ETSY Inc (ETSY) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Etsy First Quarter Financial Results Conference Call.

(Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the conference over to your host, Mr. Gabe Ratcliff.

Sir, you may begin.

Thank you, and good afternoon and welcome to Etsy's First Quarter Earnings Conference Call.

Joining me today are Chad Dickerson, CEO; Josh Silverman, our newly appointed CEO; Jennifer Beugelmans, VP of IR and FP&A; and Karen Mullane, our Global Corporate Controller and interim 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, market size, cost-saving initiatives, guidance, mission, product road map and potential future growth.

Our actual results may differ materially.

Forward-looking statements involve risks and uncertainties which are described in our press release today and in our 10-Q filed with the SEC today.

Any forward-looking statement 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 earnings press release, which you can find on our Investor Relations website.

A link to the replay of this call will also be available there, and if you prefer to access a replay via phone, you can find that information in our press release as well.

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

Chad?

Thanks, Gabe, and good afternoon, everyone.

Before I begin, I wanted to briefly discuss some important news that we announced with our earnings today.

After being a leader at Etsy for 9 years, I'll be stepping down as CEO.

Over the past 12 years, Etsy's achieved tremendous growth and success.

After successfully navigating the challenges of going from a small startup to an established leader and innovator, Etsy is now entering its next phase of growth and development.

The board has decided now is the right time for new leadership to take Etsy forward, and I support the decision.

Josh Silverman, a member of our Board of Directors since November, will be leading Etsy going forward.

With nearly 20 years of product development, marketing and e-commerce experience, Josh has an established track record of leading and growing consumer technology companies and scaling global marketplaces.

I've gotten to know Josh over the past several months and I know Etsy will be in great hands with Josh at the helm.

Josh is joining us here today, and before Jennifer and I discuss our results for the quarter, I'll turn the call over to Josh for some brief remarks.

Josh?

Thanks, Chad.

First, I want to thank Chad for his leadership over the past 9 years.

He ushered Etsy into a period of high growth, he took us through the IPO and he helped make Etsy into the world-class company and global marketplace it is today.

His efforts have laid the foundation for Etsy's future success, and I know he has always been committed to delivering value for all of our stakeholders, from buyers and sellers, to employees and shareholders.

When I joined the board in November, I was excited to be part of a company like Etsy, and as a member of the board, I've gained a deep appreciation for the fundamental strength of Etsy's business, Etsy's employees and attractive market opportunities.

Etsy's already accomplished so much over the past 12 years.

Building a 2-sided marketplace that offers a differentiated value proposition for buyers and a unique opportunity for sellers is difficult to do.

Etsy has done that, creating a strong technology platform and cultivating powerful loyalty, driven by a robust seller community and offering a broad product inventory.

We're going to continue to sharpen our focus on raising awareness among new buyers and getting our existing buyers to make more frequent purchases.

As we head into our next phase of growth, I want to leverage the many things Etsy has done well thus far, which include a strong core organic Markets business, a thriving Seller Services business and a world-class technology platform.

And I want to build new muscles where we can do even better, such as delivering a best-in-class buyer experience and improving our marketing capabilities.

Though we have a lot of work to do, we have a great culture and talented employees who I know are up to the challenge.

Over the coming weeks, I'll be listening and learning from our employees, sellers, buyers and investors and deep-diving into our operating plans, to make sure that we're focusing on the most value-enhancing near- and long-term opportunities.

I believe that we have significant opportunity to continue to grow and to drive our financial performance.

I'm energized by the Etsy team's sense of urgency, culture of commitment to our sellers and buyers and drive for operational excellence.

I'm excited to work with the leadership team to capture Etsy's exciting growth opportunities, and I look forward to providing additional updates next quarter.

Now I'll turn the call back to Chad to discuss the first quarter.

Thanks, Josh.

The first quarter was challenging.

In February, our average converting visit value, conversion rates and visits came in below our expectations, resulting in GMS well below our forecast for that month.

