Good afternoon, everyone. Thank you so much for joining us. My name is Nathan Feather, and I am Morgan Stanley's Small and Mid-Cap Internet Analyst. I am pleased to be welcomed today by Kruti Patel Goyal, Etsy's CEO, and Lanny Baker, Etsy's CFO. Thanks so much for being here. Thanks for having us. Thanks, Nathan. Now, before we begin, a few quick housekeeping items. For important disclosures, please see the Morgan Stanley Research D isclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Also please refer to Etsy's Safe Harbor found on their Investor Relations website. With that, let's kick it off. Kruti, you've been at eBay-- or sorry, Etsy for quite some time here. Many in the financial community are still just getting to know you, though. What should we understand about your journey, leadership philosophy, and how that perspective shapes your assessment of Etsy today and the plan to reaccelerate growth? Sure. Well, thanks for having us. I'm glad to have the opportunity to chat with you all today. I have been at Etsy for a really long time. I just celebrated my 15-year Etsyversary a couple of days ago. Ooh. I know, crazy. It had me thinking about how much Etsy has changed from then till now. When I joined in February of 2011, the company was just under 200 people. It was a little-known brand, we closed the year with about $500 million in GMS. You look at Etsy today, and it's a far cry really on every dimension. We're a well-known and loved brand with just under 2,000 people, but we finished the year with over $10.5 billion in GMS. You know, over the course of that time, I've had, you know, the opportunity to not only see Etsy grow and evolve, but also to play a lot of different roles across the company. I was our first head of trust and safety. I ran our international team. I ran our Seller Services business, corporate and business development, then I was chief product officer, before I went over and ran Depop for a few years, then, of course, came back. Having all of those roles throughout that journey have given me the unique opportunity to really learn and understand Etsy's business through the eyes of our buyers and sellers, through all of these different contexts, which gives me a really great perspective on the challenges and the opportunities that our customers face on Etsy. That experience for me has really reinforced a couple of things that inform my philosophy on growth. That is when you really deeply understand your customer's needs, that allows you to solve those problems in a way that builds meaningful customer value. That allow us to really build meaningful customer value that in turn is what drives long-term business growth. I've seen that where it might seem very obvious. It might seem really obvious that delivering customer value delivers business value and then, of course, in turn, shareholder value. Sometimes in these businesses, that gets lost a little bit in the focus on delivering on an incremental metric in a quarter. When we have done that really well, I've seen it deliver incredible growth, both at Etsy and at Depop, where we took the business from three years of flat GMS to three years of accelerating GMS growth. When I returned to Etsy last year, the first thing I did was run a really deep diagnostic, looking into, you know, our data insights, our research insights, talking to customers directly, talking to our employees internally to really understand what it is that's been holding us back from growing as a marketplace. That really directly led to the priorities that we're focused on today. We really need to do four things significantly better to reaccelerate the growth of the business, and those are showing up where shoppers discover. We've gotten really good at the very end of the transaction in getting you to transact. Being present and being present with relevant content earlier in this discovery journey is the first thing. The second thing is getting meaningfully better at matching our buyers with the right inventory, based on their intent in that moment. That context is really important, and we think that this is gonna be really unleashed by the capabilities of ML and particularly LLMs right now. The third is doing a much better job showing our most valuable customers, both our buyers and our sellers, that we value them, showing them that we recognize and are willing to reward them for their investment in Etsy. The last, and maybe the most important, is doing a much better job elevating and amplifying the differentiation of Etsy. This is what we're calling human connection. Importantly, one of the things that we learned from our research with our buyers and our sellers is that they really value what makes Etsy unique and distinct. That combination of creativity, craftsmanship, and connection that's really only on Etsy, but it's showing up less and less over the years through our product experience, and across our user touchpoints. We think there's a huge opportunity doing all four of those things well to really unlock the growth of the marketplace and reaccelerate our growth opportunities. That's a great overview. If we look back, you know, 12 months, the Etsy Marketplace has accelerated in each quarter over the past year. How would you define the primary drivers behind that improvement? Of the variety of things you talked about, what are the key things you need to execute on for GMS growth to be positive again each quarter this year? Yeah. We're really encouraged by not the magnitude and the trajectory of growth that we're seeing or improvement that we've seen over the last year. Over the last four quarters, we've seen really