Etsy, Inc. 2026 Q3 Earnings Call

Hi everyone, and welcome to Etsy's third 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 related to our financial outlook, our business, and our operating results, as noted in the shareholder letter posted to our website for your reference. Our actual results may differ materially. As you review our shareholder letter and 10-Q, please keep in mind that on July 30, we completed the sale of Depop. Etsy's results in those documents and on this call are presented on a continuing operations basis, while Depop's results are presented within discontinued ops.

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. 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 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.

Thanks, Deb, and good morning, everyone. Thank you for joining us. 2026 has been a year of meaningful transformation for Etsy. We started the year with a clear understanding of what needs to improve and a focused set of priorities to make that happen. At the same time, we've become clearer about what truly differentiates Etsy: the creativity of our sellers, the care and craftsmanship behind what they make, and the human connection that gives those items meaning. And increasingly, we're bringing these together, making Etsy a better place to shop, while also making what sets us apart more visible and valuable to our customers. I'm proud of the progress we've made so far and even more optimistic about the opportunities still ahead. We're bringing more buyers to Etsy and landing them in an experience that is more personalized and relevant, helping them discover higher quality items and sellers.

We're making our marketing investments more effective, enabling us to show up in new places and build relationships with both new and existing audiences. And we're improving the support experience for our buyers and sellers, an important part of building trust and meaningful relationships that extend beyond any individual transaction. After three consecutive quarters of accelerating growth this year, I have increased confidence that our business is now firmly in growth mode. We have real momentum and clear evidence that the changes we've made to how we operate and invest in the marketplace are translating into stronger fundamentals and more durable performance. Etsy's marketplace GMS was $2.6 billion, up 8.8% year-over-year. Revenue was $692 million on take rate of 26.2%. And Adjusted EBITDA was $210 million, or a 30.4% margin. What's especially encouraging is that we're seeing improvement across both sides of the marketplace.

Active buyers grew year over year for the first time in 2 years, and our focus on improved customer relationships is driving an acceleration in growth in GMS per active buyer. Our active seller base grew at its fastest rate in 2 years, with improving retention signaling the relevance of Etsy to creative micro-entrepreneurs. We're still benefiting from some external GMS tailwinds, but importantly, the contribution from our strategic initiatives is accelerating. Our app continues to perform well, paid marketing is becoming more efficient, and organic traffic remains healthy. Our work to improve search and discovery is surfacing higher quality, more relevant inventory, which we believe can truly transform the Etsy experience over time. Lanny Baker will cover GMS drivers in more detail shortly. We hope you've seen the updates on our near-term priorities covered in our shareholder letter. I'll cover a few that I'm most excited about.

Last quarter, we shared how we were testing ways to make our sellers and their creative processes more visible to buyers. Our latest Android test and supporting research show that doing so builds buyer trust, confidence, and perceived value. We're now building on these learnings as we look to bring human connection more deeply into the shopping experience across platforms. By weaving together things like seller stories, craftsmanship details, buyer reviews, and opportunities for connection, we aim to help buyers understand not just what they're purchasing, but who's behind it, how it's made, and what makes it special. Our goal is to make the value our sellers create more visible at every step, building the trust and connection to differentiate Etsy and bring shoppers back. Our investments in discovery and matching are increasingly contributing to GMS momentum.

By using AI and machine learning to more deeply understand shoppers' tastes and interests, we're helping buyers find what they want and discover things they didn't know they were looking for. We're seeing tangible proof points. For example, by the third quarter, we estimate that personalization improvements alone contributed approximately 2 percentage points to our annualized year-over-year GMS growth rate. We've made progress against the seller experience, from helping sellers create and manage listings and customize products to enabling shared shop access, providing clearer financial insights, expanding our appeals process, and making Etsy Ads easier to manage. We're also experimenting with how AI can make running an Etsy shop easier. Our AI-powered seller assistant, currently in beta, provides personalized insights based on shops' unique data and shares actionable ideas for what to focus on next.

