Etsy, Inc. (NASDAQ: ETSY) Needham Annual Technology and Media Conference May 16, 2022 11:00 a. m. m. ET
Participating companies
Josh Silverman – Executive Director
Rachel Glaser – CFO
Conference Call Participants
Anna Andreeva – Needham and company
ana andreeva
Awesome. Hello everyone. My name is Anna Andreeva. I will cover customer e-commerce here in Needham. Welcome to the 17th Needham Technology and Media Conference. We are very pleased to have Etsy. Welcome to the conference.
Rachel Glaser
Thank you for having us. And before I answered the first question, I just wanted to refer everyone to Etsy’s Safe Harbor, which can be found on our Investor Relations website.
Q&A session
Q – Anna Andreeva
Thank you for that, Rachel. And for those who pay attention to the internet broadcast, if you have any questions, do not hesitate to enter them in the chat. And we’ll review them or, alternatively, you can email me at aandreeva@needhamco. COM. So to begin with, for you, Josh, I think one of the most important points, at least for us, of the first quarter call was the resilience of Etsy’s trading style. Your profitability has consistently exceeded expectations despite Etsy’s fundamentals being at the lower end of the forecast range, as well as unforeseen expenses of bad debts and vfinishor for distributors in Ukraine. Can you temporarily summarize what Etsy has done over the past two years, and how they deserve investors to think about style in those doubtful ones?times for the consumer?
Josh Silverman
Absolutely, and thanks for having me, Anna. It’s a smart time to pass out and communicate with other people. In fact, we’re proud of what Etsy has completed, and in fact, we’re positive and confident about the future, and I think it’s more important than ever to communicate that. Etsy, therefore, has indeed remodeled in recent years. And just to give an idea of the scale at the bottom of the forecast for this quarter, Etsy would get $2. 9 billion from GMS. And in the same quarter before the pandemic, Etsy made $1. 1 billion, some from MSG. So while many e-commerce companies have benefited from the pandemic, Etsy in particular has gained more than almost any other. And while many other e-commerce companies are getting back on the trajectory they were on, Etsy is nowhere near that, we are 2. 5 times bigger. And some of the things that we shared on our last earnings call is how applicable Etsy is how often. So, 89 million active shoppers, one-third of women in the US, shopped on Etsy in the last 12 months alone and shopped for groceries in many other categories. There are 15 other categories on Etsy that had at least a million buyers. And, in fact, seven categories on Etsy had 15 million or more buyers in the last 12 months alone. So actually applicable to a lot of other people in a lot of time.
And in a global environment where, if you think back to just a year or two ago, you had very few features of where to spend your money. I may not actually travel, it was a hassle to go out for dinner, and many offline outlets were closed. And even online retail outlets were out of inventory or facing supply chain issues. Etsy and the strength of Etsy’s style was that during the pandemic, our dealers had a lot of inventory and they were selling, and you could buy as many as you needed on Etsy and have it come to you relatively temporarily at a really fair price. So we earn a really disproportionate percentage of the wallet. Fast forward to today and other people are traveling like crazy, dining like crazy. And for the most part, online or offline, the shelves are packed. And yet we expect to keep at least 90% wallet percentage at the bottom of the guide, suggesting that we would still have 90% wallet percentage from our buyers at a time when they weren’t maxing out any another feature. So we think this is a great testament to how many other people had to show up on Etsy during the pandemic and are choosing to come back and come back now.
ana andreeva
Okay, that’s great. I guess Rachel talked about Etsy betting the call despite those dubious times for the customer and proceeding to invest in products and marketing. What do you think of that and product investments, in particular, what have you completed over the years and how do they flavor GMS in your opinion?
