Etsy, Inc. (NASDAQ:ETSY) Oppenheimer 26th Annual Technology, Internet & Communications Conference August 8, 2023 9:55 AM ET
Josh Silverman – Chief Executive Officer
Rachel Glaser – Chief Financial Officer
Conference Call Participants
Jason Helfstein – Oppenheimer
Good morning, everyone. Thanks for joining us. I’m Jason Helfstein, I oversee Internet research for Oppenheimer. I’m very excited to have Etsy CEO, Josh Silverman; and CFO, Rachel Glaser. We’ve done this every year, I feel like, for a long time originally in person and for the last few, virtually. So thanks for joining us.
Most of you are familiar with how this works. I’ve got a number of questions that I’ve prepared. We also have a chat box. If you put questions in there, I’ll try to get to them as well and work them in to my prepared questions. Please don’t e-mail me because I’m not taking a look at e-mail, but use the chat.
Q – Jason Helfstein
So let’s get started. So the first question, I think, on everyone’s mind is kind of, to some extent, reaction to the stock post earnings. So for those who didn’t pay attention, results were modestly better in the quarter. I think management is still considering this a challenging environment and looking for growth that’s kind of similar in the third quarter.
If we kind of just level set, right, second quarter GMS was down 1%, compared to Amazon online stores, up 4%; Wayfair, down 3%; and Revolve, down 6%, right? So kind of like somewhere in the middle. And then we look at third quarter, you’re guiding plus 1%, so a few points better at the midpoint for GMS. I think Wayfair is looking for up 5%, so a pretty meaningful acceleration from their minus 3%. And I think Street’s modeling Amazon online stores, up 6%; and Revolve is like still down 5%, so like basically 1 point better.
So I guess when you think about that, just how do you think, given kind of your categories, how you fit into all of this and what are investors missing?
Yes. So first, thanks for having us. We really appreciate being here. There was a lot that I found really positive in last quarter’s earnings call. I’d encourage people to go back and take a look at that in detail because we’re seeing a lot of really positive indicators.
One thing we mentioned was that we were positive in each of May and June and July in terms of GMS growth. Obviously, revenue growth has been significantly positive all the way through. And to put it in context, obviously during the pandemic, we and all the other e-commerce companies had a ton of tailwinds. And now there’s been reopening, there’s a ton more competition for the wallet, from travel, from dining as well as off-line retail, and we’re in a highly inflationary environment. But when you put in context where Etsy is, we’ve grown at a CAGR of 29% for 4 years. Our 4-year CAGR is 29% from pre pandemic. Wayfair, I think, is 8%. eBay, I think, is negative 5%. So unlike almost everyone else who after the pandemic shrank back to roughly the size they were before the pandemic, Etsy is massively bigger than what it was before the pandemic. And even this year, we have tougher comps. Most of the people you mentioned, they have really easy comps from last year where they had a worse year than Etsy did.
But not talking about numbers and comps, what that really means, I think, is people during the pandemic had very few choices and had to go try Etsy and a number of other places. And unlike almost everywhere else, they have chosen to come back to Etsy again and again and again now even with, orders of magnitude, more choice, more competition, a highly inflationary environment. We’ve held virtually all of the spend, virtually all of the gains that we’ve gotten. And I think that’s a testament to the fact that Etsy does something truly unique, truly different, truly special that has really resonated with people through cycles.
Now obviously, what matters now is how do we grow off this much, much larger base. And undeniably, we’ve pulled forward years of growth. When I look at the data, what I see is still only one in 3 women in the United States has shopped on Etsy in the last 12 months. Only one in 10 men in the United States have shopped on Etsy. And for those who do shop on Etsy, they shopped only an average of 3x per year.
We know we have so much more opportunity to serve people. And that’s only talking about the United States. Our growth internationally has also been very strong, and we’re seeing really encouraging trends where the model that’s working so well in Etsy is working equally well in the U.K., if you look at market penetration and has tons of potential with really positive indicators in places like Germany, France and much of the rest of Western Europe, if not beyond. So we think what we do is really powerful. We think it’s unique.
And we think we’ve seen a lot of data to suggest that it’s, I believe, truly enduring. The last thing I’ll say is another thing we talked about in this earnings call is that we’re actually seeing quite a lot of strength in the U.S. in households over $100,000. It’s really households under $100,000 where we’re seeing weakness. And when you look across e-commerce, what you’re seeing is people that sell essentials very, very cheaply are the ones who appear to be growing and everyone else is having a tougher time.
