Etsy, Inc. (ETSY) CEO Josh Silverman Presents at Needham's 17th Annual Technology and Media Conference (Transcript) - Seeking Alpha

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Published: May 16th, 2022
Etsy, Inc. (ETSY) CEO Josh Silverman Presents at Needham's 17th Annual Technology and Media Conference (Transcript) - Seeking Alpha

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(NASDAQ:ETSY) Needham’s 17th Annual Technology and Media Conference May 16, 2022 11:00 AM ET Company Participants Josh Silverman - CEO Rachel Glaser - CFO Conference Call Participants Anna Andreeva - Needham and Company Anna Andreeva Great.
My name is Anna Andreeva.
Question-and-Answer Session Q - Anna Andreeva Thank you for that Rachel.
Anna Andreeva Okay, that's great.
Anna Andreeva I know, Etsy is so laser focused on return on invested capital.

Etsy, Inc. (ETSY) CEO Josh Silverman Presents at Needham's 17th Annual Technology and Media Conference (Transcript) - Seeking Alpha

Etsy, Inc. (NASDAQ:ETSY) Needham’s 17th Annual Technology and Media Conference May 16, 2022 11:00 AM ET Company Participants Josh Silverman - CEO Rachel Glaser - CFO Conference Call Participants Anna Andreeva - Needham and Company Anna Andreeva Great. Good morning, everyone. My name is Anna Andreeva. I cover consumer e-commerce here at Needham. And welcome to Needham’s 17th Technology and Media Conference. We're very excited next up to have Etsy. From the management, we have Josh Silverman, Etsy's CEO, and Rachel Glaser. Welcome to the conference. Rachel Glaser Thank you for having us. And before we take the first question, I just wanted to refer everybody to Etsy’s Safe Harbor, which can be found on our Investor Relations Web site. Question-and-Answer Session Q - Anna Andreeva Thank you for that Rachel. And to those listening to the webcast, if there are any questions feel free to enter those into the chat. And we will go through them or alternatively, you can email me at aandreeva@needhamco.com. So to kick this off, to you, Josh, I think one of the really big takeaways at least for us from the first quarter call was the resilience of the Etsy business model. Your profitability still beat expectations despite core Etsy coming in at the low end of the guidance range, as well as the unexpected bad debt expenses and the seller support to sellers in the Ukraine. Can you summarize quickly for us what Etsy has accomplished during the past couple of years, and how should investors think about model during these uncertain times for the consumer? Josh Silverman Absolutely, and thanks for having me, Anna. It's a great time to be out and talking to people. We're really proud of what Etsy has accomplished and really optimistic and confident about the future, and I think it's more important now than ever to be out talking. So Etsy has truly been transformed over the past few years. And just to give some sense of scale at the low end of guidance for this quarter Etsy would do $2.9 billion of GMS. And in the same quarter pre-pandemic, Etsy did $1.1 billion, some GMS. So while many e-commerce companies gained during the pandemic, Etsy gained vastly more than almost anyone else. And while many other e-commerce companies are shrinking right back to the trajectory that they were otherwise on, Etsy is nowhere near that, we're 2.5 times bigger. And some of the things that we shared in our most recent earnings call is just how relevant Etsy is how often. So 89 million active buyers, a third of women in the United States buying on Etsy in just the past 12 months, and buying across so many different categories. There are 15 different categories on Etsy that had at least a million buyers. And in fact, seven categories on Etsy had 15 million or more buyers just in the past 12 months. So really relevant to a ton of people at ton of the time. And in a world where if you think back to just a year or two ago, you had very few options for where to spend your money. You couldn't really travel, it was hard to dine out and many offline stores were closed. And even online stores were often out of stock or facing supply chain issues. Etsy and the power of Etsy’s model was that during the whole of the pandemic, our sellers were very much in stock and selling, and you could buy almost anything you needed on Etsy and have it arrive relatively quickly at a really fair price. So we gained a really disproportionate share of wallet. Now fast forward to today and people are traveling like crazy, they're dining out like crazy. And for the most part, online or off, the shelves are full. And yet, we expect to maintain at least 90% share of wallet at the low end of guidance that suggests that we would still have 90% of the share of wallets of our buyers relative to a time when they had almost no other options. So we think that's a great testament to the fact that many people had to show up on Etsy during the pandemic, and are choosing to come back again and again now. Anna Andreeva Okay, that's great. I guess, Rachel talked about Etsy playing through on the call despite these pretty uncertain times for the consumer and still making product and marketing investments. How do you think about those and with products investments, specifically, what have you accomplished over the years and how do these drive GMS in your view? Josh Silverman So we benefit from very high gross margins is the nature of our of our marketplace model, our gross margins are in the mid 70s or better. We're not having to bet on inventory and hope that what we pick for the season sells. Our sellers have a 100 million items for sale and they do a good