a little bit positive by the end of the year. And that was on sort of a similar investment level that we are planning on making in 2026. So the things that we focused on last year that drove that kind of improvement in our comparisons are the same kind of things that we're focused on in 2026. And we'll spend $400 million this year, investing in the Etsy product, which we think is an appropriate and reasonable level of investment to drive further improvement in GMS growth.

And does the Depop sale change how you think investments in correct?

We really run the 2 businesses separately. They were not deeply integrated. They did not deeply leverage off of each other. And so the decisions we made about the right level of investment for one or for the other was really native to that business and distinct from each other. So there's no change in our investment philosophy around Etsy because Depop is no longer there.

Okay. Great. Now I want to talk about one of the things that has been certainly top of mind for investors and that's agentic commerce. Etsy has been an early mover in the agentic e-commerce space. You've got partnerships with OpenAI, Google, Microsoft. How do these partnerships fit within your broader agentic strategy? What have you learned so far from agentic-led transactions? And how do you think about concerns that off-platform agentic discovery could reduce traffic or potentially pressure on-site advertising?

Yes. So first, let's talk about why we've been really early movers in this space. We think that agentic commerce presents a really meaningful potential incremental discovery channel for Etsy. One of our priorities has been -- that we talked about is showing up our shoppers Discover. So this is a very strategic area of focus for us. And we believe that it's important to be there early, both to shape the experience and to learn from how that experience is evolving along with our customers to be able to participate in that.

Now as you mentioned, it's very early days. What we're seeing initially is a lot of growth. We saw engagement of this platform. Our traffic on the platform grew 15x, Q4 of this year over Q4 of last year but off of a really tiny base. So it still makes up only less than a percentage of our traffic.

What we're seeing is really encouraging. So first, the people are interested in discovering on this platform. That's evidenced by the fact that they're -- the rate of growth. Second, we see higher purchase intent, higher AOV, and we see really strong flow-through from this channel, meaning that people are discovering Etsy items on the channel and coming to Etsy to learn more and engage more deeply. And that early evidence reinforces our hypothesis that this is a potentially really valuable incremental discovery channel.

The other thing I'd say is that we think Etsy is really well positioned because of the uniqueness of our inventory to be additive to that experience. In terms of the disintermediation risk, shopping is not one size fits all. So a lot of these conversations that we're having about agenetic commerce, there are some hypotheses that it's -- that 100% of shopping is going to move to channels. And what I'd say is it's easy to imagine how buying something like batteries or household goods would be easy to do entirely on agentic channels. There are very few dimensions for making that decision, price, speed, possibly brand.

But when you're talking about higher considerations, it's harder for higher consideration purchases. It's harder for me see people shifting, buying a gift for your wife to these agentic channels. It's something that you're going to want to be a little bit more deeply engaged with. And so that gives me even more confidence in opportunity here for incremental discovery rather than disintermediation.

Yes. I would say in the early days, we have seen AI agents be a great source of pass-through traffic. While we're excited about the agentic checkout on OpenAI or on other destinations. What we're seeing is a lot of customers say, I need a little bit more information. I want to understand that sale. I want to understand that merchandise more. So there has been a very strong flow-through of traffic on to where people are looking for a little bit more information, which only we have about those goods and the connection to the seller, maybe you want to have a conversation about that item.

So we're seeing it as a source of incremental traffic coming to Etsy. And then from an advertising perspective, the strength of our advertising model reflects not only the technology that we have to match ads and really deliver relevant ads but also reflects the nature of the search query, where there are multiple answers to most consumers' search queries in amongst that's inventory.

And so that means the value of being at the top of the queue is very, very high. And that exists even as traffic is coming through from agentic AI. And today, we are monetizing -- or we're sort of recognizing a very small portion of the total ad budget that advertisers -- that sellers say we'd be willing to spend this much on Etsy and as we do better and better and better on making that match between the ad and the search. We're able to recognize revenue from that advertising.

So I think there's still -- there's more traffic coming in and there's more opportunity from our sellers on the advertising side.

Now one of the areas I think has been overlooked in the agent conversation is all the opportunities on site. And so how do you think about embedding agent capabilities into the core experience, to unlock new use cases. And zooming out, what's the most underappreciated opportunity and the biggest challenge GenAI presents for Etsy?

I'm so glad you asked this because I agree, the conversation is largely centered on off platform opportunities presented by agentic Commerce. But I actually think the most exciting thing that this new offers is really improving the experience on Etsy. And there are a couple of reasons for this. One is that the power of LLM is not unique in its application on agentic platform. These LLMs are accessible and available for us to use, and we have much richer data in terms of understanding our users and information across the marketplace to apply that technology to create an even more powerful user experience on Etsy than anyone else could.

I think the other thing that is exciting about this technology in terms on-site application is that we see agentic platforms really training people and getting people comfortable with a different interface, the more conversational interface as they're searching and exploring. And so we experimented with this a couple of years ago, and it wasn't very effective. I think now as consumers are becoming much more comfortable with conversational commerce, that unlocks a lot of opportunities on as well. And one of the things that I think -- we talked about this a lot on -- in terms of the buyer experience, and you can imagine how search could be powered by conversational interface.

But I actually think there's a huge opportunity to apply the same technology and the same interface to the seller side of our experience and to our internal teams. And so thinking about how we enable sellers to more effectively with us to understand how to grow their businesses and leverage the insights that we have or our support agents to solve the trickiest customer problems through the same interfaces and leveraging the same LLM capacity. There's a huge amount of potential on the platform, leveraging the advanced technology or the advanced capabilities of LLMs.

Now one of the things you touched on there is the seller experience and that connection between buyers and sellers. And one of your priorities has been to further amplify human connection. I think 1 of the things Etsy really does differently from a lot of other marketplaces. And so where do you feel the marketplace could do better at fostering business? And what's the opportunity of doing so?

I mean in a word everywhere. I think as we have gone out to our buyers and sellers and done research what they value about Etsy. The answer has come through really clearly that the distinctive value that Etsy provides is in this combination of a platform that enables you to tap into creativity, whether yours or the sellers, craftsmanship and connection, knowing that where you come from comes from a real human.

And what we've also heard back from that research is that comes through less in the experience or has come through less in the experience over time. There are 2 ways that I think that, that value proposition can be delivered much more effectively through our user experience that are most obvious. One is in terms of really surfacing more effectively and more prominently where items are coming from, how they're made, what the role of a seller, really in connecting the identity of that item and the person behind the item to the item itself.

A second is in the interaction with that seller. And so one of the things that's really unique about Etsy is that almost anything on the platform can be customized. And the way that you can tap into that customization is by communicating with that seller. And that takes our already vast inventory of over 100 million items to almost infinite. There's nowhere else that you can do that. And by surfacing that unique capability that exists, because our marketplace is powered by people, I think is -- it gives us an opportunity to make that breadth of inventory really our superpower. It's by amplifying that connection and the humans behind the experience that you have on the platform.

Okay. That's great. Now one other area, which has been really important to the story is marketing. You noted on the last call that your spend on TikTok doubled last quarter without any impact on ROI. It's a big improvement with no degradation in ROAS. Help us think through how your marketing channels have evolved over the past 1 to 2 years and where you see an opportunity to expand investment.

Well, we're trying to show up where buyers start their shopping mission. So this means being at the forefront of what's happening in agentic commerce. It means being far more present than we've been in the past on social media. It means moving dollars from linear TV to things like streaming and OTT. And it means focusing on our mobile app as a way to have direct nonintermediated conversations, marketing conversations with our buyers.

And we've been doing all those things. Last year, we moved money from television to streaming very effectively. Strength in total dollars, we spend probably got more impact against the core audience that we looked at. On the search side, which is such an important bedrock of our business, we continue to make improvements in how we target, how we -- what data we add to our feed that we provide to Google and to others. And that helps us get more bang for the buck out of each dollar that we're spending there. Our on-site conversion continues to improve. So we're making progress right in the middle of our marketing as well.

I'm really excited about the progress we've made in social media, where we've put trial dollars to work. We've learned some things. In particular, we've learned how effective social media is in reactivating prior Etsy buyers and not only reactivating them but bringing them straight from that reactivation into the app. And our app is such a great -- I talked about a moment ago, our app has about 40% higher LTV. And it's really like the -- it's the best sandbox where you can see today all the things we're trying to do in terms of personalization and targeting and improving the match really come to light in that mobile app environment because it's a logged-in user who we know something about.

So that -- as the mobile app channel has grown, it also means we have a growing number of people that we can message directly, as I said at the outset, and that's a wonderful channel for us where we're not paying some third party, and we have a very direct relationship with the customer. So I think there's a lot of room for us to continue to expand our marketing spend. We have -- the way we've managed that spend historically has not been with like a budget or an audience target. It's really been with a return on investment requirements. And what that does is that does like we want to spend every last marketing dollar we can up to that return requirement. And then where we can't, we go to work on the product experience, the conversion experience, the retention experience so that we can spend more because we're moving our own return against the investment we're making.

Well, we've covered a lot of ground here. So let's wrap it with something a little more high level. Kruti, Lanny, can you each leave us with maybe 1 or 2 aspects of the business you feel are most misunderstood or underappreciated by investors?

Yes. Look, when I think about what's most underappreciated, it's really, the opportunity that we have at this moment in time. So we have a massive opportunity -- market opportunity. We've got a TAM of over $650 billion. We capture less than 2% of it right now. We know that there's an opportunity to unlock more of that opportunity when only half of our buyers are purchasing one time a year.

We have a truly differentiated product that is our moat. And in a moment like now, when you can access tons of items that look largely the same and people are wondering what's real, the value of being able to buy something that is really meaningful and that comes from a person are more important to consumers than ever before. And at this moment in time, the advancements that we're seeing in technology, particularly AI, are really allowing us to access these opportunities that we've never seen before. Like we were talking about when we're chatting about search and discovery. And we have made a lot of changes over the last year to both how we operate and how we organize to be able to execute effectively on that.

We have an entirely new leadership team. We've reorganized our teams around the customer outcomes that we're aiming to improve and reduce layers and silos in a way that give people the clarity of focus and the ability to execute with speed, all those clear customer priorities.

And so the thing that I think that people might not appreciate is that not only do we have a huge opportunity, but we are really well positioned to take advantage of that and unlock far more of that TAM than we've ever been able to before.

A few weeks ago, I was said the most underappreciated part was the Depop momentum story, but we sold that. I think our cash flow production is somewhat underappreciated, but I think probably at the end of the day, the way that AI is changing, the way we're using it internally to solve some problems that we've all talked about for a long time that have challenged buyers and sellers on Etsy, this new technology gives us ways to do this much more quickly and much more efficiently, and I think much more effectively than we've ever done before.

Okay. Great. Kruti, Lanny, thanks so much for being here.

Thanks for having us.

Hi, everyone, and welcome to Etsy's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been prerecorded.

It's my pleasure to introduce Kruti Patel Goyal for her first call as CEO, and of course, to have our CFO, Lanny Baker here as well. Once we are finished with the presentation, Kruti and Lanny will take questions from our publishing sell-side analysts on video.

Please keep in mind that our remarks today include forward-looking statements related to our financial guidance, our business and our operating results, as noted in the slide deck posted to our website for your reference. Our actual results may differ materially.

Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release and our most recent Form 10-Q 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 both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release or slide deck posted on our website, along with the replay of this call.

With that, I'll turn it over to Kruti.

Thanks, Deb, and hello, everyone. I'm excited to be here with you today, 50 days into my role as Etsy's new CEO. This morning, I want to primarily focus on three things: what we're doing to improve the performance of our core marketplace, why I'm confident in these actions and what you can expect as we go forward. But first, I'll take a few minutes to review yesterday's announcement of the definitive agreement we signed to sell Depop to eBay for $1.2 billion in cash.

This transaction will allow us to focus exclusively on the compelling opportunity we see in front of us to grow the Etsy marketplace in ways that matter most to our buyers and sellers. We believe it's a great outcome for Etsy's shareholders and a positive next step for all involved. Of course, it's also a bittersweet moment for me personally given my time as Depop CEO. I am incredibly proud of what the Depop team has built, a truly differentiated brand new product grounded in clear purpose and strong community. We've been proud to support Depop's evolution, helping it reach the next generation of shoppers and become the fastest-growing fashion resale marketplace in the U.S. And we believe that eBay's desire to invest in Depop will further strengthen its position in the circular economy. Lanny will cover more specifics on the transaction a bit later.

Now back to Etsy. When I returned last year as Chief Growth Officer, I conducted a deep diagnostic of the business to better understand the root causes of recent growth challenges and where our biggest opportunities are. I spent time speaking directly with buyers and sellers, listening closely to our teams and pressure testing what I was hearing with customer research, data insights and trend analysis. The #1 takeaway for me was that Etsy's value proposition for buyers and sellers remains differentiated and deeply resonant.

At the same time, the diagnostic made clear that we hadn't translated that strength consistently through our customer experience. For instance, we saw that buyer appreciation for what makes Etsy special remains high, but perceptions of differentiation have softened over time. As our sellers' inventory has grown significantly in both scale and breadth, we haven't reliably help buyers understand what they're seeing, why it belongs on Etsy or how to find the right item for their intent. That clarified a major opportunity. If we get better at how we match buyers to the right items and make the human story behind our sellers more visible, we can turn our scale back into an advantage and reassert what makes Etsy distinct.

As another example, we've seen our buyer demographics aging with older users growing faster than younger ones. Our research shows that's not an appeal problem, it's a presence gap. Hence, our work to improve our app and shift our marketing mix to more intentionally engage and acquire younger shoppers. We've been weighted toward lower funnel moments, showing up once a buyer already has something specific in mind. The opportunity is to move earlier and in some cases, before a mission even begins using inspirational content to spark shopping journeys, not just respond to them in the places and formats where discovery increasingly happens, especially for younger buyers.

On top of that, frequency and retention, even among our most valuable buyers have not been where we want them to be. We've become much more effective at closing a transaction but under-invested in creating reasons to return. Optimizing for conversion alone isn't enough. Long-term growth requires making Etsy a destination for inspiration, discovery and ongoing engagement.

Finally, it was clear that as Etsy grew, a disproportionate share of our investment went toward improving core e-commerce table stakes, things like conversion, price competitiveness, reliability and shipping. Those investments were necessary but not sufficient. And we didn't invest enough in the aspects of Etsy that make Etsy feel special and different. I believe that trade-off helped us compete more effectively on fundamentals, but it has also limited our ability to fully capture demand for unique, meaningful commerce and unlock more of the e-commerce TAM.

These learnings directly shape the strategic priorities we introduced last spring, designed to turn Etsy's strengths into more durable long-term growth. As a reminder, these 4 priorities are: showing up earlier in the shopping journey, increasingly meeting customers at the start of their missions wherever they begin; working to get much better at using machine learning to match buyers with the right items, mirroring their interests and their intent so we can turn the abundance of our marketplace into a clear advantage; deepening loyalty with our most valuable customers, so they feel seen, appreciated and genuinely valued; and leaning into the human connection that differentiates Etsy so shoppers experience the stories, creativity and passion that make every item and every purchase feels special.

Alongside these priorities, we've made important changes to how we operate to drive clearer focus and better execution. At a high level, we've reorganized the company around customer outcomes rather than functional silos. We consolidated product and engineering so that teams own end-to-end experiences and can move faster and with clear accountability. We unified the teams responsible for trust and safety and customer support under one leader, protecting our community while delivering fast, thoughtful help when it matters most. And we realigned marketing from a channel-first model to a customer first one with teams anchored to outcomes like frequency, trust and lifetime value rather than optimizing individual channels in isolation. The result is an organization with clear ownership of customer outcomes and fewer handoffs, built to move faster and execute more consistently against our priorities. That increased focus and execution is beginning to show up in our results.

Our goal last year was to return our core marketplace to growth, and we achieved that in the fourth quarter. While we still have work ahead, the trajectory is clearly improving. From the first to the fourth quarter of last year, Etsy's marketplace GMS comparisons improved by 9 percentage points. And Q4 U.S. buyer GMS grew for the first time in 4 years. As Lanny will cover in more detail, our consolidated Q4 performance met or exceeded our expectations across the board. We delivered record revenue and we did so while continuing to invest for growth at both Etsy and Depop, all while maintaining very healthy profitability. This performance reinforces our confidence that the changes we've made so far are working and that we are headed in the right direction.

For example, the work we've done on our app is making it our most personalized and engaging platform with year-over-year GMS growth accelerating to 6.6% in Q4 and homepage clicks per visit increasing 14% year-over-year and GMS share continuing to grow. Our personalized own marketing programs are doing a better job engaging buyers with push and email clicks up more than 25% while message volumes stayed disciplined. And satisfaction with our customer support is improving for both buyers and sellers with particularly strong gains on the seller side, up 15.5% since last year.

These are all indicators that we are on the right track, which is why we're doubling down on our priorities for 2026. We have a clear plan to drive more visits, better engagement, higher conversion and spend and healthier retention. What matters now is continued discipline and execution quarter after quarter. When we do that well, we feel confident that those investments will compound into the kind of sustainable growth we all believe Etsy is capable of: growth rooted in Etsy's differentiation and unique value to our customers.

