ETSY INC(ETSY)Q2 2026 法說會逐字稿

Hi, everyone, and welcome to Etsy's Second Quarter 2026 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations. Today's prepared remarks have been prerecorded. Joining me today are Kruti Patel Goyal, our CEO; and our CFO, Lanny Baker. Please keep in mind that our remarks today include forward-looking statements, including statements related to our financial outlook, our business and our operating results. Our actual results may differ materially due to risks, uncertainties and other important factors as noted in the shareholder letter posted to our website and in our most recent periodic reports. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP historical financial measures, which are reconciled to GAAP financial measures in today's shareholder letter posted on our IR website, along with a replay of this call.

With respect to our outlook, a reconciliation of adjusted EBITDA margin guidance to the closest corresponding GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to the charges excluded from adjusted EBITDA. As you review our shareholder letter and 10-Q, please keep in mind that on July 30, we completed the sale of Depop to eBay. Etsy's results in those documents are presented on a continuing operations basis, while Depop's results are presented within discontinued operations. I also want to note that Reverb, which we sold in June of last year, is included in Q2 2025 continuing operations, whereas Q2 2026 reflects only the Etsy Marketplace. This makes year-over-year continuing operations results not directly comparable, and we have included Etsy stand-alone marketplace comparisons where most relevant in order to provide investors with a more meaningful basis for evaluating our go-forward operations. Financial results presented on this call cover our continuing operations or the Etsy marketplace only. With that, I'll turn it over to Kruti.

Thanks, Deb, and good morning, everyone. Thank you for joining us. Since I stepped into this role, I've been clear about 3 things. Our greatest strength is our differentiation as a human-centered marketplace. We have a massive market opportunity ahead of us and realizing that opportunity requires clear strategic focus and disciplined execution. Our second quarter results reinforce our conviction that this focus is translating into stronger marketplace fundamentals and accelerating growth. We're encouraged by our progress and increasingly confident in our ability to create long-term shareholder value, reflected on our improved outlook for 2026 and our new $2 billion share repurchase authorization. Just as importantly, we continue to see significant opportunity to further strengthen relationships with our buyers and sellers to drive long-term marketplace value. So today, I'll share how our strategic priorities are improving performance as well as how we're evolving our organization to lay the foundation for Etsy's next stage of growth.

Starting with our performance. Second quarter GMS and revenue growth accelerated on a sequential basis, and we delivered healthy flow-through of revenue growth to adjusted EBITDA, again, demonstrating the strength of our business model. Etsy marketplace GMS grew year-over-year for the third consecutive quarter, reflecting continued improvement across marketplace fundamentals. GMS was $2.6 billion, up 7.5% year-over-year for the Etsy marketplace. Revenue was $668 million with a take rate of 25.9%. And adjusted EBITDA was $195 million or a 29.2% adjusted EBITDA margin. We're beginning to see how our 4 priorities reinforce one another to improve marketplace health and performance. Discovery and matching help buyers find and connect with the right items, while loyalty and human connection give buyers more reasons to return. Together, these enable lasting relationships between buyers, sellers and Etsy.

We're seeing very clear signal that these efforts are improving our performance. Active buyers improved, growing by 350,000 sequentially to approximately 87 million, roughly stable on a year-over-year basis. Gross buyer additions accelerated and habitual and repeat buyer cohorts, our most valuable buyers, each showed slight sequential growth for the first time since 2023. Trailing 12-month GMS per active buyer grew 2.8% year-over-year to $124. And while higher seller listing prices remain a contributor, our work to elevate higher-quality items on and off-site is increasingly playing a role. While purchase frequency remains below prior year levels, the year-over-year decline moderated compared to the first quarter, an early encouraging signal that we're improving the overall customer experience. And our app continues to be a key growth driver, with mobile app growth accelerating sequentially, up 12.5% year-over-year and visits per monthly active user and orders per visit, both increasing year-over-year.

And we continue to see evidence of a healthier seller base, including year-over-year seller growth and stronger retention of prior year active sellers. We have a lot to cover today, so I won't review each of our priorities in the level of detail they are discussed in our shareholder letter. But here are a few updates I'm most excited about. First, we're making Etsy's core differentiation more consistently visible and tangible throughout the experience. We're bringing creativity, craftsmanship and human connection to the forefront across both the marketplace and our brand marketing, which celebrates being human and the way Etsy sellers bring meaning to moments that matter, big and small. Second, we're making Etsy feel much more personal through richer buyer profiles, real-time personalization and search and fresher content that helps buyers discover new shopping missions and more of Etsy sellers' unique inventory.