While March was better, the 14.2% GMS growth and 18.4% revenue growth we delivered for the quarter were both lower than we expected.

As difficult as the quarter was, we've already made important progress this year.

We launched Shop Manager, a centralized hub for sellers to manage their businesses.

We expect Shop Manager to help increase awareness of Etsy services among our sellers.

We launched Etsy Studio, our new craft supplies market, which offers a disruptive online alternative to the historically offline craft shopping experience.

And we began rolling out significant enhancements to product search and discovery.

These efforts give us confidence in our ability to drive growth going forward.

We're taking steps to ensure our business is set up to support Etsy's next phase of growth.

Last year, our COO, Linda Findley Kozlowski, led a realignment of our internal structure which organized our Markets and Seller Services teams under general managers who lead core product and business teams.

These changes sharpened cross-functional collaboration, increased accountability and led to faster product launches and tests.

With this solid foundation in place, over the past quarter, we looked holistically across the business to identify opportunities to increase our efficiency and to streamline our cost structure.

As a result of this process, we've identified savings that will be realized through a combination of headcount reductions and a reduction in internal program expenses.

In total, we expect to eliminate approximately 80 positions, which is approximately 8% of the total workforce.

While decisions like these are never easy, we believe these actions will allow us to drive productivity and invest more in key growth opportunities.

Now I'd like to walk you through some of our recent progress and discuss our focus areas in Markets and Seller Services, starting with our Markets.

With the Etsy market, there are 2 key differentiators that serve as opportunities to drive growth.

First, most visits are from organic channels.

While organic traffic is an indicator of strong engagement and brand affinity, we cannot rely on this channel to continue to grow on its own.

The work we're doing across marketing and product will drive paid traffic and GMS and improve the full product experience to help improve organic traffic performance and conversion.

Given the size of our organic reach, this represents a significant optimization opportunity.

Second, the Etsy market has more than 45 million listings, with millions of one-of-a-kind items or limited inventory.

This presents one of the most complex tech challenges in e-commerce, which we are uniquely positioned to meet.

Here is a significant opportunity to use machine-learning to improve our search and recommendation engines, which we believe will help buyers discover and buy even more items on Etsy, from longtail unique items, to beautiful high-quality everyday goods.

So here's how we move the needle on these 2 big challenges and opportunities to drive GMS.

The key to our market strategy is bringing new buyers to Etsy and also getting existing buyers to make more frequent purchases.

We learned a lot from our first brand campaign, and we plan to continue to refine our marketing plan and approach to both brand and acquisition marketing.

While our marketing is designed to drive buyer interest, creating an engaging and easy-to-use product experience is critical for turning this interest into a transaction.

As such, encouraging conversion will remain a key priority.

We're making product enhancements, particularly within search, that improve the shopping experience.

Over the past 2 years, we've invested in product enhancements and in our mobile capabilities to improve each step of the buyer journey.

This has resulted in 6 consecutive quarters of conversion rate gains across desktop, mobile web and mobile app as well as a slight narrowing of the gap between mobile visits and mobile GMS.

In the first quarter, and for the first time ever, more than half of our GMS came from a mobile device.

Building on this work, we see search as a key area where we can augment our capabilities in order to further drive conversion.

Many of you have asked about our integration plans for Blackbird Technologies following our acquisition of the machine-learning company last fall.

And I'm pleased to report that last week, we initiated our first public test in the Etsy market that leverages their capabilities.

We've added new facets and filters to our popular jewelry category, making it easier for buyers to drill down into key subcategories like rings or necklaces, or narrow their search by attributes, such as gemstone or material.

We plan to roll out facets and filters across most of our major categories on Etsy by the end of the year.

We're also using Blackbird's expertise to help surface and recommend relevant items to buyers, especially when one-of-a-kind items are sold out.

We believe these improvements to the search and discovery process will drive sales and conversion and make buyers want to return to our markets.

I also wanted to touch on Etsy Studio, which officially launched to the public last week.

