Etsy (ETSY) Q1 2026 Earnings Transcript

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DATE

Wednesday, April 29, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Kruti Goyal
• Chief Financial Officer — Charles Baker
• Vice President, Investor Relations — Debra Wasser

TAKEAWAYS

• Gross Merchandise Sales (GMS) -- $2.5 billion for the Etsy Marketplace, up 5.5% year over year, and a 540 basis point improvement over the previous quarter's growth rate.
• Revenue -- $631 million on a take rate of 25.7%, with take rate up 180 basis points year over year, driven primarily by Etsy Ads and marketplace changes, and 130 basis points of the take rate increase attributed to the Reverb divestiture.
• Adjusted EBITDA -- $185 million, representing a 29.3% adjusted EBITDA margin.
• Mobile App GMS -- Accounted for 47% of total GMS, expanding 240 basis points year over year, with mobile app GMS up 11.2% year-over-year versus 6.6% last quarter.
• Active Buyers -- Sequential growth achieved for the first time in two years; trailing 12-month active buyer count was 86.6 million.
• GMS Per Active Buyer -- Increased to $122 on a trailing 12-month basis, growing year over year for the first time since 2022, and improving sequentially for the fourth consecutive quarter.
• Active Sellers -- Increased 3.3% to 5.6 million, the first year-over-year growth since the introduction of the seller setup fee.
• Combined Gross Buyer Additions -- New and reactivated buyers totaled 11.9 million, up 4.8% year over year.
• Average Order Value (AOV) -- Increased year over year, with growth supported by foreign exchange tailwinds, the expiration of the de minimis tariff exemption, and marketplace product improvements.
• Operating Expenses -- Gained leverage across product development, marketing, and general and administrative (G&A), with marketing leverage attributed to targeted shifts in portfolio mix and efficient spending.
• Cash and Investments -- $1.6 billion in cash, cash equivalents, and investments as of March 31.
• Free Cash Flow Conversion -- 50% of adjusted EBITDA converted to free cash flow, more than twice the rate achieved a year ago.
• Share Repurchases -- $145 million of stock repurchases completed, reducing the outstanding share count by approximately 2.7 million, with $828 million remaining in board-authorized buyback programs.
• Depop Divestiture -- Agreement to sell Depop to eBay (NASDAQ: EBAY) for $1.2 billion, with expected close by the end of the third quarter, and regulatory clearance obtained in the U.S. and Germany.
• 2026 Outlook -- Q2 GMS expected between $2.48 billion and $2.53 billion (3%-5% year-over-year growth), take rate near 25.7%, adjusted EBITDA margin projected between 27%-29%, and full-year GMS growth anticipated in the low single-digit percentage range.

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RISKS

• Baker identified that "The comparisons do get trickier, more challenging later in the year than certainly they were in the first quarter," citing the expected moderation of foreign currency tailwinds and the lapping of benefits from seller listing price increases related to tariff changes.
• Management cautioned that "growth won't be linear," and anticipated that average order value (AOV) and related pricing benefits "will moderate as the year progresses."
• Goyal stated, "we're obviously in a period of high macro uncertainty on predictability," highlighting continued monitoring of consumer confidence as a potential headwind.

SUMMARY

Etsy (NYSE:ETSY) reported sequential active buyer growth for the first time in two years, with new and reactivated buyer additions and GMS per active buyer both improving year over year. The company divested Depop to eBay (NASDAQ: EBAY) for $1.2 billion, with the deal expected to close by the third quarter and related results now classified as discontinued operations. Increased operating leverage and improved cash flow conversion enabled $145 million in share repurchases and reinforced the management’s commitment to capital return. Management’s 2026 outlook calls for continued GMS growth, steady take rates, and disciplined margin performance, while cautioning that macroeconomic uncertainty and tougher year-over-year comparisons may introduce variability into future results.

• Etsy expects to integrate advanced personalization and AI-driven discovery—including AI-generated buyer profiles and conversational agents—to enhance buyer engagement and seller support, viewing further frequency gains as a longer-term target.
• Baker noted that buyer acquisition strategies have increasingly focused on social platforms and mobile, with owned channels like push notifications and email driving double-digit GMS growth without proportional investment increases.
• App users generate 40% higher lifetime value compared to non-app users, according to Goyal, underscoring the strategic importance of app-centric personalization and engagement initiatives.
• Seller retention and participation have started to improve following targeted investments in AI-powered listing and shop management tools designed to reduce operational friction.
• Goyal confirmed the share of app-driven GMS is rising, and product improvements have shifted app home feed recommendations from broadly popular inventory toward more tailored, taste-based discovery for users.

INDUSTRY GLOSSARY

• GMS (Gross Merchandise Sales): The total value of all completed transactions between buyers and sellers on Etsy’s marketplace within a given period.
• Take Rate: The percentage of GMS captured as revenue by the platform, consisting of all marketplace and seller service fees.
• De Minimis Tariff Exemption: A customs rule that exempts low-value shipments from tariffs; its expiration led to listing price changes on Etsy.
• PLA (Product Listing Ads): Paid advertisements that promote specific product listings within search engine and ecommerce results.

Full Conference Call Transcript

Kruti Goyal: Thanks, Deb, and good morning, everyone. Thank you for joining us. I stepped into my first quarter as CEO after more than 15 years at Etsy, with a deep understanding of what makes this marketplace special and a clear view of where we can unlock more of its potential. At our core, Etsy has a differentiated value proposition that remains deeply resonant with buyers and sellers. Our focus is now translating that strength more consistently into the customer experience.