Third, we're reaching younger buyers much earlier in their discovery journey by evolving the channels, content and experiences where Etsy shows up. One example is our Olivia Rodrigo partnership, which combines an in-person activation with an exclusive merchandise collaboration. And our investments in YouTube and TikTok drove a fivefold increase in visits in those channels from millennial and Gen Z audiences in the first half of 2026. Finally, we're continuing to evolve how we build loyalty across the marketplace, from testing new approaches for buyers to developing new ways to recognize and support the sellers who best represent what makes Etsy unique. Over the past year, we've sharpened our strategy, strengthened execution and are encouraged by the progress we're seeing across the marketplace. We've inflected Etsy's year-over-year growth trajectory from high single-digit GMS declines in early 2025 to mid-single-digit growth anticipated for the full year 2026, a more than 10 percentage point improvement in performance.

As a result, we have even more conviction in our strategic direction to build the Etsy we envision. At the same time, we've gained additional clarity about the organization we'll need to deliver it. So we're announcing a restructuring of parts of our organization and a reduction of our workforce with most of the changes concentrated in our product and engineering group. We're changing our structure with fewer silos to reduce handoffs and with flatter, faster teams built to solve more broad and complex problems. And we'll invest more deeply in the skills and capabilities we need to accelerate execution and impact. This is not a cost-cutting move. It's about leaning in during a period of strong momentum so that we can move faster and execute with even greater focus. We are deeply grateful to our departing colleagues for their service, dedication and contributions, and we're committed to supporting them through this transition with care and respect.

We know these decisions have a real impact on people's lives, and we didn't make them lightly. They reflect our conviction that focusing our investments in our team is the best way to build a stronger Etsy. One of my responsibilities is to make decisions not only for the Etsy we are today, but also the Etsy we want to become. That means paying close attention to how the world around us is changing. Buyers are discovering products in new ways. Sellers have access to increasingly powerful tools to build their businesses and the expectations they have of Etsy continue to rise. By investing in the capabilities that matter most for the future of the marketplace, we believe Etsy will be better positioned to innovate more quickly and ultimately deliver more value for our customers, community and shareholders. Thank you for your time this morning. I'll turn the call over to Lanny for more insights on our Q2 performance, our outlook and the financial implications of our restructuring plan.

Thanks, Kruti. Great to connect with all of you today. Kruti already covered Etsy marketplace GMS and our headline metrics, so I'll focus on revenue, profitability, capital allocation and our outlook. Revenue was $668 million in the second quarter, up 6.2% on a continuing operations basis and 9.3% for the Etsy marketplace stand-alone. Revenue growth accelerated in tandem with GMS strength and both marketplace and services revenue at Etsy delivered solid year-over-year growth, increasing 8.4% and 11.2%, respectively. Take rate remained healthy at 25.9% for the second quarter, up 130 basis points year-over-year, including an approximate 80 basis point benefit from the Reverb divestiture. Meanwhile, Etsy marketplace take rate also expanded year-over-year, primarily driven by Etsy Ads, where we're using machine learning to enhance relevance and improve seller budget pacing. Offsite Ads also contributed, benefiting from a tilt in paid marketing activity toward higher monetizing channels.

On the operating expense side, we remained disciplined in the second quarter while continuing to invest in areas with the clearest evidence of attractive returns. As Etsy marketplace GMS growth has improved, we have gained leverage across marketing, product development and G&A. Nearly half of the year-to-year growth in Etsy marketplace revenue flowed through to adjusted EBITDA in the quarter, creating room to fund our top priorities while sustaining healthy profitability. Turning to capital allocation. Our balance sheet remains strong. As of June 30, 2026, we held $1.3 billion in cash, cash equivalents and short- and long-term investments. And we continue to generate significant cash. On a continuing operations basis, we converted 81% of adjusted EBITDA to free cash flow during the quarter. And on top of this, we received $1.4 billion in cash proceeds from the sale of Depop at the end of last week.

Many of you have expressed interest in when or how we would step up our share repurchases given the cash coming in from the sale of Depop. I'm pleased to report we've already done so. During the second quarter, we stepped up our buyback program and repurchased approximately $250 million in stock. That was roughly 70% more than the first quarter and reduced the outstanding share count by approximately 3.9 million shares. At quarter's end, we had $578 million remaining on our current Board-authorized share repurchase program, and we're announcing today a new $2 billion share repurchase program. The additional authorization reflects our growing confidence in strategic execution and will enable us to continue the return of excess capital to shareholders and accelerate our buyback program with the proceeds from the sale of Depop. As outlined in our shareholder letter, the Restructuring Plan will reduce the size of our workforce by roughly 220 employees or approximately 12%.

