Hi, everyone, and welcome to Etsy's First Quarter 2025 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. And joining me today in Brooklyn are Josh Silverman, CEO, and Lanny Baker CFO. Today's prepared remarks have been pre-recorded including comments from our new President and Chief Growth Officer Kruti Patel Goyal. Once we are finished with the presentation, Josh 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 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 the replay of this call. With that, I'll turn it over to Josh.

Thanks Deb and good morning everyone. Thank you for joining us. As we're navigating our business through fairly unprecedented and incredibly dynamic times, I feel grateful to be part of the team here at Etsy where our marketplaces support entrepreneurial sellers whose products resonate with and are truly loved by consumers, offer differentiated and non-commoditized merchandise, feature remarkably responsive and diverse supply which has demonstrated powerful resiliency over multiple major global economic and supply chain shocks in recent years where best in class talent comes to work every day, drawn by our positive impact, helping to drive success for creative entrepreneurs and who are working with urgency to get us back to growth and where we have the security of an extremely strong financial foundation. Etsy has a strong track record of navigating turbulent macroeconomic conditions and we're confident in our ability to keep adapting. We're staying nimble and leaning into our strengths so we can provide a global haven for self-expression even in uncertain times. I also feel fortunate to have our new leadership team in place, including Rafe Colburn who rejoins the Etsy Marketplace as CTO after two years of helping Depop achieve tremendous success. We believe that we have a deep bench of seasoned pros who can lead with confidence. Moving to our first quarter 2025 results Etsy's performance was in line with the outlook we shared in February, and we came in a bit ahead on take rate and adjusted EBITDA. Lanny will explain the results in more detail a bit later. I'll spend most of my time today reviewing the progress we're making on our journey to reignite core Etsy marketplace growth, followed by Kruti, who will share early insights on how she's thinking about Etsy's go forward opportunities. Our teams are executing a balanced…

Thank you Josh. I'm really excited to be back at Etsy and to have the chance to speak with you all today. I've been fortunate to have been part of Etsy's growth and evolution over the last 14 years, wearing many hats across the company during that time, from leading trust and safety to heading our seller business to serving as Chief Product Officer and most recently as CEO of Depop. At Depop, we've built an app first experience with more than 90% of our sales happening in app that serves our customers from inspiration to purchase. To do this, we've prioritized investing in a recommendation engine that reflects our deep understanding of our buyers tastes and preferences, helping them better discover and explore their individual style. And for sellers, we focused on making it simpler and more efficient for them to list and sell, powered by our machine learning capabilities. Collectively, this work has led to a more engaging, more effective experience on both sides of the marketplace, deepening our connection with our community, powering Depop's growth and the circular fashion economy. The success of this work is clear in the increases you see here in our active users, their engagement with our app, and ultimately in our GMS growth. My time at Depop has only deepened my appreciation for what makes a marketplace so special. It's dynamic, adaptable and can empower real people while delivering real economic opportunity. And as Josh mentioned, a marketplace like Etsy is also uniquely suited for a world where customer behavior is shifting faster than ever. Over the past few months, I've immersed myself in the business and reconnected with our teams, quickly getting up to speed on our investments, strategy and operations. And looking ahead to the remainder of 2025 and beyond, I believe our biggest opportunities will come from our ability to give shoppers more compelling reasons to choose Etsy over competitors rooted in our differentiation and to build a more personalized, more delightful shopping experience that strengthens our relationship with our buyers and deepens our partnership with our sellers. Because we all know when they win, we win. We know there's meaningful work ahead of us to realize this potential and reignite growth, and I'm excited to bring a fresh perspective as we build on the magic that makes Etsy so special. With that, I'll hand it over to Lanny to cover the financial results.

