Joshua Silverman
Chief Executive Officer, President and Director at Etsy
Thanks, Deb, and good evening, everyone. We continue to experience striking changes in the global economy and consumer behavior this year. And as a result, our forward visibility is not substantially clearer than it was a quarter ago. Consumers have more choices for where to spend their time and money, and disposable income is under more pressure than it's been in a very long time. In spite of these headwinds, we're encouraged by the tens of millions of shoppers that return to Etsy, spending only slightly less with us in the second quarter of 2022 than they did a year ago when choices were far fewer and economic conditions were a lot different. While markets naturally go through cycles, I'm energized by the agility of the Etsy team, the adaptability of our business model and our ability to deliver solid profitability in a quarter where achieving top line growth was challenging.
We have a lot of conviction that not only is e-commerce poised for meaningful growth over the medium term but that each of the four Etsy marketplaces has a unique reason to succeed and scale, offering something truly important and different against a sea of sameness. That's why even through a challenging time, we've continued to invest in our people and our businesses, making bold moves that we very much believe will set us up for continued future growth. And we've been able to do this while delivering strong profitability, thanks to the benefit of our discipline, scale and business model. The headline for our second quarter results is that despite really meaningful headwinds, we continue to hold the vast majority of our top line pandemic gains while delivering strong profitability. In other words, controlling the things we can control. Our consolidated GMS was $3 billion, basically flat year-over-year, and up 2.6% on a currency-neutral basis. Also, when adjusting for the currency impact, GMS for the Etsy marketplace was down only a few percentage points.
Our consolidated revenue grew 10.6%, and adjusted EBITDA margin was 28%. Before moving into our operating highlights for the quarter, I wanted to review our recently announced leadership changes with our Chief Product Officer, Kruti Patel Goyal, moving to become CEO of Depop; and Nick Daniel, VP of Product, promoted to fill Kruti's former role. In her 11 years at Etsy, Kruti has led almost every function, including strategy, corporate development, international, trust and safety, and seller services. four years ago, I asked her to run our product organization, and she's done a stellar job. She, together with Mike Fisher, our Chief Technology Officer, spearheaded Etsy's product development culture, building focus, customer obsession, agility and accountability into the fabric of our operating rhythms. She's also built an incredibly talented bench of leaders. She is ready to be CEO of a great marketplace brand, and in my opinion, there's no one better positioned to take Depop to the next level.
Kruti will move to London next month to join Depop's very talented leadership team. I'd also like to express my gratitude to Depop's CEO, Maria Raga. Under her leadership, Depop has taken the world by storm and defined itself as a beloved, culturally relevant brand. We wish her the best in her future endeavors. Nick Daniel joined Etsy eight years ago and, over the course of his tenure, has led many of the most complex and value-driving product initiatives in our portfolio, for example, the development and growth of Etsy Ads and our off-site advertising program, scaling Etsy's marketing technology capabilities and launching our major push into personalization. Nick has the strategy chops to set a vision, the technical chops to ensure good execution and the leadership chops to attract and develop world-class talent. I couldn't be more excited about these changes, and I'm immensely proud of the depth of leadership talent we have at Etsy. We've been intentional about building and strengthening that bench over the years, putting us in a position to make moves like these.
It also highlights the career adventure we're able to offer our team and even more now with the addition of Reverb, Depop and Elo7. I believe that's one of the reasons why our engagement remains strong and attrition low even in these more challenging times. Nick will now partner with Mike Fisher to lead the teams driving Etsy's Right to Win product development road map. As we've explained on prior calls, this year, we're organized around making Etsy feel more made for you, more efficient and inspirational, making Etsy more reliable and continuing to support our sellers' growth by offering them more agency and scalability. We've directed more product teams towards active buyer growth, accelerated efforts to deepen personalization in the buyer experience, and resequenced road maps to pull forward higher confidence, retention and frequency drivers. Let's start with search. We currently have about 100 million items for sale, an unimaginable selection, and none of it maps to a catalog. Most queries have more than 1,000 relevant search results.
We need to get you to the good stuff fast, but each person has their own idea of what the good stuff is. That's why it's so critical that we not only have a world-class search technology but that we marry it with world-class personalization. In this way, we can make Etsy feel truly made for you and, along the way, build a competitively differentiated value proposition. We used to have only one search engine, which was great at finding search results using text from the listing title but was limited since it needed to find an exact or near exact text match in order to retrieve results, what we've talked about as the semantic gap. Over the past six months, we've gotten significantly better at leveraging multiple search engines simultaneously, each with different strengths. For example, some are better at head queries or tail queries or understanding the true meaning of phrases. We then intelligently blend the results, personalizing them with insights from what you've done in the past and, as of very recently, real-time data from the bread crumbs you've left during this particular visit as well.
