Etsy, Inc. (ETSY) Q3 2026 Earnings Call Transcript

Deb Wasser: 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 30th, 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.

Kruti Patel Goyal: 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 two 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 two 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.

Lanny Baker: 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. Take rate was 26.2%, up 50 basis points year-over-year, primarily driven by further enhancements to Etsy Ads and, to a lesser extent Contribution from Offsite Ads. Etsy Ads is becoming an even more effective tool for sellers to reach buyers. As improvements to our matching and ranking models increased ad relevance and drove higher click-through and conversion rates. Better budget pacing mechanisms also help sellers direct more of their spend toward the most valuable opportunities. Strong revenue growth, together with the impact of our restructuring in August, translated into adjusted EBITDA of $210 million, growing 14.6% year-over-year and representing a 30.4% adjusted EBITDA margin. Adjusted EBITDA grew faster than revenue for the second consecutive quarter, and we remain disciplined in managing operating expenses while continuing to invest in areas that we believe support Etsy's long-term growth. Marketing remained an important area of investment, and expense grew as a % of revenue year on year, as we leaned into driving profitable GMS growth. Excluding restructuring charges, product development expense gained leverage year-over-year, reflecting lower stock-based compensation and employee-related expenses. Looking ahead, we expect to sustain Etsy's healthy adjusted EBITDA profitability as we gradually add product and engineering headcount and capabilities to support our long-term growth. As of September 30th, 2026, Etsy held $2.5 billion in cash equivalents, and short and long-term investments. Proceeds from the sale of Depop, which closed on July 30th, 2026, contributed to our cash balance at quarter end. Subsequently, on October 1st, 2026, we paid $649 million in cash to settle the remaining aggregate principal amount of our outstanding 2019 Notes and reduce the company's total outstanding debt. We generated strong free cash flow during the quarter. Net cash provided by operating activities of continuing operations for the three months ended September 30, 2026, was $243 million. On a continuing operations basis, we converted 112% of our adjusted EBITDA into free cash flow during the quarter. We further accelerated the return of capital to shareholders, repurchasing approximately $395 million in stock and reducing the outstanding share count by approximately 5.2 million shares during the third quarter alone. We currently have $2.2 billion in authorized capacity for future share repurchases and anticipate continuing to repurchase shares at an accelerated rate to further reduce the outstanding share count. Turning to our outlook, we currently anticipate that overall macroeconomic factors remain relatively consistent, foreign currency is a modest growth headwind, and prior year comparisons become less favorable in the fourth quarter. In that context, we currently anticipate that Etsy marketplace fourth quarter GMS will be between $3.46 billion and $3.52 billion, representing year-over-year growth of approximately 5%-7% for the quarter. We expect fourth quarter take rate to be approximately 25.6% and adjusted EBITDA margin to be approximately 30%. For the full year, we now anticipate that GMS growth will be approximately 7%, take rate to be about 25.8%, and our full year adjusted EBITDA margin outlook moves up to roughly 30%. In sum, we are very pleased with the progress we've made in 2026. The marketplace is getting healthier, and as strategy and execution have aligned, we've driven significant outperformance compared with our expectations at the beginning of the year. With that, we'll now turn it over to the operator to take your questions.

Operator: 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. Our first question is from Nikhil Devnani at Bernstein. You may now unmute your line and ask your question. Thank you.

Nikhil Devnani: Hey, good morning. Thank you for taking the question. I wanted to ask a little bit about this dynamic between app and non-app GMS. I think in the past, the app has sort of been the sandbox for all your personalization efforts and other self-help efforts, and it accelerated first. Now we're seeing the non-app GMS also improve. I'm curious the extent to which you've been able to extrapolate some of those same efforts to the non-app shopping journey, or if it's something else driving that. Just if you could remind us the overall technical hurdle around data or otherwise to get the non-app shopping experiences to keep improving and keep up with what you are able to do in the app. Thank you.

