ETSY Inc (ETSY) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Etsy fourth-quarter and full-year 2015 financial results conference call.

(Operator Instructions)

As a reminder, this call is being recorded. I would now like to introduce you host for today's conference, Jennifer Beugelmans, Vice President of Investor Relations.

You may begin, ma'am.

Thank you.

Welcome to Etsy's fourth-quarter and full-year 2015 earnings conference call. Joining me today are Chad Dickerson, CEO, and Kristina Salen, CFO.

Before we get started, just a reminder that our remarks today include forward-looking statements relating to our financial performance and results of operations, business strategy, guidance, mission, product road map and potential future growth. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties, which are described in our press release today and in our 10-Q filed with the SEC on November 3, 2015. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we don't have any obligation to update them.

Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's press release, which you can find on our Investor Relations website. A link to the replay of this call will be available there and, if you prefer to access a replay via phone, you can find that information in the press release as well.

With that, I'll turn the call over to Chad.

Chad?

Thanks, Jennifer.

Good afternoon, everyone. I'm excited to talk to you about the progress Etsy has made in 2015, our plans for 2016 and our financial goals through 2018.

In the fourth quarter, our GMS was more than $741 million; and our revenue was nearly $88 million. For the full year, GMS reached nearly $2.4 billion and revenue was more than $273 million. We believe our strong results reflect the vitality of Etsy's community and our team's strong execution.

Throughout 2015, our community continued to grow. And we ended this year with more than 24 million active buyers and nearly 1.6 million active sellers. In 2015, we continue to put the building blocks in place that we believe will set us up for sustainable long-term growth.

Buyers on Etsy's platform remain uniquely loyal to the brand. In 2015, 81% of our GMS came from repeat purchases made by new, retained and reactivated buyers. This was up from 78% in 2014.

Also in 2015, approximately 47% of our active buyers made two or more purchases in the previous 12 months, up slightly from 2014. We believe that these two data points shed important light on our long-term growth opportunity.

First, we know that Etsy buyers are loyal and have continued to make repeat purchases other a long period of time. Second, with fewer than 50% of our active buyers making multiple purchases in a single year, over the long term we believe we have substantial opportunity to drive engagement, which ultimately should lead to increased purchase frequency.

Our community of sellers and buyers, who are so important to our long-term success, continue to show their loyalty to Etsy. Kristina will provide you with new 2012 seller and buyer cohort data that further demonstrate their commitment to our platform. With approximately 90% of our traffic coming from organic channels, Etsy's brand clearly resonates with buyers.

During our third-quarter earnings call, we talked about our strategy to implement a multi-channel holiday campaign to grow brand awareness beyond our organic channels and to drive engagement throughout the fourth-quarter holiday season. We ran a coordinated campaign across paid and non-paid channels that helped our sellers have a great holiday season. We saw strong returns on our digital marketing budget and, as Kristina will describe, paid GMS growth that significantly outpaced organic GMS growth.

More importantly, our overall GMS growth accelerated as we moved through the holiday season in November and December, evidence of a successful brand campaign. For the first time ever, we ran a global holiday campaign that featured merchandise pages and gift guides across key categories and was coordinated across mobile apps, desktop and mobile web. We ran a cost-effective video ad on Facebook and YouTube and were featured on Ellen DeGeneres Show's 12 Days of Christmas segment. We complemented our brand campaign with a robust email and social media effort that included nearly 20 million push notifications, nearly 900 million emails and Facebook and Instagram social media campaigns.

2015 was a strong year of growth for Etsy. And I believe we're executing the right strategy to build sustainable growth for the long term. Let me take the next few minutes to talk about what we have recently achieved in each of our key initiatives and some of the upcoming milestones that will be indicative of our continued forward progress.

Let's start with Etsy Every Day. Mobile is at the heart of this initiative. And in just one year, we improved the Etsy mobile experience from end to end. We developed products and tools that allow our buyers and sellers to connect and transact more seamlessly across multiple devices, countries and currencies.

Our top focus in 2015 was to help buyers find and use our beautiful Etsy apps, and connect them directly to an easier and more fun than ever mobile experience. We believe this foundational work improved the experience across the buyer journey and contributed directly to our app GMS growth, which grew well over 50% in 2015. Our first step included the work we did around deep linking and app indexing, which allows us to connect shoppers directly to our apps. Once in the app, we made it easy to get started with social sign-up and sign-in via Facebook and Google.

We also introduced an important update called Exploratory Search. This enhancement helps buyers more easily find the items they're looking for on Etsy by making search results and navigation more intuitive to buyers, who can now browse by feature or product type. Finally, we expanded the checkout experience using Etsy's Direct Checkout platform, which now offers integrated Apple Pay, Google Wallet, PayPal and Express Checkout payment options. We believe these four improvements, and others, lead to our 4.5 star rating in the Apple app store, up from roughly 2.5 stars prior to this work. And also contributed to the continued growth of app downloads, which reached 31.8 million as of December 31, 2015.

While we're still in the early innings on mobile, we believe that we have made important progress in a relatively short period of time. The impact of this work is best seen in the year-over-year narrowing of the gap between mobile visits and mobile GMS. We began to see this in the third quarter, and it continued in the fourth quarter.

In the fourth quarter, 61% of our visits and 44% of our GMS came to Etsy through a mobile device. We believe we can continue to close the gaps between mobile visits and mobile GMS, and benefit from the emerging trends in mobile commerce. Our efforts in mobile in 2015 moved the ball forward for Etsy and provided strong momentum as we head into 2016.

This year we plan to launch even more mobile products, tools and services that address the needs of our diverse community of sellers and buyers. As our teams continue to execute on our exciting 2016 product road map, you should expect to see more enhancements that helps Etsy buyers connect with sellers in new ways. And enable them to more easily find the unique item they're searching for at just the right time.

Turning to our international initiative to build more local marketplaces globally, we made our first international sale in our first week of business over a decade ago. And Etsy's global business has grown since then. Even with that growth, we believe we're only at the beginning when it comes to our international strategy.

In the fourth quarter, 29.2% of our GMS was from international sales, roughly flat with the third quarter. As we've discussed in previous quarters, currency has a direct translational impacts on our results and, we believe, an indirect impact on the behavior of international buyers. We're working hard to offset these macro currency challenges by building local marketplaces and ecosystems.

Our continued strong growth in the UK reflects the early success of this strategy. In the fourth quarter, nearly half the GMS in the UK was from UK buyers purchasing from UK sellers, evidence that we're building a local marketplace within the country. To give you some perspective, in the US our most mature market, approximately 78% of GMS, is from transactions between US buyers and sellers.

Purchases by UK buyers from UK sellers grew more than 69% year over year, nearly seven times the growth rate of purchases made by UK buyers and sellers outside of the UK in the quarter. We believe that new enhancements, like the boost of domestic items within Search, which we launched in the UK in the fourth quarter, encourage this activity and was particularly helpful during the holiday season.

GMS between international buyers and sellers in the same country is one of our smallest GMS buckets. So we believe we have a substantial greenfield opportunity to grow local marketplaces internationally. In 2016, we'll continue to invest in local marketing content and program tools to expand our international community and broaden our global platform. Great examples of these efforts already underway are programs like Etsy Resolution and Etsy Made Local.

Etsy Resolution is our seller acquisition campaign aimed at driving new seller growth in our international markets. We launched this four-week mentoring program at the end of January. And more than 26,000 participants signed up within the first week. Etsy Made Local is a series of local markets organized by Etsy seller teams. Our Etsy made local events in Australia were particularly successful and attracted 65,000 people across the country.

Turning now to our high-impact Seller Services, which represented 54% of our revenue in the fourth quarter.

You may recall that we launched the first of our three Seller Services late in 2011. And in less than five years, our three services now make up the majority of our revenue base. We believe this rapid growth demonstrates our ability to address the pain points that sellers encounter, whether they're just starting out or trying to grow. We intend to continue to grow Seller Services revenue by expanding the geographic reach of existing services, enhancing the functionality of our existing services and building new services.