With nearly 8 million items alongside inspiring shoppable content, we believe that Etsy Studio is a unique offering within a huge industry that 1 study estimates to be over $40 billion in the U.S. alone.

As we continue to nurture and bring more buyers to our markets, we're also making it easier for sellers to start, manage and scale their businesses.

Seller Services revenue continues to grow robustly and was up 23.9% year-over-year in the first quarter.

Getting a seller to her first sale quickly and helping her manage the complexities of her growing business is a top priority.

To do this, we're building a comprehensive suite of services and tools that address key pain points that sellers face, and we're creating a platform from which she can run her entire business.

Over the past few years, we've created a payment platform where Etsy sellers and buyers are able to seamlessly transact.

Recently, we rebranded Direct Checkout as Etsy Payments.

Starting later this month, we'll require that all sellers in eligible countries transition to Etsy Payments.

We believe Etsy Payments is beneficial for our sellers as buyers are more likely to complete a transaction with sellers who use this service.

We've made enhancements that demonstrate our ability to address specific seller needs.

Our new Shop Manager tool is a centralized hub where sellers can manage listings and orders and track the effectiveness of their advertising campaigns all in one convenient place.

It's also enabled many sellers to discover and take advantage of our entire suite of paid and free services and tools, like Pattern, QuickBooks and Shipping Labels.

We think Shop Manager has the potential to transform the way sellers think about Etsy.

We're not just a place for them to start a shop, but instead, a business platform that will support them no matter where or how they choose to grow their business.

Ultimately, we believe that our Seller Services strategy will allow us to continue to grow our Seller Services revenue stream and, with Shop Manager, build a platform that grows with our creative entrepreneurs.

In closing, Etsy has a significant runway for growth, and we're taking important steps to become stronger, more nimble and better equipped to capitalize on our opportunities.

We're making investments in key areas of our business while maintaining a prudent cost structure and gaining leverage across our operating expenses.

I'm excited about Etsy's future, and I look forward to following its many successes in the quarters and years to come.

With that, I'll turn the call over to Jennifer to walk through our financial results.

Jennifer?

Thanks, Chad, and hello, everyone.

Just a heads up, the comparisons I'll be referring to are on a year-over-year basis unless specifically noted.

Let's start with GMS.

During the first quarter of 2017, Etsy generated $719 million in GMS, up 14%, driven by growth in active sellers and active buyers.

At the end of the first quarter, Etsy had over 1.8 million active sellers, up about 12%.

Also at the end of the first quarter, Etsy had nearly 30 million active buyers, up about 19%.

Both of these metrics demonstrate that our community of buyers and sellers continue to grow at a healthy rate.

Roughly 66% of our business came to us from a mobile device this quarter.

This was up approximately 300 basis points and continued to outpace the rate of growth on desktop.

Mobile GMS represented approximately 51% of our overall GMS, up roughly 400 basis points, and accounted for more than 50% of our overall GMS for the first time.

During the first quarter, conversion rates on desktop, mobile web and mobile app increased for the sixth consecutive quarter, and our aggregate conversion rate across all devices also increased.

Mobile conversion rate improvements allowed us to slightly narrow the GAAP between mobile visits and mobile GMS.

That said, because the mobile web visits make up a large portion of our overall visits, they are still a bit of a headwind for us.

This is because mobile web is the lowest converting device.

Since the beginning of 2015, when we made a series of product improvements that enhanced the buyer's journey, you've seen an improvement in our aggregate conversion rate.

Mobile web conversion improved at a greater rate than desktop and mobile app during 2015.

For your reference, mobile web converts at about 0.5x of desktop, and mobile app converts at about 1.3x desktop.

As we continue to make enhancements to the mobile experience, we expect to continue our progress in narrowing the mobile gap.

Etsy's international revenue grew 35% in the first quarter.

Percent international GMS was 30%, up 180 basis points compared to last year.

International GMS grew approximately 21% and accelerated year-over-year for the fourth consecutive quarter.

During the first quarter, total revenue was $96.9 million, up 18%, driven by growth in Seller Services and, to a lesser extent, growth in Markets revenue.