significant sequential improvement in growth going from -9% in Q1 to just positive in Q4. You know, we see that the evidence of that growth coming from a couple of areas, primarily our discovery and matching initiatives. The places that shows up most prominently in our experience are in our app and in our owned marketing channels. In our app, we've been making a lot of investment in improving the discovery experience, both in terms of the UX and in terms of the recommendations that populate our discovery feed on that screen. We're seeing engagement really significantly grow as a result. We're seeing clicks in our app home screen discovery feed up 19% year-over-year. When you look at our owned marketing channel, so push and email notifications, we're also seeing really massively improved engagement with those recommendations. Clicks are up 25% year-on-year as a result of the much more personalized recommendations and content that we're populating that experience with. All of that, of course, is powered by ML-driven recommendations and the new recommendations models that we've been developing. You know, we talk about these improvements in engagement, and I will just say that these are really big improvements in engagement, up 19%, up 25%, that are really great indicators that the changes that we're making are meaningfully making the experience better in a way that's changing user behavior. We talk about these green shoots because we think they're really important evidence of roots beginning to take hold that give us confidence that the strategic priorities that we're focused on are the right ones. That's why as we look ahead to 2026, we're doubling down on these priorities. We need to continue to execute with clarity of focus, and confidence and consistency in these priorities to seek continued growth and compounding of return on these investments going forward. Right. That's great. Lanny, buyer growth has improved in 4Q with gross adds up about 3% year-on-year, but frequency has remained under pressure. Can you talk to us about what's driving the improvement in acquisition and retention of customers, what's been limiting frequency growth, and how you think about unlocking more durable, sustained buyer growth? Sure. First of all, thanks for having us. We're really appreciative of the opportunity to be here. I think the buyer growth progress that we had, which, you know, started to improve earlier in the year, and then, like you pointed out, by the end of the year, we were comping positively in the net number of new buyers, gross number of buyers brought on, really reflects the progress that Kruti referred to on showing up where our customers are. I think, you know, if you're being more specific, things that we've done in social media to really expand our presence there, the growing ability to convert social media usage and marketing into app usage and then retaining those users on the app. Our outbound push marketing channels are continuing to get better and better as we make progress in making the outbound messages more and more personalized. We see the response rates to them improve. I think what you're seeing in that new user gross addition improvement in the fourth quarter is really like one of the earliest signs of kind of the core strategic priorities that we have coming to light. You asked a question about frequency, and I think it is, you know, I think you can break down our sort of the drivers of GMS into three really simple pieces. The number of buyers that we have, the frequency with which they purchase, and the average order value. We have the most influence over the first two of those levers. Our sellers do most of the work setting prices. We assist them with that, but really we focus on the first two of those levers, and a lot of the priorities that Kruti or all the priorities that Kruti talked about are directed at those two things. I think, we're really excited about the fact that about the opportunity that resides in the fact that half of our users buy from us one time a year. you know, when we're bringing back quite a few reactivated users, and in some ways a reactivated user is just somebody with a, with a lower purchase frequency even than one year. What we're trying to do to drive and change that purchase frequency is be much more personalized, be much more relevant, remind users of Etsy in places like social media and on streaming and other places where consumers are starting their shopping journeys today. As you know, we've made some, I think pretty early and innovative pushes to be present in the early days of agentic shopping, another place where we're trying to show up. I think, you know, it's a sort of a one-two punch of showing up at the places where the buyers are early in their journey and then having an experience on Etsy that is really personalized and does a good job of matching their interests with our inventory, their intent with our inventory. You know, I think the better we do that, the more likely we are to get them to be repeat, consistent, frequent users. Let me touch on one more point. The mobile app's been really key to that. The mobile app, when we get people on the mobile app, they come back more often, they look at more content, giving us more intelligence about who they are and what they're interested in. They convert better, and their LTVs are about 40% higher than those who have not yet used the app. About half of our customers are not yet using the app. We see a lot of opportunity here. There's one thing in there that I want to double-click on, which is the improved search and discovery. Now, that's long been a key tenet for