So for households under $100,000, there is really less opportunity for things they want, and they’re really having to focus exclusively on things they need. And even for the things they need, what is the cheapest possible version of that thing they need? That’s a cycle, and cycles come and go. I’m old enough now to have lived through 3 and to realize that you’ve got the down part of the cycle and the up part of the cycle, and our job is to keep building a great business that survives and thrives and grows through cycles. We’re very committed to doing that.
Josh, one more for you, and then we’ll have a question for Rachel. So if I want to get a bit deeper into categories, you could — depending on data you look at, I mean, it looks like to us, we think you’re gaining share. But like again, I don’t think we’ve had all the macro data out yet because it does take time.
Focusing on home and living, again, your point of you have more difficult comps than your peers. But I mean, talk about how when you think about the categories that like impacts your relative results, right? Because I think people look at Wayfair and they say, well, if Wayfair’s seeing an improvement, given they’re so focused on home and it’s your largest category, why wouldn’t you be seeing improvement? And you look at them and say, well, we do home differently than they do or — so just how do you think about that and maybe work that into your outlook?
Sure. We said we were positive in July. Wayfair said they were positive in July. We said we were down about 1% in Q2. They were down about 3% in Q2.
So we’re all roughly in the same ballpark, except for the fact that Etsy has a 29% CAGR and everyone else is a fraction of that. But let’s not get lost in that. Let’s look at the forward-looking opportunity. And again, Etsy offers something really unique and different. If you think about all the things you want to buy for the home, wallpaper or throw pillows, couches, in Etsy, you have the opportunity to buy something that’s truly unique and special just for you and get it at a really fair price and get it within a reasonable amount of time.
And home is something that’s about self-expression. So we think that’s really a category that plays to our strengths, and it’s our largest category. As you know, Etsy sold last year billions of dollars worth of home furnishings. And yet, if you ask consumers, name places to go shop for home furnishings, only 3% of people in the United States will name Etsy. If you say go shop for home furnishings, only 3% will name Etsy.
We sold billions of dollars of home furnishings last year. Our unaided consideration is very low right now. So the opportunity to build that connection, if you think home furnishings, you should think Etsy. We think there’s enormous upside in building unprompted consideration for Etsy in the category, and home furnishings is an enormous category, right?
The other big opportunity for Etsy is we are — really have gotten to be very strong in what you’re looking for. I furnished my living room and I’m missing this one piece and I know exactly what I want, Etsy does a great job. Our search engine has gotten dramatically better, and we do a really good job of that. But if you come saying, I’m looking to furnish a living room, give me ideas, Etsy throws listing after listing at you, goes straight to the very, very narrow and has not been great at walking through what style do you like, and let me show you different.
And so we’re making tremendous gains right now on inspiration for people who don’t already know. For example, we launched Shop the Look just recently, where when you pick one item that you like for the home, we will find you. If you pick, let’s say, an end table, we’ll find a rug and lighting that works together with the piece you found. And that’s a great example of where these new AI technologies are tremendously more powerful than anything we’ve seen before.
And I think for Etsy, more than most, have the opportunity to unlock really incredible gains, given that there’s 115 million things for sale on Etsy and none of them map to a catalog. So the ability for AI to really help to organize the world for us, I think, is a huge opportunity.
I think I’ve got some AI questions later. I want Rachel to just talk philosophy around guidance and then we’ll kind of move on past the quarter. I’ve covered the stock for a long time. You’ve always guided based on current trends and kind of not tried to guess or extrapolate. There is commentary, again, about improving trends in the third quarter, again, maybe based on guidance from some of your competitors or just news on the economy. Just frame it, how should investors think about your third quarter outlook and kind of what’s driving it?
Absolutely. Thanks, Jason. Well, first of all, Josh and I, we don’t try to game it. We really try to give you — be as apparent as we can be with what we know and give a range of likely outcomes. When we do our own forecast internally, we look at what our baseline trend is showing us, and we layer on top of that what we expect from incremental marketing investments that will drive incremental GMS and what we expect from incremental GMS driven by product development investments.
And we have pretty good quantitative analysis that goes around for both of those factors to layer on top where we expect GMS to land. The last layer would be things out of our control, like macroeconomic trends, which we’ve talked a lot about in the last 4, 8 quarters, lots of unprecedented stuff. Specifically for Q2, the guidance we gave at the midpoint assumes that the macroeconomic trends that we are seeing in July stay just about the same. And at the high point of our guide, we say that we figured that the macroeconomic trends could ease and provide a little bit more tailwind, and that’s at the high end. And at the low end of our guide, we say the macroeconomic trends worsen as we go through the quarter. And that’s how we balanced our ranges.
