Etsy(ETSY) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Consolidated GMS was $2.9 billion, down 4.1% YoY, with Etsy marketplace GMS down 6% YoY [6] - Revenue grew 4.1% YoY to$ 662 million, driven by take rate expansion [6] - Adjusted EBITDA margin was 27.7%, down 90 basis points YoY but ahead of guidance [26] - Active buyers remained solid at approximately 91 million, with a slight YoY decline [7][40] - GMS per active buyer decreased by 3.4% YoY to $123, primarily due to reduced visit frequency and lower spending per purchase day [41] Business Line Performance - Etsy marketplace GMS declined 6% YoY, but active buyer levels remained stable at 91 million [7] - Depop delivered strong GMS growth, accelerating sequentially, with U.S. listing growth up 26 percentage points since fee changes [22] - Reverb saw double-digit YoY growth in used music gear sales, particularly in the U.S., and partnered with Fender for certified pre-owned gear [23] - Etsy's focus on gifting resulted in site-wide GMS growth, with personalized and customized items outperforming overall site performance by 4% YoY [39] Market Performance - U.S. domestic-only trade routes and non-U.S. trade routes saw GMS declines, while international non-domestic trade routes and U.S. imports showed modest growth [34] - Back-to-school merchandise GMS in the U.S. grew 5% YoY [40] - Depop's U.S. marketing campaign reached over 70 million people, strengthening its position in the U.S. resale market [22] Strategy and Industry Competition - Etsy is focusing on improving customer experience through app and search enhancements, including a 33% reduction in "rearview mirror impressions" on the app [11][12] - The company is leveraging GenAI to diversify search results, reducing repetitive listings by 40% [13][14] - Etsy is prioritizing quality in search results, leading to an increase in four and five-star buyer reviews and a decrease in refund requests [15] - The company introduced physical Etsy gift cards in over 20,000 U.S. stores, aiming to capture a larger share of the gifting market [21] Management Commentary on Operating Environment and Future Outlook - Management acknowledged macro headwinds, including declining discretionary spending and mind-share events like elections and natural disasters [35][36] - Etsy is focusing on long-term customer experience improvements rather than short-term metrics like conversion rate and GMS [19] - The company expects Q4 consolidated GMS to decline in the low to mid-single digits YoY, with a take rate of 22.3% and adjusted EBITDA margin between 28% and 29% [49][50] Other Key Information - Etsy repurchased$ 156 million in stock during Q3, with $260 million remaining under its$ 1 billion repurchase program [45] - The company approved an additional $1 billion stock repurchase program, reflecting confidence in its growth plans [47] - Etsy generated$ 204 million in free cash flow during Q3, with a 90% conversion rate of adjusted EBITDA to free cash flow over the trailing 12 months [46] Q&A Session Summary Question: Leverage in product development and potential investment cycle [54] - Etsy prioritizes customer experience improvements that drive lifetime value and GMS growth, with a focus on foundational investments like the Q-score in search [55][56] - The company is hiring more app engineers and machine learning specialists to enhance the app experience and drive future growth [58] Question: Business performance quarter-to-date and physical gift card launch [61] - The holiday season is expected to be shorter and later than usual, with significant shopping activity in mid-to-late November and December [62] - Physical gift cards are expected to drive incremental GMS over time, with initial marketing efforts focused on building awareness [63] Question: Key initiatives to enhance consumer experience [68] - Etsy is most excited about improving consideration through on-site experiences, leveraging GenAI to inspire new shopping missions [69][70] Question: Right margin level and investment intensity [73] - Etsy is focused on growing market cap through a balance of profitability and growth, with potential for increased hiring if foundational investments show results [74][75] - Depop's strong performance, with GMS growth exceeding 30% YoY, validates Etsy's portfolio strategy [77] Question: Holiday season expectations for gift mode [80] - Gifting GMS grew faster than overall marketplace GMS in Q3, with significant product improvements and marketing efforts to drive awareness [80][81] Question: Etsy Insider and seller reaction [83] - Etsy Insider is in early beta, with limited uptake to test the economics and value propositions of the loyalty program [84] - Buyers and sellers both expressed a preference for free shipping without negatively impacting seller margins [85] Question: Q-score impact and mobile app changes [87] - The Q-score in search has remained conversion and GMS neutral, with modest headwinds from mobile app changes driving incremental downloads [88] - The opportunity cost of focusing on foundational improvements rather than short-term GMS gains is seen as a necessary trade-off for long-term growth [89] Question: Category performance and buyback strategy [91] - Etsy is seeing pockets of growth in value-driven categories like demi-fine jewelry, while lower-priced items face more pressure [94] - The company has the flexibility to increase share repurchases beyond current levels, supported by strong free cash flow and a $1.2 billion cash balance [92][93] Question: Incremental drivers of take rate [95] - Take rate gains in 2024 were driven by payments coverage, Etsy ads improvements, and seller onboarding fees, with sustainable opportunities for further growth [96][97]