Etsy began with a simple belief that technology should empower creative entrepreneurs, not replace them. Just over 20 years later, we're at an inflection point, one where the power of AI technology has the potential to make commerce on Etsy more human than ever, enhancing our differentiation and strengthening our unique customer value. On the seller side, AI is already helping to automate routine tasks. So sellers can spend more time on what only humans can do, creating, designing and connecting with customers around the globe. On the buyer side, it's making discovery easier and more relevant, helping Etsy show up in more of the moments where inspiration begins. At the same time, AI-powered and Agentic shopping presents meaningful opportunities for the unique items on Etsy to shine. These tools offer deeper insights into our listings, enabling our sellers' items to starkly stand out against the sea of personal undifferentiated mass produced goods. So we're moving fast to stay at the forefront of this inflection point.

Since our last call, we've expanded our Agentic shopping partnerships, adding integrations with Microsoft, CoPilot and Google as well as an Agentic payments agreement with Stripe. While still a very small part of our overall traffic in GMS, agentic traffic to Etsy in Q4 was about 15x what it was last year, underscoring just how rapidly this channel is emerging. And early indicators support our hypothesis that a agentic discovery can be additive to our ecosystem.

Using ChatGPT as an example, we're seeing evidence that in addition to bringing new buyers to Etsy, a meaningful share of buyers engaging through ChatGPT have a prior relationship with us, including lapsed buyers, indicating that a genetic shopping could be a great unlock for retention and better lifetime value. Orders originating from ChatGPT also tend to skew higher value compared to some of our more mature acquisition channels. And in addition to instant checkout sales, we're seeing strong engagement with listings on Etsy resulting from ChatGPT discovery. There's a lot on our AI and agentic commerce road map. With these important partnerships as well as through the development of product experiences on Etsy and we'll keep you informed of our progress.

Wrapping up, I want to be clear about what you should expect from me. We have more work to do to return Etsy to sustained durable growth. My intention is to earn your confidence over time with clear priorities and transparency about what we're learning along the way. At the same time, we'll continue to shape Etsy's longer-term direction by leaning into what makes this marketplace truly distinctive: human creativity and meaningful connection. I've been a part of two significant Etsy turnarounds already. First, starting in 2018 as Chief Product Officer, when we began to significantly up-level our shopping experiences that enable tremendous growth. And more recently running Depop, where we identified and deepen the platform's core differentiation and value proposition through improved personalization and discovery. In both cases, the biggest unlock wasn't a single bold idea or strategic initiative. It was sharp focus and strong execution, pinpointing what matters most to customers and building the operating discipline to deliver consistently. That's the muscle we've been strengthening to deliver another turnaround, one which propels Etsy to our next great chapter.

With that, I'll turn it over to Lanny.

Thank you, Kruti. We have a lot of ground to cover today, so I'll dive right in. As we review our results, please keep in mind that we completed the sale of Reverb on June 2. We've provided Reverb's GMS and revenue for Q4 2025, so you can separate the impact of that sale from the results of our ongoing business.

Fourth quarter consolidated GMS was $3.6 billion, up 2.4% year-over-year, excluding Reverb. This was above the midpoint of our guidance range and up 1.3% year-over-year on a currency-neutral basis. Consolidated revenue was $882 million, up 6.6%, excluding Reverb, a new quarterly record. Adjusted EBITDA was $222 million, representing a consolidated adjusted EBITDA margin of 25.2%. Our decision to accelerate brand marketing investment at Depop was the largest factor behind the year-to-year contraction in consolidated adjusted EBITDA margin.

Etsy Marketplace, adjusted EBITDA margin was slightly above 30% in the fourth quarter, our high point for the year, though slightly lower year-over-year, primarily due to higher cost of revenue as well as higher G&A expense. Etsy Marketplace GMS was up 0.1% year-over-year in the fourth quarter, our first positive comparison since Q3 2023. On a currency-neutral basis, Etsy GMS was down 1% year-to-year, which is a 220 basis point improvement from the third quarter's currency-neutral comparison and extends the positive momentum established earlier in 2025.

While several factors have contributed to that sequential improvement, including easier comparisons, FX tailwinds and beneficial competitive dynamics in the U.S. PLA auctions, we believe that progress on the 4 priorities Kruti described earlier is also contributing to better marketplace results. Notably, our trailing 12-month active buyer count in the United States increased slightly from Q3 to Q4 and U.S. buyer GMS grew 0.3% year-over-year, marking the first quarter positive growth in 4 years.

In the details of Q4, we see further validation of the notion that when Etsy leans into its strongest points of differentiation, we win with GMS strength concentrated in areas where we already stand apart. Etsy buyer engagement skewed toward personalized and sentiment-driven items with personalized gifts, artisanal finds and milestone categories resonating the most with buyers. Home and Living, our largest category returned to positive year-over-year GMS growth led by strength in high average order value subcategories where Etsy has high-quality differentiated items, such as vintage home decor, rugs and lighting. Mobile app downloads grew 4% year-to-year and GMS growth continued to accelerate in Q4. App users consistently visit more often, engage more deeply and convert at higher rates than non-app users on average. And the app's contribution to total GMS reached 46% in Q4. That's 5 percentage points higher than at the end of 2023.

Importantly, as Kruti discussed, our app strategy is central to showing up earlier in the shopping journey, particularly with younger buyers. More broadly, Etsy Marketplace customer metrics are also beginning to move in a healthier direction. The year-to-year rate of decline in active buyers improved for the first time in over a year with active buyers largely flat sequentially at $86.5 million. Our active buyer base benefited from improved acquisition and reactivation. We added 6.8 million new buyers and reactivated 10.4 million lapsed buyers for a combined total of 17.2 million gross additions, which is up 2.7% year-over-year and growing again for the first time in over 2 years. We had 5.9 million habitual buyers, down 8.6% year-to-year, though the sequential quarter-to-quarter decline was a more modest 1.4%. Trailing 12-month GMS per active buyer was $121, marking the third consecutive quarter of stable to improving trends and moving above the trough that we hit in the first quarter of 2025. The stabilization in GMS per buyer continues to be driven by higher average order value, while purchase frequency remained slightly lower than a year ago.

On the seller side, we've begun to see healthier trends as well. We ended the period with 5.6 million active sellers, up 1.5% sequentially, reflecting an increase in both U.S. and international sellers. Additionally, the retention of active sellers improved throughout the year.

Turning to Depop, we delivered another quarter of excellent growth, with Q4 2025 GMS, up nearly 38% year-over-year to a new record of $300 million. In the U.S., which is Depop's largest market, GMS grew 60% year-over-year. We saw initial wins from our surge marketing investment including Depop's Taste recognizes Taste campaign with U.S. brand awareness accelerating even at this early stage of investment.

I'll take a couple of minutes to provide additional information about our agreement to sell Depop to eBay. The sale is currently expected to close in the second quarter of 2026, subject to regulatory approval and certain closing conditions. The cash consideration to Etsy is to be paid at closing. And in keeping with our capital allocation approach, we plan to use the proceeds of the transaction for general corporate purposes, continued share repurchases and investment in the Etsy marketplace. Etsy will continue to own and operate Depop through the completion of the transaction. However, Depop will be classified as a discontinued operation and its results will be separated from those of Etsy's continuing operations in our future financial statements. For historical reference, we've provided Etsy stand-alone GMS and revenue in the appendix to today's slides.

For the full year 2025, Depop generated $1.1 billion in GMS and $187 million in revenue. Depop's lower take rate and negative adjusted EBITDA margins represented a drag of 80 basis points on our consolidated take rate and 350 basis points to consolidated adjusted EBITDA margins in 2025. With the excellent offer presented to us by eBay and in light of the significant opportunity we see at Etsy, we made the decision to sell Depop and fully prioritize our core marketplace. We believe that obtaining a strong value for Depop now and focusing on Etsy, where we believe we can achieve a higher rate of return on invested capital will best enable us to maximize shareholder value in the long term.

Circling back to fourth quarter consolidated financial performance. Services revenue grew 9.9% year-over-year, while Marketplace revenue grew 0.8%. Consolidated fourth quarter take rate was 24.5%, in line with our guidance. Compared to one year ago, take rate expanded by 170 basis points. As outlined on the slide, the year-over-year consolidated take rate expansion reflects a step-up from the deeper divestiture, continued momentum in on-site advertising across Etsy and Depop and broader gains at Depop overall.

Turning to fourth quarter operating expenses. I'll start with product development, where spend was largely flat as a percentage of revenue. Higher employee costs were offset by leverage in other areas. In marketing, the increase in brand spending at Depop shows up as a key driver of the deleverage you see in our consolidated marketing line. At the same time, the Etsy marketplace delivered meaningful year-over-year leverage on the marketing front. That improvement is reflective of targeted shifts in portfolio mix and efficiency, cornerstones of our priorities. We leaned into favorable paid search dynamics, shifted linear TV spending towards OTT, YouTube and TikTok and targeted our paid social spend to new and lapsed buyers to drive incrementality and higher returns. Our investment into TikTok has been very effective, both from an ROI perspective and also in targeting younger consumers. Last and definitely not least, we continue to drive stronger retention and engagement via our highly personalized owned marketing channels which delivered meaningful incremental GMS and reinforced the effectiveness of these levers when used alongside paid channels. We plan to further these efforts with an expansion of new marketing channels in 2026.

As of December 31, Etsy held $1.8 billion in cash, cash equivalents and short and long-term investments. In 2025, we generated $735 million in adjusted EBITDA converting approximately 87% of that to free cash flow and returning more than 100% of free [indiscernible]. During the fourth quarter, Etsy repurchased a total of $133 million in stock, bringing total share repurchases for the year to $777 million, which reduced the outstanding share count by approximately 14.4 million shares over the course of the year.

Now for our outlook. As we've described, we believe that the priorities we've been executing against are beginning to turn the Etsy marketplace in the right direction. As we enter 2026, we have a focused set of product and marketing initiatives in flight and several early indicators of progress. However, we expect that the full impact of these efforts will take time to translate into stronger sustainable growth. And all of this is reflected in the outlook we are providing today. With the anticipated sale of Depop and its classification as discontinued operations in our financials as of January 1, 2026, the guidance we're providing today relates only to continuing operations or in other words, the core Etsy marketplace. We currently anticipate that first quarter 2026 GMS will be in the range of $2.38 billion to $2.43 billion, representing year-over-year growth of approximately 2% to 4% for the quarter. The anticipated step-up in Etsy GMS growth in Q1 2026 reflects the contribution of our 4 priority areas as well as the effect of strong FX tailwinds and comparing against a particularly weak start to 2025. We expect the first quarter of 2026 take rate to be approximately 25.5%, and adjusted EBITDA margin between 28% and 30%. Looking beyond the first quarter, with a singular focus on the Etsy business, growing confidence in our operating priorities and ongoing stabilization in customer metrics, we feel more comfortable to provide high-level commentary for the year. We've improved the Etsy Marketplace's annual GMS performance from down 6% in 2024 to down 4% last year, and we expect to further improve our performance this year, achieving slight growth for 2026 with positive year-over-year GMS comparisons in each quarter of the year. We currently anticipate that Q1 2026 GMS growth may be the strongest of the year due to currency tailwinds that are likely to moderate and comparisons that get less favorable beyond the first quarter. We expect that full year take rate and adjusted EBITDA margin will be roughly consistent with the first quarter view. We've assumed that macroeconomic conditions, particularly those impacting consumer discretionary spending remained stable relative to where they are at present.

Thank you all for your time today. We'll now take your questions.

[Operator Instructions] Our first question will come from Trevor Young with Barclays.

I guess starting with the improvement in gross buyer adds, the reactivated buyers accelerating and the declines in new buyers kind of improving meaningfully. I appreciate some of that as comparison dynamics, but could you maybe unpack a little bit what changed in 4Q? And similarly, some of the actions that you alluded to here in 1Q that are driving an improvement? And just relatedly, like how durable will this improvement be?

Sure. Thanks for the question. Remember that the trailing 12-month buyer account is a trailing 12-month buyer view. So part of what we're looking at is trends from 12 and even 24 months ago in those comparisons. But over that period of time, we have been investing in the product experience. We've been investing in driving our app usage. We've been investing in our personalized marketing. We've been investing in the social media channel. And I think what you're seeing in those comparisons gradually getting better is the cumulative effect of all of those investments, all those product moves and marketing moves that we made. And so in our outlook and sort of where we are today, we think that those trends are sustainable. They've been building gradually over time.

I think on specifics with your questions around reactivated buyers, we found the social media channels to be particularly effective for us in reactivating, reaching back out to buyers who have had great experiences with Etsy in the past. I haven't had Etsy top of mind for consideration as much as we want them to be and using social media to get them at that moment where they're just starting their journeys and reactivate them and bring them back in. Then we try to follow up with bringing them into our app experience where we really get that strongly personalized opportunity to reach out to them through our owned media channels and keep in front of them with product suggestions, with shopping, mission recommendations that are really what, in the long term, we believe, can help drive frequency and retention.

Your next question will come from Bryan Smilek with JPMorgan.

Good to see the GMS improvements. Can you just talk about the key drivers of sustaining GMS growth each quarter through 2026. And I think, like more importantly, too, how are you driving better marketplace dynamics more across sellers and buyers as well into 2026? And conversely, Lanny, I know you mentioned positive growth each quarter in 2026. 1Q could be the high point. Can you just elaborate a bit more on when we'll start to see some of these product and marketing flywheels start to impact GMS growth deeper throughout -- beyond 1Q?

Sure. There's a lot to go through that.

Yes. Let me start with the drivers of durable GMS growth. What you heard us say in the prepared remarks is that our entire strategy or the 4 strategic priorities that we shared are designed to work as a system to really improve the entire ecosystem to do exactly that, to drive durable growth. So we're focused on discovery, matching, loyalty and differentiation to drive visits, engagement, conversion and retention. And so I would really urge everybody to think about these priorities as a system that works together rather than one thing that's going to work -- one thing that's going to contribute more than any other.

Then when you dig into that, as Lanny was saying, where we've been seeing the most traction and impact so far has been really in these first two priorities around discovery and matching. And the places that there's -- so showing up where shoppers discover, making Etsy a place, a destination for discovery through greater personalization driven by machine learning-driven matching. And there, I think it's really critical to understand that we're really leveraging the capabilities, new capabilities of AI and the advancement in LLMs to really do things that were very, very much harder to do in the past, really deeply understand our inventory, which is incredibly unique and broad-based, much more deeply understand our buyers, their interest and their taste and match that with a stronger understanding more quickly of their intent to deliver a much more personalized content, really at every touch point off Etsy and on Etsy.

And so where we're seeing that show up the most right now is in our app and in our owned marketing channels, right? So in our app, what you've seen us do is really make the home screen experience much more discovery focused. We've really redesigned that experience to give you more windows and doorways into Etsy based on what we know about you. and create an entire discovery feed that is much more personalized to your interest in taste. And we're seeing that work really well with app home screen, clicks up over 14% year-over-year.

And then in our owned marketing channels, what you've seen is we've made the recommendations that get you to come back to Etsy much more personalized. And not only have we done that, we've increased the coverage of those personalized recommendations so that our push notifications and e-mails have gone from less than 1/4 of them being personalized to now over 3/4 of them being personalized. And all of that is driven by the advancements and investments that we've made in our machine learning-driven models. And so these are really durable sources of growth that we expect to continue to invest in and build on.

Now loyalty and human connection are two areas that we're earlier on in our journey with and they're areas where we're starting to see encouraging signs, but I would expect those to build more over time. And particularly, you asked about the seller and buyer ecosystem. Loyalty is a really great place to think about that. We talk about recognizing, retaining and rewarding our very best customers. And that really is about, for the first time for us, focusing on both the buyers and sellers who disproportionately contribute to our marketplace and our marketplace growth. And so that's something that we're really early -- that's new for us, and we're earlier on in the journey, but we're really encouraged by, and we're really excited about.

And I think as you take those 4 priorities, and Kruti talked about connecting them to engagement and conversion and retention, I think you could also then think about where they come into our financial model. And the financial model is really -- it's a number of buyers, the average order value and the purchase frequency. And as you had a question about like the longer-term durable kind of growth, We've, I think, stabilized the number of buyers. You've seen U.S. buyers grow sequentially quarter-over-quarter. The grand total is down about 100,000 quarter-to-quarter. We're still down year-to-year by 3-plus percent. So there's some way to go to get to the total buyer count growing year-to-year, but we're stable. Average order value has been stronger. Average order value has been up with inflation, with probably some tariff input, certainly, FX input has lifted the average order value and on frequency, we're also stable, still down a little bit year-to-year, but all things that Kruti just described are the efforts that we're undertaking to start to turn that frequency level as well. So where the growth formula really comes together is where there is growth across each of those. We've gone from shrinkage across each of those to stability across two and growth on one, and we're working for the other.

Our next question will come from Michael Morton with MoffettNathanson.

