Etsy, Inc. (ETSY) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Etsy Inc. First Quarter 2015 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder today's conference call is being recorded. I would now like to turn the conference over to Jennifer Beugelmans, Vice President of Investor Relations at Etsy. Please go ahead.

Thank you and good afternoon. And welcome to Etsy's first quarter earnings conference call. Joining me today are Chad Dickerson, CEO and Kristina Salen, CFO. Before we get started, just a reminder that our remarks today include forward-looking statements relating to our financial performance and results of operations, business strategy, outlook, mission and potential future growth. Our actual results may be materially different. Forward-looking statements involve risks and uncertainties which are described in our press release and in our final prospectus filed with the SEC on April 16, 2015. Any forward-looking statements that we make on this call are based on our belief and assumptions today and we don't have any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations Web site, a link to the replay of this call will also be available there. With that, I'll turn the call over to Chad. Chad?

Thanks Jennifer and thanks to everyone joining us today for our first ever financial results conference call. Before I jump into our first quarter performance, I want to once again thank our team here at Etsy and our sellers around the world who worked so hard to make our IPO a truly profound moment for our Company and our community. We've received such positive feedback and we're truly grateful for the support. During the first quarter of 2015, Etsy's GMS was nearly $532 million and Etsy's revenue growth was nearly 45% year-over-year. We saw a number of active sellers increase approximately 26% to 1.4 million and our number of active buyers increased nearly 37% to 20.8 million and we continue to expand our mobile presence. We believe that our first quarter results demonstrate that our mission is working. As we continue to make progress reimagining commerce to build a more fulfilling and lasting world, connecting creative entrepreneurs with thoughtful consumers and expanding the Etsy economy. As we shared before, we believe we can further our mission by focusing on four areas; making Etsy an everyday experience, building local marketplaces globally, operating high impact seller services and expanding the Etsy economy. So before I turn the call over to Kristina to discuss our financial results, let me give you an update on the progress we've made recently in these four areas. First up is our focus on making Etsy an everyday experience, this is all about mobile. We're leveraging our already strong mobile presence to increase engagement with Etsy buyers and enhance the Etsy seller experience. As of March 31st, our mobile apps have been downloaded 25 million times and we think our beautiful engaging mobile apps are one of the reasons that Etsy narrowed the gap between mobile visits and mobile GMS during the first quarter. To keep mobile shoppers engaged and increase the number of items viewed in the Etsy app, we added some exciting new features recently. Here are just a few of many, I'd like to highlight. In April, Etsy launched the photo sharing feature in the buyer app. This new feature allows mobile buyers to include a photo of their purchase while they're posting a five star review on the app and makes it easier for members to share photo inspired reviews of their Etsy purchases with their friends and family across social networks or privately, via e-mail or text. Given that 92% of our buyers come to Etsy because our sellers offer items they can't find anywhere else, we believe these visual endorsements may increase buyer engagement and influence purchase decisions by creating a more authentic people-first shopping experience. During the first quarter in the month of April, we made great progress in making it easier for buyers to sign-in and checkout, when Etsy launched mobile payment options for Apple Pay and Google Wallet and social sign-in through Facebook and Google. And we have early indications that these enhancements are gaining traction with our community. For example since launch, nearly 19% of our new member registrations on our iOS buyer app have come through Facebook and approximately 37% on the Android buyer app had come through Google sign-in. Likewise on average, more than 20% of our existing members are using Facebook to sign-in to our iOS buyer app and more than 23% are using Google to sign-in to the Android buyer app. As you may have seen Etsy also just rolled out our Apple Watch app. It's beautifully designed with extensive functionality and like our Facebook and Google app, also enhances our relationships with our partners. We launched this app in conjunction with an Apple promotion, which led to a meaningful increase in downloads on iOS. Turning now to building local marketplaces globally, this is about building on Etsy's global foundation and by developing local markets in key countries outside the U.S., where there are early signs of both local buyer and seller activity. Overtime we think our global-local strategy will drive international GMS to 50% of our total GMS. During the first quarter, Etsy's international