The result is more engaging results, driving more purchases and increased browsing activity within the app during the quarter. Not only are our search engines getting demonstrably better, but we continue to enhance our infrastructure with things like multimodal search to enhance future advancements. Better search makes the experience more inspirational and more efficient for the buyer. Speaking of efficiency, we had a major win this quarter with an add to cart button immediately below U.S. search results. Adding add to cart in search results made it easier and faster for buyers to find what they love, thereby creating a faster path to purchase with less distractions. This change drove improvements in conversion rate and average order value, a testament to the fact that we've improved the quality of search and the information provided on the search result page, enough that some people are ready to buy without even needing to visit the seller's listing page.
Last quarter, we mentioned that we have a portfolio of early-stage visual discovery ideas we're testing to learn how we can engage buyers when they don't know what they're looking for and to make Etsy more visual, dynamic and inspirational, again more made for you. In June, we held a live Etsy Market shopping event on our app. In the days leading up to the event, buyers could watch trailer videos for each stream and set in-app reminders. The event featured 20 sellers streaming live from their studios, sharing their stories, process and styling tips. It's a great example of ideas we're testing and iterating on to help sellers reach buyers in new and authentic ways. Another visual discovery app experience during the quarter focused on helping buyers gain confidence in a purchase decision by highlighting the experience of other buyers, by enabling buyers to leave video reviews.
We've just started to collect video reviews and make it easier for buyers to access and engage with this content. And we continue to iterate on the explorer feed to make it even better. We know that reliability has been an important friction point for buyers. If they can trust that the item will arrive on time, undamaged and as described, we believe we can unlock significantly more purchases from each buyer. Fortunately, our sellers generally do a great job delivering quality items at a fair price. And we've made major progress improving metrics like on-time arrival over the past two years. That's why we couldn't be more excited that our new Etsy Purchase Protection program goes into effect next week. It's going to help make shopping and selling on Etsy far clearer, easier and more reliable. This program will protect sellers and buyers for qualifying orders up to $250 when the item doesn't match the description, arrives damaged or never arrives.
Etsy expects to invest approximately $25 million annually to cover refunds at no additional cost to sellers. And the refund process will become clearer, faster and easier for many buyers. You'll see us get louder on these new policies as we go through the rest of the year, building up to the all-important holiday season in Q4. And we've been doing more than ever to help our sellers grow. We've created an entirely new, simple and, we believe, very lovable Sell on Etsy mobile app, more maintainable and extensible with improved usability versus our legacy seller app. Key new features include the ability to purchase shipping labels and to receive a heads-up when a repeat buyer is messaging you. We've incorporated new technology to enable the release of more functionality at a faster rate than ever before. Also during the quarter, we incorporated seller feedback into our Star Seller badge, making it more achievable for sellers that provide excellent customer support.
We continue to invest to help sellers who have the skill and the will to succeed on Etsy, and we're proud of the results. While we're on the subject of helping our sellers to grow, this quarter, I also want to shine a spotlight on Etsy Ads. Over the years, we've made meaningful improvements to the availability of ads on our marketplace, the relevancy of ads we show to buyers and the tools we offer sellers to manage their spend and how we bid on their behalf. This product has been a win-win-win for our sellers, buyers and Etsy. Etsy Ads revenue has grown 516% over the last five years, even faster than Etsy marketplace's 253% GMS growth. We've continued to close the semantic gap by leveraging new machine learning techniques to capture intrinsic styles and properties, thereby providing more relevant ad inventory for buyers without compromising conversion rate.
We also recently expanded Etsy Ads inventory to the home page while maintaining listing relevance consistent with organic search results. Seller budgets are up 80% year-to-date and were maintaining strong ROAS for them as well. We've ramped our investments meaningfully in Etsy Ads as it's an area where we see a long runway for continued growth. As you know, we've been hyper-focused this year on driving engagement and frequency, and one area I'd like to highlight is how we've been working to engage low-frequency buyers. More engaged or habitual users are generally more adept at coming up with ideas and/or finding what they're looking for, which is generally not how a low-frequency buyer experiences Etsy. By making Etsy more accessible, and hence giving novice buyers an experience closer to that of habitual power users, we believe we can unlock significant frequency gains over time, and we've been making encouraging progress.