Thanks, Kruti. It's a pleasure to connect with you all today. While the first quarter was challenging, GMS was consistent with our expectations and we delivered a small beat on take rate and adjusted EBITDA margin. After the end of the quarter, we announced the sale of Reverb, our musical instruments marketplace for $105 million in an all cash transaction that values the business at a mid-teens multiple of trailing 12-month adjusted EBITDA. We took a non-cash impairment charge of $102 million associated with that anticipated transaction, which is reflected in first quarter 2025 net loss. First quarter 2025 consolidated GMS was $2.8 billion down approximately 6.5% year-over-year with FX representing an 80 basis point headwind versus prior year. Etsy marketplace GMS was down 8.9% and down 8.1% on a currency neutral basis. Meanwhile, Depop continued to deliver very healthy growth in buyers, sellers and GMS which benefited consolidated Q1 results and Reverb's year-to-year GMS performance was similar to that of the core Etsy Marketplace during the first quarter. Despite the GMS decline, first quarter consolidated revenue increased by approximately 1% year-over-year to $651 million. Breaking that down, Marketplace revenue decreased 1.8% year-over-year reflecting the decline in GMS, partially offset by increases in payments revenue at Etsy and Depop as well as seller setup fees, which we raised to $29 for new sellers in the U.S. Services revenue grew 7.7% year-over-year with strong growth in on site ads revenue at both Etsy and Depop. Adjusted EBITDA was $171 million for the first quarter representing a 26.3% margin, up 30 basis points year-over-year and ahead of our guidance. The primary factor behind that expansion in adjusted EBITDA margin was leverage in G&A where we saw a reduction in bad debt, non-income tax expense and other costs in the quarter. This was…

[Operator Instructions] Our first question will come from Shweta Khajuria with Wolfe Research. Shweta is joining us and will be with us in a moment.

Hello, can you hear me?

Hey Shweta. Yes, we can hear you.

Okay, thanks Josh and Lanny, I guess my question is on outlook. So first is on the full year outlook in the prior quarter, your outlook included. And Kruti, I'm sorry, your outlook included improving GMS trends through the year so could you please update your thoughts on that. And then second question is on the second quarter EBITDA margin guide. Is it fair to assume that you are now leaning in more on social media platforms with marketing spend and is that in any way driven by what you're seeing with APAC based advertisers? Perhaps pulling back and you're leaning into that opportunity? Thanks a lot.

Thanks Shweta. Sure. As we look at the course of this year, it's important to set the macroeconomic backdrop. The macroeconomic backdrop has been challenging for Etsy for a considerable period of time and our outlook right now anticipates that there's no major change, that things on the macro front stay relatively consistent with where they are today. Now, as we look across the course of this year, we've said previously and again today, we feel encouraged about our ability to improve growth over the course of the year. That's built on a few factors. First of all, the product and marketing work that we've been doing will stack and accumulate as we go through the year. So work that we're doing on the app and on the gifting experience and on personalization in our product, those benefits we're starting to see today, those will continue throughout the year. That gives us some encouragement. On the marketing side, improvements in social marketing performance, the repeat re engagement work that we're doing to bring back reactivating prior lapse fires, showing very good progress. We grew the number of reactivated buyers this this quarter by over 6 million and those typically have a much higher LTV in the next 12 months after we reactivate them. So those kind of pieces of progress are incorporated in our view for the full year. Now the macroeconomic environment could change and it's hard to call that at this point in time, but we're focusing on the things that we can control in our product, in our marketing and feel really good about their ability to contribute as we go throughout this year. On the second quarter margin target that we shared today, you're right, we will see some deleverage on the marketing line. Last year…

Our next question will come from Bryan Smilek with JPMorgan. Please unmute your video and audio and ask your question.

Great, thanks for taking the questions. Really good to see the progress across the social, commerce initiatives this quarter, especially on the app. Just curious, what's next on the app product roadmap. You mentioned for Depop, right the app is 90% plus of GMS. So just curious where the app can go in your view as a percent of GMS over time. Thank you.

Yes, great. So first, our highest ever quarter of GMS to the app, 44.5%. We're continuing to see real penetration there. A lot of our efforts to drive people from mobile web to the app appear to be showing some progress. So we're really encouraged by that. I think there will always be a role for certainly the desktop because some people just want a larger format when they're looking at particularly like a piece of furniture or something that's maybe a bigger investment. Mobile web over time, we'd love to see mobile web become a much smaller share of the app become a much larger share, and we're really encouraged by that. And I would encourage folks on this call to pull out the app and try it. And I think what you will see it is a much better shopping experience today than it was even six months ago. And in particular, if you arrive on Etsy without having a very specific idea of what you want to buy for. We've been talking about being more browsable. There is a lot more browsable surface on Etsy where we are just showing you inspiration. In my opinion it's pretty cool, it's pretty fun and I would encourage you to try it. The next step for us is it's still the browsable experiences we're showing you are still largely one size fits all. They are here is really cool trends that you will see in the marketplace that most people find very interesting with very cool product in each of those trends that most people find very interesting, that's that all tutorial content that we talked about. The next step for us is to become highly personalized in that. So now how can we pick which are the trends that you are most likely to like and even within that which are the items within those trends that you're most likely to like even based on just the behavior you've exhibited in this same session. And most of that is work yet to come that we are highly focused on right now, and a lot of the work we're doing to create more browser, a lot of the idea there is to learn more about your tastes and preferences. As long as we're highly reliant on you giving us a very specific keyword, I'm looking for exactly this. We actually won't learn that much about you. So now we're creating a lot of these discovery surfaces that are giving us a lot more data about who you are that are going to enable us to take Etsy, this vast superstore of everything, and turn it into what feels like a boutique created just for you. That's what I want. That's what we want the app to become.

