ETSY Earnings Call

Deb WasserHi everyone, and welcome to Etsy's Second Quarter 2026 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been prerecorded. Joining me today are Kruti Patel Goyal, our CEO, and our CFO, Lanny Baker. Please keep in mind that our remarks today include forward-looking statements, including statements related to our financial outlook, our business, and our operating results. Our actual results may differ materially due to risks, uncertainties, and other important factors, as noted in the shareholder letter posted to our website and in our most recent periodic reports. Any 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 historical 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.

Deb WasserWith respect to our outlook, a reconciliation of adjusted EBITDA margin guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity, and low visibility with respect to the charges excluded from adjusted EBITDA. As you review our shareholder letter and 10-Q, please keep in mind that on July 30th, we completed the sale of Depop to eBay. Etsy's results in those documents are presented on a continuing operations basis, while Depop's results are presented within discontinued operations. I also want to note that Reverb, which we sold in June of last year, is included in Q2 2025 continuing operations, whereas Q2 2026 reflects only the Etsy marketplace. This makes year-over-year continuing operations results not directly comparable, and we have included Etsy standalone marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations.

Deb WasserFinancial results presented on this call cover our continuing operations, or the Etsy marketplace, only. With that, I'll turn it over to Kruti.

Kruti Patel GoyalThanks, Deb, and good morning, everyone. Thank you for joining us. Since I stepped into this role, I've been clear about 3 things. Our greatest strength is our differentiation as a human-centered marketplace. We have a massive market opportunity ahead of us, and realizing that opportunity requires clear strategic focus and disciplined execution. Our second quarter results reinforce our conviction that this focus is translating into stronger marketplace fundamentals and accelerating growth. We're encouraged by our progress and increasingly confident in our ability to create long-term shareholder value reflected in our improved outlook for 2026 and our new $2 billion share repurchase authorization. Just as importantly, we continue to see significant opportunity to further strengthen relationships with our buyers and sellers to drive long-term marketplace value. So today, I'll share how our strategic priorities are improving performance, as well as how we're evolving our organization to lay the foundation for Etsy's next stage of growth.

Kruti Patel GoyalStarting with our performance. Second quarter GMS and revenue growth accelerated on a sequential basis, and we delivered healthy flow-through of revenue growth to adjusted EBITDA, again demonstrating the strength of our business model. Etsy Marketplace GMS grew year over year for the third consecutive quarter, reflecting continued improvement across Marketplace fundamentals. GMS was $2.6 billion, up 7.5% year over year for the Etsy Marketplace. Revenue was $668 million with take rate of 25.9%, and adjusted EBITDA was $195 million, or a 29.2% adjusted EBITDA margin. We're beginning to see how our 4 priorities reinforce one another to improve Marketplace health and performance. Discovery and matching help buyers find and connect with the right items, while loyalty and human connection give buyers more reasons to return. Together, these enable lasting relationships between buyers, sellers, and Etsy.

Kruti Patel GoyalWe're seeing very clear signal that these efforts are improving our performance. Active buyers improved, growing by 350,000 sequentially to approximately 87 million, roughly stable on a year-over-year basis. Gross buyer additions accelerated, and habitual and repeat buyer cohorts, our most valuable buyers, each showed slight sequential growth for the first time since 2023. Trailing 12-month GMS per active buyer grew 2.8% year over year to $124. And while higher seller listing prices remain a contributor, our work to elevate higher quality items on and offsite is increasingly playing a role. While purchase frequency remains below prior year levels, the year over year decline moderated compared to the first quarter. An early encouraging signal that we're improving the overall customer experience. And our app continues to be a key growth driver, with mobile app growth accelerating sequentially, up 12.5% year over year, and visits per monthly active user and orders per visit both increasing year over year.

Kruti Patel GoyalAnd we continue to see evidence of a healthier seller base, including year-over-year seller growth and stronger retention of prior-year active sellers. We have a lot to cover today, so I won't review each of our priorities in the level of detail they're discussed in our shareholder letter, but here are a few updates I'm most excited about. First, we're making Etsy's core differentiation more consistently visible and tangible throughout the experience. We're bringing creativity, craftsmanship, and human connection to the forefront across both the marketplace and our brand marketing, which celebrates being human and the way Etsy sellers bring meaning to moments that matter, big and small. Second, we're making Etsy feel much more personal through richer buyer profiles, real-time personalization in search, and fresher content that helps buyers discover new shopping missions and more of Etsy sellers' unique inventory.

Kruti Patel GoyalThird, we're reaching younger buyers much earlier in their discovery journey by evolving the channels, content, and experiences where Etsy shows up. One example is our Olivia Rodrigo partnership, which combines an in-person activation with an exclusive merchandise collaboration. And our investments in YouTube and TikTok drove a 5-fold increase in visits in those channels from Millennial and Gen Z audiences in the first half of 2026. Finally, we're continuing to evolve how we build loyalty across the marketplace, from testing new approaches for buyers to developing new ways to recognize and support the sellers who best represent what makes Etsy unique. Over the past year, we've sharpened our strategy, strengthened execution, and are encouraged by the progress we're seeing across the marketplace. We've inflected Etsy's year-over-year growth trajectory from high single-digit GMS declines in early 2025 to mid-single-digit growth anticipated for the full year 2026, a more than 10 percentage point improvement in performance.