Seller Services revenue was up 24% and represented 55.7% of total revenue.

Seller Services growth was driven primarily by revenue growth in Etsy Payments, formerly Direct Checkout.

While Promoted Listings revenue was lower than anticipated this quarter, we're refining our algorithms and have recently added additional inventory.

We believe both of these enhancements will allow us to continue to drive revenue growth in the Seller Service.

Markets revenue grew 14%, primarily due to growth in transaction fee and, to a lesser extent, growth in listing fee revenue.

Gross profit for the first quarter was $62.2 million, up 15%, and gross margin was 64%, down 170 basis points.

During the first quarter, we recognized $1.3 million related to our Google Shopping tool for sellers.

However, this revenue is not expected to be significant through the remainder of 2017.

Last year's gross margin was positively impacted by gift card revenue of $1.7 million.

Excluding these high-margin revenue items, gross margin would have only decreased marginally compared to last year.

Turning now to operating expenses.

Etsy's first quarter operating expenses were $64.3 million, up about 36%.

Total operating expenses as a percent of revenue grew to about 66% in the first quarter compared with approximately 58% last year and 63% in the last quarter.

The increase in operating expenses as a percent of revenue is primarily due to an increase in employee-related expenses and marketing expenses associated with our brand campaign.

Marketing expenses totaled $23.5 million, up 48%, representing 24% of total revenue versus 19% last year and roughly 28% last quarter.

The increase in marketing expenses as a percent of revenue was driven by brand marketing expenses and, to a lesser extent, digital acquisition marketing and higher employee-related expenses.

Digital acquisition marketing expense, which excludes brand-marketing-related spend on digital channels such as YouTube and Facebook, increased 26% year-over-year and continued to generate strong returns for Etsy and a positive ROI based on our global attribution model.

Product development expenses totaled $18.1 million, up 48%, representing nearly 19% of total revenue compared to 15% last year.

The increase in product development expenses was driven by higher employee-related expenses, including additional expenses resulting from the acquisition of Blackbird Technologies.

G&A expenses totaled $22.8 million, up about 19%, driven by higher employee-related expenses and partially offset by lower professional services expenses and stock compensation expense related to the acquisition of ALM.

G&A expense represented 23.5% of revenue in the first quarter and remained flat compared to last year.

G&A as a percent of revenue has decreased each year since 2014 when it was nearly 27% of revenue, to 23.6% in 2016.

Headcount at the end of the quarter grew to 1,062 people compared with 1,043 as of December 31, 2016.

During the first quarter, Etsy's net loss was $421,000, and earnings per share were breakeven compared with earnings per share of $0.01 last year.

Etsy's net loss this year includes interest expenses of $2.1 million related to our Brooklyn headquarters, a $2.8 million foreign exchange gain and an income tax benefit of $1.1 million, all primarily noncash.

Non-GAAP adjusted EBITDA was $9.7 million.

This resulted in an adjusted EBITDA margin of 10% compared with 18% in the first quarter of 2016.

Adjusted EBITDA this quarter was impacted by higher employee-related expenses and the increase in marketing as a percent of revenue.

During the quarter, we recorded net cash provided by operating activities of $3.3 million.

This compares to $2.8 million in the first quarter of 2016.

The year-over-year increase in net cash provided by operating activities for the quarter was mainly due to revenue growth.

As of March 31, 2017, we had cash, marketable securities and short-term investments totaling approximately $276 million.

As we noted in our press release, our new management team will be reviewing our guidance.

Josh, I and the rest of the team will be rolling up our sleeves and reviewing our forecast, and we plan to provide guidance in conjunction with the announcement of our second quarter 2017 results.

Thanks for tuning in today.

We look forward to sharing more in the coming quarters.

And with that, I'd like to turn the call back over to Valerie to open up for Q&A.

(Operator Instructions) Our first question comes from Heath Terry of Goldman Sachs.

I was wondering, you've talked a lot about your goals around improving user engagement and frequency.