Over the past year, we've been clear about what needs to change and the priorities that we're executing against to close that gap. -- namely expanding how and where buyers discover us, connecting them with items that feel personal and relevant and building relationships that go beyond transactions. That's how we drive engagement and frequency and ultimately turn the uniqueness and scale of our marketplace into a lasting advantage. In the first quarter, we saw encouraging signals that this strategy is beginning to take hold. All of our key performance indicators came in at or ahead of our expectations with GMS at $2.5 billion, up 5.5% year-over-year for the Etsy Marketplace.

Revenue of $631 million on take rate of 25.7% and adjusted EBITDA of $185 million or 29.3% adjusted EBITDA margin. And more importantly, we're starting to see early positive changes tied to customer behavior on Etsy. Active buyers grew sequentially for the first time in 2 years. We delivered year-over-year growth in new buyers and active sellers GMS per active buyer grew year-over-year for the first time since 2022, and momentum in our mobile app continued to strengthen. These are early indicators, but they matter.

They show the marketplace is getting healthier, and we have confidence this will translate into the top line over time because creating real value for buyers and sellers is what ultimately drives value for the marketplace. Let me briefly remind you how we're thinking about the business. Our strategy is built around four priorities: showing up our shoppers discover, matching them with the right inventory, retaining and rewarding our most valuable customers, both buyers and sellers, and amplifying human connection, one of our core differentiators. These aren't independent initiatives. They operate as a system. Discovery and matching bring buyers in and help them find items and shops they love. Loyalty and human connection give them reasons to come back.

We believe that investing in this system is how we'll rebuild frequency over time. Today, we're seeing the clearest progress in discovery and matching, where coordinated investments are already driving meaningful impact across both the customer experience and our financial results. Our app is the centerpiece of this transformation. It's where personalization, machine learning and direct relationships come together most effectively, and we're seeing that show up in the numbers. App GMS is continuing to significantly outpace non-app growth and now makes up about 47% of total GMS, expanding 240 basis points year-over-year. Mobile app GMS was up 11.2% year-over-year in the first quarter of 2026 versus up 6.6% last quarter.

As we keep improving the app through levers like better personalization, more effectively using our owned marketing channels and increased adoption, we see a clear opportunity to continue to grow app share and drive frequency over time. This matters because app users engage more deeply, convert at higher rates and come back more often. It's one of the clearest indicators that our flywheel is starting to turn. When it comes to matching, we talk a lot about search, and that's because Etsy's core job is to help shoppers find things that feel personal, relevant and worth coming back for.

Historically, our systems prioritize what was most likely to convert in the moment. often favoring popular items over the ones that were truly tailored to a specific buyer. We're changing that. We're shifting toward a more personalized, relevance driven approach, powered by machine learning and AI that better understands what a buyer is looking for right now and their taste over time and the vast inventory offered by sellers on Etsy. We're already starting to see positive signals from models that bring these elements together. With early tests showing improvements in add to cart rates and conversion. We're also expanding the role of our personalized home fee.

In Q1, we introduced AI-generated buyer profiles that help us go beyond the shoppers past activity. With the goal of expanding the categories they explore and inspiring new purchases. And finally, we're strengthening our direct relationships with buyers through own channels. using better timed and more relevant push and e-mail communications to drive higher engagement. Turning to loyalty and human connection. Our most valuable buyers and sellers drive a disproportionate share of our marketplace. And we're focused on earning their continued engagement.

For buyers, we see an opportunity to both deepen loyalty and retention with our most valuable customers and to nurture those with the potential to become them. by making shopping on Etsy easier, more rewarding and giving them more reasons to come back. We believe that long-term loyalty isn't built through a single program or initiative but across every interaction. So our approach spans the full experience. For more personalized recommendations to targeted offers to programs like our Etsy insider beta. We're also moving toward more intentionally serving our highest value buyers. And importantly, we're expanding ownership of our loyalty initiatives across product, engineering, marketing and operations because all of those moments together determine whether a customer chooses to return.

For sellers, we're looking to reduce friction and enable growth with plans to build on our AI-powered tools to simplify listing and shop management so they can spend more time creating and connecting with buyers. And for both buyers and sellers, we're strengthening trust through improvements to Etsy purchase protection and better support for our top customers. The final part of our strategy that I'll discuss today leans into what makes Etsy fundamentally different human connection. Buyers come to Etsy not just for what they buy. But for who they buy it from. This is one of our most defensible advantages and one that we haven't fully delivered on.

We've begun taking a more structured approach to understanding how seller identity, craftsmanship and stories influence behavior. And we now have early evidence that when we make those things more visible, buyers engage more deeply and make decisions with greater confidence. So you can expect to see us integrating those elements more directly into the core shopping experience this year. We are also intentional early movers in Agentec deeply focused on developing integrated experiences. We're encouraged by early engagement and traffic signals from Etsy's integrations with OpenAI, Microsoft and Google. And we recently developed an integrated Etsy app for Chat GPT.

At the same time, we're testing conversational AI experiences directly on Etsy because we see agents as a powerful way to simplify discovery and decision-making for both buyers and sellers, particularly when paired with our own data and insights. In Q1, we built two agents, one focused on helping buyers find the perfect gift and another that brings together insights for sellers to make better decisions, access the right resources and reduce operational friction. These are early examples of how ML and AI can make the marketplace meaningfully better for our customers. Just as importantly, they're allowing us to move faster, building and iterating in weeks, not months, which helps us learn more quickly and drive growth.

