Etsy, Inc.ETSYNASDAQ
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Debra A. Wasser: 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.
Kruti Goyal: 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 and 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. Lenny 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 e-mail 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 and 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 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.
Charles Baker: 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 app 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 Reverb 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 cash flow to shareholders. 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: [Operator Instructions] Our first question will come from Trevor Young with Barclays.
Trevor Young: 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?
Charles Baker: 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.
Operator: Your next question will come from Bryan Smilek with JPMorgan.
Bryan Smilek: 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?
Charles Baker: Sure. There's a lot to go through that.
Kruti Goyal: 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.
Charles Baker: 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.
Operator: Our next question will come from Michael Morton with MoffettNathanson.
Michael Morton: 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.
Kruti Goyal: 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 there 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.
Charles Baker: 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. Secondly, 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.
Kruti Goyal: 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.
Debra A. Wasser: Great. Exciting topic.
Operator: Our next question will come from Rick Patel with Raymond James.
Rakesh Patel: 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.
Charles Baker: 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.
Kruti Goyal: Yes. I want to also just add to that and zooming out for a second. I 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.
Operator: Your next question will come from Ken Gawrelski with Wells Fargo.
Kenneth Gawrelski: 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 agent or 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?
Kruti Goyal: 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.
Charles Baker: 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, we'll return that.
Operator: Your next question will come from Jason Helfstein with Oppenheimer.
Jason Helfstein: 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.
Charles Baker: 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, they're 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.
Operator: Your next question will come from Deepak Mathivanan with Cantor.
Deepak Mathivanan: 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?
Kruti Goyal: 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.
Charles Baker: I would just add 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 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 2 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 has been talking to light, it will help us with retention and help us with our own product experience.
Operator: Your next question will come from John Colantuoni with Jefferies.
John Colantuoni: 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?
Kruti Goyal: Maybe I'll start. And then Lanny can 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, user -- 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 that 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.
Debra A. Wasser: We'll take one more question here before the bill rings.
Operator: Your final question will come from Shweta Khajuria with Wolfe Research.
Shweta Khajuria: 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?
Kruti Goyal: 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 the early indicators that we're seeing are really encouraging in terms of supporting our hypothesis that 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.
Debra A. Wasser: Good. All right. That's it for today. Thank you all for joining.