Can you give us a sense as you progress through the quarter and even now that we're a month into -- just a month further into these initiatives, can you give us a sense of what you're seeing in terms of the strategies, the methodologies that you're putting in place that -- what kind of impact they're having on engagement?

Are you getting any of the traction that you want out of these investments?

Thanks, Heath.

I'll take that one.

What we've really been focused on is continuing to improve on conversion, and that really means focusing on the experience on all of our platforms, desktop, mobile web, mobile app.

As I said, we've been improving conversion now for 6 straight quarters, and we're really excited about that work because it really demonstrates the overall success of the product work that we're doing.

And I think that the team has been focused in exactly the right area.

Hey, guys, this is Josh.

It's great to meet you all.

And I think the acquisition of Blackbird Technologies is a great example of really driving a lot more conversion.

What you'll hear from me is a term I call the AAA, which is acquisition and activation and activity.

Acquisition is the efforts to bring more people, more visits to the site.

Activation is conversion of those visits to buyers.

And activity is driving more loyalty so buyers come back again and again.

And I think there's good work underway in each of those buckets today.

I'll be laser-focused with my team on each of those and driving the most value we can.

And I see a lot of opportunity for continued improvement in each of those 3 buckets.

Great.

I guess just one other question.

On the efforts to build up local seller communities, you guys have talked a lot in the past about the early traction that you were seeing in the U.K. and some of the other markets.

Any sort of tangible direction that you can give us on sort of either a foreign seller count or intra-country international GMS that would give us a sense of what kind of traction you're seeing in those efforts?

So Heath, we're continuing to gain traction in our international strategy.

The international GMS, that buyer and seller in the same country outside the United States, is still the fastest-growing bucket of GMS for us.

Our next question comes from Mark Kelley of Citigroup.

Can you just talk a little bit more about March, what you saw there and what you think the difference was relative to the beginning of the quarter?

You noted the brand campaign was showing some results, just curious how much of that $20 million you spent in the quarter and if that had an impact, do you think.

And then your buyer and seller basis continued to grow nicely, but given the lag in GMS this quarter, just curious if there's a mix shift in the kinds of items that your sellers are listing, if they're lower-priced items.

Thanks, Mark.

What we saw in March, I think was pretty consistent with what we've heard from what's happening in the macro environment.

I think we heard a lot of companies had a challenging February.

So we see March as really largely due to all the product development that we've done and continuing to work on conversion.

And we're really excited about the progress in March.

And I would just add, Mark.

From February's perspective, we're still unpacking how much were macro drivers.

As Chad mentioned in his prepared comments, the key drivers for our model, ACVV, visits and conversion, were all below what we expected.

But I think it's a little bit -- we have some data and we talked about, from our brand marketing campaign, but it's a little too early to comment on any impact that, that might be having on buyer and seller growth.

Our next question comes from Scott Devitt of Stifel.

I was just wondering if you could talk a bit about the -- just longer-term direction of the company.

The business started to slow in growth, you embarked on a campaign to address it, to drive new buyers and get more purchases from existing buyers, and you've just sort of embarked on that progress and now you're making a management.

So I'm just wondering if, Chad, you or Josh, could just talk about whether there are views within the company in terms of maybe the direction that you've taken isn't the right one, and if -- when guidance is updated 3 months from now, if we may hear of modifications in strategy as well?

Sure.

This is Chad speaking.

I'll hand it off to Josh in a moment.

I think that everyone at Etsy, the board, the company, is really excited about the long-term growth of Etsy.

As I said, even as I step aside, I really believe in the long-term growth potential of Etsy.

So there's really no difference of opinion in that way.

I think Josh is a leader.

As I said in my remarks, I think Josh brings a lot of skills to Etsy that are very helpful at this stage in our growth, and I'm really excited about that.

Josh?

Thanks, Chad.

And just to build on that, Etsy has done something that's really rare and really hard to do, and that's to build a 2-sided marketplace that's really unique.

We have a very loyal and passionate group of sellers that offer a really unique set of inventory that's not available anywhere else.

