ETSY - Earnings call transcript Q3 2019

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Operator

Good afternoon, ladies and gentlemen, and welcome to the Etsy Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Deb Wasser, Vice President of Investor Relations.

Deb Wasser

Thank you. Good afternoon, and welcome to Etsy's third quarter 2019 earnings conference call.

Josh Ratcliff Rachel Investor our are Officer; Chief Relations. today Gab and Senior me Silverman, Glaser, CEO, Financial Joining Manager at

recent today initiatives drivers thereof, Before that impact of to just started, marketing anticipated financial includes and strategy, remarks product our our results acquisition benefits revenue growth, and product on key rates conversion we related forward-looking GMS anticipated development and Reverb. a guidance the and improvements of including recent to velocity our of and statements our and get our future our reminder financial initiatives net

differ may results actual Our materially.

involve SEC. uncertainties with assumptions to our the them. statements have forward-looking make we Any we and call are filed press August don't any on obligation described that X, XXXX, statements based and that Forward-looking in beliefs risks this on and our SEC subsequent today on XX-Q the release, are update we with our and reports which file

and and non-GAAP Also financial earnings during the A via non-GAAP call find in which as GAAP that is press replay reconciliation and you available prefer be to accompany on opening there the to A release, created today's a replay today's We've Relations follow you'd remarks well. the this you of measures. recommend included call, link Investor will in website. we'll can measures present both our access GAAP to the of phone, also to find can release along. you if information press slide presentation

Reverb specify focus Note acquisition impact results our excluding we that Etsy's the otherwise. on of weeks will of discussion today's X recent much of unless

turn I'll the to that, call Josh. With over

Josh Silverman

everyone. afternoon good and Deb, Thanks,

growth foundation overall XX underlying the laid which business, we of our with to updates GMS into basis Etsy was was transformative the eventful take growth coupled approximately XX%, QX rate quarter fundamentals sequential And points strong future. another XX.X%. neutral quarter. acceleration. the improving currency believe another Its for to expanded

adjusted growth and sustained EBITDA this We extremely strength margins execution a XX% fundamentals, some our strong profitability. with delivering to is in simultaneously see in growth revenue two-sided healthy company evidence revenue rare It's while our our of marketplace that continued of such model. our of the resulted This of believe solid XX%. with sector

with of we're much runway focusing and the In Etsy often you, prioritize of many have streamlining talking When execution, driving of areas how growth. XXXX, to more grow. reorganized that GMS team highest the asked probability has our the business fast to on

of much was our product an shipping approximately X% velocity XXX average experiments only Xx about per delivering month XXXX Etsy's in faster We're experiments In about with development XXXX more now headcount. XXXX, velocity XXX than iterating per year. more

for road to continue in buyers We sellers. growth of on ideas a incremental are our have GMS map delivering and our need and focus what long turn that

collection initiatives. So win. is into let's Etsy's items some dive foundation right to those the of unique of of our

color for As we QX had photos visualize or the million without sellers separate items, design over vast offering over of of XX, each we of majority one kind. are enabling buyers which a the million unique In variation variation. requiring or September launched variations X.X listing to XX

we find taste. launched And simplifies designed will we variation rate we initiative making time, photos, the This drive have buying as believe it tool this adopt item of easy impact easy feature. conversion it for your And for it just penetration sellers that well. positive to a to experience, the a makes over on exactly as right

to right Search win. is our second discovery and

e-commerce. different from XX others those just million mentioned search you or numbers skew don't As catalog items making Etsy's I have map a in know, to challenge

unlock a advantage. search component our Etsy's we've significant key seen competitive improvements time, value as Over of in

context-specific and our algorithms items, of evolution in months between understanding attributes launched iterative We've deeper relationship X which our the a of August we next upgraded to our non-linear from of users. ranking about search search leverage now linear models, development, Following capabilities.

learn as think shopping approach individual showing just model tailored that a we will modeling launch believe more a of tastes deliver even buyer's already iterate the continue rates to our We specifically and experience preferences. to conversion more results with on more this beginning. personalized We've this seen that's to algorithms meaningful our impact first new each new and sophisticated and

areas to we early of not the relevance days listings move prior search. the order have without cloud meaningful of expect been revenue. still search Like possible results that drive our promoted new to improvements in ad would to demonstrates are to improvements CSR unlocking more and apply of in our we work, approach to the This very Similar these the increase model business. other to and

engagement, differentiate make to of next that to continue to connections other leveraging e-commerce human progress believe and connections, the quality human platforms. to right loyalty, We and frequency our elevating purchase Etsy buyer We on our continue fostering platform will us win. drive from enable on

the did experience interface feel our to the look from a faster interactions focused enabling quarter, that rebrand on work In to of tool transforming email Etsy an to third the and shopping. chat-like messages are we platform more conversation like

here rewarding most investments sellers. buyers buyers we buyers. the more deepen Since Etsy on a engaging app our a method a see for and the to big tailored to Etsy and our been experience to shop with is best the has buy as create app, continuing way year between improving loyal XXXX our connection which on

more in home buyer that us improved dropdown a feed, the XXXX. and recommendations, experience, to other We've enable app changes onboarding screen cart of market modifications search the proactively menus, will host

the of on to across trust right that our buyer's our for journey, laid final work building inspires a foundation human connections a win. some Next, brand

is work Another during area milestones where important had we some the quarter reviews. on our

a the in review. that result only than data reviews no about listing purchases multiple on conversion higher item rate Our with is reviews significantly for of an with a shows Etsy yet XX%

work a QX we kicked focused of in this So significant track area. off on

the to reviews expanding making page, changes made available listing the and estate prominent. real we more First, major

Second, helpful we buyers. for were elevated that reviews more

reviews For example, included no reviews the with elevated rating those were with over star photos and and more text that text. buyer

And third, buyers made are big incremental have encourage QX These more in we we expected more on which changes initial QX. in experience the bets yield reviews. GMS to already finding and improvements in to We meaningful our two many we're to our to call, kicked off ways reviews last introduced pipeline. write