Our next question will come from the line of Nikhil Devnani with Bernstein. Please go ahead.

Hi there. Thank you for taking my question. Josh, if we look at active buyer trends for the core Etsy platform and the habitual buyers, the decline looks like it's been a bit sharper over the last couple of quarters and based on the guidance on GMS, sounds like that might be continuing into Q2 as well. It's coincided with a sharper decline in active sellers as well year-on-year. I know there have been efforts to clean up listings on the marketplace and in recent quarters. Is there any concern that this is driving a loss of conversion events and pressuring some of the network effects that you typically would want to see in a marketplace like this? Thank you.

I just want to clarify. Your question is do we have any concern that the decline in active sellers is related to or driving causing the decline in active buyers? Is that the question?

Yes.

The short answer is no. We do not have a concern that that's true. We think that the decline in active sellers is an intended consequence of us putting a $29 new shop setup fee. And just to give context, the number of new sellers coming onto the platform had been growing and growing and growing for quite some time. Many, many of those sellers did not have the skill or will to ever become successful sellers on Etsy. And yet they were taking up space for other sellers that did demonstrate the skill and will. So by putting some intended friction in the form of a $29 new shop setup fee, we are still letting the sellers that have the skill and will come through, but have done a lot of work to mitigate the number of sellers that weren't going to succeed. What we see is that the number of sellers succeeding in making a sale is substantially up. The retention of active sellers is up. So the sellers on the platform are much more likely to be succeeding, and we've created a playing field for them that I think is healthier and that is all intended. So we are very comfortable with the path we're on with, with, with active sellers. We want to make sure that we're serving the active sellers that have both the skill and the will to truly contribute to the platform. Active buyer decline, it's down about 3.4% this quarter. We believe that is due to macro, that people just have a little less money to spend. The good news is when we talk to our buyers, they love Etsy. So it's not that they've quit Etsy or churned from Etsy. They just haven't bought something in the last 365 days. And…

Can I just jump in with just a little knit if that's okay? The percentage of sellers who made a sale is up. Just want to clarify that. And then those new sellers, percentage of new sellers who are making a sale within the first 90 days is also up. I just want to clarify that.

Did you have something? I'm just going to say on the habitual buyer point, the vast majority of the habitual buyers are still buying frequently on Etsy. It's there's a threshold there of a number of transactions or a dollar value of transactions that somebody can go below. But like the numbers that you're seeing on habitual buyers I think are reflecting not them leaving Etsy, it's just this, this broader consumer dynamic around purchase. Consumer discretionary spending is being reflected in that number.

It's also stable as a percentage of GMS. It's about 42%. Okay, next question.

Our next question will come from Bernard McTernan with Needham. Please go ahead.

Great. Good morning. Thanks for taking the question. Just wanted to touch on the take rate guidance for 2Q. It's flat sequentially. Normally we see sequential improvement throughout the year. So just any puts and takes you can provide there would be very helpful. Thank you.

As we look at the take rate over the course this year, we're lapping a couple dynamics that have helped us grow the take rate year-over-year. The listing, the introduction of the new seller fee is one of them and we've made some really strong progress on Etsy ads and its contribution to the take rate over the last year. That's reflecting work that we've done to improve relevance and improve our ability to utilize the budgets that sellers are telling us they're willing to spend to get that visibility on Etsy, and as we we've been able to do that while keeping the seller return on ad spend really consistent. And so as we look at the rest of this year, we've made some really good strides and our outlook is that we'll keep things pretty consistent across the rest this year, lapping a couple of those price related, service related increments that have been benefiting take rate over the last few quarters.

Our next question will come from Michael Morton with MoffettNathanson. Please unmute your video and audio and ask a question.