Kruti Patel GoyalAs a result, we have even more conviction in our strategic direction to build the Etsy we envision. At the same time, we've gained additional clarity about the organization we'll need to deliver it. So we're announcing a restructuring of parts of our organization and a reduction of our workforce, with most of the changes concentrated in our product and engineering group. We're changing our structure with fewer silos to reduce handoffs and with flatter, faster teams built to solve more broad and complex problems. And we'll invest more deeply in the skills and capabilities we need to accelerate execution and impact. This is not a cost-cutting move. It's about leaning in during a period of strong momentum so that we can move faster and execute with even greater focus. We are deeply grateful to our departing colleagues for their service, dedication, and contributions, and we're committed to supporting them through this transition with care and respect.

Kruti Patel GoyalWe know these decisions have a real impact on people's lives, and we didn't make them lightly. They reflect our conviction that focusing our investments in our team is the best way to build a stronger Etsy. One of my responsibilities is to make decisions not only for the Etsy we are today, but also the Etsy we want to become. That means paying close attention to how the world around us is changing. Buyers are discovering products in new ways, Sellers have access to increasingly powerful tools to build their businesses, and the expectations they have of Etsy continue to rise. By investing in the capabilities that matter most for the future of the marketplace, we believe Etsy will be better positioned to innovate more quickly and ultimately deliver more value for our customers, community, and shareholders. Thank you for your time this morning. I'll turn the call over to Lanny for more insights on our Q2 performance, our outlook, and the financial implications of our restructuring plan.

Lanny BakerThanks, Kruti. Great to connect with all of you today. Kruti already covered Etsy Marketplace GMS and our headline metrics, so I'll focus on revenue, profitability, capital allocation, and our outlook. Revenue was $668 million in the second quarter, up 6.2% on a continuing operations basis, and 9.3% for the Etsy Marketplace standalone. Revenue growth accelerated in tandem with GMS strength, and both Marketplace and Services revenue at Etsy delivered solid year-over-year growth, increasing 8.4% and 11.2% respectively. Take rate remained healthy at 25.9% for the second quarter, up 130 basis points year-over-year, including an approximate 80 basis point benefit from the Reverb divestiture. Meanwhile, Etsy Marketplace take rate also expanded year to year, primarily driven by Etsy Ads, where we're using machine learning to enhance relevance and improve seller budget pacing. Offsite ads also contributed, benefiting from a tilt in paid marketing activity toward higher monetizing channels.

Lanny BakerOn the operating expense side, we remained disciplined in the second quarter while continuing to invest in areas with the clearest evidence of attractive returns. As Etsy Marketplace GMS growth has improved, we've gained leverage across marketing, product development, and G&A. Nearly half of the year-to-year growth in Etsy Marketplace revenue flowed through to adjusted EBITDA in the quarter, creating room to fund our top priorities while sustaining healthy profitability. Turning to capital allocation, our balance sheet remains strong. As of June 30th, 2026, we held $1.3 billion in cash, cash equivalents, and short and long-term investments. And we continue to generate significant cash. On a continuing operations basis, we converted 81% of adjusted EBITDA to free cash flow during the quarter. And on top of this, we received $1.4 billion in cash proceeds from the sale of Depop at the end of last week.

Lanny BakerMany of you have expressed interest in when or how we would step up our share repurchases, given the cash coming in from the sale of Depop. I'm pleased to report we've already done so. During the second quarter, we stepped up our buyback program and repurchased approximately $250 million in stock. That was roughly 70% more than the first quarter and reduced the outstanding share count by approximately 3.9 million shares. At quarter's end, we had $578 million remaining on our current board-authorized share repurchase program, and we're announcing today a new $2 billion share repurchase program. The additional authorization reflects our growing confidence in strategic execution and will enable us to continue the return of excess capital to shareholders and accelerate our buyback program with the proceeds from the sale of Depop. As outlined in our shareholder letter, the restructuring plan will reduce the size of our workforce by roughly 220 employees, or approximately 12%.

Lanny BakerFollowing the restructuring, our headcount is expected to be approximately 1,600 people. We expect to incur approximately $35 million in charges, largely made up of cash expenditures associated with severance payments, employee benefits, and related costs. We anticipate that the charges will be incurred and the execution of the restructuring plan will be substantially complete by the end of the third quarter of 2026. Now, turning to our outlook. We currently anticipate that Etsy Marketplace third quarter GMS will be between $2.53 and $2.58 billion. representing year-over-year growth of approximately 4% to 6% for the quarter. We expect third quarter take rate to be approximately 26% and adjusted EBITDA margin to be within a range of 28% to 30%. For the full year, we now expect the Etsy marketplace to sustain a bit stronger GMS growth momentum across the second half of the year than we anticipated previously. Accordingly, we anticipate that GMS growth at Etsy will be in the mid-single-digit range for the full year 2026. We currently expect full-year take rate to be roughly equal to what we've reported in the first half of the year, and our full-year adjusted EBITDA margin outlook tightens upward to 29 to 30%. We expect the restructuring to lower operating costs in the near term. And we've incorporated an expected benefit into our increased full-year adjusted EBITDA margin outlook. We believe that higher GMS and revenue growth sustained over time can create far greater absolute cash flow and shareholder value than can margin expansion alone.

Lanny BakerAccordingly, our objective in the, in the restructuring is to not only extend the expense discipline we've demonstrated historically, but also to position ourselves to build the organization necessary to execute our strategy and accelerate growth in the years ahead. Specifically, we intend to deepen our expertise in strategically critical areas across product, engineering, and customer operations, with a particular focus on expanding and strengthening our team's machine learning skills. We also plan to explore additional R&D investment in new product capabilities, marketing initiatives, customer trust, and international growth to accelerate our learnings in 2026 and inform our plans for 2027. We will be purposeful and disciplined in the investments we make, and we remain committed to maintaining the very attractive profit margin profile of our business. 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 on 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.