$XX to We've on the than in the sellers Etsy Our free of offer more norm just to who free or tools shop, shipping buyers was shipping their spend the initiative rather these. first shipping making free started exception. giving

free impact. we the our launched adoption in to of the time and about highlights shipping we U.S. are to XX% in items At where the Let's run through ship some of free initiative available only of were for July,

By this the had third slightly to increased quarter, of the number over XX%. end

Importantly, shipping XX% free to of eligible Etsy's for U.S. total U.S. views feature the listing items

the but our for We're evaluating to of is, we lens plenty with buyers, be one initiative For indications number are are done. better making And a encouraging. success driving this more progress, experience? early overall

of Encouragingly, that we've seen increased free visit result have the as the purchases initiative. shipping per a

shopping higher shipping show improved more buyer future their our cart. adding around and report buyers around and recent addition, surveys intent to visiting, sentiment In

loyal reacted free to most conversion the most buyers showing improved our initiative that shipping are positively are rates. buyers habitual the Interestingly, segment have

seeing in the that offer average up on sellers increase prior per disproportionately number up to they these of from sell are and For data their free other GMS our In has improved an rate. year the shows for shipping words, is their items the guarantee, transaction sellers.

the we price headwind, are than more than see expected or shipping buyers. of the absorbing that costs As likely along value rather those sellers we then buyers a passing

instance, incorporate sellers or shipping sellers how For a of cost prices. most many heavy sellers their time having figuring hard or and into international their to with listings under with $XX, expensive out items item are

launch week we launched a a XXXX, under individually So help we and to strategies. sellers with international expect a implement tool tool their help pricing to $XX in ago, preferred sellers items to

We educational that of display inventory to sellers to the in guarantee. continue their free our to maximize out shipping also ways and provide the materials benefit price build help

In leveraging channels shipping well our high, our we on buyer TV of to is our free owned penetration buyers. online all focused that to begin as campaigns. campaign market elevating we as of awareness launched and can ads shipping free our mid-September, Now first

about free awareness time. excited growth unlock and over loyalty to potential incredibly builds as future shipping We're the for

we In solutions to addition the best the efficiency. to the that free get they expanding offer shipping initiative, shipping sellers very focused we're improve and on their ensure rates

and quarter, unlock we've Pitney even both we've solutions the This fulfillment we are and made well significant added process. the on program. believe and initiatives, Three buyers to encouraged for our and this throughout to Chats. money sellers sellers by Chit new Overall, track shipping very help time through we're more progress with value Bowes, save uShip

Rachel puts these more much with complicated days early specifically know talk will it's a about more many do. that recognize takes. bit moment. a with it's also We to I and in

third launched budget utilize manage their higher unified advertising platform. the channels. us X optimizes enables our investment. improve to daily on Google Etsy a X return a election seller's bet single Shopping the Listings Rather ad one across Ads all and Ads Promoted big having in quarter budgets of than which Etsy sellers second to ad This percentage budget and Our was our products streamlines

Ads phases. Our initiative distinct X taking is Etsy place in

The first existing complete. new is into the platform of sellers phase migration

to meaningful we're We're budget scale churn fundamental improving have match majority progress phase participate continued the saw and time. the vast with aggregate ability pleased which the minimal program. to as the seeing is the first to return sellers Google our levels Ads a over and to of making progress Rollers Promoted improving Shopping are We result, in this Etsy program, Listings as of we and of the

we grow second will their sellers the with which phase, budgets help positive is As improves, returns. Rollers to to expand

invest many already are attractive opportunities for is and as understand that raise budgets for invested low. yet goal dollar indicates budgets their to and too help each very data with earning them Our are this more result. their strong to our them and We results a sellers returns see

The add to sellers third phase Ads. Etsy to new is

Etsy Ads of Ads better indicates and as of ready for These XXXX population beyond X we expected progress it, take turn is will phases the of which value where their they time. part research go. We'll adopted could grow a we proposition this to maturity, but the in not last Etsy have communicate look growth. option are lot at sellers and limiting communicate are and over yet a to stage Our that for

adoption visit budgets upper increase, dollars brand of Etsy metrics our more promote intent divert and to mind our intend to benefit awareness, all of that the funnel to month. every the to of we're channels As are measure of we marketing purchase to Top and able sellers.

and campaigns the that's marketing But brand in metrics. these on are digital investment Ads. needle on television the video Our moving

the in marketplace. accelerate We expect drive more as to further the over the time spend sellers performance incremental shift of marketing

we Earlier the a their month, interface and own much how their for visibility investment. of traffic what clear gives results shop analytics are this sellers Etsy to attribution implemented dollars is new performing that versus clear from

visibility new buyers shop traffic and on sources visits, by that listing improved analytics rates, from traffic revenue, and give The to metrics, orders success show feature channel. conversion are by performance channel details coming sellers metrics where their sources of and detailing

impact At as results be whole for take to are many of well one effective a This use. drive to it turn have sellers glance, Etsy's platform are seeking to essential the a We're incredibly the to simple, actions is and sellers or confident know growth health next the will in Early their can benefit positive helps It's the all boats, work able overall more to as two which growth profitability. marketplace. raise an successful. and at encouraging. now improves sellers they

season. improvements, shipping the product for initiatives believe excited our development a holiday we've With place free multichannel marketing very and meaningfully shop for We're better again campaigns made we to Etsy holidays. the

and standing brand for of buyers' TV want from holiday busiest aim year with season run to you frequency by by products the especially as entrepreneur in a can We brand shopping special. creative new unique the you connect through who minds period made the out gift-giving trust. a feel will for those celebrations spots to Our drive the and campaigns their during destination

and dates Isom season excited second for in. making Poehler the joy and the trend In expert exposure NBC The and of resin as premieres addition you'll a it tune Nicholas features marketing X, to celebrating has our Amy for show We're a Dana released Offerman. the in own making Johnson Etsy's judge. hope investments, creativity reality December of competition starring

a road great and improved next product to year momentum XXXX to for We're currently up continue win. right a and developing transfer with deepen strong Etsy's XXXX map ourselves set Coupled marketing we bold our into expect initiatives to and capabilities, to strengthen our and beyond.