Stepping back, we've now delivered two consecutive quarters of year-over-year Etsy marketplace growth, and our outlook points to growth again this quarter. But our progress won't always be linear. There's still a lot more work to do. What gives me confidence is not just what we're seeing in our metrics, but what's driving them. We have a clear understanding of how Etsy works at its best. We're rebuilding the marketplace based on that understanding, and we're executing with greater focus and discipline than we have in the past. Etsy has always stood for something different, creativity, human connection and meaningful commerce. As technology evolves, we believe these qualities matter more, not less.

Our focus now is simple: execute against what we know works, measure progress clearly and build the foundation for durable growth. With that, I'll turn it over to Lanny.

Charles Baker: Great to connect with all of you today. As Kruti just described, we've had an encouraging start to the year, and I will discuss some of the drivers of that progress, as well as what it means for our outlook going forward. As you review our shareholder letter and 10-Q, please keep in mind that on February 15, we entered into an agreement to sell Depop to eBay for $1.2 billion. We have received regulatory clearance for the transaction in the United States and Germany, and reviews are in progress and on track for other markets, including the U.K. and Australia. We expect to close the transaction by the end of the third quarter of 2026.

Given the pending sale, Etsy's results are presented on a continuing operations basis, while Deep Hop's results are now presented within discontinued operations. I also want to note that Reverb, which we sold in June of last year is included in Q1 2025 continuing operations, whereas Q1 2026 reflects only the Etsy marketplace. This makes year-over-year continuing operation results not directly comparable, and we have included stand-alone Etsy marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations. kruti covered our top KPIs, so I'll provide a bit more color on Etsy Marketplace GMS, which advanced to solid year-over-year growth in the quarter.

Q1 '26 Etsy marketplace GMS was up 5.5% year-over-year, which represents a 540 basis point improvement to the GMS growth achieved in the fourth quarter of 2025. On a currency-neutral basis, GMS growth was 3.6%. Progress in both product development and marketing are beginning to translate into underlying improvements across marketplace fundamentals. And we also benefited from foreign exchange tailwinds and softer performance in the prior year comparable period. Our key customer metrics are continuing to move in a healthier direction. Q1 '26 trailing 12-month active buyer count was $86.6 million, representing the first quarter of sequential growth in the past 2 years. Combined gross buyer additions, new plus reactivated were $11.9 million, up 4.8% year-over-year.

Encouragingly, GMS per active buyer improved sequentially for the fourth consecutive quarter and grew year-over-year for the first time since 2022, reaching $122 on a trailing 12-month basis. Purchase frequency remained modestly lower than prior year while average order value increased year-over-year. Several factors, some of which we expect to be temporary contributed to higher AOV, including foreign currency exchange tailwinds and the expiration of the de minimis tariff exemption and subsequent seller listing price increases. We anticipate that these benefits and the resulting impact to AOV will moderate as the year progresses. That said, product improvements have also benefited AOV, including changes to our search and discovery algorithms that better surface higher quality, more relevant and differentiated inventory.

Repeat buyer and habitual buyer figures, while still down year-over-year, continue to see sequential stabilization. On the seller front, Q1 '26 was the first period of year-to-year growth in total seller count since we introduced the seller setup fee. Active sellers grew 3.3% to $5.6 million. Turning to take rate drivers. Our shareholder letter depicts the primary factors that help drive our quarterly take rate to 25.7% up 180 basis points year-over-year. 130 basis points of this increase was due to the impact of the River divestiture last June. Meanwhile, Etsy marketplace take rate expansion was led by Etsy Ads where we continue to benefit from machine learning-driven improvements to relevance and seller budget pacing.

Offsite ads and Etsy payments also contributed to take rate expansion. Although our current strategic priorities center on driving sustainable long-term growth in GMS. We're encouraged by the way, investments in ads, payments and services continue to provide durability to Etsy's take rate. We're pleased to be executing against our near-term priorities while improving the ways we work. continuously looking for operational efficiencies and keeping a tight control on expenses. This is visible in Etsy Marketplace operating expenses for the quarter with product development, marketing and G&A all gaining leverage on a year-over-year basis. In product development, modestly higher employee costs were offset by savings in other areas.

Marketing leverage was achieved by targeted shifts in portfolio mix to better meet customers where they discover and a continued focus on efficiency. Growth of GMS derived from Etsy's owned marketing channels also supported marketing leverage. Turning to our strong first quarter balance sheet. Etsy held $1.6 billion in cash, cash equivalents and short and long-term investments at the end of the quarter. Net cash provided by operating activities of continuing operations was $102.5 million. We converted 50% of adjusted EBITDA to free cash flow more than twice the rate of conversion realized in the year ago quarter. We also repurchased a total of $145 million of stock, which reduced the outstanding share count by approximately 2.7 million shares.

As of March 31, we have $828 million remaining on our current board authorized share repurchase programs. we took the opportunity in our shareholder letter to reaffirm and explain our approach to capital structure and capital allocation, which is based on four enduring priorities. Number one, maintaining financial strength to fully support organic investment in the Etsy marketplace. Two, preserving strategic flexibility to selectively pursue opportunities to strengthen our business. Three, ensuring we effectively manage our financial commitments; and four, enhancing returns for our equity holders as made possible by our strong free cash flow generation. Given this framework, the pending sale of DPO will allow us to further accelerate the direct return of capital to shareholders via repurchases.