Thank you for the question. a lot of really exciting things about the fundamentals this quarter. I wanted to ask Kruti about the traffic coming from the AI platforms and how these consumers are behaving, what it means for Etsy's relationship with these consumers. And it's the #1 investor question regarding marketplaces. And it's -- what does it mean for on-site ads and on-site ads are sold on a cost per click basis and as consumers get smarter, or better answers faster, there's the -- it could lead to compression in the funnel. And Etsy is really leading everybody in your adoption of working with these platforms, you're pretty much first for everything. So I know it's early, but we would love to learn what you're seeing with this consumer behavior. And then are we wrong in thinking that it could be risk to the on-site ads business? And if so, maybe some levers to offset any type of headwinds to on-site ads would be great.

Yes, it's a great question. You're right. It's the one that lots of people are talking about. And we are really excited to be proactive early movers in this space.

The first thing I would say, touching on a point that you made is that it is still very, very early days in agentic platforms as they relate to commerce. I will say that we are seeing really encouraging signs that support our hypothesis that agentic can be a really valuable and incremental discovery channel for a business like Etsy. So while it's early days, we're seeing really significant increases growth in agentic traffic, we're seeing 15x what we saw last year at this time, but it's still very, very, very small. So less than 1% of our total traffic.

So what that tells us is that consumers are interested in engaging and find some value in this platform. Second, we're seeing that -- or find some value in agentic search. The second thing that we're seeing is early signals that these are really valuable customers. So higher intent, higher average order value, we're seeing engagement across both new and existing buyers, which tells us it can be both an acquisition channel and a reengagement and retention channel for us. But most importantly, what we're seeing is a lot of great flow-through. And what I mean by that is that we see a lot of that traffic that's where people are discovering Etsy items on agentic platforms flowing through to Etsy where they continue to look more and then transact. And this makes sense to us, right? Because shopping doesn't happen in all one flavor. When you're looking to buy something and you've got a very simple set of criteria around purchasing it, it's just about price or just about speed and the items are largely replaceable, giving the ability to purchase that to a third party, it's really easy to see how you do that. But the items on Etsy are higher consideration higher value in terms of meaning. And what that means is that you tend to want to, firstly, when you're buying a gift for your mom for Mother's Day, you're more likely to want to dig in and see more about that item, understand the story behind it before you make that purchase. And so that flow-through that we're seeing, I think, is a really good indication that, that hypothesis is true.

Now you mentioned being early movers. And we think this is really, really important. The world is moving quickly. and we don't think you win by sitting on the sidelines. Being an early participant, and this means a couple of things. We're able to really [ in partnership ] with these platforms help shape the experience in ways that we think is really helpful to buyers being able -- shoppers being able to understand what differentiates the products that they're going to be seeing on different platforms. We think that really plays to Etsy's strengths because of the differentiation of our inventory, the fact that everything has a story behind it comes from a real person. And second, it allows us to be in their really early observing and learning from shopper behavior. And this is what I think is so critically important. One of the priorities that I stated, the strategic priorities for the long term that we have is showing up where shoppers discover. So as we see this new emerging discovery platform, it is really critical for us to be there with these shoppers, learning and evolving with them as their behavior evolves.

Yes. And I think to the question about -- sort of the last pair of question is about what do we do with Etsy Ads while this sort of transition and learning period is going on? First, I'd go back to something we've said many times, which is right now, we are recognizing only a very small portion of what our sellers have said they would be willing to spend to on advertising to win incremental GMS. And it's on Etsy and our machine learning and our match and our ad system to do a better job of delivering customers to those folks who are willing to advertise to be at the top of the stack in the search results. So there's more opportunity for us to continue to optimize the Etsy Ads performance internally. [indiscernible], as Kruti indicated, the behavior that we're seeing in the agentic shopping world is a combination of sometimes hey, this convenience of being able to check out right in the midst of the agentic experience, that's wonderful. Other times, like Kruti just said, Hey, that's a great idea. I hadn't really thought of that. Let me go to that source and learn more about that [ high considered ] purchase. And that bringing them on to the Etsy product services where our ads model is designed to help them navigate that journey to what arguably will be the best fit in products for them. The third thing I would say is that it's really interesting to see at a relatively early stage of the development of the agentic world, the people who operate those models starting to include advertising and trying to figure out how to bring advertising into their ecosystem. And I think that as we think about the paid search world, sort of inclusion of an advertising-driven component of the search world, has been really favorable for Etsy over time. So I think there are on-site things that we can do. There are interface things that we can do. And then there's sort of structural ecosystem things that are evolving right now. It's very early days, but we feel like we're about a very defensible position with Etsy advertising product.

There's one other thing that I just want to add on here, which is a lot of the focus is on agentic commerce like commerce that's happening on those platforms. What we're talking about in addition to the commerce is agentic discovery. And then the third piece that we're not talking about here is agentic capabilities. And those capabilities are not proprietary or owned by those platforms. There are capabilities that any company can use. And so I think a lot of what we are thinking about where we're spending our energy today is on applying those advancements and capabilities to the experience on Etsy across the platform. So we've talked a lot about how we're using ML to power much more personalized user-aware recommendations. We're also using that to make our selling experience much better, much more efficient so that our sellers can spend their time doing what only they can do and really enhancing and amplifying the differentiation of Etsy and using it behind the scenes to make how we operate more effective, to make our support and trust and safety better, to make how we all operate day-to-day much more effective and efficient. And I think that's a really big part of the agentic story and maybe one that we should be talking about more.

Our next question will come from Rick Patel with Raymond James.

Congrats on the progress. A couple of questions around buyer acquisition. First, can you talk about the commentary around acquiring younger buyers, which channels do you see as having the biggest opportunity? And what are you going to do differently in 2026 to capture that? And as a follow-up, how much room do you see to reengage lapsed buyers? You touched on social being an effective tool there, but just curious how big that opportunity is.

Sure. On the second point on lapsed buyers, I think there are over 100 million lapsed buyers of Etsy. And remember that about 50% of our buyers buy one time a year and so the opportunity to bring people back two times a year, that really starts to feed in not just the frequency numbers, but that actually will feed quickly into the buyer count numbers. So those are some levers that we're pulling there.

You had a really specific question about where we're getting younger -- how we're going after younger audiences. Kruti, in her prepared remarks, talked about the importance of the mobile app for engaging with them. The demographics of Depop are quite a bit younger, and the GMS mix of Depop is 90% mobile app. And so we know from first-hand experience that the mobile app really is where that customer base is.

So the mobile is really key to this. But there are also the social channels that we're using much -- we're really working to use the social channels to introduce Etsy more frequently to that younger bio demographic. This quarter, we -- frankly, we doubled the amount of spending that we do on TikTok to go after that audience from last quarter. And what was terrific about that is we were able to double the spending while keeping the return on spending as good or in line with where it was last quarter. It's hard to -- sometimes it's hard to take a channel like that and spend that much more into it and not have or at least for a short run, your efficiency -- lose some efficiency. That's -- and the buyers that are coming through that channel are younger. That's true, at Pinterest, that's true, of some of the other social platforms. And so I think social will be, along with the app, are probably the two biggest levers. On Agentic is -- the numbers are so small that it doesn't make a difference today in terms of shifting the demographics. But those are the places in particular where we're focused. And we'll do more there in 2026.

Yes. I want to also just add to that and zooming out for a second. We talked about how this isn't an appeal gap, it's a presence gap. And so the channels that we show up on really matters. The other thing that I would add is I think there's an opportunity to really leverage our sellers and leverage influencers to really speak more directly to those younger buyers. And the content matters as well. So this is where we're focusing on more discovery-oriented content also really matters. So I just wanted to add on that it's both where we're present and what we're showing and making sure that it's more personalized and relevant to this audience. But we're really excited about all these efforts.

Your next question will come from Ken Gawrelski with Wells Fargo.

Appreciate it. Could you talk -- maybe two, please, if I may. First, maybe reframing the Agentic discussion. It seems to me that maybe this is a race for search and discovery on site versus in the agent, right? You have unstructured data, unstructured listings, how are you -- how do you make sure that the on-site or on app experience for search and discovery is ultimately better than the offsite, meaning the agentic search can externally can find the item faster or better than you can. And then one second one too, and I realize that there's only maybe so much you can say about this, but cash uses. I mean, $1.2 billion relative to your market cap is very substantial. You're already well capitalized. How should we think about the opportunities to effectively use that cash that's coming in. And is there any kind of time frame you can give us as to when you might maybe give us a little bit more color on cash uses.

Thanks for the question, Ken. I'll take the first one, and Lanny you can take the second. I think this is exactly the right question. the insight and the data that we have should enable us to always offer a much richer and better experience when you know that you want something that Etsy can offer. And this is exactly one of the reasons that I think Agentic can be a really great discovery platform. But what makes it such an appealing platform right now is they've really tapped into this conversational interface that allows us to get much deeper and richer insight into intent. And so when you look at what we are doing at Etsy, our first step is leveraging AI capabilities to pull that deeper understanding of our buyers' interests and of our inventory and to get signals of intent. But then the next step is to bring that same kind of interface to be able to capture even richer understanding of intent. And as we do that as we progress there, we should be able to do that much more effectively because we have more data points. I think for people who don't know what they're looking for or don't know they're looking for something that is available on Etsy. These third-party platforms are great to understand the world of your options, and that's where us providing really rich insight into our inventory and what buyers care about in that inventory is really important in the near term. It's a great question, and I think the right one.

And from a capital allocation standpoint, I think we start out with the thought that we have $1.8 billion in cash and $3 billion of debt and $650 million of free cash flow per year. And those are the those are like the raw materials of how we think about returning cash to shareholders and managing what's on our balance sheet. Now with the addition of proceeds from Depop, that will refactor that whole equation. What you've seen over the last couple of years is Etsy say, we can invest in the business through the P&L, and there aren't big acquisitions that we have thought of, there aren't big sort of capital outlays that we have been making. And so with the excess cash that we have relative to the future needs that we see from the balance sheet perspective, we've been returning that really aggressively to shareholders. I don't -- I think the amount by which the share count has come down over the last 1, 2 or 3 years is pretty striking. And that speaks to the sort of inherent profitability, scalability and capital-light nature of the core Etsy business. And that those things all remain. So as we're looking forward, I think you should expect us to run that same set of analysis, look at the cash that we hold, look at the right amount of leverage on the business, looking at returning excess cash to shareholders. And if there were to become an attractive investment opportunity that we looked at and said, hey, that is going to be a really high return on capital, we'd be open to that. But right now, the best returns that we see are investing internally in the Etsy business, and we'll continue to do that. It generates a lot of cash and where there's excess cash flow, return that.

Your next question will come from Jason Helfstein with Oppenheimer.

So now that you don't have to decide between allocating marketing between Depop and the core marketplace, how does that impact your strategy and outlook for '26 and beyond and maybe kind of connect that back to the prior question around new customer acquisition, reactivation and investment in technology, LLM, et cetera.

Let me start and say, I think it's really important to point out that while similar in nature, the conditions around Depop and the condition around Etsy are quite different. Depop had and has a tremendous product experience, the best in the business. It did not have the level of awareness across all the different audience opportunities that we saw that we thought it needed and we thought it could benefit from. And so when you want to drive awareness, the brand activity and is exactly what I think we believe one should do. And the early results from that are really encouraging. We are expanding the awareness of that product.

Etsy's situation is quite different. Awareness of Etsy is very, very high. Most people have heard of Etsy, most people have bought on Etsy. The product experience, you've heard us talk about, is not where we think it should be in terms of personalization, in terms of retention. in terms of rewards for loyalty, in terms of discovery, all of those things. And so the comparison is Etsy, the investment need is more on the product side. Now we spent over $400 million last year in product development, improving that. We have some early indications of the progress and the fruits of that investment. And we will continue -- that's a lot of money to invest in that product experience. We will continue to invest in that, and we think we will continue to make progress on that product experience. So I don't think it's -- I was -- it's not -- I don't think it's currently an accurate idea to say, well, because they spend money on Depop marketing, now they're going to spend money on Etsy marketing. That just doesn't really follow. And I think the Etsy business is a position where we're making really strong product investments that are starting to bear fruit this whole opportunity around agentic and our internal use of ML is a whole new frontier for us to continue to move investments into that area. And right now, we feel like we're able to do that within the margin outlook that we gave to and being able to deliver this sort of combination of improving sustainable, durable growth with healthy EBITDA margins as we do that.

Your next question will come from Deepak Mathivanan with Cantor.

Great. Just wanted to ask a follow-up to Ken's question. Kruti, can you talk about the learnings from the traffic you're seeing from agents as it pertains to potentially building the experience on Etsy with the native and conversational experiences? What signals are you watching to integrate AI native experiences in the platform? And also broadly, how should we think about Etsy's technical approach here using our own models built on top of open source to power the business logic or perhaps using all those like Gemini and GPT models?

Some of the early signals that we're seeing, like I said, are really related to these channels as strong discovery channel. So higher intent higher order value, really good engagement, really good flow-through. And so those are the biggest learnings that we're seeing that there is interest and excitement about the differentiation of our inventory as people discover it in the context of other inventory. So that's where the greatest learnings are, which they think a little bit of a different category than the learnings are more generally from these AI platforms around the value of conversational interfaces to really more deeply understand intent. And those are things that we're playing with across all parts of the experience. And really the deepest learnings are coming from those on-site experiences rather than off-site experiences.

I would just add one -- one thing we're learning with our partners is that the consumers who engage with Agentic shopping come back and do more agentic shopping. So there's some -- there's like implicit satisfaction in that I think these services are delivering. The implicit part is that their increased usage after they try it once, they come back a second time after they do it two times, they keep coming back. It's -- the early indications are also that this is an experience that is working really well for customers. That's one of the reasons why when we see that from our partners, we're also really convinced that we can use Agentic on Etsy to improve our experiences. And as we bring those things that Kruti's been talking to light, it will help us with retention and help us with our own product experience.

Your next question will come from John Colantuoni with Jefferies.

Okay. Great. I wanted to ask about channel trends. With the app up nearly 7%, it implies GMS on the website was down around 5%. And I'm curious if you see an opportunity to accelerate growth on the website and how a normalization and competition across performance marketing channels in a year ago period, could impact your approach to driving this potential acceleration?

Maybe I'll start. And then you continue. Okay. Look, our app is our most valuable platform. We see that app users have a 40% higher LTV than non-app users. And that's because, as Lanny was saying before, when users engage with the app, they visit more, they engage more deeply and they convert more. And we think that it's really attractive to a younger audience. As we have grown app share of GMS, we have continued to see the higher level of value and engagement. So we think that there is a lot of runway to continuing to both invest in making the app more personalized, more discovery oriented, more engaging and leveraging our own channels to drive more people to the app and to invest in all of the channels and opportunities that we have to drive more people to the app. Remember, only 46% of our app -- our GMS comes through the app right now. And as Lanny mentioned, we know of another marketplace that has almost 90% of their GMS coming through the app. So we just think that there's a lot of headroom there to grow.

We'll take one more question [indiscernible] before the bill rings.

Your final question will come from Shweta Khajuria with Wolfe Research.

I've got two, please. One is both are on the longer-term side, on agentic, commerce, a follow-up, much of the drawdown that we've seen in Internet stocks year-to-date is in part because of this concern that some of these business models could be disrupted with the AI agents and what they can do. So for anyone who is wondering or debating about Etsy's value proposition as we think longer term, is there -- how do you think about the risk that maybe an AI agent could disrupt take rates or perhaps a seller could go directly to an AI agent, pressuring your take rates or your business model outside of advertising. This is a transaction that can happen on an AI agents platform versus on Etsy. So that's question one.

And then second is how do you think about the durability or where frequency can go as the -- as you make more improvements around your app and the product and marketing investments that you do, is there any structural reason why Etsy's frequency cannot be higher than what we have seen in the past? So how do you think of that trend line?

I'll take the first one. So Shweta, like you said, we're in very early days in agentic. And what I would say is that early indicators that we're seeing are really encouraging in terms of supporting our hypothesis. This can be an incremental and powerful discovery channel. And because it's so early, no one knows at this moment in time what aspect of how things are going to evolve or what aspect of the businesses might come under pressure. What I do know is that being in there early, we have proven that as the world changes, we have been really capable and effective at adjusting really adjusting to things that are unknown and unexpected that come our way. So we're really confident that as the world evolves, we will evolve with it. But it's impossible to predict right now for every one of those situations, what might happen.

Good. All right. That's it for today. Thank you all for joining.

All right. Thank you. Good afternoon, everyone, and thanks for joining us at Raymond James 2025 TMT & Consumer Conference. I'm Rick Patel, senior research analyst covering digital commerce, softlines, retail and global brands here at Raymond James. I'm happy to host Etsy, which is a digital 2-sided marketplace with a focus on unique and handmade goods.

Before we begin, I do want to point you to Etsy's safe harbor statement, which you'll find on their Investor Relations website. I'm thrilled to be on stage with Josh Silverman, who's been Etsy's CEO since 2017 and will be stepping down at the end of the year to become Executive Chair. And also Kruti Patel Goyal, who is currently Etsy's Chief Growth Officer and will become CEO this January. So congrats to both of you on the upcoming roles.

