Etsy, Inc. (ETSY) Q3 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Etsy's Third Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Ms. Deb Wasser, Etsy's Vice President of Investor Relations. You may begin.

Thank you. Good afternoon and welcome to Etsy's third quarter earnings conference call. Joining me today are Josh Silverman, our CEO; and Rachel Glaser, our CFO. Before we get started, just a reminder that remarks today includes forward-looking statement relating to our market opportunity, international growth, the timing of product launches in our cloud migration, the impact of our 4 key initiatives, pricing model, marketing and product investments, and cloud migration on future GMS and revenue growth, our holiday plans, our financial guidance and related drivers, and our anticipated expenses and their impact on future financial performance. Our actual results may differ materially from the statements made. Forward-looking statements involve risks and uncertainties, which are described in our press release today and Q2 10-Q, and any subsequent reports that we filed with the SEC. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today, and we don't have any obligation to update them. Also during the call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website. A link to the replay of this call will also be available there, and if you prefer to access a replay via phone, you can find that information in the press release as well. Finally, for your reference, we hope that you’re following along with the presentation we have created to highlight our third quarter progress. It accompanies our webcast and it's posted on our IR website. With that, I'll turn the call over to Josh.

Thanks Deb, and thanks everyone for joining us on Election Day. Etsy's growth accelerated again in the third quarter to nearly 21% on a constant-currency basis. Revenue growth exceeded 41%, fueled by the launch of our new pricing structure, and our adjusted EBITDA margins grew to nearly 23%, while we also increased our investments in the business. Active buyers grew 17% to 37 million worldwide. This is the fourth consecutive quarter that GMS has grown faster than active buyers, evidence that we are seeing increased buyer activity on the platform, which is a key proxy for improvement in frequency. We grew the number of active sellers by 8% and GMS per active seller is also increasing. Two principal levers contributed to our progress this past quarter. The first is our continued product investment, focused on improving the shopping experience on Etsy. By making it easier to find and buy the great products available for sale on Etsy, we're doing a better job converting visits into purchases. The second lever was our new pricing structure, which enabled us to ramp up investments in marketing, shipping improvements and customer support. Let's look at the product lever first. As you know, product investments are prioritized within our four key initiatives. Search and discovery, customer liability, marketing and seller tools and services as shown on Slide 6. We made continued progress in all four initiatives, and tonight I'll highlight examples in two of them. Starting with search and discovery. An important insight that attracted our focus this quarter is that almost all of the visits coming from a search engine land into a specific item listing page rather than the Etsy homepage or category landing page. This creates a potential dead end if that particular item was not a precise fit for that buyer on that mission. It also contributes to buyers having a very narrow view of the product selection available on Etsy. We began to focus on landing page experiences in order to show more product diversity and minimize dead ends. For example, we began adding item recommendations and notifications on item landing pages. We're only just beginning to improve the buyers' entry experience into Etsy, an area where we see a ton of potential. In trust and reliability, we continue to find ways to remove friction from the purchase path. For example, our buyer research highlights significant untapped potential for personalization and customization on Etsy. One of the things that makes Etsy so special is that a large percentage of the products in our marketplace can be personalized or customized to a buyer's unique needs. A table can be customized to fit a room in shape or dimension. A piece of jewelry can be inscribed with a meaningful message. And we've historically done little to highlight this to buyers. In Q3, we began to streamline the purchase flow for orders that are personalized or customized. Again, even this relatively small improvement led to a meaningful conversion rate win, which increases our confidence and the upside from investing to build the strong personalization and customization experience. It's exciting to see so many areas of untapped opportunity at Etsy. We continue to diligently prioritize resources on the fewest possible projects that we believe will drive the largest possible impact on GMS. Our second important lever this quarter was the change to our pricing structure, which helped grow revenue by 41% in the quarter and enabled us to make additional investments in marketing, shipping and customer support as shown on Slide 10. Overall, we feel great about the pricing changes. We've seen no significant increase in seller churn, we aren't seeing price increases being passed along to our buyers and we've substantially increased our investment in the business. One area that's been underwhelming is seller update of our Etsy Plus subscription package. Subscription packages starting with Etsy Plus were introduced in July as a way for us to bundle and simplify our offerings for sellers. We've decided to maintain the $10 price on Etsy Plus for the foreseeable future, but we continue to test and learn how bundled offerings can drive value for various types of sellers. Our pricing change also contributed to an improvement in buyer lifetime value or LTV. With a higher LTV, we were able to spend more on performance marketing in Q3, while maintaining our ROI. We also began to experiment with TV advertising as a new marketing channel. We tested two creative advertising campaigns, each in three local markets. The tests were set up to be quantitatively measured, each with a look-alike control market. In addition, we conducted pre and post brand awareness research to supplement our quantitative research. Brand awareness, visits and purchase intent, all showed signs of improvement from viewers in our test markets. As expected, these first efforts were not ROI positive. However, the results