We have two recent examples that demonstrate our execution on this strategy. At the end of October, we enhanced the functionality of Direct Checkout by fully integrating PayPal into our service, and making it even easier for buyers and sellers around the world to seamlessly transact. Following this integration, we saw Direct Checkout revenue growth accelerate in the fourth quarter. And in early 2016, we enhanced Direct Checkout even further by expanding into an additional 12 countries and integrating Apple Pay into our Express Checkout option.

As we look ahead to 2016, we intend to launch a new seller service. While we're not announcing the specifics of this new service today, we remain focused on helping our sellers with the business-related tasks such as inventory management, shipping, customer service, marketing and accounting. As we outlined in our IPO perspective, for every hour an Etsy seller spends making her products, she spends another on these tasks. And we want to help our sellers find more time to create.

So our product road map is focused on services that will help her manage these types of tasks, increase velocity of our Marketplace and, at scale, provide an attractive profit opportunity for Etsy, which we can reinvest back into our business and our community.

As we think about our longer-term road map for Seller Services, we're looking at opportunities to support our sellers wherever and however they choose to bring their products to market. As we've said before, based on our surveys and research, we know that more than 50% of our sellers sell in channels other than Etsy, even though Etsy is their largest source of income. Other channels include craft fairs, their own websites and retail outlets, just to name a few.

In the same way that these other channels provide new opportunities for them to sell their products, they also add to the administrative workload. We believe we can develop tools and services to help our sellers better manage these multiple sales channels. Over time, this presents a significant opportunity for Etsy to enhance the value of our platform for our sellers and to expand our addressable market opportunity.

Finally, I want to touch on our efforts to expand the Etsy economy, which focus on broadening the impact of our platform by bringing new constituents into our community. We have talked to you before about Etsy Manufacturing and Etsy Wholesale, and our long-term vision for their contribution to our ecosystem. As we announced last quarter, we launched Etsy Manufacturing in direct response to feedback from our sellers, who told us they wanted to grow their businesses but were having difficulty finding production partners with similar values.

Through our platform, these sellers can now connect with values-aligned manufacturers that range from individuals to emerging start ups to decades-old family-run factories. It's still early days; and to date, we have received around 700 applications from manufacturers to join the Marketplace. Approximately 25% of those applicants have actually been current Etsy sellers who are offering to help other sellers produce their products.

Throughout 2015, we also reached core milestones that we believe will help make Etsy Wholesale an important tool for our sellers in the years to come. First, we exited 2015 with nearly 11,000 retailers. And more than 4,500 sellers signed up to participate in Wholesale. Our goal is to make Wholesale more accessible to creative entrepreneurs and to support these smaller independent retailers as creative business owners.

Second, we introduced the Etsy Wholesale retailer commitments with our larger retailer partners, Land of Nod, Lou and Grey, Whole Foods and our newest partner, Macy's Herald Square, with whom we launched a new Etsy shop on January 28, 2016. These commitments are focused on supporting our seller community by reducing the operational and financial challenges they face when working with larger retailers.

While I'm proud of what we have accomplished to date, the Etsy team and I are really focused execution, and excited about the opportunities and milestones yet to come. We believe we have the right strategy in place and passionate leaders to execute on it. We have made prudent investments to maximize the impact of this strategy. We also believe that we have an unrivaled understanding of the needs of creative entrepreneurs, which will allow us to grow with each of them, supporting their individual needs.

All of these factors gives us confidence in our long-term growth potential and our ability to deliver value to all of our stakeholders. In 2016, to recap, this means a road map that includes products that will continue to encourage buyers to engage, browse, search, and discover unique items. Platform enhancements that will make it even easier for buyers and sellers to seamlessly and quickly transact. And a new Seller Service that solves a pain point and moves us down the path toward our longer-term goal of supporting our sellers wherever they pursue commerce. We'll be also be launching new tools and products to continue to support our international strategy to build local marketplaces and expand the Etsy economy.

With that, I'll turn it over to Kristina to walk you through our 2015 results and provide you with a bit more context on our three-year financial guidance.

Kristina?

Thanks, Chad.

Hello to everyone joining us today. Just to note, unless I say so, all comparisons I'll be referencing here are on a year-over-year basis. Let's start with GMS.

During the fourth quarter of 2015, the Etsy Marketplace generated $741.5 million in GMS, up 21%. Growth in GMS was driven by growth in active sellers and active buyers. As Chad mentioned, we had a very strong holiday season, with GMS growth accelerating throughout the period.

For the full year 2015, the Etsy Marketplace generated approximately $2.4 billion in GMS, up nearly 24% year over year. At the end of the fourth quarter, Etsy had 1.6 million active sellers, up 15.5%, and 24 million active buyers, up 21%. Our community of sellers and buyers continues to grow at a healthy rate. And we are releasing new cohort data that we believe demonstrates the stickiness of our platform.

Let me take a minute to remind you of how our cohorts work, starting with our seller cohorts. In our IPO Prospectus, we told you that if we had 100 active sellers in 2011, 32% of these sellers would still have been active in 2014, four years later. In addition, we also told you that the average GMS per 2011 active seller was $4,299, five times higher in 2014 than in 2011.

We're pleased to see that these trends have continued in our 2012 seller and buyer cohorts. We'd also note that year five data for our 2011 cohort is consistent with year four trends. And early data indicates that our 2013 cohorts are behaving similarly.

The 2011 and 2012 data will be in our 10-K, but let me walk you through the highlights for our 2012 cohorts.

For the 2012 seller cohort, 32% of active sellers remained active four years later. And their average GMS was $4,557, four times higher than it was in 2012. Our 2012 buyer cohort is also behaving in line with our 2011 buyer cohort. Recall that at the end of 2014, 45% of our 2011 active buyers remained active.

In addition, the average annual GMS for 2011 active buyer in 2014 was $195 or nearly 90% higher than it was in 2011. For the 2012 cohort, nearly 43% of our 2012 active buyers remained active in 2015. And their average GMS was $181, also up nearly 90% versus 2012.

As Chad mentioned, in 2015 we improved our mobile offering from end to end. And we believe as a direct result, we are narrowing the gap between mobile visits and mobile GMS. During the fourth quarter, approximately 61% of our visits came to us from a mobile device, which is up 500 basis points year over year and 100 basis points quarter over quarter. This growth continued to outpace the rate of growth on desktop. More importantly, about 44% of our GMS came from a mobile device, up 600 basis points year over year and flat quarter over quarter.

Etsy's international business continued to expand, with international revenue growing nearly 31% in the fourth quarter. However, percent international GMS was roughly flat at 29.2% in the fourth quarter, compared with the third quarter of this year, and down from 30.6% in the fourth quarter of last year. As a reminder, percent international GMS is the percent of total GMS from transactions where either the buyer or seller is outside of the US. We continue to believe that we can grow percent international GMS over time to represent 50% of our total GMS.

As we've discussed with you before, we believe that currency exchange rates are directly and indirectly affecting Etsy's overall GMS growth rates and percent international GMS. During the fourth quarter, GMS from international buyers purchasing from US sellers declined approximately 13% year over year. This is flat with the approximate 13% year-over-year decline we saw in the third quarter, and informs our analysis of the impact of currency translation on international buyer behavior.

Based on the direct impact of currency on our non-US dollar denominated GMS and on our assumptions surrounding the indirect impact of currency exchange rates on international buyer behavior, we believe that we saw a drive of approximately 2 percentage points on our overall GMS growth rate in the fourth quarter from currency.

Turning now to revenue, during the fourth quarter, total revenue was $87.9 million, up 35%, driven by growth in Seller Services revenue and, to a lesser extent, growth in Marketplace revenue. Revenue for the full year was $273.5 million, up nearly 40% compared with 2014. Marketplace revenue grew 19.5% in the fourth quarter, primarily due to the growth in transaction fee revenue and, to a lesser extent, growth in listing fee revenue.

Sellers Service revenue was up 54% in the fourth quarter. And revenue from each of our services grew faster than GMS and Marketplace revenue. This was primarily due to growth in revenue from Direct Checkout and Promoted Listings. Promoted Listings has continued to grow robustly. And revenue growth in the fourth quarter in Promoted Listings was driven by higher click volume and overall improvements to Promoted Listings ad quality.

