Hi everyone, and welcome to Etsy's First Quarter 2020 Earnings Conference Call. I'm Deb Wasser, Vice President of Investor Relations and joining me today are Josh Silverman, CEO; Rachel Glaser, CFO; and Gabe Ratcliff, our Director of Investor Relations. So we are trying something a little different, given our work from home status. Our first ever video earnings call. For quality purposes, our prepared remarks have been pre-reported along with the accompanying slides. The slide deck has been posted on our website for your reference. Once we are finished with Josh and Rachel presentations, we will transition to a live video webcast Q&A session. Question can be submitted by the Q&A chat window just laid on your screen. Feel free to use it at any time, as it will remain open throughout the entire conference call. I'll be reading your questions and Gabe will help me try to get to as many as we can. Please keep in mind that our remarks today include forward-looking statements related to our financial guidance for the second quarter of 2020 and key drivers thereof. The impact of investments on top line growth and certain impacts that the COVID-19 pandemic may have on our business strategy, operating results, key metrics, financial condition, profitability and cash flows and changes in overall level of consumer spending and volatility in the global economy and the impact of ongoing settlement of intercompany balances on future foreign exchange rate volatility. Our results - actual results may differ materially. Forward looking statements involve risks and uncertainties, which are described in our press release and our 10-K filed with the SEC on February 27th and subsequent reports that we filed with the SEC. 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, reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our IR website along with the replay of this call. With that, I'll turn it over to Josh.

Thanks Deb, and hello everyone. And let me start by saying that our hearts go out to everyone that's been touched by the COVID crisis and it's in this crisis that we're reminded ever more of the mission and the purpose of Etsy and how important we are in the lives of our sellers, our buyers, and our team, and I hope you'll see in the course of this call that we take that responsibility really seriously and we are acting with urgency and in this moment, I think it's also demonstrating the resiliency and the agility of the Etsy model to rise to this crisis. We stood up a COVID crisis task force in January. We tested work from home in February, so that we were as prepared as we could be to be continuing and productive in an entirely work from home environment, and I'm pleased to say that so far we've seen productivity hold up really quite well and you'll see on the slide in fact software releases are up 20% year-over-year in the first quarter in spite of all the changes and that's really a testament to the hard work that the team has undertaken and the seriousness and the urgency that they take their work and it's not without real personal stress on them. So I do want to take a moment to thank the team for all of their hard work. And with that, let's dive in. So I know we're all very anxious to discuss the trends we've seen in April and our thoughts for the future and I want to spend the bulk of my time talking about that. But because this is our first quarter earnings call, let's hit the headlines very quickly. We delivered $1.4 billion in consolidated gross merchandise…

Thanks Josh, and hello everyone. I hope you're all doing well and staying safe and comfortable during this uncertain time. My commentary today will cover consolidated results as well as key drivers of performance, which includes Etsy's stand-alone results where appropriate. You can find select details on Reverb's contributions in our press release and soon to be filed 10-Q. Heads up, I'm going to be reading my prepared remarks since there are quite a few numbers and I want to make sure I get them all right. We've got a lot to tell you about Q2 financial performance, but before I go there, Q1 was a very strong quarter and I want to walk you through those results first. Despite the headwinds growth caused by COVID-19, primarily during the month of March, we delivered a solid quarter. On a consolidated basis, Etsy's first quarter GMS grew 32% to $1.4 billion, revenue grew 35% at $228 million and we delivered adjusted EBITDA of nearly $55 million or margins of 24%. As mentioned on our update call in early April, consolidated GMS growth during January and February was very strong trending at 41% for the quarter. Etsy's standalone GMS growth for the first quarter was 16%, reflecting a strong January and February with a significant deceleration in March compared to last year and last quarter. Q1 revenue is driven by growth in both marketplace and services revenue, as our consolidated intake rate expanded 60 basis points sequentially to 16.9%. We reported strong growth in revenue related to advertising, which was up approximately 70% year-over-year. Google Shopping contributed about $11 million to advertising revenue for the quarter. As a reminder, in the first quarter, we are accounting for our old Etsy Ads model, which recorded the Google Shopping products as revenue was zero…

Hi everyone, hope you're all doing well. I'll start with a question, we see from Kunal Madhukar at Deutsche Bank. As you think about marketing spend in Q2, what is your strategy with regard to brand versus performance, search versus social versus TV, and then Offsite Ad supported versus own spend. That one, I think is for your Josh.