job of adapting to the trends. We also don't need to invest in logistics and warehouse and another very CapEx intensive things. In fact, many of the things you buy on Etsy, most of the things you're buying on Etsy are made just for you and made when you buy it. So the idea that they would be stored in a warehouse and shipped is just not something that our model is adapted to. And as a result, we benefit from being a very capital light model and a very high gross margin model. We think that's something that's a great strength of Etsy that gives us the option to lean into investing when we think it makes sense. And when we look at the landscape of e-commerce and you roll forward over the next five and 10 years, we think that there will be continued consolidation, fewer and fewer places to buy online. The reason is that mindshare is precious, you can only remember so many brands. And so unless you're relevant enough, often enough, consumers can't remember your brand, you're going to be downscale of -- downstream of Google or Facebook and all the margins will go to them. So we think there will be continued consolidation in e-commerce. And we think Etsy does something truly different than what Amazon does, or what Walmart does. We're not trying to play their game, we do something that's really different and really important often. So we think we have the opportunity to be one of the biggest and most important e-commerce companies in the world five and 10 years from now where that's even significantly bigger market than it is today. And we think that that's something worth investing towards. Because we're a high gross margin model, we have the opportunity to test and invest and make those decisions and pull back where we're not seeing returns. We've always demonstrated great discipline. When we think about our marketing investments, we have a lot of investments in marketing analytics to make sure we understand what's the marginal return of the next dollar spent, and are we getting good returns on each dollar. Even with our product and engineering investments, making our marketplace better and better and building our sustainable competitive differentiation in our marketplace, we measure the returns of our teams and look at as we hire and scale are we continuing to get good returns. But if I take just search for as an example, we don't need to be better than Google at search, we don't even need to be better than Amazon at product search. We need to be the best in the world at the very long tail of search for items that don't map to a catalog. Etsy has close to 100 million items and the one thing they have in common is none of them are the same as the other, they don't map to a catalog. That's a very interesting and very hard computer science problem. To understand what these are and what consumers intent is and match the best items for each consumer, that we need to be the best in the world at. And we've shared in the past that our investments in search have added hundreds of millions of dollars of annualized GMS to Etsy, because we've gotten better and better. And those investments we make in product tend to be the gifts that keep on giving, tend to be the things that make the experience better and lift us up and provide returns year-over-year. Anna Andreeva I know, Etsy is so laser focused on return on invested capital. Rachel, your product development line item has been growing at a 60% clip for a few quarters now. Can you talk about specifically, where are you investing and what kind of return on invested capital are you seeing with that hiring? Rachel Glaser Absolutely. So you're right. What we talked about playing through on our investments as you pointed out when you asked Josh that last question. And one of the big areas is in product development and a big component of investing in product development is the people. So we have increased Etsy's headcount and grew by about 44% in the last quarter year-over-year, and our total headcount, including our subsidiaries, was actually up 71%. And then the Etsy piece of the 44%, a large portion of that was product managers and product engineers to help develop new product. And we look at product investments with an ROI lens just like we do with our marketing, and we fully gross up in the cost portion of that ROI calculation. We fully load that headcount up with salaries and benefits, stock based comp and the hosting and serving costs through our Google Cloud environment. And as Josh pointed out, we have the ability then to test and learn. And so very often the product experiments that we do are not a win, we can optimize those and see if we can get them to be a win. But a large portion of that is optimizing to and to learn that -- those things where some of the experiments were not profitable. So we are constantly looking at the ROI of that investment and product. And just for context, our product investments drove $1 billion in annualized GMS in 2021. So we get a partial benefit of the investment in the year that they're launched and then they annualized -- and they're with us in perpetuity until we replace them with some other new feature. So we really think that there's so much opportunity for improvement is in search, as Josh pointed out, improvements in things like personalization and the ability to increase frequency with our product investments, that's a place where we have a lot of conviction that the ROI is there. Anna Andreeva Okay, terrific. Thank you for that. One really exciting investment that you guys talked about on the last call is the purchase protection program for both buyers