GMS was approximately 30% of our total GMS, about flat with last year. We think this is due largely to the strength of the U.S. dollar which Kristina will talk more about. Putting aside the currency impact for now, there are lots of exciting international efforts that I'd like to highlight. For buyers in the UK in the first quarter of 2015, growth and purchases from UK sellers was seven times higher, than growth and purchases from U.S. sellers. This means that the local community is truly connecting in the UK. In Canada, we hosted our Canada Team Captain Summit, a 33 team captains came together for a weekend to discuss what they need from Etsy and Etsy provided support on leadership, selling on Etsy and organizing an upcoming one day event of pop-up Etsy markets around the country on the same day. In Australia Etsy ran a campaign to attract and help onboard new sellers through this campaign we partnered with a local abdicative independent creative businesses and a seasoned local Etsy seller to offer new sellers support to launch their Etsy businesses. The program attracted 3,000 participants. And in France following our acquisition of ALM, the ALM team has continued to build a platform and they are hard at work taking the success ALM has achieved on desktop to mobile with the recent launch of V2 iPhone ALM app and additional new upcoming mobile apps and enhancements to the mobile Web design. Let's turn now to high impact Seller Services. As we talked about in our IPO road show Seller Services led Etsy’s sellers spend more time making, designing or curetting the work they enjoy most and less time on the business task of running their shops. As we have described before there are three Seller Services that generate revenue for Etsy, promoted listings, direct checkout and shipping labels. Overtime Etsy strives to increase usage of these three Seller Services, expand their geographic reach and launch new ones. During the first quarter, Seller Services represented approximately 47% of total revenue. Recently we've made several enhancements to the seller experience I am excited about, in April Etsy launched calculated shipping for sellers in the United States. This new feature automates the most time consuming assets of determining shipping cost for our sellers. Etsy has already seen 16,000 shops of 1% of our active sellers sign-up with this feature and the listings using calculated shipping fee a 20% increase in international availability. In March Etsy launched a new listings manager that makes it easier and faster to list items and help sellers with inventory management. One of its most notable characteristics is that it allows for auto renew so sellers don't have to manually renew a listing when it expires in four months. Finally also in April Etsy released a redesign seller handbook that now includes better segmented content, better discovery and search functionality and personalization that is based on seller needs. Our educational content is now integrated with FAQ and Help content, is translated into all of our supported languages and is mobile-friendly. Finally, expanding the Etsy economy which is all about bringing new members into the Etsy community beyond our current Etsy active sellers and buyers. Etsy has made progress in wholesale and small batch manufacturing. I'm really excited about Etsy's wholesale partnership with Whole Foods that we launched in April. Through this program products and Etsy wholesale sellers are currently being featured in New York area Whole Foods stores. These products are sold in the whole-body section of the stores on an Etsy and Whole Foods branded display that showcases each maker’s unique story. Our strategy to expand the Etsy economy also includes our responsible manufacturing program. As of March 31, 2015 more than 3,900 have been approved for outside manufacturing, resulting in more than 6,600 partnerships and 85% of those relationships are between sellers and manufactures in the same country. So we're continuing to collaborate with thought leaders, including small scale manufactures, policymakers, Etsy sellers and others to envision new models of responsible manufacturing. Our four key areas of focus that we talked about before and have outlined here again today are all about building a successful business for the long-term. In another month Etsy will celebrate its 10th anniversary and we’re excited to enter our second decade of reimagining commerce. This is a large market opportunity at the convergence of macro trends and employment, commerce, consumption and manufacturing and Etsy is well positioned. Etsy sellers operate in dozens of retail categories. We built a thriving platform business at our Seller Services and we’re connecting previously fragmented networks into the Etsy economy like offline retailers and responsible manufactures in ways that they've never been connected before. We're excited about the long-term market opportunity for Etsy and our progress to-date. We remain focused on creating long-term of growth for our entire community including our shareholders. We appreciate the opportunity today to report our progress and look forward to speaking with you in the quarters, years and decades to come. So, with that I'll hand it over to Kristina to go over our financial results in more detail.