Great. Okay. So as with all of our investments, we try to have a very disciplined framework around how we make those investments and so let me start with performance marketing because performance marketing is really a natural shock absorber that rises and falls with consumer demand. So we've talked a lot about our ROI threshold and we're very disciplined in looking at the next dollar spend and whether we see the next dollar spend is going to deliver a good return. And for all of our performance marketing budgets that continues now just as it did before the crisis and that would include both our Google performance marketing spend as well as performance marketing spends that we have on Facebook and a couple of other places. And in terms of the question about Offsite Advertising, which gets billed back to the seller versus the part that is Etsy funded, overall there is still a subsidy in performance marketing where Etsy is paying a portion of the performance marketing budget and that comes in a number of different ways. If someone goes to Google, and they see a search result for Etsy and they click-through, they may not buy from that particular store, they may buy from a different store. So in that case, neither of the sellers gets charged, neither the seller who's ad was shown on Google nor the place that the purchase was eventually made. Neither of those sellers gets billed for offside advertising. That's something that Etsy funds. So there may be times where the cost of advertising and Offsite - from an Offsite Ad is higher than what the seller pays and again that will be something that Etsy subsidizes. But again, we think that's a great partnership with our sellers, because the seller is…

Thanks Josh. Next one is from Shweta Khajuria from RBC. I understand that you aren't guiding to the full year, but can you please talk about the general philosophy strategy and how you plan to manage costs this year with respect to top line growth and what are some of the places, we plan to continue to lean into and where you'll be seeing cost savings. Will it be more areas to pull back on costs, you talked about the three scenarios doing our intra-quarter COVID update, do those scenarios still stands.

Thanks Shweta. Maybe I'll start and then Rachel can fill in - fill in the gaps. Yeah, I mean in the April 2nd call, we talked about how we took some pretty fast action to look at our operating costs and we're always I guess I'd start by saying that we've always been very disciplined about our cost structure. And if you go back and you look at our earnings call from the prior quarter, we pointed out that we have some of the highest revenue per headcount of any one in our peer group. And so, we entered this crisis with already quite a lot of fiscal discipline and we are continuously looking at how we can get better and how we can make sure that every dollar is going to its best and highest purpose, minimizing waste is one of our core values, as a company. We also said that we're not going to take short-term actions about our investment levels based just on short-term trends and, oh boy, am I glad that we did not over react to the events in the third week of March. Because we were very, very busy in April, rising to the challenge on the side, I think the team did a fantastic job doing that in the fact that we were continuing to invest appropriately meant that we had the resources and the capacity to take to step in, when we were needed in the month of April. So Rachel said in her prepared remarks, we're going to hope for the best, but plan for the worst and what do we mean by that, we mean that we're going to continue to have a lot of discipline around our fixed cost. We're going to be taking very careful eye on our…

Yes. If I can, I'll jump in with a few additional notes, specifically around margins. So I just want to - I want people to remember that we've now consolidate Reverb into our financials, which creates a lot more revenue on the top line with potentially zero margin for now, we have said about speaks expect them to be breaking even the past and as we exit the year. In the first quarter, we accounted for Etsy Ads with a - as a cost of revenue, sorry as revenue with zero margin, so that's also dragging down Q1 margins, now that will shift as we get into Q2 and beyond. We also spent pretty heavily in Q1 this year on television brand marketing, which we didn't spend in Q1 of the prior year and we're, as Josh talked about, we're leaning into that in the second quarter. So we'll continue to spend on television advertising and the last thing I would remind you, as it relates to margin is that we're capitalizing less about product development labor, this year than we were last year, so a lot more of our parked element team is expense to our P&L, so those are the - I know your question is what it was specifically about cost reduction and we've been judicious where we can, but also keep in mind, those other puts and takes that impact our bottom line.

Thanks, Rachel. The next one I'm going to give you is from Darren Aftahi at Roth. You said masks would have been the number 2 category in April, if it was its own category, so what was number 1.

