ETSY Inc

NASDAQ:ETSY

Earnings Call Analysis

Etsy's Growth and Differentiation Strategy

Etsy enters 2024 with vigor, boasting a strong finish in 2023 and a record revenue of $2.7 billion, a 7% uptick from the previous year. Announcing a suite of initiatives aimed at reinvigorating growth, they seek to differentiate from commoditized e-commerce by capitalizing on their unique marketplace. With a GMS (Gross Merchandise Sales) of $13.2 billion, Etsy's potent financial model supports robust product development, targeted marketing, and newfound emphasis on gifting. Despite a stagnant GMS year-over-year, Etsy aims to bolster consideration and shopping frequency, harness their current 2% market share of a $500 billion addressable online market, and invest in strategies like a new buyer loyalty program and more reliable shipping to elevate their trajectory.

Stable Revenue Amid Market Challenges

In a market that faced considerable pressures, Etsy demonstrated resilience with $4 billion in consolidated Gross Merchandise Sales (GMS), maintaining its ground compared to the fourth quarter of the previous year. Notably, the company achieved a record revenue of $842 million, growing by 4.3% year-over-year, and witnessed its adjusted EBITDA peak at $236 million, a nearly 4% increase from the year before.

Investments in Future Growth

Etsy's intent on growth is clear through its product development investments, which brought in an impressive $1.5 billion in incremental annualized GMS. Commitment to innovation didn't slow down, with a 30% increase in product development launches from last year. Moreover, marketing investments anchored Etsy's brand during the peak holiday season, with total spend up by 7% from the prior year, culminating in an ROI-boosting Cyber Monday event and yielding $2.6 billion in incremental annualized GMS from standalone marketplace performance marketing.

Navigating E-Commerce Giants

In an e-commerce industry shared with giants like Amazon, Walmart, Temu, and Shein, Etsy held its course. These competitors, renowned for their aggressive discounting strategies, have been gaining market share. Despite this competition and heightened consumer price sensitivity, Etsy managed to add 8 million new buyers and reactivated nearly 10 million lapsed buyers, evidencing its value proposition's durability in a challenging retail landscape.

Continued Focus on Operational Efficiency

Despite its growth, Etsy emphasized operational efficiency, highlighting a lean workforce with high revenue per headcount. The company asserts that aggressive cost-cutting would hinder future growth potential and continues to invest in areas necessary to scale and enhance the platform's value.

Financial Strength and Shareholder Returns

Etsy's commitment to shareholder value is mirrored in its capital allocation, with capital return accounting for nearly 90% of its free cash flow. Notably, a $93 million stock repurchase was made in Q4 under a $1 billion Board authorized program. The capital-light business model certainly paid off, as Etsy translated a remarkable 90% of its $754 million consolidated EBITDA directly into free cash flow.

Etsy's Strategic Outlook on International Expansion and Ad Improvements

Looking forward, international sales are pivotal to Etsy's growth strategy. The company benefits from higher take rates on international transactions and continues to invest in Etsy ads, which have already shown to boost conversion rates. With an eye on broadening international market reach and enhancing ad efficiency, Etsy is positioning itself for sustained growth despite foreign exchange headwinds and mixed global economic signals.

Earnings Call Transcript 2023-Q4

[Debra Wasser, executive]

Hi, everyone, and welcome to Etsy's Fourth Quarter and Full Year 2023 Earnings Conference Call. I'm Deb Wasser, VP of Investor Relations.

Today's prepared remarks have been prerecorded. joining me today are Josh Silverman, CEO; and Rachel Glaser, our CFO. Once we are finished with the presentation, we will take questions from our publishing sell-side analysts on video.

Please keep in mind that our remarks today include forward-looking statements related to our financial guidance, our business and our operating results, as noted in the slide deck posted to our website for your reference. Our actual results may differ materially.

Forward-looking statements involve risks and uncertainties, some of which are described in today's earnings release and our most recent Form 10-Q and which will be updated in future periodic reports that we file with the SEC.

Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we disclaim any obligation to update them. Also during the call, we'll present both GAAP measures and non-GAAP financial measures, which are reconciled to GAAP financial measures in today's earnings press release or the slide deck posted on our IR website, along with a replay of this call.

With that, I'll turn it over to Josh.

[Joshua Silverman, executive]

Thanks, Deb. We're pleased to speak with you today about our recent performance, but more importantly, to preview some of our exciting initiatives for 2024. We've built an ambitious portfolio of growth initiatives, what we consider some very bold moves while staying focused on protecting or expanding our overall profitability. We've done a lot to set Etsy up for success, making some difficult choices last year to be able to invest in our vital fuel with an eye to getting Etsy back to growth. We entered 2024 energized with the right team, a highly relevant and differentiated right-to-win strategy, a disciplined investment approach and a resilient business model.

Our focus will be to make Etsy even more Etsy, leaning into our core strengths to get even better at what we do that is unlike anyone else in e-commerce. We had a strong finish to 2023 in the core Etsy marketplace as well as at our subsidiaries, which collectively brought Q4 in a bit better than expected, as Rachel will review shortly. The Etsy marketplace performed well during the holiday season with our host ever Cyber 5 GMS, up about 4% year-over-year. Both Cyber Monday and Gifting Tuesday set new records.

We know Etsy is a great place to shop for gifts and our focus on this message paid off. More to come on gifting in a moment.

With this strong finish to 2023, consolidated GMS was $13.2 billion, roughly flat with 2022. Revenue was a record $2.7 billion, up about 7%; adjusted EBITDA was about $754 million; and free cash flow was very strong at about $666 million.

Etsy's ability to deliver healthy revenue growth and strong levels of profit and cash flow gives us great confidence in the power of our special financial model and our ability to invest in long-term sustainable growth. 2023 was a banner year for our Etsy marketplace product development teams who delivered our highest ever level of incremental annualized GMS. We dramatically improved experiences for buyers, making it easier to find what you're looking for, better at highlighting the best stuff, using new signals and nudges to drive conversion rate, improving reviews and recommendations, and developing new category purchase pathways and experiences.

We built entirely new ways to feature handcrafted high-quality listings at value. Our marketing team was also extremely productive with memorable above-the-line campaigns contributing to our highest ever level for buyer intent to purchase on Etsy in our top 3 countries, increased visibility for seller funded promotions, scaled social spend and new tools for buyer engagement. All in all, a respectable year in a tough environment.