Thanks, Chad and hello to everyone joining us today. Just to note, unless I say so all comparisons I'll be referencing here are on a year-over-year basis. Let's start with GMS. During the first quarter of 2015, the Etsy marketplace generated $531.9 million and gross merchandize sales up 28.2%. Growth in GMS was driven by 25.8% growth in active sellers and 36.5% growth in active buyers. At the end of the first quarter Etsy had 1.4 million active sellers, up from 1.1 million last year and 1.35 million in the fourth quarter of 2014. As a reminder an active seller is one who has incurred at least one charge from us in the past 12 months. Charges include transactions, listing and Seller Services fee. Etsy had 20.8 million active buyers at the end of the first quarter, up from 15.3 million last year and 19.8 million in the fourth quarter 2014. Also as a reminder, active buyers are those who have made at least one purchase in the last 12 months. Etsy's first quarter results demonstrated our continued progress in narrowing the gap between mobile visits and mobile GMS and highlighted the results of continued improvements in our mobile app offering. 57.7% of our visits came to us from a mobile device. This continues to outpace the rate of growth on desktop and was up 750 basis points year-on-year and 270 basis points quarter-on-quarter. 41.4% of our GMS came from the mobile device, up 620 basis points year-on-year and 440 basis points quarter-on-quarter. Within Etsy's international business, we are seeing continued significant growth with international revenues growing 65.3% in the first quarter. However, international GMS as a percentage of total GMS was 30.5% flat year-on-year. We believe that foreign exchange has dampened Etsy's buyer activity outside of the U.S. and it has lowered demand for U.S. dollar denominated goods. This impacts both overall Etsy's GMS growth rates and the percent of GMS that comes from international. For example, growth in GMS from U.S. sellers to international buyers was largely flat in the first quarter and decelerated 22 percentage points from the fourth quarter of 2014. This is in contrast to what we saw in the first quarter of 2014 when the growth rate of GMS from U.S. sellers to international buyers accelerated quarter-over-quarter. Turning to revenue. During the first quarter, total revenue was $58.5 million, up 44.4% year-over-year, driven by growth in Marketplace and Seller Services revenue. Marketplace revenue grew 27.1%, primarily due to growth in transaction fee revenues and to a lesser extent, the growth of listing fee revenue. Seller Services revenue continues to grow faster than GMS, up 72.3% this growth was primarily due to growth in revenue from Promoted Listings, which continued to benefit from the re-launch of the product late in the third quarter of 2014. Shipping Labels revenue growth was driven by a combination of increased adoption and enhancements to the product. Direct Checkout revenue growth was driven by increased adoption. Gross profit for the first quarter was $37.8 million, up 50.5%, and the gross margin was 64.6%, up 260 basis points. In the first quarter gross profit grew faster than revenue, this was because of the leverage we achieved in the cost of revenue for employee-related and hosting and bandwidth costs. This was also because of growth in Promoted Listings, which is a higher margin revenue stream and it outpaced the growth of Direct Checkout, which is a lower margin revenue stream. Turning now to operating expenses. Etsy's total first quarter operating expenses were $42.7 million, up 72.6%. Marketing expenses totaled $12.2 million, up 63.5% representing 21% of total revenue versus 18% last year. The increase in marketing expenses was driven primarily by increased spending on product listing ads