Following the restructuring, our headcount is expected to be approximately 1,600 people. We expect to incur approximately $35 million in charges, largely made up of cash expenditures associated with severance payments, employee benefits and related costs. We anticipate that the charges will be incurred and the execution of the restructuring plan will be substantially complete by the end of the third quarter of 2026. Now turning to our outlook. We currently anticipate that Etsy marketplace third quarter GMS will be between $2.53 billion and $2.58 billion, representing year-over-year growth of approximately 4% to 6% for the quarter. We expect third quarter take rate to be approximately 26% and adjusted EBITDA margin to be within a range of 28% to 30%. For the full year, we now expect the Etsy marketplace to sustain a bit stronger GMS growth momentum across the second half of the year than we anticipated previously.

Accordingly, we anticipate that GMS growth at Etsy will be in the mid-single-digit range for the full year 2026. We currently expect full year take rate to be roughly equal to what we reported in the first half of the year, and our full year adjusted EBITDA margin outlook tightens upward to 29% to 30%. We expect the restructuring to lower operating costs in the near term, and we've incorporated an expected benefit into our increased full year adjusted EBITDA margin outlook. We believe that higher GMS and revenue growth sustained over time can create far greater absolute cash flow and shareholder value than can margin expansion alone. Accordingly, our objective in the restructuring is to not only extend the expense discipline we've demonstrated historically, but also to position ourselves to build the organization necessary to execute our strategy and accelerate growth in the years ahead.

Specifically, we intend to deepen our expertise in strategically critical areas across product, engineering and customer operations with a particular focus on expanding and strengthening our team's machine learning skills. We also plan to explore additional R&D investment in new product capabilities, marketing initiatives, customer trust and international growth to accelerate our learnings in 2026 and inform our plans for 2027. We will be purposeful and disciplined in the investments we make, and we remain committed to maintaining the very attractive profit margin profile of our business. With that, we'll now turn it over to the operator to take your questions.

Operator provides instructions to participants. Our first question will come from Rick Patel with Raymond James.

Congrats on the progress. Can you dig deeper on what you think are the most effective drivers of strong and improved GMS growth in Q2? What's working? And where do you see the most opportunity for improvement? And second, can you provide additional color on the initiative to improve discovery among young buyers? How will you tackle this? And are you seeing early signs of progress?

Thanks for the question, Rick. First, what we're seeing is the result of strong execution against a clear set of strategic priorities, and the results match what we expected when we laid those priorities out. As a reminder, you shouldn't think of these priorities as independent initiatives; they are designed to reinforce one another to create a stronger marketplace over time. We're seeing that in the marketplace health indicators in the quarterly results we shared. The clearest examples are how our product and marketing improvements are working together to drive growth this quarter. At the top of the funnel, our marketing is becoming more efficient at bringing buyers in. We continue to see strength in owned channels like SEO, and we've meaningfully improved PLA performance through better segmentation and bidding strategies that direct spend toward our highest-quality inventory and bring in the right buyers more efficiently.

Once those buyers arrive, they're landing on a far better experience thanks to the on-site product improvements we're making. We've made steady improvements across discovery and matching, from real-time search personalization to more relevant recommendations and a fresher home feed. These changes help buyers find more relevant inventory, discover new shopping missions, and engage more deeply with Etsy over time. As buyers engage more, we develop a richer understanding of what they're looking for and what makes them tick. That is powering richer buyer profiles, which we highlighted in our shareholder letter, and they now cover over 65 million buyers. That means every subsequent visit becomes more relevant and personalized, creating a flywheel that gets stronger over time. The app is our clearest proof point of how this all comes together: app GMS growth accelerated again to 12.5% year-over-year, and we saw stronger engagement with both visits per monthly active and orders per visit increasing year-over-year. It's a great example of how our marketing and product work together to drive the flywheel.

And then the second question, Kruti, was, can we provide additional color on the younger buyers?

Yes. What I'll say about our younger buyers, we saw some really nice improvements this quarter in terms of how we're engaging them. And I'll start out by saying our research showed that our value proposition resonates with this younger audience as much as it does with older audiences. But what wasn't happening was that we weren't showing up where these shoppers are discovering and with relevant content as much as we could. And that's really where we've been focused. So you see that in the shift in our marketing investments, shifting our investment to social channels to OTT, the channels that are the places that younger shoppers are and really focused on both putting in front of them content that is more relevant and showing up in cultural moments that are really relevant. So the work that we're doing on Creator Collective to engage influencers to elevate and curate the content that we have on Etsy for these younger buyers and the example of the partnership that we're doing with Olivia Rodrigo, which is a really innovative partnership that's incredibly relevant to this audience. Those are all examples of how we're really approaching that younger audience differently, and we're seeing great traction, particularly on channels like YouTube and TikTok, where we've meaningfully increased our reach to that audience segment.

Your next question will come from Nathan Feather with Morgan Stanley.