By any measure, Etsy starts 2024 a much more meaningful e-commerce company than we were just a few years ago. We've doubled our buyer base, which has now grown on a year-over-year basis for 4 consecutive quarters. And buyers on average, are still shopping more frequently and spending much more on Etsy now than they were before the pandemic.

Our $12 billion in 2023 Etsy marketplace GMS was roughly $3 billion more than we outlined in the 3- to 5-year target we set in 2019. As you can see on this chart, after many years of overperforming our sector, it's been difficult to outgrow during the past few years, particularly given the tepid macro climate for consumer discretionary products. But this just means we have to work even harder and more efficiently to deliver accelerated top line growth.

So where do we go from here? Let's start with the size of the prize. We all know that e-commerce is a massive business, still taking share from traditional retail. We estimate that the TAM in our core geographies and categories is $500 billion, just online with our market share sitting at just about 2%. So we still have a very long runway for growth. Most other players are competing head-to-head to sell the exact same merchandise focused on selling it $0.02 cheaper or shipping it 2 hours faster. And this has resulted in the commoditization of the entire experience. But that's just not Etsy.

While we have an opportunity to continue to enhance our offering to deliver on the table stakes e-commerce expectations, we also stand for something more. We offer something different in a sea of sameness, which is why highlighting the best stuff remains one of our top focus areas, and we're confident that we can get back to growing faster and taking share more broadly. We believe Etsy's differentiation is partially why, based on consumer Edge's U.S. e-commerce retail data, we largely continued to gain share throughout 2023 when compared to our pure-play competitors in most of our top categories.

Competition indeed fierce, yet we're up for the challenge. I'm excited to tell you how and why we believe we can win. As we built our plans to reaccelerate growth this year, we've been very clear-eyed about where we are today, where our competitors are and where our strengths lie. Some of what makes us special is also what's historically held us back from being thought of for everyday purchase needs. Buyers too often think of Etsy only for very specific needs are at the end of their shopping journey. Or it simply takes too much time and effort to find the best things among our now over 100 million items.

Our buyers worry about the post-purchase experience. And because of that, the number of times buyers purchased from Etsy per year as well as what they spend with us are both still much lower than for some of our peers. We know Etsy has many millions of high-quality listings that offer great value. We also know that if we can provide these in a way that's both reliable and dependable, we should be able to earn both more frequency and higher AOVs while also still having significant room to continue expanding our active buyer base.

As we work to gain share in 2024 and beyond, we'll stay focused on our vital view, making some bold moves to break down brand barriers so that buyers will think to shop with us even more often, across a wider range of purchase occasions, leading to significantly improved consideration and ultimately increased frequency, which we believe is one of the keys to unlocking growth for Etsy.

So while we'll continue to focus on adding more buyers around the globe, expanding seller services and revenue streams and so on, today, I'll focus primarily on this consideration opportunity. In fact, we've got a portfolio of compelling initiatives lined up designed to move the needle on consideration and frequency.

In addition to Gift Mode, which I'll tell you more about in a moment, we're also hard at work researching options for a buyer loyalty program to give buyers explicit reasons to come back and shop more often. We'll do a lot more on the value and the reliability front, for example, with innovation planned to improve the predictability of shipping costs for both buyers and sellers as well as work to improve shipping timeliness, for example, shortening our estimated delivery dates this year by at least 2 days.

While we've made great progress in both of these areas, we have significantly more room to go to make sure we can meet buyers' expectations and drive significant GMS while doing it in a way that remains very Etsy. We've also seen some really strong growth in international markets over the last few years and are particularly excited about plans we have to not only concentrate on building domestic vibrancy in our core markets, but also some new initiatives to drive cross-border transactions and further growth and vibrancy across key geographies, especially in Europe.

We've got a lot in store. But for today, the one bold move I'm thrilled to tell you about is Gift Mode. As you've likely seen over the last few weeks, Etsy is all in on gifting. Our goal is to evolve Etsy from being one of the places you can go to find a gift to being the indispensable partner for all of your gifting missions. Not only is Gift Mode an important product launch, it represents a significant deviation from our normal approach where we historically launched a series of measurable incremental product improvements with minimal fanfare. With Gift Mode, we've meaningfully augmented our playbook to not only create a great new product experience, but also to create a consumer buzz about the product in a way we've never done before with unmissable stories, content and moments to build excitement.

Why gifting for Etsy? Gifting can be stressful and fundamentally different than buying for yourself in multiple ways, knowing what to buy, the logistics of how, when and where your gift will arrive, what if the gift recipient doesn't like it and so on. A gift can be perceived as a representation of yourself or how much you care for the recipient, all of which makes it important and stressful.

Given we're known for that special item made and sent with a human touch, we believe we're uniquely positioned to take the stress out of gift buying. Data supports that buyers crave help here. 2/3 of Americans struggle to find the perfect present. And the vast majority, 71%, have felt anxiety about gift shopping in the past year. We believe gifting is an ideal use case for Etsy.

We have an enormous convinced that this is a space we can and should own and, if done well, can lead to market share gains across our core categories. After all, do you really want to buy that special gift at a mass retailer whose brand primarily stands for commoditized and cheap? Not only is gifting the perfect Etsy use case, it's an always-on opportunity for us to add value. Gifting is not just a seasonal buyer need, there are reasons to give gifts nearly every day of the year.

According to our survey work, about 45% of gifts are purchased for personal occasions such as birthdays, births, weddings. Another 45% of all gifting happens for holidays, both seasonal and secular holidays, Valentine's Day, Mother's and Father's Day and more. And the remaining 10% are just because gifting occasions, missing a loved one or sending a thoughtful item to a sick relative.

Further, our data shows that U.S. consumers spend an average of $1,600 a year on gifts. We estimate that, on average, Etsy's U.S. buyers spend about 2% of that, just $38 for gifts on Etsy. There are literally millions of high-quality items on Etsy made and designed by real people that make great gifts for every occasion, budget and interest. Yet because we sell so many things for such a vast variety of purposes, it's difficult for people to know when to turn to us. And we often aren't the first place people think of or come to when they're on a gifting journey.

Only about 10% of U.S. shoppers name Etsy top of mind as the place to shop for gifts. And there's no single brand that really owns gifting. So we see this as an early stage opportunity. Another way to look at this opportunity, we estimate that only 43 million of our global Etsy buyers bought a gift from our sellers last year, which means that over half of our active buyers didn't and that's not even counting the tens of millions of other shoppers for whom gifting can be a compelling reason to start shopping on Etsy.