OperatorOkay, our first question will come from Rick Patel with Raymond James. Your line is now open. Please go ahead.

Rick PatelThank you. Good morning and congrats on the progress. Can you dig deeper on what you think are the most effective drivers of strong and improved GMS growth in Q2? What's working and where do you see the most opportunity for improvement? And second, can you provide additional color on the initiative to improve discovery among young buyers? How will you tackle this and are you seeing early signs of progress?

Kruti Patel GoyalThanks for the question, Rick. First of all, I think what we're— what I would say is that what we're seeing is the result of strong execution against a clear set of strategic priorities. And the results that we're seeing are exactly what we thought we would, what we expected when we laid out these priorities. Just as a reminder, they are not— you shouldn't think about them as independent initiatives. They're designed to reinforce one another, to create a stronger marketplace over time. And we're seeing that market, those marketplace health indicators in the quarterly results that we shared. The clearest examples of how this is working are in how our product and marketing improvements are working together to drive growth this quarter. So first, at the top of the funnel, our marketing is becoming more efficient at bringing buyers in. We're continuing to see strength in own channels like SEO, and we've improved our PLA performance really meaningfully through better segmentation and bidding strategies that direct spend towards our, our highest quality inventory and bring in the right buyers more efficiently.

Kruti Patel GoyalThen once those buyers arrive, they're landing on a meaningfully better experience as a result of the onsite product improvements that we're making. We've made really steady improvements across discovery and matching, from real-time search personalization to more relevant recommendations and a fresher home feed. So these are examples of improvements that are helping buyers find more relevant inventory, discover new shopping missions, and really engage more deeply with Etsy over time. And then I think the third part of this is that as buyers are engaging more, we are developing a richer understanding of what they're looking for and, you know, what makes them tick. That's powering richer buyer profiles, that we highlighted in our shareholder letter, and they're now covering over 65 million buyers. And that makes— if you think about it, that makes every subsequent visit that these buyers make more relevant and more personalized.

Kruti Patel GoyalAnd that creates the flywheel that gets stronger over time. And I just call out that, again, the app is probably our clearest proof point of how this is all working together. Our app GMS growth accelerated again to 12.5% year over year. We saw stronger engagement this quarter with both visits per monthly active and orders per visit increasing year over year. And it's just a great example of how the work that we're doing across both marketing and product are working together to drive that flywheel. And then the second question, Kruti, was, can we provide additional color on the younger buyers and how that's working? Yeah, what I'll say about our younger buyers, we saw some really nice improvement this quarter in terms of how we're engaging them. And I'll start out by saying, you know, our, our, our research showed that our value proposition resonates with this younger audience as much as it does with older audiences.

Kruti Patel GoyalBut what wasn't happening was that we weren't showing up where these shoppers are discovering and with relevant content as much as we could. And that's really where we've been focused. So you see that in the shift in our marketing investments, you know, shifting our investment to social channels, to OTT, the channels that are the places that younger shoppers shop, and really focused on both putting in front of them content that is more relevant and showing up in cultural moments that are really relevant. So, you know, the work that we're doing on Creator Collective, to engage influencers, to, to elevate and curate the content that we have on Etsy for these younger buyers. And the example of the partnership that we're doing with Olivia Rodrigo, which is a really innovative partnership that's incredibly relevant to this audience. Those are all examples of how we're really approaching that younger audience differently.

Kruti Patel GoyalAnd we're seeing great traction, particularly on channels like YouTube and TikTok. Where we've meaningfully increased our reach to that, to that audience segment.

Deb WasserGreat.

Deb WasserNext question.

Rick PatelThank you.

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

Nathan FeatherHey everyone. Thanks so much for taking the question. Uh, two if I may. Um, first, in some of the AOV gains that you've seen here, you know, historically we've seen more limited uptake from sellers. Is—. How sustainable do you think that can be if trade changes normalize? Um, and then on the buyer splits, really encouraging to see repeat and habitual buyers.

Nathan FeatherBuyers take a step forward here. How can we think through what have been the key elements that have allowed that to stabilize? And, you know, what's the run rate to start to get that to grow as a portion of the mix relative to, you know, the one-off buyers? Thank you.

Lanny BakerSure. Thanks, Nathan. On AOV, you know, what we've seen over the last, call it, year, year plus is the effect of the tariffs that went in a year ago and then the expiration of de minimis and then getting through the holiday season. And sellers seeming to kind of readjust their pricing led to a series of waves of increases in listing prices that don't always, don't necessarily flow through to average order value. But we have seen our buyers be very receptive to those price changes. And so what's happened on the listings prices has over time come through to average order value. There's another dynamic, and there's been a little bit of, less so in the last quarter, but in a couple prior quarters, there was a little bit of foreign currency translation tailwind in there as well. But, but I'd say most importantly, the thing that's changing, sort of the new signal that started to emerge across 2026, is that the efforts that we've undertaken on relevance and quality that we are surfacing in the Etsy search results is starting to present items that are higher quality with a little bit higher listings price that are better matches for what the customers are looking for.

Lanny BakerAnd we're not making those changes in relevance and quality in an effort to drive AOV. We're really making them in an effort to better serve what our customers are looking for. But those improvements in the way that we're surfacing the best inventory is contributing on an increasing basis to the momentum that we have in AOV. So as you ask the question kind of forward-looking, I think that we are only getting started with things that we can do to continue to elevate high-quality items that really match what customers are looking for. And then secondly, I think the, the sort of increases in listing prices that have been taken, I think those in our experience, those I think will turn out to be fairly durable increases. The year-over-year increase will probably slow down unless there are other stimulants for that, that the sellers are reacting to. But the increases they've made in listing prices, our expectation is those, those remain pretty durable going forward.

