Etsy outlines $3.5B–$3.65B Q4 GMS target as leadership transitions and AI initiatives drive strategy

Earnings Call Insights: Etsy (ETSY) Q3 2025

MANAGEMENT VIEW

* CEO Joshua Silverman announced a leadership transition, stating, "After 8.5 years as Etsy's CEO, I've decided that this is the right time for me to hand over the leadership baton to the next generation. Therefore, we'll be transitioning over the next few months, and I'll become Executive Chair, while the fabulously talented Kruti Patel Goyal takes the reins as our CEO effective January 1." Silverman highlighted steady progress, with third quarter results exceeding expectations on gross merchandise sales (GMS), revenue, and adjusted EBITDA, and emphasized Etsy's focus on harnessing AI for a more personalized shopping experience.
* Silverman noted, "GMS for Etsy and Depop combined returned to year-over-year growth, with further sequential improvement expected at the midpoint of our fourth quarter guidance." Depop's GMS was up 39.4% year-over-year, attributed to new user growth and improvements in buyer conversion, particularly in the U.S.
* Kruti Goyal, incoming CEO, outlined four strategic priorities: showing up where shoppers find inspiration, matching them with items that feel tailor-made, deepening loyalty, and amplifying the creativity and authenticity of sellers. Goyal described a partnership with OpenAI, making Etsy the first live partner for instant checkout through ChatGPT, aiming to capture high-intent discovery traffic and drive incremental growth.
* Goyal stated, "App GMS outperformed non-app GMS by 13 percentage points, a meaningful indicator that our work is beginning to pay off." She cited machine learning enhancements driving engagement and a 20% year-over-year growth in app home GMS.
* CFO Charles Baker emphasized, "Third quarter consolidated GMS was $2.72 billion, which exceeded the top end of our guidance range... consolidated revenue grew 6.1% year-over-year to $678 million. Adjusted EBITDA was $172 million... representing a consolidated adjusted EBITDA margin of 25.4%." Baker also reported, "We generated a very healthy $200 million plus in free cash flow in the quarter and $635 million in the trailing 12 months... We repurchased 2.1 million shares of Etsy stock at a total cost of roughly $120 million."

OUTLOOK

* Etsy expects Q4 consolidated GMS to be between $3.5 billion and $3.65 billion, with the midpoint representing further quarter-over-quarter improvement. The company anticipates a consolidated take rate of approximately 24.5% and an adjusted EBITDA margin of approximately 24%. Management described the outlook as assuming a stable macro environment but acknowledged higher-than-normal uncertainty regarding holiday consumer spending.
* Baker noted, "Depop's nearly 60% year-over-year GMS growth in the United States is built on top of similarly strong growth in both buyers and sellers, and we see a meaningful opportunity to increase awareness and penetration across a broader demographic range."

FINANCIAL RESULTS

* Consolidated GMS was $2.72 billion, excluding Reverb from all periods, representing 0.9% year-over-year growth. Consolidated revenue reached $678 million, up 2.4% on a reported basis. Adjusted EBITDA was $172 million, with a consolidated margin of 25.4%. The Etsy marketplace margin was just shy of 30%.
* Etsy marketplace GMS was down 2.4% year-over-year. App downloads grew 9% year-over-year, with mobile app GMS contributing 46% of total GMS for the quarter.
* Services revenue increased 12.7% year-over-year, led by growth in Onsite Ad revenue at both Etsy and Depop. Marketplace revenue decreased 1.7% year-over-year, primarily due to the Reverb divestiture. The consolidated take rate improved to 24.9%, up 90 basis points sequentially.