were encouraging enough to justify further testing. Our next step is to extend our test to a national media buy with the top-performing creative campaign, where we can do further channel and creative optimizations. The national campaign test begins this week and will help us to make important investment decisions about 2019. Our creative approach focuses on when to think of Etsy, featuring stories from real life buyers talking about the unique items that they found on Etsy. We see significant opportunity to expand the brand's relevance to be top of mind more of the time for current and prospective buyers. Another important investment area is shipping. We know that shipping remains one of the top friction points in our marketplace. For example, in the third quarter, less than 20% of listings on Etsy offered free shipping and our research suggests that buyers perceive about half of the items in our marketplace as having high shipping prices. It not only impacts conversion rates on those items, it also damages the brand perception of Etsy overall. We are determined to fix this. Our first step has been to educate sellers about the impact of high shipping prices and ask them to think of shipping as just another component of their cost of goods sold. Next, we're evolving our search algorithms in order to more prominently promote items that have competitively priced shipping. We've introduced notifications to sellers whose shippings prices are perceived as too high, tools to help them adjust shipping prices, if they so choose and we launched the Holiday Sweepstakes for sellers who offer free shipping. These efforts are beginning to show results. We're seeing sellers start to lower shipping prices and increase their use of free shipping promotions. In addition to the cost of shipping, expected delivery date is also frequently an important factor for buyers, particularly on Etsy. Until recently, the only way to know when an item is expected to arrive has been to send a message to the seller. In Q3, we began to roll out the capability for sellers using our shipping label product to display an expected delivery date on their listing. There is much to be done to improve the shipping experience on Etsy and we're excited about the opportunity this presents, as we focus and continue to make progress. The third quarter was also transformative in the area of customer support. Up until this past year, almost all of our support was handled by e-mail with an expected response time of 24 hours. And we introduced Zen desk earlier this year, we enabled a much improved self-service help center, which has been really well received. And in the third quarter, we transformed our operations by introducing live chat for our sellers, dedicated phone support for both buyers and sellers and 24*7 service. These enhancements have driven noticeable improvements in customer satisfaction. This sets us up really well for the holiday season as we ultimately aim for the majority of our customer contacts to be handled in real-time, either by live chat or phone. Lastly, we achieved a significant milestone in our cloud migration this quarter, successfully migrating our marketplace, Etsy.com, and our mobile applications to the Google Cloud with minimal disruption to buyers and sellers. This increases our confidence that the migration will be complete by the end of 2019. Once fully migrated, we expect to dramatically increase the velocity of experiments and product development to iterate faster and leverage more complex search and machine learning models with the goal of rapidly innovating, improving search and ultimately driving GMS growth. In fact, we're beginning to see some of those benefits today based on the systems we've already migrated. I'd like to thank our engineering team for their incredible work to get this - get us to this point. Turning to Slide 11, the holiday season has kicked off at Etsy. All of the work we've done throughout 2018 will make Etsy a better place for shopping for the holidays. We're making it easier to find exactly what you're looking for from among our 50 million items with curated gift guides and discovery pages. Holiday shopping on Etsy will have less friction than in the past and we've aimed to make it more joyful and inspirational. By bringing magic to the holidays, we hope to make Etsy stand out in buyers' minds as a destination that they should return to throughout the year for other moments in life that deserve a human touch. It's also worth noting that Etsy continued to make progress in our international markets during the quarter, particularly in Germany. Our DaWanda transaction bought meaningful new breadth and depth of inventory to Etsy, helping to make Germany our second largest international market by domestic activity after the U.K. at the end of the quarter. Thanks to the successful seller migration as well as the redirection of buyer traffic to Etsy, more than 50% of GMS in Germany is now local buyers purchasing from local sellers, an indication of a market's domestic vibrancy. When I think about Etsy's growth opportunity, I'm more encouraged than ever that we are just getting started. One of the best aspects of Etsy is the enormous breadth and depth of high quality products across a large and growing set of categories. And yet, every day, I meet people who love Etsy for just one particular experience tied to one category or occasion. Just recently I stopped at my bank. And the bank teller saw that I worked for Etsy. He began raving about how much he loved Etsy having planned his entire wedding using items from the site and how meaningful an experience it was for them. Now, his wife is having a baby and expecting in a month, so I asked, have you been back for baby products? He responded, you sell baby products? I thought Etsy was just a wedding site. Growing Etsy will continue to be tied to our ability to connect the dots for buyers across various purchase occasions, habits and experiences, so that they think of us more for the special occasions in their lives and they want their purchase to mean something, to express their sense of identity, to show thoughtfulness or to tell a story. We're just starting to do this and I know we have something truly unique to offer. We are excited about the progress we've made so far in 2018, our momentum and continued growth opportunity for 2019 and beyond. I want to thank our employees who give their heart and soul to growing our marketplace and helping us to support our vibrant community, our Etsy sellers for partnering with us and our Etsy buyers for shopping with us. And with that, I'll turn the call over to Rachel.