Good morning. Thank you for the question. I wanted to follow up maybe Lanny on the gross margin headwind from free shipping and also you do talk about ML and search development. Just wondering if you can maybe quantify that. Probably it's our fault for not really listening to I guess last quarter when we got maybe a little overly excited on gross margins because of the way you talk about like the abundance of sellers bringing some of the potentially bad ones down. So anything you can quantify on some of the gross margin headwinds, maybe how big shipping could grow into being a gross margin headwind would be really helpful. Thank you.

Sure. As we look at the -- you're right. In this quarter, the gross margin year-to-year comparison, the two factors that created a little bit of deleverage there were higher processing costs, compute costs for search and for machine learning and we'll continue to lean into that over the course of this year. So there could be a little bit of deleverage from those search and machine learning costs over the course of the year. It's not dramatic but it's important to the product experience that we're delivering. On the loyalty front that was a similar increment to the cost of revenue this quarter similar to the impact from the search and machine learning that I just talked about. And we'll manage that program. It is in beta test right now. We're continuing to learn about retention, about its impact, which so far has been really encouraging on purchase frequency and helping us identify who our best customers are, how far we can go in servicing them and driving loyalty through that kind of a program. So we'll continue to manage that program over the course of year. It'll be a bit of a headwind for us over the course of the year. I don't expect that it will grow dramatically from where it is in this quarter.

And our next question will come from Ken Gawrelski with Wells Fargo. Please unmute your audio and video and ask a question.

Thank you. Good morning everyone. Appreciate it. First, I want to thank you for all the data on the cross border side, maybe correcting some of our information there. So I appreciate that. Deb.

Got you, Ken.

Two quick questions please. First, I hear everything you're saying and it seems like as prices start to rise, certainly imports into the U.S. across the board, you seem well positioned. I guess, how do I juxtapose that with your constant currency GMS guide for 2Q showing some moderation. Right. Some further decline relative to 1Q. That's question one. And the second one is more medium term is as you think about driving more buyer frequency. Greater buyer frequency. Could you just talk about, the kind of path to get to there from a lot of the engagement efforts you have now may have some depressing effects or impacts on conversion in the short term. Could you just talk us through maybe, Josh, we should think about the path throughout the year?

Sure. As we think about the trade lanes, U.S. Imports in the United States have held up really well and been fairly strong through the first part of this year. We've seen greater softness in our international markets. And I think that's local macroeconomic conditions in those international markets is softer for sure than in the United States right now. So that's reflected in our second quarter. A little bit softer just international-to-international trade lanes than in the United States. More so that than a tariff related cross border dynamic. One more thing I'll say about the second quarter is just the comp versus last year is tough because of holiday date shifts. So flat is actually slightly up. If you think about the date shifts. If we were to stay flat Q1 to Q2, it would still be actually really slightly up. If you think about the date shift, Easter being a big dynamic there, a little bit shorter shopping period into the Mother's Day this year than last year. And that creates a bit of a headwind in the second quarter relative to the first quarter and the tailwind from last year. So, yes, to the question about how to think about how this stuff stacks through the year, the second part of your question, there's really three things we're super focused on. Making sure that we have the very best quality items that we are surfacing. The ones that most differentiate Etsy and are most likely to delight you. Making sure we do it in a super personalized way, so it's the ones that you love, not just the ones that generally people would love. And third, we do it in the app. So we own your attention and have a more direct relationship with you, and…

Our next question will come from Deepak Mathivanan with Cantor Fitzgerald. Please go ahead.

Great. Can you guys hear me?

Yes.

Great. Hey Josh, thanks. Thanks for taking the questions. So two questions from me. First, as pricing increases due to tariffs and perhaps some supply chain challenges come up in potentially other retail platforms and e-commerce marketplaces, kind of do you see opportunities to leverage the Made in USA and maybe even pricing competitiveness under the new World on Etsy platform to perhaps create more awareness top of the funnel traffic and maybe build on new user base? Can you talk a little bit about how you're thinking about the opportunities there? And then Lanny, second one, can you quickly give us an update on perhaps Etsy's current category mix so that we can get some good color on your potential exposure to what pockets of discretionary spending Etsy has exposure to? Thank you very much.

