Good day, ladies and gentlemen, and welcome to the Etsy Second Quarter 2015 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Jennifer Beugelmans, VP of Investor Relations.

Thanks, Liz, and good afternoon everyone, and welcome to Etsy's second quarter earnings conference call. Joining me today are Chad Dickerson, CEO, and Kristina Salen, CFO. Before we get started, just a reminder that our remarks today include forward-looking statements relating to our financial performance and results of operations, business strategies, outlook, mission and potential future growth. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties which are described in our press release and in our 10-Q filed with the SEC on May 22, 2015. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today and we don't have any obligation to update them. Also during the call we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release which you can find on our Investor Relations website. A link to the replay of this call will also be available there and, if you'd prefer to access the replay via phone, you can find that information in the press release as well. With that, I'll turn the call over to Chad. Chad?

Thanks, Jennifer, and thanks to everyone joining us today. We're eager to talk to you about the progress we made at Etsy in the second quarter. Our second quarter 2015 results demonstrate the strength of our overall business. This quarter, Etsy achieved growth in our key metrics. GMS is up nearly 25% and Etsy's revenue growth was approximately 44% year over year. We saw our number of active sellers increase approximately 25% to 1.5 million and our number of active buyers increased approximately 32% to 21.7 million. We also continued to expand our mobile presence and saw 60% of our visits and 43% of our GMS come to us through a mobile device in the second quarter. There's a lot we can be proud of this quarter but at the same time we recognize that we must make continued investments in both mobile and growth in international markets. As we've shared before, we're focused on four key areas, making Etsy an everyday experience, building local marketplaces globally, offering high-impact seller services, and expanding the Etsy economy. So let me give you an update on the progress that we've made recently in these areas. First up is our focus on making Etsy an everyday experience, which is all about mobile. We talked to you before about how we're leveraging our already strong mobile presence to increase engagement with Etsy buyers and enhance the Etsy seller experience. As of June 30th, our mobile apps have been downloaded nearly 28 million times compared with approximately 25 million as of March 31st. We continue to make progress on mobile and we still have lots of opportunity to improve by launching new products and enhancements. We're focused on creating a seamless experience on Etsy in order to attract new buyers to our platform, encourage engagement,…

Thanks, Chad, and hello to everyone joining us today. Just a note, unless I say so, all the comparisons I'll be talking about here are on a year-over-year basis. So let's start with GMS. During the second quarter of 2015, the Etsy marketplace generated $546.2 million in GMS, up 24.6%. Growth in GMS was driven by growth in active sellers and in active buyers. At the end of the second quarter, Etsy had 1.5 million active sellers, up 24.6% from 1.2 million last year. And as a reminder, an active seller is one who's incurred at least one charge from us in the past 12 months. Also at the end of the second quarter Etsy had 21.7 million active buyers, up 31.6% from 16.5 million last year. Also, as a reminder, active buyers are those who have made at least one purchase in the last 12 months. Etsy's second quarter results demonstrate our continued year-over-year progress in narrowing the gap between mobile visits and mobile GMS and highlighted the results of continued improvements in our mobile app offerings. Approximately 60% of our visits came to us from a mobile device. This continued to outpace the rate of growth on desktop and was up 700 basis points year over year and 100 basis points quarter over quarter. About 43% of our GMS came from a mobile device, also up 700 basis points year over year, but flat quarter over quarter. Etsy's international business continued to expand, with international revenue growing 57.5% in the second quarter. However, percent international GMS declined to 30.2% in the second quarter of 2015 from 30.9% last year and was roughly flat quarter over quarter. As a reminder, percent international GMS is the percent of GMS from transactions where either the billing address of the Etsy seller…

[Operator Instructions] Our first question comes from the line of Heath Terry with Goldman Sachs. Your line is now open, please go ahead.

Great. Thanks. You've talked a good bit in the past about the effectiveness of the initial investments that you've been making in marketing, and I was wondering if you could just give us a bit of an update on the, you know, where the ROI that you're seeing there is falling. You mentioned the incredibly strong organic traffic that you're seeing. Wondering where the rest of that is coming from and how those efforts are shaping up relative to your expectations.

Great. Hi, Heath. So as you point out, organic traffic continues to be a significant percentage, 90% of our traffic. And that is a high-class problem, so to speak, and very different from most of the e-commerce companies that are out there. When we look at the GMS that's generated from organic traffic, I think it's safe to assume that that also represents the vast, vast majority of our GMS. Pay GMS, the GMS that is generated from these direct marketing efforts, is growing faster than organic GMS, a multiple of organic GMS, which we take as a positive sign of the returns of our marketing dollars. One of the things that I would remind everyone of is, prior to 2014, we hardly marketed at all. Indeed the percentage that we spend on marketing as a percent of revenue within the low-teen. Beginning in 2014, we started to amplify that. And in reality, the growth rate of our marketing spend is decelerating from a triple-digit percentage growth in 2014. That being said, we continue to apply the conservative attribution model that we use to allocate every single marketing dollar that we spend, that assumes that paid traffic has lower returns than organic traffic. It assumes a very conservative two-year return rate. And that's conservative because historically we've been much more successful in retaining our buyers over the long term. And it forces marketing spend to be ROI-positive at the aggregate level for the Company, meaning that our total marketing dollars are ROI-positive even if in one country we might be breaking even or slightly negative. So all of that rigor has been maintained with the increase in marketing spend both in this quarter and last quarter, and we'll continue to maintain it in future quarters.

Great. Thank you. That's really helpful. And then I guess one more. Given the growth that you're seeing in seller services, can you update us a bit on the breakdown of mix there between direct checkout and product listings and shipping?

Sure. Well, I'll repeat what we said in the past. We aren't breaking it down between the three specifically. We'll likely provide annual updates in terms of penetration.