Kruti Patel Goyal: Thanks so much for the question. I think that your insight is exactly right. We started out using the app as a place to really test deeper personalization. As we have talked about before, it is an area where we have a lot of information about users because they are all signed in. As we have learned about how to effectively personalize the experience, deliver much more relevant inventory and personalization, we have expanded those learnings and that personalization work across platforms and throughout the experience. We are seeing that show up more significantly on web as well as on app. There are no significant technical hurdles that I would call out. I think that it is just been about sequencing our work to where we can learn best before we apply it more broadly.

Deb Wasser: That is great. Thank you, Kruti. All right, we will go to the next question.

Operator: Thank you. Our next question comes from Steven Forbes at Guggenheim. Steven, you may now unmute your line and ask your question. Thank you.

Steven Forbes: Good morning, Kruti, Lanny, Deb. Kruti, maybe just a question around gifting. Curious if you can highlight some of the key attributes that you are hoping the Gifting Assistant is going to solve or address, including any friction points for the consumer. I do not know if you can remind us what the % of GMS gifting represents for both the full year and the fourth quarter.

Kruti Patel Goyal: When I think about our Gifting Assistant, it is really our first foray into bringing a shopping agent on site. The first application of that, to give people a real sense of how to use it and when to use it, has been applying it to gifting. It has really been an opportunity for us to learn and experiment with a more conversational interface to understand how that enables people to shop more effectively. It has been a really great learning tool for us. We are seeing that it is particularly effective in helping people, when they have broader, more complex queries, really effectively narrow down their search. As we are learning that, our next steps are going to be to expand both the use cases for this type of a shopping assistant and expand where you can access it throughout the experience, rather than a single entry point, to just better leverage this kind of an interface on the experience.

Lanny Baker: Yeah, in terms of gifting's importance, we have always held the view that Etsy is this destination for really differentiated, considered purchases, where that human connection is important. That is reflected in the fact that about 30% of our GMS comes from gifting, where people are coming to us to try to find an item to give to somebody else. So it is a big portion of our business, and we will invest in that and find ways to use personalization to tap into more of the gifting occasions that people have on their calendars.

Deb Wasser: Great, everybody needs to try it this season. It is really cool. Next question.

Operator: Thank you. Our next question comes from Andrew Boone at Citizens. Andrew, you may now unmute your line and ask your question. Thank you.

Andrew Boone: Thanks so much for taking the question. I wanted to go to buyer frequency. Is there anything you can help us understand in terms of cohorts or various groups of buyers in terms of frequency? I am a little bit surprised to not see this up, given all the progress you guys have made in terms of personalization and a better product. Just help us understand that. Thank you.

Kruti Patel Goyal: Thank you. I will throw that to you, Lanny.

Lanny Baker: Sure. In the long-term drivers of our business, frequency is a very important one. I think we have early signs of progress in buyer engagement that we are very encouraged by. Things like the responsiveness to recommendations that we make and clicks on those, the favoriting of items and of sellers, the usage of the app, the cross-category shopping experiences that we are able to inspire through personalization, the repeat visit activity are all early precursor signs of people starting to build deeper engagement with Etsy. At the same time, there are other countervailing trends. We have talked about it in the past. The addition of new and reactivated buyers into the mix, they tend to buy a little bit less frequently than the established buyers. The fact that as we elevate items that are truly special and differentiated, often they are at a little bit higher price point, and we are gaining share of wallet, and as prices are higher, people are a little bit more selective in what they are purchasing, though spending more on Etsy. As we look forward, I think we are very encouraged to start now to see, for a couple of quarters in a row, growth in the number of repeat buyers and the growth in the number of habitual buyers. So those are early indicators of building that habit frequency retention. But we are not yet at a place where the sum total of frequency overall is comping positively year-to-year.

Kruti Patel Goyal: I am just going to underscore the point that Lanny said. We see frequency as a really important long-term measure, but it is a hard thing to move materially quarter-to-quarter. So what we really look at internally is how effectively can we measure indicators of us making the experience more relevant, more engaging in period. So that is why we have been looking at and sharing a lot of measures of engagement, which we think are great examples of how we are doing that. Then again, over the long term, we are going to be focusing on converting engagement into greater purchase frequency. The other thing that I would just add is, what we are seeing is, in terms of the increasing GMS per buyer, is that we are providing an experience that compels people to spend more with us over time. So that is really the North Star that we are looking at, is are we gaining wallet share from our buyers? So that is the other thing that I would encourage you to think about.