Thank you so much.

Thank you.

So thanks so much for being here. Very exciting news about the upcoming CEO transition. Josh, we recognize this is likely to be your last investor -- formal investor event at Etsy. What made now the right time to pass the torch to Kruti? And how do you envision your role as Executive Chair?

Yes. Thanks so much for having us. Thank you for getting Kruti's name right. It's great. TH, it's Kruti, but everyone pronounces is Kruti, sorry about that.

I appreciate it.

I'm heading in my ninth year at Etsy. And one of the most important things the Board does is succession planning. So you will be pleased to know, we've been very focused and thoughtful about succession planning for some time. And as we looked at the world and who we thought was the best candidate for the job, the Board has unanimous conviction that Kruti is the right person for the job. We've been giving Kruti more and more responsibility. She keeps knocking out of the park with everything we give her. And we had a Board meeting recently where we decided that she is definitely the next CEO. And once you decide she is definitely the next CEO, it was my opinion and the Board's opinion, we should announce that to the world and make it effective right away because what am I doing continuing to make decisions for legacy that we've already decided Kruti will carry on.

So I just think it's sensible, good succession planning. That said, I couldn't be more passionate about Etsy and the opportunity in the future. I couldn't be more excited about Kruti and her leadership. We've had a wonderful working partnership for a long time, and I'm really excited to continue supporting the business for 2026 for 1 year, as Executive Chairman, where I'll be providing support to Kruti in every manner that she finds useful in whatever way she finds useful. But we talk every single day, and I think, it's a really nice partnership.

And Josh, for the benefit of new investors here, can you give us a quick overview about how you transformed Etsy pre-COVID and how it has evolved in a post-COVID period, just from a high level?

Sure. When I came into the business in 2017, growth had decelerated to flatlining and the world was very concerned that there was a lot of competition and that Etsy was about as big as it could be. And we had at the time about $2.5 billion of gross merchandise sales, a couple of hundred million dollars of revenue. We were a breakeven business. And most of the world had given up on Etsy and said we're about as big as we could be. And so we knew that wasn't true. We knew that Etsy could be far, far larger than it was at the time. And so collectively, we, Kruti was very much a part of this.

We said what are the fewest things that really matter to reaccelerate growth in the business. And we really worked on making Etsy search a lot better so that we understood what you meant, not just what you said. And we optimized every single pixel on Etsy to drive you from landing on Etsy to converting to an actual purchase. And Etsy today does $10 billion of gross merchandise. It was 5x bigger by gross merchandise sales. It's 7 or 8x bigger by revenue. It's infinitely bigger by profitability, $750 million-ish of free cash flow last year. And -- so we've done a lot to make Etsy far, far bigger than what it was at the time. And here we are again at another moment where the world is worried that growth is -- that we've had a hard time growing in the past couple of years and that there's a lot of competition out there. But when I think back to what we did in the 2017 to 2019 period, we made Etsy an amazing place if you knew what you wanted and couldn't find it anywhere else.

By optimizing search and optimizing for conversion, when you arrived on Etsy, having searched everywhere else, we got you to the thing. We have the thing you want for sure, and we got you there fast. Then the pandemic happened. And suddenly, everyone in the world had needs that they couldn't get anywhere else. Lots of people knew they needed something and couldn't find it anywhere else. So Etsy exploded during the pandemic. The few years post pandemic have been the Etsy holding on to the gains that it made through tremendous effort, but that has been in a tide that's been going out.

When we look at Etsy pulling forward roughly 4 or 5 years of growth during the pandemic, we're about 4 or 5 years post the pandemic now. So I think the idea that swimming against the receding tide, hopefully, those days might be behind us. And Etsy can be so much more than just the place to go when you already know what you want, but can't find it anywhere else. We have such a huge opportunity to be a place of discovery to be a place that helps you figure out what you want on so many other occasions. And I think Kruti has got amazing ideas and plans for how to do that.

And Kruti, you've shown sequential improvement in GMS and engagement. What do you perceive as the keys to firmly getting Etsy back to sustained growth? And how will this show up when it comes to your top line priorities this January?

Well, first, thanks for having me. I'm really excited to take over and follow on the great work that Josh has done. That we've done together over the last many years. As he said, we are really proud of and encouraged by the sequential growth that we've seen over this last year. But I would say we're far from satisfied with it. We think there's a lot more potential, and we're excited to really unlock that over the coming year with the priorities that we've laid out.

When I got back earlier this year, the first thing we really did was dig into our user insights and our market research to really deeply understand and diagnose what the challenges were with the business. And there were a few key themes that emerged for us. One is just how much -- as Josh was saying before, just how much the shopping experience or the context of shoppers has changed, whereas 8 years ago, people really wanted a great place to transact. The game was make search really efficient and make transacting really frictionless. What's changed through the pandemic to today is that people really want and expect a shopping experience, one where they can discover, be inspired, be engaged much more fully than ever before. And they expect this from all e-commerce. And so that context and set of expectations has really changed significantly.

And then as we look at how Etsy has evolved, we've said -- we've made a lot of progress over the last few years in really closing the gaps in terms of e-commerce table stakes. The experience has gotten a lot better on many dimensions. It's made us a lot more competitive. And when we looked at our customer research, what they've told us was that they really value all the things that are unique and magical about Etsy, the humans behind the products, the uniqueness of our inventory. And we're really looking for us to bring that to bear more in the experience to set Etsy apart more from all of those other e-commerce experiences.

And it was those deeper customer insights that led us directly to the priorities that we've laid out that are going to carry us into the next year and lead us back to sustainable, durable growth. And so the first of those is to be present to show up where shoppers are discovering when they're in inspiration mode. That's not just when they land on Etsy, it's actually when they're out in the world discovering on social, watching TV, all of those places where folks are looking for inventory that grabs them and engages them.

The second is to be relevant. This is the core job of a marketplace to show inventory that really matches your taste, whatever context and whatever mode you're in. The third is to be loyal to really show our best customers who contribute the most to Etsy that we value them and that we're rewarding them. And then the last and most importantly is to be human. And that is really about elevating and bringing to the forefront the things that truly differentiate Etsy, not just the products, but the people behind the products and the role that they play. And so we're going to be laser-focused on executing on these priorities to bring the company back to sustained growth.

And Kruti, Etsy has talked about retooling search and recommendations using machine learning and LLMs. What progress have you made? And what's next?

Yes. It's funny. We've talked about for many years the importance of machine learning and search and discovery, and there's a good reason for that. It is really the core job of a marketplace and particularly important and particularly challenging for a marketplace like ours that has such broad and such unique inventory. Our main job is to match shoppers with the right inventory and the right context at the right time. And so this has been an area of investment that's been really important, and it will continue to be an important area of investment for as long as we exist.

And so we've made a lot of really great progress around search, around discovery, around recommendations over the last year. And what I'd say is, in the past, our recommendations really reflected the most recent information that we had about you and the marketplace. And so we look at your most recent interaction and show you more that look like that because, as Josh said, that's the most likely to get you to convert in this current interaction.

What we're seeing with the advancements in AI and particularly capabilities of LLMs as they're evolving is the opportunities that, that opens up for Etsy, particularly a marketplace like ours that has such unique inventory, they make things possible that were really difficult, if not impossible in the past. So our ability to much more deeply understand buyers' tastes and interests as well as more deeply understand our inventory by leveraging not just the information that sellers give us, but things like photo -- the data from photographs allows us to better make much more nonlinear, less obvious connections. And so that's where we've been really investing a lot of time.

And so what that means is that we're showing buyers things that match their interests much more effectively than we were in the past. And that's showing up in experiences like our App Home experience where we're seeing our new discovery feed delivering double-digit improvements in engagement. And so whereas a year ago, I might open the app and see a lot more rainbow colored candy necklaces, like candy bead necklaces like my last purchase on Etsy. Now I'll open up that app, and I'll see an endless feed of personalized stationery and gifts for kids and all of the things that represent -- and jewelry, all of the different things that I buy because it keys off of a broader set of behavioral data over a much longer time period. So we're leveraging these capabilities, leveraging more of the data that we have by users, and that's showing up in the traction and the engagement that we're seeing.

And so what's next is we're just getting started. So there's a lot of opportunity to continue to improve these models that we're already seeing great traction and engagement with. And then taking these new models. I mean, in the last year, we've launched 3 brand-new models in a really short period of time. So we're executing faster than we ever have been before. So continuing to iterate on those models and then leveraging that content on more services in more places where we're engaging with shoppers. So not just on the app screen, but in our marketing content and in recommendations that we show you throughout the shopping journey. And we've seen really promising signs. We're moving really quickly with these initiatives, and we're seeing really promising signs from it already.

So in our owned marketing channels, we've gone from a very small percentage of our -- of what we were showing you being personalized to now 80% of the content that you're seeing in push notifications and e-mail being personalized and delivering really impressive improvements in GMS for those channels. So we're excited about the road ahead with this.

That's great. And Josh, you said that you think agentic shopping could be as big a game changer for Etsy as Google Search and PLAs. Can you just expand on that? And how do you see AI reshaping Etsy's go-to-market strategy, particularly as it relates to the things that Kruti just mentioned around personalization and discovery?

Yes. I mean -- so in the last generation of Etsy, we were great at if you know what you want, you can't find it anywhere else. And so Google PLAs turned out to be a fabulous tool for that. I need a very odd-shaped throw pillow for my odd-shaped couch. So I go to Google and I search for that, right? And you're going to find that Etsy for sure has exactly what you want and you come to Etsy and you buy. It's that shoulder tap -- and it's -- over the years, people -- in 2017, most people didn't know Etsy. In the past few years, people know Etsy. They just didn't think of us in that moment. And so Google was incredibly helpful.

Our challenge has been consideration. They don't think of us in the moment. And Google has been losing search share to other sources over the past couple of years, and that's been a bit of a headwind for Etsy. But the opportunity to work with agents to say, I'm looking for a really cool gift for my mother, for example. What those agents should do is they should go and bring you back some set of choice. They should say, here's 3 interesting options. Here's the thing that's probably cheapest. Here's the things that might ship the fastest. And here's something that's really novel or unique or one of a kind. In that world, Etsy is going to be surfaced far more often than people would naturally think of us.

So we are a net winner, a net gainer. I very much believe in that. And what we've seen with our Google experience is that people very occasionally will actually click through and buy directly from the PLA. Most of the time, it will remind them, oh, Etsy has got cool stuff and drive incremental visits to Etsy, where they say, what else does that seller have for sale? What other sellers have similar things. They want to enjoy and swim in the discovery process on Etsy. And so I think that these agents will surface Etsy as an option far more often than people would think of Etsy themselves, and they will drive both incremental commerce and very much incremental visits to Etsy.

We were the first to launch integrated shopping checkout with OpenAI. Us and Shopify together worked with their very first launch. And I'm excited about that and what that means because, one, Etsy is very interesting to the large model builders because we have a very large pool of unique inventory. It's hard to think of anyone on the Internet that has truly unique inventory at scale other than Etsy.

So we are truly additive to them in their models in a way that almost no one else is. And we have a really good engineering team that can actually keep up with some of these companies that have really outstanding engineering teams. And so our ability to be one of their early partners to help shape what agentic commerce is, I think, this is a proof point that Etsy really is well positioned to help drive and lead what the future of agentic commerce should be.

And Kruti, on that point, as OpenAI's first live partner for instant checkout on ChatGPT, what have you learned so far about the buyer intent and conversion? And can you also refresh us on the fee structure and how you're working to protect Etsy's brand as you -- just given your direct-to-consumer relationships when they check out on ChatGPT?

Sure. So first, just to knock out the point on pricing, we don't share details of the pricing model. But what I will say is that we have shared that where the structure is competitive with what we pay on other performance-based channels like affiliate partnerships or influencer partnerships. So that's all we can share there.

In terms of traction, we're seeing really great growth, but it's very, very early days. And so I'd say I think that we are still seeing early adopter behavior that's hard to extrapolate very far out right now, but we are very excited about the potential of agentic channels for shopping and really to become a meaningful surface for discovery. And because that's the reason that we were so excited to be the first partner on instant checkout with OpenAI. I think, first, it really reinforces that we are going to show up where shoppers are discovering, not just today, but tomorrow. And this is really important because it is very early days.

We don't know exactly how things are going to evolve, but being in these conversations early puts us in a position to really shape how that experience develops. And when you think about discovery, there are 2 things that are really important, that discovery phase of shopping, showing breadth, showing diversity and showing differentiation. And so that's why it's so important that we show up. But also in these conversations, we want to make sure that Etsy's differentiation shows up.

So our brand mark shows up and the fact that items are coming from a seller, the seller is also represented there. And on instant checkout, the transaction goes through Etsy's payment system. And so what that means is we are -- not only when we show up, but through the course of the engagement with Etsy, we're establishing a direct relationship. Both with the buyer and Etsy and the buyer and the seller in ways that allows us to continue to highlight what differentiates Etsy, but also to provide a great experience post purchase and continue to develop and nurture those relationships.

So we're excited about the potential, and we think we're really well positioned for the reasons that Josh said and also because of how we've implemented this -- because of the shape that the early implementation is taking and our ability to continue to not only get more exposure through this new discovery channel, but to continue to build new and deepen existing relationships with the customers that we get through this channel.

If I can just build on that a little bit. I mean we're taking a little bit of a different stance than many in e-commerce. They are playing defense. How do we have agentic shopping not disintermediate us? And we're playing offense. We want to lead. We want to be in the driver's seat. Why is that? Well, for almost every e-commerce site out there, they are literally selling the exact same inventory as available on 10 other websites. They know it, right? It's all mass produced in the same factory in Shenzhen, and they're just a distribution channel with the brand.

And so agentic shopping is going to surface that. It's going to say, here's the product you want. There's 10 places that sell it. Here's the one that's going to sell it the cheapest. It is a race to the bottom for all of them, and they're scared, and I get it. Etsy is actually playing a really different game. We have very unique product made just for you by a seller. And so we have something unique and different to offer where agentic shopping actually is helpful to us in a way that positions us, I think, to play offense, not defense.

And Josh, can you talk about the mobile app and why it's important to get execution right in this channel. As you work to make Etsy a place to be inspired, how are LLMs reshaping the mobile app experience? And how are you measuring that success?

Yes, great question. So the mobile app is where the flywheel comes to life for us. And when I talked about our first generation of turnaround was really about how do we get Etsy to be the place you come and buy right now, buy, buy, buy. Our focus now under Kruti's leadership is much more around engagement. How do we use every interaction with you to learn more about you. So that Etsy becomes more and more personalized, more and more curated at every single engagement.

And what does that look like? Etsy is 120 million things for sale. The mind can't really comprehend how much we have to sell. But if we could make Etsy feel like a boutique in Soho that you walked into that was curated just for you. And every time you walk in, it's fresh and new, but every single thing feels like it was handpicked for you. That would be amazing. That would be incredible. Hard to believe because it's so hard. But imagine there was a super human intelligence out there that actually could understand who you were at a really deep level and understand what these items were at a really deep level.

Imagine that super human intelligence became available recently in the past year or 2. What could you do better and differently? Wouldn't that be amazing? So now we need to power that super human intelligence with more data, more interactions, right? The more you come and look at items and quickly brush past items and double-click on other items, the more you tell us, the more we understand your unique tastes and desires and interests.

People who download our app, they visit 5x more often. They view 3x more items per visit and they're 1.5x more likely to buy. So by getting to the app, we are really powering so much more data that fuels a flywheel that drives so much more engagement, which over time, we think will lead to dramatically more lifetime value. And so we're taking that data in the app and using it to personalize the experience more and more in ways that we think are incredibly exciting.

And Josh, Depop has been on a roll, particularly in the U.S., and you've stepped up incremental marketing investments as a result. Talk to us about how Depop fits under the Etsy umbrella overall and how we should think about the scale and duration of these recent investments.

Yes. Great. So thanks to Kruti and Rafe and the leadership team at Depop did a fantastic job at Depop and it is really cooking. We are really excited about the market for secondhand apparel, which is a very large and fast-growing market. We acquired Depop because it is a 2-sided marketplace like Etsy that is very asset-light, meaning we don't own the inventory, and it is about unique, special and creative. In this case, apparel, something that matters a lot to people. We are excited that Depop is quickly becoming a brand of choice for people in the United States and still has so much room yet to run.

Depop is a brand the research shows young people 18 to 25 have a pretty good understanding of Depop now and a lot of love for it, and we've proven that the flywheel there really is working. We see that the value prop really resonates with other demographics in the United States and yet awareness is extremely low. So we've made a decision to do some surge marketing in Depop in order to build awareness for broader audiences, which we think is going to lead to quite a lot more adoption and significantly expand the addressable market for Depop.

Like everything we do, we will test and learn our way in. We will not throw caution to the wind. We'll be looking to make sure that we are seeing good indications of return on investment. And we don't expect this to be a permanent change to Etsy's margin structure. This is a limited surge of marketing for a period of time to expand awareness for a business that we think has tremendous growth potential. I think could this be the Venmo to Etsy's PayPal? Very possibly.