Okay.

But the information that we've given in the past with regard to the breakdown remains. Shipping labels is the smallest because it's booked -- because it's booked net. Direct checkout and promoted listings are very similar in terms of their contribution to overall seller services revenue.

Okay, great. Thanks, Kristina.

You bet.

Our next question comes from the line of Brian Nowak with Morgan Stanley. Your line is now open.

Thanks for taking my questions. I have two. The first one, on the buyer growth. I think this sequential absolute buyer growth is around 860,000, was the fewest we've seen. Understanding that you're committed to generating positive ROI and kind of remained disciplined on the marketing spend, can you just talk to us about how you think about kind of accelerating this buyer growth going forward, or is that not something that we should think about in the model in the near future? And I have one follow-up.

Thanks, Brian. So your question is, should we think about accelerating our active buyer growth? And you're specifically linking that fact to marketing. I think it's important to remember, again I'll just reiterate the point of our maturity GMS coming from organic, the vast, vast, vast majority. And so as we think about active buyers, we're thinking about activating or increasing the engagement of our existing buyers, and then, yes, bringing on new buyers through paid acquisition. So when we think about the active buyer growth rate number, we don't have as an explicit goal to accelerate active buyer growth. What we're focused on is increasing the engagement of our existing buyers and bringing in high-quality new buyers, which fits [ph] that ROI matrix that I lead [ph] out. But what I would also highlight is it's important to think about our active buyer activity from quarter to quarter in terms of seasonality. And so, historically, if you look at third quarter and fourth quarter, does tend to be, I guess for obvious reasons given holidays, tend to be more active from an active buyer perspective, whether it's an existing buyer and her level of engagement, or new buyer acquisition.

Great. Then as a follow-up, I appreciate the color again on the international buyers purchasing from U.S. sellers down 6%. Just a couple -- what percentage of international GMS is that at this point? And how fast did that grow in 2Q14? Thanks.

Sure. We haven't disclosed the breakdown of all of the buckets, but what I would say, just to give some more color on that point, is that our largest bucket of GMS by far is U.S. buyer to U.S. seller. And intuitively it makes sense. Our largest community is buyers, 21.7 million active buyers, and we disclosed in the past that the majority of them are U.S.-based. And then we look at our seller community, 1.5 million active sellers, and we've disclosed that the majority of them are U.S.-based. So you put that together, U.S. seller to U.S. buyer is the vast majority of our GMS. If you look at -- if you look at the smallest bucket, the smallest bucket of the five that we look at is international seller to international buyer in the same country. And that's the piece that we're really trying to grow with our build local marketplaces globally. It is the smallest by far and it's growing he fastest. So we're very encouraged by the growth rate that we're seeing, it's sign [ph] that our international strategy is working. But all of the other buckets, whether it's U.S. seller to international buyer, international seller to U.S. buyer, they all are small relative to the big bucket of U.S. buyer to U.S. seller. And then to answer your last question, second quarter 2014 growth rate of the metrics that you referenced was in line with the fourth quarter range, similar to the fourth quarter and third quarter.

Great. Thank you.

Our next question comes from the line of Gil Luria with Wedbush Securities. Your line is now open.

Thank you. Wanted to follow up on that question. You're very helpful giving us the growth rates for international to international and international from the U.S. Would you mind giving us the complements, so, U.S. to U.S. and U.S. buyer from international seller?

No, I'm sorry, Gil, we're not breaking out all of the individual growth rates of the five buckets of GMS. We're breaking out that U.S. seller to international buyer to highlight that indirect impact, to try to get some color around what we think that indirect impact is on our overall GMS growth rate and to help investors better understand how to think about the impact of FX going forward.

Got it. Thank you.

You're welcome.

[Operator Instructions] Our next question comes from the line of Tom Forte with Brean Capital. Your line is now open.

Can I ask you a couple of questions on some initiatives you launched during the quarter and what they might mean to the business near term and longer term? The first is you launched a crowdfunding effort, and then wanted to see where you are on your small badge manufacturing certification, for lack of a better way of putting it, basically giving your sellers the opportunity to work with small badge manufacturers that you've certified as a way to expand their businesses. And then I had a follow-up question after that.

Sure. Thank you, Tom. So, starting with the crowdfunding to fund our Etsy initiatives, that initiative is so incredibly early at this point that we don't have, yes, specific results to report. Very much a pilot program, but something that we're watching really closely. The second question, around responsible manufacturing. At this point we have 4,700 sellers in that program and 7,900 manufacturers. And it's important to note that 85% of those relationships are between sellers and manufacturers in the same country. So our manufacturing program is largely a local phenomenon when it comes to country.

Great. And then I recognize that a lot of your advertising efforts have been focused on product listing ads and Google. But you're starting to see more and more social networks like Pinterest launch buy buttons, and I would think you're a natural to leverage that opportunity. How should we think about Etsy's ability to leverage those buy buttons on a go-forward basis?

Sure. So we see buy buttons as a great potential advertising channel for our sellers, and we've been talking to all the major platforms, learning about what possible integrations might look like. I think the buy button ecosystem at large is still very early and everyone has kind of a different standard. One of the things that we're trying to figure out is, when we look at Etsy, one of the most important aspects of Etsy is the person-to-person connection. And we find that many of our transactions on Etsy involve conversations between the buyer and seller. So that's something that buy buttons really don't make possible. So it's something we're thinking about. We did run a pilot test with Tumblr where you could buy within Tumblr. That generates some conversion. But it's a fairly small pilot. But it's something that we're watching really closely and continuing to talk to the various platform partners. But overall we think it's a great opportunity potentially for our sellers.

Great. Thank you very much.

I'm showing no further questions on the phone lines at this time.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect.