Etsy, Inc. (ETSY) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

Etsy's earnings call reveals strong financial health with significant share repurchases and free cash flow generation. Product and app enhancements, along with AI initiatives, drive user engagement and spending. Despite a slight decline in GMS, positive guidance and strategic investments suggest future growth. The Q&A section highlights improved spending, margin management, and successful marketing strategies. While management was vague on some specifics, overall sentiment is positive, expecting a 2% to 8% stock price increase.

Key Financial Performance

Consolidated GMS $2.8 billion, down 4.8% year-over-year on an as-reported basis. Excluding Reverb, it was approximately $2.7 billion, down 2.6% year-over-year. The decline reflects healthier trends at Etsy, an acceleration in GMS growth at Depop, and favorable foreign currency comparisons.

Consolidated Revenue $673 million, increased by approximately 4% year-over-year. Growth was driven by strong performance in services revenue and on-site ads revenue at both Etsy and Depop.

Adjusted EBITDA $169 million, representing a 25.1% margin. The absence of Reverb in the final month of the quarter provided a minor benefit to the adjusted EBITDA margin.

Etsy Marketplace GMS Down 5.4% year-over-year, 3.5 percentage points better than the Q1 GMS comparison. FX provided a 90 basis point benefit, and on a currency-neutral basis, GMS was down 6.3% year-over-year.

Depop GMS Grew 35% year-over-year, reaching an annualized run rate of $1 billion in GMS. In the U.S., GMS grew 54% year-over-year, positioning Depop as the fastest-growing player in the online fashion resale market.

Trailing 12-month Active Buyers 87.3 million, down 4.6% year-over-year and 1.3% sequentially. Reactivated 6.5 million buyers in the second quarter, up 2.8% year-over-year.

Trailing 12-month GMS per Buyer $120, showing signs of stabilization as it held steady sequentially but was 2.9% lower year-over-year.

App GMS Grew year-over-year in the quarter, with the proportion of Etsy GMS generated on the app increasing to 44.8%, 3 percentage points higher than a year ago.

Marketplace Revenue Decreased 0.5% year-over-year, primarily reflecting the decline in GMS offset by growth in Etsy and Depop payments revenue.

Services Revenue Grew 15.3% year-over-year, driven by very strong growth in on-site ads revenue at both Etsy and Depop.

Take Rate Improved to 24%, 200 basis points higher than the same period last year, driven by growth in payments revenue and on-site ads.

Marketing Spend Increased 16% year-over-year to $212 million, representing 31.5% of revenue. The increase was due to higher performance marketing spend, including search engine marketing, PLA, and paid social.

Free Cash Flow $90 million in the quarter and $635 million in the trailing 12 months.

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Operating Highlights

Customer Experience Enhancement: Etsy has focused on creating a more intuitive, browsable app-first service, leveraging customer insights and LLMs to build a personalized shopping journey. New features have been added to the app homepage, improving user satisfaction and engagement.

Agentic Shopping: Etsy is positioning itself as a leader in agentic shopping, integrating with Apple's visual intelligence and receiving significant chatbot traffic.

Depop Growth: Depop achieved 35% GMS growth year-over-year, reaching a $1 billion annualized run rate. U.S. GMS grew 54% year-over-year, making it the fastest-growing player in the online fashion resale market.

Marketing Investments: Etsy has increased marketing investments, shifting from linear TV to OTT, audio, and digital video. Paid social investments with platforms like Pinterest, Meta, and TikTok have also increased.

Geographic Expansion: Etsy is expanding its segmentation tactics for Google Shopping listings in the U.S. and testing them in the U.K.

Operational Efficiency: Etsy implemented a new segmentation tactic for Google Shopping listings, optimizing click history and investment returns, leading to significant lifts in GMS and revenue.

Owned Marketing Channels: Attributed GMS from owned marketing channels like email and push notifications grew by 33% year-over-year, driven by personalized content.

Strategic Shift: Etsy reoriented its teams to focus on customer experience, aligning product development, marketing, and customer support around shared priorities.

Leadership Change: Peter Semple was appointed as the permanent CEO of Depop, signaling a focus on leadership stability and growth for the platform.

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Risk or Challenges

Market Conditions: Etsy experienced a 5.4% year-over-year decline in GMS, reflecting challenges in consumer spending and market dynamics. While there was improvement compared to the prior quarter, the decline indicates ongoing pressure in the e-commerce space.

Competitive Pressures: Etsy faces competitive pressures in paid search and social platforms, requiring increased marketing investments to maintain visibility and attract customers. This includes higher spending on Google PLA and paid social channels like Pinterest, Meta, and TikTok.

Economic Uncertainties: The macroeconomic environment remains relatively stable but uncertain, impacting consumer spending patterns and overall GMS performance. This uncertainty could affect future growth.

Strategic Execution Risks: Etsy is heavily investing in app improvements, machine learning, and marketing strategies. However, the success of these initiatives is uncertain and may take time to materialize, posing risks to achieving desired outcomes.

Supply Chain and Seller Challenges: Etsy's vast inventory of over 100 million listings presents challenges in delivering personalized search results and recommendations. Additionally, retaining and supporting sellers remains a priority but could face hurdles in execution.

Regulatory and Financial Risks: Etsy's financial flexibility is tied to managing convertible debt and share repurchases. Any mismanagement could impact its financial stability. Additionally, regulatory changes in e-commerce could pose risks.

