ETSY Earnings Call

Deb WasserHi everyone, and welcome to Etsy's first quarter 2026 earnings conference call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been pre-recorded. Joining me today are Kruti Patel Goyal, CEO, and our CFO Lanny Baker. This quarter, we've changed our earnings process to feature a shareholder letter, which we encourage you to read in detail, and have shortened our prepared remarks to enable more time for Kruti and Lanny to take questions from our publishing sell-side analysts. We hope you find that this shift helps drive efficiency and transparency in our process, both for us and for all of you. Please keep in mind that our remarks today include forward-looking statements related to our financial outlook, our business and operating results, as noted in the shareholder letter posted to our website for your reference. Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, some of which are described in today's shareholder letter and our most recent periodic report, and which will be updated in future periodic reports that we file with the SEC.

Deb WasserAny forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's shareholder letter posted on our IR website along with the replay of this call. With that, I'll turn it over to Kruti.

Kruti Patel GoyalThanks, Deb, and good morning, everyone. Thank you for joining us.

Kruti Patel GoyalI 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.

Kruti Patel GoyalAll 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 a 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.

Kruti Patel GoyalLet me briefly remind you how we're thinking about the business. Our strategy is built around 4 priorities: showing up where 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.

Kruti Patel GoyalToday, 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.

Kruti Patel GoyalIt'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 prioritized 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 feed.

Kruti Patel GoyalIn Q1, we introduced AI-generated buyer profiles that help us go beyond a shopper's past activity, with a 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 email communications to drive higher engagement.

Kruti Patel GoyalTurning 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, from 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.

Kruti Patel GoyalFor 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.

Kruti Patel GoyalThe 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.

Kruti Patel GoyalWe are also intentional early movers in Agentic, 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 ChatGPT. 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.

Kruti Patel GoyalStepping back, we've now delivered 2 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 clearer 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.

Kruti Patel GoyalEtsy 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.

Lanny BakerThanks, Kruti. 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 15th, 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 UK 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 Depop'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.

Lanny BakerWhereas Q1 2026 reflects only the Etsy marketplace. This makes year-over-year continuing operation results not directly comparable, and we have included standalone 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 points 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.

Lanny BakerOur 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, 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.

Lanny BakerThat 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 Reverb 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.

Lanny BakerOffsite 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.

Lanny BakerTurning 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 31st, 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 4 enduring priorities. Number 1, maintaining financial strength to fully support organic investment in the Etsy marketplace. 2, Preserving strategic flexibility to selectively pursue opportunities to strengthen our business.

Lanny Baker3, Ensuring we effectively manage our financial commitments. And 4, enhancing returns for equity holders as made possible by our strong free cash flow generation. Given this framework, the pending sale of Depop 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 and $2.53 billion. Representing year-over-year growth of approximately 3-5% for the quarter. We expect second quarter take rate to be approximately 25.7% and adjusted EBITDA margin to be 27-29%. 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.

Lanny BakerOur 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 up front, 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.

OperatorThank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found in the black bar at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called. Please accept, unmute your audio, and ask your question. As a reminder, we are allowing analysts one question today. We will wait one moment to allow the queue to form.

OperatorOur first question will come from Michael Morton with Moffett Nathanson. You may now unmute and ask your question.

Michael MortonGood morning. Thank you for the question. Kruti, 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 like 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 grail. So maybe any leading indicators you're seeing there within the app would be great to hear.

Deb WasserThank you.

Kruti Patel GoyalGreat. 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, you know, the work there has been really shifting what we show you in the app home feed from, you know, 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, you know, we've introduced these, a new model that reflects much deeper buyer understanding.

Kruti Patel GoyalIt basically develops a profile of a buyer mapped to your interests and tastes over time, and then maps those interests to inventory so that we can present to you when you first open the app, inventory that clearly connects to your tastes, 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.

Kruti Patel GoyalAnd so let's talk about frequency for a second. That was kind of the, the second part of your question. You know, frequency is really our ultimate goal, and it's what our strategic priorities are designed to work together to drive.

Kruti Patel GoyalWe'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 meet them and match them with items that are really relevant and personalized to them so that they engage more deeply. And then for all the inventory we show them, we want them to, we wanna 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, you know, we have to show our buyers that we, 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.