Deb Wasser: Perfect. Great. Thank you. We will take the next question.

Operator: Thank you. Our next question comes from Eric Sheridan at Goldman Sachs. Eric, you may now unmute your line and ask your question. Thank you.

Eric Sheridan: Thanks so much for taking the question. Maybe if I can push on the theme of marketing and what was in the shareholder letter, can you just go a little bit deeper in the key learnings as you continue to diversify the channels with which you market to consumers? How should we be thinking about the two sides of this, both in terms of what marketing can do in terms of driving increased volume on the platform, but also through the lens of marketing ROI over the medium term, and how you translate some of those early learnings into how it might translate over a longer duration period of time? Thanks so much.

Lanny Baker: Thanks, Eric. I'll start. Marketing in 2026 has had a really great year for Etsy, and I think at the top and sort of most abstract layer, we've, I think from a branding perspective, really started to successfully put forward this sort of notion of Etsy's differentiation around human connection. That's been in some of our brand work and in some of our online marketing messages. When you get into the details of the more direct side of marketing, we've also had a really great year. We made some big progress in paid search by better segmenting the feeds that we provide to PLAs in particular, but that's also helped us across social. Within paid social, we've been able to scale at really attractive ROIs, the spending that we do in places like TikTok and YouTube, which are expanding our reach to younger audiences and to new buyers coming into Etsy. We also in the third quarter had a fabulous in real life event, an activation we did with a music performer who you may know, Olivia Rodrigo. That touched, I don't know, was it 90 million total views of that activity? Kind of across the board, I think we're finding a real stride on the marketing front. In the third quarter, we increased our marketing spending on a year-over-year basis, but the GMS from marketing grew faster than that. Our ROIs improved year-over-year on our marketing spending in the third quarter. If you remember back to the second quarter, we got pretty good leverage out of our marketing spending in the second quarter. What you are seeing there kind of play out across a couple of quarters is gains in efficiency established in the second quarter were effectively deployed to gains in growth and share in the third quarter. Our engine got more efficient, and we invested more behind it. We feel really good about the health and the position of our marketing complex at this point. We could go deeper into detail, but I think that gives you a good high-level view of what is going on there.

Deb Wasser: That is great. Thanks, Lanny. We will take the next question.

Operator: Thank you. Our next question comes from Rob Coolbrith at Evercore ISI. You may now unmute your line and ask your question. Thank you.

Rob Coolbrith: Great. Thank you very much. Good morning. Congratulations on the results, and to Lanny and Deb on terrific runs with the company. I just wanted to ask on the call-out, Lanny, on digital versus physical goods prominence. Can you maybe give us a snapshot of how much of the marketplace today is digital, both in terms of GMS and maybe also in terms of ad revenue? Just anything further on just how you are thinking about the change in prominence. Thank you.

Lanny Baker: Yeah, we haven't broken that out in the past, and I don't think we're going to do that today. We'll give it some thought. But I think one of the things that we found is that there were times where our search results were optimizing for conversion. We've talked about that in the past. And the digital items tend to sell at a lower price than the physical items do. And as we've started to get better profiling data and understand better the intent of the buyer, we're much better able to infer whether this is likely a buyer looking for a digital download or likely looking for a physical item. And just making small changes in the presentment of the physical items in those circumstances has really helped. I think the goal has been to better meet the buyer intent, and it's had sort of the bank shot outcome of shifting the mix a little bit, and it's actually been a little bit of a help to average order value as well.

Rob Coolbrith: Got it. Thank you very much.

Deb Wasser: Thanks, Rob. Next question.

Operator: Thank you. Our next question comes from John Colantuoni at Jefferies. John, you may now unmute your line and ask your question. Thank you.

John Colantuoni: Can you hear me?

Deb Wasser: Yep.

Lanny Baker: Yep.