Turning to our outlook for the Etsy marketplace. We assume that overall macroeconomic factors remain relatively consistent and currency tailwinds moderate. We also note that prior year comparisons will become less favorable as we move through the year. We currently anticipate that Etsy Marketplace second quarter GMS will be between $2.48 billion and $2.53 billion, representing year-over-year growth of approximately 3% to 5% for the quarter. We expect second quarter take rate to be approximately 25.7% and adjusted EBITDA margin to be 27% to 29%. For the full year, we now anticipate that GMS growth will be in the low single-digit range as our outlook for the Etsy marketplace has improved relative to the full year commentary provided in mid-February.

Our updated full year view incorporates stronger-than-expected first quarter GMS as well as the progress we're making on our growth priorities. We continue to expect year-over-year growth in Etsy GMS in each quarter of 2026. We currently expect full year take rate to be roughly equal to that of the first half of the year, and our full year adjusted EBITDA margin outlook of 28% to 30% remains unchanged. We're pleased to be executing on our plan and delivering better results. And as Kruti stated right upfront we believe there is significant potential yet to be unlocked. And with that, we'll now turn it over to the operator to take your questions.

Operator: [Operator Instructions] Our first question will come from Michael Martin with Matt Mason.

Michael Morton: Thank you for the question. Clearly, I wanted to ask about the most impactful changes you've made to the app. In the letter, you talked about expanding the role of personalized home feed recommendations. And I was curious, is this driving a measurable increase in frequency as you're putting the app in more buyers' hands, like as we know, I think for Etsy, growing frequency is the holy grow. So maybe any leading indicators you're seeing there within the app would be great to hear.

Kruti Goyal: Great, thank you so much for the question. So you're right. We're really focused on the app. This is our highest value platform. As we mentioned, our app users have 40% higher LTV than non-app users. And that's because they visit more, they engage more deeply they convert at higher rates. And so our focus has really been around making the app much more personalized and a much better discovery jumping off point. And so the work there has been really shifting what we show you in the app home feed from popular inventory to items that are really based on buyer interests that are going to inspire new discovery.

And so we're really excited about the work that we've done there and the evolution of that home feed. And it's starting to show real traction in engagement. And so as we talked about in the last call, we've introduced these new model that reflects much deeper buyer understanding. Basically -- develops a profile of a buyer of MAP to your interest in has over time and then map those interest inventory so that we can present to you when you first open the app, inventory that clearly connects to your taste but introduces you to new shopping missions and to discover new categories. And we're excited about the traction that we see there so far.

It's definitely delivering deeper engagement and more engagement. And that's really the precursor to greater frequency. And so let's talk about frequency for a second. That was kind of the second part of your question. Frequency is really our ultimate goal, and it's what our strategic priorities are designed to work together to drive -- we're not seeing it inflected yet because it really requires a full end-to-end experience shift, not a single fix, not a single platform fix. And so maybe just pulling back from the specifics for a second, I want to explain what I mean by this. and how it relates to our priorities.

So the first thing we have to do is show up consistently where our shoppers are with content that feels really relevant in the context to get them to consider and visit Etsy more. Then we need them and match them with items that are really relevant personalized to them so that they engage more deeply. And then for all the inventory we show them, we want them -- we want to consistently highlight what makes that inventory really unique and valuable, really the human touch behind it, that gives buyers confidence to purchase more.

And then throughout, we have to show our buyers that we know them, that we value them because Etsy is getting better, the more they engage with us. So that they feel really rewarded for every interaction, and they want to come back again. That's really the flywheel. This is what drives consideration, engagement, conversion, retention and really ultimately frequency. So at this point, we're still in the early stages of driving that consideration a deeper engagement. That labor engagement is what you're seeing on the app, which we think is a really important early and encouraging sign. But it's going to take time for these changes to compound into sustained frequency and retention.

Operator: Your next question will come from Trevor Young with Barclays.

Trevor Young: Kruti, maybe a bit bigger picture one. Core Etsy has a very healthy take rate for a transactional marketplace. How do you think about the path for take rate here for over, I don't know, maybe 3 or 5 years now that adds and payments have been pretty well optimized. Are there new services you could offer buyers or sellers where there's a fair exchange of value which could push take rate higher? And then on the opposite side, what about opportunities to get a little more surgical on take rate to remove some of the friction in the marketplace that could maybe help drive purchase frequency.

Kruti Goyal: Thanks for the question. Your question is about take rate, but let's talk about revenue first for a second because often, when we talk about take rate, it's about how we're really going to grow revenue. . And so the first thing I just want to say is our focus is very much on growing revenue through GMS growth. We think that is the healthiest long-term lever to drive revenue growth. It's by getting more people to buy from Etsy more open.

We think we have a very healthy take rate, and we offer services that are really valuable to our sellers in the near to medium term, we're going to continue to invest in making those services better and more effective for sellers. And as we do that, we expect to see some modest improvement in take rate. Certainly, over the longer term, we're open to exploring other opportunities for delivering new services that would be really valuable to our sellers, but that's not the focus right now. The focus is really on growing GMS growth to drive long-term durable revenue growth.

Operator: Your next question will come from Nikhil Devani with Bernstein.

