Etsy, Inc. 2026 Q2 Earnings Call

Hi, everyone, welcome to Etsy's second 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, 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. We disclaim any obligation to update them.

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

Thanks, Deb. Good morning, everyone. Thank you for joining us. Since I stepped into this role, I've been clear about three things. Our greatest strength is our differentiation as a human-centered marketplace. We have a massive market opportunity ahead of us. 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, accelerating growth. We're encouraged by our progress, increasingly confident in our ability to create long-term shareholder value, reflected on 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.

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. Starting 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%. Adjusted EBITDA was $195 million, or a 29.2% adjusted EBITDA margin. We're beginning to see how our four 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. We'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. 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. 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. 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 and search, and fresher content that helps buyers discover new shopping missions and more of Etsy sellers' unique inventory. Third, 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. Our investments in YouTube and TikTok drove a five-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. 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.

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. 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. We 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.

Thanks, Kruti. Great to connect with all of you today. Kruti already covered Etsy marketplace GMS and our headline metrics. 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.

On 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 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. On top of this, we received $1.4 billion in cash proceeds from the sale of Depop at the end of last week.