And Kruti, you led quite the turnaround at Depop. Can you take us inside that journey? What were the key unlocks that reignited that growth? How do you view Depop's position in the resale marketplace? And what's the next big focus? Just curious if there's any synergies between Depop and Etsy that we should look forward to?

Yes. If I had to sum up the story of the turnaround at Depop, I would call it one of really clear focus paired with strong execution. And so when I showed up at Depop from Etsy, the brand and the business had a lot of great strengths already at the foundation. A really strong cultural resonance with young consumers that are really attractive and hard to capture. A differentiated brand positioning and a well-loved brand and proven product market fit. So we started with that, and then I dug in to diagnose what the key -- what the most important things were to customers that they were expecting from a secondhand fashion app. And a few things really emerged.

One, it has to be really easy to list. Most of the customers are casual sellers, reselling things from their closets, the speed to being able to get something from your closet onto the app really matters, low friction, delightful experience. Second, price discovery really matters in secondhand commerce. Negotiation -- price negotiation is a big part of buying secondhand. And there was an opportunity to make that a lot easier and a lot more effective. And third and probably most important was discovery. And there are a lot of parallels we see here to the experience on Etsy. But in secondhand fashion, the alternative is you go to a local thrift store and you really dig and hunt through the inventory. And the advantage of shopping online on an app is the fast, easy, delightful discovery opportunity.

And so understanding these key insights about what users need and expect was really the first step and then laser-focused execution on improving those and focusing on the audience that mattered most, in this case, in the U.S., where the biggest e-commerce market in the West -- in the Western world, having clarity of focus on those customer needs and the market that mattered most really drove our execution over the last 3 years. And we made some meaningful step changes in the product experience during that time.

One that we've shared in the past about is the impact that, that work on discovery and creating a great engaging and inspiring experience on the app delivered. What we saw was that our recommendations got better and our search got better at the same time through those investments in machine learning in a way that not only drove conversion, but that then drove frequency as a result of that and drove new user growth after that. It really ignited the flywheel.

And what we saw as a result is the great growth that we've talked about over the last couple of years in the U.S. In Q3, we grew 60%. Our GMS grew 60% year-over-year. We -- over the course of 3 years, we've doubled the scale of the business in terms of GMS and in terms of buyers, tripled the scale of our inventory and have become the fastest-growing secondhand fashion platform in the U.S. And so we've seen really great results from that focus, that really clear focus on execution. And there are a lot of really great lessons that we're taking from that and applying to the current context that we find ourselves in here at Etsy.

That's great. Well, that's all the time we have. So thank you so much, to Josh and Kruti for your insights, and thank you all for your interest. Happy holidays.

Hi, everyone, and welcome to Etsy's Third Quarter 2025 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. And joining me today for our prerecording are Josh Silverman, CEO; Kruti Patel Goyal, President and Chief Growth Officer; and Lanny Baker, CFO.

In addition to our quarterly results, we have some exciting news to review regarding our leadership transition. Once we are finished with the presentation, we will take questions from our publishing sell-side analysts on video.

Please keep in mind that our results today include forward-looking statements related to our financial guidance, our business, our operating results and our leadership transition, as noted in the slide deck posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release 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 both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release or slide deck posted on our IR website, along with a replay of this call.

With that, I'll turn it over to Josh.

Thanks, Deb. Before we dive into our third quarter results, I want to acknowledge the news we announced earlier today. After 8.5 years as Etsy's CEO, I've decided that this is the right time for me to hand over the leadership baton to the next generation. Therefore, we'll be transitioning over the next few months and I'll become Executive Chair while the fabulously talented Kruti Patel Goyal takes the reins as our CEO effective January 1.

It's been an incredible privilege to lead Etsy through several chapters of evolution and transformation, from the turnaround of 2017 to managing through the hyperscaling of the pandemic to steering us back towards growth again in a more app-centric discovery centric world. We've adapted and evolved with creativity, agility, urgency and heart, all while keeping our sellers at the center of everything we do. Now in our third decade, Etsy is entering a new phase, one focused on harnessing AI to further personalize and transform the shopping experience in ways that were previously unimaginable. It's an exciting moment and perfect timing, I believe, for fresh perspective and a new leader.

As you know, following an incredible 2-year run as Depop's CEO reigniting their growth, I asked Kruti to return to Etsy last year as Chief Growth Officer. Kruti has been a key part of Etsy's leadership for over 15 years, and she brings deep knowledge of and passion for our mission, marketplace customers and community. Since coming back and ramping up, she's already made a significant impact on the business, evolving our strategic priorities, redefining how we measure success and shifting how we work. She's also already taken on leadership of many of our day-to-day operations. So it's natural and an exciting next step for her to become Etsy's next CEO. If I was the right person to lead Etsy's last chapter, Kruti is the right person to lead our next. Our Board of Directors has been deeply engaged in our succession planning and wholeheartedly endorses her appointment.

I also want to acknowledge Fred Wilson, who's been a part of our growth journey since 2007, first as a Board member and then as Chair. He's been an absolutely incredible Chair, passionate, wise and highly engaged. I couldn't have asked for a better partner, and we're thrilled that he will remain on our board.

On a personal note, serving as Etsy's CEO has been the honor of a lifetime. While I'm incredibly proud of the results and the growth we've delivered as a team, what I'll remember most is the impact we've had on the lives of our sellers and buyers and our role in preserving creativity and human connection in a world increasingly shaped by automation and commoditization. And I'll continue to love hearing I love Etsy every time I hear the Etsy brand mentioned. I've always found purpose in leading through transformation, and I'm excited to make room for new growth, both for Etsy and for myself. Thank you for the trust and confidence you've placed in me. I'm confident Kruti will similarly earn your trust as our next leader.

With that, let's turn to our results. We're making steady progress improving our performance in 2025 with our third quarter results exceeding expectations on all 3 key financial metrics: GMS, revenue and adjusted EBITDA. I'm pleased to report that GMS for Etsy and Depop combined returned to year-over-year growth, with further sequential improvement expected at the midpoint of our fourth quarter guidance. Etsy marketplace results improved sequentially as we continue to see that the customer-centric priorities Kruti has defined are starting to gain traction. GMS improved approximately 300 basis points sequentially to $2.43 billion, down 2.4% year-over-year. In addition to the impact from these initiatives, there were some exogenous factors, which also impacted our results, and Etsy once again proved its resiliency. It gives me tremendous comfort that we benefit from such a dynamic and fundamentally sound business model.

Depop's third quarter growth accelerated about 400 basis points sequentially, with GMS up 39.4% year-over-year to $292 million. New user growth and improvements to buyer conversion were primarily responsible for 59% year-over-year growth in Depop's U.S. GMS. And while not a meaningful growth driver in the third quarter, Depop launched its largest ever brand campaign targeted at raising awareness in the U.S. We're really excited that Peter and his team are continuing to build on the foundation that Kruti built at Depop, which has led to the great momentum the business has seen over the past 2 years. That said, we're all clear eyed that there's significantly more work to do. So I'll turn the call over to Kruti.

Thank you, Josh, and good morning, everyone. Since returning to Etsy earlier this year, I've been reminded at every turn that this company is built on something rare in e-commerce today, creativity, human connection and purpose. So it's an incredible honor to be named our next CEO. I'm deeply grateful to our board for their confidence in me and to Josh for his leadership, mentorship and support over so many years. He's led Etsy through extraordinary growth. Our customer base, GMS, revenue, profitability and market cap are all multiples larger than when he started.

But it isn't just bigger, Etsy is better and well positioned for our next chapter of growth. We'll continue to work closely together through this transition period, and I'm so pleased that Josh will remain a sounding board for our executive team and me as our Executive Chair.

I'll now cover our 4 strategic priorities, which are working together to deliver tangible value to our customers and support sustainable growth. We're showing up where shoppers find inspiration, matching them with items that feel tailor-made for them, working to deepen loyalty across our community and amplifying what sets us apart, the creativity and authenticity of our sellers. Each priority fuels the next, creating a cycle of discovery, engagement and connection that truly differentiates Etsy.

Starting with showing up our Shoppers Discover. We know today's shopping journey isn't linear. People find inspiration everywhere. To capture this behavior, we're meeting shoppers in more of those moments with content that feels personal and relevant. A great example of how we're capitalizing on the evolving shoppers journey is our partnership with Open AI, which gives us an early foothold in a fast-growing high-intent Discovery channel and helps to create another seamless path from inspiration to purchase. In September, Etsy became the first live partner for their instant checkout feature, allowing users to buy items on Etsy directly through ChatGPT. We now provide a dedicated product feed that enables eligible purchases to be completed seamlessly within the chat experience, processed through Etsy Payments.

This integration was designed to ensure buyers know its Etsy. When a customer purchases a product through Etsy and ChatGPT, they'll see the Etsy brand mark, information about the human seller and an order confirmation from us. Agentic visits represent a small slice of e-commerce traffic today but they're growing quickly. An early analysis suggests that these buyers come to Etsy with higher purchase intent than those from traditional search. And over time, we believe these types of integrations will drive incremental growth and importantly, brand consideration for Etsy.

Another example of how we're showing up our shoppers discover is our marketing approach this holiday season. As we've told you, we're significantly reallocating our brand marketing spend away from linear TV into upper funnel channels intended to spark engagement and inspiration such as social video and streaming. You'll see us highlight the many ways people shop, decorate and celebrate, how they're discovering the trends shaping the moment or honoring the traditions at the heart of the season because shopping on Etsy isn't about checking a box. It's about finding something that makes someone feel seen and reminding the world that the most meaningful items come from real people.

Of course, once we get shoppers' attention, the experience on Etsy has to deliver. We've made strong progress improving the Etsy app. In Q3, app GMS outperformed non-app GMS by 13 percentage points, a meaningful indicator that our work is beginning to pay off. This progress reflects a series of thoughtful improvements from a redesigned home screen central hub of what's new and relevant to simpler navigation that helps shoppers reach key features faster to a completely reimagined discovery feed powered by a new recommendations model designed to anticipate what each shopper might love next.

Early results are encouraging. Engagement on our app home screen is up significantly, and App-Home GMS grew 20% year-over-year in the third quarter. Advancements in AI and machine learning power much of this work and are central to how we match shoppers with the right items. Over the past few months, we've made meaningful progress in our machine learning capabilities, particularly in 2 areas that are core to Etsy's differentiation, buyer understanding and item understanding. In buyer understanding, we've developed new models that more deeply interpret our users' interests through a combination of advanced ML and emerging LLM techniques. These models now power our app discovery feed where they've already driven double-digit increases in engagement metrics and have also demonstrated positive impact in our e-mails and our web homepage experience.

In item understanding, we've strengthened our ability to extract richer insight from listing images, enhancing how we represent and connect inventory. This improvement has delivered measurable conversion gains across search and ads with further opportunities ahead. Rafe and his team's rapid time to market on these initiatives has been excellent, and we're excited to continue testing and iterating.

Turning to our most valuable customers, starting with our buyers. We see strong opportunity not only to deepen loyalty with our top buyers, but also to nurture customers with the potential to become them by making shopping on Etsy easier and more rewarding. In the near term, we're piloting targeted offers for our most active buyers and launching the latest beta iteration of the Etsy Insider loyalty program. We imagine with our top buyers in mind, so they feel rewarded every time they shop, with shipping discounts and 5% back in Etsy credit on every purchase, all while seeking to deliver sustainable economics for Etsy.

From my perspective, one of the most important elements to our long-term success will be Etsy's ability to continue to attract creative entrepreneurs and support their ongoing success because their creativity and innovation is what makes the Etsy experience like nowhere else. Since becoming Chief Growth Officer, I've been connecting weekly with many different groups of sellers. And it's clear we can better help them spend less time managing and more time creating -- we've launched new AI-powered tools to help sellers generate listing titles and draft buyer messages, 2 of the most time-consuming parts of running an Etsy shop and improved issue resolution with unleased access to live knowledgeable support. We're pleased to see that our efforts are starting to make an impact. For example, seller satisfaction scores are up more than 10 percentage points from this time last year.

Finally, we're amplifying our competitive differentiation. The human connection at the heart of our marketplace. It underpins and is intertwined with each of the other 3 priorities. And while we see abundant opportunities to weave human touch more deeply into every part of the Etsy experience over time, we've started with simple high-impact updates that bring sellers and their stories closer to buyers, like adding richer seller information directly on to listing pages. Early test results show that these changes are helping buyers trust listings faster and make purchase decisions with less friction.

In closing, thank you to our employees, our community and to all of you for your confidence in partnership. I'm excited to take the helm come January. While we've been showing continued improved performance, there is so much more we need to do. You'll hear more from me as I continue to evolve our vision and plans for the business.

And with that, I'll turn the call over to Lanny.

Thank you, Kruti. When I joined Etsy, I told our investors and analysts how much I have admired Josh's stewardship and transformation of this incredible business. I want to thank Josh for leading the company to where we are today and setting Etsy up for what comes next. And I can speak on behalf of the full executive team that we are incredibly excited to be part of this next phase of our journey with Kruti as the CEO.

As we review our results, please keep in mind that we completed the sale of Reverb on June 2, and we've provided Reverb's Q3 2024 GMS and revenue so you can more easily separate the impact of that sale from the results of our ongoing business. Third quarter consolidated GMS was $2.72 billion, which exceeded the top end of our guidance range driven by better-than-expected results at both Etsy and Depop. Excluding Reverb from all periods, consolidated GMS grew 0.9% year-over-year and consolidated revenue grew 6.1% year-over-year to $678 million. Adjusted EBITDA was $172 million in the third quarter representing a consolidated adjusted EBITDA margin of 25.4%. Within that, Etsy Marketplace margin was just shy of 30% for the quarter, and Depop's margin declined sequentially as we began to accelerate brand marketing to expand Depop's opportunity, particularly in the U.S.

At Marketplace, GMS was down 2.4% year-over-year in the third quarter and down 3.2% year-to-year on an FX-neutral basis. While we're not satisfied with any decline in Etsy GMS, we are encouraged that year-to-year GMS comparisons continued the momentum established earlier this year and improved by another 300 basis points from Q2 to Q3. Importantly, we believe that initiatives aligned with the 4 priorities that Kruti described earlier were critical factors contributing to that progress.

On the tariff and trade lane front, we experienced some pressure on our U.S. import trade route during the quarter. However, sequential improvement in our U.S. domestic trade route helped offset the impact. The expiration of the de minimis exemption at the end of August weighed on performance immediately thereafter, and our business stabilized as we moved through the quarter, resulting in only a modest headwind to quarterly results. While we remain cautious about the potential impact of tariffs and trade restrictions, especially on consumer discretionary expenditures, we are encouraged by Etsy's resilience and responsiveness thus far. We believe we have benefited from the massive amount of inventory in the marketplace and a very high replacement rate on disruptive items.

As we've mentioned, we have an abundance of U.S.-based supply including over 60 million active U.S. listings. And we've been highlighting domestic inventory to U.S. buyers for some time. Additionally, our team has been extremely proactive in providing non-U.S. sellers with information, advice and viable alternative solutions to help them continue shipping into the U.S. Etsy's active buyer count was $86.6 million on a trailing 12-month basis, down 5% year-over-year and 0.8% lower sequentially. We attracted 4.8 million new buyers in the third quarter and reactivated another 6.6 million lapsed buyers. Combined, new and reactivated buyers totaled $11.4 million for the quarter, a slight improvement compared to the second quarter.

GMS per active buyer was $121 in the third quarter and this trailing 12-month figure has been stable year-to-date. When we look more closely at GMS provider trends, on a month-by-month basis rather than a trailing 12-month basis, we've seen encouraging improvements since April 2025, with higher average item values as well as improving purchase frequency per buyer. Slicing GMS performance according to estimated household income, we saw a favorable year-over-year inflection across all income levels in Q3, with the strongest performance among our highest income buyers, which is consistent with the U.S. consumer spending trends we are all reading about. GMS comparisons across most of our top 6 categories improved sequentially. We saw particular strength in vintage home and living, jewelry above $100 and wedding and engagement rings.

Kruti mentioned the great progress we're making with the Etsy app, and I want to underscore the importance and the effects of this focus. In the third quarter, on average, Etsy's app users visited roughly 5x more often than our non-app users. They viewed 3x more pages per visit and we're 1.5x more likely to convert with a purchase. As we've said before, the app platform allows us to deliver a more engaging and personalized experience, form stronger, more direct relationships with buyers and increased customer lifetime value. With that in mind, we were pleased to see app downloads grow 9% year-over-year with even faster growth in downloads among new buyers. Mobile app GMS accelerated to mid-single-digit year-over-year growth in the third quarter, and the app's contribution to total GMS increased to 46% compared with just under 45% a quarter ago and 42.8% a year ago.

Shifting to the seller view. Following stabilization last quarter, active sellers grew 1.7% sequentially in the third quarter leading to a moderation in the year-over-year decline. In fact, both U.S. and international seller counts began growing again on a sequential basis. The number of new sellers who made a sale in the third quarter of 2025 saw strong double-digit year-over-year growth. In addition, the percentage of total sellers with the sale in the last 12 months increased year-over-year. rebounding from the Q1 2024 trough.