leadership Goyal met Chief I'm experience on day share a been our Officer. and that Etsy. sellers proven has many the our investor deep and meaningfully made buyers you March to who knowledge Kruti Kruti's to ability Product named excited improve Patel impact of at on tremendous has for

lot We're long-term firmly is our there believe already our growth tools to continue so further business, with this in best progress value the all of development sharing to in for product Lastly, you practices specifically for made the marketing. driving a team place the our excitement I stakeholders. to far we strategy, year. Reverb. execute have Thank across you've and

turn over call And Rachel. the with to I'll that,

Rachel Glaser

good and everyone. Josh evening Thanks,

be Reverb. are the I comparisons begin, all Before that marketplace unless note referencing here I'll I please say excluding only otherwise, for Etsy

another of and marketing investments in have technology products, marketplace disciplined enabled Our growth our results. strong steady and quarter of

a by Adjusted Services XX basis by we and to approximately Marketplace accelerated XX% execution Revenue points expanded rate in to deliver currency-neutral product revenue portfolio margin spend sequentially, XX.X% growth $XX the EBITDA take basis continued in gain efficiency. OpEx quarter, In year-over-year both marketing grew our million on and driven GMS XX% continued was leverage. and or third improvements driven solid and revenue. as

detail me shipping our performance give you on financial Etsy initiatives. color free our Ads more with beginning more Let on and

for free determine tool of our been sellers we've how cost seller price item business. easily buyers right Since on of on it's can incorporate X, their shipping. our they if they the July their educating on new benefit offering into to the shipping shipping free and First launching

only XX%. impact shipped QX, initial ago. up over percentage more U.S. or shipping U.S. GMS in for for to has quarter free, of the since free resulted and lower in for June, of half eligible shipping XX% GMS buyers. prices with And of The global free Also our from free than in the one doubled

to are increases we seeing conversion beneficial more have in-cart mentioned improved and to our visit, will buyer a per which Josh impact expect As sentiment, purchases rate we business.

that pleased improved has benefit Etsy and shipping with are on considerably. We see further to understand the consumers that expect result as experience

however There a this. are few offsets to

revenue. last in sellers resulting First, observed a shipping of the their our pre-launch into In mentioned price, moving XX% as item has this much I in of lower. we modest cost transfer practice, quarter about been tests rate to contraction

cost move item approximately of as XX% price. seen end have of average, of On the the shipping QX, we sellers into

sellers a sellers mostly is this with circumstances Our priced and items being $XX. items data impact under various shows driven to associated basis GMS with with by of price very high to within revenue in negative costs groups XX% also and point contraction about item EBITDA. of XXX to shipping an that not transferred results

were incremental into take and XX% to we rate is from a item it GMS The because revenue as price the incremental the that shipping fee cost is transaction dilutive GMS without of already creates X% charging transferred shipping.

their recovering use at our costs how search all is hard relates they headwind about on prices of costs. generally A second initiative shipping sellers educating to to tools free setting including that costs ranking. the and recover We're work to shipping

ranking free search shipping as sellers to incentive guarantee. a used a have for We key adopt

This search listings algorithms has placement, of of large this slightly expected, first not a XX% results. This impact free of eligible. of our even rate. ranked over might the higher. the As number off had of are has if to U.S. XX% previously first-page negative effect means items pushing shipping search as them given have listed conversion items page We're relevant a

large ad or to Listings We've Etsy sellers and platform. Ads used Google Shopping migrated was in our launched another initiative new who QX. promoted

budgets. no achieved in have We phase with this churn material aggregate first

facilitate and an in to sellers return the returns in grow ad optimize to is for We improve and drive to and II, which marketplace time turn for budgets the overall. spend sellers' in are working utilization Phase our actively advertising increase

group the but by had of ad During that spend, very high a initial capped return phase, identified their we've elections. on have budget are sellers out

can still expand why while on think educate maintaining we budgets, attractive beginning sellers these to they returns. We're their

sellers, has a meaningful which clear Google, we balance have in a improve to of produced roadmap set with already have initiatives the we their rollers gains. of developed partnership For and designed

Overall increased in in growth. Shopping versions Promoted the Etsy significant of Google Ads QX, contributed revenue and was which Shopping Listings an $X.X carried XX% again over million, both cost former driver Listings revenue. Promoted associated Google and standalone a including of offset

Moving revenue increase year-over-year. and another both to area we third marketing only focus quarter, marketing, Etsy, own of our In of expense the million X% In for year-over-year a percentage marketing grew QX, in year-over-year. XX% spend. as performance $XX.X an invested of contracting $XX.X million sequentially to

score visit U.S. than and and marketing. and reflects the continued Our initiatives faster marketplaces. our comp upper to of multiple visits investment strong our CRM according other in display investment marketing our growth spend including social The marketing drive balance in funnel email in in unique increase budget to

In marketing video in and through as The QX. XX. most metrics will digital and is shown marketing demonstrated efficacy late of QX, campaign several on we brand spend of this resumed our our run campaign on television Slide

new X.X made XX.X% buyers, of acquired those X at least million again overall and the buyer quarter. on active this QX a Active a we grew past by quarter months XX% GMS. XX the First, X% delivered increased purchase who basis. in buyers in third month quarter XX X-year GMS basis nearly and per sixth nearly for in X% consecutive the trailing on

moving that these fact together, marketing new the investments on Taken needle repeat behavior. the and are both our metrics reflect purchase

segment. those $XXX the or improvement grew spend year that on indicators again XX% quarter Habitual than double-click and in X more buyer of this more and some in a buyers Second, our buyers, in year purchased let's frequency. fastest-growing times are

had retention time. typical decay also cohort would over that cohorts our strong very rates. have A observed curve we Third, recent more

ad is this are why buyers GMS indeed to believe expanded remind prior Ads brand shoulder that Etsy. strongly show total providing social to Etsy percent year the tap We XX%. are that on point most cohort. a Fourth, investments our organic our However, when as recent as coworkers further a proof retaining of GMS in and cohorts the that and

television video investment gives view the and drives digital and traffic Our brand buyer of marketing broader in on direct a Etsy. a to more site

marketing ROI are with measure. campaign, very difficult our more focused to and quantify typically the investments our are of which brand on We even

and optimizing customer. insights algorithm, We from testing are lifetime models our revising value product a on impact as for of our bidding our attribution model yield improvements continually refining positively based

for growth. active metrics a few the key A QX, currency-neutral active investing demonstrate in our we approximately generated We believe our up buyers growth by on sellers. driven basis, $X.X that XX% of long-term and are investments. and over of impact Etsy GMS appropriately just in billion in operating further both marketing XX% product

