Etsy, Inc. (ETSY) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Financial Performance: Etsy's consolidated results were at the high end or ahead of guidance, with a 3% revenue growth to $648 million and a healthy adjusted EBITDA margin of approximately 28%.
• Improvement in GMS: Etsy marketplace GMS saw a 210 basis point improvement from Q1, despite a year-over-year decrease.
• High Active Buyer Level: Etsy maintained a record high level of approximately 92 million active buyers.
• Progress in Key Initiatives: Significant advancements in gifting, quality highlights, the new Etsy Insider Loyalty program, and app-centric customer experience.
• Effective Use of AI and ML: Investments in AI and ML across the business, particularly in product development, have been unlocking value and improving the buyer experience.

Pessimistic Highlights

• GMS Decline: A year-over-year decline in GMS by about 2.1% on a consolidated basis and 3.2% for the Etsy marketplace.
• Macro Headwinds: Continued challenges from the macroeconomic environment impacting discretionary product spending.
• Moderation in Services Revenue Growth: Services revenue growth decelerated, reflecting a slowdown in the growth rate of on-site ads revenue.

Company Outlook

• Q3 Guidance: Expectation of a low single-digit decline in consolidated GMS year-over-year for Q3 2024, with a similar take rate to Q2 and an adjusted EBITDA margin of approximately 27%.
• Full Year Expectation: Full year 2024 consolidated adjusted EBITDA margin expected to be at least at the level of 2023 performance.

Q & A Highlights

• Q: On the new seller classification program and its impact on buyer conversion and marketing. (Jason Helfstein, Oppenheimer)

  A: The program aims to raise frequency rather than conversion, by showing a more diverse set of items and sellers, which could lead to increased visitation and consideration. Etsy does not directly influence seller pricing but provides market information to help them price effectively. (Josh Silverman)

• Q: On the shape of GMS growth recovery and macro conditions. (Jian Li, Evercore)

  A: The macro environment remains volatile, with mixed signals. Etsy's initiatives are expected to drive sequential improvement, with a cautious outlook due to potential macroeconomic pressures. (Rachel Glaser)

• Q: On the new buyer loyalty program's target customer, pricing, and goals for profitability. (Nathan Feather, Morgan Stanley)

  A: The program targets occasional shoppers to increase their shopping frequency on Etsy, with pricing around the cost of a latte per month. Profitability is a long-term goal, with initial focus on testing and learning. (Josh Silverman)

• Q: On marketing spend increase and its sustainability. (John Colantuoni, Jefferies)

  A: The increase in marketing spend is attributed to new channel optimizations and is not expected to dilute margins over time. Etsy's full-year margin is expected to be at least as high as the previous year's. (Rachel Glaser)

• Q: On efforts to emphasize value on the marketplace and execution of deals. (Rick Patel, Raymond James)

  A: Etsy provides a robust toolkit for sellers to offer discounts and emphasizes the differentiation and artisanal value of items to support seller pricing power. (Josh Silverman)

• Q: On sustaining the 2023 EBITDA margin for 2024 and the app's user engagement. (Chris Kuntarich, UBS)

  A: Etsy's variable cost base allows for margin sustainability. The app, used by 42% of GMS, attracts both young and first-time users, increasing their lifetime value. (Rachel Glaser and Josh Silverman)

• Q: On the effectiveness of the onboarding speed bump in reducing fraud and the potential for on-site ads growth. (Michael Morton, MoffettNathanson)

  A: The onboarding fee has been effective in reducing fraud, with ongoing efforts to manage fraud risks. Etsy Ads continues to offer growth opportunities by improving ad relevance and buyer experience. (Rachel Glaser and Josh Silverman)