and on higher employee-related expenses. Product development expenses totaled $10 million, up 24.5% representing 17% of total revenue versus 20% last year. The increase in product development expenses was driven by higher employee-related expenses. G&A expenses totaled $20.5 million, up 122% representing 35% of total revenues versus 23% last year. The increase in G&A expenses primarily resulted from the increase in employee-related expenses, including incentive-based compensation related to Etsy's second quarter acquisition of ALM, and Etsy's $3.2 million stock contribution to Etsy.org in January of 2015. Finally, headcount at the end of the quarter was 717 compared with 685 as of December 31, 2014. Non-GAAP adjusted EBITDA was $6.7 million, up 9.3%. This resulted in an adjusted EBITDA margin of 11.4%, down 370 basis points. The adjusted EBITDA margin was impacted by the increases in marketing and employee-related expenses that I talked about earlier. First quarter 2015 net loss was $36.6 million compared with a net loss of $463,000 last year. Etsy's net loss increased as a result of non-cash, non-operating expenses related to the revised corporate structure that we implemented on January 1, 2015. The updated corporate structure was implemented to more closely align with our global operations and our future expansion plans outside U.S. There were two non-cash non-operating expenditures related to this revised corporate structure. The first was a non-cash $10.5 million increase to Etsy's tax provision, which brought Etsy's total tax provision to $10.7 million. The second was a non-cash currency exchange loss of $20.9 million, largely due to an intra-company debt incurred related to the corporate structure. During the quarter we generated approximately 8.9 million in cash from operations compared with 6.2 million in the first quarter of 2014. And following the successful completion of our initial public offering as of April 30, 2015 we had cash and marketable securities totaling $293.5 million. To close I would like to highlight a few factors you should consider when thinking about Etsy's second quarter of 2015. Although we won't be providing quantitative guidance, we will from time-to-time highlight qualitative factors to keep in mind that could impact a specific quarter. For the second quarter of 2015 I would like to highlight four items. First, if the current exchange rates are maintained through the second quarter, then we think it will continue to impact buyer behavior outside of the U.S. and therefore Etsy GMS growth. Second, we expect to increase the pace of hiring in the second quarter compared with both the first quarter of 2015 and the second quarter of 2014. And we expect second quarter hires be a larger percentage of total 2015 hires than they were in the second quarter of 2014. Third, in the second quarter we plan to spend more in absolute dollars on marketing compared with both the second quarter of 2014 and the first quarter of 2015. Etsy's digital marketing spend will continue to be focused on search engine marketing, particularly GPLAs. In addition Etsy will continue to ramp e-mail marketing efforts and our affiliate marketing, the wire of which was launched in the first quarter of 2015. We also expect to begin our first ever mobile app ad campaign in the second quarter of 2015. Finally fourth, I would like to remind everyone that the second quarter of 2015 will include the impact of Etsy's $300,000 cash contribution to Etsy.org as an operating expense, as well as approximately $300,000 in one-time IPO-related expenses mostly due our listing day seller market which cannot be deducted from our IPO proceeds. And with that I will thank you for listening. And I will turn the call back to our operator Candice to open it up for questions.