U.S. As this seller for prior or in buyers basis points to higher XXX consecutive from bought quarter. GMS compared U.S. XX% quarters. has approximately international This is all X grew seller. slide, shown accelerated the an QX a and includes U.S. buyer on This the who

We this to continues our domestic growth. and the to related upper-funnel XX% fully of that in anniversaried delivering U.S. marketing the in domestic in investment to XX% GMS quite GMS growth market. German now believe continue transaction representing which vibrancy perform quarter, is see International only happening is two-sided overall for in demand want don't the U.S. third and we the well In they

Ads. was which by revenue, a quarter revenue million, and of metrics. marketplace $XXX Etsy driven revenue to now our services includes Moving XX% up financial Etsy's partial

QX the the year. of in significant which anniversaried beginning was over past to transaction our reminder, we revenue increase driver growth of the a As marketplace a fee,

variable costs driven Cost revenue by related increased XX% of payments. Etsy to primarily

usage in related partial investment offset Shopping were and Ads Cloud of drivers. a to Google Etsy ongoing Google quarter Our also the

Shopping drive cloud to leverage expect to the benefit to both Google of GMS usage growth and Etsy. We

which resulting on less middle this of costs to tranches frequent in our mentioned year, in approach iterative more basis we our capitalization. the creates on development a As product last capitalizing environment of with we our development revised smaller to call, align spend development product product

through impact We additional want that this given that about cost the flowing P&L. this profitability our you are change the had to to make clear sure year has

development original for guidance only X% means of about assumed be about year. revised the product costs capitalization and XX% Our capitalized approach the will of

for million we this This to contraction August back that the flowing results is flow. $X P&L to in We guidance, EBITDA of points of here for cash the approximately A million clarity. included half in through our margin to Note about the full restating basis $X free XXX are XXXX. it but this in neutral year. more expense change

Moving to the consolidated balance sheet.

million or favorable $XXX of notes. proceeds capped The our premium. of some stock to of XX.X% During September XX, share. price a the has call on purchase a senior the per quarter X.X We we to terms use extending convertible closing coupon transaction premium economic issued XXX% our and with a X-year $XXX.XX

million We concurrent also $XXX.X used repurchase. about for a share

sheet our to cash September of was $XXX million. balance $XXX balance million cash XX, and was current Net as our

$X existing from our We authorization. authorization have stock of in million an our Board and share repurchase approximately that against repurchased QX

QX structure to liquidity we $XX year-to-date. and in pursue for capital and which operating million for Our opportunities million flow, cash $XXX generate flexibility investments, provides solid was good

our moving me on on acquisition let few share a Before the Reverb, XX. closed notes August to we outlook,

Earlier XXXX. be as of pro financial helpful These addition ended the forma months combined income occurred for of June as filings had it today XXXX we it giving Reverb the January X, should your if statements X models. into effect XXXX, and the acquisition of reflects XX, condensed, filed

revenue. For of XX GMS marketplace been buyers GMS is in they Approximately of of days XXX,XXX their sellers. $X Etsy's the active had third that nearly Reverb Their enterprise, and has in million million part XXX,XXX quarter the active XX% $XX international. and delivered

great early-stage day found file similar on to detail model can this Etsy. and stub is advantages significant the XX for More business, competitive in business period We we be which financials our a XX-Q, think soon. a will the

X% XX% million. contribute GMS to that to to growth. to expect billion X% raising to and GMS revenue to growth $XXX XX% XXXX Note to to million our we and are X% XX% growth billion Reverb to Turning to to $X.X approximately approximately approximately outlook, revenue growth guidance we XX% X% $X for to $XXX

or and Our in is XX% a XX% benefits which $XXX to Reverb the slightly development aligned now the due million higher for guidelines headwind margin adjusted EBITDA Etsy's $X to midpoint, internal program which with Etsy's adopted drives P&L. million reflecting guidance about expense capitalization at has

is EBITDA We versus for breakeven exiting XXXX. Reverb a moderately Note XX.X%. expect is we take X.X% that our with headwinds XX.X% blended an rate rate Reverb to see from for stronger a sales what taxes. also marketplace reach take Included Etsy's guidance adjustment in as of

sales On Texas October versus laws, October, August we have basis in initiated XX XXXX California. observed X, estimate and additional states tax issued marketplace including headwind X point Based we now of states, an guidance. the largest we what we expected XXX what when on

for sales likely The of in our impact the the of a initiative pronounced and tax I've cited sales The lower prices end will item percentage shipping and GMS Reverb to at more of headwinds combined guidance effect prior revenue on come U.S. tax higher due our higher free is range. little Etsy that with exposure. discrete stand-alone means

which faster for than strong love now our good sustained We performance have growth We e-commerce our another plus new progress in key We growth marketplace acquisition. are our strategic pleased profitably. one two-sided in Reverb. the we with expanding sector business, initiatives XXXX, includes while in core model and our

and growth find achieving few faster is businesses margins. or is Etsy of incredibly top You it's and both find is can very growing have find that you Etsy that line higher that but than is e-commerce attractive topline robust than the Etsy's can that rare margins truly special. the one business to

your time Thank today. you for all

We now questions. take your will

Operator

comes Deutsche [Operator first the Instructions] Bank. from line Your of Kunal with Madhukar question

Kunal Madhukar

The out. and looking is that of been question number investors a Ads Etsy how we've from getting kind regarding of

they ROIs the of as direct new our be on modest even channel Thanks. sellers cut see a what that has PLAs date? the in as some been Etsy's on have initiative how the model. under changing is spend as follow-up resulted in wait to budgets to their to the reaction So And ad the question back some Especially seller checks could has that suggested change? cutting their

Josh Silverman

Thanks Kunal.