Recent examples of wins include a revamped, more diverse presentation of items above the fold on the home page to generate interest and engagement, and a revamped user interface, prompting signed-out buyers to download the app. Once again, app downloads had impressive growth, up 53% versus last year's second quarter. Our research and experimentation are giving us creative ideas for layouts that work to encourage scrolling by incorporating trending shops, searches and categories, all of which, of course, get far more powerful when combined with the personalization investments discussed earlier. This work is just at its infancy, and we'll continue to tell you more about it as we make additional progress. Another important vector for our engagement and frequency work is our international efforts. Getting the flywheel turning and additional international markets, we believe, can unlock significant growth.
Recall from the last call, the insight that penetration rates in the next 15 markets beyond the U.S. and the U.K. are about 80% lower than those top two Etsy markets, a great data point to support our belief in just how early our growth journey really is. Some recent international wins include the launch of the first version of localized XWalk in all our non-U.S. markets. We're now applying this powerful search engine technology to optimize results to find the perfect listing for our non-U.S. buyers. Our fulfillment team has been hard at work moving the needle on expected delivery date, postal code coverage for non-U.S. orders, and other transparency and confidence-building initiatives. And we recently added another eight countries to the list of places buyers can buy now and pay later, so making Etsy more made for you and reliable no matter where you are.
Our research shows that one of the top reasons buyers don't shop more often on Etsy is because we aren't top of mind for enough purchase occasions or moments. That's what gives us continued conviction in our marketing efforts, and I'm proud of the agility of our team continuously adapting our strategies and creative to the market environment. With macro headwinds continuing to be strong in 2022, our team has modified our very successful Meant for You and Why Buy Boring campaigns to remind people of the many purchase occasions for which Etsy is relevant, that all-important shoulder tap, while leaning into value and affordability, so the what and the why to shop Etsy during these times. The message, in a nutshell, is Etsy has home decor, fashion, jewelry and gifts. It's affordable and better on Etsy. We've also incorporated the messaging about extraordinary and affordable into our earned media engagements, our social channels and the marketplace itself.
Our team has been really creative during this time, utilizing our CRM tools, app notifications, emails and other on- and off-line techniques to drive buyer engagement and frequency. And we also had some great brand-building earned media during the quarter from tried and true features such as the Etsy Design Awards. Turning to our subsidiary brands. 2022 has been a challenging year for all 3, each of whom faced reopening and other headwinds, similar to those faced by our core marketplace. Current business conditions notwithstanding, we have a lot of conviction that we're in the extremely early days of realizing value from our House of Brands. Kruti will hit the ground running at Depop in September, where she'll be focused on incorporating our product development culture to increase product velocity, with goals that will sound a lot like what she's accomplished for the Etsy marketplace,
Highlighting sellers' unique inventory, improving search and discovery, elevating the human connections on the marketplace and making Depop more relevant to more of its target audience and building trust in the brand and, of course, driving ROI-focused marketing investments that deliver results. We believe Depop has fostered one of the most passionate communities in e-commerce, and it has only scratched the surface when it comes to reaching its full potential. Reverb and Elo7 each have responded to macro challenges with creative approaches designed to set themselves up for future growth. Reverb helped buyers find their perfect instrument with updates to on-site search algorithms, localization enhancements and improved domestic discovery in the U.K. To meet buyer expectations on free shipping and returns, they helped buyers connect with sellers offering customer services like free 2-day shipping and 30-day return policies.
In addition, Reverb built SEO-optimized landing pages and drove adoption of My Collection, a feature that helps buyers track the value of their music gear over time. Elo7 improved the buyer experience by introducing signals and nudges into the purchasing journey while expanding delivery carrier options for sellers to materially reduce shipping costs, increase speed and improve transparency for buyers. Performance marketing remained an important focus as Elo7 continues to leverage the Etsy playbook for improving spend efficiency. Rachel will talk a bit about our business model, which we want to highlight today as one of the key factors that gives us comfort in uncertain times.
We see multiple scenarios possible for the remainder of 2022. But even in downside scenarios, we believe we are well positioned to deliver healthy profitability. We'll keep focusing on the things we can control, driving great customer experiences, investing with discipline and care, and helping our team to minimize distractions and focus on getting the job done. It's not an easy time for the world, but we take heart in the fact that our work has purpose, delivering value and economic opportunity for millions of sellers and giving tens of millions of buyers experiences they can't find anywhere else and most of all, the chance to keep commerce human. Thank you for your time. And with that, I'll turn it over to Rachel.