Josh Silverman
So we enjoy very high gross margins, that’s the nature of our market style, our gross margins are in the mid 70s or higher. We don’t have to bet on stock and hope that what we pick for the season will run out. Our distributors have a hundred million parts for sale and keep up with the trends. We also don’t want to invest in logistics and warehouse and other very expensive CapEx stuff. In fact, a lot of things you buy on Etsy, most of the things you buy on Etsy are made just for you and when you buy it. So the concept that they would be stored in a warehouse and shipped is not something our style is suited for. And so we get advantages of being a very light on capital style and a much higher gross margin style. We think this is something that is a wonderful strength of Etsy that gives us the ability to support each other in making an investment when we think it makes sense. And when we take a look at the e-commerce landscape and look ahead to the next five to 10 years, we think there will be continued consolidation, fewer and fewer online shopping options. The explanation for why is that mindshare is valuable, only you can’t forget about a limited number of brands. And so, unless it’s applicable enough, consumers don’t forget about your brand, they’re going downline to 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 that Etsy is doing something different than what Amazon is doing or what Walmart is doing. We don’t try to play their game, sometimes we do something really different and very important. So we believe we have an opportunity to be one of the largest and most vital e-commerce corporations in the next five to ten years, where that market is still much larger than it is today. today. And we think it’s something worth investing in. Because we are a top gross margin model, we have the ability to check and invest and make the decisions and exit where we don’t see pullbacks. We have shown wonderful discipline. When we think about our go-to-market investments, we’ve invested heavily in go-to-market analysis to make sure we understand what the marginal return is on the next dollar spent, and whether we’re getting smart returns on every dollar. Even with our investments in products and engineering, further improving our marketplace and strengthening our sustainable competitive differentiation in our marketplace, we measure the functionality of our groups and review, as we lease and evolve, whether we continue to deliver smart returns.
But if I just take search as an example, we don’t want to be bigger than Google in search, we don’t even want to be bigger than Amazon in product search. We have to be the most productive in the world in the very long queue of locating pieces that do not fit into a catalog. Etsy has almost a hundred million pieces and the only thing they have in common is that none is the same as the other, they do not correspond to a catalog. This is a very attractive and very complicated PC problem. To perceive what the customer’s intent is and what the intention is and to adjust the most productive parts for each client, we have to be the most productive in the world. And we’ve shared in the afterlife that our studio investments have added heaps of millions of annualized GMS dollars to Etsy as we grow more and more. And the investments we make in products tend to be the gifts that keep giving, they tend to be the things that enjoy and elevate us and offer returns year after year.
ana andreeva
I know, Etsy is so focused on reinvesting invested capital. Rachel, the detail of her product progression crusade has grown by 60% in recent quarters. Can you tell us precisely where you are making an investment and what kind of reinvesting.
Rachel Glaser
Absolutely. So you’re right. What we talk about affects our investments, as he pointed out when he made that last query to Josh. And one of the big spaces is product progression, and a big component of making an investment in product progression is people. Therefore, we increased Etsy’s headcount and grew approximately 44% in the last quarter year over year, and our overall headcount, adding our subsidiaries, grew by 71%. And then Etsy’s bite of 44%, many of whom were product managers and product engineers to help expand new products. And we take a look at investments in products with an ROI lens, just as we do with our marketing, and we mark the charge portion of that ROI calculation entirely. We fully qualify this workforce with salaries and benefits, stock-based compensation, and hosting and service pricing through our Google Cloud environment. And as Josh pointed out, then we have the ability to check and learn.
And very the product reports we do are not winning, we can optimize them and see if we can make them win. But a big component of this is optimizing and learning that, the things where some of the experiments weren’t profitable. So they are constantly looking for the ROI of that investment and product. And just for context, our product investments generated $1 billion in annualized GMS in 2021. Then we get a component advantage of the investment the year they launch, and then they have annualized, and they’re with us in perpetuity until we reposition them with some other new feature. So, we actually think there’s a lot of room for improvement in research, as Josh pointed out, innovations in things like personalization and the ability to develop frequency. of our product investments, it’s a position where we have a lot of confidence that the ROI is there.
ana andreeva
Okay, amazing. Thank you for that. A really exciting investment you talked about on the last call is the customer coverage program for customers and sellers. And I think it’s actually a key component of style that will propel GMS in the long run. Can you tell us a few of them?What effect will this have on the P
Rachel Glaser
Of course. That’s one of the product investment spaces and I guess to some extent it will end up affecting our infrastructure of trust, security and member support, so we have the other right people to respond to incoming requests for help. We’ve been talking about this for a long time, from how Etsy worked hard to create, to remove friction, not only in the grocery shopping experience, but also in the subsequent purchase, to completion. In the past, you’ve heard a lot from us about how to improve shipping costs. So a year or two ago, we introduced flexible shipping eligibility for parts of $35 or more. We’ve done a lot with expected delivery times by shortening times and making very transparent what would possibly be available at what time, and making sure that when a dealer provides you with an estimated delivery date, the item actually arrives within that expected delivery time.