the company. While you've certainly made progress, it's still one of the key focus areas. Help us think through, especially with some of the improvements from machine learning and AI perspective can unlock from you. Yeah. There's a good reason that search and discovery has been a focus for us. Matching is really the core value proposition of a marketplace. It has been a priority. It should continue to be a priority forevermore. I think that what's different today— Shame on you, Kruti, and shame on you, Lanny, for continuing to profit off of the bloody fur trade. Nearly every major fashion brand in the world has committed to a fur-free policy. Etsy continues to enable this cruel and barbaric practice. What's different today than before? The two of you profiteers out of killing millions of animals a year. You should be ashamed of yourselves. How sick, how disgusted. Investing in Etsy is investing in a company that kills and tortures animals for a buck, and it's investing in a company that is a target of Coalition to Abolish the Fur Trade. The same organization that feeds Vogue, New York Fashion Week, and dozens of other brands. You will deal with us everywhere you are, every conference, every speech, everyone you do business with will deal with us until we get a fur-free policy. There is only one way this ends. The ball is in your court. You can do something about this. You can stop killing animals. You should be ashamed of yourselves. You should be disgusted. I'm ashamed of you. I'm disgusted by you. Thank you. You will deal with us until we get a fur-free policy. The only way we're going away is with a fur-free policy. It's only you. You're the CEO— Yes, certainly. I was saying earlier that search and discovery is an evergreen priority for us, as it should be, given that it's a core part of our value proposition. What's changed now versus before is the power of the advancements in AI, and particularly LLMs, and the ability that they give us to really unpick some of the stickiest challenges for a marketplace like ours with a really long tail of unique inventory that is broad and relatively shallow. The thing that has been hard for us is to really get this trifecta right of deep inventory understanding along with deeper buyer understanding and understanding of intent. Marrying inventory interests and intent is the thing that really amplifies the value of the 100 million listings, 100 million plus listings that we have on the marketplace. It's really that advancement in technology that is going to allow us to do that much more effectively than we have in the past. Just to talk about one example of among those three, when you think about buyer understanding, for a long time, we've talked about how we're challenged by the sparsity of data because of the relative lack of frequency that we have in terms of buyer engagement. You know, what LLMs have allowed us to do is really build a much richer understanding and mapping of buyers to interests and inventory to those interests, and then buyers to buyers and inventory to inventory in a way that enables us to have a much richer picture of what a buyer might be interested in. We're using those buyer affinity models to power these new recommendations models that I was talking about before that are making our app discovery experience and our owned marketing channels much more engaging. That's just one example of how we're really using the new power of that AI offers to make search and discovery a lot better and a lot than there was possible even a year or two ago. That's very helpful. One of the big news points coming out of your last earnings was the sale of Depop, and you've led much of the Depop rebound over the past few years. Can you talk through why now was the right time to sell that business? First of all, I'll just say that I continue to be a big believer in the resale category. I continue to be a big believer in Depop and the ability of that platform to capture more of the resale market. I'm really proud of the growth that we've seen of Depop during the time that it's been a part of Etsy. As I mentioned earlier, we went from three years of flat growth to three years of accelerating growth, fastest-growing resale platform in resale fashion platform in the U.S. I think that's really what drew the attention of eBay. While the plan wasn't to sell the business, when eBay approached us with an offer, it caused us to take a step back and really take a fresh look at the opportunity to invest in the return on that both across Depop and Etsy. What we realized was a couple of things. First, that the biggest opportunity ahead of us is in Etsy, is in the core marketplace. The second is that the valuation the value that we landed on was really a full value of the opportunity of Depop within Etsy. When we looked at those two things together, even though it wasn't the plan, it made it clear that this was the right transaction at the right time. That's how we decided to move forward. Look, we're really excited about the fact that this allows us to focus 100% of our investment of time, energy, and resources in growing the Etsy Marketplace. Okay, great. Lanny, the sale will result in about a $1.2 billion cash infusion to the company. It's about double your annual free cash flow. How are you thinking about allocating that incremental cash? You know, as we said at the time when we announced the transaction is that we anticipate using the proceeds for general corporate purposes for, and as we've done in the past, managing our balance sheet and repurchasing stock. If you look in the last couple of years, I mean, last year we bought well over 