Lanny BakerYour second question was about the composition of buyer, buyer growth and the growing for the first time in 3 years, the little bit of progress that we made in active buyers and habitual buyers. And, you know, habitual buyers and repeat buyers are really just our most frequent buyers. And everything in our strategy is— bless you— is organized around making the whole product end-to-end experience better for our customers that brings them back more often and builds loyalty and through that drives frequency. So you're seeing, I think, in those metrics, just that earliest hint of everything that Kruti talked about a minute ago starting to come to fruition. And, you know, how do we continue to drive that? Well, it's about showing up where they are. It's about giving them relevant results. It's about personalizing the experience. It's about rewarding them for being Etsy customers. It's about reaching back out to them through our own channels.

Lanny BakerIt's about improving our product experience. So there's really not new news there, but there is, I think, new signs of progress that we are making. And, you know, while those numbers are improving, I'm really— we're excited at the same time that the gross addition number of new people, of customers coming new into Etsy for the first time or coming back to Etsy, has accelerated. So we kind of have this—. We're in this good moment right now where at the top of the funnel, we're opening it up a little bit wider, And then on our most valuable buyers, we're starting to see growth kind of on the back end of the funnel. And that's really what we've been driving for.

Deb WasserGreat.

Nathan FeatherThanks, Lanny.

Deb WasserNext question.

OperatorYour next question will come from Ken Gawrelski with Wells Fargo.

Ken GawrelskiThank you. Appreciate it. Maybe if I may, could you talk about— there's many new models of both distribution and kind of emerging use cases in e-commerce. And I'd love to get your take on how they may or may not fit with Etsy and the platform and your merchants. Could you talk about the opportunity in live commerce, one? And two, you know, you're seeing players like Whatnot, etc., that have kind of a unique take. You know, maybe they're positive, maybe they're negative, but they're certainly different takes on the e-commerce experience. Some of those, you know, B2C, some of the C2C. But I'd be curious as to, as you think about your seller base, and maybe they're thinking about innovative ways to sell their products and market their products, how these may or may not fit with Etsy. Thank you.

Kruti Patel GoyalThat's a great question. Thank you for it. You know, we are, one of our priorities is showing up where shoppers discover. And so this is something we're always thinking about. This is the driving force behind us partnering with AI, with Agentic Commerce, and showing up in those channels. So we're, as I, you know, we're thinking about the full range of those distribution channels for our sellers. Where, as it relates to live shopping in particular, look, it's a really interesting space that's been developing and evolving for a while. And what we're seeing is that You know, they're starting— live shopping is starting to gain traction beyond the collectible space where it got— where it was most popular initially. And we think that there's some potential, you know, opportunity for sellers like ours who have a really great story to tell, who have a lot to share about how they create, what they create that's relevant to a buying audience.

Kruti Patel GoyalSo we're certainly open to exploring this, though we don't have We don't have plans at the moment to launch anything in live shopping. We think it's an interesting potential channel for sellers like ours.

OperatorYour next question will come from Marvin Fong with BTIG.

Marvin FongGreat. Thanks for taking my questions and congratulations on the progress. I'd love to, um, double-click on what Lanny was saying about investing on new products. Should we kind of think about that as going deeper in the initiatives that you're already exploring, including AI, or, you know, without giving up the store, would you— are you exploring just completely different products, you know, outside of your existing strategy? And then just a question on, now that we've seen gas prices kind of go back and forth, giving us a little bit larger sample set, are you seeing any kind of impact from that, you know, the rise and fall of gas prices on your business in terms of buyer behavior? Thank you.

Kruti Patel GoyalI'll take the first part and then pass to you. Look, the way that I would think about this is that over the last year, we've gotten much more confident in our strategic priorities and the drivers of long-term growth. We're seeing really great evidence that shows that our work across discovery, matching, personalization is really working. That's what you're hearing. So when we say, you know, we're going to invest more, I think this is related to the changes that we've made in our team. We're— we have greater clarity about the organization, the capabilities that we need to build on that momentum. And drive even more value for our buyers and sellers. And so we're going to be continuing to deepen our investment and our focus on our strategic priorities to continue to deliver and build on that momentum.

Lanny BakerYeah, I would just add to the— zooming out a little bit, when you think about what's going on in live commerce or you think of what's going on in resale commerce, there is really exciting growth happening in these places where there's some real innovation, both in the product and in the user experience and in the marketing. And it's growing the overall size of the market. These are not zero-sum opportunities there. And that really encourages us that as we continue to innovate on what makes Etsy differentiated, we can, we can build on the growth that we, that we've already started to build. On your second question about gas prices, yes, they've been up and down. And, you know, I, It's hard to look at any one dynamic on the consumer side in isolation. I think it stands to reason that there is some impact from higher gas prices on consumer spending, but our consumer demand held up pretty well across the second quarter.

Lanny BakerWe saw growth in GMS in the United States as well in amongst US buyers as well as non-US buyers. And we saw accelerated growth across, in particular, US import—. US buyers and imports was, was a strong channel for us in the quarter. And really across all household income segments, we saw good numbers in this quarter. The high end's growing a little bit faster than the lower income households are. But as we sort of zoom out and try to— there's not a discernible impact right now from gas prices. But I think our consumer demand picture has held up really well throughout the second quarter.

Deb WasserExcellent.

Marvin FongThanks, Kruti.