Gifting represents a huge TAM. We estimate the relevant opportunity to be about $200 billion in the U.S. alone. We believe our market share is about 1%. So even moving up to 2% would be a $2 billion growth opportunity for us. Obviously, that $2 billion is already captured in the very large TAM mentioned earlier. But by defining this space and investing with focus and gifting, we believe we can move the needle on growth.

So what's Gift Mode? It's a whole new shopping experience where gifters simply enter a few quick details about the person they're shopping for, and we use the power of artificial intelligence and machine learning to match them with unique gifts from Etsy sellers. Creating a separate experience helps us know immediately if you're shopping for yourself or someone else, hugely beneficial information to help our search engines solve for your needs.

Within Gift Mode, we've identified more than 200 recipient personas, everything from rock climber to the crossword genius to the sandwich specialist. I've already told my family that when shopping for me, go straight to the music lover, the adventurer or the pet parent.

We've incorporated some great new ways to help the procrastinator or alleviate the general concern that Etsy gifts won't arrive in time. Let's show you how it works.

[Presentation]

[Joshua Silverman, executive]

Early indications are that Gift Mode is off to a good start, including positive sentiment from buyers and sellers in our social channels, very strong earned media coverage and nearly 6 million visits in the first 2 weeks. As you test and shop in Gift Mode, keep in mind that this is just the beginning. We have an exciting road map planned for getting discovery journeys, logistics and experiences to make Gift Mode easier and more delightful for both the gifter and the giftee, and to get both coming to us more often.

Before closing, I'll comment on the solid recent contributions from our subsidiaries. Depop's performance significantly improved in 2023, returning to healthy year-over-year GMS growth with very strong double-digit growth in the U.S. and strong growth in revenue. The U.S. is a large opportunity for Depop with the resale market forecasted to be over $40 billion by 2027, growing 9x faster than the broader retail clothing sector.

For the full year, Reverb significantly outperformed the musical instruments industry, and while GMS was about flat, revenue increased on a year-over-year basis. Reverb returned to GMS growth in the fourth quarter, primarily attributable to their focus on used and outlet inventory. The Reverb team made some organizational changes late in the year, which we currently expect will help the business achieve adjusted EBITDA profitability this year.

We believe the best is still ahead for Etsy. Right now is a moment when many consumers are feeling stretched with low confidence in the economy and less money to spend on discretionary items. But it's a moment that we believe will pass. Etsy's mission and compelling right to win remain relevant and sound. I'd like to officially welcome Mark Steinberg to Etsy's Board of Directors, and believe he'll bring unique and valuable experience as an investor and Board member in the technology, digital media and e-commerce industries. And most importantly, he shares our passion for Etsy's mission and excitement about our future growth opportunities.

I want to thank the Etsy Reverb and Depop teams. You've all worked with incredible heart, creativity and determination to delight our buyers and help our sellers grow. We're going to lean in hard to our differentiation, and believe we have the financial strength to do so in a sustainable way. We started the year off with a bang with Gift Mode, and that's just the beginning. I'm confident we can get back to the kind of growth that we and all of our stakeholders can be proud of.

With that, I'll turn it over to Rachel.

[Rachel Glaser, executive]

Thanks, Josh, and thank you, everyone, for joining our fourth quarter call. My commentary today will cover consolidated results, key drivers of performance and Etsy marketplace stand-alone results where appropriate. As a reminder, we divested Elo7 on August 10, 2023. So please take that into consideration when you compare year-over-year and quarter-over-quarter consolidated results.

Etsy delivered $4 billion in consolidated GMS, roughly flat to the fourth quarter of 2022. FX benefit moderated to 90 basis points in the fourth quarter, down from the 130 basis point tailwind in the third quarter. Revenue increased 4.3% year-over-year to a record $842 million and adjusted EBITDA grew to an all-time quarterly high of $236 million, up nearly 4% from the prior year. Note that Elo7's divestiture resulted in small headwinds to both GMS and revenue for the quarter and was modestly accretive to consolidated adjusted EBITDA margin.

Following a challenging October, Etsy's marketplace's year-over-year GMS trend line improved in November and December due to the solid holiday performance Josh described earlier. We had a nice end to the quarter with better than expected GMS growth across all of our brands, enabling us to come in slightly above our mid-December revised guidance for GMS in revenue.

Within our consolidated year-over-year revenue growth of 4.3%, consolidated marketplace revenue grew 2.6% due to higher payments revenue related to a mix shift of more international transactions that yield higher fees, growth in subsidiary payments fees and higher offsite ads revenue. Services revenue was once again a key contributor to growth, increasing 9.4% year-over-year. Etsy Ads was the primary driver of this strength with continued improvements to add relevance. We delivered a consolidated take rate of 21%, largely flat to the prior quarter and slightly above the take rate implied at the midpoint of our quarterly guidance provided in mid-December.

For the full year, our consolidated take rate increased approximately 160 basis points due to strong growth in Etsy Ads, our April 2022 transaction fee increase that was incremental for most of the first half of 2023 as well as payment fee expansion. Fourth quarter consolidated adjusted EBITDA margin was 28% at the high end of our latest guidance but down about 10 basis points from last year, partially due to a lower gross margin, primarily the result of an increase in the cost of refunds for orders not covered by Etsy purchase protection as well as higher marketing spend.

Note that due to a discrete nonincome tax benefit related to Depop, our subsidiaries represented only about a 200 basis point margin headwind in Q4. Overall, we are very proud that even with investments in important product and marketing initiatives to make Etsy a great holiday shopping destination, fourth quarter 2023 adjusted EBITDA of $236 million was higher than any quarterly period, including pandemic peaks.

During the fourth quarter, consolidated product development spend increased 4% year-over-year to $117 million. As a percent of revenue, we gained about 10 basis points of leverage from the prior year, largely due to the Elo7 divestiture. On a full year basis, Etsy marketplace product development investments delivered approximately $1.5 billion in incremental annualized GMS, a significant increase from last year. Stiff headwinds pressuring our baseline GMS offset some of these excellent gains. And we are also very pleased to report that product development launches increased approximately 30% from the prior year.

Fourth quarter consolidated marketing spend increased 7% year-over-year to $261 million, which drove marketing spend as a percent of revenue to increase modestly from the prior year. Given our focus on building Etsy's brand awareness for specific purchase occasions, our consolidated brand spending increased 24% year-over-year in the fourth quarter, with the vast majority of this increase coming from Etsy marketplace spend. Our holiday campaigns, which highlighted Etsy as an indispensable partner for all gifting missions, resonated with buyers.