Number one, as historically often been the case was Home and Living. So everything around nesting right now to get your home more comfortable was our top category and I think that again speaks to the enormous opportunity for Etsy, the tam of Etsy, that that Home and Living is only one of our categories, it's a very large category in the world and it's a very large category on Etsy, it's our number one category right now and in a moment, like this, a lot of people were thinking about how can they make their home more cozy, how can they get home office up and Etsy is there for them and can do that in a way that no one else can really do, but it's still only one of many categories. Other categories that were really robust this quarter included things like craft supplies, toys and games, card and name, self-care. So many different categories on Etsy that are really relevant, gifting is a really big deal in this moment. So many categories that are really relevant right now and the challenge for us historically has been getting people to think of Etsy for those particular products and suddenly, we have the opportunity to do that in a bigger way than we've had before and what I know is our sellers are doing a great job delivering and delighting those customers. And so that makes me optimistic for the future.

Next one comes from Laura Champine from Loop. In Q2, should Services' revenue grow faster or slower than GMS and what are the drivers?

So I would expect Services' revenue to grow slightly slower in Q2 than GMS for what is a kind of a unique reason to this moment. So GMS is obviously growing really, really nicely on the Etsy Marketplace and of course GMS is a fact - is a function of three things visits, conversion rate, and AOV and right now we're seeing visits grow really rapidly, and we're seeing conversion rate improve over its historical averages, obviously then AOV is the third factor, AOV a slightly down from its historical averages. But we very rarely see visits grow very rapidly and conversion rate improve at the same time significantly. So that's very positive for Etsy. What we now call Etsy Ads, what we used to call promoted listings is really driven by views. So if visits are growing slightly slower than GMV, then it means that we may see Etsy Ads grow slightly slower actually than GMS overall. And I want to emphasize that we think Etsy Ads is doing great. It's not a great trajectory, but again if visits is growing slightly slower than overall GMS, then we may see Etsy Ads grow a little slower than GMS in the second quarter in particular.

And may I add one thing to that - to Josh's response, which is also just to point out that in the first part of April, when we are seeing the surge in mask sales, we took the Etsy Ads formerly known as promoted listings off of the mask listing pages, it's now back on but for a portion of the month of April, there were no promoted listed there.

We have a couple of questions that are guidance related, I'm going to go with this one from John Colantuoni, I hope I said that right John, from Jefferies. Q2 GMS guidance implies a high level of growth in May and June. Can you talk about some of the key assumptions in your internal model that get you to the full quarter forecast.

I'm happy to start and I would start by emphasizing what Rachel said before, which is that, it's really hard to forecast right now, and we had a lot of conversations about whether to give guidance or not. And we know there's been a broad range of people giving guidance and not giving guidance. We wanted to be as transparent with you as we can, as we always try to be as transparent as we can and it's helpful as we can without over promising. And so what we gave you is a very broad range, if you think about the fact that there is only two months left in the quarter and we're giving you a 20-point range, it's pretty broad range and I think that just speaks to - speaks to the time and so there is a set of tailwinds and we are currently benefiting fair materially from those tailwinds, things like a raising demand and fewer alternatives. Etsy's sellers being able to rapidly pivot to produce in demand products and not just masks, lots of other things that are currently in demand. The fact that we're not reliant on logistics, central logistic fulfillment warehouses like others. There is also a set of headwinds that we anticipate. So it's a very tough economic background and we - our hearts go out to everyone who's lost their job or if feeling economic insecurity and we think that that could will get much more real in the months to come. But we haven't seen that headwind show up much yet. We expect that retail will reopen. We hope for everyone's sake that you know the economy gets back on its feet sooner rather than later. And so it's very hard to model when we will start to feel those headwinds and at what pace, we will start to feel those headwinds and how to continued tailwinds might counteract them or not. So we did the best within our guidance range to anticipate those trends. I don't know, Rachel, if there's more you'd want to say there.

Yes. I would only just point out a couple of things. First of all, we gave you the first couple of days of May, don't get too attest of that, because we're not planning to update you daily, but - so we've seen some trends holding and we told you that we expect May - the numbers you could back into the numbers we've given you assume will decelerate in May, we said we thought we tolerate May and then follow that trend line through to the end of the quarter accelerating again in June. And lastly don't forget, we're giving you consolidated guidance, so Reverb is performing strongly, we've given you, I think some information there that will help you understand the two respective marketplaces, but the Reverb's is a smaller percentage of our total and Etsy's deceleration will obviously have a higher weight into the total guidance we gave for the quarter.