On we're with the question, with what so we've first far. really seller the seen pleased

in seen no seller no seller as So mentioned, adoption. Rachel churn in and churn we've material material budgets

what respectful news taking that. we're that's sensitive see want to we consistent are wait we with to Sellers a So good that make and hoped. and largely really approach and had sure and

that to good shows And saw up QX Google want we Rachel slowly which shared in we of of the budget make returns So them. Etsy ads only left. quarter able spend that as deliver we're was into which third way stepping that number are $X.X sure take it. part we In to the million, utilization to you the our

second overall our mean, a your question. it impact through marketing is I does which question, a that's how little To let that spend. bit. great you take And me

foundational we marketing important pie future powerful grows believe first, and is of So that Etsy the a spend Ads our in really to and really way.

in that. So we want it to make get right sure we

provide for on that. an that pulling adopt really do sellers Etsy of back we our own to Ads. Part to spend incentive PLAs that important It's means

recognize highly our also efficient. we is own that Now PLA spend

sure Etsy we incented table means our into what on to opportunities because is leaving So that growth lean want the make that profitable we're ads. sellers to are

we're and go and is as television our funnel because well. as Ads sellers television as those in a advertising of asking we're makes attack sense for invest and effective time form about excited to and is upper now the that it when doing us an to for growth be are channel also think Etsy opportunities and that because in at investing time, both same the we brand really television profitable our Etsy right brand you challenges we to At look

We also recognize longer a has TV that payback period.

to a pay but little with back longer than We're really encouraged PLAs. Google seeing we by it what results the takes we're see

be TV think might near-term. out, the in long-term some in some and leaving for that table on pulling for So profit the of the really really profitable the in the business that great or the very might growth ways in we and and business, investing to near trade-offs growth term from unit important back PLAs are but health we lead

Deb Wasser

next is question? Operator, a there

Operator

Yes.

Heath the Sachs. next Your of comes from question Terry line with Goldman

Heath Terry

between a and are if think you're And of second. just, the I really could more functional dig the personalization, frequency? deceleration how of was quarter. So in that us things you appreciate just giving for for that improving it? muted I those it. driving for growth guidance was that little piece the offsetting for could some improvement actual fourth sort if sort business about core search, should trends in marketing help dig into disaggregate counterbalances that that then buyer I'd obviously the a in to understand What's relative bit And us spend? X of of just just of terms the we us in you wondering things. you maybe

Rachel Glaser

Heath, the Rachel thanks it's question. Hi, and for

Let part with your We in bit quarter. things driving talk question backing the about see acceleration the second you can then into are a you're headwinds that improvements just what what pointed that we have gains. maybe, we the of think and frequency me as see specific Josh I been guess that fourth start you product at the as first two

quarter given Of we guidance. haven't fourth course,

factors of additional we the - to had year. is One beginning that the taxes sales that certainly that can something headwind an as they're marketplace we XXX we basis not guided point see control. those things are of creating at what There macro the will from

that. forecasted compression in we've one is the think of a appropriately causing We of that bit But little QX. that's items

decrease that we the search of pushed increasingly to levers page relates to We've shipping. shipping other the adopt free the that that further we second one item free see of some we or we results that initiatives to a causes incentivize The off to - in talked a about good sellers and conversion. because really have

on overall ranking and had our expectations is a growth headwind that GMS been us higher. So for of search something

more seeing today. to into item forecast cost price the thought shipping isn't happening. softer means transfer little that we're that the we of is original than the gave is We going because Which from a transfer GMS

some quarter. those but causing they think in discrete So that the fourth substantive a items X not they are are headwind I - softness, business are are the

Josh Silverman

out I'd year that The that the last other they app. headwinds thing is point items those and two are new about

in tax business. with not it's then that are changes seen past it. year or What fundamental you the the and is, we've lap the headwind these So sales lasts existential the state to

thing even month free Sellers one choosing the So of to And more the talked year Rachel we make It buyers absorb and what that. lap are cost or of we the with about we're than that's kind same a expected. into over with along more savings thought marketplace shipping. headwind for competitive you X more to time pass it. does then than and

So that important think have of kind context. I to it's

excited that we're is buyer In seeing rising terms seeing overall frequency, habitual GMS active I'm great. particularly really is the strength But what among greatest we're of encouraged that's buyers. and that per first we're

know for the So means that group best you've seen about our people several the growing growing that's now buyers and quarters talk And fastest. the is segment. us what that us us that is habitual are fastest best love

Etsy items early and be and do We whole that exist think of doing that a job can a story the on think that of breadth there out than days. the and and it's Etsy bunch think people, a getting habit telling better I of it's ever story. telling of I depth for we're about great just

do is seeing. to I that but more a think I'm lot we're the there, encouraged results there by

Operator

Our next question comes with Yruma KeyBanc Markets. Capital from Edward

Edward Yruma

a the trend, with tend advertising of any But all guess I know started And point GMS not of I second, and layering as made. in? how to puts free to - clarify lots Rachel, you comment just on I or shipping I guess changed want I once takes know it then you but you changes. intra-quarter to sense

that that said just some that are change Reverb kind trying benefit With maybe I own how year you. think million they for is or was core margin. strip the it's going acquired headwind. $X to as it Just it and really indicated? Thank it to gross for you understand out think basis that of I the Etsy a on and