Further, we significantly expanded Etsy's ROI on U.S. above-the-line spend during the quarter as our media efficiencies continued to improve. Consolidated performance marketing spend decreased 4% year-over-year in the fourth quarter as we adjusted our strategy and improved ROI efficiencies. We dynamically pulled back on PLA spending as competitor spending pushed CPCs higher than the normal seasonality we see at this time of year.

Offsetting this, we were able to lean into new channels and geographies, increasing spending in certain geographies and ramping mid-funnel investments with several social media partners. Our site-wide 24-hour Cyber Monday promotion funded with a small amount of Etsy marketing dollars delivered solid incremental GMS and a strong ROI. For the full year, consolidated marketing spend increased 7% year-over-year, and our consolidated marketing spend as a percent of revenue decreased modestly to 27.6%. Etsy's stand-alone marketplace performance marketing spend delivered approximately $2.6 billion in incremental annualized GMS, up roughly 5% from 2022.

Moving now to our Etsy marketplace GMS and buyer metrics. During the fourth quarter, Etsy marketplace GMS decreased 1.4% year-over-year to $3.6 billion. Overall, headwinds continued, including pressure on consumer discretionary product spending, softness in the Home & Living category and a highly competitive retail environment focused on deep discounting. Our year-over-year Etsy marketplace GMS trend line improved in November and December following the challenging October that we described on our November call, bringing results in ahead of our internal expectations. International markets were once again a bright spot with Etsy marketplace GMS, excluding U.S. domestic, up 4% year-over-year in the fourth quarter. The growth was led by positive trends in the U.K. and strength in the Netherlands, Switzerland and Austria with largely flat trends in Germany.

This slide shows full year 2023 Etsy marketplace GMS performance for our top 6 categories, which represented approximately 87% of GMS. Positive year-over-year GMS trends in apparel and paper and party were offset by softness in Home & Living, jewelry and accessories and craft supplies. We ended the year with a record 92 million active buyers up 3% year-over-year, marking the fourth consecutive quarter of year-over-year growth.

U.S. active buyer trends continue to improve. International buyer growth remained strong, and we had 6% growth in buyers who identify as male. We added over 8 million Etsy marketplace new buyers in the fourth quarter, up over 40% in the fourth quarter of 2019, and we reactivated nearly 10 million lapse buyers, a record number, up 13% year-over-year and up 122% from 2019.

Lastly, habitual buyer trends remained stable in the quarter with over 7 million of these loyal buyers at the end of the quarter, largely in line with the prior 2 quarters. Our number of repeat buyers continue to grow a healthy 4% year-over-year to 37 million. GMS per active buyer on a trailing 12-month basis for the Etsy marketplace continued to stabilize sequentially but declined 4% year-over-year to $126 in the fourth quarter yet remains 22% higher than the fourth quarter of 2019. Additional Etsy marketplace metrics can be found in the appendix to this deck as posted to our website.

Moving now to the balance sheet. As of December 31, we had $1.2 billion in cash, cash equivalents and short- and long-term investments. During the fourth quarter, we repurchased a total of $93 million in stock under our $1 billion June 2023 Board authorized repurchase program, of which approximately $724 million remained available as of December 31. Our operational rigor and capital-light business model allowed us to deliver about $754 million in consolidated adjusted EBITDA in 2023 and a 27.4% margin and to convert nearly 90% of that EBITDA to free cash flow.

Our free cash flow in the fourth quarter was a healthy $283 million. As we continue to focus on growing our EBITDA and cash flow, all else being equal, we would likely see our gross leverage ratio continue to trend down. We also expect to retain a strong balance sheet with ample liquidity relative to our current leverage levels to manage the business across various macroeconomic cycles and support continued organic investments as well as capital return to shareholders.

We remain committed to an active and disciplined capital allocation strategy that prioritizes opportunities we believe will generate the highest level of long-term shareholder value. In the past, we have communicated our philosophy to offset dilution from stock-based compensation by repurchasing our shares. In 2023, capital return accounted for nearly 90% of our free cash flow, demonstrating a shift in our capital return strategy to more intentionally return a higher percentage of free cash flow, especially during times of volatility in our stock and when valuations are meaningfully below our view of fair value. We continue to see attractive organic growth opportunities for Etsy, and we expect to balance capital return, appropriate leverage and liquidity and investments in our business to deliver a long-term shareholder value.

Before turning to our guidance, I'll discuss our recent workforce realignment, which brought core Etsy marketplace headcount to about 1,780 employees at the start of 2024. As you know, we were lean even during the high-growth periods, consistently maintaining a disciplined approach to headcount and then pulling back our pace of hiring proactively as we experienced GMS headwinds in early 2022. For 2024, we wanted to build a road map designed to reaccelerate growth while also delivering very strong levels of profitability. We made some tough choices about how to organize our team from the top down, focused on driving efficiencies to further speed product development and creating more impactful marketing and customer experiences designed to build frequency and loyalty, as Josh described.

In addition to our focus on people costs, we've taken a number of actions intended to ensure margin holds stable or expands in 2024, including reducing certain benefits and continuing to optimize our cost base. All in all, we reduced our previous internal projections for total 2024 operating costs by over $90 million. Most of these savings are being reinvested back into the all-important growth investments we plan to make this year, including the modest addition of critical hires. We are optimistic that the significant productivity and measurable value creation we see from our team can fuel Etsy's growth this year.

Now turning to our outlook. It remains a challenging macro environment with consumer sentiment in the U.S. and international markets remaining low, making us cautious in our forecasting at the start of the year. Consolidated GMS for the first quarter of 2024 is currently estimated to decline in the low single-digit range on a year-over-year basis. This guidance reflects our slow start to the quarter and our current expectation that GMS for the core Etsy marketplace improves as we move through the rest of the quarter as a result of our planned product and marketing investments. However, if our trends fail to improve as we currently expect, this could become a mid-single-digit decline. Reverb and Depop are expected to provide a tailwind within the consolidated performance.

We estimate Q1 2024 take rate to be between 21% and 21.5%. This can be used to estimate revenue range for the quarter. Note that earlier today, we announced to our seller community that we are strengthening our new shop onboarding process to continue to promote a trusted marketplace, including introducing a seller onboarding fee. This initiative requires certain new technology investments, particularly for seller verification, so the net benefit margin be nominal. We currently anticipate that our consolidated adjusted EBITDA margin will be approximately 26%, reflecting a heightened level of investment in the launch of Gift Mode, particularly costs associated with our big game advertising.