And one domain where we still have work to do is what happens when an item goes wrong with shipping, if the item never shows up, or if the item arrives and is damaged. And we have an assistance procedure to deal with complaints. But for the most part, we refer customers to the dealer to find out where their item went. And most distributors will work with the customer to get it right, but not always. And now we’re making an investment that we think is mandatory to give away: to enforce our concept of a trusted brand that we have a customer’s back. And so we haven’t gone into a lot of detail about that program, but it’s one of the spaces that we’re investing in, you see, like I said, in the investment that we’re making in our trusted security organization. , you’ll see it in the investment we make in the product itself and you’ll see it in marketing, so we can talk to customers and distributors who have this concept of acquiring protection.
ana andreeva
Well, that’s perfect. Thank you. We have won this consultation from many investors. But what do you want to see in the surrounding area to ward off some of those investments?And second, what kind of macro are you [betting] on with your expectation that the rear will what will GMS do for the company?You talked about that in the last quarter call.
Josh Silverman
So we’re constantly reviewing the returns we’re getting from the investments we make, and we’re disciplined to make sure we’re balancing expansion and margins. And we’re really excited to have a style that offers both. Historically, we’ve grown faster than e-commerce and generated wonderful margins, and that’s one of the advantages of a large-scale market place style that can do both. We have been very disciplined about making an investment and reviewing the returns we get, and we constantly challenge ourselves to make an investment, if we are proceeding to get returns. We also believe that we have a wonderful opportunity ahead of us and we have every reason to believe so. Do you think e-commerce is a fad or not? I don’t think it’s a passing fad. We think it’s probably here to stay. Do we think that electronic commerce is more likely to consolidate or not? I think it is more likely to consolidate? Will we be offering something different? We think so. And so the opportunity to invest right now to gain a share of the market is significant to us. The smart thing about our style is that if we don’t see returns, we can go back. And we think that’s a pretty special component of the market style.
Rachel Glaser
And the timing component of your query was what we do: what situations do we see for gmS expansion in the time-of-year component. I will say that we did not give any indication for the full year, we only gave indications for the current quarter. We said that if the macroeconomic situations do not worsen, we are expecting GMS and the component at the moment to be, the rate of expansion will be higher than in the first component, in the component because we have much more moderate compositions compared to last year. If you remember, we had a strong first component the year before and partly because we have, we will regularly have a moment, a larger moment component than the first component. But it’s a very volatile and unexpected era and so we don’t give long-term directions, because we can’t wait for what might happen to the economy in the future.
ana andreeva
Are your math comparisons also less difficult in the back half, is it part of Etsy’s MSG?
Rachel Glaser
Relieving a little.
ana andreeva
Okay, it looks good. They talked about the beta edition of Explore on the last call, I have it on my Etsy app and I’m very excited about it. Do I think 15 million videos have already been downloaded from distributors?How do we think about the timing of a full Explore release?What percentage of GMV has come from this already in the first quarter?And what do you think of this penetration for the whole year and, above all, how do you talk to the consumer about this attraction?
Josh Silverman
First of all Anna, I’m glad you were given the chance to use it and play with it. I think it’s captivating and attractive. And just to back up for a second, I think the concept here is user-generated content. And I think there are more and more discussions about content as a hole or content as a competitive advantage, so to speak. And we have through the Etsy brand space around 7 million distributors who are 7 million content creators. And they’re already creating content and they’re already putting it on sites like Pinterest, TikTok, and YouTube. So we think our ability to create a platform on Etsy where you can post your content is a real plus for us, and the fact that so many other people come to Etsy for inspiration. And that’s not the case with most eCommerce sites. If you think about your big massive eCommerce store, do you go there just to get inspired, just to see what’s new and cool? I’m not so sure. But on Etsy, other people do. So the concept that, to some extent, we compete with Netflix and others for mind sharing, we think is true for Etsy. In fact, we know that many of our consumers tell us that they come here just for fun. And we think this is a wonderful opportunity for Etsy. In fact, we average two hundred million unique visitors a month on Etsy.
And what we’re finding is that when shoppers tell us they’re coming just to laugh or just to get inspired, they’re much more likely to buy anything in the next 30 days. So, the concept with this Explore feed is an example of that. . We took videos from distributors, they gave us about 15 million of them, and we created a kind of uninterrupted stream of literally engaging videos, most commonly of distributors doing things. So in 20 seconds, you can watch anything go from the raw curtains to the finished product and it’s literally captivating. That’s why we’re now starting to roll it out to all of our buyers. In terms of how much MSG is allocated to it, this is literally a leading measure of where – what we need is for other people to come and spend time on Etsy each week. And the more we can develop our weekly active users, our daily active users, our monthly active users, we remain in the brain and I think we will gain more wallet percentage over time.
ana andreeva
It’s very impressive. Yes, we actually think it’s a pretty exclusive feature that sets the platform apart so well. We received this inquiry and you have discussed the field with investments around this discussion. How do we deserve us to think about expansion and marketing?I guess it’s for Rachel, for the time being throughout the quarter and all year?He’s shown a lot of field and ability to pull out that metric. And I know that functionality marketing is particularly tailored to demand. Are you excited about some of the other marketing channels?
Rachel Glaser
So, in the quarter of the moment, let’s see how we start to take a look at what we call above the line marketing, logo marketing. We have a big new crusade going on called made in original, which includes furniture. And that, that kind of supports GMS’s goals of developing through AOV increases and also developing our audience through reaching new demographics. Therefore, it is a kind of gender-neutral attractiveness for men and women at the same time. We said in the first quarter that we were spending slightly more on logo marketing as a percentage of our overall marketing, 16% of our overall marketing this year compared to 13% last year. See us leaning over the line to really mark the message of the logo and that will keep us more aware. He noted that functionality marketing naturally adjusts to demand. So if demand were to decrease our functionality marketing, we would just dynamically back off. And don’t forget, our functionality marketing is offset through: A little over 40% of our spend is offset through our out-of-game advertising program.
Just another way to say that our engagement rate increased when we brought in off-site ads, and a higher engagement rate allows us to spend more. That’s the other thing we announced in the first quarter, it’s an accumulation in transaction fees that allow us to spend more on the ROI curve without maintaining our marginal ROI thresholds that we’ve set. Therefore, we may rely on functionality marketing with this higher engagement rate and may continue to spend on our cross-logo marketing. And finally, we discussed that we experimented with logo marketing above the marketing line for Depop in the first quarter in the US. So we talked about the fact that this would be another domain where we could make marketing investments.
ana andreeva
It’s very impressive. Sounds good. You talked about it, but that’s my next query for Josh. Can you tell us a little bit about the recent backlog of transaction fees?Why do you think now, when is the right time for this?What has been the reaction of the distributors?heretofore?
Josh Silverman
So we saw an explosion of distributors joining the platform. So in Etsy’s market position, we’ve gone from 2. 2 million merchants before the pandemic to over five million merchants in Etsy’s market position alone right now. Therefore, there are many more dealers who want to increase their sales and this is decreasing at a time when buyers have much more to choose from. And this is a time when we want to invest more to make sure we remain a priority. Our distributors cannot increase their sales unless we bring in more sales, more buyers at a faster rate than the distributors. So now is precisely the right time to invest more. We also know that the price we offer is exceptional. We are offering a higher price than any other position a dealer can sell, and our dealers have many options. Our resellers tell us that most of the smart resellers also sell on eBay, they also sell on Amazon, most of them have their own Shopify site and sell offline. And with all the options, we’re told that Etsy accounts for more than a portion of their sales.
One of the things we see as the most productive way to develop sales loyalty is to get our distributors to open their own store, because only then do they realize how amazing Etsy is. Our distributors are each separately blades of grass in a storm. . It’s incredibly complicated for them to create a lopass, be recognized, and generate traffic. So once they start looking to do it themselves, you realize that the payments we qualify on Etsy are much, much less expensive because we leverage the strength of a community. We can combine our strengths and build a lopass called Etsy that literally means anything in the minds of buyers and then lend it to our distributors. So when we presented the cumulative participation in February when we announced it, the reaction was more muted. No one likes their payments to be overlooked, however, our reaction was more muted than when we introduced our last payout backlog in 2018.
