Etsy Inc. grew revenue in its fiscal Q2, even as its gross merchandise sales (GMS) declined.
CEO Josh Silverman told investors on the marketplace’s Q2 earnings call that it encouraged him to see improved performance “directly related to the strategic shift we made midway through last year.” In 2024, he said, Etsy created “more intuitive, browsable app first services built on a foundation of more robust customer insights.”
As a result, it can better understand its customers’ interests, which fuels the marketplace’s generative AI large language models (LLMs). These LLMs have helped Etsy create what Silverman referred to as a “truly made-for-you shopping journey, a revenue-driven approach that proved highly effective at Depop.”
Silverman told investors that Etsy is fueling reengagement through product improvements and owned marketing channels.
In addition to its namesake marketplace, Etsy owns a used-clothing marketplace called Depop. Until closing a sale on June 2 this year, Etsy also owned the musical instrument marketplace Reverb.
Etsy ranks No. 20 in the Global Online Marketplaces Database. The database is Digital Commerce 360’s ranking of the 100 largest marketplaces by third-party gross merchandise value (GMV). Reverb is No. 45, while Depop ranks No. 49.
Etsy revenue and GMS in Q2
In Q2, Etsy revenue grew 3.8% year over year, while GMS decreased 4.8%. Etsy revenue reached $672.766 million in Q2, up from $647.81 million. Etsy attributed the Q2 revenue growth to its on-site ad performance and “to a lesser extent, payments for both Depop and Etsy.”
Revenue from the Etsy marketplace accounted for about 70% of the total, with the remainder coming from services, according to chief financial officer Charles Baker. Marketplace revenue decreased 0.5% year over year in Q2, whereas services grew 15.3%.
Meanwhile, Etsy GMS in Q2 was $2.81 billion, down from $2.95 billion. When excluding the sale of the Reverb marketplace, Etsy GMS in Q2 was $2.7 billion, down 2.6%. GMS from Etsy’s app outpaced non-app GMS in year-over-year growth during the quarter and accounted for close to 45% of the total, Silverman said.
“While we’re, of course, not satisfied with the year-over-year decline, we do believe this sets us back on a path to growth,” Silverman told investors.
He added that Etsy is harnessing what it learns about its buyers to prove it can deliver more personalized content through its owned marketing channels. That includes email and push notifications, which he said are increasingly driving customers’ engagement. In Q2, GMS that Etsy attributes to those channels increased by about a third year over year, Silverman said.
A bright spot for Etsy was that Depop GMS grew 35% year over year in Q2, reaching a $1 billion annualized run rate. And in the U.S., Depop’s GMS grew at an even faster rate — 54%.
Etsy strategies to improve customer experience
Chief growth officer Kruti Goyal identified four priorities that Etsy set to improve the customer experience:
- Showing up wherever shoppers discover products — on and off Etsy
- Matching shoppers with the right inventory through improved machine learning
- Retaining and rewarding the most valuable customers
- Further amplifying the human connection
She said Etsy wants its consumers to engage with it naturally across social platforms, mobile apps, search engines and AI tools.
“While our greatest asset is our sellers’ vast collection of over 100 million listings inspired by their creativity, it also presents our biggest challenge in terms of delivering search results and recommendations that show we truly understand our buyers’ tastes and needs,” Goyal said.
She said that chief technology officer Rafe Colburn considered Etsy’s previous search-ranking models “trailblazing” and said it did “an excellent job” of organizing inventory. However, those models are “not the right fit for where the future of personalized shopping experiences are headed.”
Because of that, Etsy is “retooling” its ranking platform to more effectively leverage generative AI LLMs’ capabilities. That will help Etsy better understand its own listings, users and their activities as it seeks to deliver better search results.
“We’re creating more diverse and engaging recommendations by scoring items across a very broad range of interests and clustering them to capture nonobvious connections to encourage discovery,” Goyal said.
Agentic shopping driving Etsy traffic
Silverman said Etsy is “uniquely positioned to benefit” from agentic shopping because of its sellers’ massive set of “highly differentiated inventory.”
Agentic shopping stems from generative artificial intelligence. It uses AI agents — layers of software built on top of large language models (LLMs). Companies design those agents not only to interact with humans through text-based, chatbot-style interfaces, but also to make decisions and execute actions autonomously.
“While still very early days, we’re actively engaged to best position Etsy as a winner in agentic shopping,” Silverman said. “Third-party data points to that opportunity. Our recent report shows while overall volume is small, Etsy is already one of the top retail ecommerce recipients of agentic chatbot traffic.”
He cited a study from Similarweb and said the traffic numbers “are still so small that it’s really hard to parse it out and talk with any confidence about things like conversion rate.”
How Etsy can benefit from generative AI agents
When a user gives an AI agent a mission, it returns to the user with a few choices upon discovering, Silverman said. He gave the example that if several places are selling the same SKU at different prices, an AI agent will pick the place that sells that SKU at the lowest price and ships it fastest, and then it will provide alternatives.
He said he thinks LLM builders are interested in working with Etsy because of its personalized products and what he called a strong engineering culture.
“Everyone else is largely selling versions of the same thing,” Silverman said. “Etsy actually has something unique to offer.”
And whereas agents might surface the cheapest products with the fastest delivery, Silverman said he thinks they might also suggest that consumers consider Etsy because it offers similar products that the consumer can personalize.
He also noted that generative AI can be helpful for paid social growth. Personalizing copy is an important part of that, he said, but so is the fact that Etsy assortment is “incredibly broad but not very deep. You can’t usually sell 100 or 1,000 of anything because our sellers sold out by that time.”
As a result, Etsy will need a landing experience that displays a particular range of inventory that consumers are interested in and meets their needs. From there, Etsy would need to understand the consumer’s mindset and generate “on the fly” a personalized landing experience. Generative AI will help “enormously” with that, Silverman said.
How Etsy is preparing for the holidays
Etsy aims to make its app “a source for discovery and inspiration, not just at the end of your journey when you’re ready to buy,” Silverman said.
And there’s more to come, he added.
“Our pre-holiday product development road map includes improved app navigation, better buyer-seller conversations, more informed browsing and substantially improved matching models to pick the best content for you,” he said.
The marketplace is also “evolving” its beta loyalty program, Etsy Insider.
The program “has shown excellent results of driving frequency and consideration, yet didn’t provide scalable economics in its V1 iteration,” Goyal said. “So by this holiday season, we’ll launch a V2 program to an expanded buyer set, including our top buyers, enabling us to test and iterate on a refreshed set of rewards and benefits.”
Check back for more earnings reports. Here’s last quarter’s report on Etsy revenue and GMS.
Do you rank in our databases?
Submit your data and we’ll see where you fit in our next ranking update.
Sign up
Stay on top of the latest developments in the online retail industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News. Follow us on LinkedIn, X (formerly Twitter), Facebook and YouTube. Be the first to know when Digital Commerce 360 publishes news content.
Favorite