Sure. Thanks for the questions. So on the first one, we can and are leaning into the opportunity that Etsy's relative value may get better, particularly against sites who have a lot of their products sold and made in China. Those prices may go up a lot and Etsy's relative value proposition could get significantly better in that case. So we already today have launched on Etsy the opportunity to buy domestically. So filters for domestic only feature highlights of sellers that are domestic sellers, easy browse pass and we're working on all kinds of different ways how do we make the UI make it very easy for people to shop locally? And I want to point out not just in the U.S. where of course that matters, but in Canada there's a lot of focus on that right now and in various markets in Europe there's a lot of focus on that right now. And guess what? We have a lot of sellers in Canada, we have a lot of sellers in the U.K., we have a lot of sellers in Germany. There's a number of markets outside of the U.S. where we also can offer people the opportunity to shop domestically. Certainly that's true in the U.S. where we have a really robust assortment. So we're not waiting. We're already working on promoting that opportunity. If the relative value -- we're still very early in terms of what's actually going to happen with these tariffs and what's, what is the relative pricing going to be, but there may be opportunities to lean in even more aggressively in marketing depending on how big the price differences are. So we're going to be, we're going to be paying incredibly close attention to this, as I'm sure you'd expect, and having a real bias to action around all of it. I do think we are much better positioned than many to be able to not have the kinds of price shocks that many other people will have. And the countervailing factor is if we see inflation, if we see a drop in consumer confidence, that's not good for Etsy. So it's really hard for us to know right now how those two things will balance out.

And from a category perspective, our mix hasn't changed from where it was last year. The top six categories remain our top categories. That includes home and living apparel, craft supplies. And when we look at the, when we look at those top categories in our top six categories and we compare our performance in the most recent 90 days to what our Pure Play competitors look like from third party data in some of our, in four of those six categories, we performed a little bit better. Now we're still down year-to-year. We're not satisfied with that, but we are pleased that things like the efforts we have on gifting and around personalization and the personalization not only of the product experience but also the personalization in some of the categories of the items that you can purchase on Etsy are advantages that are helping us outperform others in the marketplace. So the categories where we did a little bit better than what we would deem to be the competitive set include home and living. Our biggest category, jewelry, was another one that was quite strong, comparatively strong. Crafts, supplies, paper, and those kind of goods. So the mix overall hasn't changed. But I think our product work over top of that mix is giving us some relative performance.

Sorry, if I can pull up for just a sec. I just want to say we unfortunately are living in a world with more and more macro shocks, be they global pandemics or trade wars or actually kinetic wars. And through all of this, the Etsy marketplace has been remarkably resilient, and I think that is a real benefit of our model and something we care about a ton. And I hope investors are paying attention to and caring about as well.

The only thing I was going to add just there is a slide with the pie chart of our categories in the back of the deck. Next question?

Our next question will come from Ygal Arounian with Citi. Please unmute your audio and video and ask your question.

Hey guys. Good morning. Two, may first just expanding on the macro stuff with the deminimus changes coming through in a few days here and how you think about the puts and takes. There should be some tailwinds, but I think there's some potential headwinds for you guys also. Just want to understand those. And then Josh, still really early. Maybe too early to ask this question, but just with the AI shopping experiences that you talked about with OpenAI and with Copilot, how do you see that, envision that changing e-commerce over the next few years? How does that change for Etsy? Maybe even things down to how that might potentially change Etsy ads, your marketing approach. Love to hear your thoughts on that.

Yes, great. I love it. Okay, on the first one, if the current state of play and it could be different by 3pm but the current state of play is that de minimis exemptions will remain at least for a while for every country except China. So in China they will remove the de minimis exemptions and they'll remain everywhere else. That's a best case scenario for Etsy. We have roughly 1% of product on Etsy is Americans buying from China. I want to point out those are vetted sellers that comply with our policies. There are some in China who actually really legitimate belong on Etsy. But if the prices there become unaffordable for that 1% of GMS, we think there'd be an extremely high replacement rate of buying from somewhere else. So we think we would not have any material impact from de minimis going away for China. That's not true of almost all of our competitors. They may see their prices go up a lot. That would be good for Etsy. At least the first order effect would be good for Etsy. Similarly, so far de minimis exemptions will remain at least for a time from Europe. And most of the U.S. imports are coming from European countries and Canada, so the maintenance of de minimis is helpful for us there. Should de minimis go away all around the world my concerns are actually more about the speed of parcel trade more than the price of parcel trade because it could create just very long backlogs to import any product from anywhere. And Americans are buying really cool product from Germans, from Brits, from Turkish people, from Ukrainians. And right now, hats off to the Ukrainian postal service. Those folks are incredible. In the midst of a…

Operator, we're going to have to end it right there. We're just about at time and I don't want to take the next one we'll run over. So we're going to end it there. Thank you all so much.

Thank you all.