and sellers. And I think that's a really key element of the model that's going to drive GMS longer term. Can you just share with us some of the elements of that? How will it impact the P&L? And I guess at which point do we expect to start seeing benefits from that driving the GMS? Rachel Glaser Sure. So this is one of the areas of product investment and I guess to some extent it'll end up -- it also hits our trust and safety and member support infrastructure, so that we have the right people to field inbound support inquiries. We've talked for a long time that -- about how Etsy has worked very hard to make -- to remove friction, not only in the shopping experience but all the way through post purchase, all the way through the completion. So you've heard us talk a lot in the past about improving shipping costs. So we've -- a year or two ago, we launched a free shipping eligibility for items that are $35 or higher. We've done a lot with expected delivery times shortening those times and making it very transparent what can be available by when, and making sure that when a seller gives you an estimated delivery date that the item is actually arriving within that expected delivery date timeframe. And one area that we still have more work to do is what happens when an item -- when something goes wrong in the shipping, if the item doesn't ever show up or the item arrives and its damaged. And we do have a support process to support those claims. But for the most part, we send buyers back to the seller to figure out where their item went. And most sellers will work with the buyer to make it right, but not always. And so we're now investing what we think is necessary to give -- to really enforce our trusted brand concept that we have a buyer’s back. And so we haven't given a lot of details on this program but it is one of the areas that we're investing in, you'll see it in, as I said, in the investment we make in our trusted safety organization, you'll see it in the investment we make in the product itself and you'll see it in marketing, so that we can communicate to both buyers and sellers that we have this purchase protection concept. Anna Andreeva Okay, that’s perfect. Thank you. We've gotten this question a lot from investors. But what do you guys need to see in the environment to pull back with some of those investments? And secondly, what kind of a macro are you in [betting] in your expectation for the back half for GMS to get better for the business? You talked about that on the last quarter call. Josh Silverman So we're constantly looking at the returns we're getting on the investments that we're making, and we always exercise discipline to make sure that we're balancing growth and margins. And we're really pleased by the fact that we have a model that delivers both. We've been growing historically at a rate that outpaces e-commerce and delivering great margins, and that's sort of the benefit of a marketplace model at scale that it can do both. We have always exhibited a lot of discipline around investments and looking at the returns we're getting, and we're constantly challenging ourselves with as we're investing, are we continuing to get returns. We also believe that we have a big opportunity ahead of us and we have a lot of reason to believe that. Do you believe that e-commerce is a fad or not? I don't think it's a fad. We think it's probably here to stay. Do we believe that e-commerce is more likely to consolidate or not? I think it's more likely to consolidate? Do we offer something different? We think we do. And so the opportunity to be investing right now to gain share we think is meaningful. The nice thing about our model is that if we're not seeing returns, we can pull back. And we think that that's a pretty special part of a marketplace model. Rachel Glaser And the second part of your question was what we -- what conditions do we see for GMS growth in the back half of the year. I'll say, we didn't give guidance for the full year, we only gave guidance for the second quarter. We did say that if macro conditions do not worsen, we would expect that GMS and the second half will be, the growth rate will be higher than in the first half, partly because we have much more reasonable comps from the prior year. If you remember, we had a strong first half in the prior year and partly, because it seasonally we have -- we typically will have a second -- a bigger second half than we do first half. But the -- it is very volatile, unpredictable time and so we are not giving long-term guidance, because we really can't predict what might happen with the economy on me going forward. Anna Andreeva Did your math compares get easier in the back half as well, that's part of the Etsy GMS? Rachel Glaser Easing a bit. Anna Andreeva Okay, sounds good. Next one to Josh. You guys talked about the beta version of Explore on the last call, and I have it on my Etsy app and I'm pretty excited about it. I think 15 million seller videos already uploaded? How should we think about the timeline for a full launch for Explore? What percentage of GMV came from that already in the first quarter? And how do you think about that penetration for the full year and importantly, how are you communicating this exciting feature to consumer? Josh Silverman So first, Anna, I'm glad that you've had a chance to use it and play with it. I do think it's really compelling and really engaging. And just to pull up for a second, I think the concept here is user generated content. And there's more and more, I think, discussion around content as a moat or content as a competitive