John Colantuoni: Okay, great. Thanks for taking my question. Just wanted to ask a question on pricing. Shifting spend towards higher value items has been a key driver of growth. Can you highlight what you're doing here and how you're thinking about the sustainability of this mix shift benefit into next year? Thanks.

Kruti Patel Goyal: Yeah, great question. Look, I think as Lanny was just saying, we are focused not on driving price. We're focused on driving quality of the customer experience. A big part of that has been thinking through how we change our algorithms to not just optimize for conversion, but to optimize for quality. Making sure that we're delivering to buyers what they're looking for, both in terms of the relevance and the quality, in a way that delivers them a really satisfying experience. The work that we're doing around personalization is really coming through here. We've been more effectively leveraging both our understanding of our inventory and our buyers to deliver that more personalized experience across search, across recommendations, and across marketing. And this is a place where we've been able to leverage the buyer profiles that we talked about on our last call, both in terms of the breadth of those profiles and the depth of signals that we're using in those profiles, and that's really allowing us to personalize at scale across platforms. So that's really how I would think about your question. It's about delivering a higher quality experience, and that, I think that as a driver is what gives us confidence in the sustainability and the durability of those improvements.

Deb Wasser: Okay, great. Thank you. Next question.

Operator: Thank you. Our next question comes from Bryan Smilek at JPMorgan. Bryan, you may now unmute your line and ask your question. Thank you.

Bryan Smilek: Great. Thanks for taking the question. Kruti, really curious, can you just share progress across highlighting top sellers in the feed? I think you did the Android takeover, which was very interesting. And just the overall impact that top sellers going to the top of the algorithm have on just overall GMS and AOV on the platform. Thank you.

Kruti Patel Goyal: The focus that we've had has been really on highlighting, understanding the seller behind the item. It hasn't just been about top sellers, to be clear. The work that we did on Android was really to help us understand what information and where in the experience, what information about sellers, the role that they play, who they are, and where in the experience seeing that information is most valuable. I think that the really interesting insight that we gathered there was that by showing that information through the experience, it gives buyers not only a deeper understanding of what it is that they're buying, but it conveys more trust in a way that drives more engagement. We're taking those learnings and expanding the application of that throughout the experience. Now, more broadly, what I would say about sellers, is that we're really encouraged by the growth that we're seeing on the seller side of the business. I think that that's evidence of the fact that our platform is becoming more valuable to our sellers. We saw seller growth and importantly, we also saw GMS per seller growth this quarter. I think that we're providing value to sellers in a number of ways. We're investing in better tools for them to reduce toil. We're investing in agentic experiences to help them run their shops and leverage their insights and data on platform more effectively. We're really thinking about that end-to-end experience for sellers, including how we support them. Our investments in support and trust and safety. All in all, we think that this is really paying off in terms of both their engagement with Etsy and their performance that they're seeing on Etsy.

Deb Wasser: Great. Thank you, Kruti, and thanks, Bryan. Next question.

Operator: Thank you. Our next question comes from Bernie McTernan at Needham & Company. Bernie, please unmute your line and ask your question. Thank you.

Bernie McTernan: Great. Thanks for taking the question. Kruti, you mentioned in the prepared remarks, external GMS tailwinds. Can you maybe define and quantify those tailwinds? Then on the internal tailwinds, talked about 200 basis points of growth from personalization. Are there any other major products to call out helping that acceleration in organic trends?

Lanny Baker: Hey, Bernie, let me try to unpack that a little bit for you. At the start of 2026, the large portion of our growth was coming from what we kind of deemed external factors, which would be the effect of inflation and tariffs on listing prices, currency exchange rates that were going in our favor at that time. Our comps at the start of the year were relatively softer than they have been at the latter part of the year. As we moved through the year, the benefit of things that we have done in the product experience are starting to be more clearly definable contributors to growth, even as those external factors have waned. Currencies have gone from being a benefit to being a modest headwind. The comparisons have gotten more difficult. We've lapped some of those increases in listing prices, so more and more of the GMS growth is coming from things on our side. We wanted to share with you, we talked a lot earlier this year about personalization, and we wanted to share with you some quantification of what that has meant to the business. To see it contributing a couple of points of growth, at a relatively early stage where I don't think we're even really started to crack the full code on what we can do with it. I think it's really important to understand that dynamic. There are other factors within the business going on. The improved relevance of search results will be another internally driven effect. Things that we've done in making our marketing outperform the industry at a time when many in the industry are seeing Google CPCs go up, we're seeing Google CPCs go down. There are a lot of things that are sort of accumulating to that internal momentum. They overlap with each other. It's hard to disambiguate them super cleanly. We'll do our best to keep communicating about them. All year long, personalization's been a key one, and that's why we try to give you that quantification.