100% o f our free cash flow in terms of buying back stock. We've shrunk the equity base by almost 20% over the last 24 months. We really think Etsy's equity is attractive value here. You know, as we look at our balance sheet, we've got a series of convertible notes outstanding. We're really pleased with it. We feel it's kind of an appropriate amount of leverage. The borrowing cost associated with those has been fairly favorable. I think Etsy has a healthy relationship, hopefully, with the capital markets that give us a lot of flexibility. We're looking forward to having those proceeds. You know, I'd say what we've done most recently has been buy back stock with excess cash, and we'll see when we get the money. Okay, great. Now, you also guided to a 28%-30% EBITDA margin for the full year. How are you thinking about balancing investments with profitability given the growth opportunity ahead? What are the main puts and takes that could lead margin to deviate from that guidance? Sure. You're right. For this year, we're anticipating that EBITDA margins will be in the neighborhood of 28%-30%. That's the range that we had laid out. That's pretty consistent with where they were last year. The lowest quarter was just a little bit under 28%. That was the second quarter of last year. The highest quarter last year was the fourth quarter, just a little bit above 30% for Etsy as a standalone business. We're talking about a very similar range. I think that range allows us to invest healthily in our product experience and in our marketing. If you look back at last year, as Kruti said at the outset, we went from GMS shrinking at a 8% or 9% rate year-over-year to being flat, a little bit positive by the end of the year. That was on sort of a similar investment level that we're planning on making in 2026. The things that we focused on last year that drove that kind of improvement in our comparisons are the same kind of things that we're focused on in 2026. You know, we'll spend over $400 million this year investing in the Etsy product, which we think is an appropriate and reasonable level of investment to drive further improvement in GMS growth. Does the Depop sale change how you think investments in core Etsy? You know, we really ran the two businesses separately. They were not deeply integrated. They did not deeply leverage off of each other. The decisions we made about the right level of investment for one or for the other was really native to that business and distinct from each other. There's no change in our investment philosophy around Etsy because Depop is no longer there. Okay, great. Now, I want to talk about one of the things that has been certainly top of mind for investors, and that's agentic commerce. Etsy has been an early mover in the agentic commerce space. You've got partnerships with OpenAI, Google, Microsoft. How do these partnerships fit within your broader agentic strategy? What have you learned so far from agentic-led transactions? And how do you think about concerns that off-platform agentic discovery could reduce, you know, traffic or potentially pressure on-site advertising? Yeah. First, let's talk about why we've been really early movers in this space. You know, we think that agentic commerce presents a really meaningful potential incremental discovery channel for Etsy. One of our priorities has been that we talked about is showing up where shoppers discover. This is a very strategic area of focus for us. We believe that it's important to be there early, both to shape the experience and to learn from how that experience is evolving along with our customers, to be able to participate in that. Now, as you mentioned, it's very early days. What we're seeing initially is a lot of growth. We saw, you know, engagement with this platform, our traffic from this platform grow 15x Q4 of this year over Q4 of last year, but off of a really tiny base. It still makes up only less than 1% of our traffic. What we're seeing is really encouraging. First, that people are interested in, you know, discovering on this platform. That's evidenced by the fact that they're, you know, the rate of growth. Second, that we see high, higher purchase intent, higher AOV, and we see really strong flow-through from this channel, meaning that people are discovering Etsy items on this channel and coming to Etsy to learn more and engage more deeply. That early evidence reinforces our hypothesis that this is a potentially really valuable incremental discovery channel. You know, the other thing I'd say is that we think Etsy is really well-positioned because of the uniqueness of our inventory to be additive to that experience. In terms of the disintermediation risk, you know, shopping is not one size fits all. A lot of these conversations that we're having about agentic commerce, there are some hypotheses that it's, you know, that 100% of shopping is going to move to these agentic channels. What I'd say is it's easy to imagine how, you know, buying something like, you know, batteries or household goods would be easy to do entirely on agentic channels. There are very few dimensions for making that decision: price, speed, possibly brand. When you're talking about higher considerations, it's harder for... Higher consideration purchases, it's harder for me to see people shifting, you know, buying a gift for your wife to these agentic channels. It's something that you're gonna wanna be a little bit more deeply engaged with. That gives me even more confidence in the opportunity here for incremental discovery rather than disintermediation. Yeah. I would say in the early days, we have seen AI agents be a great