Thank you. [Operator Instructions] And our first question comes from Heath Terry of Goldman Sachs. Your line is now open.

I guess a couple of things. If you could, Kristina, if you could update us on what you're seeing in terms of the ROI Etsy's able to achieve on this increased marketing spend. Has it held up the way that you had expected it to? And on the decision to invest in app marketing, when you say you're going to start your first app campaign, is that largely going to be an online campaign, as well? Or do you see branching out into other channels the way we've seen other app providers do over the last few years?

Sure, Heath. So your first question was on our marketing ROI. As we said previously, our intention is to keep our marketing ROI positive at an aggregate level, at a company level and we continue to stick to that in the first quarter and in the second quarter as well. To answer your second question, with regards to mobile app, the first thing that I would say is that we're talking about a relatively smaller dollar percentage, dollar growth in expenditure in this line item, it's the first time we've ever done it, so we want to see what happens. It will be on mobile and because it is about downloading a mobile app, so we don’t have any plans to go offline with our mobile app and download activity.

Thank you. And our next question comes from Brian Nowak of Morgan Stanley. Your line is now open.

I have two questions. First, I want to just go back to the marketing spend. Could you just helps us better understand how many countries are you spending on and advertising now? And can you talk to the buying behavior of any of the new buyers that you've been bringing on through the marketing relative to your legacy buyers? And then the second one, on Seller Services, you talked about rolling out more Seller Services over time. Just run through strategically how you think about evaluating new potential Seller Services and rolling them out to new sellers?

I will take the Seller Services question first. So first of all, it's important to understand how we think about Seller Services and we talked about this in our road show and in our S-1. Our focus on building Seller Services is really about reducing the amount of time that our sellers spend on administrative tasks, things like inventory management, marketing and communications et cetera, so that they can increase their time on the making task. And as we talked about in the road show and in the S-1 for every hour our seller spends on creative tasks spends an hour on business task. So we really believe that looking ahead there is an opportunity to add more services that save time in those areas like inventory and such, shipping has seen some progress in this quarter with calculated shipping and some of the other services I talked about, we're not ready to announce any service today but you can expect over the long-term and overtime that we build services that help our sellers save time and money.

And to answer your second question Brian. As it pertains to countries we advertise in, I would just remind everyone that our largest marketing expense by a wide-wide margin is GPLAs and so we advertise and have advertised for some time, it's not new to 2015 in a broad spectrum in those countries around the world. But we do focus on the key countries that we've mentioned in the past being kind of Australia, UK, France, Canada and the rest of the Western Europe. Your second question with regard to repeat purchases, you might remember in the S-1 wefocused on a chart that showed that nearly, historically nearly three quarters of purchases were repeat purchases, repeat buyers. And in 2014 even though we increased our marketing expense by 122% year-on-year our repeat purchases as a percent of total GMS remained at three quarters. So that tells us that the buyers that we acquired in 2014 looked a lot like the buyers who were already loyal and faithful to the Etsy platform. And so we're continuing along that path as we think about our marketing expense and just to remind everyone our long-term value model for marketing expenditure is based on two years, it's railed to be ROI positive at an aggregate level across the company and it assumes that a paid buyer or rather an acquired buyer performs differently than an organic buyer. What we've seen thus far what you might infer from our 2014 performance is that paid and organic are performing rather similarly. But overtime that could change as we acquire more buyers with the success of our marketing plan.

And then one more follow-up, I guess. I get a lot of questions around fraudulent and/or counterfeit goods. Could you talk to the way Etsy works to police that and how you think about that, the presence of non-licensed products on the site? Thanks.