Deb Wasser: Great. Thanks, Lanny. Thanks, Bernie. Next question.

Operator: Thank you. Our next question comes from Rick Patel at Raymond James. Rick, you may now unmute your line and ask your question. Thank you.

Rick Patel: Thank you. Good morning. I had a question on the positive inflection in active buyers. You touched on gross buyer additions being up around 6%. Can you unpack that for us? What's been the most effective strategy in recruiting new buyers, and where do you see the most opportunity to continue making progress?

Lanny Baker: It's been a combination of growth in new buyers and reactivation. Reactivation's been really important. As we've gone into social media, that has really proved to be a very effective channel for us in reactivating prior buyers. Just because the attention span of so many people is dedicated to social media, refining our game there, our mid-funnel and lower-funnel game, has really helped us on, as we've said in the past, going back and tapping people on the shoulder, reminding them of Etsy and bringing them back to Etsy. On the new acquisition side, we've shifted more of our spending toward places where we see younger audiences who maybe haven't interacted with Etsy in the past. I think half of our impressions on TikTok reached people in the 18 to 29-year-old demographic. That's not an area that we were really even spending in, importantly, six months ago. I would say changes to the channel are helping us reach younger, new audiences. Changes to our personalization and our owned and operated channels are helping us reactivate.

Kruti Patel Goyal: The only other thing that I will add is just zooming out for a second. The biggest takeaway, I know you asked about new buyer trends particularly, but the biggest takeaway here is that our buyer trends are becoming healthier across the funnel. This is not just a new and reactivated buyer story. We shared earlier that our most valuable buyers are growing sequentially for the second quarter in a row. So we're seeing benefits across new and reactivated buyers of acquisition, as well as retention and increased engagement from our most valuable buyers. So it's a really good story across the board around buyer trends.

Deb Wasser: Great. Thank you both. We'll go to the next question.

Operator: Thank you. Our next question comes from Naved Khan at B. Riley Securities. Naved, you may now unmute your line and ask your question. Thank you.

Naved Khan: Great. Thanks a lot. Kruti, maybe you can share some of your thoughts around agentic shopping and how that affects the business. How do you expect to drive personalization and consideration as adoption for agentic shopping grows? Thanks.

Kruti Patel Goyal: Yeah, I am really glad you asked. Look, I think that there is understandably a lot of discussion about how, and a lot of interest in how AI is going to reshape commerce. And to state the obvious, AI represents one of the most significant shifts in technology that we have seen in a long time. And obviously that is going to have an impact on how people shop as well. We believe Etsy is incredibly well-positioned, not just to participate in this shift towards AI-powered commerce, but to really thrive. And I think that is because our greatest strengths become more important in an AI-driven world. So there are two in particular that I will call out. The first is the differentiation of our inventory. We have over 100 million items from almost 6 million sellers around the world. Every single one of those items has a unique story and provenance. As AI makes it easier than ever to create and replicate products, and those products become virtually undistinguishable, I believe that things that are created by real people are going to be increasingly valuable. And I would even go so far as to say that we believe human-generated items could become the ultimate luxury over time. And we have this incredible breadth of unique human-created items that you just cannot find anywhere else, certainly not at this scale. And this connects to the second big strength of ours, which is our brand, and the trust and human authorship that that brand conveys. So that is going to be even more important, again, in the context of infinite options. And that is to our buyers, to our sellers, and frankly, to the agents that are going to be helping people shop. When you think about for buyers and their agents, the Etsy brand is a signal of trust that gives you confidence that not only you are getting something from a human, that that item is special and unique. That is what Etsy has always stood for. We already see that as an important factor in our current partnerships with AI discovery platforms. The fact that items come from Etsy is an important signal of quality and drives that traffic and engagement that we see from those channels. For our sellers, I think this is really important as well. The vast majority of them are businesses of one, and the value of being part of a trusted marketplace like Etsy becomes even greater in an AI world. Because as shopping and discovery becomes more fragmented, it is going to be harder for individual sellers to stand out and reach buyers on their own. That is where we play such an important role in giving our sellers the visibility, the trust, and the access to demand that they need to grow their businesses wherever shopping happens. We think that we are really well-positioned. We are not betting on any one platform or any one feature. We are betting on our differentiation and our ability to proactively adapt as shopping evolves. How this plays out, I think, is in a number of ways, but we have talked a lot about the fact that we think the on-site opportunity in the near to medium term is where the biggest opportunity is here. Where we have been leveraging AI to really drive that more personalized and relevant experience on site, and to offer agentic experiences on site as well. But we are also engaging really proactively with partners to really make sure that our sellers' items are showing up wherever the shopping journey begins, and we are seeing really encouraging signals there, though I will just reiterate that it is very early days in terms of agentic discovery.