Josh Silverman

positive take reaction two can I to we're to in in An far the a Well, script, insight and strongest that how free reacting bit Etsy. populations shipping. habitual seeing new our brand and I interesting but this are people alluded first. the buyers the little people so are to

are most are They that the to that people us. having start there in different and the know appreciate the reaction love the They that shipping be GMS. us people was who goodness Etsy. us for case. a standard really the think know free they appear with maybe not about are that shipping. to to increases hold by to habitual and the the let's cost positive people most who shipping even us a thesis and These us and fact who free differently The So and buyers. that fact there as here love does most us Speaks measured is know the more people

brand GMS a Etsy, that's ever shipping in for first seeing that conversion to show And that. are that is that like having We're experience new up things people rate experience. and per and with visit positive free and their

occasionally to visit we experience high now shipping then? think the that because So that the Etsy. we've about least the on gain Etsy not is in and the free so common left the only they seen they're are have fact what they that's It's free far of have only costs I about where and who that and attention ones and people Etsy us an more shipping population we few natural is paying weeks much a much are shipping talking

take going that's so And to time.

of time we're I a that expect meaningful first to and very that. think of in really perception takes the changing that's just natural inning amount

Rachel Glaser

the initial Ed, second asking maybe, on Ads. think uptake question, Etsy take seller the about I'll I you were also Ads and and Etsy

one a development. of two margin be question second capitalization the of and of related that's is will There's contraction. it internal things, permanent a, in to Reverb's which sort So

materiality - at We expect of a lower. Etsy we them development like and Etsy to they're now that similar and have part product which levels we have culture iterative go

neutral expensed that through that philosophy will the Is Reverb immediate philosophy And year be it EBITDA. next and we and So hit capitalize applying to more was to in after. P&L. year that less the cash to that carry will to an But we flow. free

basis. margins on So you an expect ongoing would compressed that

- a we also be expect which their we've would The at benefits other program, exit the put now. because as say breakeven was What other we benefits cost total Etsy on we them piece that comp did piece, to Reverb XXXX. is is and well, which we permanent increase their to

regarding model in modeling. Josh is you that future your It's talked And it. your the Etsy the we of one there Etsy very churn. that We've days program. Ads, about seen for a fair into run best think So could minimal early I has budget overall, Ads bit rate very, observe been metrics that

that that So budgets most means keeping are their in. sellers matter

to more that able they today that their captured to actually to are help budget to profitably. looking returns that enable can then rollers their of that improve them very and getting for getting spend more sellers budget optimize to be demonstrate confidence. have we're to the they're then of Now with rest spend at population them high the And the that

Josh Silverman

I is much think waiting just to kind with going think what of we And would we action the seller thing. show-me of Overall, which that returns in it's I they're expected, It's see a how be. sort to expect. are is the what line very

Operator

RBC comes Markets. question next with from Capital Your the of Shweta Khajuria line

Shweta Khajuria

the little organic bit give guidance. on more please color a you Could

that from results offering search Thanks. what in international planning those help XX% shipping the So what there Can it gives to So that about you but else just for you conviction to basis and GMS discuss you show from for example, tax could better are greater probably XXXX could maybe initiative, the if is today but impacts you is that tool be could something impact that conviction you're conversion that XX% transition a there XXX offset growth? you XXX improve? gives and for point free not points shipping you in could or launch the GMS international future talk sellers. it do that with from because basis who then

Josh Silverman

Yes, absolutely.

so about clear Shweta. just speaking I'm - you're if So

getting of about over to higher? sure. penetration rates shipping just You're to time something from speaking I around free want XX% conviction make

Shweta Khajuria

expecting as international may Yes. so items Well, of a are not results and penetration organic heavy than the basis of XX% basis points headwind search XXX on XX% the may based the yet from far points adopted have not some have it conversion sellers that who guidance or well because people as have. some lower you're the XXX expected from it on is

is continuing to what you there there So adapt conviction more gives continuing addition and also that this? adapt in habitual to buyers upside non-habitual also the to

Josh Silverman

discrete populations issues segment having really is and is There worked who to what and concerns. hard we've

script. couple we about so And on a the talked

one have I if have it For is them and does. think doesn't price shipping you who people have a it that's a might items into shipping you free I of not? shipping Right, that's complicated. and the an about might How but X should if item there chance under example, buy $XX only $XX if incorporating you and buy free chance cost item so get you

people item. like So to how we've uses just doing help tool launched international We're sellers, by about X many what - more a with think than things that that sellers. things your percentage historically of similar

to that too choices? Because an sellers do give the can Meaning seem things indication say on And that that I do them we good so value. think so thought cost Etsy there tools and expensive. they the buyers absorbing going we be best they more to can Why choices. wasn't of the were to make before we're buyers shipping than good do educate

and do will tools everything going them we expect to so time. improve give to And can that I over And we're education.

However, and it say, more It's result even it marketplace and doesn't. let's one-year passes it headwind then the the is a Etsy and it you of lap that is competitive.

give do or either and year it and we'll a training ultimately continue tools we to we pricing on we So lot Ultimately sellers. payments. progress is this and lap make and theirs. case, our improve or their in education strategy to things In

Rachel Glaser

Just to add.

a is them. adopt. Right it composite sellers of search into a to forward, that lot are a shipping not more our of free that to is we can to have free go listings lower Our things factors lot going pushes the that or incentivize many eligible now search we shipping weighted algorithms do heavily composite. page. and free ways free There algorithm other the to But to shipping of that shipping

So we into we will. ingredients play I go call that. and around over of with a time, that could result search it that cocktail

be experimenting that well. we'll going and forward with test at Etsy as So we everything

for listing views is shipping I marketing when free to September, shipping. free so we started and we are today more a offering The that Etsy only the buyer think that is would to other that XX% place point about buyers make of said - in

get you So place a you most sites the where that's e-commerce - buyers sellers on incentive the resonate understand Etsy can shipping as is an becomes can more for well. like free that that and more

nice So to ecosystem that over virtual little time, we that's a of bit expect a happen.