advantage, if you will. And we've got across the Etsy house of brands about 7 million sellers who are 7 million content creators. And they are already creating content and they're already putting it up on places like Pinterest and on TikTok and YouTube. So our ability to create a platform on Etsy where they can publish their content we think is a real advantage of ours, and the fact that many people come to Etsy to be inspired. And that's not true of most ecommerce places. If you think about your major mass e-commerce shop, do you really go there just to be inspired, just to see what's new and cool? I'm not so sure. But at Etsy people really do. So the idea that to some extent we're competing with Netflix and others for mindshare, we think is true of Etsy. In fact, we know many of our customers tell us, they come here just for fun. And we think that that's a big opportunity for Etsy. In fact, we have 200 million unique visitors in an average month coming to Etsy. And what we find is when buyers tell us that they're coming just for fun or just for inspiration, they're actually significantly more likely to buy something in the next 30 days. So the idea with this Explore feed is it's one example of that. We've taken seller videos, we've gotten about 15 million of them and we've created a sort of continuous stream of really interesting videos largely of sellers making things. And so in 20 seconds you can see something go from raw material to finished good and it's really captivating. And so we're now starting to roll it out to all of our buyers. In terms of how much GMS is attributed to it, really this is a leading metric of where -- what we want is we want people coming and just spending time on Etsy every week. And the more we can grow our weekly active users, our daily active users, our monthly active users, we stay front of mind and we believe we'll gain more share of wallet over time. Anna Andreeva Okay, great. Yes, we definitely think that's a pretty unique feature that differentiates the platform so nicely. We get this question a lot and you guys mentioned the discipline with investments throughout this chat. How should we think about growth and marketing, I guess this is to Rachel, for the second quarter and as we go through the year? You've shown a lot of discipline and ability to pull back on that metric. And I know specifically performance marketing adjust with demand. But just curious how do we think about the dollars and what excites you about some of the additional marketing channels? Rachel Glaser So in Q2, you'll see us start to lean into, what we call, above the line marketing, brand marketing. We have a beautiful new campaign running right now called made in original, which features some furniture. And it -- that sort of supports goals of growing GMS through AOV increases and also growing our audience through hitting new demographics. So it's sort of gender neutral appeals to males and females at the same time. We did say in Q1 that we actually spent a bit more on brand marketing as a percentage of our total marketing, 16% of our total marketing this year versus 13% last year. And so you'll see us lean into above the line to really hammer home the brand message and that keep ourselves top of mind. You pointed out that performance marketing naturally adjust with demand. So if demand were to decrease our performance marketing, we would just dynamically pull back. And remember that our performance marketing is offset by -- just over 40% of our spend is offset by our offside ads program. Just another way of saying our take rate went up when we introduced off site ads, and so higher take rate allows us to spend more. So that was the other thing we announced in Q1, was that a transaction fee increase that allows us to spend deeper into the ROI curve without maintaining our marginal ROI thresholds that we set for ourselves. So we can both lean into performance marketing with this higher take rate and we can continue to spend on our brand marketing campaigns. And then lastly, we mentioned that we experimented with brand marketing above the line marketing for Depop in the first quarter in the US. And so we're looking at optimizing that to see if we can expand that into a national US campaign for Depop. So we talked about that that would be another area where we might make some marketing investments. Anna Andreeva Okay, great. Sounds good. You touched upon this but that was my next question to Josh. Can you talk about a little bit the recent transaction fee increase? Why do you think now, what's the right timing for that? And what has been some of the response from the sellers so far? Josh Silverman So we've seen an explosion of sellers joining the platform. So on the Etsy marketplace, we've gone from 2.2 million sellers before the pandemic to well over 5 million sellers just on the Etsy marketplace currently. So that's a lot more sellers who each want to grow their sales and that's happening at a time when buyers have a ton more choice. And so this is a time when we need to be investing more to make sure that we continue to be top of mind. Our sellers cannot grow their sales unless we're bringing on more sales, more buyers at a pace that's faster than we're adding sellers. So this feels like exactly the right time to be investing more. We also know that the value that we deliver is outstanding. We deliver better value we believe than any other place that a seller can sell, and our sellers have many choices. Our sellers tell us that our top sellers also sell on eBay, they also sell on Amazon, most of them have their own Shopify site