Our subsidiaries are expected to pose about a 300 basis point headwind as their revenue flows through at lower margins, largely because of our take rates. We currently expect the first quarter to be our low point in year-over-year growth for both GMS and revenue as we begin to see the expected benefits of our product and marketing investments kick in starting in the same quarter. We currently expect that consolidated revenue growth should outpace GMS growth in 2024, with full year to create at or ahead of the Q1 level with further expansion of Etsy Ads and the annualized impact of the recent Etsy Payments expansion into 7 new markets being the primary drivers of improvement.

Beyond this, we'll continue to look for ways to drive a fair exchange of value for all 3 of our marketplaces. We currently expect to maintain very healthy margins with consolidated adjusted EBITDA margin in 2024, at least similar to the level we delivered in 2023. We are energized by our portfolio of growth initiatives for 2024, which we believe can reignite our growth despite the continued challenging macro.

Thank you all for your time today. I'll now turn the call over to the operator to take your questions.

[Operator]

[Operator Instructions] Our first question will come from Nikhil Devnani with Bernstein.

[Nikhil Devnani, analyst]

Thanks for providing '24 commentary as well. I just wanted to ask about the GMS outlook a little bit more. Can you talk about the kind of magnitude of improvement that you're expecting to see in GMS as the year goes on? Do you think that there's line of sight back to positive year-on-year growth as well at some point in the year? And then as a follow-on, could you provide some clarity around the product and marketing initiatives that are kind of backing up this outlook for improvement in GMV?

[Joshua Silverman, executive]

Okay. So in terms of the magnitude of the growth, we gave you what we're comfortable giving you right now. So anything more than that, if we could have been more specific, we would have in terms of when do we get back to positive growth and et cetera. It's certainly our aspiration. We believe we have every right to be growing not just positive but faster than e-commerce. And we think especially when our category stop being under such pressure and when discretionary consumer product spend, in particular, stocks being under so much pressure, that's going to be very helpful. We do think we outgrew our categories yet again, our pure-play competitors in our categories yet again in the fourth quarter.

In terms of the product and marketing initiatives that we expect to drive a lot of growth, we laid them out in the call. And so first on consideration, that is the biggest thing. People thinking to look on Etsy because when they do think to look on Etsy, they usually find something really compelling. So Gift Mode is a great example of us giving you a moment in time when you should really think, I need to buy a gift. I want to go to Etsy. And gifting is an all year kind of thing. It's not just Mother's Day and Christmas, there's birthdays, anniversaries, back to school and on and on.

And on other key elements in consideration, we said we're in early stages of planning a loyalty program, which is designed to drive consideration among loyal users. More value, more in quality and more in reliability. And I think that, that portfolio of bold initiatives, I think, can do a lot to continue to drive growth, combined with compelling marketing campaigns. And we're going to continue to work through the funnel on really compelling marketing campaigns as well.

[Operator]

Our next question comes from Ygal Arounian with Citi.

[Ygal Arounian, analyst]

I'm going to follow up on that a little bit, maybe more narrowly focused, I guess, on the 1Q guidance. And what -- it sounds like sitting here today, we're down mid-single digits, but kind of expectation is that over the course of the quarter, that starts to improve.

What happened so quickly, I guess, like between now and the end of March or it's just a little bit over a month. And then again, also just to dig into the marketing a little bit more. So you've pulled back a little bit on performance marketing. Some of that is efficiency. Some of that is coming from the competitive environment or spending more brand. Typically, we think of the payback period for the brand marketing being a little bit longer. You're expecting that to drive kind of incremental growth, both in the quarter and throughout the year. So are you starting to see the benefits of that? I know it's been an investment over multiple years here. Is that starting to pay back the way you like? Or how should we think about that?

[Rachel Glaser, executive]

I can start to jump on. I mean so the way -- you're right that January was a little bumpy, and that's the sort of the baseline for which we are able to provide guidance for the rest of the quarter. The way we do our planning is we estimate the incremental GMS would be generated from each discrete product, and each discrete marketing investment that we make. They start to stack on top of each other, and we do a pretty good estimation and testing before we build our forecast.

So we have a pretty high confidence level in what we think those things will deliver. So what we're looking at that remains in the rest of quarter, we feel good about being able to step on incremental GMS from where we are today. We have experimented with our marketing spend, and we leaned back a little bit in the early part of the quarter on some of our [ DLA ] spend.

We're now back to our normal levels. So we think we'll get some incremental benefit from just the regular business-as-usual marketing spend, and you saw us do very large first time ever big game television ad that is -- that ad continues to run through the rest of the quarter as we [ winning ] accolades and awards from the advertising world and starting to gain some traction. I think the -- it's something like 7 to 11 views actually create that stickiness of an ad. So we're exited about with that brand -- the repetition of that campaign and that brand can do for consideration with our customers. And there's a lot of things we wrapped around that [indiscernible] our Chief Gifting Officer and a lot of promotional campaigns that we also laid down to attract people in marketing and product, I think we expect to deliver at the GMS in the quarter.

[Joshua Silverman, executive]

Yes. And just to build on that. We have been very focused year after year on what is the value creation of every single squad and what is the value creation of every single dollar we spend in marketing. It has been a very big focus of ours, and we think we're pretty good at it. Well, obviously, we can't predict with perfect accuracy what's going to happen with the baseline, what's going to happen overall consumer discretionary spend in our categories. And so that's the unknown, and we'll wait and see. But we give you the best guidance we know, and we do -- we have reason to believe that we should see trends improve in the second half of the quarter based on the work we're doing.

[Ygal Arounian, analyst]

Okay. Great. So you might step back a little bit further into performance? Has the environment there changed at all?

[Joshua Silverman, executive]

Yes. So performance is dynamic on a really hour-to-hour basis, depending on the ROI we're seeing on every dollar we're spending. And we've got pretty sophisticated algorithms that work on is this bid -- is this click worth this much right now and how much should we bid. And so to the extent that CPCs rise, we naturally pull back. Or to the extent that CPC is lower, we naturally lean in.