Two, if I may. First, in terms of AOV gains that you've seen here, historically, we've seen more limited uptake from sellers. How sustainable do you think that can be if trade changes normalize? And then on the buyer split, it's really encouraging to see repeat individual buyers take a step forward here. How can we think through what have been the key elements that have allowed that to stabilize? And what's the run rate to start to get that to grow as a portion of the mix relative to the one-off buyers?

Sure. Thanks, Nathan. On AOV, what we've seen over the last, call it a year or more, is the effect of the tariffs that went in a year ago, the expiration of de minimis, getting through the holiday season, and sellers readjusting their pricing, which led to waves of increases in listing prices that don't always flow through immediately to average order value. But we have seen our buyers be very receptive to those price changes, and what's happened with listing prices has, over time, come through to average order value. There’s another dynamic — in a couple of prior quarters there was a bit of a foreign currency translation tailwind, though less so in the last quarter. Most importantly, the new signal that started to emerge across 2026 is that the efforts we've undertaken on relevance and quality in Etsy search results are starting to surface items that are higher quality with somewhat higher listing prices that better match what customers are looking for.

We're not making those relevance and quality changes to drive AOV; we're making them to better serve our customers. But those improvements in surfacing the best inventory are increasingly contributing to AOV momentum. Looking forward, I think we are only getting started with things we can do to continue elevating high-quality items that match customer intent. Second, the increases in listing prices that sellers have taken, in our experience, will likely prove fairly durable. Year-over-year increases will probably slow down unless sellers react to other stimuli, but we expect the price increases they've made to remain reasonably durable going forward. Your second question was about the composition of buyer growth and the modest progress we made for the first time in three years in active buyers and habitual buyers. Habitual and repeat buyers are really just our most frequent buyers, and our strategy is organized around making the end-to-end product experience better so customers come back more often, build loyalty, and increase frequency.

Those metrics are showing the earliest signs of the initiatives Kruti described starting to come to fruition. How do we continue to drive that? It’s about showing up where customers are, giving them relevant results, personalizing the experience, rewarding them for being Etsy customers, reaching back out to them through our own channels, and improving our product experience. So there’s not new news there, but there are new signs of progress. And while those numbers are improving, we’re also excited that gross additions of new customers coming to Etsy for the first time or returning have accelerated. We’re in a good moment where we’re opening the top of the funnel a bit wider and starting to see growth among our most valuable buyers at the back end of the funnel, which is exactly what we’ve been driving for.

Your next question will come from Ken Gawrelski with Wells Fargo.

Maybe, if I may, could you talk about there's many new models of both distribution and kind of emerging use cases in e-commerce. And I'd love to get your take on how they may or may not fit with Etsy and the platform and your merchants. Could you talk about the opportunity in live commerce, one? And two, you're seeing players like Whatnot, et cetera, that have kind of a unique take. Maybe they're positive, maybe they're negative, but there's certainly different takes on the e-commerce experience, some of those B2C, some of C2C. But I'd be curious as to as you think about your seller base and maybe they're thinking about innovative ways to sell their products and market their products, how these may or may not fit with Etsy?

That's a great question. Thank you for it. We are one of our priorities is showing up for shoppers' discovery. And so this is something we're always thinking about. This is the driving force behind us partnering with AI, with agentic commerce and showing up in those channels. So as we're thinking about the full range of those distribution channels for our sellers, as it relates to live shopping, in particular, look, it's a really interesting space that's been developing and evolving for a while. And what we're seeing is that live shopping is starting to gain traction beyond the collectible space where it got most popular initially. And we think that there's some potential opportunity for sellers like ours who have a really great story to tell, who have a lot to share about how they create, what they create that's relevant to a buying audience. So we're certainly open to exploring this, but we don't have plans at the moment to launch anything in live shopping. We think it's an interesting potential channel for sellers like ours.

Your next question will come from Marvin Fong with BTIG.

Congratulations on the progress. I'd love to double-click on what Lanny was saying about investing on new products. Should we kind of think about that as going deeper in the initiatives that you're already exploring, including AI or are you exploring just completely different products outside of your existing strategy? And then just a question on now that we've seen gas prices kind of go back and forth, giving us a little bit larger sample set. Are you seeing any kind of impact from that rise and fall of gas prices on your business in terms of buyer behavior?

I'll take the first part and then pass to Lanny. Look, the way that I would think about this is that over the last year, we've gotten much more confident in our strategic priorities and the drivers of long-term growth. We're seeing really great evidence that shows that our work across discovery, matching, personalization is really working. That's what you're hearing. So when we say we're going to invest more, I think this is related to the changes that we've made in our team, we have greater clarity about the organization, the capabilities that we need to build on that momentum and drive even more value for our buyers and sellers. And so we're going to be continuing to deepen our investment and our focus on our strategic priorities to continue to deliver and build on that momentum.

