Etsy CEO: Investments in the platform are ‘really paying off’

Etsy CEO Josh Silverman joins Yahoo Finance Live to discuss post-pandemic company earnings, the state of e-commerce, recessionary risks, consumer spending, investing over $600 million to support seller’s, and the outlook for the upcoming holiday shopping season.

Video Transcript

JULIE HYMAN: Etsy saw business pick up during the pandemic as shoppers were inspired to DIY and redecorate and buy lots and lots of masks. Now, as many pandemic darlings are announcing losses and cutbacks, CEO Josh Silverman is focused on retaining those gains.

The consumer-to-consumer e-commerce platform announced plans to supercharge sellers with additional support and resources ahead of the holiday season. And Josh is here with us in the studio, which is such a pleasure because we spoke to you consistently throughout the pandemic. So welcome, Josh.

JOSH SILVERMAN: Yes, thank you. It's great to be here in-person.

JULIE HYMAN: Welcome back to in-person. So, indeed, if you look at your gross merchandise sales, which is the value of the goods sold on the platform-- it's kind of like GMV but for you guys-- it has remained pretty consistent and, indeed, has grown. What-- how does that work when we have seen so much volatility in a lot of different retail platforms and e-commerce platforms in particular?

JOSH SILVERMAN: Yeah, I mean, Etsy was certainly turbocharged through the pandemic because you couldn't shop offline. You couldn't go to travel. You couldn't eat out. And you're trapped at home. The government is giving you a lot of stimulus. And even other e-commerce players were having supply chain issues and other things, and Etsy sellers were selling as normal. So we really had kind of everything going for us.

And so I would say that during the pandemic, people shopped on Etsy because they had to shop on Etsy. What felt so great is people are coming back again and again now with limitless choice. They're coming back because they want to shop on Etsy. And just to put that in perspective, in the second quarter of 2022, just this most recent quarter, Etsy sellers did about $3 billion of sales. That same quarter pre-pandemic, Etsy sellers did about $1.1 billion of sales. And I think that's a testament to the fact that, first, Etsy sellers do a great job. And people got a chance to experience that.

Second, search on Etsy's gotten a lot better. Recommendations on Etsy have gotten a lot better. We're doing a great job of making sure that packages arrive on time and that people know that we have their back. And the investments we've been making all along, I think, are really paying off.

BRIAN SOZZI: Josh, your CFO made a really good point at the Goldman conference this week that Etsy is 14 years old and hasn't been through a recession. How do you think this business will do in a mild recession?

JOSH SILVERMAN: We're about to find out. So we don't have any data to base it on. You could argue that items bought on Etsy might feel discretionary, and you might see some headwinds from that. But you also might argue there's a lipstick effect, that at a time when you can't splurge on big things, you want to treat yourself to smaller things. And in fact, if you're going to buy fewer things, let's make those things mean more.

And the chance to buy from someone who made it just from you to connect with another small business, you know, I think that's powerful. And I think we're seeing a lot of great customer feedback that suggests that customers feel that way as well. And if you look at our guidance for the third quarter, we projected pretty robust sales for the third quarter. And so we feel good about that.

BRAD SMITH: And so with that in mind and kind of looking forward into the fact that you've got so much of the discretionary spending that takes place on the platform, but sellers are also trying to navigate where they're seeing that connection point with buyers on the platform consistently for some of these little luxuries there, is there anything that you're seeing in the data right now to suggest that there is more of a pullback that would intend to have a more material effect for the business in this near term?

JOSH SILVERMAN: Great question. We have an updated guidance. But what I will say is that we are investing significantly to make sure that we support our sellers. And so we've announced we're investing more than $600 million in marketing this year to make sure that we're front of mind with buyers at a time when they need us most. And while a lot of other people might be pulling back, we think this is a great time to be leaning in, actually, and gaining share.

We're investing in things like the Etsy Purchase Protection Program. We just launched that. We think it will cost us about $25 million over the course of the year. And that's to make sure that if anything does go wrong and it rarely does, but if anything does go wrong, Etsy steps in to fund it so that buyers know that they're protected and it doesn't come from our sellers. We've just launched a new sell on Etsy app. We're making a lot of investments that really are supporting and lifting up our community. And that's why I think we've been holding on so well.

JULIE HYMAN: Well, and I was going to make that point, that the sales growth has been pretty consistent, but you've also had to spend more, right, to maintain that sales growth. How long do you think that cadence is going to continue?

JOSH SILVERMAN: Yeah, so we projected about 26% EBITDA margins for the quarter. We said about 400 basis points of headwind will come from our subsidiaries. So the core business is producing about 30% EBITDA, which we feel good about. And I think that's a testament to the fact that we've never been a growth at all cost company. We've always been careful about the resources. Minimizing waste is one of our core values.

And so as growth exploded during the pandemic, we have carefully stepped up our investments and thoughtfully stepped up our investments. And I think that's really paying off right now.

JULIE HYMAN: One of the other things that you did was increase the seller fee, which I know got some pushback from sellers, as one would expect. How many sellers did you end up losing as a result of that?

JOSH SILVERMAN: We haven't really seen any loss of sellers in any measurable way at all. And in fact, we've got about $5.4 million sellers on the platform right now. And seller sentiment is about as high as it's been in recent years. So it did take a little bit of a dip when we announced the fee change, which isn't surprising, and it's bounced back to where it was before. And that's because, one, our business model is entirely aligned with our sellers. We only succeed when they succeed.

And a 6 and 1/2% commission is actually great value, compared with what it would cost to market themselves in any other platform. And as we told them, we're going to be reinvesting this money back in them. So the $600 million we're investing in marketing this year, the $25 million for the Etsy Purchase Protection Program and all the other investments we're making to make search work better for them, discovery work better for them.

And that's why the average seller has seen their sales go up 23% since pre-pandemic, even as we've added 2 and 1/2 million more sellers. And that's because we have the capacity to invest, which is very important for everyone.

BRIAN SOZZI: And Josh, the holiday season is coming on fast. You don't own inventory. That's a good thing, but a lot of your competitors do. They're seeing a mountain of inventory. Do you see an irrational holiday season in terms of discounting, maybe because of all the inventory that Target and Walmart owns, maybe the people on your platform now have to discount, too?

JOSH SILVERMAN: Yeah, so we are seeing more discounting offline. And Etsy sellers are discounting more. And we have launched more and more tools to allow our sellers to decide where and to who they want to offer discounts. So maybe customers that have been great customers in the past, here's 10% off to come back. In tougher times, we want to give our sellers the tools to compete.

Our sellers also have the opportunity to raise their prices if they think that's appropriate. And the fact that you're getting something handmade just for you is valuable. And our sellers ought to be able to price for that. So giving them quality badges like a star seller badge, which tells the buying community, this is a seller that's got a great track record, we want to also give our sellers tools to be able to demonstrate when they deliver great quality and actually get pricing power for it.

Over the past five years, what we've seen is our sellers have taken up their prices by about 8 percentage points in total over five years. And they've given all of that back to buyers in the form of discounts, as they've taken advantage of the tools we've launched. So the actual price of an item on Etsy has been about flat, actually, over five years.

JULIE HYMAN: Wow, that's really interesting. Really quickly, what's the hot thing right now and going into the holiday season? That's always fun to ask you.

JOSH SILVERMAN: So hot pink is hot right now.

JULIE HYMAN: Ah.

BRAD SMITH: Barbiecore.

JULIE HYMAN: Barbie effect, yeah.

JOSH SILVERMAN: The Barbie effect is big. And then crustaceanacore, which means things that are crustacean themed. So lobster, think lobster print is big, big right now.

JULIE HYMAN: Huh, it's, like, sort of "The Little Mermaid" throwback situation maybe. Josh, great to see you. Thanks for coming in. Josh Silverman is the CEO of Etsy. Thanks.