Okay. Thanks, Rachel. The next one is from Nick Jones at Citi. Though it is still early days in this crisis, what are you learning about your habitual buyers, your active buyers, and your occasional buyers, are you seeing early trends that each of these groups are growing.

Yes, I mean to break it down, starting with our habitual buyers and we love our habitual buyers. You will see that the number of habitual buyers grew again. But because they are already habitual, they already know so much about what Etsy you can offer, and they are already coming to us frequently and so we have seen frequency in that group improve, which is great, but they are kind of the folks that have figured out the secret sauce of Etsy. The big opportunity in this moment is there's a lot of people who maybe have never shopped on Etsy before or who have shopped only very occasionally on Etsy they might think of us only for one very specific product category and now they're thinking about us and now they're coming for other product categories. And that's a moment and so we're excited about the opportunity that we are seeing frequency gains in the lapsed buyers and the occasional buyers. We're also encouraged by - its very early days, but this brand new cohort from April, we gave you some data in our prepared remarks that the frequency of this brand new cohort looks very healthy as well, so the task ahead now is to do a great job engaging them so that we continue to earn their loyalty in the future, and we're really excited about the new tools that we have that allow us to really be able to identify different segments and communicate to those different segments in a very personalized way and really dynamic way really quickly and we're really focused on that and investing in that.

Okay. Next one is from Maria Ripps of Canaccord. When you think about your Q2 guidance, can you talk about the relative contribution from new customers versus engagement from existing customers. It seems like with this much visibility, you must be seeing a lot of activity from your existing customers, but can you just talk about a little bit more.

Yes. I guess I'd start and Rachel, feel free to pile on, of course, but first I'd say that. We define new customer at Etsy as new ever and many other people use - everyone uses different definition, a lot of people have a definition of new that means they haven't been around in a while. And when we say new, we mean - we are not aware of having seen that buyer before at least using that ID, and so we are seeing a very strong growth in brand new buyers and we're excited by that and in 2020, we have to remind ourselves, there's still a lot of people that just don't shop online much. And there's a lot of people who have never shopped on Etsy. And so some of those people are showing up now and shopping on Etsy and it's really exciting. So new buyer growth is very strong right now. And I'm excited about the fact that I feel like we're really well prepared, the hard work that we've done over the past few years to make search much better to make the shipping experience feel really good to build trust. These are people that are coming onto the Etsy for the first time and they're finding a marketplace that we're proud of - that we think is well organized and trusted marketplace, where sellers do such a great job delighting them, but as we've talked about before, there is a very large number of infrequent buyers. They've bought on Etsy before, they had a great experience, they think of us in fondly, but they just don't think of us very often, they don't know when to see us and suddenly we're more front of mind, and we're one of the one of a smaller set of places that is open for business and shipping and shipping a lot of different products that they might want. So we're definitely seeing improvements with the occasional buyers or the lapsed buyers, people who just haven't been on the site for more than a year. And then of course we are also seeing frequency improvements with people who already shop and shop frequently and it's just the delta with that community is not as high, because they started from a higher point already. I don't know, Rachel, if there's anything else you want to.

I mean, I'm just - I mean, I'm probably just being redundant, but I just want to point out this by the definition most other companies use for new buyers or buyers that have not been to the site for 366 days or more, if you add those two groups together, then we would reactivate. We had 6.5 million new buyers in the month of April and really about half of our - that's about half of the April buyers. So that cohort, the new and reactivated is a material portion of our growth, and they're are the ones that are the opportunity for us to capture and be top of mind for as we lean into marketing and other things.

Okay. Thank you. Next one is from Naved Khan at SunTrust. What kind of uplift do you think you may be seeing from the lift in spend - consumer spend due to government support stimulus.

Yes. We have been looking at that as well. And again, it's hard to parse out because it's all fairly recent. But what I would say right now is that the growth and we gave you pretty specific data on how April and early May have been trending, so you can kind of see for yourself that it's probably true that the stimulus checks were helpful. We certainly think on behalf of the American people and the American economy that they've been helpful. But we've continued to see sustained growth, so we feel good about that. Now we anticipate that over time that growth will decelerate, as we get past the stimulus checks as people's savings get worn down a little bit that the economic hardships will get even more real for people. But it's just hard for us to know all the puts and takes that very precisely.