Yes. I would just add to this, zooming out a little bit, when you think about what's going on in live commerce or you think of what's going on in resale commerce, there is really exciting growth happening in these places where there's some real innovation, both in the product and in the user experience and in the marketing. And it's growing the overall size of the market. These are not zero-sum opportunities. That really encourages us that as we continue to innovate on what makes Etsy differentiated, we can build on the growth that we've already started to build. On your second question about gas prices, yes, they've been up and down. And it's hard to look at any one dynamic on the consumer side in isolation. I think it stands to reason that there is some impact from higher gas prices on consumer spending. But our consumer demand held up pretty well across the second quarter. We saw growth in GMS in the United States as well in among U.S. buyers as well as non-U.S. buyers.

And we saw accelerated growth across, in particular, U.S. buyers and imports was a strong channel for us in the quarter. And really across all household income segments, we saw good numbers in this quarter. The high end is growing a little bit faster than the lower income households are. But as you sort of zoom out and try to discern, there's not a discernible impact right now from gas prices. But I think our consumer demand picture has held up really well throughout the second quarter.

Your next question will come from Maria Ripps with Canaccord.

First, I just wanted to ask on workforce reduction, which is largely across product and engineering. But then at the same time, you're calling ML as kind of the core of discovery and personalization to sort of accelerate growth further from here. Can you maybe give us a little bit more color on sort of how smaller teams move the road map faster? And sort of what specifically are you choosing to stop doing that you focused on before?

Yes. So first of all, I'll just say that we asked teams to think about what the team they needed were to deliver on our biggest growth ambitions. And starting with what the structure of the team was that they needed, what the skills were that they needed and what the talent was they needed. And when we looked across product and engineering, we saw an opportunity to really simplify the organization, and that's where the streamlining comes in, really this opportunity to reduce overlap by bringing teams together around shared problems or shared capabilities. And that's what enables our product and engineering teams to move forward with more speed and more focus. The other part of that is this change allows us to reshape our talent mix around the capabilities that matter most for the next phase of growth. And that's really about continuing to deepen our investments in discovery and matching and personalization. And so that's going to be about building really strong cross-functional teams and deepening our machine learning expertise so we can translate advancements into better experiences at scale. So we really see this as an investment in execution and in concentrating our talent where we can have the greatest impact.

Your next question will come from Anna Andreeva with Piper Sandler.

This is Noah on for Anna. Just wanted to follow up on some of the drivers by category. You mentioned gifting and personalization is working well. Curious what you're seeing in your bigger product verticals as well. And then just a follow-up on gross margin. You've seen some compression on the higher compute costs. Should we expect that pressure to continue in '26 and just any way we can think about that?

Sure. Let me start on the gross margin side of things. We're really happy with the gross margins for the business. It's a healthy low 70s percent number. We've seen a little bit of compression year-to-year, and it's not coming from compute. We are balancing the customer experience around trust and safety, around refunds, around other pressures on the marketplace to really deliver the best experience to customers, and there's some cost in there that shows up in cost of revenue. On the hosting and compute side, what we are spending more money this year, obviously, on AI and on usage of AI and on compute. But the overall spending that we're doing on hosting and bandwidth and technology is exactly where we thought it would be this year, and we've been able to find offsets in other places and shifting usage patterns allow us to absorb the cost of the incremental compute without going higher on our overall infrastructure cost. So we feel really comfortable about our ability to continue to manage that AI cost, hosting and bandwidth cost as we look forward. Remind me of your first question.

We just wanted some more color on the drivers by product category.

On the verticals, we have reported at the end of the year how we do in categories. We've sort of moved away from that on a moment-by-moment basis because it's not necessarily how our buyers come to Etsy in a category. They come to Etsy for an occasion. And we can talk more about how we did across — this is an occasion-laden quarter, and we did really well on those occasions. I would tell you, like if you look across our categories, we grew in every one of our top categories, and we grew faster than our peer benchmarks in those categories in this quarter, including our biggest categories. But I think that strength in categories is less reflective of something we're doing in a specific jewelry versus Home & Living than it is the way that we are showing up for our buyers in the right demographics across occasions.

Your next question will come from Bryan Smilek with JPMorgan.

I guess, Kruti, great to see Etsy getting into the zeitgeist here and targeting newer demographics. Can you just talk about how you can translate this brand activation towards more international markets as well? And then just more broadly, can you share a bit more color on their LTV profile and conversion relative to some of your other legacy cohorts?