Thank you, Josh, and hello, everyone. Solid execution is the theme that best describes Q3. From the first phase of our migration to Google Cloud, to the launch of our price increase, to the smooth integration of DaWanda buyers and sellers to our marketplace, our team is consistently and tenaciously delivering on our goals. We do this with a disciplined approach to resource allocation as evidenced in our strong results this quarter. Q3 was the first quarter that reflects changes to our pricing model, our fourth consecutive quarter of acceleration in active buyers and our highest quarter of GMS growth in constant currency since Q2 2016 and we have continued to expand our adjusted EBITDA margins. So let me unpack some of the drivers of this performance. Unless I say otherwise, all numbers presented are rounded for ease of reference and the comparisons I'll be referring to are on a year-over-year basis. On Slide 14, we have outlined our key operating metrics. Etsy generated $923 million in GMS in Q3, up 20.4%. On a currency neutral basis, GMS growth would have been approximately 20.8%, 40 basis points higher. At the end of the third quarter, Etsy had 37 million active buyers, up 17% and over 2 million active sellers, up 8%. GMS from repeat buyers continues to grow and represented 83% of overall GMS. We continue to see signs that frequency is improving as GMS per active buyer on a trailing 12-month basis was up 2% year-over-year and accelerated for the fourth consecutive quarter. GMS from paid channels, which was roughly 17% of overall GMS, was up 57% compared to last year. This was driven primarily by our investments in Google Product Listing Ads and SEM, both of which benefited from incremental spend, following the changes to our pricing model. Mobile GMS grew 30% year-over-year, largely a result of increased traffic to mobile web and continued improvements to our mobile shopping experience. Solid performance on desktop, mobile web and mobile app has led to a year-over-year overall increase in conversion rate for the fourth consecutive quarter. Optimization for mobile web and mobile app on such features as notifications and nudges created meaningful gains in conversion rate for those platforms. International GMS was 35% of total GMS, up 100 basis points compared to last year. International GMS grew 26% in Q3 or 27% on a currency neutral basis. International growth was primarily driven by strong performance in international domestic GMS, which represents GMS from international buyers and sellers in the same country. Product initiatives such as local boost that gives domestic inventory more prominence in search and our recent referral agreement with DaWanda were growth drivers for international domestic GMS. FX in the first half of the year was a tailwind for us. This quarter, it became a headwind to our GMS growth. With these operational metrics in mind, let me provide more details on our financial performance. Highlights of our P&L are on slide 15 and the full details can be found in our third quarter 10-Q, which we plan to file shortly. There are a few noteworthy items that I'd like to highlight. Total revenue was $150 million, up 41%, driven by growth in both marketplace and services revenue. Marketplace revenue grew 43%, primarily due to increasing our marketplace transaction fee from 3.5% to 5% and applying that transaction fee to shipping as well as our 20% GMS growth. Services revenue was up 37% and represented 25% of total revenue. Services revenue growth was driven primarily by growth in Promoted Listings, which saw growth in both click-through rates and the cost per click as demand continues to outstrip supply. This quarter, we anniversaried the inventory expansion of Promoted Listings on mobile web, which was a material driver of revenue growth over the past year. There are multiple levers for further growth of this product, focused on increasing utilization of a seller's budget, improved algorithms to increase conversion rate in CPC and expanding inventory by opening up new ad units. The last point on revenue, as Josh noted, adoption of Etsy Plus has been modest and we're evaluating what subscription offerings are of interest and most valuable to our sellers going forward. And as a reminder, subscription revenue is not a material component of 2018 revenue guidance. Gross profit for the third quarter was $103 million, up 48% and gross margin was 69%, up 300 basis points compared to last year. Gross margin expansion was primarily due to incremental revenue flow-through from the changes to our pricing model, partially offset by hosting and bandwidth fees related to our planned migration to Google Cloud. Marketing expenses in the third quarter totaled $40 million, up 68%, driven by digital acquisition marketing and to a lesser extent our TV advertising tests. Our goal is to maintain a positive ROI both on a portfolio basis and for each marginal dollar of digital acquisition marketing spend. Product improvements and increase in our conversion rate as well as increases in our take rate have allowed us to spend more, while meeting