And that's very special and very rare.

That's driven a good amount of organic and direct traffic that comes to etsy.com.

People actually wake up in the morning and type in www.etsy.com.

Not a lot of e-commerce sites have that.

Where we have not invested as much historically is in really pouring fuel on the fire with the more traditional marketing levers.

I mean, for the first 8 years of the company, it did no marketing.

And it's pretty common for a marketplace that is successful, that does earn organic traffic, to be able to significantly accelerate its growth through the addition of marketing.

So when we, as a board, looked at what's going to unlock growth going forward in the future, we looked at acquisition activity and loyalty and said that those are going to be very important levers going forward, and so having leadership that have a lot of experience in that area would be appropriate.

Our next question comes from Andrew Bruckner of RBC.

Two if I could.

I'm wondering if the change to Etsy Payments, do you see anticipate any increase in churn on the seller side from that?

And how can that affect take rates going forward?

And then secondly, now that we've passed the anniversary of Pattern, I'm wondering if you can make any comments in terms of how that has grown the GMS from those specific sellers who were early adopters of Pattern?

I can speak to Etsy Payments.

Etsy Payments, which we first started rolling out almost 5 years ago, has become a platform that our sellers really love to use.

And as I said in my remarks, we've also found that sellers who use Etsy Payments, formerly Direct Checkout, are generally more successful than the ones who don't.

So I think Etsy Payments, as we begin to require for sellers, we believe, will make more sellers successful, so we're really, really happy with that.

And, Andrew, with regards to Pattern, on our last call, we gave you an update about usage and we said roughly 2.5% of our active sellers in 2016 had used Pattern in the 8 months since its launch.

So I wouldn't consider it a material driver of our GMS at this point in time.

Our next question comes from James Cakmak of Monness, Crespi, Hardt.

Just one question, please.

Josh, kind of, as you've been a board observer and now CEO, there's been a lot of rumors in the market, and I think you can make that academic argument for Etsy as part of a larger organization.

But from your standpoint, from where you sit right now, can you just talk about why you think Etsy can derive more value operating independently versus part of a larger organization?

Sure.

As a board, we're laser-focused on delivering value for shareholders.

And I feel like there's a tremendous market opportunity for Etsy that it has only begun to tap and a very bright future.

So I'm working hard with the team here to make sure that we're entirely focused on the activities that are going to deliver the most value for all of our stakeholders, our sellers, our buyers, our shareholders and our employees, and I'm very enthusiastic about the path forward.

Our next question comes from Tom Forte of Maxim Group.

So going back to February, is there something you could point to, either from a competitive standpoint or geographic standpoint, to the extent that maybe there is incremental pressure in Europe or something like that?

Or from a counter-standpoint, to the extent that Valentine's Day this year may have been materially weaker than last year, just any comments on anything in February on those bases that may have affected the results?

Yes.

So Jennifer, you can speak to this again in terms of the metrics.

But we did see, as we said, lower ACVV.

And as I mentioned, we also saw some macro issues that we've seen elsewhere in the economy.

For example, you all probably heard that Q1 consumer spending growth was lower than it had been since the fourth quarter of 2009 as reported by the U.S. government.

So those are the things that we saw in February.

Yes, Tom, I mean, as I mentioned previously, we're still analyzing it, but there was just a confluence of external factors that may have had an impact, everything from what Chad was saying, to the macro-political landscape, to tax refunds coming out later than anticipated.

But what we did disclose in our prepared remarks is that we did see recovery in March.

Our next question comes from Darren Aftahi of Roth.

Two, if I may.

Can you just talk a little bit more about where are the areas, specifically, where the 80 headcount reduction will occur?

And then just following up on the Etsy Payments transition, do you anticipate or are you all concerned about potential pushback from sellers as it pertains to the May 17 deadline for adoption?

Sure.

So on the headcount reduction, we exercise a really simple philosophy.

We wanted to, as much as possible, shift cost out of G&A in the growth-oriented areas.

So we really looked at it in those terms.