Deb WasserNext question.

OperatorYour next question will come from Maria Ripps with Canaccord.

Maria RippsGreat. Good morning. Thanks so much for taking my questions. First, I just wanted to ask on workforce reduction, which is largely across product and engineering. But then at the same time, you're calling ML as kind of the core of discovery and personalization to sort of accelerate growth further from here. Can you maybe give us a little bit more color on sort of how smaller teams move the roadmap faster and sort of what specifically are you choosing to stop doing that you focused on before?

Kruti Patel GoyalYeah, so first of all, I'll just say that we, what we did is we asked teams to think about what the, what the team state they needed were to deliver on our biggest growth ambitions. And starting with what the structure of the team was that they needed, what the skills were that they needed, and what the talent was they needed. And when we looked across product and engineering, we saw an opportunity to really simplify the organization. And that's where this note, the streamlining comes in, really this opportunity to reduce overlap by bringing teams together around shared problems or shared capabilities. And that's what enables our product and engineering teams to move forward with more speed and more focus. You know, the other part of that is this change allows us to reshape our talent mix around the capabilities that matter most for the next phase of growth. And that's really about continuing to deepen our investments in discovery and matching and personalization.

Kruti Patel GoyalAnd so that's gonna be about building, you know, really strong cross-functional teams and deepening our machine learning expertise so we can translate advancements into stronger, better experiences at scale.

Kruti Patel GoyalSo we really see this as an investment in execution and in, you know, concentrating our talent where we can have the greatest impact.

Deb WasserGreat, thanks, Kruti. We'll take the next question.

OperatorYour next question will come from Anna Andreeva with Piper Sandler.

NoahHey, great, thanks so much for taking the question. This is Noah on for Anna. Just wanted to follow up on some of the drivers by category. You'd mentioned gifting and personalization is working well. I'm curious what you're seeing in your bigger product verticals as well. And then just to follow up on gross margin, you've seen some compression on the higher compute costs. Should we expect that pressure to continue in '26 and just any way we can think about that?

NoahThanks.

Lanny BakerSure. Let me start on the gross margin side of things.

Lanny BakerWe're really happy with the growth, where the gross margins are for the business. It's a healthy low 70s percent number.

Lanny BakerNumber. The— we've seen a little bit of compression year to year, and it's not coming from compute. We are balancing the customer experience around trust and safety, around refunds, around other pressures on the marketplace to really deliver the best experience to customers. And we're making— and there's some cost in there that shows up in cost of revenue. On the hosting and compute side, what we are seeing, we are spending more money this year, obviously. On AI and on usage of AI and on compute. But the overall spending that we're doing on hosting and bandwidth and technology is exactly where we thought it would be this year. And we've been able to find offsets in other places and shifting usage patterns allow us to absorb the cost of the incremental compute without going higher on our overall sort of infrastructure costs. So we're, we feel really comfortable about our ability to continue to manage that AI cost hosting bandwidth cost as we look forward.

Lanny BakerRemind me of your first question.

NoahIt was just on some more color on the drivers by product category.

Kruti Patel GoyalVerticals.

Lanny BakerOh, you know, on the verticals, we have reported at the end of the year how we do in categories. We've sort of moved away from that on like a moment-by-moment basis because, you know, it's not necessarily how our buyers come to Etsy in a category. They come to Etsy for an occasion. And we could talk more about how we did across— this is an occasion-laden quarter and we did really well on those occasions. I would, I would tell you, like, if you looked across our categories, we grew in every one of our top categories and we grew faster than our peer benchmarks in those categories in this quarter, including our, our biggest categories. So, but I think that strength in categories is less reflective of like something we're doing in a specific jewelry versus home and living than it is the way that we are showing up for our buyers in the right demographics across occasions.

Deb WasserGreat.

Kruti Patel GoyalThanks, Lanny. It was US, was that data point for outperformance, but just want to be clear.

Deb WasserYeah. Okay, cool. Let's go to the next question.

OperatorYour next question will come from Brian Smilek with JPMorgan.

Brian SmilekGreat. Thanks for taking the question. I guess, you know, Kruti, great to see Etsy, you know, getting into the zeitgeist here and targeting younger demographics. Can you just talk about how you can translate this brand activation towards more international markets as well? And then just more broadly, can you share a bit more color on their LTV profile and conversion relative to some of your other legacy cohorts? Thank you.

Lanny BakerThe, so the, of the younger buyer, LTVs are—.

Brian SmilekYes, younger buyers.

Lanny BakerYeah, I mean, the, the younger buyers have a little bit lower LTVs, but they have a lot higher growth rate in the LTVs because they're moving through life changes in compensation and other household formation and things like this that really give them, in the near term, the LTV may not be as great, but the potential for growth in that cohort is really, really attractive. And that's why we and others really go after it. And so we're pleased with sort of the beachhead that we are establishing, building those relationships today as we're bringing more of them into our business. And the first part of the question was—.

Deb WasserFirst part of the question was about how we would be taking— I think it was getting more zeitgeist kind of things going internationally. Was that what it was related to, Brian?

Lanny BakerHe's probably on mute.

Kruti Patel GoyalI mean, I think that the approach—.

OperatorYour line is re-enabled if you need to respond.

Deb WasserNo, I think we got it.

Kruti Patel GoyalI was just going to say that I think that the approach that we're taking with younger buyers is one that we think works globally. So there's not a specifically different approach that we're taking internationally. So we're just going to keep doing more of what's working for us with these younger buyers.

Deb WasserYeah, perfect. Okay, thank you. Let's go to the next question.