source of pass-through traffic. While we're excited about the agentic checkout on OpenAI or on other destinations. What we're seeing is a lot of customers say, "I need a little bit more information. I wanna understand that seller. I wanna understand that merchandise more." There has been a very strong flow-through of traffic onto Etsy where people are looking for a little bit more information, which only we have about those goods and the connection to the seller. Maybe you wanna have a conversation about that item. We're seeing it as a source of incremental traffic coming to Etsy. From an advertising perspective the strength of our advertising model reflects not only the technology that we have to match ads and really deliver relevant ads, but also reflects the nature of the search query where there are multiple answers to most consumers' search queries in amongst Etsy's inventory. That means the value of being at the top of the queue is very, very high, and that exists even as traffic is coming through from agentic AI, and today we are monetizing or we're sort of recognizing a very small portion of the total ad budget that sellers say, "We'd be willing to spend this much on Etsy." As we do better on making that match between the ad and the search, we're able to recognize revenue from that advertising. I think there's still a, you know, there's more traffic coming in, and there's more opportunity from our sellers on the advertising side. Now, one of the areas I think has been overlooked in the agentic conversation is all the opportunities on-site. How are you thinking about embedding agentic capabilities into the core experience to reduce friction, unlock new use cases? Zooming out, what's the most underappreciated opportunity and the biggest challenge GenAI presents for Etsy? I'm so glad you asked this question. I agree. The conversation is largely centered on off, you know, opportunities presented by agentic commerce. I actually think the most exciting thing that this new technology offers is really improving the experience on Etsy, and there are a couple of reasons for this. One is that the power of LLMs is not unique in its application on agentic platforms. These LLMs are accessible and available for us to use, and we have much richer data in terms of understanding our users and information across the marketplace to apply that technology to create an even more powerful user experience on Etsy than anyone else could. I think the other thing that is exciting about this technology in terms of on-site application is that we see agentic platforms really training people and getting people comfortable with a different interface, a more conversational interface, as they're searching and exploring content. You know, we experimented with this a couple of years ago, and it wasn't very effective. I think now as consumers are becoming much more comfortable with conversational commerce, that unlocks a lot of opportunities on platform as well. One of them that I think that, you know, we've talked about this a lot on, in terms of the buyer experience, and you can imagine how search could be powered, you know, by conversational interface. I actually think there's a huge opportunity to apply the same technology and the same interface to the seller side of our experience and to our internal teams. You know, thinking about how we enable sellers to more effectively communicate with us to understand how to grow their businesses and leverage the insights that we have, or our support agents to solve the trickiest customer problems through these same interfaces and leveraging the same LLM capacity. There's a huge amount of potential on the platform, leveraging the advanced technology or the advanced capabilities of LLM. Okay. One of the things you touched on there is the seller experience, and that connection between buyers and sellers. One of your priorities has been to further amplify human connection, I think one of the things Etsy really does differently from a lot of other marketplaces. Where do you feel the Etsy Marketplace could do better at fostering this, and what's the opportunity of doing so? I mean, in a word, everywhere. I think, you know, as we have gone out to our buyers and sellers and done research to understand what they value about Etsy, the answer has come through really clearly that the distinctive value that Etsy provides is in this combination of a platform that enables you to tap into creativity, whether yours or the seller's, craftsmanship and connection, knowing that what you come from comes from a real human. What we've also heard back from that research is that that comes through less in the experience or has come through less in the experience over time. There are two ways that I think that that value proposition can be delivered much more effectively through our user experience that are most obvious. One is in terms of really, surfacing more effectively and more prominently where items are coming from, how they're made, what the role of a seller is, really in connecting the identity of that item and the person behind the item to the item itself. A second is in the interaction with that seller. You know, one of the things that's really unique about Etsy is that almost anything on the platform can be customized, and the way that you can tap into that customization is by communicating with that seller. That takes our already vast inventory of over 100 million items to almost infinite. Mm-hmm. There's almost nowhere else that you can do that. By surfacing that unique capability that exists because our marketplace is powered by people, I think gives us an