Nikhil Devnani: I wanted to follow up, Kruti, on related topic around frequency. The letter talks about inspiring discovery beyond a shopper's immediate attend. So I'm curious what trends you've seen or progress you've seen on cross-category shopping on Etsy and really introducing customers to more use cases and occasions on the platform if you were to step back and look at the progress made over the past couple of years, anything you can point to with respect to that trend line would be helpful.

Kruti Goyal: Look, I think we're in really early days here, but we are seeing encouraging signs from the changes that we're making to the -- at Home feed in terms of really anchoring on buyers' tastes and interest and using that as a way to introduce them, not just to new shopping missions, but to new categories. But certainly, very early days. I think more broadly, if you think about our approach to how we're serving buyers, One of the shifts that we've made that you've heard from us recently is that we really understand that buyers think about us for shopping missions that are largely horizontal. So those span across categories.

And so our approach is really -- has really been to serving those shopping occasion needs, more effectively. We think that, that approach is also going to really help us show up in a way that's more relevant to more people, more of the time and help them consider different categories that are relevant to a shopping occasion.

Operator: Your next question will come from Maria Ripps with Canaccord. .

Maria Ripps: I just wanted to ask about active is return growth. So as we think about sort of key initiatives there, personalization, the mobile app, there was the largest sort of top final drivers. Is there anything that kind of closer to the lower funnel initiatives that you can talk about? And then more broadly, how should we think about sort of the lag between product improvement and sustained growth inflection in active buyers?

Charles Baker: When we think about active buyers, it really are two components. They are the existing recurring repeat users, and they drive most of GMS. And to the second part of your question, all the work we're doing on the product experience, the personalization, even things like customer service and support and trust and safety -- all of these are top priorities to build an environment for those existing repeat purchasers that is -- they become loyal to, they become familiar with and we can drive their frequency and engagement. On the -- in order to get the total buyer pool growing, we have to do more than just serve well the existing buyers.

We have to bring in more new buyers and reactivated more prior buyers on Etsy. And that's why in our strategic priorities, we're talking about, we have so much focus on showing up where customers are starting their shopping missions. And so we're really pleased with the momentum that we've started to see now in the number of gross additions between new and reactivated users -- it's been a couple of quarters now of positive year-to-year comparisons there, not only in percentage numbers, but the aggregate numbers of new people coming in today versus a year ago is starting to look better.

And that in the long term is what will really drive along with good retention of the existing buyers that accelerating growth on the new and reactivated front is what we're seeking. We've made some changes to our marketing mix to do that. We've been talking about showing up much more strongly in places like social media. We've been talking about making refinements the way we show up in classic search results. We've been leaning out on the very frontiers of what's happening in gene commerce to make sure we're showing up there. We've been emphasizing the mobile app, which we know is the way younger demographic shop.

And all those things are starting to have an impact, and you can see that in the numbers that we're talking about. -- you get down into the smaller sort of nuance things. We've talked a little bit about TikTok has been a great channel for us since bringing in a much younger demographic. And I think there's a lot more for us to do in that channel. On the sort of low funnel, social across some of the others we found that we're not always in social acquiring new users. We might be -- and so we've modified our spending a little bit to really focus on activating new users and bringing back lapsed users.

That's been a little bit less at the bottom of the funnel in social a little bit more at the awareness -- upper end of the funnel and social. All these things are -- the changes we made today are -- we're going to continue to monitor those and be really disciplined and very ROI-driven and very focused on what you -- sort of starting point of your question, which is in the long term, growing the active buyer count on Etsy.

Operator: Your next question will come from Nick Jones with BNP Paribas.

Nicholas Jones: Great. I guess maybe one on internal AI at Etsy. -- if AI is going to kind of unlock bigger kind of more persistent context on our active buyer base. How should we think kind of like where you are and kind of the evolution of being able to build this kind of really rich contracts on a customer basis to build customization is there going to be kind of an impact on expenses as you maybe need to pay for more tokens or something to kind of deploy this to drive conversion higher? .

So I don't know if that question makes sense, but just curious on kind of where you are, like what inning it is in terms of using the technology to maybe drive a more meaningful improvement in conversion.

Kruti Goyal: Yes. Great question. Thank you. So first of all, we see just so much exciting opportunity for us to leverage this technology to build a much better, much more personalized experience on Etsy. And the way that we think about it is that we need to bring together a really deep understanding of three things: -- our inventory, which, as you know, is very diverse, very unique, very broad. And so we've made a lot of good progress there in terms of richer inventory understanding, leveraging LLMs. The second is fire understanding or understanding our buyers' interest and taste -- and understanding those over time, that's part of what you were just describing as that richer context that persists.

And this is where we're putting a lot of effort an investment right now, developing new models that help us understand about the profile of a buyer's taste. I'd say that we're early here, but making really good progress mapping that understanding that deeper understanding of our buyers to our inventory. And then the third piece of this context is understanding your intent in the moment. So for our understanding of buyer interest is something that we build over time. You're -- your intent in the -- is something that is more about in the moment in a session.

And that is really, really critical context to help us marry all of those three things together to provide a really personalized and relevant experience every time you shop on Etsy. We're still really early days here, but one of the exciting developments that we shared in the shareholder letter in the prerecorded plus was about the conversational agent that we've just introduced for buyers to help them find gifts.

This is a really great example of how we're using this new technology to get a lot more context through a single interaction that again, then if you think about marrying those three things together can allow us to provide a much, much richer, much more personalized and more effective experience. So I'd say we're at different stages of maturity across all three of these areas, but making really good progress and really excited about the opportunity that they present.