Next one is from Jason Helfstein at OpCo. Are you seeing better seller demand for your new ad products and/or seller re-engagement with those products, any way to quantify that.

I'll start and then, Rachel, if you want to jump in, but we are very happy with. So we basically had two seller ad products, we've got Offsite Ads and we've got Etsy Ads. So Offsite Ads is off to a great start, we're with the launch. By the way, we think the team did a really nice job getting that product launched and just to take a second on Offsite Ads too, I'm really pleased with how the team had a real biased action, I think they also we're ready to pivot when that made sense and they came to a new model, actually they launched Version 1 and then they came to Version 2 that's even better and I think is even more fit for these times, we couldn't have anticipated these times, but we do think that this new version is even more appropriate for the current environment that we're in. And in addition to having the right strategy and being willing to pivot, they executed really nicely on both the technology, which is complicated and the messaging to sellers and so we're pleased with how the launch is gone, we are pleased with what we're hearing by enlarge from the community and the early metrics are very encouraging on Offsite Ads. It's very early days, it's very early days, but the metrics are encouraging around things like opt-out rates in seller churn, and we're very encouraged by what we see there. And on Etsy Ads, what used to be called promoted listings, we continue to see that be a very popular product. And so our sellers like it, they're investing in it and it delivers really good value for them. So we're also pleased with what we're seeing on Etsy Ads.

And if I may just add a couple other notes, so because we were - the product was live for months before we started billing and one of the - so one of that was - that was part of the seller relief basket that I talked, but it was also designed to that sellers could actually see and start to calculate how this product was performing for them economically, they could actually start to see sales that they had made and on their bill, it would say a fee and then a waive, it's a strike-through, so they were seeing, what would I have paid and what sales would I have gotten or would I not have gotten had they not had the opportunity to be listed in one of these product listing ads, and so we've been collecting feedback for several weeks now on whether they like to product and whether they think that it's performing and we've been very pleased with what we've read, it doesn't mean that everybody loves it, we certainly get our share of issues and considerations being raised, but what we see now, since we've had the daily live for several days is that everything is performing exactly as we expected and as Josh said, it's very, very early days, but nothing is out of line with how we have modeled the product to perform.

Thank you. We went over time here a little bit, I'm going to squeeze in one more high level question and anybody else who's questions that are stuck in the queue, we'll make sure we get back to you. This one is for Josh from Tom Forte of D.A. Davidson. As a long-time industry participant, what are your thoughts on e-commerce next coming out of the Coronavirus outbreak for example the home category online mix today is about 40% versus 20% last year. How much does the increase mix hold near term as physical stores reopen?

Yeah, I mean I think that - I think that this is going to be an inflection point for e-commerce and I think that inflection point is going to be meaningful and lasting as much as many of us are really native to online and have been shopping online for years and shop online for many, if not most of our purchases, it's still a very large segment of the economy that shops offline and I think this is a moment when a lot of people are suddenly turning online and discovering that it's really convenient and it works really well for them and I think that that could create some very lasting behavior changes and I think that in that world people aren't going to want to remember 5,000 or 10,000 or 50,000 brands and I don't think they only want to shop in one or two places. So in a world where everyone's on Amazon every day, all the time, which is great because Amazon meets a lot of needs a lot of the times, they're going to one alternative to Amazon and I think Etsy is super well positioned to be one of the few meaningful alternatives that stands for something truly different than what you get at Amazon, but can meet a wide range of your needs and this is a moment when we're actually getting to demonstrate that to people and we're embracing that moment and we're investing into that moment and most importantly, I think our sellers are doing a fantastic job of rising, they're innovating on products that are really cool, they're delivering delights, the handwritten notes, the personal touch that you're never going to get from almost any other place. So I do think that this is a moment that's going to create lasting behavior change and I think that Etsy is going to be a winner in that over the - over the medium term and the long term and I think that's incredibly exciting, most of all for our sellers and for buyers. And so it's a time when our team, as I said in my prepared remarks, has a lot of stress in their lives. But they understand how important this is for all of our stakeholders and so again, I guess I'd like to close by saying how grateful I am to all the people on the Etsy team that are really pulling out all the stops, to try to do everything they can to support the community, it means a lot and I'm really grateful for it.

Great. Thanks Josh. And thank you everyone for joining us. We hope you stay safe, and we'll talk to you soon. Thank you so much.