Q2 2024 Earnings Summary
- Etsy's mobile app users account for approximately 42% of GMS and 45% of active users. The company has observed that when users download the app, their visitation increases and their lifetime value goes up. First-time users are increasingly downloading the app before making any purchases, indicating a shift in consumer behavior that could drive future growth.
- Etsy is launching a new buyer loyalty program, Etsy Insider, aimed at enhancing buyer frequency and engagement. By encouraging customers to start their shopping missions on Etsy, the loyalty program seeks to increase repeat purchases and customer loyalty, potentially leading to significant growth.
- Investments in paid social marketing channels are yielding ROI-positive results. Etsy has optimized new channels like paid social and paid social video, which are becoming an increasing percentage of total performance marketing spend. This expansion supports buyer retention and frequency, and could drive future growth through enhanced customer acquisition and engagement.
- Etsy's increased marketing spend is not driving proportional growth in GMS, with performance marketing spend up 31% year-over-year while GMS growth remains flat or declining, suggesting diminishing returns on marketing investments.
- Etsy is not providing forward guidance for 2025 and is non-committal about sustaining margins beyond 2024, indicating uncertainty about future profitability and growth prospects amid concerns over consumer spending pullbacks and increased competition.
- The company is focusing on differentiation over competitive pricing, potentially limiting its appeal to price-sensitive consumers in a challenging economic environment where consumers are pulling back on discretionary spending and looking for deals.
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GMS Growth Recovery and Macro Impact
Q: Will GMS growth recover despite macro challenges?
A: Rachel Glaser noted that macro conditions have been volatile, with both positive and negative indicators. External factors like a presidential assassination, political events, and major sporting events such as the Olympics, Wimbledon, and the World Cup have impacted consumer mindshare. Despite these challenges, Etsy is cautiously optimistic about a strong Q4, focusing on investments in quality and enhancing their gift mode in preparation for the holiday season. -
New Loyalty Program Rollout
Q: What's the plan and impact of the new loyalty program?
A: Josh Silverman explained that the loyalty program targets occasional shoppers who purchase 3-4 times a year, aiming to increase their shopping frequency. By offering perks like free shipping and exclusive deals, Etsy hopes to encourage these customers to start more shopping missions on their platform. Pricing is expected to be around the cost of a latte per month, appealing to value-conscious consumers. The program is in an invitation-only beta with de minimis impact on 2024 margins. -
Marketing Spend and ROI Confidence
Q: How confident are you in increased marketing ROI?
A: Rachel Glaser stated that the 31% increase in performance marketing spend is partly due to a lower base last year when they pulled back on spend for incremental tests. They've successfully optimized new channels like paid social and paid social video, which are now ROI positive and growing as a percentage of total spend. Josh Silverman added that they're disciplined about ROI and are encouraged by progress in paid social, aiming to engage users earlier in their shopping journey. -
Sustaining EBITDA Margins
Q: Can you maintain the 23% EBITDA margin?
A: Rachel Glaser emphasized that Etsy's variable cost structure allows for significant flow-through to EBITDA when GMS and revenue increase. They expect higher Q4 GMS due to holiday sales, which, along with lower expenses in areas like fraud, should support margins. Etsy is a lean organization, and further cost reductions could hurt GMS and revenue, so they focus on managing costs effectively. -
Fraud Reduction Measures
Q: How are fraud measures impacting margins?
A: Rachel Glaser mentioned that they've improved fraud rates compared to high levels in Q4 last year. The seller onboarding fee acted as a "speed bump" and has been modestly helpful. Overall, they've implemented sophisticated fraud measures, reducing reserves and improving gross margins. They believe they're in great shape for Q4 regarding fraud control. -
Emphasizing Value and Seller Pricing
Q: How are you helping sellers with pricing and value?
A: Josh Silverman noted that Etsy provides sellers with tools to offer discounts and promotions to buyers. They're focusing on highlighting unique and artisanal items, emphasizing the human behind the product to give sellers more pricing power. For example, they're leaning into higher-value categories like demi-fine jewelry priced between $100-$200, which is growing nicely. This strategy differentiates Etsy and supports seller pricing. -
Improving Search with LLMs
Q: How are LLMs enhancing search and categorization?
A: Josh Silverman explained that they've utilized LLMs to process their diverse inventory, particularly in categories like jewelry, to extract attributes like material and carat weight. This allows for better filtering and a more organized shopping experience. LLMs have been effective in improving search results and enhancing the buyer experience. -
App Engagement Growth
Q: What's driving increased app engagement?
A: Josh Silverman stated that about 42% of GMS now comes from the app, growing quarter over quarter. Approximately 45% of active users have downloaded the app. Users who download the app visit more often and have higher lifetime value. Notably, first-time users are now downloading the app before making a purchase, indicating a shift in consumer behavior. This presents an opportunity to make the app the center of the user experience. -
Etsy Ads Growth Potential
Q: What's the outlook for Etsy Ads growth?
A: Josh Silverman mentioned that while the rate of ad growth has slowed, the take rate from Etsy Ads has modestly expanded. The key lever is improving ad relevance by showing the right ad to the right buyer, enhancing the buyer experience and seller ROI. They continue to see opportunities to grow Etsy Ads by refining their ad algorithms and leveraging improvements in their search engine.
Research analysts covering ETSY.