Charles Baker: To the sort of final bit of your question about managing tokens and the like, -- the way we think about it right now is we really want to embrace an experiment with these brand-new tools. And as Guy said, there's so many applications that we are -- we're really trying to be on our front foot and fund and invest and learn in this area as quickly as we can. . As you know, we will manage the costs, and we will apply that which, hopefully, you recognize we do all the time, we apply a very rigorous ROI discipline.

And so the investments we're making in AI and the features that we roll and the costs associated with the compute behind that is all going to be framed with reference to its impact on GMS growth and long-term user growth and frequency growth. And we'll manage that with mine toward long-term profitability as we've done in so many other realms of our go-to-market.

Operator: Our next question will come from Marvin Fong with BTIG. .

Marvin Fong: I guess I'll ask the obligatory question about consumer health. I know you mentioned in the letter that trends are relatively stable. Is there anything to call out even at a granular level that you're seeing any impact from higher fuel prices? And relatedly, -- it looks like we're going to have like some fuel surcharges in terms of postage costs. Is that -- do you expect any impact on your seller behavior as they try to manage that cost that's embedded in your guidance?

Charles Baker: Yes. Thanks. As we said, the consumer environment has remained relatively stable overall. There's been an interesting sort of tension back and forth between some of the softer data and consumer polls and surveys being more soft and concerning. And then the actual hard data that comes through from the consumer has held up. And that's kind of what we've seen. Our U.S. buyers have been resilient -- we've seen broad strength across various household income cohorts like others. I think others have said, we do see some of the strongest growth in the higher-income households, but it's broad-based. I think if you go a little bit -- trying to go a little bit more granular.

One of the ways we look at it is segmenting our GMS by trade lengths and the U.S. domestic trade lane was the strongest at the start of this year. One thing that's interesting change is coming into this year from where we were last year, in the first half of last year, our U.S. import channel -- our trade lane was growing pretty well. It's probably the fastest growing channel. That slowed down with the imposition of tariffs and we returned to positive growth in the U.S. import trade lane in the first quarter this year, which kind of goes back to the first year I said, which is the U.S. consumer remains fairly resilient.

Our non-U.S. currency-neutral GMS grew for the first time since 2023. So we're seeing some of that resilience overseas as well. U.S. buyers grew on a trailing 12-month basis. in the first quarter from where they were in the fourth quarter, and international buyers were about even in the first quarter with where they were in the fourth quarter.

So when you try to pull apart the impact of tariffs and the foreign currencies and tax returns that have been strong in the season, and the impact of oil prices, netting it all out, it's hard to point to any one thing, and that's a stronger comment than the consumers remain pretty resilient, and we remain cautious about the forward outlook.

Kruti Goyal: One more thing that I would add, a little bit higher level about the macro environment is like, look, we're obviously in a period of high macro uncertainty on predictability. . As Lenny said, we're really -- we're monitoring consumer confidence closely in the macro environment more broadly. But as we do that, our focus is largely on what we have control over. So there are two things that I think about there. First is we're focused on building a culture of learning quickly and adapting in real time. We saw this in spades last year with our team responded to tariffs to the emergence of genetic commerce, like we're really confident that we can continue to do that.

And then second, -- we're focused on executing with clarity and discipline on our strategy, and that's about accelerating our product innovation, evolving how we show up for our customers, reinforcing trust through the entire experience. We think that's what's going to really continue to reinforce the resiliency of our marketplace, as Lanny mentioned.

Operator: Your next question will come from Brian Smilek with JPMorgan.

Bryan Smilek: Kruthi, curious to your thoughts overall, we've seen in the market open AI, potentially pulling away from constant checkout and focusing more on Discovery and SDK integration as you've launched your app within Open AI, can you just talk about the initial impact to conversions? I believe last quarter, we had talked about traffic being up multiples of what it was year-on-year. But really, AI traffic is still driving more on-platform marketplace conversions. So curious your thoughts there on the shifted strategy by open for the question.

Kruti Goyal: I just want to clarify the app is not launched yet. But I think overall, big picture, look, we think that shift really reinforces our hypothesis that we continue to think Gentech shopping can become a meaningful discovery channel for us over time, but the focus is really discovery. That's reinforced by trends that are really consistent with what we shared with you last time we spoke, which is we continue to see strong traffic growth and high-intent traffic. So that's great. but it's still very, very small. It's a fraction of a percent of our total traffic. And so again, that reinforces our prothesis that it could be a high-value discovery channel, but that's where it's best suited.

But that's going to take some time. That's over the long term. The other thing that I'll just say here is we continue to be really focused on early engagement being early movers here. It's very aligned with our priorities to show up where our shoppers discover. And we know this is going to be a really rapidly evolving space as we're seeing in real time. Our focus, our commitment is to being where our customers are, so we can learn from that behavior in real time and adapt our experience with that you see us doing that already.

Operator: Your next question will come from Nathan Feather with Morgan Stanley. .

Nathaniel Feather: Ncourage the stabilization in habitual buyers. What are you seeing that's allowing that to finally normalize, especially as frequency hasn't yet inflected in the hall. And do you have line of sight to that returning to sequential growth through the year?

Charles Baker: The activity you're seeing in terms of stabilization on habitual buyers, on repeat buyers and even on frequency and on many of the biometrics, I think is really the fruit of the things we've been focused on strategically that Kruti talked about that we highlighted in the shareholder letter and frankly that we've been talking about for several quarters. Like what you're seeing in the numbers is just starting to see some of the initial early impact of the accumulating effort of last several quarters. One thing I want to point out about habits as you look at those, those numbers are still lower year-to-year.