First of all, we won't comment on any litigation but transparency is one of our values, so I want to take some time to answer this question. We were really proud when the Electronic Frontier Foundation awarded Etsy four out of five stars for our intellectual property practices we ultimately lost a star because we don’t issue a transparency report. So we have been working on that transparency report for the last few months and plan to publish that other side in the future. So based on the work that we've done for the transparency report we're able to give you today some insights into our great effort and our success in combating IT infringement. So I want to stress three points. First, we earn respect by following industry leading best practices and establish law. The second is that someone on the outside looking at our site lacks the context and the background information to determine what is infringing and what's not. And third we strive for a balanced approach that takes into account the interest of our sellers and IP owners and we believe that’s working. We at Etsy partner with major brands to address the problem of infringing articles. And in fact we are also accused of being too aggressive in taking down material posted by sellers. So it's important to note that I am not using the word counterfeit, people can’t even agree on the definition of that term. So to avoid confusion, I will address the broader issue of items that appear on the Etsy Web site that appear to misuse intellectual property. So now I will dive deeper into those three points. The first point about, earning respect by following industry-leading best practices and establish law. It's certainly true that brand owner complain to us about infringing items appearing on Etsy but our experience has been that when we engage in a cooperative and transparent way with brand owners we enjoy a productive and beneficial relationship and partnership with those brands. Etsy has a dedicated legal support team that responds to proper takedown notices by properly removing content and providing the Etsy seller an explanation of what happened and the contact information of the notifying party. We also terminate accounts of repeat offenders and we use technology to prevent bad actors from returning to our marketplace. All of our practices are based on The Digital Millennium Copyright Act, The Communications Decency Act, The Lanham Act which governs trademark, the Copyright Act, industry best practices and established case law. The second point and that is again that someone on the outside looking at our site lacks the context and background information to determine what is infringing and what is not. It's tempting to play judge and jury but only someone authorized to act on half of the IP owner, has the legal and business background information to decide if something is problematic and if so what to do about it. So some brands may see a specific use of free advertising or fan arts or other like affair. Others may see it as infringement and ask that it be removed. So to give you an example, several years ago an attorney representing a longstanding children's television show, requested that Etsy remove a handful of items. She noted that although many Etsy listings made reference to the brand, only a few could damage the brand's reputation, so those she considered infringement. The remaining items were fan art and she allowed them to continue to be sold on Etsy. And further some of the items were over 20 years old, and could be legally sold in our vintage category. So the third point, that we strive for a balanced approach that takes into account the interest of our sellers and the IP owners and that we believe it's working, we partnered with major brands to address the problem of infringing articles. And in fact as I said earlier, we're often accused of being too aggressive and taking down material posted by sellers. So Etsy works with brands to influence the technology that we use to proactively locate, take action and prevent bad actors from returning and we continually update that technology because bad actors are always updating their tactics. For security reasons we can't provide detail on to their systems. At the same time, many sellers complain that we go too far in taking down infringing items and closing shops based on our policies. So in one blog post that anyone with an Internet connection can access an Etsy seller here in the U.S. described a frustrating and frightening, confusing account of her back and forth with a right's holder. She spent three weeks going back and forth with a right's holder’s in-house council before resolving her issue. So she advises to other Etsy sellers in this blog post to be careful with copyright based on her experience with Etsy, enforcing takedown notices from right holders. And I want to quote from this blog post. She wrote, “just a couple of weeks ago one of the members of My Friend Beth had their store shutdown for copyright infringement. I know others that have had their shutdown as well and a few lucky ones have gotten theirs reopened, but that is rare. One of my members has a friend that got her Etsy shop taken down because the candy she was making infringed on someone's copyrights. So do you think, this is just applies to paper or products like plates, et cetera, it doesn't, it's anything that you make, that you use someone else's images for. She then made an even bigger mistake. She started a new shop under a new name and Etsy found out and not only shut her shop down, but banned her from Etsy altogether. She cannot even shop on Etsy anymore, they don't mess around” That's the end of that quote. So consistent with our goal of supporting Etsy sellers, we also provide plain English education on intellectual property topics in lots of forms, ranging from blog posts to seller handbook articles and Q&A sessions in our forums. So the final note, Etsy's in-house attorney that anticipated in working group conversations among service providers and the U.S. Patent and Trademark Office about intellectual property and marketplace liability. So we believe in conclusion that the facts and the data give us reason to be proud of the work that we do to combat infringing materials.

Thank you. [Operator Instructions] Our next question comes from Tom Forte of Brean Capital. Your line is now open.

I recognize that today, a lot of the international revenue comes from cross the [indiscernible] but I wanted to give you [indiscernible] about your local efforts, how you're driving revenue on a local basis that would be less dependent. [Indiscernible] and how those efforts will drive revenue that isn't dependent on or less affected by movements in [indiscernible]?

We're sorry, we can't hear the full question, think that phone is cutting out.

I apologize for the bad connection. So basically, on international, I recognize that today a lot of your revenue comes from cross-border trade, but I think you have initiatives underway to drive local revenue, so revenue in an international country among a local marketplace. Can you tell us about those initiatives, and when should we expect that revenue to start hitting so you'll be less affected by changes in the U.S. dollar?