our ROI hurdle. Our local TV campaign test ad design was not ROI positive, where we can extrapolate data that help determines future investment. Results were encouraging enough to begin Phase 2 of testing on a national level. Increases in product development costs were primarily related to increased headcount and other employee-related items, including stock compensation and to a lesser extent consulting services. We have scaled our recruiting resources, prioritized our efforts on product and engineering needs, retooled our processes to become more nimble and refined our compensation strategy to ensure we are competitive for the very best talent. Our product and engineering resources directly drive GMS growth. Acceleration in our hiring ramp is a good example of an ROI positive investment. Total headcount at the end of the quarter increased to 851 people compared with 789 last year. G&A expenses in the third quarter totaled $21 million and declined 6% versus prior year. G&A has decreased to 14% of revenue versus an average of 24% of revenue in 2016. G&A decreased due to reduced headcount and restructuring charges last year. G&A will grow as our business expands, but we expect to continue to gain leverage over time. Third quarter net income was $19.9 million with diluted earnings per share of $0.15. In the quarter, we had a tax benefit of $5.3 million, primarily related to stock-based compensation generated from option exercises, which accounted for $0.04 of EPS. There was approximately $0.01 of EPS impact in Q3 related to an executive departure. You can find more information about employee-related costs that are likely to impact Q4 in our 10-Q. Our revenue growth and increased operating efficiencies drove significant growth and adjusted EBITDA this quarter. Adjusted EBITDA was $34 million and grew 49% year-over-year. Adjusted EBITDA margin was 22.6%, expanding 170 basis points compared to last quarter and also up 120 basis points year-over-year. The details of our balance sheet shown on slide 16 are also in our filings, but I'd like to highlight a few points. As of September 30, 2018, we had cash, marketable securities and short-term investments totaling approximately $584 million. Also, we recorded net cash provided by operating activities of $97 million in the nine months ended September 30, 2018 compared to $32 million in the nine months ended September 30, 2017. We generated approximately $31 million in cash this quarter, in other words, we generated nearly as much cash in one quarter in 2018 as we did in nine months of 2017. The strong year-over-year increase in net cash provided by operating activities for the quarter was primarily driven by revenue growth and leverage in operating expenses. As you will have likely noted in today's press release, our Board of Directors has approved a stock repurchase program that will enable the company to repurchase up to $200 million of its common stock. Turning now to our outlook on Slide 17. We currently expect to deliver a strong fourth quarter to close out a great 2018. Full year GMS and revenue growth are moving up to 19% to 20% and 35% to 36% respectively. We currently expect 2018 adjusted EBITDA margin to be 22% to 23%. To make the math easier for you, that implies GMS growth of approximately 17% to 20% in the fourth quarter. In addition to the outlook provided above, there are few nuances that you should keep in mind. First, we are now moving our brand marketing experiments from a local market test to a national campaign and all the incremental spend associated with the campaign will fall in Q4. Second, our engineering team has spent significant time and resources on the Google Cloud migration. It is progressing well, and as we said last quarter, we will likely come closer to the high end of our spending range of $10 million to $15 million for 2018. We expect approximately $4 million to $5 million of spend to occur in Q4, normally our highest profit quarter. This implies slightly higher product spends going forward than our original estimates. As a reminder, during the migration, we must maintain our existing data centers. Third, the impact to our GMS for macro events, such as today's midterm elections and ongoing trade relations could create headwinds to GMS growth. For instance, we did observe temporary dips in GMS during the Kavanaugh hearings and the hurricanes. And lastly, historically, over 30% of our GMS and revenue has been earned in the last quarter of the year. The holiday season is an important and special time for consumers and we believe that Etsy's extraordinary product offering is well-suited to capture hearts and minds of those shoppers. However, we will ride the wave of commerce along with the industry and our performance could be negatively impacted by macro spending trends. Before I close, we are excited to announce that we will host an Analyst and Investor Day on March 7, 2019 here at our Brooklyn Headquarters. Keep a lookout for more details in the coming months. Thank you all for your time today. I'll now turn the call back over to the operator for Q&A.