The other thing, by the way, it's not just CPCs, it's also conversion rates. So in times when people are really budget constrained, we see them actually -- we see conversion rate across the industry go down. We see people compare some shop a lot more. And so we are looking at all of that and not humans, but machines using AI are looking at a very sophisticated way at what's happening with conversion rate right now, what's happening with CPCs right now. And therefore, how much is each visit worth and how much should we be bidding. And it naturally titrates. It's one of the reason why it's hard to pinpoint exactly what our margin is going to be in any given quarter because it's based on what's the ROI we're getting right now and we'll naturally lean in or pull back.

What we won't do is spend unprofitably, not on purpose. So we work hard to try to understand what is the return we're getting. And if the market, we think, is getting irrational or at least irrational for us, we pull back.

[Operator]

Our next question comes from Lee Horowitz with Deutsche Bank.

[Lee Horowitz, analyst]

Maybe 2, if I could. Josh, you highlighted 2 charts in the deck, one that shows Etsy's share gains versus pure-play comps. It seems to stand somewhat in contrast to the overall e-commerce market. But Etsy is growing more slowly. It seems that would suggest that big box non-pure play competitors are taking share of the overall.

I guess, why do you think consumers are leaning into these platforms that, as you say, compete on shorter speeds, perhaps a couple of bucks in price and not leaning into things like product quality or uniqueness? And maybe how do you think that may evolve in '24 and beyond? And one follow-up, if I could.

[Joshua Silverman, executive]

Great. Great question. So look, let's put aside travel, online dining. If you look at e-commerce very broadly, it picks up things that are totally unrelated to Etsy. When you put those aside, you really look at just product, it's very clear that the people gaining share are Amazon, Walmart, Temu and Shein. And almost everyone else is losing share. A number of other people that are growing quickly, you can count one hand. Almost everyone is losing share to Amazon, Walmart, Temu and Shein.

And so, first of all, those are people -- particularly if we look at Amazon and Walmart, and they're really the big winners. If you look at who's actually, in terms of volume, taking volume in e-commerce, they sell essentials. And when you read their earnings call scripts, what they say in their earnings call is what's driving their sales is essentials, and their headwinds are discretionary products.

The second thing is all 4 of those brands stand for deep discounting. And the trends we see right now are people feel their wallet is under a lot of pressure. By the way, tax returns look like they're going to be lower this year than they were last year. You still hear a low consumer confidence and concerns about inflation on core things like food prices and people, when they have discretionary dollars, want to spend them on travel and want to spend them on dining. And so in this moment, many people are looking for the cheapest way to buy something when they need to buy something that is discretionary.

Now in that environment, Etsy added 8 million new buyers. Etsy buyers spent $3.6 billion on the Etsy marketplace in the fourth quarter alone. So tens of millions of people or 92 million people, in fact, are opening their wallet to come and buy something on Etsy even in this environment. And in fact, the average buyer on Etsy is spending 20% more, more than 20% more today than they were pre-pandemic. But this is a time when I think products that are not the cheapest possible are out of favor. And I don't think that's forever. When I imagine going forward, does everyone always want the cheapest version of any given product? No, absolutely not. I think that, that trend -- this is a cycle. We're in a moment in the cycle. And I think we'll move to better moments in the cycle, hopefully soon.

[Rachel Glaser, executive]

Can I add just a couple of quick points about things that are happening that points specifically to January and Q1 activities that are happening in the macro world? One, at Christmas time, people get a lot of gift cards. And today, Etsy doesn't have a gift card program and they come into January and they spend -- they go into retail and they spend their gift cards at places like Walmart and Amazon.

Second, they are doing a lot of returns where they're going physically into the stores and doing a lot of returns. And the third is that big-box stores are doing all their clearance right now. So things are continuing to be at deep, deep discounts, as Josh just said. Those are 3 things that, in the early part of this year, Etsy really wasn't in the game on those 3 areas and I think affected our January's GMS to some extent.

[Lee Horowitz, analyst]

Very helpful. And then maybe one follow-up on marketing. How do you guys just think about, I guess, efficiently deploying performance marketing dollars in 2024? Obviously, you talked about dynamic -- the models are dynamic. But do you feel like you need to perhaps lower the ROI thresholds given a weaker consumer as you called out, but rising auction costs from those competitors? I guess, just help me understand how you guys maybe are adjusting the way you guys think about marketing given the challenging underlying dynamics of higher costs but tougher demand.

[Joshua Silverman, executive]

Well, the models automatically incorporate. Well, there's some lag, it takes a couple of weeks for them to experience the fact that conversion rates, for example, are down or up for them to incorporate that. But things like weaker demand turning, meaning conversion rate goes down, the models all automatically incorporate that.

Where we're always refining our understanding is we run an incrementality test, for example, on PLAs, twice a year. We hold part of the country dark. And we look at if we hadn't bought that click, would we still have gotten it anyway. And it turns out that often the answer may be yes.

It also may be that someone didn't click on Etsy, but they saw Etsy, it made them think, oh, Etsy sells that, and they come without having clicked. And so you can over or under attribute. And so several times a year, we actually run a test to determine what we call incrementality test, how much of the final sale value should we attribute to the fact that someone clicked on that ad. And that changes over time as well based on competitive environments. So we are constantly adjusting based on that.

And another input that goes into the model is what I think about things like future take rate. Would you pay today. Would that impact the LTV of a buyer If you think your take rate might go up over time or if you think you might get more or less frequency over time. So there's some amount of judgment you make, but the models do most of the work, and we really do try to let the models do the work so that we aren't tempted to irrationally over or underinvest in any given quarter.

[Rachel Glaser, executive]

That was a great point on the LTV. We're constantly updating the models we sell TV with every new product launch that we have. As TV goes up, incorporated in the attribution model, so that's happening.

The other thing is you talk about performance ads specifically, but we've been able to start to spend more money in new channels like paid social and in new geographies. And we've experimented with other kinds of marketing like we use Etsy's P&L to do some Etsy funded promotional campaign. So we're constantly -- it will be great to get another Google PLA channel, for instance, that works as hard for us.

So that's where we're -- where we do more of our experimental marketing spend to see how we can optimize to get those channels to be ROI positive as well. Less likely would be to just drop the ROI threshold except when [ making ] for churn.

[Operator]

Our next question comes from Shweta Khajuria with Evercore ISI.

[Shweta Khajuria, analyst]

Let me try 2, please. On the GMS growth for this year, has the visibility for you changed? And I guess what gives you the confidence in improving GMS growth? If you could please lay out the key drivers. Is it consideration and the gifting initiative primarily driving it and/or quality value reliability drivers, if you want to point to any of those.