Moving to revenue performance. Consolidated revenue was $678 million, up 2.4% on a reported basis, which includes reverb in the prior year period. Services revenue grew 12.7% year-over-year driven by growth in on-site ad revenue at both Etsy and Depop. Etsy Ads delivered another quarter of meaningful growth, supported by model enhancements that optimize seller budget pacing and improved ad quality and relevance while Depop continued to expand its boosted ad offering across the platform. Marketplace revenue decreased 1.7% year-over-year, largely reflecting the impact of the Reverb divestiture, which removed that contribution from consolidated results. Consolidated third quarter take rate improved to 24.9%, ahead of our guidance and up 90 basis points sequentially. Compared to 1 year ago, consolidated take rate expanded by 220 basis points, reflecting the divestiture of Reverb and the benefit of the growth in services and ads revenue that I just outlined.

Consolidated product development spend increased by 5.7% year-over-year to $113 million, growing slightly as a percentage of revenue, as shown on the left of this slide and reflecting an increase in the number of dev employees on a year-over-year basis. We continue to be disciplined and focused in our hiring with the majority of our engineering hires this year allocated towards growth initiatives.

Third quarter consolidated marketing spend increased 6% year-to-year to $208 million, representing 30.7% of revenue. The increase in consolidated marketing spending was driven primarily by incremental brand investment at Depop, Etsy marketplace spend was up only slightly from the prior year. As shown on the walk on this slide, Etsy's marketplace marketing spend gained leverage year-over-year as a percentage of consolidated revenue, whereas Depop's marketing spend lost some leverage, netting to a slight deleverage on a consolidated basis. Within Etsy marketplace marketing strategies, we remain highly encouraged by our owned marketing channels. E-mail and push notifications, combined with enhancements to our app are allowing us to deepen our direct connections with buyers. And these channels are becoming meaningful high-growth drivers of attributed GMS without an associated investment in external ad spend.

We also optimized our paid social portfolio through targeted mix shifts informed by incrementality testing, making us even better able to target higher-value audiences. In addition, we shifted low-funnel efforts to 0 in on new and lapsed by our audiences and expanded mid- and upper funnel investment in high-performing channels like TikTok. Lastly, while competitive spending patterns in the Google PLA auction were helpful during the quarter, we continue to reap the benefits of our own data feed optimizations and advanced PLA segmentation strategies.

Turning to our financial position. We generated a very healthy $200 million plus in free cash flow in the quarter and $635 million in the trailing 12 months. We ended the quarter with $1.6 billion in cash and investments and approximately $3 billion in convertible debt. We repurchased 2.1 million shares of Etsy stock at a total cost of roughly $120 million. Taking a longer-term view, you can see in the chart on the right that we've reduced our share count by 17% since December of 2023 through our stock buyback program, delivering significant value to our shareholders.

Moving to our outlook, which assumes a stable macro environment from where we are now. Although we recognize that there is a higher-than-normal degree of uncertainty about consumer spending into the holiday season, both in the U.S. and overseas, we currently expect Q4 consolidated GMS to be between $3.5 billion and $3.65 billion, which, at the midpoint, would represent further quarter-over-quarter improvement in the apples-to-apples growth rate. We expect that our Q4 consolidated take rate will be approximately 24.5%, primarily reflecting some seasonality. Consolidated adjusted EBITDA margin will be approximately 24% reflecting stable, strong profitability for the Etsy marketplace paired with a significant sequential increase in brand marketing investment at Depop, which will compress margin performance. This investment in Depop is discretionary and opportunistic arising from our excitement about the scale and growth of the apparel resale market as well as Depop's own very encouraging momentum as the business is now at an annualized run rate of $1 billion plus.

Depop's nearly 60% year-over-year GMS growth in the United States is built on top of similarly strong growth in both buyers and sellers, and we see a meaningful opportunity to increase awareness and penetration across a broader demographic range of buyers that are coming into the vintage and resale markets.

Thank you all for your time today. I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Our first question will come from Maria Ripps with Canaccord.

Kruti, congrats and George, best of luck with the transition. I guess I just wanted to ask about your Open AI partnership. So is this integration available to sort of to all U.S. sellers? And how do you prioritize sort of listings that are included? And maybe secondly, can you maybe help us think through sort of the performance fee since Etsy's covering this fee, is it fair to think about this sort of an extension of your offsite ads? Or are there any sort of transaction cost on your end that you will not be incurring sort of to compensate for the additional fee? How should investors think about this?

Great. Yes, I'm happy to start. Thank you, Maria. First of all, we are incredibly excited about the opportunity for Etsy in a world of agenda commerce. And being the first partner to partner with Open AI, we think, is a demonstration of the fact that we see a ton of opportunity where many others in e-commerce, I think, are feeling the need to play more defense.

For many people in e-commerce, they're selling the exact same product that's for sale in many other places. And it just becomes a game of who can sell it cheaper and ship it faster. An agentic commerce is going to honor that for buyers. Etsy has something genuinely unique and different to offer. And so we think it's incredibly exciting that this is an opportunity for many consumers to raise consideration of Etsy and a lot of purchase occasions where they may not have thought of Etsy. And for the big model builders, they're interested in really unique pools of data, which Etsy offers unlike most and a really strong engineering culture that can actually keep up with them.

And so our ability to be at the front edge of this we think positions us really well to help shape what agentic commerce can be. What kinds of data they're ingesting, how they're presenting it to their buyers, how our brand is presented, for example, which is very important to us. And so being at the table early, we think, is really critical.

Maria, specifically to your questions, we -- Open AI and the others will scrape Etsy and organically provide Etsy listings as part of their organic experience. But if you want to actually purchase the way that works, we provide a data feed directly to open AI that they consume and the products that are in that data feed, which is the substantial majority of Etsy's products that actually allows a buyer to actually complete the transaction within Open AI. And importantly, that still goes through Etsy's payment rails. So it still shows up as a guest checkout on an Etsy customer, and it's very clear to the customer that they're buying from Etsy. We pay a commission, a success-based transaction fee to Open AI for each of those purchases. And it's not unlike what we would pay to an influencer, for example, or an affiliate. So it's a CPA-based transaction fee.

At this time, we are not passing that through to our sellers. So it's not part of our offsite ads program, and we'll consider as time goes on. how to think about that.

Your next question will come from Steve Forbes with Guggenheim.

Congrats all around. Maybe for Kruti and Josh, maybe love to hear maybe from Kruti on this one. Given the recent changes, you mentioned sort of improvements in engagement on the app. I'd love for you maybe to just expand on that, sort of what you've seen on the engagement front, given the changes in screen real estate towards discovery. And then curious, any initial thoughts on how the recent learnings are impacting or informing your product development plans for next year as we continue this journey -- this return to growth journey and hopefully continue to see GMS trends improve next year.

Sure. I can start that out, and then feel free to add on. So on the app side, as you mentioned, we've made some meaningful investments in reshaping what the home screen looks like. And that's really intended to deliver on that first priority that we talked about, showing up in a way that really enables discovery on Etsy.

And so what you've seen is that we've gone from what was essentially trying to guess exactly what it is that you wanted when you first open the app to now giving you multiple windows and doorways into Etsy. And so you'll see that at the top of the home screen with that central hub that we mentioned, where you can not only pick up where you left off last but look at things that are like what you favorited before or items that you added to a collection before. And then below that, we've invested in ML to power a much more discovery focused feed items that are really intended to anticipate what else you might like next that you haven't necessarily engaged with in the past. And that's been basically through leveraging new ML models that are really deciphering what interest you as a buyer might have, and then connecting that to what items match those interests. And we're seeing a meaningful uplift in the engagement in the home screen, particularly through that feed. And we're really encouraged by that.

How this is playing into our product development plans more broadly. We're really encouraged by the progress that the teams have made very quickly against all the 4 priorities, the strategic priorities that we've laid out. And we're really encouraged by the early traction that we're seeing from them. We're seeing really great momentum and early indications of growth across metrics. And so what that does is that gives us confidence in the priorities that we have set and continuing to deepen our focus in those as we go into next year. Really, these 4 priorities address accelerating the entire flywheel for us through driving discovery, engagement and connection in ways that we think are going to affect all the metrics that drive our marketplace growth. And so the early traction that we're seeing is encouraging and indicates that we'll continue to invest across these 4 priorities.

And a couple of nuggets we gave in the call, people who've downloaded and are using our app visit 5x more often than people that are web only. And in each of those visits on average, they see 3x as many pages. So they're visiting more often, and their engagement is a lot higher and as Kruti's talking about that flywheel. That gives us an opportunity to get to know them so much better so that each visit we're able to become a lot more personalized and we've talked for so many years about the consideration opportunity at Etsy. The people think of us for home furnishings or they think of us for clothing or they think of us for gifts. And we want them where we can serve so many of their needs.

And of course, you can buy TV ads saying, think of us for lots of things. But the best way to do it is when you're on Etsy to show you not only the thing you came for, but also to exposure to really cool things, you didn't even think to ask of, so you broaden your understanding of Etsy. And that's the flywheel where we're encouraged by the early results we're seeing from these efforts.

I don't want to -- [indiscernible] to say that all of that also is powering our owned media channels. And so the data that we're gathering about those app users when they're visiting much more frequently, when they're looking at many more pages, when they're responding to the ML prompts that we are providing to them is helping us profile them, which is helping us better target our outbound e-mail and push notifications, which are becoming -- quickly becoming a really prominent and very high return marketing channel for Etsy. So the flywheel connects through the marketing as well.

Our next question will come from Anna Andreeva with Piper Sandler.

Great. And let me add my congrats as well to Kruti and Josh. Josh, you will be missed. But yes, congrats guys. We had a follow-up on the guide for the fourth quarter. So great to hear about the sequential improvement at core Etsy GMS. Are you seeing further improvement here in 4Q, just given the momentum of the initiatives and the easy compares that the business is lapping? And just curious, talk about maybe how you approach the holiday. Any specific opportunities for the business. We had a shortened holiday last year, which was not a positive, what could give [ mode ] due this year? So curious on that. And then, Kruti, maybe it's early for this question. But Etsy's profitability is some of the highest among the peer set. Just strategically, do you think there's an opportunity to invest more just to reignite growth even faster? Or do you think it's important to preserve profitability?

Let me talk first about the outlook for the fourth quarter. As we said, the consumer outlook remains uncertain. There's probably a higher degree of uncertainty around the consumer going into this holiday season than there has been for prior seasons -- for some prior seasons anyway. But our assumption is that could the consumer health stays about where it has been year-to-date into the fourth quarter. So that's sort of underlying macroeconomic consideration.

When we look at the progress we've made since the start of this year to where we are today, we believe a lot of that progress has reflected -- has been a reflection of the things that we've done on the initiatives that Kruti talked about earlier. And we expect to continue to make that progress into the fourth quarter. So as you look at the ranges that we've outlined for the fourth quarter, as Josh said in his prepared remarks, at the midpoint of the outlook range, it would equate to a further sequential improvement in the year-over-year growth rate for a consolidated picture as well as for the Etsy business. And we think that's -- we've provided a range at the upper end of the range. It would probably be in a healthier consumer and more progress in our own initiatives and the lower end of the range might mean a little bit more challenging consumer environment. We've really tried to provide you the best picture we have today with what the fourth quarter looks like, and that's what it's put into our outlook.

For our holiday season, we've got a really exciting campaign plan that really leaned into the humanity of Etsy. What made Etsy really different than the fact that you are seeing what's special in the other person than recognizing what's meaningful in the other person. It's a really great set of campaigns. That will be reaching people where they consume media now, which is very different than where they have in prior years. So we're really excited about that. And on Gift Mode, in particular, it's really now deeply integrated into search and the core home screen. And so instead of having to go to a separate tab for it, it's really integrated into the core experience. And as we're getting better and better at recommendations with these new ML models, we're also getting even better at finding the perfect gift for you, both through edited and curated gift lists and then ML just for you. So we're super excited about that.

And then on the last part of your question, it is early to comment on the specifics there. But what I will say is that we have seen the profitability of our marketplace is a real strength of our marketplace. And we've always been really disciplined and thoughtful about our investments. And so I would point to Depop as really a great example of where we've been willing to make deeper investments where we think there's a lot of opportunity.

And just to step back and talk about that for a moment. I'm really proud of what we've been able to accomplish at Depop. We went from 3 years of flat GMS to 2 years of accelerating growth. And over that time, we nearly doubled the scale of GMS and the number of active users and tripled the number of listings on the platform. And I think all of that goes to show that we've really achieved incredible product market fit. And the growth is not just momentum. It's sustained growth based on that product market fit. And so this is really the perfect time to be making that step up in investment against marketing Depop to really increase the exposure that we're giving to people who may not have heard of Depop whom the value proposition is really relevant and will resonate. And so I would just look to that as an example for us of when and where we think there are really great opportunities to invest more. We will absolutely take them. And we continue to see our profitability profile as strength of the business.

Your next question will come from Bryan Smilek with JPMorgan.

Congrats on seeing the good improvement in execution overall. Kruti, as you step into the CEO role, just elaborate a bit more on how you strategically are thinking about driving sustained GMS growth here? Is it more of the same execution or leveraging the Depop playbook across product marketing? Or is there just anything else to keep in mind?

You're right. My focus is squarely on delivering robust, sustainable growth, and that has been my focus since the moment I stepped back here from Depop. And so one of the nice things about the way that this transition is playing out is that your -- I've had the ability to really lay the groundwork for growth over this last year. So you're already seeing the investments and the changes that we think are going to be really critical to driving growth next year and over time.

And so the way that I would think about it is that we stepped back and said, what are the things that we need to do to strengthen the value proposition of Etsy for our both our buyers and our sellers, our entire community. That's what really underpins the strategic priorities that we've laid out. really driving that flywheel of discovery engagement and connection, all with human connection at the center of what makes Etsy different. And I think we all feel very encouraged by the quick progress that we've made, the quick time to market against any of these priorities and the early traction that we're seeing. We are excited about the traction, but we're far from satisfied with the growth that we're seeing. So there is a ton of potential ahead. And because we see these working, you can expect us to continue to invest in these strategic priorities going into next year.

Our next question will come from Eric Sheridan with Goldman Sachs.

Just wanted to come back to loyalty and rewards and sort of build on that as a broader conversation piece, what have been your key learnings so far as you rolled out more loyalty on the platform, how do those learnings inform the innovation or iteration of loyalty you're announcing today that looks like it's going into beta this week? And how should we think about the GMS opportunity attached to loyalty over the longer term?

Sure. I can start on that, and please feel free to add on. So look, at the core of this priority around loyalty is the idea that Etsy should get better and better for our customers as they use it more and more. That's true for buyers and sellers but let's talk about buyers in this case since you asked about the loyalty program. I think there are 2 main ways that Etsy can feel like that can feel like it's getting better as you use it more. The first is what we were talking about earlier, which is our investments in personalization. It's really the #1 way that we can show our buyers that we really understand them that we're paying attention to all of the signals that they give us. And that's informing an experience that feels really tailor-made just for them that we think drives engagement. The ongoing engagement and loyalty over time.

Another piece of that is our investment in the Etsy Insider loyalty beta program. And as you noted, we are evolving that program into version 2.0 of our data. What we've learned from the initial version is that the rewards that we offered both drove adoption of the loyalty program and drove a meaningful uplift in frequency of engagement and purchasing. And so that was a really important learning from this first version. What we're changing in this next version is we're really reorienting it to really focus on our more frequent buyers. So again, to that point of making sure it feels like you are recognized and rewarded for the time and investment that you make in Etsy. And so the changes that we're making are really around the reward structure, so the benefits that you get are benefits that you experience with every purchase. So shipping discounts on every purchase, rewards, anti-credit back on every purchase. And what we're looking for is, again, to see continued adoption, frequency of engagement, frequency of purchasing and over time, renewal rates in that loyalty program. So that's the goal. And as we learn more, we'll share that.

I would just say from a -- thinking about the GMS opportunity, I would I would start out by thinking about Etsy generating $120 in GMS per buyer on a 12-month time frame. And our opportunity to increase purchase frequency through rewards and through incentives and then through retention benefits, that's a huge lever for us. We feel like that number -- we know we've got plenty of customers who are spending 5 and 10x that amount with us. in a given year. And we're lining up programs and marketing and communication personalization, all these things to induce more of our customers to think about Etsy earlier on and the leverage point really comes back to that GMS per buyer in the long term.

Your next question will come from Youssef Squali with Truist.

Congrats all around. So maybe first question for Josh or Kruti, and this is really a follow-up to the prior question. But how do you balance the push for traffic from these Gen AI platforms versus maybe direct/mobile, where arguably the value that accrues to Etsy over time is higher. And then, Lanny, can you maybe unpack a little bit more the nature of the investments planned for Depop in Q4, which will compress margins near term? Is this a 1 quarter type of phenomenon around the holidays? Or is this more structural going forward?