Operator

Citi. with Your from comes question Jones of the Nick line next

Nick Jones

kind looking that then of and maybe see some free gets other site improvement side, quarter. like I or search want guess And then the maybe and the things to been an promoted has Listings I for things. impacting and shipping results. search of we collective buyers for mentioned kind on each discovery. imagine, And infrequent come more to This area I random

something want about you versus buyers maybe think not seems making we they place they're can sure unique curated come are that's how experience? of really they challenge. providing that's like should or looking how really that It kind a where a things for So a or Etsy and that balance tailored quite find

Josh Silverman

we're great and Well, for progress. we're the up making I think challenge

just what the question, part in a the is second we targeted think a And that's there up mind think be I there is specific people search, treasure hunt read lot we about of who which I we There people at state want very that. of versus lot. shop of a So, your who apply are purchase and the science have to show a in to inspired occasion.

in a results that search Things And those terms tail the of what's you what's very example, versus and like, query. for head diversity respond differently we offer. a of breadth to query

and a I ever applying science get of we're fantastic we to have think better. lot team a

for that for think buyers interest of find shipping trade-offs the using question though business an about saying we on shipping on best second and free the sense things makes we of search business often will be expectation your promoted free make will Listings we To balanced the page items set Etsy. it the that and first only that that like results

the We sellers. therefore brand thing long-term do business right in And of think into order the the health and absolutely for do our to for is that to to at sellers is of the of of one our to up those. that, we search results What have and that. of disposal the a on page first set all sticks carrots adopt shows encourage

What of we're going page the shipping adopt to moment on results had adoption. to decided So take first reserve that that the for things search free it and that's a get at seller offer may we impact meaningful the international specific around using of items needs first the might It next different sellers Helping items under their for or to $XX than them think heavy might page be search results. about different. or example. be items,

what medium a term much this way we good of business I and are. right that very the business strength feel about matters building the very think long that where way the we over and in for we're data-driven doing And think we're fundamental the in is But the term. we

Operator

comes line Patel the question & Needham next of Your Company. from Rick with

Rick Patel

Can opportunities that X.X%. fee Reverb? at improve the filing Thanks there you bat, the is taking your talk margins the off transaction show Right to about about the question. for

any are plans there be with make structural Etsy's? comparable about we And near-term is there there So curious why as margins term, if to Etsy's. any reasons comparable think to the long that can

Josh Silverman

drive and marketplace lot driving run and we more think in the Yes, to between then buying our same two-sided want a is whole between and having fees their model businesses you marketing transaction to model I selling that that the two a of in we like it would common What and better experience, value, commonality fair better we our there's don't comment terms there's a say experience, how a on kind right a more now. things think so way I customer thought things lot exchange value. of about marketplace of two-sided

and are your share that time. similar and fundamental economic lot of another know Those margin are hard structure Etsy pretty the those to overtime Reverb over characteristics. a about. two-sided great are business think like kinds of to going think things marketplace, the that question I It's team we at models But

Rachel Glaser

Reverb XX.X% forward is good be you for time use plus We we a that and being. expect number told blended the take take me is Etsy. for And let a about little the more rate. going what It's rate to on specific

Rick Patel

your you Thanksgiving a Can the talk versus about tighter outlook have for shopping year between Christmas So window season? last. this also upcoming holiday much and we

curious terms there's versus the fast sellers. anything timing to doing So differently importance just of if last your just year of conveying or the in you're marketing of shipping

Rachel Glaser

year frequency later, with So on quarter. last television quarter is be were what - our the there done one started the that we beginning versus was accumulating had we've campaign so the been we over it ad region Last done since will thing more that year. we've of we

a about The things between Christmas, buying Etsy time other for are to customized a longer for thing, going and That when made has shorter time headwind. we because shorter ordering and you. think typically be Thanksgiving have lead season anyway we a do that might the be

don't probably for what a ago us. we'll expect and we experience experience The now last to happened was other time Right similar time short window that know. e-commerce that companies would with long we

XXXX. think I

how And so heavily young don't could company were our be we've that forecasted We that downside. could so quarter but got immature impact at us. know pretty a we potential think we properly that time

Operator

Tampine of Laura from next line question with comes the Loop Capital. Your

Laura Tampine

that a that to is just portfolio services up your in hurry? the also It to make mean, you mostly very well on compares services of add products expect XX.X%. the are or those Is charged of a would as that significant rate think Reverb's rate. I do gap take and I to own X.X% gap things and portion reverb that

Josh Silverman

question. good a it's Yes,

their modeled that. very was Etsy Reverb So intensely reflects structure fee after so and

call of optional and is promoted lot there X.X% look fee. that like features They transaction Etsy. it set a So have a bump. They of fees Listings. couple a don't a mandatory call They it

to want as exchange up make will there's a part make that lot What rate to get and be of take excited to value we in future. great how how the team of right can of over the we're value comment It don't about I doing to the about sure say and customer and rate. experience I sure a we're time is would value. we that that on So exchange commonality their think that think we terms drive building

Operator

Your next from question Oppenheimer. comes Jeff with Helfstein

Jeff Helfstein

take that great Could don't it's for million in business was is, for Reverb $XX that quarter. a say revenue the guess color just to this let's the we million we then know over just that appreciated. slide go So in quarter you to I disclosed if And numbers? quarter. seasonal that's you like last I was want of that million got some we cutting full to fourth that this we mean, the $XX you've you're us the And last but call seasonality X% consolidation So of would it organic that $X guess, guidance? the versus but Would if Etsy Ads about year, you X% $X know kind to it about which year? said again, was tell Otherwise, million. maybe imply don't question. what revenue

would However, be you can help appreciated.

are you seeing did was talk about internationally. tax. the on different U.S. in than talked you XX% because it's Because impact GMS. of And impacts It expected anything you're the also What all about Obviously seeing larger then deck that when or Thanks. U.S. we from sales did just you was quarter. international XX% mostly previously notice international? and last something Reverb