Right, so it is important to note our building local marketplace is a global strategy which is really about, again building on the activity in markets where there's relatively balanced buyer and seller activity. So we're seeing momentum, particularly in the UK as I mentioned earlier. We're seeing growth in purchases from UK sellers, domestic activity seven times higher than the growth and purchases from U.S. sellers to cross-border activity. So we really think that this means that that local community is really connecting, we believe that overtime encouraging this type of local commerce in our priority markets, Kristina mentioned the UK, Australia, Canada, Western Europe, that will be a positive influence on the global success of Etsy, but we're seeing that early success in the UK.

And Tom, if I could just add to that comment a clarifying point, it's important to understand that the number of our sellers who list in U.S. dollars, so even on a local-to-local basis that can sometimes impact price that buyers, local buyers are seeing. So it stands today 92% of our GMS comes from sellers who list in U.S. dollars even though 30% of our GMS comes from international. And so only 8% of our GMS is coming from sellers who list in local currency. One of the opportunities we have over the longer term which is actually quite a complex technical operation is to encourage and facilitate more and more sellers listing in the local currency which also could benefit a more balanced local ecosystem overtime.

Thank you. And our next question comes from Gil Luria of Wedbush Securities. Your line is now open.

I'll ask a couple upfront. So first of all to follow-up on the counterfeit, Alibaba and eBay, over the years have said very similar things in terms of the efforts they put in to getting counterfeit merchandise off the website. And yet, the brands and the luxury brands, at least a variety of them have seemed to crack down on it more and more and yesterday we saw a new lawsuit against Alibaba. They're dealing with their government, in spite the fact they say very similar things about a clear commitment to preventing fraudulent merchandise. So wanted to know why you think that the further scrutiny won't impact Etsy going forward? And the second question about the impact of currency. eBay has a similar issue in terms of when the currency goes, when the U.S. dollar goes up, it takes away from the purchasing power of European consumers. But on the flip side and what's an offset for them is that U.S. consumers can then afford to buy more outside the U.S., their purchasing power goes up. Since you have an even higher mix of U.S. consumers that now have more purchasing power vis-à-vis merchandise outside the U.S., why wouldn’t you have an offsetting impact from that?

I will take the first question. As I said in my earlier comments, we're not going to comment on litigation. So I will hand it over to Kristina for the second question.

Sure. So from a perspective of U.S. consumers and enjoying lower, relatively lower pricing, I would point in fact to the comments that I made on the dollar pricing, a 92% of our GMS comes from sellers who list in U.S. dollars. Another way to think about that is the majority of our sellers who sell on Etsy, even if they are located outside of United States are listing in U.S. dollars. And so as I said before, an opportunity we have is to encourage sellers to list in the local currency rather than in U.S. dollars and to facilitate that from a technical perspective. So when think about U.S. consumers enjoying a strong dollar that doesn’t call out in the way that our sellers currently list pricing of their items.

Wouldn't some sellers just recognize that and with their currency being that much lower, lower the U.S. dollar price, even if it's done, lower U.S. dollar price even if that's not done automatically?

We haven't seen that behavior. Again it's important to understand too that the $0.20 listing fee is a $0.20 listing fee no matter where you reside, so and to a certain extent as seller outside the Unites States has dollar exposure in the cost of the listing fee. So we haven't seen the kind of behavior where our sellers might be reacting to fluctuations in currency entertains their pricing. It's also important remember, relative to some other marketplaces that perhaps have significantly larger sellers on their platform who sell more commodity type mass manufactured goods, Etsy sellers are more micro entrepreneurs and so adjusting their pricing on an even weekly basis dependent on currency fluctuations might not be something in their toolset.

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Chad Dickerson for any closing remarks.

Great, I just want to thank everyone for joining us on this first earnings call for Etsy and we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.