They were pretty stable in the first quarter from where they were in the fourth quarter. And I think the next thing that hopefully plays out is stability turns into a return to some modest growth and equally stronger growth in the long term as we continue to execute on our strategy. One thing it's important to remember is that the habitual buyer number is reflects a certain purchase frequency. And when that number goes down, it's pretty rare that, that habitual buyer has actually left Etsy -- and in fact, they've just kind of fallen below that purchase frequency threshold.

And with all the work that we're doing, we hope to bring them back above that threshold, and that's what really will drive that cohort to be a little bit bigger in the future.

Operator: Your next question will come from Bernie McTernan with Needham.

Bernard McTernan: Great. acknowledging all the good work that's going on within the app and double-digit growth on GMS. But I wanted to ask about the non-AP, the acceleration sequentially was actually stronger outside the app. So I just want to see what's going on there, whether it's product or whether it's some of those marketing efficiencies that -- in paid search that are driving it.

Charles Baker: It's a combination of factors. It is certainly the product work that we're doing that's having an effect across the whole system. . And it's encouraging to see that, that product work -- that effort to be more personalized, to be more relevant, applied on all services has a sort of commensurate impact. It's having the biggest impact on the mobile app because that's all logged-in usage. And we can really go the deepest and fastest there. I think also helping our non-app traffic, our marketing activities were really effective during the first quarter. We increased our marketing spend year-over-year, and we gained operating leverage in terms of GMS and revenue operating leverage on the marketing line.

That's come from more efficient spending, mix optimization our owned channels becoming a bigger driver of activation and reactivation and some of the competitive dynamics, particularly in the paid search marketplace. In both PLAs and search engine marketing, we leaned in. We spent a little -- we increased our investment there. Google has made some changes to the algorithms that they use to surface results, and that's helped us in that channel. I talked a little bit earlier about what we're doing in paid social and in our sort of brand marketing on social -- and then really importantly, our owned channels, both the push notifications and e-mail continues to grow at double-digit rates year-over-year, in terms of driving GMS.

And that's great because there isn't double-digit increase in spending in that channel. And we've had some search engine optimization wins over the last couple of quarters. that are also feeding some of that strength you're seeing in the desktop and non-app environment.

Operator: Your next question will come from Ana Andrea with Piper.

Anna Andreeva: Great. Thank you so much. Congrats. Nice to see a steady improvement in the business. We wanted to ask on the seller metrics. First quarter of growth really in quite a while now. And Kruti, you mentioned a better retention of the seller base. in the shareholder letter. Can you talk about what are some of the key initiatives behind that are resonating the most? And should we expect stability in the seller metrics as embedded in the guide?

Charles Baker: Well, the sellers are a fundamental portion of our marketplace kind of obviously the breadth and depth of the inventory that they bring is really what makes Etsy differentiated. We are in our product work, as Rise described, really trying to bring forward the human connection and emphasize the human element of creativity and craftsmanship that really differentiates Etsy sellers. And so as we've done that, and our buyer base continues to grow we're starting to see improvement again in the seller count.

Kruti Goyal: Look, I think more broadly, I would just say our -- we haven't invested deeply in the seller experience over the last several years, and that's somewhere where we're shifting more focus to going forward. . And I think that we expect to see really positive impact from that. And really, what we're focused on is making it easier for sellers to do -- to manage their shops and to manage their listings. These are some of the areas that take the most time but are not the most value add.

So we was talking about human connection, really the most important things that our sellers can do to add value to the marketplace is continue to innovate at really that new inventory into the marketplace and continue to provide really great human service. to our buyers. These are the places that we're really focused on investing in. I mentioned this in terms of some of the AI tools that we're launching, shopping shop management assistance, we've already talked about AI listing assistance. These are areas where we continue to focus on making the seller experience better to drive that side of the flywheel of marketplace growth.

Charles Baker: The retention of sellers has started to improve. And that is helping the overall seller number. We're seeing healthier quality of sellers -- more of the sellers are completing sales and having strong GMS results and a higher percentage of them are staying with us year-to-year-to-year. So some of that product work that we've begun is the friction that we're taking out is starting to have an effect there on the telecon.

Operator: Your next question will come from the use of Squali with Truist Securities.

Youssef Squali: Lanny, with the mid-single-digit growth for Etsy Marketplace, GMS, you just put up in Q1, -- what are the main drivers pulling that growth rate to a low single-digit percentage expected for the year? And with all the changes you're making, do you believe you have line of sight to positive active buyer growth this year? Just trying to get a sense of what's baked into your low single-digit percentage gyms growth?

Charles Baker: As we described, the outlook is predicated upon a gradual improvement in the underlying fundamentals of the business as we've started to show over the last couple of quarters. It will take us some time to get all the different metrics back into positive year-over-year territory. And we haven't commented on those very specifically. As we -- but that underlying -- we do anticipate that there'll be underlying fundamental improvement in sort of the core buyer metrics as we move throughout the year.

The comparisons do get trickier, more challenging later in the year than certainly they were in the first quarter. and we roll off of the foreign currency, very strong tailwind that we saw in the first quarter that will moderate as we move through the year. And in the first quarter this year, our GMS was certainly helped by an increase in average order value -- and FX will slow down. We think that the increases in listings prices that corresponded with the end of the de minimis exemption and the implementation of our other tariffs. Those increases are probably sticky price increases, but they -- we will lap the benefit of sellers having taken that up.