Kruti Patel GoyalThat'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 and deeper engagement. That deeper 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.

Deb WasserNext question. Thank you.

OperatorYour next question will come from Trevor Young with Barclays. You may now unmute and ask your question.

Trevor YoungGreat. Thank you, Kruti. Maybe a 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 ads 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, you know, a little more surgical on take rate to remove some of the friction on the marketplace that could maybe help drive purchase frequency? Thank you.

Kruti Patel GoyalThanks for the question.

Kruti Patel GoyalYour, 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 are we 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 often. We think we have a very healthy take rate and we offer, you know, 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.

Kruti Patel GoyalThe focus is really on growing GMS growth to drive long-term durable revenue growth.

Deb WasserNext question. Thanks, Trevor.

OperatorYour next question will come from Nikhil Devnani with Bernstein.

Nikhil DevnaniHi there. Thanks for taking the question. I wanted to follow up, Kruti, on a related topic around frequency. The letter talks about inspiring discovery beyond shoppers' immediate intent. So I'm curious what trends you've seen or progress you've seen on cross-category shopping on Etsy and, and really introducing customers to, 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. Thank you.

Kruti Patel GoyalLook, I think we're in really early days here, but we are seeing encouraging signs from the changes that we're making to the app home feed in terms of really anchoring on buyers' tastes and interests 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, you know, we really understand that buyers think about us for shopping missions that are largely horizontal. So those span across categories. And so our approach 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.

Deb WasserGreat. Thanks, Kruti. Thanks, Nikhil. Next question.

OperatorYour next question will come from Maria Ripps with Canaccord.

Maria RippsGreat. Thanks so much for taking my questions. I just wanted to ask about active buyers returning to growth. So as we think about sort of key initiatives there, personalization, the mobile app, Those are like sort of top-of-funnel drivers. Is there anything that's 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 improvements and the sustained growth inflection in active buyers?

Lanny BakerWhen we think about active buyers, there really are two components. There 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 reactivate more prior buyers on Etsy. Um, 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, 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.

Lanny BakerIt's been a couple 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, you know, 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 in much more strongly in places like social media. We've been talking about making refinements to the way we show up in classic search results. We've been leaning out on the very frontiers of what's happening in agentic commerce to make sure we're showing up there. We've been emphasizing the mobile app, which we know is the way younger demographics shop. All those things are starting to have an impact. I think you can see that in the numbers that we're talking about.

Lanny BakerYou get down into the smaller nuanced things. We've talked a little bit about TikTok has been a great channel for us. It's bringing in a much younger demographic. I think there's a lot more for us to do in that channel. On the 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 on social. All these things are, you know, the changes we made today are We're gonna continue to monitor those and be really disciplined and very ROI-driven and very focused on what you, the sort of starting point of your question, which is in the long term growing the active buyer count on Etsy.

Deb WasserThanks, Maria. We'll go to the next question.

OperatorYour next question will come from Nicholas Jones with BNP Paribas.

Nicholas JonesGreat, thanks for taking the question. I guess maybe one on internal AI at Etsy. If, you know, AI is going to kind of unlock bigger, kind of more persistent context on your 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 context 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 this technology to maybe drive a more meaningful improvement in conversion. Thank you.

Kruti Patel GoyalYeah, 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 really deep understanding of 3 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 buyer understanding, or understanding our buyers' interests, and tastes. 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 and investment right now, you know, 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 mapping that understanding, that deeper understanding of our buyers to our inventory.

Kruti Patel GoyalAnd then the third piece of this context is understanding your intent in the moment. So if our understanding of buyer interests is something that we build over time, your intent is something that is more about, you know, 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 and the pre-recorded remarks 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 get to provide a much, much richer, much more personalized and more effective experience.

Kruti Patel GoyalSo 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.

Lanny BakerTo the sort of final bit of your question about managing tokens and the like, I, you know, the way we're thinking about right now is we really want to embrace and experiment with these brand new tools. And as Kruti 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, you know, 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 a mind toward long-term profitability as we've done in so many other realms of our go-to-market.

Deb WasserGreat. Thanks, guys. Thanks, Nicholas. Next question.

OperatorOur next question will come from Marvin Fong with BTIG.

Marvin FongGood morning. Thanks for taking my question. 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, you know, seller behavior as they try to manage that cost that's embedded in your guidance? Thanks.