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Guidance & Outlook

Q3 2025 Consolidated GMS: Expected to be between $2.6 billion and $2.7 billion, representing further quarter-over-quarter improvement in growth rate.

Q3 2025 Consolidated Take Rate: Expected to be approximately 24.5%.

Q3 2025 Consolidated Adjusted EBITDA Margin: Expected to be approximately 25%, reflecting strong profitability for the core Etsy business and accelerated investments at Depop.

Etsy App Development: Preholiday product development roadmap includes improved app navigation, better buyer-seller conversations, more informed browsing, and improved matching models for personalized content.

Marketing Investments: Accelerated marketing investments in Q3 2025 to drive awareness through diverse channels and community-led programs.

Etsy Insider Loyalty Program: A V2 program will launch by the 2025 holiday season, targeting top buyers with refreshed rewards and benefits.

Machine Learning and AI Investments: Retooling ranking platform to leverage LLMs and generative AI for better search results and personalized recommendations.

Depop Growth: Depop reported 35% year-over-year GMS growth in Q2 2025, with plans for continued growth under new CEO Peter Semple.

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Shareholder Return Plan

Share Repurchase: We repurchased a total of $335 million or 6.4 million shares of Etsy's stock in the quarter, including the $150 million repurchased in connection with the transaction. Our leadership and Board have conviction on Etsy's future and the value of our shares. With expectations for continued healthy free cash flow generation, we're confident in Etsy's financial flexibility to continue share repurchases, manage our debt balance and make ongoing investments in the business.

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Key Q&A

Q:What helped drive improved spending on Etsy despite habitual buyers moderating?

A:Etsy's GMS trajectory improved due to strategic priorities such as driving more buyers to use the app (monthly active users up 7% YoY), enhancing the app experience, personalizing push and email channels, investing in paid social platforms like Instagram and TikTok, and improving Google PLA auction prioritization. External factors like Amazon, Temu, and Shein pulling out of Google auctions and stabilized consumer spending in May and June also contributed.

Q:What is driving the margin compression in Etsy's core business, and is the high 20s EBITDA margin a near-term or long-term target?

A:Etsy's high 20s EBITDA margin is driven by investments in the app experience, paid social, and machine learning to drive long-term GMS and revenue growth. Management emphasized ROI discipline and stated that the high 20s margin is a near-term target, with potential for higher margins as growth initiatives bear fruit.

Q:How is Etsy shifting users from web-based solutions to app-based solutions, and what are the benefits?

A:Etsy is encouraging app adoption through mobile web real estate, push channels, email, and paid app marketing. App users have higher lifetime value as the app provides a more personalized and engaging experience. The app is designed to inspire users and showcase a broader range of products, increasing engagement and retention.

Q:What is the demand profile across different household income cohorts, and what drove the GMS inflection in May and June?

A:Higher-income households showed slightly stronger sequential improvement, but all income cohorts saw healthier spending. The GMS inflection was driven by app momentum, paid social progress, owned media channels, opportunistic paid search investments, and improved PLA segmentation.

Q:What are the gains from personalized communications, and what is the roadmap for further improvements?

A:Personalized communications, such as tailored titles and content, have improved push and email notifications. Future improvements include leveraging GenAI and LLMs to better understand buyer personas and provide more personalized recommendations, both in communications and on the site.

Q:What drove the growth in Etsy Payments despite near-full geographic penetration?

A:Growth in Etsy Payments was driven by its value proposition for sellers, simplifying their operations and consolidating costs. There are still a few countries left for adoption, but the platform has largely reached full penetration.

Q:How is Etsy balancing marketing spend between the core marketplace and Depop, and what are the returns on social media marketing?

A:In Q2, marketing spend was balanced between Etsy and Depop, with a step-up in Q3 for Depop to drive awareness. Social media marketing investments are diversifying spend and building consideration earlier in the customer journey. Returns on ad spend (ROAS) are improving due to better Martech and paid social strategies.

Q:What are the early GMS wins from shifting squads to near-term initiatives, and how much of the foregone GMS from last year can be recovered?

A:Etsy has recovered its historical velocity in experiments and GMS wins, with initiatives like PLA segmentation and paid social progress contributing. Management expects to recover the foregone GMS from last year by the end of this year and build on it in the future.

Q:What is the cost structure and future of the Etsy Insider benefits program?

A:Etsy Insider benefits, such as free shipping and rewards, are being tested and refined to manage costs while driving consideration and frequency. The program is expected to expand with features like rewards on every purchase, targeting loyal customers.

Q:How is Etsy leveraging AI for personalized communications and paid social marketing?

A:Etsy is using GenAI and LLMs to create personalized communications and landing experiences, improving paid social marketing efficiency. AI helps understand buyer context and generate tailored recommendations, unlocking new opportunities for engagement and conversion.

Q:What is the behavior of chatbot-driven traffic, and how is Etsy positioned for agentic shopping?

A:Chatbot-driven traffic is still small, but Etsy is well-positioned due to its unique inventory and strong engineering culture. Agents can surface Etsy's personalized and unique offerings, differentiating it from competitors focused on price and speed.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the exact size of early GMS wins from shifting squads to near-term initiatives and the precise year-over-year improvement in marketplace GMS for Q3. Additionally, they did not elaborate on the exact cost structure of the Etsy Insider benefits program or the specific returns on app acquisition investments.

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Earnings Word Cloud

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