The younger buyers, the LTVs are a little bit lower initially, but they have a lot higher growth rate in the LTVs because they're moving through life changes in compensation and other household formation and things like this that really give them in the near term the LTV may not be as great, but the potential for growth in that cohort is really, really attractive. And that's why we and others really go after it. And so we're pleased with sort of the beachhead that we are establishing, building those relationships today as we're bringing more of them into our business.

I think that the approach that we're taking with younger buyers is one that we think works globally. So there's not a specifically different approach that we're taking internationally. So we're just going to keep doing more of what's working for us with these younger buyers.

Your next question will come from Nick Jones with BNP Paribas.

One on enhancing buyer profiles in the letter covering 65 million buyers. I think it's threefold the data points. I noticed the 65 million buyers is above kind of the repeat and initial combined. So I guess, can you speak to what the funnel looks like to kind of aggregate these data points and what it would take to kind of drive that 65 million buyer number a bit higher?

First, I would just say that we can build these buyer profiles for all of our buyers. They're just richer. They get richer and richer, the more that you engage with us. So we see the potential for buyer profiles for all of our buyers. Obviously, we look at broader data than just your buyer profile if you're a relatively infrequent or newer buyer. What we think is exciting there is all of the applications of where we can use that buyer profile to personalize your experience and make it richer from the recommendations you get in your app home feed to the marketing that we send you to how we personalize your search results. And so it's not just that we are able to extend the coverage of these buyer profiles. It's that we're collecting more and more valuable data in them and that we're able to apply them in more and more places in your experience end-to-end.

Your next question will come from Michael Morton with MoffettNathanson.

Maybe one on the shareholder letter, you talked about growing direct relationships with our most active buyers by optimizing how you communicate with them and deliver kind of more timely and relevant recommendations. Kruti, I was wondering from someone being on the outside, could you give us some examples of what this looks like because we've all seen how powerful the big buyers can be on these larger platforms, how this will play out in the acquisition and the reactivation of these big active buyers? And then just a quick one for Lanny on some of the cost savings from the reorganization. Sounds like you're letting this flow through to the bottom line. I was wondering why not reinvest even more in marketing or are there diminishing marginal returns there or anything along those lines would be great.

The first one, Kruti, was growing direct relationships with our most active buyers.

It's how we're optimizing our communications. Look, the way that this should play out is we're really playing with two things with our most active buyers, the relevance of the content that we show you, the personalization of the content that we show you, the freshness of the content that we show you and how frequently we show it to you. So sometimes it's even more valuable to send fewer communications, especially to our most active buyers who are engaging with us all the time. And we're looking at that across both email and push and then really all of the channels where we're connecting with you. So that's how I would think about that optimization work that we're doing around engaging with our most active buyers. It's because we have so much great information and content on you. We want to make sure that we're optimizing every touch, and we have the frequency right as well.

Michael, the reorganization is not intended to structurally alter Etsy's long-term margin profile. What we're really seeking is a more focused organization suited to execute on our strategy and with all the strengths and skills that we think we need over the coming years. And if we have those things, as we get those things, I think they pay off in growth, health of the marketplace, differentiation of Etsy. And ultimately, the durability of growth comes from really having that more focused and rightly suited team. So we will be reinvesting some of the savings into our people, into engineering talent, product talent, customer operations and some of the R&D projects we talked about earlier. I think the kind of margin growth that we really like is the margin growth that comes from revenue and GMS growth. And in this quarter, nearly half of the revenue growth flowed through to adjusted EBITDA.

That is the stuff that really we believe creates shareholder value. So that's what we're aiming for. And you talked about marketing. This is a quarter in which we got a good deal of leverage, and we're pretty proud of it in the marketing channel and in our marketing activities. But I want to make the point, we are earning our growth there, not buying it. We have increased the efficiency in our more mature channels, i.e., search and PLAs. We are making ongoing learnings and having some nice wins in our less mature channels like social. We're being prudent about managing and optimizing the mix of those channels. And I frankly think some of the messaging that we're doing in our brand campaigns, in our PLA relevance, in our social media is also contributing there. So what we're seeing is we're just getting more GMS per dollar. And actually, that's not declining marginal return. That's increasing marginal return, and that's sort of causing us to lean in on marketing.

So we're not tapped out on investment. We're just at a point right now where we're having some really good gains in efficiency in marketing, which sets us up to continue to use that as a driver of growth in the future.

Your next question will come from Shweta Khajuria with Wolfe Research.

Could you please talk to, if anything has changed in your marketing spend where you're seeing best returns on that spend? And how much runway do you have left ahead to drive potentially new and reactivated buyer growth? And second is if you could please talk to mobile app users and how their engagement is different and where you see runway for growth coming from app users as we think about frequency over time?