Deb Wasser: Great. Awesome. Thanks, Naved. We will take the next question.

Operator: Thank you. Our next question comes from Nick Jones at BNP Paribas. Nick, you may now unmute your line and ask your question. Thank you.

Nick Jones: Great. Thanks for taking the question. Lanny, I guess, could you speak to maybe some of the categories and where Etsy's seeing some strength and maybe some weakness, and is there anything kind of tied to macro conditions, maybe like homewares and home furnishings tied to existing home sales? Any kind of update there would be helpful. Thank you.

Lanny Baker: Things have been, I would really tell you things have been pretty broad-based across income cohort, household income cohorts, across geographies, and even across categories. I'll give you a little bit of category context in a second, but I would tell you that as we think about our opportunity, we think about it anchored in occasions. The occasion where you're giving a gift, the occasion where you want something personalized, the occasion where you want something handmade, the occasion around a fandom or a passion that you have. We think about those occasions because we believe that that's really how Etsy buyers come to Etsy, and that's really how the differentiation of Etsy shines best. Our multi-category inventory really plays best in that a little bit different, occasion-based, occasion-denominated part of the thinking about how the market works. In the last few months, call it three to six months, home and living, jewelry, vintage, those have been categories that have been pretty strong. But as I said, across the board, there isn't really any big up, big down. It's been a pretty broad-based improvement relative to where we were a year ago.

Deb Wasser: Yep. Perfect. Thanks, Lanny. The other thing we highlighted in the shareholder letter, also occasion-based, was weddings have been doing really well.

Lanny Baker: Yeah.

Deb Wasser: We had a couple of other ones in there. Back to school.

Lanny Baker: Halloween.

Deb Wasser: Halloween. Yeah. Halloween's a big one. All right, next question.

Operator: Thank you. Our next question comes from Marvin Fong at BTIG. Marvin, you may now unmute your line and ask your question. Thank you.

Marvin Fong: Oh, great. Good morning. Thanks for taking the question. Congrats on the results and good luck, Lanny. Just a question on the guidance. It is a pretty reasonable range here, but I would just love to double-click a little bit deeper on what could possibly drive the low and higher ends of that, particularly around what you are assuming around further improvements in personalization. Is any embedded in that? As well as your marketing spend. You mentioned there has been some movement in the CPCs. Help us think about your ability to flex that in the quarter if marketing returns either improve or get worse.

Lanny Baker: Yeah.

Marvin Fong: Thanks so much.