Lanny BakerYeah, 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, being more soft and concerning. And then the actual hard data that coming through from the consumer has held up. And that's kind of what we've seen. Our US 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, 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 lanes. And the US domestic trade lane was the strongest at the start of this year. One thing that's interesting change coming into this year from where we were last year, in the first half of last year, our US import channel, our trade lane was growing pretty well.

Lanny BakerIt's probably the fastest growing channel. That slowed down with the imposition of tariffs. And we returned to positive growth in the US import trade lane in the first quarter of this year, which kind of goes back to the first thing I said, which is the US consumer remains fairly resilient. Our non-US currency-neutral GMS grew for the first time since 2023. So we're seeing some of that resilience overseas as well. US 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 of foreign currencies and of tax returns that have been strong this 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 consumer has remained pretty resilient.

Lanny BakerAnd we remain cautious about the forward outlook.

Kruti Patel GoyalOne 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, unpredictability. As Lanny said, we're really, we're monitoring consumer confidence closely and 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, you know, we're focused on building a culture of learning quickly and adapting in real time. We saw this in spades last year with how our team responded to tariffs, to the emergence of agentic commerce, like, We're really confident that we can continue to do that. And then second, we're just 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.

Kruti Patel GoyalWe think that's what's going to really continue to reinforce the resiliency of our marketplace, as Lanny mentioned.

Deb WasserGreat. Thank you, guys. Thanks, Marvin. I'm going to take the next question.

OperatorYour next question will come from Bryan Smilek with JPMorgan.

Bryan SmilekGreat. Thanks for taking the question. Kruti, curious your thoughts overall. We've seen in the market, you know, OpenAI potentially pulling away from Instant Checkout and focusing more on Discovery and app SDK integrations. As you've launched your app within OpenAI, can you just talk about the initial impact to conversions? I believe last quarter we had talked about traffic being up, you know, multiples of what it was year on year. But really, AI traffic still driving more on-platform marketplace conversions. So curious your thoughts there on the shifted strategy by OpenAI.

Kruti Patel GoyalThanks for the question. Just want to clarify, the app has not launched yet. But I think overall, big picture, look, we think that shift really reinforces our hypothesis that we, you know, continue to think agentic 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, of our total traffic. And so again, that reinforces our hypothesis that it could be a high-value discovery channel, that that's where it's best suited. But that's going to take some time. That's over the long term. You know, the other thing that I'll just say here is we continue to be really focused on early engagement, being early movers here.

Kruti Patel GoyalIt'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 them. You see us doing that already.

Deb WasserGreat. Thanks, Bryan. Next question.

OperatorYour next question will come from Nathaniel Feather with Morgan Stanley.

Nathaniel FeatherHey everyone, thanks for the question. Encouraging to see the stabilization in habitual buyers. What have you seen that's allowing that to finally normalize, especially as frequency hasn't yet inflected on the whole? And do you have line of sight to that returning to sequential growth through the year? Thank you.

Lanny BakerYou know, the, the activity you're seeing in terms of stabilization on habitual buyers, on repeat buyers, and even on frequency and on many of the buyer metrics, I think is really the fruit of the things we've been focused on strategically that Kruti's talked about, that we highlighted in the shareholder letter, and frankly, that we've been talking about for several quarters. 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 Habituals 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 return to some modest growth and hopefully stronger growth in the long term as we continue to execute on our strategy.

Lanny BakerOne thing that's important to remember is that the habitual buyer number reflects a certain purchase frequency. When that number goes down, it's pretty rare that that habitual buyer has actually left Etsy. In fact, they've just 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.

Deb WasserThank you. Thanks, Nathaniel. We're going to go to the next question.

OperatorYour next question will come from Bernard McTernan with Needham.

Bernard McTernanGreat. Thanks for taking the question and 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-app. Acceleration sequentially was actually stronger outside the apps. We 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. Thank you.

Lanny BakerYou know, 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, you know, 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, on the mobile app because that's all logged-in usage and we can really go the deepest and fastest there. I think, you know, also helping our non-app traffic. Our marketing activities were, were really effective during the first quarter. We, we increased our marketing spend year over year and we gained operating leverage in terms of GMS and revenue, revenue operating leverage of the marketing line. That's come from more efficient spending, more 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.