And then the second question is on the $90 million in savings that will largely be reinvested. Could you please provide a little bit more color on biggest buckets of investments?

[Joshua Silverman, executive]

Yes, I'm happy to take the first, if you want to. So yes, so we laid out -- first of all, thanks for the questions. And that slide that had consideration and quality value and reliability with key initiatives under each, that's a pretty good road map for some of the bigger levers of the year.

There are a lot of other things we're constantly doing to just incrementally get better in ways that drive real measurable value. But the way we run this business is we task every squad in the company with a value creation goal. So if you're working on shortening expected delivery date or servicing higher quality items, higher in search, there's a customer metric, but there's also how much extra GMS does that need to produce. And the sum total of that for last year is we think the team produced about $1.5 billion of incremental GMS.

We've tasked the team with more, even more efficiency than that this year. We continue to find ways to get more efficient, leveraging new tools and techniques, leveraging new processes. We're pretty agile and we work on getting even more agile and even more focused. And then with performance marketing and above-the-line marketing, we're also always working to get more efficient.

And I'm realizing now is when I talked about how the algorithms are doing the work, I don't want you to think it's static. We also have multiple squads working on Martech. And they're constantly focused on things like how can we make our landing pages more efficient. How can we perform better in SEO. How can we make our bids even more sophisticated. Segment our audience even more. So we're constantly driving efficiency gains from each of our teams in each of our dollar spent.

And so what we've done is we've looked at our plan for the year, what we think it's going to deliver in terms of incremental GMS. The assumption on that again, is what's going to happen with the baseline. And that is the part that's hard for us to know. So the risk in this plan is, I think we're going to execute on the plan, and I think we're going to drive a lot of value. And what's going to happen with baseline, and to what extent is that a tailwind or a headwind to us for the year is still yet to be known.

[Rachel Glaser, executive]

On the $90 million, a couple of things that I want to point out. We reduced our workforce by about 12%, and we cut various operating expenses where we thought that there was room to cut them without losing any productivity or efficiency in operating our business. Of the workforce reduction that we made, we also reduced future open hires. So the -- we not only saved current dollars, but we're saving some future dollars.

We -- our main focus is always on the vital few. So what we -- the guiding principle of what we are about was to reprioritize and realign our teams to be working on the fewest possible things that are driving the highest possible impact. That does not mean that we've stopped hiring and that we stopped investing. We see so much room for growth. We talked about our $500 billion TAM or less than 2% of it today. We just have so many ideas. Josh laid out a bunch of them that we're currently working on in the call.

So we're continuing to invest for growth. We are at top of the pack in terms of revenue per head count in the company. We're very lean. Etsy alone, just Etsy is only about 1,800 people. And the revenue per head, it's hard to find companies of our size and shape that have revenue per head higher than that. We're really winning there. And if we cut too far back, we're going to get in the way of our own ability to invest for growth.

So we feel very comfortable with finding -- constantly looking for operational efficiencies. Very comfortable with the way that we've reprioritized our expense buckets. And very comfortable with the level of investment we're making going forward.

[Joshua Silverman, executive]

And I just would add that I find the whole commentary on a year of efficiency interesting because every year is a year of efficiency for us. Every quarter is a quarter of efficiency. There hasn't been a quarter or a year when we've said, oh screw it, let's just invest and hope for the best. We've been obsessed with efficiency and value creation per dollar invested for the 7-plus years that Rachel and I have been here.

And so every quarter, we are looking at, is there a way to squeeze more efficiency. Is there a way to come more cost. And when we find an opportunity to cut cost, the first thing we look at is, can we invest that -- reinvest that profitably to drive growth? What's going to really move the stock price is getting growth -- getting GMS growth up again so that we're driving the multiple. That's what's going to drive growth, but we have to do with cost discipline.

So what we're not going to do is invest irrationally. Invest a dollar to get $1 or less back. So when we see an opportunity to put that money back into something that's going to drive growth, we're going to do it. The result of that is a business where at the core marketplace on Etsy generates EBITDA margin right now over 30%. It's hard to find a marketplace of our size and scale generating EBITDA margins anywhere close to that. And we're very focused on also reinvesting for driving growth. And we're going to continue to make sure we balance those 2 with an emphasis on investing in growth when we think there's a good opportunity to do so.

[Operator]

Our next question comes from Steven Forbes with Guggenheim Partners.

[Steven Forbes, analyst]

Maybe just to expand on some of the initiatives like Gift Mode and loyalty. You mentioned the investment in the big game advertising. Any time you sort of hear loyalty, it helps if you can maybe contextualize what you're thinking of doing with loyalty as we potentially have like timing disconnects with the benefits and maybe some margin implications. So just any sort of expansion on what you mean by loyalty?

[Joshua Silverman, executive]

Sure. I would say we don't have anything to announce yet. And I know that's not going to be very satisfying, but we pay a lot of attention to loyalty economics in a lot of places, having cited Amex where not only does Amex run really big loyalty programs and things like membership rewards, but we partnered with when I was at Amex Delta and Starwood and a lot of other places. Had a chance to study a lot of loyalty programs. .

And thinking hard about which are the ones that truly drive more return and truly drive more consideration is a big focus for us. It's got to have both rational and emotional benefits. It can't be just rational. There's got to be some yearn to it. And the goal is to get people to consider Etsy more often. People love Etsy. Talk to buyers and they're all going to say, I love Etsy. Why didn't you shop in Etsy more often? I didn't think of it. So committing to some form of loyalty program, we think can get them to prioritize Etsy and say I'm in this loyalty program, I should stop by Etsy and see if they have something to offer. If we can just get them to stop by and see if we have something to offer, the answer is going to be yes a whole lot of the time.

[Steven Forbes, analyst]

And then maybe just a quick follow-up. A lot of noise out there in terms of AOVs or ticket-related challenges across the discretionary landscape or just where deflation is, right, within the respective categories. You mentioned sort of this optimism around stabilization in GMS per active buyer. Curious if you could maybe expand on what's giving you the optimism and what you're seeing with price behavior across the product categories you serve.

[Joshua Silverman, executive]

It has stabilized a bit. If you look at the last 4 quarters, GMS per active buyer have been relatively stable at $126. So that's good news. And by the way, that's up from about $100 before the pandemic. So in spite of all the headwinds and everything we've talked about with the macro, still spending 20% more, more than 20% more than they were pre-pandemic.