[Operator Instructions] And our first question comes from the line of Edward Yruma with KeyBanc Capital Markets. Your line is now open.

I guess, first on a two-year basis, your guidance for the fourth quarter from GMS growth perspective would indicate a pretty nice acceleration. I guess, any specific call-outs? Is it symptomatic because it's a holiday period or is this indicative of kind of a faster rate of growth overall?

I'm sorry, I just want to make sure I'm understanding the question. You're saying that the two-year build between 2018 versus 2016 is faster than 2017 to - , 2018 to 2017?

When I look at the two-year growth compare of kind of 2Q and 3Q versus what you're implying for 4Q, right, you obviously have a much more difficult comparison in 4Q. So I'm just trying to unpack a little bit kind of what's driving that? And is that symptomatic with the holiday season or is that kind of a sign that the business is really accelerating?

Well, I'll start and then maybe Josh wants to jump in. So you're seeing our trend, we've been continuing to accelerate GMS quarter after quarter on a currency neutral basis and we are giving you guidance that would suggest that that trend is something that we'd to expect to continue. There is a range, so in the fourth quarter, the range would be 17% to 20%, yes, compared to a higher comp from last year. At the low end of that range, there wouldn't be acceleration versus Q3. But the - towards the midpoint or higher, we will continue to follow the trend line that we're seeing so far in 2018.

Yes. So I mean, I think you're right. The comp is tougher this quarter than it has been in the past and we're giving you guidance to suggest that we think we can maintain growth for the rest of this year. It's early in the quarter. Q4 is a really back-weighted quarter, but we think that the product improvements that we are making are having an impact on the customer experience. We think the marketing investments that we're making are working. And so we're coming into the fourth quarter feeling cautiously optimistic about our ability to sustain our growth.

And one other follow up, if I may. You announced the repricing between 1Q and 2Q. You had indicated that the adjusted EBITDA margin would remain kind of consistent due to kind of stepped up investment. I guess, what gave you the confidence to kind of flow-through some of the upside [Technical Difficulty]

Ed, did we lose you?

And it looks like Edward's line…

Should we answer the question though? So the answer to the question is what we said last quarter was that we were flowing through 20% of the incremental revenue. And so just bear in mind by the way that the revenue did not launch until two weeks into the third quarter. So this quarter, we're getting a full quarter of that incremental revenue. And in our highest - certainly we indicated that typically 30% of our revenue in GMS comes in the fourth quarter, so it is a full quarter of the incremental revenue and a - and the highest revenue quarter and that's approximately the same flow-through to EBITDA.

And our next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is now open.

This is Shweta for Mark. Could you please expand a little bit on the Promoted Listings opportunity? I know Rachel talked about it a little bit in her prepared remarks, but in particular, which of the three opportunities in Promoted Listings, specifically either adding sellers to use Promoted Listings or adding inventory or improving the algorithm, do you think offers the most upside in the near to mid-term?

So we've shared that maybe 15% or so of sellers are adopting Promoted Listings, but they are disproportionately our largest and most successful sellers. I think we've also shared that they have given us more budget than we are currently able to spend. So one way, we've taken advantage of that over the past, call it, 18 months as inventory expansion. And what I mean by that is providing more real estate on Etsy for Promoted Listings. And that's been pretty successful. And there's probably still some opportunity to find more real estate that would be available, but we have done a fair amount there and are starting to lap some of that. An area that I think still has quite a lot of opportunity is to do better on the algorithms we use to pick which Promoted Listing to show to which user at which moment. And that is rich and robust and full of machine learning, where you get better and better and better over time, and I think we're still very early days in terms of the quality of those algorithms. The other thing that I would point out there is more traffic. There's a fourth lever, which is obviously getting more traffic to the website, it would drive more Promoted Listings and so we're working hard on that as well.