and they sell offline. And with all of those choices, they tell us that Etsy makes up more than half of their sales. One of the things we see as the best way to get more seller loyalty is to have our sellers open their own shop, because only then do they realize what an incredible bargain Etsy is. Our sellers each individually are blades of grass in a storm. It's incredibly hard for them to build a brand and get recognized and drive traffic. And so once they start to try to do that themselves you realize that the fees we charge on Etsy are actually much, much cheaper, because we leverage the power of a community. We can combine forces and build a brand called Etsy that really means something in the minds of buyers and then lend that to our sellers. So when we launched the take rate increase in February when we announced it, the reaction was actually more muted. Nobody likes their fees going up but our reaction was more muted than it was when we launched our last fee increase in 2018. There was a small group of sellers that was able to get a lot of press attention, but it represented less than 1% of our sellers. In fact, with a widely circulated petition that was covered in all the media, 99% of sellers chose not to sign a petition saying that they didn't want their fee to go up and less than 1% of sellers with their shop on vacation for somewhere between one and [seven] days. So we know that taking this added small amount of incremental fee, 1.5% of sales, raising the fees by that amount and reinvesting the vast majority of it back into the marketplace to help them grow sales is the right thing to do. And we've seen no material increase in churn. And so we feel good about the work we're doing and we know they'll judge us by our outcomes. And so we know we're delivering great value and we're going to keep focusing on that. Anna Andreeva And I think the one message that was also interesting and evident from the last quarter’s call is, I think you've talked about sellers not taking prices up, at least from what Etsy has seen. So in this inflationary environment, the platform is really well positioned, I think, as a value. I guess do you agree with that, and how do you communicate that aspect to the consumer? Josh Silverman Yes, it's a great point. So as we've been mentioning, if you look at a basket of goods analysis of of Etsy’s items over time, what you see is that over the past five years, our sellers really haven't taken price in any meaningful way. And especially over the past year or two when we've had such extraordinary inflation our sellers are not raising prices by that amount. Now that's on average. Some sellers can choose to do that, other sellers are choosing not to. We don't set prices that's something each seller makes their own decisions. And I think sellers can look at this market and decide that they can take their prices up and maintain good gross margins. And I think that would be well warranted should they choose that, many are choosing not to do that. That's making the relative value of items on ETSY, even more attractive relative to other online products or offline products. And so that's something that you will see us communicate more and more. There's been a ton of focus over the past 40 or 50 years on commoditization and how mass production drives value. I think we're also starting to see that mass production has its own challenges. First, many layers of markups, right, something is produced overseas and then gets on a boat, to get on a train, to get on a truck, to get to you with maybe three markups along the way. And a lot of supply chain issues plus you wind up buying something that's exactly like all of your neighbors. And the chance to buy something directly from the maker that doesn't have a lot of markups along the way and that's made just for you that expresses your sense of style, we think that's something that's really important about Etsy. We think that that's something that consumers are going to be even more conscious of in the years to come and it's something we plan to lean into. Anna Andreeva Okay, great. Thank you for that. That makes sense. To Rachel, we've gotten this question a bunch from investors. On your take rates, you've beaten the expectations on the take rate for a few quarters now, including this past, 1Q and this is with the lower take rate subs in the mix. So can you talk about that, what drove that? And how should we think about take rate for the second quarter and the year? Rachel Glaser Yes. So it's really a mathematical answer. During Q1, our Etsy ads revenue increased 13% year-over-year, so higher than GMS, which brings the take rate up, and the primary driver of the take rate -- that was the primary driver of the take rate expansion to 17.8%. And we don't, in our the guidance that we gave, the implied guidance at the midpoint that we gave for Q2, we don't expect or we didn't anticipate that same dynamic where Etsy ads would be growing faster, that much faster than GMS. So I know people want to do the math of taking 17.8 plus the 1.5% take rate increase and you don't plan the number that we that we guided to, but that would be the reason why it's lower than that implies. Josh Silverman And if you look at the investments we're making in product development, it's such a great example of the kinds of returns we see. We keep getting asked, have you plucked all the low hanging fruit? And we keep saying, are you kidding, there's so much opportunity to do more than better at Etsy. So why did take rate go up? Because our ads team came up with innovative new models to get even more relevant