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

Nick JonesGreat, thanks for taking the questions. One on, you know, enhancing buyer profiles in a letter covering 65 million buyers. I think it's 3x. Kind of the data points. I noticed the 65 million buyers is above kind of the repeat and habitual combined. So I guess, can you speak to what the funnel looks like to kind of aggregate these data points and, you know, what it would take to kind of drive that 65 million buyer number a bit higher? Thank you.

Kruti Patel GoyalFirst, I would just say that we can build these buyer profiles for all of our buyers. They're just richer. They get richer and richer the more that you engage with us. So we see the potential for buyer profiles for all of our buyers. Obviously, we look at broader data than just your buyer profile if we, if it's, you know, if you're a relatively infrequent or newer buyer. You know, we think it's exciting there is all the applications of, you know, where we can use that buyer profile to personalize your experience and make it richer from the recommendations you get in your app home feed to the marketing that we send you, to how we personalize your search results. And so it's not just that we are able to expand the coverage of these buyer profiles, it's that we're collecting more and more valuable data in them and that we're able to apply them in more and more places in your experience end to end.

Deb WasserGreat.

Nick JonesPerfect.

Deb WasserThank you. Next question.

OperatorYour next question will come from Michael Morton with Moffett Nathanson.

Michael MortonGood morning. Can I do one on the shareholder letter? You talk about growing direct relationships with our most active buyers by optimizing how you communicate with them and deliver kind of more timely and relevant, I guess, recommendations. Kruti, I was wondering, from someone being on the outside, could you give us some examples of what this looks like? Because we've all seen how powerful like the big buyers can be on these larger platforms. How this will play out in the acquisition and I guess like reactivation of these big active buyers. And then just a quick one for Lanny on some of the cost savings from the reorganization. Sounds like you're letting those flow through to the bottom line. I was wondering why not reinvest even more in marketing or if there's diminishing marginal returns there or anything along those lines would be great. Thank you.

Deb WasserThe first one, Kruti, was growing direct relations Relationships that are most active.

Kruti Patel GoyalOh, how we're optimizing our, our communication. Look, the way that this should play out is we're really playing with two things with our most active buyers: the relevance of the content that we show you, the personalization of the content that we show you, the freshness of the content that we show you, and how frequently we show it to you. So sometimes it's even more, you know, valuable to send fewer communications, especially to our most active buyers who are engaging with us all the time. And we're looking at that across both email and push, and then really all of the channels where we're connecting with you. So that's how I would think about that optimization work that we're doing around engaging with our most active buyers. It's because we have so much great information and content on you, we want to make sure that we're optimizing every touch and we have the frequency right as well.

Deb WasserAnd the second was cost savings.

Lanny BakerMichael, the— The reorganization is not intended to structurally alter Etsy's long-term margin profile. What we're really seeking is a more focused organization suited to execute on our strategy and with all the strengths and skills that we, that we think we need over the coming years. And if we have those things, as we get those things, I think they pay off in growth, health of the marketplace, differentiation of Etsy, you know, and ultimately, the durability of growth comes from really having that more focused and really rightly suited team. So we will be reinvesting some of the savings, if you will, uh, into our people, into engineering talent, product talent, customer operations, and some of the R&D projects we talked about earlier. I think the kind of margin growth that we really like is the margin growth that comes from revenue and GMS growth. And in this quarter, 50% of the revenue growth went down to the bottom line.

Lanny BakerThat is, that's the stuff that really we believe creates shareholder value. So that's what we're aiming for. And you talked about marketing. This is a quarter in which we got a good deal of leverage and we're pretty proud of it in the marketing channel and in our marketing activities. But I want to make the point, we are earning our growth there, not buying it. We have increased the efficiency in our more mature channels, i.e., search and PLAs. We are making ongoing learnings and having some nice wins in our less mature channels like social. We're being prudent about managing and optimizing the mix of those channels. And I frankly think some of the messaging that we're doing in our brand campaigns, in our PLA relevance, in our social media is also contributing there. So what we're seeing is we're just getting more GMS per dollar. And actually that doesn't, that's not declining marginal return, That's increasing marginal return and that's sort of causing us to lean in on marketing.

Lanny BakerSo we're, we're, we're, we, I don't want to send a signal at all that we are tapped out on investment. We're just at a point right now where we're having some really good gains in efficiency in marketing, which I think sets us up to continue to use that as a driver of growth in the future.

Deb WasserThanks, Lanny. Next question.

OperatorYour next question will come from Shweta Khajuria with Wolfe Research.

Shweta KhajuriaOkay, thank you for taking my question. Could you please, just to follow up on something that you were talking about earlier, Lanny, which is on marketing spend, could you please talk to, if anything has, what specifically has changed in your marketing spend where you're seeing spend and strategy, where you're seeing best returns on that spend and how much of that runway do you have left ahead to drive potentially new and reactivated buyer growth? And second is, if you could please talk to mobile app users and how their engagement is different and where you see runway for growth coming from app users as we think about frequency over time. Thank you.

Lanny BakerSure. You know, on the marketing front, I'll get into the details of kind of the mix and the channels and things we're doing there. But one of the secret weapons is the owned channels that we have of push and email and the mobile app, where your question was, how are we using these channels to bring, attract new customers and bring them back? Those owned channels have been really effective in helping us bring people back very efficiently. So that's also happening in our greater marketing portfolio, but in the places where we're spending media dollars in marketing, You know, the competitive dynamic in PLA has gotten, has changed over the last year as Amazon has pulled out. But the bigger driver right now are internal wins that we've made in our marketing technology, particularly the way we segment the PLA feed that we give to Google, the way the information that we give them around listings is helping them, I think, place our listings with better, more competitive bids in a broader number of auctions.