Lanny Baker: Okay. First, let me just say I am not going anywhere. I will be here through March. So thank you for that. But I am fully focused on getting through the end of the year and getting next year started off really, really well. The high end, low end of our outlook includes, I would say at the highest level, the natural variability of predicting the future and guessing what consumers are going to do through the holiday. Then the question we always have, which is the exact timing at which the benefits of things that we are changing in our product are going to pay off. So those are inherent in why there is a range of the $100 million or so that there is there for the next quarter. I think that from a marketing perspective, this is going to sound like beating an old drum, but we spend to our ROI target, and our budget or our spending levels will be determined by spending that last dollar we can to drive growth at an acceptable rate of return. That depends on external dynamics. It depends on our ability to be competitive in those dynamics. Our ability to be competitive in those dynamics is a function of things like the PLA segmentation that we have done and other things we do on-site to improve conversion. So we will spend in the fourth quarter guided by the gains in efficiency that we have made year-to-date, and what we see as the attractive return for our company and for our shareholders on that marketing spending. That is all incorporated in the outlook. Within a reasonable range, I think those are the factors that put us at the upper end and lower end.

Deb Wasser: Okay. Thanks, Lanny. Next question.

Operator: Thank you. Our next question comes from Anna Andreeva at Piper Sandler. Anna, you may now unmute your line and ask your question. Thank you.

Anna Andreeva: Great. Thank you so much. Can you hear me?

Deb Wasser: Yeah. All set.

Anna Andreeva: Okay. Terrific. Congrats on nice results and best of luck to Lanny. We had just two quick questions. First, a follow-up on frequency. You talked about that extensively. Did that improve sequentially? What has been the trend in frequency since Etsy started prioritizing those higher quality listings on the platform? Just as a follow-up, in 2Q, I believe you said higher income households grew a little bit faster than lower income, and I think you said broad-based strength this quarter, which is great. Did the lower income cohorts improve a bit? Was there anything specific that you think drove that? Thank you so much.

Kruti Patel Goyal: Yeah. I will talk about frequency a little bit, and then I will pass it to Lanny. Frequency is down modestly as it has been throughout the year. I think that the thing to remember here, as I was saying before, is both the frequency is a long-term focus of ours rather than a quarter to quarter metric that we are trying to move. Behind that, the idea is that our focus is on building stronger buyer relationships through a better end-to-end experience. The way that we think about that is, first we need to bring more buyers into Etsy, then we need to deepen their engagement, and then we need to make sure that they have a great purchase experience, because ultimately, having a great experience is the single biggest driver of somebody coming back and returning again and purchasing again. When I look at that, we are doing a great job at bringing buyers back into the funnel. We talked about the active buyer growth returning to year-over-year growth for the first time in two years, and great evidence of that. We are seeing stronger engagement. This is really the most important thing to be thinking about in terms of near-term indicators when we think about long-term frequency. We are seeing increasing engagement with our recommendations. We are seeing more favoriting. We are seeing more cross-category orders. We are seeing repeat visit rates improve. Together, these are all really encouraging signs that buyers are finding more reasons to engage with Etsy and finding more value on the platform. We are continuing to focus on that long-term frequency, but right now, I would encourage you all to look at the engagement drivers.

Lanny Baker: As we look at the household income cohorts, that breakdown, I think what we are seeing at Etsy is pretty similar to what we hear other companies talking about. That is that there is growth across all income cohorts in spending right now, but it is a little bit stronger, relatively stronger, on the high end. There wasn't any big change in those trends this quarter, in either cohort, relative to the momentum they have had. They have been building momentum throughout the year, and we saw that again this quarter. I think that we can see people perhaps being slightly more selective, and really making sure that where they are spending money, it is on stuff that matters and that is really meaningful. I think we feel well-positioned to play into that with the efforts that we have. With first, the base of inventory that we have that is really special, that is built by a human, that is differentiated. Then by the things that we are doing that are so brand consistent and becoming more and more legible across our experience, that an Etsy purchase is really differentiated. So we feel pretty well-positioned vis-à-vis where the consumer mindset is right now.

Kruti Patel Goyal: Yeah. The nice thing about what we have seen, throughout economic cycles, and we see it across household income, is that because of the breadth of our inventory and the range of price points, we really have something for everyone's needs, really in any economic climate or with any wallet size. So we have seen that work really well for us, and we see that playing out now, too.

Deb Wasser: Great. Thank you, and thanks, Anna. Next question.