There is a small organization of vendors that would possibly have attracted a lot of press attention, but less than 1% of our vendors. In fact, with a widely spread petition covered across the media, 99% of sellers chose not to point to a petition that said they didn’t need their rates to build and less than 1% of distributors with their holiday store. for between one and [seven] days. So, we know that taking that little extra amount of extra fees, 1. 5% of sales, expanding rates to that amount, and reinvesting the vast majority in the market to help them increase their sales is the right thing to do. And we haven’t noticed any significant buildup in the rotation. Therefore, we feel smart about the paintings we make and know that we will be judged by our results. And we know we’re delivering a wonderful price and we’re going to continue to focus on that one.
ana andreeva
And I think the only message that was also attractive and obvious from last quarter’s call is: I think he talked about dealers not raising prices, at least from what Etsy has seen. So, in this inflationary environment, the platform is well positioned, I think, as a security. I guess you agree with that, and how do you communicate it to the consumer?
Josh Silverman
Yes, that’s a wonderful point. So, as we mentioned, if you look at an investigation of Etsy’s product basket over time, what you see is that over the last five years, our distributors haven’t taken the value in a meaningful way. And especially in recent years, when we’ve had such normal inflation, our distributors haven’t collected values for that amount. Now it’s average. Some traders would possibly decide to do this, others decide not to. We do not set values, it is something that each distributor makes its own decisions. And I think distributors can take a look at this market and decide that they can increase their values and maintain smart gross margins. And I think it would be well justified for them to determine that, many are determined not to. This makes the relative cost of parts on ETSY even more attractive compared to other online or offline products. And that’s it, to see us communicating more and more.
Over the last 40 or 50 years, he has focused a lot on commodification and how mass production generates value. I think we’re also starting to see that mass production has its own challenges. on the right, anything is produced and then you get on a boat, a train, a truck, to get to you with maybe 3 surcharges on the way. And a lot of supply chain issues and you end up buying anything that looks exactly like all your neighbors. And the ability to buy anything directly from the manufacturer that doesn’t have a lot of surcharges along the way and that’s made just for you and expresses your sense of style, we think is something really vital. Etsy. We think this is something that consumers will be even more aware of in the coming years and it’s something we plan to look at.
ana andreeva
It’s very impressive. Thank you for that. It makes sense. At Rachel, we’ve earned this investor consultation. As for its catch rates, it has exceeded expectations about the catch rate for a few quarters, adding the latter, Q1 and that is with the decrease in the catch rate of submarines. in the mixture. So can you tell us about that, what motivated it?And how do we plan to take the rate for the quarter of the moment and the year?
Rachel Glaser
Yes. C is a mathematical answer. In the first quarter, our Etsy ad earnings grew 13% year-over-year, which is higher than GMS, which increases engagement and the main driving force of engagement, which was the main driving force behind the increased share. to 17. 8. %. And no, in our recommendation that we’ve given, the implicit intermediate recommendation we’ve given for the current quarter, we don’t expect or anticipate the same dynamic in which Etsy’s classified ads would grow faster, as fast as GMS. . So, I know that other people need to do the math of taking 17. 8 plus the 1. 5% that accumulates in the acceptance rate and isn’t making plans for the number we’ve been led to, however, that would be the explanation for why it’s decreasing what that entails.
Josh Silverman
And if you take a look at the investments that we’re making in product development, that’s a wonderful example of the kinds of returns that we’re seeing. They keep asking us, have you collected all the fruit that is within your reach? And we keep saying, are you kidding? There are so many opportunities to do something more than wonderful on Etsy. So why has participation increased? Because our advertising team created new, cutting-edge templates for even more applicable advertising advice. And just to go back to what happened in the first quarter for a minute. We are working harder and harder to find the right advertising for tips. So if you put in a search query, figuring out what the maximum applicable listings are being promoted, there’s a sure set of technologies for that. It’s a totally different set of technology, if you say because you bought it in the past, those are things that might interest you. And we apply a lot of that beat-pace advice to our ad set as well as biological search pool. And the team made some progress in terms of getting even more applicable classified ads to show in ads and new posts to position them. And that generates a lot of very high-margin revenue, which, by the way, is a winner, winner, winner, because it’s, for marketers, very high-performing ad dollars that they love. For shoppers, it’s even more applicable ads and for shareholders, it’s high-margin revenue.