Sure. On the marketing front, I'll get into the details of the mix and the channels and things we're doing there. But one of the secret weapons is the owned channels that we have of push and email and the mobile app, where your question was how are we using these channels to bring attract new customers and bring them back. Those owned channels have been really effective in helping us bring people back very efficiently. So that's also happening in our greater marketing portfolio. But in the places where we're spending media dollars in marketing, the competitive dynamic in PLA has gotten changed over the last year as Amazon has pulled out. But the bigger driver right now are internal wins that we've made in our marketing technology, particularly the way we segment the PLA feeds that we give to Google, the information that we give them around listings is helping them, I think, place our listings with better, more competitive bids in a broader number of auctions.

We call it PLA segmentation; the way we're segmenting our feed is really helping us strike some really good advances right now in the performance of our most mature, most well-developed, most predictable marketing channels. That's been great. While that progress is happening, it allows us to make flex and test and move around other parts of the overall portfolio. And in terms of portfolio shifts, I would say we are getting — we've talked about pushing a lot of money into social at times to then figure out what works best and then optimizing, and we're making some good gains right now optimizing our social channels. And the one other shift is moving away from linear and some of the older television or video advertising that we've done toward more targeted streaming and services like that has helped us go after the right audience. And we're really happy with that. So performance on our own side in PLAs has been a big driver, and that's allowed us a lot of flexibility to move around the rest of the portfolio and find ways to be more efficient and find new opportunities to grow.

And then the second one is on the app and app engagement.

Yes. We're really pleased with the growth acceleration that we saw in Q2 in the app, up 12.5% year-over-year. We're now at about 47% of total GMS coming from the app. We think that's really healthy, and we think there's more room to grow. What's working really well, what I would say is the work that we're doing across the board is showing up with particular strength in the app for lots of reasons I talked about where our most engaged, most valuable users are already, and it's where we have the ability to personalize with even more depth. So what's working? I'd say, first, better discovery and matching. We talked about richer buyer profiles. They're really improving the content that we can show you in home feeds and push notifications that bring you back into the app. The second thing I would say that's happening on the app is we're really improving the freshness of our feed. So the newness and the diversity of what we're showing in a way that's really improving engagement.

The team made a really big shift in terms of reducing the prevalence of things that were recently viewed or engaged and in place of showing you much fresher, newer listings. And what we're seeing is that's driving feed favoring, listing views, new searches. And excitingly, it's broadening consideration. We're seeing buyers on the app starting more new shopping missions. And so all of that is really exciting. In general, we're seeing much more engagement, more strong signs of engagement in the app with visits per MAU improving, orders per visit improving, feed favoring, new mission starts. So all really strong indicators of how what we're doing is working in the app, and I think bodes well for the future in terms of continued opportunity there.

I would just add that the bulk of the GMS growth, the primary driver of app GMS growth is existing app users purchasing more. And the second behind that is new-to-Etsy buyers coming into the app for their first-time purchases. Those are really healthy incremental signs of reflection of the work that we're doing on both the marketing and the product experience.

Your next question will come from Ygal Arounian with Wedbush.

Can you hear me?

Yes.

I wanted to dig into the tech investments, particularly around ML. That's something you guys have talked a lot about. So what's kind of evolving here on that? And how does that tie into agentic commerce? Maybe more specifically or if you want broadly on third parties, too, how you're building it to the Etsy platform directly?

Sure. So in terms of our investment in ML, the way you should think about that is we're continuing to invest more deeply in what's working. And what's working is discovery, matching and personalization. And the investments that we're making as a result of reshaping our teams is really about strengthening our talent to do more of what's working. So that's how I would think about the ML investment. In terms of AI, I think there are a couple of parts to this. The first thing I'd say is that we see the biggest opportunity for AI on Etsy itself. It's really about using AI to make Etsy much, much better at connecting the right buyers with the right sellers. So we're applying AI across all of these areas that I just talked about, discovery, matching and personalization to really better understand what buyers are looking for, to better understand our buyers, to better understand our inventory so that we can surface the most relevant inventory from the full breadth of our marketplace.

That's where we think AI is really going to deliver the most value over time because it makes Etsy feel more personal and helps more of our sellers and more of our inventory get discovered. And then in terms of off of Etsy and the opportunity there, it's still a really important priority for us to make sure that Etsy is showing up wherever shoppers discover. So we're continuing to partner with these major AI platforms because we want to be in there and learning and evolving our experience as consumer behavior and adoption evolves. So that's where we continue to focus there. I'll say that traffic from agentic experiences is still less than 1% of our overall traffic. We're still seeing the same things that we shared last time. There's higher intent, higher average order value traffic. So that's what's happening there. The third thing I would say about AI is we're experimenting actively with AI-native shopping experiences on Etsy itself.