We're also very pleased with the growth of Direct Checkout, which benefited from our integration of PayPal into our payment service, and therefore, as Chad mentioned, saw its growth rate accelerate in the quarter. Following the integration at the end of October, we saw a significant increase in the usage of Direct Checkout by our sellers. And notably, Direct Checkout grew slightly faster than Promoted Listings for the first time in 2015. Closing out the Sellers Services discussion, shipping labels revenue growth was driven by a combination of enhancements to the product and an increase in the overall number of orders shipped.

I now want to update you on the usage of our Seller Services during 2015. During 2015, 48.1% of our active sellers used at least one seller service. 40.2% of our active sellers used Direct Checkout. 23.9% of our active sellers in the US and Canada, where we offer shipping labels, used that service. And 16.7% of our active sellers used Promoted Listings.

These stats reflect continued adoption of Direct Checkout and shipping labels and a slight tapering in Promoted Listings usage, which is what we expected. We think the tapering of Promoted Listings usage reflects the impact of our relaunch of the product and our move to a fitted ad model that unlocks greater pricing potential and supports both healthier seller ROI and a better buyer experience. We plan to continue to refine our advertising services to help a broader base of sellers over time.

Turning now to margins, gross profit for the fourth quarter was approximately $58 million, up 37%. And the gross profit margin was nearly 65.6%, up 70 basis points. As in the first three quarters of the year, in the fourth quarter, gross profit grew faster than revenue. This was due to the leverage we achieved in employee-related and hosting and balance costs, as well as continued robust growth of Promoted Listings which, you may recall, is a higher-margin revenue stream.

Turning now to operating expenses. Etsy's total fourth-quarter operating expenses were approximately $49 million, up 17% year over year. Total operating expenses as a percent of revenue declined slightly to 56% in the fourth quarter, compared with 65% last year. We gained leverage in our operating expenses as a percent of revenue, primarily due to reduced G&A expenses that we don't expect to repeat in the first quarter of 2016. And I'll discuss that further in a minute.

For the full year 2015, operating expenses as a percent of revenue declined slightly to 65% compared with 66% in 2014. Marketing expenses totaled $22.5 million, up 54%, representing 26% of total revenue versus 23% last year and 25% in the third quarter. This year-over-year growth in marketing spend decelerated meaningfully from the year-over-year growth in spend we reported for the third quarter of 2015, as well as compared with the fourth quarter of last year. It reflects the plateauing of growth in our digital marketing spend that we forecasted to you all last quarter.

As in previous quarters, the growth in marketing expenses continues to be driven by digital marketing, which is primarily focused on Google product listing ads. During the fourth quarter, digital marketing expense was roughly $15 million, up 86%. As we expected, this was less than the approximate 95% growth in spending we saw in the third quarter.

During the fourth quarter, digital marketing spend continued to generate positive ROI based on our global attribution model. And our paid GMS growth rate actually accelerated to 68%, more than triple our reported GMS growth rate. And favorably comparing to 59% paid GMS growth rate in the third quarter.

As we've shared with you before, unique to an Internet Company our size, approximately 90% of our traffic comes from organic channels. So it can be difficult externally to see the positive impacts of our marketing investment on GMS growth strictly on a quarterly basis. Our marketing investments are guided by our two-year lifetime value global attribution model, in which we make conservative assumptions about how paid traffic will perform compared with organic traffic.

Since 2014, we have achieved a payback period of five quarters. And we remain committed to achieving positive two-year ROI at the aggregate Company level on our marketing spent. For the full year 2015, marketing expenses grew 68%, a significant deceleration when compared to the 122% growth in 2014.

Moving on, product development expenses totaled $11.2 million, up 15%, representing 13% of total revenue versus 15% last year. The increase in product development expenses was driven by higher employee-related expenses, as we continued to grow products and engineering staff.

G&A expenses totaled $15.6 million, down 11%, representing 18% of total revenue versus 27% last year. The decrease in G&A expenses primarily resulted from reduced stock-based compensation and lower bad debt expense. Excluding these items, G&A expenses would have increased 13%.