Q&A

* Maria Ripps, Canaccord: Asked about the OpenAI partnership and inclusion of U.S. sellers. Silverman responded that "OpenAI and the others will scrape Etsy and organically provide Etsy listings... we provide a data feed directly to OpenAI... products that are in that data feed, which is the substantial majority of Etsy's products, that actually allows a buyer to complete the transaction within OpenAI."
* Steven Forbes, Guggenheim: Inquired about app engagement and its influence on product development. Goyal explained that the redesigned home screen and machine learning-driven discovery feed led to "a meaningful uplift in the engagement in the home screen, particularly through that feed," and that these changes provide confidence to continue investing in the four strategic priorities.
* Anna Andreeva, Piper Sandler: Sought details on Q4 guidance and profitability. Baker cited ongoing uncertainty in consumer outlook but highlighted sequential improvement in consolidated growth rates. Goyal affirmed the company's discipline in profitability, noting willingness to invest more in areas like Depop with proven product-market fit.
* Bryan Smilek, JPMorgan: Asked about sustained GMS growth. Goyal reiterated focus on the four strategic priorities and early traction, but said, "We're far from satisfied with the growth that we're seeing."
* Eric Sheridan, Goldman Sachs: Queried loyalty program learnings. Goyal said, "The rewards that we offered both drove adoption... and a meaningful uplift in frequency of engagement and purchasing." Baker highlighted the opportunity to increase GMS per buyer.
* Youssef Squali, Truist: Asked about balancing GenAI-driven traffic and direct/mobile. Silverman stated, "I don't think that it's a zero-sum game. I don't think it's an or. I think it's an and." Baker described Depop's brand marketing as a long-term investment that will compress margins in Q4 and continue into next year.
* Nikhil Devnani, Bernstein: Asked about long-term risk of agentic commerce. Silverman emphasized confidence in Etsy's brand value and buyer trust.
* Ygal Arounian, Citi: Requested early data insights from the OpenAI partnership. Silverman reported higher intent and conversion rates from agentic traffic, but emphasized that volumes remain small.
* Robert Coolbrith, Evercore: Asked about buyer understanding and exogenous factors. Goyal cited improvements from AI models, and Baker said the expiration of the de minimis exemption was a modest headwind in the quarter.

SENTIMENT ANALYSIS

* Analysts posed questions that were largely supportive but focused on risks related to AI partnerships, holiday spending uncertainty, and sustained growth. The tone was neutral to slightly positive, with several congratulatory remarks to management and interest in strategic execution.
* Management maintained a confident but cautious tone, particularly regarding outlook and macro uncertainty. Phrases such as "we are encouraged by the early results" and "we're excited to continue testing and iterating" signaled optimism, while repeated acknowledgments of "significantly more work to do" and "uncertainty" showed realism. Compared to the previous quarter, management displayed heightened confidence due to improved metrics but continued to stress discipline and caution.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter featured a major leadership transition, whereas the previous quarter focused on execution against strategic priorities. Both quarters emphasized the importance of AI and personalization, but Q3 showcased more tangible results from app and machine learning investments.
* GMS trends improved sequentially, with Depop GMS growth accelerating. The Q3 call introduced the OpenAI partnership as a concrete initiative. Active buyer count saw a smaller sequential decline, and app GMS contribution continued to rise.
* Management sentiment evolved from cautious optimism in Q2 to more confident optimism in Q3, underpinned by improved metrics and early traction from new initiatives. Analysts maintained a neutral tone, with questions shifting from execution details to the implications of new AI and agentic strategies.

RISKS AND CONCERNS

* Management cited ongoing macroeconomic uncertainty, especially around holiday spending and tariffs. Baker acknowledged, "While we remain cautious about the potential impact of tariffs and trade restrictions, especially on consumer discretionary expenditures, we are encouraged by Etsy's resilience and responsiveness thus far."
* The expiration of the de minimis exemption and trade lane pressures presented modest headwinds. Management is proactively providing sellers with alternative shipping solutions and emphasizing U.S.-based inventory.
* Analyst concerns included the risk of agentic commerce cannibalizing direct traffic and potential margin compression from increased marketing spend at Depop.

FINAL TAKEAWAY

Etsy's Q3 2025 call was marked by a significant leadership transition and continued progress in strategic priorities, particularly in AI-driven personalization and app engagement. The company outperformed on key financial metrics and set a Q4 GMS target of $3.5 billion to $3.65 billion. Management emphasized ongoing investments in growth, highlighted by the OpenAI partnership and a major marketing push at Depop, while maintaining discipline in profitability and proactively addressing external risks. As Etsy enters its next chapter, leadership reiterated commitment to sustainable growth, innovation, and shareholder value.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/etsy/earnings/transcripts]

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