We did say that May, June and July were all positive, and there are some really nice TDs in there. And before I hand it back over to you to ask the next question, I just wanted to add on to what Josh was saying when we were looking at comparisons versus competitors, particularly in the home and living category. He talked about top line, but I just want to give a statement on the bottom line. We’ve always talked about how much we love our capital-light business model. So if you compare free cash flow, us versus other competitors, there’s quite a disparity. So we really love our model.
And we — you saw that in the guidance that we gave, the Etsy core marketplace EBITDA guidance puts us well above a 30% threshold, which was actually our long-term guide that we gave in 2019 that over the long term, we expect it to be over 30%, and we’ve been there all this time.
Got it. That’s a good segue to the next question, Rachel, just about marketing. So main drivers of the growth are buyer and spend per buyer. You can drive buyers by spending more on marketing. Reengagement is a different factor we can get to.
There’s some paid marketing but a lot of that’s organic. We estimate marketing will go from 29% of revenue in 2020 to 25% this year, so a 4-point kind of decline over those 3 years. You’ve talked about pulling back on performance marketing. But you’ve also talked about machine learning, doing a better job of targeted e-mails, improving search. When is the right time to lean into marketing and just some perspective there?
Well, we believe we are leaning into marketing, and we do everything with an ROI lens on what we do. So as we’ve said many times before, we will spend until the last marginal dollar of spend is no longer hitting the ROI threshold that we have set for ourselves. And we constantly retest our attribution models to say, for instance, if you clicked on an SEM ad, would you have come anyway in an SEO result that would have come in for free? So we’re constantly refining those attribution models and we can, therefore, pull back and lean in more to performance marketing.
Things that change on us might be CPCs, for instance. During the pandemic, we enjoyed lower relative CPCs because many traditional advertisers were sitting on the sidelines for people — when people were stuck at home. And we know there’s other players out there that will spend aggressively on marketing upside down, not ROI positive. And we haven’t really gone to that place where we would say, damn the torpedoes, full speed ahead. We’re just going to lean heavily into marketing and forget about what that does to our margins.
And we also always think about growing naturally because otherwise, you create for yourself a very large grove or problem where you have to keep spending it to get to next year’s growth. Thank goodness marketing is — first of all, we’ve been very, very pleased with how our marketing has performed. We spent some time on this last call breaking down how we see LTV to CAC. Bear in mind that we’ve increased LTV about 50% at the same time as we’ve opened up a bunch of new channels in the full funnel of marketing. So we believe that our ROI on marketing has increased about 40% over the last 4 years, and we’ll continue to lean into marketing as we increase LTV from a number of initiatives.
So talk about the product in a minute. But as product improves conversion rate, so can we increase our marketing spend. And we continue to optimize as well so that we’re getting — we’re reducing CAC at the same time.
Marketing is not our only lever. So we also have product. The goal for us is to increase — get more buyers and that can be new buyers or reactivated buyers. We have a pool of about 100 million reactivated buyers that we don’t see dissipating anytime soon. We reactivated about a 21% increase in reactivated buyers, and they actually are 35% more valuable in the first year after we reactivate them versus a new buyer.
We also spend money on more GMS per buyer. So that’s the second tranche where we really want more frequency and have more average order value. And a lot of that comes from marketing but also from the product itself, as Josh was just describing. And then we want more revenue so you’ve seen Etsy Ads continue to grow. And then finally, we want to continue to grow profit.
So those are the 4 — that’s the framework for where we spend our marketing and our product dollars. And frequency has been a stubborn little sucker to move. But over the course of the pandemic, we moved it from an average of 2x per active buyer to 3x per active buyer, and we see no reason why that couldn’t be 12x, once per month per active buyer. So all of our product teams are really maniacally focused on things that can move the needle on frequency or conversion rate, in general.
So Josh, that’s a good segue, right? So of those, you basically said 100 million-plus of UVs who are not converting or just even others who have lower frequency. What are you doing on the product side to kind of — and you alluded to improving search, but I think we’ve been talking about improving search for probably a few years now and machine learning and cloud. But what are you doing on the product side to improve kind of like the conversion and the customer experience?
I’m really excited about our product road map. In fact, I think I’m more excited about our product road map now than I was even 5 or 6 years ago. So we’ve talked for several years, Jason, you and I, about improving search. And we’ve made incredible gains in relevance. So now we understand what you meant, not just what you said.