Headcount at the end of the quarter was 819 compared with 804 as of September 30, 2015; and 685 as of December 31, 2014. Looking ahead to 2016, we expect to continue to hire at a robust pace.

Non-GAAP adjusted EBITDA was $14 million, up 51%. This resulted in adjusted EBITDA margin in the quarter of 16%, up 170 basis points year over year.

Fourth-quarter net loss was $4.2 million compared with a net loss of $5.4 million last year. Etsy's net loss in the fourth quarter of 2015 was impacted by a foreign exchange loss and by our income tax provision. We recorded $6 million of foreign exchange losses in the fourth quarter of 2015, largely made up of a non-cash currency loss related to Etsy's revised global corporate structure that we implemented on January 1, 2015.

We also recorded a $6.3 million tax provision in the fourth quarter compared to a tax provision of $3.1 million last year. Our tax provision in the fourth quarter was driven by non-cash charges primarily related to the aforementioned revised global corporate structure. Our tax provision also reflects the benefit from an R&D tax credit.

During the quarter, we generated $10.2 million in cash from operations compared with $0.1 million last year. The increase in net cash provided by operating activities for the quarter was mainly due to the timing of payments of certain vendors, which will happen in the first quarter of 2016. As of December 31, 2015, we had cash, marketable securities and short-term investments totaling $292.9 million.

To wrap it up, I'd like to discuss our three-year growth expectations from a financial perspective.

From the many meetings Chad and I have had with our investors since we went public, it has become clear to us that an additional long-term guidance would be helpful to our investor community. And would provide a clearer picture of how we believe our strategic initiatives will translate into long-term financial results. We are as committed as ever to delivering long-term sustainable growth. And over the next three years, we believe we can continue to achieve solid revenue growth, combined with leverage in our cost structure, to expand our adjusted EBITDA margins.

Specifically, we expect our three-year revenue CAGR to be in the 20% to 25% range and our three-year GMS CAGR to be in the 13% to 17% range. Please note, though, that our guidance assumes currency remains stable compared to average levels in December of 2015.

In 2016, we expect revenue growth to be at the high end of our three-year range, and that GMS growth will be near the midpoint of our three-year range. We anticipate that the key factors impacting revenue and GMS growth over the next three years include: number one, the further narrowing of the gap between mobile visits and mobile GMS; number two, stable percent international GMS; number three, continued revenue growth in our existing Seller Services, driven by both adoption and product enhancements; and finally, number four, modest contributions from new product launches and new Seller Services.

We expect to exit 2018 with a full-year gross margin that is in the mid-60% range and that the 2016 gross margin will be in the 64% to 65% range. We anticipate the key factors impacting our gross margin forecast over the next three years include: number one, continued revenue growth from our existing Seller Services, driven by both adoption and product enhancements; number two, the impact from new Seller Services that we intend to launch. I would also note that at this point, we don't anticipate launching any new Seller Services in the next three years that would be dilutive to our gross margin.

We also expect to gain leverage in our operating cost structure over the next three years, particularly within marketing spend. In fact, in 2016, we expect marketing expense as a percent of revenue to decline. However, overall marketing expenses as a percent of revenue will increase, driven by expenses associated with our new headquarters here in Brooklyn and with Sarbanes-Oxley compliance.

Finally, from an adjusted EBITDA margin perspective, we estimate that our margin in 2016 will be comparable to 2015, in the 10% to 11% range, and that it will expand to the high-teens range exiting 2018. Over the next three years, this translates to overall adjusted EBITDA growth that was more than two times faster than revenue.

And with that, I'll thank you for listening. I'd like to turn the call back over to the operator to open it up for Q&A.

(Operator Instructions)

Our first question comes from the line of Brian Nowak, from Morgan Stanley. Your line is now open.

Thanks for taking my questions; I have a couple.

It sounded like the holiday trends were pretty strong -- GMS accelerating -- curious as to why guide to a GMS slowdown if it seems that the trends are so strong? I think the comp's actually getting a little bit easier throughout 2016. So just be curious for that. And then, as we think about the sources of leverage in the model over the three-year period, can you just talk about R&A, R&D versus sales and marketing as sources of leverage? Thanks.