recommendations for ads. And just to peel back what's happened in Q1 for a minute. We're getting better and better at putting -- finding the right ad for recommendations. So if you enter a search query, figuring out what are the most relevant listings that are promoted listings, there's a certain set of technologies for that. It's a whole different set of technologies, if you're saying because you've bought this in the past, these are things you may be interested in. And we're applying a lot of those recommendation algorithms to our advertising pool of listings, as well as our organic search pool of listings. And the team had some breakthroughs there in terms of finding even more relevant ads to show in recommendations and new places to put them. And that produced a lot of very high margin revenue that, by the way, is a real win, win, win, because it's, for the sellers, very high return ad dollars that they like. For the buyers, it's even more relevant ads and for shareholders, it's high margin revenue. Anna Andreeva Okay, that makes sense. I love that part of the Etsy story that you're still early in that personalization journey. Essentially, if I, as a buyer, just bought a pair of an apparel item, you're not going to be recommending me the same apparel, but how about something to go with that to drive the units and to drive the AOV and get me back to convert? So I think that's pretty exciting to hear that. I guess, as we talk about the cohort numbers, to Josh. Maybe talk about how have some of the recent buyers different, different from the historical buyer to added to the mix and how does that impact the growth potential? And when you talk about the 100 million of lapsed buyers, just the sheer numbers alone is so significant. How do you think about driving those into repeat and how big are improving search and discovery still part of that? Josh Silverman So we have seen a tidal wave of buyers coming to Etsy over the past two years. And so I think we have 46 million buyers before the pandemic, we’re at 89 million buyers, now that's a lot more buyers. And it's a combination of a whole bunch of new buyers are people who are first time ever the platform, combined with reawakening quite a number of lapsed buyers who had bought maybe from Etsy four or five years ago, but hadn't bought recently. And with the new buyers, we shared that we added 7 million new buyers in the first quarter. That's a number that's lower than we had been adding during the pandemic but is still significantly up from the number that we were adding before the pandemic. So there's still tons of new buyers out there that we continue to add. And in fact, in our core geographies, our core six geographies, we still have less than 50% penetration, so lots lots of room to go. And we have a lot of lapse buyers. And these are people who bought on Etsy but haven't bought in the last 12 months. When we talk to them, we find that the vast majority of them say they love Etsy, they just didn't think of us in the moment. We weren't front of mind for them. And so there's a big opportunity to reengage them. And Anna, to your point, what we found is, during the pandemic, we had a lot of people who shopped in Etsy four or five years ago, whose impression was, oh, search doesn't work that well or maybe items won't arrive on time, and Etsy’s made so much progress in that, that they were delighted to find that actually the search engine works way better, we're better at things like recommending things you might want next. There is a very clear expectation around shipping price and shipping time now that didn't used to be the case. And so what we're seeing is the new cohorts we've added have been actually quite sticky. And it looks like the lifetime value of the cohorts we added during the pandemic will be at least as good as what we were seeing from lifetime values before the pandemic and that was a very big open question. There's a lot of rightful questioning on what about people who only came from masks and are they all going to disappear, and are those customers actually worth anything over the long term. And we're seeing that the buyer cohorts that we added mask and non-mask are valuable, are coming back, and we've seen a real uplift in our existing cohorts coming even more frequently as a result of the pandemic and we continue to so far see those gains stick. Anna Andreeva Okay, that's great. Is there a formal loyalty plan that Etsy would have in the works, is that something that you think makes sense for the business? Josh Silverman We don't have anything to announce right now. What I would say is the best loyalty program is to deliver a great experience where customers love the product. Starting with the basics, when I come in and I visited Etsy, do I find things I love and when I buy them, am I delighted by the experience. And we find that we're getting better and better at turning visits into purchases, and the net promoter score on a purchases are really high. Our sellers do a great job and we're giving them even more tools to do an ever better job. There continues to be a lot of levers we can do to tell our sellers what they can do to deliver better customer experiences. Our sellers are limited more than anything by time. And the clearer we can be about saying these are the customer service metrics that buyers care about and here's how you're doing, we can create a race to the top where sellers do ever better. Things like right now, we've created a star seller program that says that there's three things that are most important to buyers, do you respond to their convo, to their