And so if you come and you type into a search engine, cocktail attire for men, we’re going to show you mostly sport coats. Even though the words sport and coat did not appear in your query, we understand what you meant. That’s an example of neural network translators. And that same kind of technology in neural network translators is going to sound familiar to many people because that’s what gen AI is also based on. We’ve been using that same kind of fundamental technology now for several years.
And as a result, if you know generally what you’re looking for on Etsy, we do a really good job. It is the case though that for most queries, we have thousand, if not tens of thousands, of relevant search results. So when you come and look for something, we get you a relevant set. Now the question is of the 5,000 to 10,000 items that are relevant, which are the 30 we should put on the first page of search results? And our big focus right now is understanding quality.
We know that items that are visually appealing, for example, convert twice as well as items where the quality of photography, the lighting, the styling of the image isn’t as good. We have historically used humans to try to curate what are things that are really visually appealing. Obviously, across 115 million items, you can’t use humans. So we’re now starting to train our AI models to use the human labeling to train AI to say, what is a visually appealing listing and really have the ones that are visually appealing come to the surface.
Second, does it have good pricing? And third, can I trust the service from the seller? So on pricing, we’re also starting to use much more sophisticated technology to help our sellers, to give our sellers insight in how they should price their items, not just what else that’s similar to your item is listed on the site, but which ones are actually selling and at what price. And giving our sellers that data, they can do a better job of setting good prices, and we can do a better job of understanding which items appear to be priced appropriately. And by the way, there’s a penalty for charging too much sometimes and there’s a penalty for charging too little sometimes, right?
A seller who underprices may not only — may not be getting enough value for her work, but also buyers may think it’s lower quality than it actually is, right? So getting it right, not too high, not too low, appropriately priced, is actually the sweet spot. And we’re doing a lot of work right now on pricing to help give our sellers the data. We don’t set prices, our sellers do, but to give them the data so they can do a better job on pricing. The other thing our sellers really want help with is promotions.
When should they put things on sale? How much should they put them on sale for? For what types of items? And that’s another area where we can share a lot of insight. So for example, most of our sellers, when they put something on sale, put it on sale for 10% off.
We have some early insights that very often, 10% off is not worth it. It’s not enough to cause someone to buy. And so you’ve just sort of given up 10% of your revenue without getting much for it. So if you’re going to put something on sale, put it on sale for deeper than 10%. Those kinds of insights, I think we can do a better job of getting and then sharing with our sellers so they can price things appropriately.
And then trust is incredibly important. So we’ve made great gains ensuring that items are going to arrive on time. And if you look at our on-time arrival rate now versus what it was 3 or 4 years ago, there’s been a really dramatic improvement in that. We can do better at communicating to our buyers that things generally do arrive on time and we have their back. We have their back if something goes wrong.
We’ve launched now Etsy Purchase Protection but awareness of that program is still very low. So building the trust that things are going to go well for people because our sellers actually do a great job and things do go well the vast majority of the time. So that idea of quality, appropriate pricing and trust, we’ve got a great road map around all of those things, and I’m really excited about how that builds up through the holiday.
I want to go back to marketing for a second. Because we do — I feel like marketing is not a particularly — it’s challenging to ask you in that we think about like retail media, CTV, social media have been these amazing new platforms for marketers. If you’re DTC, you can kind of plug right into some of these social feed, CTV. Now look, if I’m thinking about buying a gift for my wife’s birthday on Thursday and I’m on Etsy, you don’t want to target to me when I’m watching CTV with our — before I buy the item, right? So then, it’s like do you market the item?
Do you market the Etsy brand? Like I don’t necessarily think you fit into the way retail media works. And so just like — I don’t know like, is marketing more difficult if we think about it in a way because there’s more channels where the consumers are? But not all those channels necessarily lend themselves to the way you want to market? Just maybe how you had to reorganize marketing over the last few years around just the way the number of channels, digital channels, in particular, have exploded?
Well, I mean, I think marketing has been incredibly effective for Etsy. And if we think about where our brand is today versus where it was 3 or 4 years ago, I mean honestly, when I took this job not that long ago in 2017, I would have to say, my name is Josh Silverman, I work for a company called Etsy. Etsy is an online marketplace. I mean, like half the people I met had never heard of Etsy. Now when I say I work for a company called Etsy and it’s — people are like, what do you think, I’m stupid?