Operator: Thank you. Our next question comes from Maria Ripps at Canaccord. Maria, you may now unmute your line and ask your question. Thank you.

Maria Ripps: Great. Good morning, and thanks so much for taking my question. I just wanted to ask about your AI product listings policy changes that were announced a couple of days ago. Do you anticipate an impact on GMS either later this quarter or early 2027 from some possible listing removals? Then maybe more broadly, how do you expect this stricter human-made positioning to affect how AI agents rank Etsy relative to some of the competitors?

Kruti Patel Goyal: Great question. Look, just zooming out for a second, I think this is a really important moment for Etsy. As I was saying earlier, as AI makes it easier to create and replicate things at scale, it's really that human creativity, craftsmanship, and connection behind our marketplace that get even more valuable. That was the motivation for making the changes that we're making. I want to be clear about the philosophy that drives this. The point is that AI should support seller creativity and not replace it. The goal of this was to make sure that sellers understood what tools they could use and how they could represent their products on the marketplace, and we want to make sure that buyers understand with confidence what they're going to be receiving. There were a few changes that we made. One of them was about clarifying our policies. The biggest thing here was making sure that sellers include at least one unaltered photo of the item that they're selling with a real background. This is really about making sure that buyers can accurately understand and feel confident in the item that they're seeing. We also clarified our policies around AI-generated functional guides, like patterns and recipes. Those are the things that are no longer allowed on Etsy, but it's really much more about making sure that you can understand what you're seeing. Then we're also committing to making some changes around stronger enforcement. Really, that's about investing in better technology and tools to make sure that we're better identifying things that are misleading or have the potential to be fraudulent earlier and faster. The other thing that we're committing to, of course, is just providing a more transparent shopping experience to make that creativity and craftsmanship more apparent. We think this is going to be a net benefit to the marketplace because people are going to have more confidence, and I think that applies to people and agents. The more strongly our value proposition comes through the products that we offer and the data that we provide, the more confidence everyone should have buying on Etsy, wherever they start their shopping journey.

Lanny Baker: Vis-à-vis the GMS, we don't think there'll be any material GMS impact in the near term. As Kruti just said, this is important. It's an important underpinning of our differentiation that should contribute, along with 100 other things that we're doing, contribute to our differentiation and our long-term GMS growth. This is one in many steps we're taking for the long-term health of the marketplace.

Deb Wasser: Great. I'm actually going to turn it over to Kruti now for some closing remarks.

Kruti Patel Goyal: Thanks, Deb. Before we wrap up, I just wanted to share a final thought. As we enter the holiday season, I've been doing a lot of reflecting on the year and where we've come from and what that tells us about where we're going. As I reflect on the progress that we've made this year, what gets me most excited isn't just the growth that we're delivering, it's really what that progress tells us about the opportunity ahead. We are seeing real evidence that we're focused on the right priorities and that we're executing against them with real focus, real discipline. We're only just starting to begin to see what's possible as we bring AI together with our understanding of our buyers and our inventory to really make Etsy that incredibly personal, relevant, and inspiring, and unique place to shop that we believe is so valuable. We clearly have a lot more work to do, and we're excited to dig in there, but we're seeing our efforts already translate into results, and I'm more confident than ever in our ability to execute and in the growth opportunity ahead of us. I wanted to share that. Before we wrap up, I also wanted to just take a moment to recognize someone who's been such an incredible partner to me and to Etsy. This is Deb Wasser's last earnings call before her retirement. She's had an incredible career spanning more than 40 years in investor relations, including the last eight and a half here at Etsy. Deb, we are so grateful for the experience, the steady counsel, and all of the very many purchase days that you've made on Etsy. I also want to take a moment to welcome Sarah Marx, who, as you know, has been working really closely with Deb and will be stepping in to lead investor relations. Deb, thank you.

Deb Wasser: There's hugging happening here.

Kruti Patel Goyal: We are going to miss you.

Deb Wasser: Thank you, Kruti. I will miss you all very much, and I will keep shopping, I promise. And with that, we will conclude today's call. Thank you all for joining.

Operator: This concludes today's call. You may now disconnect. Thank you.

Lanny Baker: Well done