Rachel Glaser

think first remind married question for days doubling revenue follow, XX Jason, I blended were quarter. we just revenue and together something. for I I the I of Honestly, think a the just didn't I'm get not the closer answer. got can Reverb answer call - Reverb - question. you would that maybe your because for the sure we doubling to for I follow-up Thanks and but you, the the you Jeff precisely just in we can had fourth or

be the seasonally quarter But them bigger remember, too. for would fourth

think one that. to So way about that would be

your the On there more plot kind question. is I I to little bit. the a know - of lost

versus is - that running with television that pretty on we're think take buyer a tried robust demand. that domestic U.S. by let's had in GMS because I out now. I is demand increase on one And helped in So the U.S. point remember number a right we U.S. international campaign then only the the U.S. follow-up. thing the to

that And is would that the-- perspective So lower U.S. absolutely be be that something versus looking you're when it at right percentage you're Reverb a impacting that hardly that be international would would much international from U.S. versus

Josh Silverman

and what we is to try our follow - could I either, but color gave you we attribute guess that tried you to didn't you roughly XXX% revenue Reverb really of add I to GMS percentage help. I that's would in give to guidance

help is fourth other The I that we is that going that take might indicative quarter I the would add thing rate. to be third-quarter rate the very think of take think

And the fourth we think about so for where take if about our position we rates you GMS that are, feel good our said quarter. really

We sellers basis the think working and basis lot we're state of great XXX another sales about cost of think headwind there we headwinds about of that that that things two point more doing are the headwind. free of a are and very is GMS shipping XXX points tax is absorbing that that discrete

going we're the Hopefully, basis consistent. headwind maybe that take XXX rates to that are anything So there's stay signaling think pretty you if helps. of GMS points

Jeff Helfstein

So about can maybe ask maybe, it. just you then talk a follow-up,

tail Clearly, Ads versus is a got long seller Etsy with everyone's smaller Ads. power and checks on bet long Etsy always given So different kind on questions the big medium and to cetera. tail et there the of about sellers you're making

puts like power you you're now happy about versus right see how takes talk and additive? that expect like seeing to maybe what long Again, it but unhappy sellers do Just play between point maybe you out. at

Josh Silverman

seller the calls, don't know this to good. evidence that's way that I pretty has these part immaterial I has a miss in I try the is been reaction to of Look, muted be been program. budget I Rachel seller Ads? and as has that Etsy but churn reaction been of that. said signal always hope as it. ask And think good good the We

see their waiting pulling and same their budgets. see for their what the seller the sellers it. of they their seeing. to flow and not way, going and going the They about to not $X to budget are that more XX much we're They're a model. spends basically doubling So the down results get By budgets. keeping takes through how of they're are use it They're on budget when days

and that's expect it not what sellers scale think We're time. over our to I I step what more this is you want grow than So going program or be think to should we're prepared going to because that function absorb. would

beyond over go So you're period a going XXXX. time the that's see well of going to to scale

it make progress through scale. to think I material will going we're certainly, XXXX, But but

earlier, to bit on think I marketing TV of even pull a bit I If us sense. performance and because makes performance point pull help ahead back marketing to upper encourage Ads think made that sellers you'll the see to we into lean and and into from Etsy little probably funnel back we need little TV. lean a

Operator

question next from Mark the line of Kelley with The comes Nomura.

Mark Kelley

re-acceleration changes given guys more be on you color to expectations? points with did to color the shipping really if the on make tax there shook but from puts Shopping safe your a upper and of the takes drove to basis to you. absorbing And of is, outlook. I is working and just kind need about Is your XXX marketing anymore know just play of would kind sales too and question you points so, of points a kind sellers there out QX Thank second said basis out Google, you safe it headwind you where basis any that follow-up from issue. it your that much - about the of can the say what the Google cost to and Is Ads? helpful. one provide you're campaign not say is that I this XXX funnel XXX

Josh Silverman

feel would prepared to We of one, give I about the feel I we think on of so they're we're TV. What don't on TV Yes, like just specificity what campaigns. with first that delivering say hoped. the level good is we'd in sort line

feel about that. we So good

on both we and good actual the and we of feel and triangulate which estimate sales terms and traffic In impact ways about. have to on approximate

sentiment. brand in seeing we're what as well As

that. who look awareness, see at ads So the consideration ads the good and among you we things have TV not if and like have the We population have that's who about the - intent. ads meaningful seen and look you seen the feel population at population who the seen lifts and

on feel and and net things for second back you've into in table quarter, those driving a Etsy which period about saw Ads. make I a payback us than longer we lean spend the pull of you good important performance left So both of we good said how terms us what to little a ago as is a this some might minute harder math, maybe you seen TV, attribute out. spend because the And tricky need it the so on little And question? have might that's has

Rachel Glaser

Any detail our on on sellers. return for can we improve ad spend how more

Josh Silverman

Yes.

Google encouraged on and early So seen working the with together of really days progress we've Google that. Shopping and already by we're we're

you get small a really been who past partnership that's for partners. much So think the with have and relatively bigger a in great that sense great Google, has and program be that grounds been we it can

like that campaign things optimization performing are strategy, together what to data set we targeting perform that. bidding a better. well. campaign So of even and It's make that we There's to Google how kind structure, up able like use of lot do can things

progress better pleased by the really always seen. is better we're we've and Just and helpful performance

Rachel Glaser

I significant significant spend we spend. there getting would I'm are is sellers but just to ad that what return the that their of to amount repeating a call, elected - sort and to note, said Another on they're add budget of group on they've willing the that of a is limit

part So job them money to on on not leaving us that table is to the by demonstrate more. of the spending they are

easier done. than said that's So

because see that they the them can decisions. we analytics make that can are on hard think that giving those so we it, we the I have working and insights

Operator

this And time. there are no further at questions

Josh Silverman

all for time. your you Thank

Operator

participation Thank today's have Ladies and conference. gentlemen, this concludes wonderful you for your day. a and

disconnect. may all You

Etsy (ETSY) 30 Oct 192019 Q3 Earnings call transcript