Of course, I know what Etsy is, right? So our unaided awareness in the United States and in Great Britain is dramatically higher. We’ve made greater than 10 percentage point gains in unprompted awareness just since we started TV advertising in the U.S., greater than 15% gains in the U.K. and a 100% improvement in unaided — unprompted awareness in Germany since we started TV advertising. So the top-of-the-funnel TV advertising, I think, can play a very big role.
In the U.S., it’s about connecting the brand Etsy, which people generally know and love, to specific purchase occasions. People say, I love Etsy but I don’t know when to think of it or I didn’t have a need for it, right? In fact, they bought 6 things in the past 3 months that they could have bought on Etsy. They just didn’t realize it. So TV, I think, can play a really important role.
And our TV campaign, Etsy Has It, is really about cementing all the different use cases for Etsy, starting with home furnishings, style and gifting as 3 very specific purchase occasions where we want you to think of Etsy. Bottom of the funnel, PLA, the majority of Etsy’s marketing spend goes to Google PLAs. And that’s a very high-intent moment where you’re looking for something specific. And again, people are looking for something specific and they didn’t think of Etsy. So they went to Google.
They did a Google search, and we show up and people say, of course, I’m looking for back-to-school. Of course, Etsy’s going to have something really cool for back-to-school right now that will set my kid apart, a really unique backpack or something else that will make them feel special, right? I want to do that. So they land and they convert and that — the advantage of that is it’s very easy to track the ROI and we’re really been very scientific about it.
The newer area for us is mid-funnel. And that’s things like social video, YouTube Video, Facebook Video, others. And that’s really about building repeat traffic and building presence around events and occasions. So for example, someone who’s planning a wedding, someone who’s got a birthday coming up, someone who’s planning a trip. If we can focus on more specific purchase occasions within that mid-funnel to say, hey, Etsy is amazing for weddings, Etsy’s amazing for birthdays, Etsy’s amazing for travel, those are moments where I think we’re learning now how to build that mid-funnel better, and I think there’s huge opportunity in time to come.
I’ll just close by saying the things you talked about like CTV, I think, are going to be amazing for Etsy. If we can understand and target people piece by piece, like someone who just moved home or is planning a wedding, that’s great. Our challenge right now is those channels, relative to us, are just quite small. So there’s not a ton of inventory yet, and that inventory tends to be pretty expensive and we are very ROI focused. But those channels are going to grow.
And rates are going to come down. And as they do, I think that’s a great opportunity for us.
So the way to tune that on the whole LTV, the kind of cohort payback, I mean, look, when you do one of those things, like do you have a cohort of users that you’re willing to let push out a payback and kind of test? I mean, just have you been doing that? Or look, we’ve been in a tough environment, and there’s been a focus on the bottom line and we’ll get to that. And so there’s been less of a desire to kind of do test marketing, whereas in a better environment, there may be more desire to kind of play around with customer acquisition payback.
Yes. I’m so impressed and proud of our marketing team because they’re very sophisticated in how they think about these things, and I hope I do it justice in my answer. First thing I want to talk about on the LTV side, do recall that we launched a product called Offsite Ads a few years ago, and that was a way to — that effectively took — take rate up about 1 percentage point. Our sellers can — when we use our own PLA program, and when there’s a successful sale on one of the products of our sellers that we list, if they have a successful sale, they pay a slightly higher transaction fee and that offsets about 35% of our performance marketing spend. So that’s point #1 that I think people — most people understand, but we’ve seen people — you’ll come up with the wrong results on what our ROI is if you don’t factor that in.
We also — when we buy — when we are acquiring a new buyer, we’re willing to pay more. We’re taking a lifetime value, not just in-session value. And that means that there’s some tail, some future value on that spend. It’s another thing sometimes people get wrong. You have to credit it for the whole lifetime of that buyer that we acquired. But then you may say, well, then if you’re also spending to reactivate buyers, are you double dipping? And so we actually discount our — the lifetime value of that new buyer by a certain percentage to take into account that we’re going to continue to market to them, to either shop more often or to reactivate them at some period of time. Remember, people, we call an active buyer somebody who comes at least once a year. So on day 366, they become a lapsed buyer and that’s — people don’t even realize that they’ve lapsed. They say they love Etsy but they forgot about coming to us because on Mother’s Day or for their kid’s birthday party.
And so they’re really ripe for reactivation because we already have the affinity and the love of the brand. So that marketing is very effective. And then the last thing I want to say is that all the parts of the funnel work together. So when we’re spending on performance marketing, it makes the brand marketing work better, work harder and vice versa. And so if, for instance, we stop in one part of the channel, we can see that it has a downstream effect on the other parts of the channel.