For buyers, we're continuing to test different ways to recognize and reward loyalty. That includes testing a program where buyers earn stamps towards rewards for actions that broaden and deepen their relationship with Etsy, like supporting sellers across categories and regions. We're also scaling premium support experiences for our top buyers ahead of the holiday season, while expanding general support availability across the marketplace. Lastly, the strategic shifts we've made in marketing have been an important part of our progress this year. I'd highlight three areas where we've made meaningful changes. First, we're evolving how and where we reach shoppers. Our brand campaigns are reinforcing what makes Etsy different, while we're finding new ways to connect with younger audiences and show up for the occasions that matter to buyers.

Second, we're getting smarter about how we bring our inventory to shoppers, improving how we understand and surface our listings across paid search, social, SEO, and our influencer and affiliate programs, so more people discover items that are relevant to them. Third, we're making our own marketing much more personal. We're combining the scale of AI with the creativity of human curation and storytelling to deliver content that feels more relevant to each individual buyer. Another important area of focus is how we're using AI to make commerce more human. We believe AI will fundamentally change how people discover and shop, and we are leaning into that change. For Etsy, the opportunity is to use this technology to help buyers discover items that feel uniquely right for them, and to help our sellers reach more customers and grow their businesses. There's an interesting paradox here.

As AI makes it easier to create and replicate products at scale, we believe the human creativity, craftsmanship, and connection that have always made Etsy special will matter even more. As we head into the final stretch of 2026 and develop our growth plans for 2027, we have even greater confidence that our priorities and focused execution are creating a healthier, highly differentiated marketplace, and positioning us to capture more of the enormous opportunity ahead. I would also like to acknowledge our announcement this morning that Lanny will be leaving Etsy in early March. I am so grateful for his leadership and judgment, and especially for his partnership during my first year as Etsy's CEO, as we've navigated this important and transformational time for the company. He'll leave Etsy with stronger momentum for the future. I'm excited for what's ahead for Lanny and wish him all the very best.

We've engaged an executive recruiting firm to assist in the search for a new CFO to be based here in Brooklyn. With that, Lanny will review our results.

Thanks, Kruti. It has been a great privilege to work with you and to contribute at this crucial stage of Etsy's development. You've brought clarity of focus and a vision of differentiation that are just beginning to have their impact on the marketplace and the business. I'm excited to help close out what's been a pivotal year, and I will do all I can to support a great transition once the company's next CFO has been identified. Turning to our results, I'll start by reviewing our GMS performance in the quarter. Importantly, as our momentum has accelerated since the start of 2026, internal efforts to improve marketplace health and further elevate Etsy's differentiation are beginning to play a larger role in the composition of GMS growth. Active buyers returned to year-over-year growth for the first time in two years, increasing 1% to approximately 88 million on a trailing 12-month basis.

Sequential growth also accelerated, with active buyers increasing by approximately 540,000 compared to 2Q26. Third quarter gross buyer additions grew 6.2% year over year, continuing to benefit from strong new buyer acquisition and reactivation, while trailing 12-month retention amongst existing buyers also began to improve. Habitual and repeat buyers increased modestly on a sequential basis, encouraging evidence that progress is broadening across acquisition, reactivation, and retention. GMS per buyer increased 3.9% year over year on a trailing 12-month basis, marking the third consecutive quarter of growth. In addition, this important barometer of marketplace health accelerated sequentially. The impact of our internal initiatives is continuing to scale and play an increasing role in average order value growth, while purchase frequency remains modestly down year over year. The internal initiatives driving these trends include, number one, improving search relevance for buyers through greater personalization built on richer buyer profiles and inventory insight.

Two, promoting a stronger selection of high-quality items by increasing the weight of quality signals within search and recommendations. Three, better managing the prominence of physical versus digital items based on what we can understand about buyer intent. Four, differentiating our offering around special occasions where people may be willing to pay a little bit more for just the right item. Looking forward, we seek to continue to grow our wallet share by helping shoppers discover more of the unique, high-quality inventory on Etsy, whether that translates into more valuable orders, more frequent purchases, or both. Moving to revenue and take rate, higher GMS drove strong revenue growth of 10.9% year over year in the third quarter. Total revenue reached $692 million, with marketplace and services revenue both contributing to growth, increasing by 9.1% and 15%, respectively.