I'm happy to start with the agentic commerce. The great news for Etsy is I don't think that it's a zero-sum game. I don't think it's an or. I think it's an add. I think people are going to shop agentically sometimes. And when they do so, I think the smart agents are not going to say, here's the answer, very rarely is there one right answer. I think they're going to provide a range of choice. They're going to say, for example, this is the cheapest thing you can buy. This is the thing that will arrive the fastest. And this is the thing that's most special or unique.

And in that offering, here's a few curated choices, I think disproportionately Etsy is going to be presented and is going to win. And a lot more often than consumers on their own might have bought of Etsy. And in all of those presentations, whether they buy that particular thing from Etsy or not, they're going to be constantly reminding Etsy has something to offer for you. And those customers are also going to go and launch their app. It's going to prompt people to think, "Oh, Etsy is so relevant for me so often." And I don't think in any near-term future, people are going to -- most people are going to exclusively shop by agents. So use agents sometimes, and they'll continue to use the app sometimes. And I think it's going to actually be a virtuous cycle that accrues disproportionately to Etsy's benefit.

In terms of the marketing investment, thanks for that question. Kruti said earlier, this is a really big market. We have a strong position. We have a product at Depop and a value proposition that we feel really good about. And it's an opportunity right now to really make this business quite a bit bigger and more valuable in the long term. And we're going after that pretty aggressively.

The big opportunity for us in the near term, Youssef, is to expand the awareness of this great product and this great service. And so it's a brand campaign. It's not going to be concluded in 3 months. It will carry over into the first half of next year. It will take some time, frankly, for us to be able to really assess how we're performing, and we're committed to staying with that brand investment through the time that it will take to be sure that we're really expanding awareness to that product. We really like the long-term opportunity here. So it will be -- it will compress margins in this quarter, and we'll continue to make that investment going forward. Now if things look a lot better than we thought, we might step it up. If it doesn't look like it's going as we expect that we could be very maneuverable on our spending there. But our intention right now given where we are and what we see in this marketplace is to invest there for the longer-term play in that business. Over the last couple of years, as we've leaned into the product and improved it and grown users as we -- and they've grown really quickly, that business has demonstrated an ability to deliver very high percentage of incremental revenue growth down to the bottom line. So we know, trust and believe in its long-term profitability, we just really want to change at scale.

The cool thing on that is there's a huge opportunity for the core Etsy business in the future, but there is also a huge opportunity in Depop. Can Depop be the Venmo to our PayPal. Depop, I think, we think, can be on its own, a multibillion-dollar asset. And so what you're seeing is us take a discrete amount of investment dollars to invest in marketing. We think it's got a good chance of working. We'll be measured and disciplined about how we track progress there. If it doesn't work, we can turn it off. But we think it's likely to work, and we think there's huge potential for Depop.

Your next question will come from Shweta Khajuria with Wolfe Research. [Technical Difficulty] I'm so sorry, Shweta, we do.

Our next question will come from Nikhil Devnani with Bernstein.

And Josh, thank you for all the help over the years, and congrats to Kruti as well. I wanted to follow up on the open AI theme. I think there's clearly some benefit that you and other marketplaces can realize in terms of incremental traffic and engagement in GMS. But investors are starting to worry longer term about what this means from a retention and buyer perspective and what it means for direct traffic and core profit pools for businesses like yours with on-site ads. So when you evaluated this partnership, how did you kind of think about the risk/reward longer term of something like this?

Yes. I think Etsy is different than a lot of places and that we have a lot of confidence in our value prop. And we have a lot of confidence in the importance of our brand. Etsy is a community of over 5 million unbranded sellers selling unbranded items. And we know that when they set up their own shop and try to market themselves, it's very, very difficult for them to rise above the noise. But the Etsy brand next to their shop really helps to instill confidence in buyers and helps to elevate their product, their shop.

So we know that Etsy as a brand should be pulled through in the Agentic experience. And when you're shopping with an agent, you want to see it's this seller powered by Etsy. And we have a lot of confidence in that value prop because we've seen it tested in the real world. So we know it makes sense to pull the Etsy brand through and have the Etsy brand be prominent. It's also been my experience from decades of doing this, the customer behavior changes much more slowly than people think. We will have an app, I believe, for many years to come, and people are going to shop agentically. And both are going to be good and both are going to be complementary. The great news here is that we think Etsy really does genuinely add a lot of value to our sellers and to our buyers. And I think that the agentic commerce is only going to help make that more prominent to customers. and be a real win-win for all of us.

The other thing is our position being an early adopter which comes from the fact that we have such a large set of inventory and a strong engineering culture means we're really at the table to help shape what this experience can be. How is it presented to the buyer what do the economics look like? We are really at the table there, and I think that is exactly where you'd want to be in such a titanic shift like this.

Yes. One other thing that I would add there is if you just like getting into the mindset of the consumer for a moment, it's really important that we are showing up where they are discovering. And this is a really great example of that. I think that we will continue to evolve as shopping behavior evolves. This is a great example, Josh, we mentioned earlier that the importance of our brand showing up in those moments, both to give buyers trust in the shops that they're looking at. But also every interaction through any channel, including a genic shopping is a reminder of Etsy and the brand so that the next time you're shopping, you're reminded to consider Etsy. So we think that it actually creates a real virtuous cycle whatever channels, shoppers are shopping on.

For our next question, we'll return to Shweta. [Technical Difficulty] Unfortunately, still cannot hear you, Shweta. So we are going to go to our next.

For our next question, we'll go to Ygal Arounian with Citi.

All right. Josh, we'll certainly miss working with you and Kruti, congrats on the new role. Let's see, maybe just a quick follow-up first on the agentic AI opportunity. And first, do you think -- well, actually, I guess, first of all, I know it's super early, this might just be a very annoying question, but are there any early insights to what you've seen with the partnership so far? Things like convert rates or average selling price, things like that?

And is there an Etsy Ads -- your offsite ads opportunity with this as well? And then a follow-up question, just with the trends overall getting better here and starting to see some nice progress, and then we've moved away sort of in the house of brands mentality. But just wanted to get updated thoughts on M&A capital allocation. If there's more opportunities is kind of the resale market grow here to kind of tag along with Depop.

I can take the opening, if you can [indiscernible]. So yes, not knowing question at all. We're tracking very closely what's happening with data the data from agentic commerce. So what I'd say is with the partnership, we definitely saw a spike in purchases from that, but off of a very, very small base. And so good growth, but off a very small base. The early data is that the traffic coming from agents is higher intent than traffic even that we normally get from search. So the conversion rate is even higher. However, I would again emphasize that it's a very small data set still. And so while we are very optimistic about this over a period of years, it's still very early days.

And from the capital allocation and your question about M&A and how's the brands. We've got 2 incredible brands in Etsy and in Depop. And if there were other brands that were similarly interesting and attractive, exciting to us, we might look at them. But from -- we've been buying back our stock pretty aggressively over the last couple of years with a belief that the brands that we have are -- have tremendous long-term value in them. We've changed the momentum, we believe, at Etsy, and we're not satisfied where we are, but we've made some progress. And we think we've got the plans to get Etsy business into a stronger long-term sustainable growth mode.

And Depop has got great growth under -- sort of looking back and this really attractive opportunity right now for us to deploy more capital into it. So I guess what I'd wrap it up by saying is we really like our financial resources, and we really like the assets we have, and we're going to keep leaning into them very aggressively right now.

Okay. Operator, I think we can get one more in.

Your next question will come from Robert Coolbrith with Evercore.

Josh and Kruti, congratulations to both of you on the transition. A couple of questions. So just on the agentic commerce, Kruti, you spoke during the call about the tailwinds you're seeing from improved buyer understanding. Just wanted to ask if you think there's a continued opportunity there in agentic context. Do you think there's going to be a meaningful sort of agent to agent communication and associated optimization opportunity in those channels over time? And then, Lanny, a quick follow-up. Can you just maybe help us size a bit the exogenous factors, the de minimis impact to the extent you saw over the course of Q3? Thank you.

Sure. So I can start with -- look, we think there are a lot of exciting possibilities ahead, both what you mentioned and others that we haven't even considered yet. I think our investment and deepening buyer understanding is going to serve us in any of those packs ahead with whatever opportunities present. The team has done a really incredible job moving very quickly to take advantage of these -- the evolving capabilities of AI and LLM to really deepen our buyer understanding in a way that is showing up most prominently right now in terms of the models that we're deploying on site, so in our on-site on app experience, both across search and recommendations.

And so those are some of the improvements to engagement that I mentioned earlier, especially on the app and some of the improvements to conversion on searching adds that I mentioned in the prerecorded remarks. So we're excited about the possibility that, that deepening buyer understanding opens up, and we'll certainly leverage that as new opportunities come up in channels like agentic search as well.

Can I just build on that for just a second. One of the ways that customers are trained right now is to give 3 keywords or 2 keywords. And Etsy has just an unusually fast amount of inventory of really neat things that are relevant and people are suddenly being trained to give paragraphs of information and context. And that's going to be exceptionally helpful to us in getting you to the very perfect thing. So we're super excited about that.

On a quick tour of exogenous factors. The foreign currencies were about the same in the third quarter as they were in the second quarter. The competitive dynamic continued to allow us to gain opportunistically some search market share, as we described. And from a trade and tariff perspective, we've seen the resilience in Etsy marketplace of stronger growth in U.S. domestic with a little bit slower growth in the international imports in the United States right around a couple of weeks of the end of the de minimis exemption we saw a little bit of pause in the marketplace, but that came back and was a very modest headwind for the total quarter.

Great. All right. We are out of time. Thanks, everyone, for the [indiscernible] this morning.

Thank you, all.

Thank you.

Thank you.

In the interest of time and when that people get settled. We're going to be set over the next one. It's my pleasure to have the team Etsy here. And it's a hope we've got Josh Silverman, CEO; Lanny Baker, CFO. Great to talk to both of you. Thanks so much for being part of the conference.

Great to be here. Thanks for having us.

Okay. So Josh, I want to go backwards before we go forward. So you put on a journey on the company over the last couple of years where you were dealing with some headwinds in the business, but now you've got a number of strategic priorities that you're executing on to reposition the business. Talk a little bit about the journey you did on the last 12, 18 months before we set the stage for where we think the company is going over the medium to long term.

Yes. Well, heading into COVID, I think we've done a ton to make Etsy great, if you knew what you wanted, Etsy for sure had it. And it turns out that during COVID, a lot of people knew exactly what they want and couldn't find it anywhere else and turn to Etsy and our business more than doubled over that time. So -- and what I'm proud of is we've been able to largely hold those gains even when people came out of COVID and had infinite choices.

So we had about $5 billion -- little less than $5 billion of GMS in 2019, we did $11 billion of GMS last year. We had 45 million customers in 2019 coming into COVID, we had 88 million active users, active buyers, people who shopped in the last 12 months with us last year. So we've been able to hold those customers. The opportunity is how do we grow beyond the games that we had during COVID. And I think the opportunity that we saw ahead of us was to not just be the place to go if you've looked everywhere else and can't find it. For sure, we have what you need at Etsy.

But how do we move up the journey to be a starting point when you're just beginning to plan your wedding when you're just thinking about gifts you on for friends when you're just redecorating your house, it's us so much to offer -- and so last year, we needed to do some foundational work to do things like free up a lot of screen real estate to allow for more discovery build some infrastructure to allow us to do more with recommendations.

And importantly, elevate quality, understand what are the best items on Etsy and really elevate the very best amongst the 120 million items on Etsy. And drive people to use the app. And I'm sure we'll talk a lot more about it, but I feel really great about how the investments we made last year and some of the foundations are starting to pay off this year.

Okay. So I'm going to interrupt the flow because as a former lawyer, I'm embarrassed that I forgot to read the safe harbor and say relevant safe harbor language can be found on Etsy's IR website. So I am literally embarrassed as a attorney, I'll have to get rid of that law degree that sits in my office.

But that got restarted by talking backwards before we talk forwards. But Josh, let's take off in that and move on and say, strategic initiatives. So there's a number of things you've articulated around meeting the consumer where they are, amplifying the consumer experience. Why to go a little bit deeper into what those elements are of where you're trying to take the business and update folks on where you sit on sort of executing against those today?

Yes. So we've said there's 4 things that we're really prioritizing at the moment. One is being where consumers are when they're discovering. Second is being much better at matching people not just to what they know they want, but things that they didn't even realize that they want. Third is really leaning into our best buyers and best sellers to elevate the experience there. And fourth is elevating the humanity of Etsy, what really sets Etsy apart.

And we're making great progress across all 4. Consumer on the first one, which is meeting buyers when they're discovering items. When they're just starting their discovery journey, shopping behaviors have changed really dramatically in the last 5 years. And Etsy is really changing its marketing spend in a very big way to be where customers are buying.

So for example, linear cable was about 1/3 of our brand marketing spend last year. It's going to be almost none of our marketing spend in the fourth quarter of this year, low single digits. And instead, we're ramping our investments significantly in places like TikTok and YouTube to really plant the seed in people's mind early on that you should be thinking about Etsy as a place to discover.

And then when you come to Etsy, we've really evolved the Etsy app. The Etsy app today is very different than what the Etsy app was even 12 months ago. If you look at the home screen, about half of the home screen on the Etsy app is just a continuous feed of discovery of cool interesting things you didn't even know you wanted.

We've launched a shop tab in the app as well, which is a very browse-based discovery experience. So really leaning into meeting customers where they are early in the journey being a starting point for your shopping mission, not just a place to come when you've already figured out what you want.

Second is matching. We have an opportunity to do far better, not just at meeting the need you had, as we said, but also of making non-obvious connections and there's been -- this is an area where GenAI is helping so much for us to understand what the best item on Etsy is to meet your needs based on your personal taste and preference, but also to make nonobvious connections and really surprise and delight you with all the cool stuff we have on Etsy and in doing so to build a flywheel where we know you better and better every interaction.

So every time you come to Etsy, Etsy feels more and more like a curated shop made just for you, which leads to our third pillar, around leaning into our best buyers and our most active sellers with our -- like most e-commerce sites, there's a smaller percentage of Etsy buyers that account for a larger percentage of our sales and we have an opportunity to take -- for those buyers, we know a lot more about their taste. We know a lot more about their preferences and there's an opportunity to really make Etsy feel more curated and customized for them.

There's a lot of advances in GI. We're really investing in right now that I think are really going to deliver in a big way on that, and we're seeing early green shoots of that. We're also launching a new version of our loyalty program. We launched a beta version one of our loyalty program which, I think, did a great job of leading with a free shipping benefit that's been popular dire engagement, but we've been working through the economic model to make it scale.

V2, which we'll launch in time for the holidays, is going to be more targeted towards our best customers and getting even more incremental shopping from our best customers, rewarding them for every purchase and doing that in a way that I think is going to be able to scale more from an economic architecture. And fourth, but certainly not least, leaning into what makes Etsy even more human. So for example, really driving more conversations directly between buyers and sellers, elevating the making process itself, so buyers can really see the process the seller made to make the item tons of opportunity.

And I would say this is an incredibly exciting moment for Etsy, and I'm sure we'll spend a lot more time talking about it, why Etsy and why now? The advances that are happening in GenAI are uniquely helpful to help Etsy in so many of these moments. We'll dive deeper into it. But well, everyone is talking about the productivity gains they expect to get from GenAI and we expect those 2 making our engineers more productive, making customer service more efficient.

GenAI is especially good at adding context where you lack context. And if you think about Etsy, with 120 million items that don't map to a catalog, we have virtually everything for sale, but it's highly unstructured. Serving the needs of almost every buyer, the opportunity to add context and to add structure to that is incredibly powerful in driving our top line growth, not just bottom line efficiency.

Okay. I want to take a couple of pieces of that and build on it. But first, let's start with the application, the Etsy app. It reached the highest ever share of GMS, roughly 45% in the last quarter. We're seeing great growth. Talk a little bit about the app as the centerpiece for your strategy and how you think the work you've done on the app positions you competitively?

Yes. So as you said, now about 45% of GMS in the last quarter came through the app. And actually, Etsy GMS on the app was growing year-over-year. So we're seeing early green shoots there. We're very pleased by the growth we're seeing in monthly active users and in downloads -- we've been investing a lot more in driving people to use the app.

And we know that when people download the app, their lifetime value goes up by about 40%. So making the Etsy app, the center piece of the Etsy experience is a very big priority for us -- the other thing that we love about the app is having Etsy in your pocket on an app, it's uniquely well designed to actually be a source of entertainment and discovery in moments when maybe you're waiting for the subway or there's a commercial break on TV.

There's very few brands out there that have enough appeal, resonance uniqueness you would actually turn to them as a source of entertainment and not just as a functional need. Etsy is one of those brands. People expect that of Etsy. We have a huge opportunity to deliver. If you look at our app today, it is dramatically different than what our app was like a year ago.

It's designed not just to help you get to what you already came knowing you wanted to buy, but we're dedicating a lot of screen real estate now to showing you things you didn't even realize you wanted. And there's 2 things that are happening from that. One, we're learning more about you. As we show you a continuous scroll of really cool items, what do you dwell on, what photos do you enlarge. That's teaching us a lot about you and your taste and interest. It's also helping you to see all of the different use cases that Etsy can meet and we have some evidence of the future today in terms of the power that this can unlock for Etsy.