Lanny BakerAnd we call it PLA segmentation. The way we're segmenting our feed is really helping us strike some, some really good advances right now in the performance of our most mature, most well-developed, most predictable marketing channels. That's been great. While that progress is happening, it allows us to make, you know, flex and test and move around other parts of the overall portfolio. And in terms of portfolio shifts, I would say we are getting, you know, we've talked about pushing a lot of money into social at times to then figure out what works best and then optimizing. And we're making some good gains right now, optimizing our social channels. And the one other shift is moving away from like linear and some of the old, older television or video advertising that we've done toward more targeted streaming and services like that has helped us go after the right audience, and we're really happy with that.

Lanny BakerSo performance on our own side in PLAs has been a big driver, and that's allowed us a lot of flexibility to move around the rest of the portfolio and find, you know, find ways to be more efficient and find new opportunities to grow.

Deb WasserAnd then the second one is on app and app engagement.

Kruti Patel GoyalYeah, so yeah, I think, I think the question was what's working in the app and where do we see potential going forward? And so, look, we're really pleased with the growth acceleration that we saw in Q2 in the app, up 12.5% year over year. We're now at about 47% of total GMS coming from the app. We think that's really healthy and we think there's more room to grow. What's working really well, what I would say is the work that we're doing across the board is showing up with particular strength in the app. For lots of reasons that I've talked about, it's where our most engaged, most valuable users are already. And it's where, you know, we have, we have the ability to personalize with even more depth. So what's working? I'd say first, you know, better discovery and matching. We talked about richer buyer profiles. They're really improving the content that we can show you in home feeds, in push notifications that bring you back into the app.

Kruti Patel GoyalThe second thing I would say that's happening on the app is we're really improving the freshness of our feed. So the newness and the diversity of the, of what we're showing in a way that's really improving engagement. The team made a really big shift in terms of reducing the prevalence of things that were recently viewed or engaged and in place of showing you much fresher, newer listings. And what we're seeing is that that's driving feed favoriting, listing views, new searches, and excitingly, it's broadening consideration. We're seeing people, we're seeing buyers on the app starting new, more new shopping missions. And so, you know, all of that is really exciting. In general, we're seeing just, you know, much more engagement, more strong signs of engagement. In the app with visits per MAU improving, orders per visit improving, feed favoriting. Like I said, new mission starts. So all really strong indicators of how what we're doing is working in the app.

Kruti Patel GoyalAnd I think bodes well for the future in terms of continued opportunity there.

Lanny BakerI would just add that the, the bulk of the GMS growth, the primary driver of app GMS growth is existing app users purchasing more. And the second behind that is new-to-Etsy buyers coming into the app for their first-time purchases. Those are, you know, those are really healthy incremental signs of reflections of the work that we're doing on both the marketing and the product experience.

Deb WasserGreat. Perfect.

Kruti Patel GoyalThank you, guys. Next question.

OperatorYour next question will come from Ygal Arounian with Wedbush.

Ygal ArounianUh, hey, good morning guys, can you hear me? Yep. Yeah, yeah, okay, great. Um, good morning. Somehow says my line is still on mute, but, um, okay, great. Um, okay, I wanted to dig into, um, the, the tech investments, particularly around ML. Um, you know, that's something you guys have talked a lot about. Um, so, you know, what, what's evolving here on that? And how does that tie into, um, uh, Agentic Commerce, maybe more specifically, or if you want broadly, uh, on third parties too, but, um, you know, how you're building it to, uh, the Etsy platform directly. Thanks.

Kruti Patel GoyalSure. So in terms of our investment in ML, the way you should think about that is we're continuing to invest more deeply in what's working, and what's working is discovery, matching, and personalization. And, you know, the investments that we're making as a result of reshaping our teams is really about strengthening our, strengthening our talent to do more of what's working. So that, that, that's how I would think about the ML investment. In terms of AI, I think there are a couple of parts to this. The first thing I'd say is that we see the biggest opportunity for AI on Etsy itself.

Kruti Patel GoyalIt's really about using AI to make Etsy much, much better at connecting the right buyers with the right sellers. So we're applying AI across all of these areas that I just talked about— discovery, matching, and personalization— to really better understand what buyers are looking for, to better understand our buyers, to better understand our inventory so that we can surface the most relevant inventory from the full breadth of our marketplace. That's where we think AI is really going to deliver the most value over time because it makes Etsy feel more personal and help more of our sellers and more of our inventory get discovered. You know, and then in terms of off of Etsy and the opportunity there, we still have a really important priority for us to make sure that Etsy is showing up wherever shoppers discover. So we're continuing to partner with these major AI platforms because we want to be in there learning and evolving our experience as consumer behavior and adoption evolves.

Kruti Patel GoyalSo that's where we continue to focus there. I'll say that, you know, traffic from Agentic experiences is still less than 1% of our overall traffic. We're still seeing the same things that we shared last time. You know, they're higher intent, higher average order value traffic. So that's, that's what's happening there. The third thing I would say about AI is we're experimenting actively with AI-native shopping experiences on Etsy itself. We've shared that we think that there's a really interesting opportunity to use these conversational interfaces to get more context more quickly to understand intent in any given shopping mission. And so the work that we've done on our Gifting Assistant is a good example of that. It gives buyers a, you know, more natural conversation, a conversational way to express what they're looking for. And it's helping us learn actively in that space. So I guess to sum it up, what I'd say is like across AI, I think about it in 3 ways.