Sure, Brian, thanks for your question.

When we think about GMS growth, we think it's important to remember some of the factors that impacted GMS in 2015 and how we're thinking about those factors as we move into 2016. Most importantly is to consider the impacts of currency. Our guidance assumes that currency remains stable compared to December 2015 average levels. While we can calculate that direct translation -- we can calculate the direct translation pretty clearly -- it's really difficult to estimate its impact on international buyer behavior. So our GMS estimate does not incorporate -- our guidance does not incorporate -- a significant rebound in international buyer behavior.

On the question with regard to leverage, you were specifically asking about marketing leverage. I think when we look over a three-year basis, we expect operating leverage in each of our three key expense items -- expense line items: product development, marketing, and G&A. As I mentioned with regard to 2016 guidance specifically, we expect leverage in marketing expense. We actually expect it to go down on a year-over-year basis as a percent of revenue, while still growing, however, just not as fast as revenue. As I mentioned, we expect operating expenses, in total as a percent of revenue, to increase. And that's really due, as I mentioned, to our new headquarters, which we're moving into in 2016, and Sarbanes-Oxley compliance. Most of those expenses, Brian, will fall into the G&A category.

Got it. Thanks.

Our next question comes from the line of Blake Harper from Topeka Capital. Your line is now open.

Yes, thanks.

I wanted to ask you about the Promoted Listings, with only 16% of your sellers using them, but you did call them out as having driven higher strength. I wanted to see if you could talk more about that. Is it specific segmentation with different searches? Or better targeting? And maybe what you see as the potential there as far as the number of your sellers that would use them, and what the potential for that category could be?

Hello, Blake, thanks for your question.

At Promoted Listings --16.7% of our active sellers in 2015 used the service. That was down roughly 100 basis points versus last year. And as I mentioned that was expected and that was despite really robust growth in Promoted Listings for the year. Just as a reminder to our investors about the changes that we implemented in Promoted Listings: in end of 2014 moving into 2015, we moved from a static pricing model, meaning everything was priced the same in Promoted Listings, to a bidded model, meaning that prices reflected demand. The way that we have railed our Promoted Listings product is that it's ROI positive to the seller, so it prevents the seller from bidding at extremely high prices to simply drive traffic that doesn't convert into growth sales for that seller. But it did increase pricing in certain categories of keyword that ultimately priced out some sellers.

As I mentioned in my remarks, our goal is, over the longer term, to focus on creating advertising services that target a broader spectrum of our sellers. But as it stands today, when you think about Promoted Listings and you think about the hundreds of millions of search page views that occur on Etsy on an annual basis, our Promoted Listings product, which puts the top three relevant products in the search at the top of the page, drive a significant amount of volume. So they're really for our sellers who can handle that level of volume. However, we have a lot of sellers who are interested in advertising services. In fact, it's our number one requested service. And we think there's a lot we can do over time in the long term to add to our advertising service lead products.

Thanks for your question, Blake.

(Operator Instructions)

Our next question comes from the line of Darren Aftahi from Roth. Your line is now open.

Good evening. Thanks for taking my questions. Just a couple, if I may.

First, on your long-term guidance -- I know you said you have an unannounced new seller services for 2016. What is your GMS in revenue growth assumption assume in terms of the number of seller services you're offering exiting that period? Number two -- Kristina, if my math is correct, is that G&A swing you said is nonrecurring, is that roughly about $4 million?

To answer your first question, Darren, with regard to our guidance, as we said, our guidance assumes very modest impact from both a new product and a seller service, so it's very modest in the guidance that we have provided. With regard to your second question, I'm not prepared to quantify it, but there will be more detail about the G&A swing in our 10-K.

Great. Thank you.

You're welcome.

(Operator Instructions)

I'm not showing any further questions. I would now like to turn the call back to Management for any further remarks.

We just wanted to thank everyone for tuning into the call today, and thanks for your questions.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now all disconnect. Everyone, have a great day.