opportunity, you know, to make that breadth of inventory really our superpower. It's by amplifying that connection and the humans behind the experience that you have on the platform. Okay. That's great. One other area which has been really important to the story is marketing. You noted on the last call that your spend on TikTok doubled last quarter without any impact on ROI. It's a big improvement with no degradation in ROAS. Yeah. Help us think through how your marketing channels have evolved over the past 1-2 years and where you see an opportunity to expand investment. We're trying to show up where buyers start their shopping missions. This means being at the forefront of what's happening in agentic commerce. It means being far more present than we've been in the past on social media. It means moving dollars from linear TV to things like streaming and OTT, and it means focusing on our mobile app as a way to have direct, you know, non-intermediated conversations, marketing conversations with our buyers. We've been doing all those things. Last year we moved money from television to streaming very effectively, shrank the total dollars we spend, probably got more impact against the core audience that we looked at. On the search side, which is such an important bedrock of our business, we continue to make improvements in how we target, how we, what data we add to our feed that we provide to Google and to others. That helps us get more bang for the buck out of each dollar that we're spending there. Our onsite conversion continues to improve. We're making progress, you know, right in the middle of our marketing as well. I'm really excited about the progress we've made in social media, where we've, you know, we've put trial dollars to work, we've learned some things. In particular, we've learned how effective social media is in reactivating prior Etsy buyers, and not only reactivating them, but bringing them straight from that reactivation into the app. Our app is such a great... I talked about it a moment ago. Our app has about 40% higher LTV, it's really like the best sandbox, where you can see today all the things we're trying to do in terms of personalization and targeting and improving the match really come to light in that mobile app environment because it's a logged in user who we know something about. As the mobile app channel has grown, it also means we have a growing number of people that we can message directly, as I said at the outset. That's a wonderful channel for us, where we're not paying some third party. We're having a very direct co- relationship with the customer. You know, I think there's a lot of room for us to continue to expand our marketing spend. You know, the way we've managed that spend historically has not been with, like, a budget or an audience target. It's really been with a return on investment requirement. What that does is that says, like, we wanna spend every last marketing dollar we can up to that return requirement, and then where we can't, we go to work on the product experience, the conversion experience, the retention experience, so that we can spend more 'cause we're moving our own return against the investment we're making. Well, we've covered a lot of ground here, let's wrap it with something on a more high level. Kruti, Lanny, can you each leave us with maybe one or two aspects of the business you feel are most misunderstood or underappreciated by investors? Look, when I think about what's most underappreciated, it's really the opportunity that we have at this moment in time. We have a massive market opportunity. We've got a TAM of over $650 billion. We capture less than 2% of it right now. We know that there's an opportunity to unlock more of that opportunity when only half of our buyers are purchasing 1 x a year. We have a truly differentiated product that is our moat, and in a moment like now, when you can access tons of items that look largely the same and people are wondering what's real, the value of being able to buy something that is really meaningful and that comes from a person are more important to consumers than ever before. At this moment in time, the advancements that we're seeing in technology, particularly AI, are really allowing us to access these opportunities in a way that we've never seen before, like we were talking about when we're chatting about search and discovery. We have made a lot of changes over the last year to both how we operate and how we organize to be able to execute effectively on that. We have an entirely new leadership team. We've reorganized our teams around the customer outcomes that we're aiming to improve and reduced layers and silos in a way that give people the clarity of focus and the ability to execute with speed on those clear customer priorities. The thing that I think that people might not appreciate is that not only do we have a huge opportunity, but we are really well positioned to take advantage of that and unlock far more of that TAM than we've ever been able to before. A few weeks ago, I would've said the most underappreciated part was the Depop momentum story, but we solved that. I think our cash flow production is somewhat underappreciated, but I think probably at the end of the day, the way that AI is changing, the way we're using it internally to solve some problems that we've all talked about for a long time that have challenged buyers and sellers on Etsy, this new technology gives us ways to do this much more quickly and much more efficiently, and I think much more effectively than we've ever done before. Okay, great. Kruti, Lanny, thanks so much for being here. Thanks so much.