If we look at the Depop growth story, -- in 2022, Depop was growing at a very tepid rate. And [indiscernible] and Rafe Colburn went over to Depop, and they led a dramatic turnaround of DPO -- now we're seeing Depop grow at really terrific rates, especially in the U.S. And what's happened is almost all of that growth is being driven by better recommendations, getting a customer to not just make the purchase they came for, but show them extra things and get extra engagement extra purchases and it turns out that engagement has all been additive to the growth that they were already getting.

And it's had a real inflection point, so taking that learning an app-centric discovery-based experience and bringing that back into Etsy with Kruti now is our President and Chief Growth Officer, and Rafe as the Chief Technology and Product Officer of Etsy, taking that learning and driving that through the Etsy experience. I'm incredibly optimistic about what that can mean for us.

Okay. Great. I want to turn back to AI and machine learning. You referenced a little bit earlier. You kind of talked about it from an internal process perspective, and I think it left us that, that's sort of somewhat understood. Talk a little bit about how AI continues to inform product development change the external facing elements of Etsy and how that might differentiate Etsy in the years ahead.

It's so powerful for us in so many ways. So yes, it's going to help our engineers code things more efficiently and help our customer support agents. But much more than that, Etsy faces some really unique opportunities and computer science challenges. One of the questions we ask ourselves all the time is how artisanal is this item actually, which has been a question that's been basically impossible to answer with traditional search engines. -- but you can show an item to AI, and it will say, "Oh, that piece of carpentry is particularly difficult to make because of the way the wood is joined you have to be a true artisan to make that end table. And so that's going to receive a 9 out of 10, where some other item that looks awfully mass produced might receive 1 out of 10.

So the opportunity to use AI to elevate the best of Etsy in a way that, frankly, no one else even cares about, questions others aren't even asking. Let me give you a few other examples. The way our search engine works, when you search for something on Etsy, we typically have 10,000 or more relevant items. And so what our search engine is trying to do is figure out what's the thing you're most likely to buy and put that first.

Historically, the way it's done that is look at what have I shown customers before and which items have had a high conversion rate. That leads to a memorization bias, where the items that get shown the most and get bought the most end up on top, that's fine if you're Amazon or Walmart. But actually, for Etsy, what we're trying to do is not show the thing that's been bought 1,000 times.

We're trying to show the thing that's maybe one of a kind, it's never been bought before, it's made just for you. How do we do that without showing every person, every item 1,000 times. Well, the opportunity to show an item to an AI and say, does this item look like it would be very appealing to someone and in fact, does this item look like it would be appealing to someone who is from the Midwest and has a boho sensibility, as opposed to someone who's from Los Angeles and has a grand sensibility. AI can suddenly answer these questions for us in a much more compelling way than we've ever had possible without, by the way, needing to show every item to every buyer.

One of the challenges on Etsy is we're -- the way to learn if an item is cools to show it to people, I'd rather not use our buyers as a test bed where we're showing them both the best and not best of Etsy. The other opportunity that AI brings us is not just to understand our items. What I've been talking about is how do we understand our items better? Is this item compelling? Is it priced in a compelling way? How do we also understand our buyers in a really rich way.

The way that historical recommendation algorithms have worked a very listing centric. What listings have you bought before and what other listings are related to that. That ends up being highly relevant and highly boring. You bought these eyeglasses. I'm going to show you eyeglass cases, right? What we're now able to do is map every customer as a unique point in a universe based on hundreds of different tastes and preferences and map every item in that same universe based on tastes and preferences.

And then see, for this customer who sits at this point in the universe, what items are around that customer. And surprise and delight you with connections you never would have expected. We have our first recommendation models coming now live to site through these buyer affinity models, and we're seeing very promising early results that this can lead to much more engagement and a lot more items matching you in surprising and delighting ways.

And part of where that's going to really help is also helping to cross-sell customers to different categories to different occasions so we get even more frequency. And I think over time, what that can do to our cohort curves what that does to lifetime value is really compelling.

So maybe just sticking with this theme, and I want to bring an into the conversation. On browse and sort of discovery. Just go a little bit deeper on what that can do in terms of changing buyer engagement and how might that create different more inspirational shopping experiences because of that engagement over the medium to long term.

Yes. I mean today, you're limited by the creativity you have to enter keywords into our search engine. So there are people who really speak Etsy, they speak merch and they know words like Boho, right? And so they get a lot of -- you sit next to our best shoppers, their ability to use our search engine, wow, they are powerful and maybe Target wants to hire them to be a merchandiser, right, because they are -- they have passion for that.

But for most people, a very common keyword on Etsy would be like a gift for mom, cat. There's only so much we can do with that. It turns out we've got hundreds of thousands of gifts for moms who own a cat. But if we can get a little more, would not be compelling. If you could tell us a paragraph about your mom, how exciting would that be? And so the opportunity to create browse-based paths where people don't need to have their own imagination about what keywords to enter, but we can show them interesting things and then they can riff off of that.

We'll show you something and you'll say, yes, like that, but actually more in this direction. That can be very exciting, and it's a lot less cognitive load for customers, and it leads to a lot more interesting, surprising and delightful customer experiences, the ability to do that in a really good way 5 years ago it was much harder, dramatically better today with the latest technology, and I think it opens more doors for Etsy than almost anyone else.

Okay. Thank you, Josh. Lanny, I want to bring you and Josh referenced earlier the evolution you guys have been on as a company with respect to how you spend on marketing. Maybe talk a little bit about how those marketing investments have worked and changed and how you think it might change sort of driving customer relationships over time as well?

Sure. I think it dovetails perfectly. And I want to start out by saying -- your question is about the evolution in our marketing, and there's a lot that's evolving. But one thing that's really not evolving about this company is that we don't set a marketing budget. We set a marketing return requirement. And we look at what the marginal dollar spent is for the marginal items sold or the marginal increase in customer LTV, and we want to spend right up to that point.

So when we find opportunities in the marketplace to spend more, we spend more. So our spending is really -- I think, will continue to be governed by the return that we get on the spending. Now that leaves a couple of opportunities. There's things that we can new marketing channels. Search is a great area for us right now. We're -- or sorry, social media, which is an area we've under-invested in historically, but we've made some changes to the product landing experiences that are now allowing dollars that we put into that social channel to yield better results, allowing us, therefore, to put more money into those channels. And sort of get that flywheel spinning of the more we spend, the more we learn, the more we can optimize the more we can spend.

And we're doing that against social. Josh talked about TikTok. He talked about YouTube and other places where we're shifting dollars into these new channels all with an effort to show up where customers are today, and it's not just search and it's in these other channels.

The second part of it is that as we improve the performance of our product and our conversion, as we know more about the individuals as we personalize the experience, as Josh described, the LTVs of those customers that we acquire can increase, and we're seeing progress there as well. So our marketing spending is shifting channels to the places where people are, and then we're following that up with highly personalized and really relevant experiences. And one of the -- I think one of the things I'm most excited about within our marketing mix as it evolves right now, is the owned channels that Etsy has to very personally, directly communicate with our buyers and our -- and people on the service are a huge opportunity for us, enabled by AI that's allowing us to learn more about our customers faster.

The percentage of GMS that's coming through our push notifications and our outbound e-mails where we're not paying a third party for that as we personalize those messages, the percentage of GMS that's coming from those channels is rising really quickly. And it's at a place where, frankly, it's close to eclipsing some of our biggest paid channels. So when you zoom all the way out, I think you get this picture of we're going to continue to spend right up to that marginal return while trying to find channels that can unlock incremental audience and then product experiences that can unlock incremental LTV of the customers that we acquire.

Okay. Understood. The environment out there remains fluid is tariff implementation dynamics around the commerce landscape. There's the de minimis exemption dynamic that continues to shift. Can you level set on Etsy's cross-border business today and how some elements of seller diversification might insulate you from some of the dynamics that are the shifting wins out there broadly in the landscape.

Sure. The de minimis exemption , I think most people are pretty familiar with that, that just expired 10 days ago or even last -- so we have a relatively small amount of data. I'll come back to talk about that. But let me zoom out for a second and say there have been instances in the past where global trade has been upended or disrupted. COVID would be one, the supply chain interruptions that we saw on the back end of that. And through those, we have seen the Etsy marketplace be remarkably resilient.

We have a huge array of inventory from sellers all over the world and in most products in most categories, there are alternative options, there is deep exchangeability and replacement capability from the breadth of the sellers that we have on our site. And so what we see if one lane or one type of trade gets a little bit hamstrung for the moment. There are other parts of the Etsy marketplace that sort of fill in very naturally. We've seen that in the past.

So today, what we're seeing is the implementation of tariffs and it's changing prices, it's probably changing given that like 20% of our GMS or a little bit more than that is U.S. buyers buying things from overseas, tiny little percentage, 1% or so is from China. But most of it is from other parts of the other world outside of China. Even at 20%, that's a relatively small number.

There are many others in the e-commerce world where the percentage of overseas purchase activity is much greater than that. And prices are going up for goods that are coming through those channels. I think Etsy is in a pretty good position in that we've got 60 million-plus items in -- that can be sourced within the United States.

We have a great amount of replaceability in there. And so what we're seeing right now, just in the last couple of weeks is that there is some shifting of listing prices, reflecting what's going on with tariffs. And there is some shifting in where imports versus domestic purchases. But what we're seeing overall is this resiliency of the marketplace.

If I can just jump in on that, too. I'm really proud of the Etsy team for how prepared we were for this moment. We've been working very closely and collaboratively with the Trump administration to make sure that when de minimis is removed, we have a solution that allows small parcels to flow very quickly and without adding cost other than the tariff. And the Trump administration was very open to constructive ideas on how to do that. Etsy architected solution, which they adopted pretty much whole clouds, and we've been able to bring that to postal carriers around the world to have solutions in place for many of our trade lanes.

We've also been communicating very actively with our sellers to make sure that they're well prepared for this as well.

Okay. we're clear. Lanny, just one last one, you before turning back to Josh. Take rates were a nice tailwind in Q2. You have the ad performance in the Etsy business. You've maintained healthy margins. Talk a little bit about the balance of margins and the trajectory and profitability metrics if you were to face more favorable trends in the business than some of the GMS growth that's played out over the last 12 months.

Sure. Look, I think marketplace businesses, I love them. When they're -- when you find the right marketplace and you find it's a big market where there's a lot of value that can be added by bringing supply and demand together it's kind of naturally a very attractive economic opportunity with potentially great take rates and very strong profitability. And one of the things that's remarkable about Etsy over the last few years is while we've been in an environment post-COVID of pretty flat GMS, declining GMS we've really done, I think, an outstanding job of maintaining margin discipline and preserving and maintaining Etsy's overall margins.

The core Etsy business is in that very high 20% EBITDA margin levels and in this -- we've said at last quarter, we said we will tick up a little bit in the third quarter from where they were even in the second quarter, very, very close to 30% EBITDA margins on the core Etsy business. And we think we can maintain that. We're making really important investments to make sure we're ready for the transition that's going on with AI, but we think we can keep those kind of levels at Etsy.

On the -- we also have the Depop opportunity, which we'll probably talk about in a moment. And we love this whole idea of recommerce and used clothing sales. We think it's a really attractive growth market. And we've got a very attractive position where we are by far the fastest growing company in the United States in that marketplace. Growing GMS from U.S. buyers at over 50% year-over-year. That's a much earlier stage of development marketplace, and it's earlier stage business. It doesn't yet have those margins that I just described for Etsy, though, over the last couple of years, as we've grown the GMS at Depop, we have delivered sort of 20%, 30-plus percent of the incremental revenue growth down to the bottom line with the depot.

But we're in a mode right now we're investing very aggressively at Depop to increase the value of that asset, increase the position that we have in that marketplace. And so that's a little bit of an offset while the Etsy margins will stay in the high 30%.

So as we're putting all those pieces together, at the end of the day, we're looking at the cash that we are generating. We'll generate over $625 million -- in the last 12 months, we generated $635 million of free cash flow. And so it's a trade-off between growth and margin. We're very focused on driving faster growth in the core Etsy business and accelerating where we are in Depop, and we'll continue to manage the margins like we have in the last couple of years.

Okay. Understood. We only have a few minutes left, so I'm going to ask one to each of you. Josh, you first, Depop, as Lanny said, has shown very good growth and you are making some marketing investments. in that in Q3. Talk a little bit about investing behind DPO and what some of the key learnings from Depop might be for the broader array across Etsy?

Yes, Great. I'd say when we bought Depop and Reverb A lot of the thesis was we think there's going to be a big opportunity for shared learnings between them. And we have the opportunity with Depop to really lead a turnaround there, Kruit and Rafe, in particular, led a real turnaround there with a very talented team at Depop around an app-centric discovery centric experience.

I think the learnings from that are incredibly relevant to Etsy. And if we see anything like the kind of impact at Etsy, we saw at Depot, that will be an incredible money well spent to have done that acquisition, that alone, the learnings we can bring -- but Depop got a tiger by the tail. So when Kruti and Rafe arrived, it was really tepid growth. That business has grown 30% year-over-year each of the last several years since they've been there.

And in the U.S. greater than 50%. And year-over-year sustained. So it was around $550 million business of GMV a couple of years ago. It's over $1 billion run rate now and growing really well. Most of that is due to getting much better at recommendation and discovery algorithms in an app-centric way, I think we have a similar opportunity in Etsy to become more acentric, get better at recommendations and discovery and unlock a whole next wave of growth.

Okay. Lanny, bring us home with the 2-sided question. frame up for investors what are the key investment priorities to accomplish what you're trying to accomplish on the growth side? And how are those investment priorities balanced with capital allocation program that strikes the right balance between where you guys, as a team, allocate capital into the business or to reward shareholders?

Sure. We spend a lot of time thinking about the customer problems that Etsy should be solving. We looked really carefully at our buyers at our sellers at our inventory and the changes that are taking place in the technology landscape. And we see an enormous amount of opportunity. We're at the dawn of this era of AI's influence on e-commerce and think Etsy's got a front row seat for that.

So our capital that we're allocating capital to make sure that we are capturing those opportunities that we're well poised for that. So we're allocating capital to our ML and our AI resources. We're allocating capital to new and emerging channels. We're allocating capital partnerships that keep us at the forefront of AI. And the core Etsy business remains just -- it feels to us like there is so much more we can do with that business.

I mentioned Depop, that will also take some of our operating expenses as we lean a little bit more into marketing there. From a capital structure perspective, we've got $1.3 billion in cash. We've got a portfolio of convertible debt that I think is the right amount of debt given the relatively high EBITDA margins that we have in the business and our ability to surface that. And we've been very fortunate to get very attractive rates on the debt that we currently have.

We recently refinanced a portion of our debt, I think a really great rate. So we feel really strong about that -- feel good about that capital structure in place. And that leaves us with $635 million of free cash flow in the last year to consider putting on the balance sheet or buying back stock. And our stock is really volatile. And that creates opportunities, we believe, to be buying back the stock pretty aggressively.

We've bought back a lot of stock this year, and we'll continue to buy back stock. So I think what you should expect from us is that most of the sort of incremental investment is going to go towards Etsy than to Depop, and then what's left will -- when the stock is an attractive place that we like, we'll be buying back stock.

Okay. Josh, we got 1 or 2 minutes left here. Just bring us home with what are the 2 or 3 key messages you want to leave with investors from this conversation in terms of your top priorities around execution at Etsy.

Thank you. When I arrived at Etsy in 2017, I think people thought Etsy was as big as it could be and the conversation was you've achieved your full TAM and you can't compete with all the competition out there. And I think we had $2.5 billion of GMV. We said we think we can do $10 billion of GMV someday, and people said no way or you're dreaming. So we did over $11 billion of GMV last year. I think we're just getting started. Now the conversation with this, oh, you've just achieved your full TAM and you can't deal with the competition. It feels like the future all over again. I sit here and say, what we've done a great job of is being the last place you go when you can't find it anywhere else.

We have so much permission to be so much more than that talk to anyone in any coffee shop. Just say the word Etsy. And I guarantee the person next to you will say, Etsy, "Oh, I love Etsy. I love Etsy. People love Etsy. " They have permission, they have belief in Etsy. And this next wave of technology unlocks enormous opportunity for us to actually provide structure and context around the incredible amounts of unstructured data we have. to actually delight them with what they want, which is show me things I didn't even ask for, help me be a starting point for e-commerce not just an ending point.

Ultimately, there is not room for 1,000 e-commerce sites because we can't remember 1,000 brands. We'd have to rely on search or someone upstream to get to 1,000 brands. There's a handful of brands that are going to be enormous. And those brands are people that do something genuinely different -- that's important enough for you to actually remember it. Etsy is one of the tiny handful of brands that does that. That is an enormous opportunity, and we are bound to determine to achieve it.

Great. Well, I appreciate you both coming out West to have the conversation in San Francisco, especially since our respective offices are not that far from each other. So thank you for that. And please join me in thanking Etsy for being part of the conference this year.