ana andreeva
Well, that makes sense. I love that component of the Etsy story that you’re still at the beginning of this customization journey. Essentially, if, as a customer, I just bought a couple of pieces of clothing, you’re not going to go on to propose the same garment to me. , however, how about anything to go about that to boost the sets and drive the AOV and make me convert again?So I think it’s pretty exciting to hear that. I guess, as we communicate about the cohort numbers, josh. Maybe we will let you know how some of the recent customers are others, others from the old customer to charge the combine and how this expansion is possible. And when communicating about the hundred million expired customers, only the numbers are so important. How do you plan to repeat them and to what extent do improved studies and discovery remain part of them?
Josh Silverman
So we’ve seen a surge of buyers coming to Etsy in the last couple of years. So I think we had 46 million buyers before the pandemic, we’re at 89 million buyers, there are a lot more buyers now. And that’s a mix of a bunch of new buyers, other people who are new to the platform, combined with waking up to a number of expired buyers who probably would have gotten onto Etsy a while ago. I was 4 or 5 years old, but hadn’t recently had one. And with the new buyers, we share that we added 7 million new buyers in the first quarter. This is a lower number than what we added during the pandemic, but it is still particularly higher than the number we were adding before the pandemic. So there are still tons of new buyers that we keep adding. And actually, in our core geographies, our six core geographies, we still have less than 50% penetration, so there’s a lot of wiggle room. And we have many unsuccessful buyers. And those are other people who have joined Etsy and haven’t yet in the last 12 months. When we reach out to them, we find that the vast majority of them say they love Etsy, they just didn’t think of us at the time. We were not in the lead for them. And then there is a wonderful opportunity to re-engage them.
And Anna, as far as you’re concerned, what we found out is that during the pandemic, a lot of other people shopped on Etsy 4 or 5 years ago and thought, oh, yes search. it doesn’t look as good or parts may not arrive on time, and Etsy has made so much progress in this area, they were pleased to see that the search engine actually looks much better, we’re better at things like recommending things you might need next. There is now a very transparent expectation regarding cost and delivery time, which was not the case before. So what we’re seeing is that the new cohorts that we’ve added have really been pretty sticky. And it looks like the lifetime cost of the cohorts that we added during the pandemic is going to be at least as smart as the lifetime costs that we were looking at before the pandemic and that was literally a big open question. There are a lot of valid questions about what about the other people who just came here wearing a mask and are going to disappear, and those consumers really do cost something in the long run. And we’re seeing the return of the valuable cohorts of buyers we’ve added masked and maskless, and we’ve noticed a genuine uptick in our existing cohorts arriving even more as a result of the pandemic and moving forward now the gains persist.
ana andreeva
Okay, that’s great. Is there a formal loyalty plan that Etsy would have in the works?Do you think this makes sense for the company?
Josh Silverman
We have nothing to announce at this time. What I would say is that the most productive loyalty program is to offer a wonderful experience in which consumers love the product. Starting with the basics, when I go in and stop at Etsy, do I locate the things I like and when do I buy them?, I am delighted with the experience. And we’re realizing that we’re getting more and more wonderful by turning scales into acquisitions, and the net developer’s score on an acquisition is really high. Our salespeople do a great job and we give them even more equipment to do an increasingly wonderful task. There are many levers we can use to tell our dealers what they can do to offer a more wonderful scale or enjoy. Our distributors are limited more than anything over time. that what buyers are interested in are the service metrics of scale or scale and this is what you are doing, we can create a race to the most sensible where dealers do it better.