questions within 24 hours, do you ship the item on time and do you get five star reviews. And we're very transparent now with sellers about how they're doing on each of those three metrics versus what good looks like for our broad pool of sellers. And that creates to race to the top dynamic where sellers are doing an even better job serving buyers and buyers are delighted and that creates a virtuous cycle. Could there be a loyalty program someday? Maybe, I don't know, I don't know that it will be a silver bullet possibly. You see a lot of loyalty programs out there and some of them are very impactful and many of them aren't. So it's something that we'll look at. Anna Andreeva Okay, sounds good. Josh, so to you, the category diversification of Etsy, I think is a really interesting underappreciated asset of the model, and you already mentioned some of the category metrics before. How do you see this as a competitive differentiator for the brand? And what are you doing differently to encourage the cross category purchase? I think that's something that you’ve discussed as a AOV opportunity down the road. Josh Silverman Great question. And absolutely, you can buy you know -- most things you want to buy, you can buy on Etsy. You can buy consumer electronics, you can buy travel, there's a couple of things. But it's easier to say what you can't buy than what you can. So 15 categories, each had over a million buyers over the last 12 months. And we saw that be a huge strength of Etsy over the pandemic as people’s needs changed so quickly, and Etsy sellers were able to adapt to that change. So we are doing a lot more to promote different categories. One of the biggest opportunities for us is that people who buy baby products don't realize that we also sell home furnishings and people who buy home furnishings, don't realize that Etsy sellers also sell jewelry, et cetera. So we've invested a lot in personalization and starting to now understand more about you and your tastes. And based on what you've bought, what are the next categories that you're most likely to be interested in. And we're early in launching those technologies but we're already seeing gains, in for example, emails to you saying, here's the next three things you might be interested in. We're getting a lot better at that and we think that can unlock a lot of lifetime value. Anna Andreeva Okay, great, terrific. We only have a few more minutes left, but I wanted to touch upon the subs and specifically Depop. We got a lot of questions from investors interested in Depop. You've talked about increasing marketing and the brand and applying some of the Etsy and Reverb kind of a retail one-on-one at the brands as well. What are you doing specifically to drive that GMS acceleration at Depop? And I'm sticking to Depop, because it's the bigger one out of the subs. Josh Silverman So first, we're incredibly excited about recommerce as a space that we think over time is going to be a very important space. We think Gen Z is the biggest -- if you think about population or demographic, five years from now, who's going to matter the most, we think Gen Z is going to be a major part of recommerce. And we think that Depop is the best brand within recommerce for Gen Z. So we're incredibly excited about that brand. As Rachel mentioned, we are leaning into above the line advertising. We think that this is a moment when Depop should be telling its story and it's worth investing in that. And then we're doing a lot to uplevel the platform to make search work better, to do more to convert visits to purchases. And in fact, we've taken two of our top product leader and an engineering leader from Etsy and had them move over to Depop to join forces with the really talented team currently at Depop to transplant some of the Etsy DNA around how to do that. And so we think there's a tremendous opportunity in Depop. Anna Andreeva Thank you, Josh. And just to close it off, to Rachel, maybe talk about the capital allocation plans. Etsy has really strong balance sheet, valuation has been declining here. How do you think about uses of cash? And do you think an acquisition opportunistically would be something that company would look at? Rachel Glaser Thank you for the question. And I will say that, that's one of the things we love most about our model is that most of the EBITDA we generate, it converts to operating cash flow and moves over to our balance sheet. Because we don't have retail stores or distribution facilities or anything like that to have to consume part of our capital. We did say we filed in our 10-Q that the board authorized a $600 million share repurchase and that we use our philosophy about share repurchases to offset -- we use equity as a form of compensation for our employees. And so we want to offset that dilution that we create by issuing equity and return that to shareholders. So we've put that out there. And as far as M&A, although we can't talk about M&A too much, it’s not -- we're digesting what we -- last year was a big M&A year with two acquisitions, and we're digesting what we acquired. We always look at what's out there in the landscape. But right now, that's not a top priority for use of capital. Anna Andreeva That sounds good. Makes make sense. Well, thank you so much Etsy team, Josh and Rachel, great to have you. And thanks to everyone listening on the webcast. Josh Silverman Thanks for having us. Rachel Glaser Thanks for having us. Anna Andreeva Absolutely. Speak to you soon. Thanks.
The Original Article can be found on Seeking Alpha

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