We've shared that we think that there's a really interesting opportunity to use these conversational interfaces to get more context more quickly to understand intent in any given shopping mission. And so the work that we've done on our gifting assistant is a good example of that. It gives buyers a more natural conversational way to express what they're looking for, and it's helping us learn actively in that space. So I guess to sum it up, what I'd say is across AI, I think about it in 3 ways: making Etsy more personal, making Etsy more discoverable and then learning how this next generation of shopping experience is going to evolve.

Your next question will come from Youssef Squali with Truist.

Lanny, maybe starting with you. The 50% flow-through from incremental revenue to adjusted EBITDA in Q2 is pretty impressive. Maybe talk about the biggest drivers there and just the sustainability of that as we look into the second half and into 2027, particularly on the back of this latest RIF. And maybe not to beat the dead horse here, but can you maybe help us understand how you guys think about balancing increase in marketing spend, especially on the back of clearly, what you're seeing is improving efficiency with the other decisions that you've made of the $2 billion buyback, which obviously is a huge step-up from what it was before? So are we getting maybe the efficient frontier in marketing spend at this point until maybe we improve the user experience that much better before we lean more aggressively into marketing? Just helping us understand the puts and takes there.

Yes, sure. Let me start with the incremental profitability. I don't want to over-index any one quarter; any one quarter isn't the model forever. We had a great quarter and flow through this quarter. And I think what built across the course of this year is the internal momentum and execution and the health of the marketplace has turned out to be a little bit better and a little bit more sustainable than we anticipated. And what that did was drive better GMS than we expected. And when GMS grows unexpectedly, it's going to drive really good profitability characteristics for our business. And so I think you'll see the incremental margin sort of move back and forth across the ranges that the company has shown over time. But we really like the incremental profitability characteristics of the business. And we really like the margin level that we have right now to start with. From the reorganization, our intention is not to structurally lift margins.

It's to bring the team into more perfect alignment with the strategy in terms of the way it's organized, the way it's staffed, the skills we have on hand so that we can drive the revenue growth that ultimately produces everything else we've already talked about. I think on your second question, which was about marketing and the share buyback, they're not mutually exclusive. They're really complementary. We are becoming more efficient and more effective in our marketing, and that increases our estimation of the value of the franchise in the future, and that makes the buyback feel like a reasonable allocation of capital. And we just received a large incremental amount of capital from the sale of Depop. And we don't see a place where we could spend that in the business right now. We think the right thing to do is return that capital to shareholders by shrinking the equity basis. As we've done over the last few years, we reduced the share count by almost 25 million shares.

So we feel really good about that investment we've made. There is not a frontier that we are hitting up against in marketing. What we are seeing more so is that our marketing dollars are going further. We are a company that sets a return target for marketing. If our marketing dollars are going further, that says the return is better, and that is, over time, going to lead us to continue to spend more on marketing and drive flywheel. Interestingly and importantly, this quarter, our organic GMS that was not driven by marketing grew. That's nice to have the fundamental underlying growth from SEO and from the app and from the owned channels and then be able to use marketing efficiently with a good return on top of that to further extend our reach and our frequency.

The other thing that I would add on the marketing front is we see a lot of great opportunities to continue to lean into marketing. And I think we've really shown that this quarter. As we've gained efficiency in certain areas, we've leaned into others with a great effect. As we've seen efficiency in paid search, we've leaned into paid social. We've seen the impact of that in terms of our engagement with younger buyers on TikTok and YouTube. We've leaned into marketing partnerships like our Olivia Rodrigo partnership. We think there's a lot of great opportunities to continue to expand our reach and our relevance through marketing even as we make our more mature channels more efficient.

Great. Operator, I know we're almost at time, but I want to squeeze in one more. Can we call the next one?

Your final question will come from Oliver Lester with Arete Research.

Can you hear me?

Yes. We're good, Oliver. Go ahead.

Two for me. One is, I wanted to know whether you expect to see any impact from the recent EU de minimis changes. And my second question is just on Etsy Insider. I know that got a brief mention in the shareholder letter. Is there any kind of update that you can give us on the progress you're making there?

On de minimis, I don't think we'll see a big impact from it. Etsy is at the forefront of helping sellers deal with all of those kind of changes. We have a great track record over the last year and really strong partners that we work with to help sellers navigate that changed playing field.

On Insider, we don't have a specific update. What I would say is what I've shared in the past, which is that we're thinking about loyalty and driving loyalty is much broader than one program or one initiative. We're starting to test more mechanics to drive that loyalty, including free loyalty mechanics. But more broadly, the biggest thing that's going to drive loyalty is a better end-to-end user experience in the product. So that's where we're focused.

Perfect. Thank you, guys. Operator, I think that's it for us today. Thank you so much, everyone. We'll talk to you soon.