In the headwinds for the beginning of this quarter, when we said we were off to a slower start, AOVs are down slightly. So when we talk about starting from a low -- down mid-single digit and guiding to -- we think we will get back to low single digit by the end of the quarter. One of the headwinds we're seeing is AOVs are down. The good news on that is it means transaction volumes are actually holding up better than what those numbers would suggest. Buyers are still coming and buying on Etsy. They're just even more price sensitive in this moment. And that, I think, is pretty consistent with what we hear with a lot of others.

[Operator]

Our next question comes from Anna Andreeva with Needham & Company.

[Anna Andreeva, analyst]

We had one question on take rate. Came in a little bit better than expectations in the fourth quarter. What's driving that expectation for the year to be at or higher than Q4 levels? I think you mentioned some of the seller onboarding fees. And then secondly, the number of churn buyers, I think, increased a little bit in 4Q. Can you further elaborate on that?

[Rachel Glaser, executive]

I'll take the first, you take the second. Okay. So the -- we rolled out Etsy Payments to 9 more markets. So that helps us a lot with incremental transaction fees that we just weren't getting before. And today, we launched the seller fee, which not only has the benefit of incremental take rate, which, by the way, completely is reinvested back in safety of the marketplace. But it creates -- did you call it friendly friction earlier? Friendly friction so that we create a little speed bump for not just any seller can create a listing for $0.20 and some kind of product. It's a moment to think about, well, I'm going to have to make payments fee. And that helps us with bad actors on the site so that we get both the benefits of that.

[Joshua Silverman, executive]

Yes. And that, by the way, is not a big take rate driver. I think the revenue in that is going to be relatively small, but it's going to be good value exchange, making sure it's really secure to become a seller on Etsy. And I think that's good for all of the sellers and the buyers on Etsy and the fee we're charging is nominal. If it's not worth $15 to create a shop on Etsy, then maybe you're not committed enough to likely succeed on Etsy. But that's not a huge revenue driver. We'll continue to see payments coverage expand in other markets and other areas where we think there's fair value exchange and we think we'll achieve the take rate that we guide into.

[Rachel Glaser, executive]

Let me add a quick one to that. Just also when we see international business increase, we get a slightly higher take rate on Etsy Payments where the buyer and the seller are 2 different currencies because we have a premium that we charge for that currency exchange. So that's another thing affecting take rate. And lastly, we did see nice lift from Etsy ads again, and we'll continue to see Etsy ads improvement as we continue to make investments in the better -- and better the search broad relevancy is for Etsy ads higher the conversion rate.

[Joshua Silverman, executive]

And on active buyers, we ended the quarter -- ended the year with about 92 million active buyers on a trailing 12-month basis. So at an all-time high. Roughly stable. I don't want to crow too much about it, roughly stable from the prior quarter. But I'm not sure where the comment about more churn was, but I'd say active buyers have been stable.

[Debra Wasser, executive]

Then I think last one is going to be from Jason, right? Operator?

[Operator]

Jason Helfstein with Oppenheimer is our next question.

[Jason Helfstein, analyst]

So 2 questions, really one is a question everyone's going to ask. How are you thinking about helping sellers correct -- use correct pricing and not just undercut each other and just be more sophisticated with optimum listing prices? And the second, really, to ask, a common investor concern we hear is really around the ability to grow cohorts. Is it something you would provide in the future, perhaps like annual GMV by cohort on the year of acquisition, I think would help people better understand...

[Debra Wasser, executive]

We have that in our 10-K. We have GMS retention in our 10-K, which will be filed tonight, tomorrow morning.

[Joshua Silverman, executive]

Yes, you'll have it very soon. So it will be a stack bar every year. The class you joined in 2017, what have they delivered to the class in 2018, all that stuff. And what I think you'll see in those cohorts, just to start with that, is I'm used to, in a lot of e-commerce business, is seeing that [indiscernible] down over time. And what you see with Etsy is that it's been more of a smile curve. And we think that's really healthy. Obviously, the inflection drove just like a massive uptick and then a little bit of a settling back down, which makes everything a little messy, a little harder to make sense of.

But the fact that the cohorts do generally stack on each other really nicely, we think, is a pretty powerful part of what makes Etsy really compelling. And we've still just been experiencing a bit of when you look at the stacking of those cohorts, dealing with the post-pandemic, slight compression coming out of the post-pandemic has -- just provides a bit of a headwind. On your first point -- seller pricing.

Yes. Helping with sell pricing. Great. Great question. So a couple of things. One, we've had a very big focus on not hand made. And we've shared in the past that the percentage of views that encounter an item that's not handmade is -- I think the last time we gave an update, it was cut in half. We've made even more progress since then. So it's a very big focus of our, to make sure that mass-produced items are not visible on the site. It's bad for the brand. And it's not helpful for our sellers in terms of price competition.

But another thing I talked about very briefly in the call, let me unpack that a little bit more, is really elevating quality even more in search results. And what I mean by that is our search algorithm today is designed to pick items you're likely to buy, right? So the search algorithm using cutting-edge machine learning is saying, what's Jason likely to purchase. What we wanted to do is say, what's Jason likely to love, purchase and loved.

And so forming more of a point of view around does the seller give consistently good quality service, is the item consistently delightful and that leading to frequent -- more frequent purchases. Gaining that kind of fidelity and filling a point of view, what's the quality of photography here, what's the quality of the return policies. Does the seller consistently ship on time. And using that to create an explainable AI model to rank who should be on top in search, we think can unlock a ton of value, especially as you then start to expose that to sellers and say to sellers in order to rank higher, the way to do that is to get better on one of the following metrics.

Here's how you're currently doing. And the better you do on these metrics, the better you will rank in search. That creates a race to the top. And I think that's an incredibly exciting thing that we're going to do that we're very focused on right now. It's one of the initiatives I talked about this year, and I think that over the kind of next couple of years can have a very big impact.

So Etsy does far because our unexplainable machine learning model is incredibly sophisticated at picking the thing you're likely to convert most at. And so we've got to come up with an explainable version of the model that doesn't do any damage at least, right, that can largely match our black box model and then get better from there. And there's some R&D that needs to happen, and that's the kind of R&D that's happening right now.

[Debra Wasser, executive]

All right, great. All right. Thanks, Jason. I think we went over time, so operator, I think we're going to cut it here.

[Operator]

Thank you. That concludes the call for today. We appreciate your participation. Have a great evening.

[Joshua Silverman, executive]

Thanks, everyone. Thank you very much.

[Rachel Glaser, executive]

Thank you.