And also driving AOV have been product improvements that are helping us surface more relevant items, higher quality, higher value items, and that's contributing as well. So as we look across the course of this year, there's some mitigation in sort of the growth benefit of some of those external factors and continuation of the internally driver -- driven inputs to our growth creation.

Operator: Your next question will come from Shweta Kajaria with Wolfe Research.

Shweta Khajuria: Okay. Thank you for doing my question. Could you please talk about the balance of AOB and frequency. So when we think about frequency, you've now touched on this multiple times, including in your shareholder letter, that may take some time to see that inflection in frequency. But from your prior data, how -- what is the lag that you see once you start seeing an improvement in some of the other fundamental metrics, whether it is buyer or buyer growth or engagement, when -- what is the time lag when you start seeing sort of that uplift in frequency?

And then similarly for retention, what are you looking for from personalized recommendations and targeted offers that gives you confidence in driving better retention?

Charles Baker: One of the encouraging things that we've seen so far as we started this year is that despite the fact that the average order value has gone up, as I just described, our buyer numbers and our frequency numbers have been stable, if not improving. And that's nice to see that impact on user behavior even in an environment of slightly higher prices on Etsy and other places.

And so I think there are some early signs that the work that we are doing to drive retention and frequency through personalization through the mobile app, everything we've been talking about is starting to have a benefit -- and -- but I do think, as we look forward, we'll continue to see that benefit be there and compound over time. See, it is challenging to predict with precision the exact timing of various inflections in that -- in various components of the frequency and the active buyer trend. So what I would say is expect -- we've stabilized. We've started to show growth in some areas.

And we'll keep you posted as the benefits of the work that we are doing through our priorities, can you just play through the mechanics of the model.

Kruti Goyal: Yes. A couple of other things that I would just add are, it's hard to predict the exact timing, but we know that, that -- we're very confident in the continued growth, but we know that growth won't be linear. . I think that's a really important thing to note. We've talked a lot about our priorities as taking a much more systematic approach that we expect to lift all of the key metrics behind -- that drive our GMS. So that's another reason that it makes it difficult to predict the inflection of any 1 of these metrics individually.

I would just also reiterate that we're seeing very early but very encouraging signals, the initial improvements that we're making around personalization across services like App home and marketing communications are very, very promising and are the precursor to driving other metrics, particularly to meeting into frequency and retention.

Operator: Your next question will come from Naved Khan with B. Riley.

Naved Khan: Great. I just wanted to maybe dig into something you said earlier in answering question. I think it was for you see. But wanted to talk about AOV. And if you were to kind of look at on an FX-neutral basis and strip width impact on the exemption of the demise exemption and its effect on list prices, would -- how would AOV growth look like, excluding these sort of extraneous factors?

Charles Baker: I think if you strip out the things that you talked about you would find that there is growth in AOV coming from product optimizations that we have made in how we respond to buyer search inquiries. To surface, we've talked about this for a long time, higher quality, more relevant items, incorporating the quality of the item into the search results ranking and what that's doing is it's elevating the average order value as we surface more differentiated, more unique, more in the eyes of the buyer more valuable items. But as I said, most of the increase in AOB right now is coming from the other factors, foreign currency and listing price changes.

But we do have our -- there is an influence from some of the product work that we're doing on AOV.

Operator: Your next question will come from Jason Holstein with Oppenheimer.

Jason Helfstein: I want to ask goose around AI. I mean, obviously, every company is thinking how they should be deploying this at what scale, at what cost, right? And how much kind of like doing it all internally versus consults. Can you maybe talk about where is Etsy right now in that kind of thought process? And at some point, like should we expect you to hear from you that like it's time to get much more aggressive around kind of bringing AI automation into the workflow of the business.

Kruti Goyal: Yes. I think there are a couple of different parts of what you just said. Let me tackle them separately. So how much we do things internally versus leverage external tools. We've been -- first of all, I'd just say we've been very proactive in how we're thinking about AI and the potential impact for AI on the business. . Really holistically. The place that we have all talked about the most is in terms of external partnerships, but we are being just as proactive in how we're thinking about deploying AI internally. I talked a little bit about this before in terms of some of the on-site investments that we're making.

And when I look -- when you think about the internal-external mix, we really actively leverage a hybrid of options, open source models, commercial models and our internal models, really balancing capabilities with costs -- and we expect to continue to do that. We want to use the best tools out there to solve the problems that we're trying to solve. I think the other part of your question is how we're applying these tools internally to how we work, and we really see that is a space that is evolving very rapidly. We see these tools as a real force multiplier across our internal teams.

These are like power -- there's power tools that are powering how we're working across really every function. And the biggest opportunity here is accelerating our build times -- our build cycles and time to learning. We have seen this already with the agents that we were able to launch in the last quarter really just built in weeks -- as we continue to see more of that opportunity to leverage tools to accelerate our work, we will deploy them actively. I see this as a continued area to lean in and to invest rather than 1 big drop.

So you can expect us to take that same kind of disciplined but very proactive approach to how we apply AI tools, both on the experience and internally with our teams.

Debra Wasser: Thank you, Kruti. Thank you, Lanny. I'm going to call it there. We don't have time to take a question and answer it. So we appreciate everyone's time this morning, and we'll be following up with all of you. Thank you all so much.

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