Lanny BakerIn 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, on social. And then really importantly, our owned channels, both the push notifications and email, 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 quarters that are also feeding some of that strength you're seeing in the desktop and non-app environment.

Deb WasserGreat. Thank you. We'll go to the next question.

OperatorYour next question will come from Anna Andreeva with Piper.

Anna AndreevaGreat. Thank you so much and 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 better retention of the seller base in the shareholder letter. Can you talk about what are some of the key initiatives behind that that are resonating the most? And should we expect stability in the seller metrics as embedded in the guide?

Lanny BakerWell, 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 Kruti 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've started to see improvement again in the seller count.

Kruti Patel GoyalLook, I think more broadly, I would just say, look, 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 Lanny 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, you know, add new inventory to 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 Management Assistance, We've already talked about, um, AI listing, uh, assistance.

Kruti Patel GoyalThese are areas where we continue to focus on making the seller experience better to drive that side of the flywheel of marketplace growth.

Lanny BakerThe retention of sellers has started to improve, and that is helping the overall seller number. We're seeing a 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 seller account.

Deb WasserGreat. Thanks both. Thanks, Anna. Let's go to the next question.

OperatorYour next question will come from Youssef Squali with Truist Securities.

Youssef SqualiLanny, 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 the 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, uh, GMS growth. Thanks.

Lanny BakerYou know, as we described, the outlook is predicated upon, uh, 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, 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, you know, in the first quarter this year, our GMS was, was certainly helped by an increase in average order value. And, you know, FX will slow down.

Lanny BakerWe think that the increases in listings prices that corresponded with the, you know, end of the de minimis exemption and the implementation of other tariffs. Those increases are probably sticky price increases, but they— we will lap the benefit of, of sellers having taken that up. And, you know, 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 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, uh, you know, inputs to our growth equation.

Deb WasserGreat, thanks, Lanny. Youssef, thank you.

OperatorLet's go to the next one. Your next question will come from Shweta Khajuria with Wolfe Research.

Shweta KhajuriaOkay, thank you for taking my question. Um, could you please talk about the balance of AOV and frequency? So when we think about frequency, and you've you now touched on this multiple times, including in your shareholder letter, that it may take some time to see that inflection in frequency. But from your prior, you know, 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? Thank you very much.

Lanny BakerOne 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 in other places. And so, you know, 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. I swear that it is challenging to predict with precision the exact timing of various inflections 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.

Lanny BakerCan you just play through the mechanics of the model?

Kruti Patel GoyalYeah, a couple 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. The, you know, 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 one of these metrics individually. I would just also reiterate that, you know, 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, you know, feeding into frequency and retention.

Deb WasserGreat. Thank you. Thanks, Shweta. I'll go to the next question.

OperatorYour next question will come from Naved Khan with B. Riley.

Naved KhanGreat. Thank you. Thank you very much. I just wanted to maybe dig into something you said earlier in answering question I think it was from Youssef, but wanted to talk about AOV. And if you were to kind of look at AOV on an FX-neutral basis and strip away the impact from the exemption of the, the de-minimis exemption and its effect on list prices, would— how would AOV growth look like excluding these sort of extraneous factors?

Lanny BakerYou know, I think if you strip out the things that you talked about You would, 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 result ranking And what that's doing is it's elevating the average order value as we surface, you know, more differentiated, more unique, more, more in the eyes of the buyer, more valuable items. But as I said, most of the increase in AOV right now is coming from the other factors, foreign currency and listing price changes. But we do have our, you know, there is an influence from some of the product work that we're doing on AOV.

Deb WasserGreat. Thanks, Naved. Let's go to the next one.

OperatorYour next question will come from Jason Helfstein with Oppenheimer.

Jason HelfsteinThank you for taking the question. I want to ask you just 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 consultants. Could you maybe, Kruti, 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, you know, bringing AI automation into the workflow of the business? Thanks.

Kruti Patel GoyalYeah, I think there are a couple different parts of what, what you just said. Let me tackle them separately. So, you know, 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 cost. 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.

Kruti Patel GoyalI think the other part of your question is how we're applying these tools internally to how we work. And we really see, you know, 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 tools, these are 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, you know, one 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.

Kruti Patel GoyalGreat.

Deb WasserThank 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.