Kruti Patel GoyalMaking Etsy more personal, making Etsy more discoverable, and then learning how this next generation of shopping experience is going to evolve.

Ygal ArounianGreat.

Deb WasserThanks, Kruti. Go to the next question.

OperatorYour next question will come from Youssef Squali with Truist.

Youssef SqualiExcellent. Thank you so much, guys. Lanny, maybe starting with you, the 50% flow-through from incremental revenue to adjusted EBITDA in Q2 is pretty impressive. Maybe talk about the biggest drivers there and, and just the sustainability of that as we look into the second half and into 2027, particularly on the back of this latest RIF. And maybe not to beat a dead horse here, but can you maybe help us understand how you guys think about balancing increase in marketing spend, especially on the back of clearly what you're seeing as improving efficiency with the other decision that you've made of, uh, the $2 billion buyback, which obviously is a huge step up from what it was before. So, you know, are we hitting maybe the efficient frontier in marketing spend at this point until maybe we, we improve the user experience that much better before we lean more aggressively into marketing? Just helping us— help us a little bit understand the puts and takes there?

Lanny BakerYeah, sure. Let me— good questions overall. Let me start with the incremental profitability. I don't— look, any one quarter doesn't set the model forever. And, you know, we had a great quarter of the inflow through this quarter. And I think what sort of built across the course of this year is the internal momentum and execution and the health of the marketplace has turned out to be a little bit better and a little bit more sustainable than we anticipated. And what that did was drive better GMS than we expected. And when GMS grows unexpectedly, it's going to drive, you know, really good profitability characteristics for our business. And so, you know, I think you'll see the incremental margin sort of move back and forth across the ranges that the company has shown over time, over time. But we really like the incremental profitability characteristics of the business. Oh, and P.S., we really like the margin level that we have right now to start with.

Lanny BakerAnd, you know, from a, from the reorganization, our intention is not to, as I said, to like structurally lift margins. It's to like bring the team into more perfect alignment with the strategy in terms of the way it's organized, the way it's staffed, the skills we have on hand so that we can drive the revenue growth that ultimately produces everything else we've already talked about. So I mean, hopefully those pieces will fit together for you as you look forward. I think on your second question, which was about marketing and the share buyback, they're— look, they're not mutually exclusive. They're really complementary. And it is, hey, we are becoming more efficient and more effective in our marketing, and that increases our estimation of the value of the franchise in the future, and that makes the buyback feel like a reasonable allocation of capital. And we just received a large incremental amount of capital from the sale of Depop.

Lanny BakerAnd, you know, we don't see a place where we could spend that in the business right now. And we think the right thing to do is return that capital to shareholders by shrinking the equity base as we've done. I think over the last couple of— over the last like 3 or 4 years, we've reduced the share count by almost 25 million shares. So, you know, we feel really good about that investment we've made. And I want to go back. You asked a question, Michael asked a question. There is not a frontier that we are hitting up against in marketing. What we are seeing more so is that our marketing dollars are going further. And you know, we are a company that doesn't set a marketing budget. It sets a return target. And if our marketing dollars are going further, that says the return is better. And that is over time going to lead us to continue to spend more on marketing to drive the flywheel. Interestingly, or importantly, this quarter, our organic GMS that was not driven by marketing grew.

Lanny BakerSo it, we've got, you know, that's nice to have the like fundamental underlying growth from SEO and from the app and from the owned channels. And then, and then be able to use marketing really efficiently with a good return on top of that to further extend our reach and our frequency is what we're all about.

Kruti Patel GoyalThe other thing that I would add on the marketing front is we see a lot of great opportunities to continue to lean into marketing. And I think we've really shown that this quarter. As we've gained efficiency in certain areas, we've leaned into others to great effect, right? As we've seen efficiency in paid search, we've leaned into paid social. We've seen the impact of that in terms of our engagement with younger buyers on TikTok and YouTube. We've leaned into marketing partnerships like our Olivia Rodrigo partnership. We think there's a lot of great opportunities, continue to, continue to extend our reach and our relevance through marketing. Even as we make our more mature channels more efficient.

Deb WasserGreat.

Kruti Patel GoyalOperator, I know we're almost at time, but I want to squeeze in one more. Can we call the next one?

OperatorYour final question will come from Oliver Lester with Arete Research.

Oliver LesterHi, can you hear me?

Deb WasserYes, we could, Oliver. Go ahead.

Oliver LesterHi, thanks for taking my questions. Yeah, two for me. One is I wanted to know whether you expect to see any impact from the recent EU de minimis changes. And my second question Just on Etsy Insider, I know that got a brief mention in the shareholder letter. Is there any kind of update that you could give us on the progress you're making there? What's the timeline?

Deb WasserYou want to do de minimis?

Oliver LesterDe minimis.

Lanny BakerI don't think we'll see a big impact from it. And I will tell you that Etsy is at the forefront of helping sellers deal with all of those kind of changes. We have a great track record over the last year and really strong partners that we work with to help sellers navigate that changed playing field.

Kruti Patel GoyalOn Insider, we don't have a specific update. What I would say is what I've shared in the past, which is that we're thinking about loyalty and driving loyalty is much broader than one, one program or one initiative. We're starting to test more mechanics to drive that loyalty, including free loyalty mechanics. But more broadly, the biggest thing that's going to drive loyalty is a better end-to-end user experience in the, in the product. So that's where we're focused.

Deb WasserPerfect. Thank you, guys.

Kruti Patel GoyalOperator, I think that's it for us today. Thank you so much, everyone.

Deb WasserWe'll talk to you soon.