Things like right now, we’ve created a featured dealer program that says there are 3 things that are the most important thing for buyers: answering your convo, your questions within 24 hours, shipping the item to yourself on time, and getting five star reviews. And now we’re very transparent with distributors about how they’re doing on each of those 3 metrics compared to what assets look like for our giant dealer organization. And it creates a career dynamic in which distributors make a pair It is a greater task to serve buyers and buyers are extremely cheerful and create a virtuous circle. Could there be a loyalty program? Maybe, I don’t know, I don’t know if it could be a panacea. You see a lot of loyalty systems out there and some of them are very impactful and many of them are not. So that’s all we’re going to see.
ana andreeva
Okay, it looks good. Josh, for you, Etsy’s category diversification, I think is a really attractive underrated asset of the model, and you’ve discussed some of the category metrics before. How do you see this as a competitive differentiator for the brand?And what are you doing to inspire multi-category buying?I think that’s something he’s discussed as an AOV opportunity along the way.
Josh Silverman
Excellent question. And absolutely, you can buy, you know, the maximum number of things that you need to buy, you can buy on Etsy. You can buy client electronics, you can buy trips, there are several things. But it’s less difficult to say what you can’t buy than what you can. So 15 categories, each had over a million buyers in the last 12 months. And we saw that that was a great strength of Etsy during the pandemic, because other people’s wishes were superseded very quickly and Etsy resellers were able to adapt to that change. So we do a lot more to advertise other categories. One of the biggest opportunities for us is that other people who buy baby products don’t realize that we also sell home furnishings, and other people who buy home furnishings don’t realize that Etsy resellers also promote jewelry etc. So we have invested a lot in personalization and now we start to learn more about you and your tastes. And based on what you bought, what are the following categories that will interest you the most. And we’re looking forward to launching those technologies, but we’re already seeing some gains, for example, emails telling you, these are the next 3 things you might be interested in. We are getting a lot better at this domain and this can unlock a lot of lifetime value.
ana andreeva
Okay, great, amazing. We only have a few minutes left, but I sought to communicate about submarines and more particularly about Depop. We have won many questions from investors interested in Depop. You reached out about the expansion of marketing and branding and the etsy and Reverb app. Type of an individual retail business to brands as well. What are you doing in particular to bring this MSG acceleration to life in Depop?And I stay with Depop, because it’s the biggest submarine.
Josh Silverman
So first of all, we’re incredibly excited about retrading as an area that we’re going to become a very large area over time. We, Gen Z, are the most important: if you think about population or demographics, five years from now, what will matter the most, Gen Z will play a major role in re-trading. And we believe that Depop is the most productive re-commerce logo for Generation Z. Therefore, we are incredibly excited about this logo. As Rachel mentioned, we’re looking for publicity above the line. We believe this is a time when Depop deserves to tell its story and is worth an investment. And then we’re doing a lot to improve the platform to make search work better, to do more to convert visits into purchases. And actually, we took two of our most no-nonsense product managers and an engineering manager from Etsy and moved them over to Depop to join the really talented team right now at Depop to transplant some of the Etsy DNA on how to make that. That is why we believe that there is a great opportunity in Depop.
ana andreeva
Thank you Josh. Just to finish, to Rachel, communicate about capital allocation plans. Etsy has a very strong balance sheet, the valuation is down here. And do you think an opportunistic acquisition would be something the company would consider?
Rachel Glaser
Thanks for the question. And I will say that one of the things that we like best about our style is that most of the EBITDA that we generate is shifted into operating cash flow and transferred to our balance sheet. Because we do not have retail outlets or distribution services or anything like that to have to consume part of our capital. We said that we had presented in our 10-Q that the board legally had a $600 million inventory buyback and that we were using our inventory buyback philosophy to compensate: we use capital as a form of pay for our employees. And therefore we must compensate for that dilution that we create by issuing inventories and returning them to shareholders. So we put that in there. And on mergers and acquisitions, although we can’t communicate too much about mergers and acquisitions, it’s not. . . we digest what. . . last year was a big year for mergers and acquisitions with two acquisitions, and we’re digesting what we have. acquired. We look at what is happening in the landscape. But at present, it is not a sensible maximum precedence for the use of capital.
ana andreeva
Sounds good. That makes sense. Well, many thanks to the etsy team, Josh and Rachel, very happy to have them. And thanks to those who listen to the webcast.
Josh Silverman
Thank you for having us.
Rachel Glaser
Thank you for having us.
ana andreeva
Absolutely. See you soon. Thank you.