And our next question comes from the line of Laura Champine with Loop Capital. Your line is now open.

It's really on your comments, Josh, on the shipping fees coming down. Is there any kind of a roadmap you can give us? I'm confident that you're not quite where you'd like to be yet maybe on percentage of products that offer free shipping or anyway you can quantify where Etsy is on the progress on reducing shipping costs to your buyers relative to what your goal is?

So when sellers - when buyers say they find an item they liked on Etsy and they didn't buy it, one of the top reasons was because shipping price was too high. And so we know this is a material friction point for us. And I shared a couple of numbers. I think the one that I find most powerful is that buyers perceive about half of the items on Etsy as having a price that is too high relative to what they expect. And by the way what they expect may not be directly related to what the postal service is charging the seller. And the sellers have in mind sometimes something very little. So what you're seeing is, first, a lot of education from me over the past few quarters, not just me, but the whole team to educate sellers more about how to think about shipping prices. Now, what we've started to do is to incorporate that more into our search algorithms, so that we more prominently promote things that buyers perceive have attractive and competitive shipping prices. Sellers pay a lot of attention to where they rank in the search algorithms. And by the way, we've also recently launched some more detailed and more easy-to-understand seller dashboards that our sellers can really see what's happening with their search results and what they can do to make that get better. And you're going to see some pretty prominent discussions or promotions for sellers, where their shipping price is perceived to be too high, we're going to be letting them know that that's impacting their search. And that if they want to become more prominent, they've got to fix that. I think that it needs to be the case that buyers find shipping prices on Etsy to be competitively priced. And by the way, I don't think it's a scenario, where we win, where we stand up by winning, but a scenario where we've got to at least meet table stakes. And I think that the price of shipping is a table stake's item more and more in e-commerce. I do feel great about the fact that we grew at 20% GMS this quarter, while shipping prices were too high, and have been too high for a long time. And I think it's been table stakes that shipping prices be low or zero for quite some time now. So I get really excited when I think about what we can do as we really get after and fix this problem. One thing that I do think is different about Etsy, fundamentally different, is that our items, many, many of our items are not sitting in a warehouse and available to ship tomorrow. And I actually think in many ways that's a strength. They are made for the person who's buying them. They have the opportunity to be personalized or customized, made-to-order. That's special. That's one of the great things about Etsy. So we've got to do a better job of communicating, it's not that everything needs to arrive in two days, but we do need to tell the buyer buy when they can expect the item and then we need to live to that commitment. And I think that will also be significant forward progress for Etsy.

And our next question comes from the line of Thomas Forte with DA Davidson. Your line is now open.

So apologies in advance, if I'm putting too much emphasis on this. But when I think about the Holy Grail for Etsy, I think about your ability to improve repeat usage and really the frequency, getting that consumer to buy twice a year instead of once a year and I think of your efforts to improve search is one of the things you're doing toward that end. What I was curious is, you do a lot of small adjustments that make improvements, I think you've talked before about 2, 3 basis points improvements in GMS growth. So the question I have is, how long would it take or how long might it take to get that core consumer to buy twice a year? And when you get to that level, what does success look like? Does success look like a meaningful ramp in GMS growth and then more leverage on your OpEx or do you think it's more gradual?

I don't think you're putting too much emphasis on it. I mean, I think it's one of the key things that - a huge opportunity for Etsy. And just to pull back for a second. What gets me really excited is what spending time in the inventory of Etsy, looking at so many great products for sale that really are relevant. And we've got to do a better job surfacing the good stuff and surfacing it at the right time for the right buyer. That's on us, we've got to do a better job and I think we're making real progress. But I know that the product is there and it's terrific. The other thing and that gives me a lot of confidence is we're not trying to create a whole new use cases that don't currently exist. There are meaningful numbers of people who love us for weddings. There are meaningful number of people who love us for birthdays. There are a meaningful number of people who love us for decorating their apartments. There are meaningful number of people for who love us for getting dressed up and wearing that special dress for the party. There are large communities of people who exist for each of those purchase occasions. We've got to do a better job of stringing them together and telling that story. And I do think that that's a combination of incremental steady progress, where we're making the experience better every time you come and visit and I do think people notice. And then some more disruptive changes. And as we make steady progress in the product, starting to disrupt people's understanding about the brand and what it is and when we're relevant at the right time, I think that's where maybe more high-funnel above-the-line kinds of marketing can help to reeducate about the consumer, about all the different times that we are relevant.

