I’m super excited for our new mission impossible themed holiday creative, which is a great gifting call to action turning in an impossible and stressful gifting mission into a Tom Cruise level heroic moment. With our subsidiaries expected to represent about a 300 basis point headwind to adjusted EBITDA margin in the fourth quarter, the core Etsy Marketplace margin implied in our guidance, approaches our previously provided long-term target of 30%. In fact, on a full year basis for the Etsy Marketplace, we expect to finish the year just a bit shy of being a Rule of 40 company, which many see as best-in-class performance. Thank you all for your time. I’ll close by encouraging you all to check out our new gifting and deals features for your holiday shopping.
Deb will now moderate our Q&A session.
A – Debra Wasser: Okay. Hi, everyone. Happy to be here this evening, and we’re going to take your questions. We’ve got a bunch in queue, so I’m going to dive right in from Lee Horowitz at Deutsche Bank. Josh, you were able to impressively reaccelerate growth at Etsy when you landed the company back in 2017. And the environment was much different than it is today, but what are the learnings from that initial time? And how can you apply that to getting Etsy growing from here?
Josh Silverman: Yes. Thanks, Lee. I appreciate the question. When I arrived in 2017, we had a lot of opportunity to improve our operations and our execution. And a few principles: one, picking a few things and focusing on them, moving really fast and making sure that every single dollar we spent worked hard to drive growth. And I think we continue to get even better at those things. When I look at the progress we’ve made this year, when I look at how much we’ve executed, over the course of this year and how good our shopping experience is going to be this fourth quarter versus what it was last fourth quarter. I’m incredibly proud of what this relatively small team has done. So we stay very focused. We stay very urgent, and we work hard to make sure every dollar is working really hard.
This is the toughest macro I’ve run this business in by far. And in spite of that, we think we have gained share against our pure plays. And even when you put mass discounters in we think we’re at least holding share within our categories. So even in this tough environment, I think we’re more than holding our own. And I think that’s because the team is executing with a ton of focus and with a ton of urgency, and we feel a huge responsibility to be driving growth for our sellers, for our shareholders, for everyone, and we’re going to keep driving super hard to do that. Appreciate the question.
Debra Wasser: Great. Thanks, Josh. From [Indiscernible] at Citi, and it’s a connected question. There remains growing concern from investors on the competitive environment in e-commerce you touched on it last quarter, but are you seeing anything different from here, particularly from the newer Chinese entrants?
Josh Silverman: Now if I’d seen anything different, but there’s no question that Temu and Sean are having an impact in the market. You don’t get that big that fast without taking share from many people. And I think we and most players need and e-commerce have had some impact. And the other thing that is happening is they’re spending a large amount of money on marketing, not clear that they’re using ROI thresholds to do that. And so I think those two players are almost single-handedly having an impact on the cost of advertising, particularly in some paid channels in Google and in Meta. We are the opposite of Temu. If I had to think about what is the polar opposite of Etsy, I’d probably get pretty close to Temu. And so continuing to focus on the incredible quality of the merchandise for sale on Etsy at affordable prices delivered really reliably I think the more people experience super cheap and super disposable, the more they crave something different and something better, and that’s us.
And even as they invest a lot in certain marketing channels, we have other channels we can invest in. We are not going to drive a race to the bottom. We’re not going to invest unprofitably. But we are, for example, shifting some spend to TV. So if we can’t invest as much in some paid marketing channels, there’s other channels we can invest and we’re going to keep competing, and I believe can keep winning over time.
Rachel Glaser: I just had just a couple of notes just to what Josh said. And just to reemphasize, Etsy is a very differentiated marketplace where we have a human being on the other end of every transaction. This is a marketplace that is — we’re creating economic empowerment. Most of them — most of our sellers are women and they’re handcrafting these items oftentimes customized or personalized to the buyer specification in a sustainable way. So to underscore Josh’s point about being the opposite of some of the new mass merchant entrants, these are things that we really care about and matter to many of our buyers.
Debra Wasser: And the next question is also connected from Mike Morton at Moffett Nathanson. During the quarter, there were some announcements to Etsy sellers from the trust and safety team about keeping Etsy special through doubling down on enforcement, adding more human reviews. And improving the integrity. We’ve observed a difference in recent weeks, and we were wondering if you could speak to any impacts it could have on GMS and how you would size the impact of the stepped-up enforcement. That Josh, that’s for you.
Josh Silverman: Yes. So thanks for noticing. First, we’re investing about $50 million in enforcement throughout our policies this year. We’ve hired a lot of people, and we also have been investing a lot in machine learning and machine learning is really helping us to be able to identify among the 120 million listings on Etsy, those that may not conform with our policy. Takedowns are up 140% year-over-year. And we’ve really been focusing on what percentage of buyers come across one listing or more that doesn’t comply with our policies. So the fact that something exists on Etsy doesn’t mean that it’s seen. But what percentage of buyers will see a violating view we’ve cut that number in half in just the past four months. So I’m glad you’re noticing, I think it is very noticeable and we think there’s even more we can do.
I’m also proud to say that we are seeing no deleterious effect to GMS from that. People don’t come to Etsy wanting mass-produced product, and we’re finding that as we do even more to suppress those listings on the site, the site experience only gets better. We only get more differentiated.
Debra Wasser: Great. Thank you. The next one I’m going to give to Rachel is from Anna Andreeva at Needham. Product development line item leveraged for the first time in several quarters. What drove that? And how should we think about the growth in that line item in the fourth quarter and into 2024?
Rachel Glaser: Yes, I think that the top line is that we’re adding product development people that are — were investing in them for growth. They are actually driving more GMS and revenue than the cost to have them in our overall cost base. So the biggest driver of product development costs coming down was employee compensation. A technical answer to it is also that we divested ourselves of Elo7. So there’s a chunk of cost that came out of the product development line and because Elo7 was not profitable, you would have expected that cost to be higher than the amount of revenue they were generating. And then just a reminder that we really — we measure our product development investment with an eye on ROI just like we do with marketing, and we invest in areas where we believe they’re going to drive incremental GMS and they are, and we talked about how product development velocity increased — the product — number of product launches actually increased 40% this last quarter.