And again, that was on the heels of us realigning our teams and reorganizing our teams to promote more clarity and accountability and speed in the work that they were doing.

So we think this is the right decision for Etsy in the long term, and I think it focuses on the company much, much more.

On the Etsy Payments side, again, what we found is that sellers who use Etsy Payments, again, formerly Direct Checkout, are more successful than the sellers who are not.

And since we are so focused on seller success, we believe that more and more sellers will continue to use Etsy Payments, and that would be beneficial for individual sellers and the business overall.

Our next question comes from Blake Harper of Loop Capital.

I want to ask 2 questions.

One, are you able to quantify what the dollar cost savings is of the headcount reductions that you're doing?

And then secondly, is there any update to the Seller Services pipeline?

Or, Josh, maybe could you comment what you think about as you look at the -- kind of the product pipeline or how -- and other ways that you can help your sellers by delivering some of your products to them?

Hey, Blake.

So what we can tell you about the reduction is that it's mostly focused in headcount, as we mentioned in our disclosures, 80 headcount positions, roughly 8% of our workforce.

We'll provide additional details when we update our guidance on our second quarter call.

And on Seller Services, Chad and the team have been very focused on that and have done a great job of unlocking value.

We have a pipeline I'm very excited about of continued ways to help sellers to promote and sell their listings on Etsy and in other channels as well.

And our last question comes from Sam Kemp of Piper Jaffray.

Sorry, if you've already answered these.

I've been hopping between calls.

But, Josh, can you outline your thoughts on what you think the appropriate level of marketing investment is for Etsy?

It seems like, in general overall, it's always been a little bit underinvested in on the marketing side.

And then secondly, can you talk about how you philosophically think about third-party channels and the level of control you want to exert over where the actual product is placed?

For example, Instagram is making a lot of progress towards making it more of a shopping-direct channel, and I'm just wondering if that's a channel that you are especially interested in participating in?

Yes.

So to the first question, and I apologize for others, I didn't say this earlier, but I think it's worth noting, Etsy did not do any marketing for the first 8 years of its history, and traditionally, when you have a marketplace vibrant enough and good enough to earn a lot of direct traffic as the Etsy Marketplace does, with the breadth and depth of really terrific inventory from great sellers like Etsy has, that's something that you want to talk about.

And there's a lot of very effective marketing levers that one can pull.

And I think that, quite candidly, we have done some good work in the last few years to start to build those capabilities, but I'm very enthusiastic about the continued upside that we have to invest more, both in marketing dollars and in infrastructure and capabilities to put those marketing dollars to work at very high ROI.

So I do think that all 3 areas of the marketing funnel, from acquisition to activation, to activity, have upside, and it's going to be a strong focus.

I'm sorry, the second part of your question, can you -- that's how do I feel about our seller inventory being available not just on Etsy but off Etsy?

Is that what you were asking?

Yes, and especially transaction that occur off the Etsy platform that are populated by the Etsy inventory from Etsy sellers.

Or maybe even just more broadly speaking, how do you think about prioritizing the Etsy direct marketplace versus non-Etsy marketplaces?

Yes, good question.

First, I'd say that our goal is to make sure that our sellers succeed, that they come, they have a great experience on Etsy and then they can grow and scale their business and support their families and thrive.

And we think that's a very important mission.

We also think that the mission of delivering an outstanding buyer experience on Etsy is very important to us.

And etsy.com, our core marketplace and our marketplaces internationally, offer a really unique collection of inventory that you simply won't find anywhere else.

I do think there's an opportunity to make sure it's very clear to buyers on what occasion should they be thinking about Etsy and making sure that we build the habit so they come and shop at Etsy.

And I know they're going to be delighted.

I think it's complementary to also support our sellers in making sure that their inventory is available in other channels as well.

We live in a multichannel world, we recognize that, and we think we can help our sellers to succeed and help ourselves as well.

Ladies and gentlemen, this does conclude today's conference.

Thank you for your participation, and have a wonderful day.

You may all disconnect.