I think Tom the other - you asked sort of when do we see that happening, I - we can't give you guidance specifically on 2019 or beyond. I think that might be interesting fodder for conversation at the Investor Day that we'll have in the spring. But what we did say was that frequency - sort of the green shoots of improvement in frequency has been starting to show and that - this is the fourth consecutive quarter, where GMS on a trailing 12-month basis per active buyer has been - has increased. And so you're seeing all the things that Josh just described as reasons to believe, and initiatives that we're putting behind it to make it happen, are starting to actually show up in the numbers.

And our next question comes from the line of Darren Aftahi with Roth Capital Partners. Your line is now open.

But I hopped on a little late, so if this has been answered, I apologize. Just two things quick. First on the holiday season. Are you guys doing anything strategically different around sellers and discounts and sales beyond kind of trend that right-size the competitive nature of shipping? And then any update on the kind of transition of DaWanda, how that visionary business performed in the quarter?

Let me take the DaWanda one first and then maybe Josh can talk about holiday. So we said that the migration of DaWanda sellers to Etsy went very well and the redirect of the DaWanda website to Etsy's website in Germany went very well. We said that Germany is now our second largest international market outside - with the U.K. being first and then we also said that the vibrancy - there's a sign of vibrancy in that German market because actually 50% of the transactions are happening between buyers and sellers that are in the German market. So that's, to us, a sign that you've got a really healthy two-sided marketplace there. So for all intents and purposes, we felt really pleased with the migration of DaWanda. We also said that international was 35% of total GMS, I think, a year ago, so it's - and it was growing 26% in the quarter, I think 27% on a currency neutral basis. Germany contributed to that, but on its own without - and Germany is a, on its own, a significant driver of our overall GMS growth, international is growing nicely, but you can use those numbers to figure out what contributions DaWanda made to all of that.

And in terms of holiday, if I look at the buying experience today versus what it was on January 1 of this year, we've made real improvements. It's easier to find the good stuff and it's easier to buy things on Etsy. And I think that that is bearing fruit. As we look at specific holiday preparations, the big strategic decision we made is to try to avoid throwaway work. So we really tried to focus on things that would be reusable and valuable throughout all of 2019 and beyond, instead of just one-offs for the holidays. So some of our big focus areas are around curation and discovery. So you're seeing already nicely curated sets of editors' picks and other things to really highlight and showcase some really great stuff for sale in Etsy. We've improved the recommendations algorithms, we continue to improve the search algorithms. You will see our sellers are enabled to run cyber sales, so we will enable our sellers to participate in that this year like we did last year. And we've built a better platform to allow for sales to happen with a lot less effort from our staff here at Etsy as well as from the sellers. So we think we're going to have a really great holiday experience and we hope it turns into strong results as we've guided for the quarter.

And our next question comes from the line of Ronald Bookbinder with IFS Securities. Your line is now open.

First, I was wondering, if I could get a little clarification on shipping. You guys do negotiate - Etsy does negotiate shipping fees with the major shippers to get the entrepreneurs the best shipping rates possible. Is that correct? And secondly, given your strong cash flow and EBITDA growth, do you think you could increase the debt leverage that you have and even do more share repurchases in the future?

On the shipping, yes, we have carrier relationships in Canada and the U.S. and we've got the Canada Post and in the U.S. we have the United States Postal Service and FedEx and we just completed an arrangement with Royal Mail in the U.K. And we've said in the past that we're working in close on also a carrier arrangement in Australia. So those things provide good rates for our sellers and they can choose or not, it's not required to use our shipping label products, which not only gives them access to those preferred rates, but also gives them the ease of being able to easily turn a shipping label and have accuracy with what the shipping cost is going to be. So that's sort of a stepping stone to getting more unification on best rates that they can then pass forward to the customer and get things like tracking number, so that we can better estimate delivery dates and things like that. But we're - it's still early days yet. There's still a lot of opportunity on shipping and that is one of them. On the debt leverage, yeah, so you can look at our fundamentals and you can see that we have a pretty nice balance sheet, very clean and lots of opportunity to do further capital raise and financing and more to come on that. We've announced our share buyback today and we think that's a good use of capital for the moment and we can talk more about balance sheet as we go forward.

[Operator Instructions] And I'm not showing any further questions at this time.

Thank you all for your time. I'll see you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.