And that’s — we do test that from time to time. We’ve started to see some very positive impact from small amounts of performance marketing spend in noncore Western European markets. And so we’ll continue to test this — test our marketing in new channels globally. As you pointed out, we do some test marketing very judiciously. So that’s marketing we know doesn’t have — isn’t ROI positive yet, but we’ll test it to see if we can optimize it and mature that channel and get it to be positive.
And so there are certain parts of the funnel that we just sort of invest in lightly or stay on the sidelines for because we don’t see it as ROI positive. I hope that answered your question.
So Josh, let’s shift to TAM for a bit. So my thesis is that Etsy dramatically expanded its category coverage during COVID, moving from historically handmade crafts and unique items, which was kind of the branding of Etsy way back, to everything basically, except maybe electronics and sporting goods. Do you agree with that? And then do you like think that, again, the public — the customer perception like fully understands the broad array of items you can get at Etsy now where that was not maybe the case 5 — 4 or 5 years ago?
I would say Etsy hasn’t changed but customer awareness of Etsy has. So first, we stay true to our roots that the things on Etsy are made by the person you’re buying it from or designed by the person you’re buying it from in close collaboration with a production partner, or they’re vintage. And so that’s very important that we do something different. It turns out that things can be made just for you and still be very affordable because there’s not 3 markups between them and you. And people are suddenly aware that it’s also not sitting on a boat for a week or 2 to cross a big ocean.
So they may be made in small lots just for you, but they’re going directly from the seller’s house to your house and that can make it both affordable and timely. Before the pandemic, Etsy only had like 40 million items. Now we’ve got 115 million. Even with 40 million, if you could imagine it, it was mostly for sale on Etsy. So there weren’t a lot of things that you couldn’t find on Etsy before. Even…
There’s a lot more choice now?
A lot more choice now.
More choice now, but there was unlimited choice before and now there’s 2x the unlimited choice today. Supply wasn’t a constraint before and it’s even less of a constraint now. So like even categories people wouldn’t have normally associated us with like sporting goods or electronics, if you go look for pickleball supplies or fishing supplies on Etsy right now, I promise you’re going to find a lot of great stuff. On electronics, it’s back-to-school time. My daughter is off to college next year.
And so I took her to the Apple Store yesterday and bought her an iPad and an iPad pen so she could do her note-taking. So now she’s got an iPad pen and plugs that she needs to keep track of. So the first thing she does, she goes to Etsy to buy a little pouch to hold that to keep it together with her iPad. So there’s actually a lot of electronics accessories.
Right. Or your phone case, you could get on Etsy. A customized…
Phone cases are on Etsy. Baking…
Exactly. I had no idea there was a thriving baking — like people who like to make — bake bread, like that turned out to be a whole thing on Etsy. I just wasn’t aware of it until the pandemic happened and everyone started baking bread. And we realized that there’s been all along a really thriving bread-baking community on Etsy. So what I would suggest to people who are thinking about buying the stock, go look at the last 10 things you bought online.
I’m willing to bet 7 or 8 of them, you could have bought on Etsy. And with a little bit of time, you’d find that there’s a version of that item on Etsy that you actually like better that’s at a really fair price. We can do an even better job of getting you to that item, but that’s getting better and better. It’s just that you didn’t think of it. It’s just that you didn’t think of it.
So we have always had a tremendous breadth. And that’s why we talk about our TAM as being so great. Home — if we only did home furnishings, no one would worry about the TAM. If we only did apparel, no one would worry about the TAM. If we only did jewelry, no one would worry about the TAM.
Gifts, baby supplies and on and on, back-to-school, it’s just we do almost everything. And so it’s a little hard to get your head around it. But our sellers do a great job coming up with great ideas for virtually everything.
So we’ve got 5 minutes left. I think that probably gives us 2 more questions. I want to ask about — kind of we can put the 2 questions together, kind of like M&A and capital allocation. Reverb obviously was a successful acquisition. Depop is on its way, it looks like, to being successful. Elo7 did not work as planned. I mean, where do you go from here? Like should investors assume you’re going to kind of hoard up capital and continue to look for like the next strategic M&A? Is it you’re better off just buying back stock or just doing other things with your kind of — to make your capital structure more efficient? Just whoever wants to take the question, how should investors think about it?
Maybe I can start and Josh can pile on real quick. So I’ll say the things we’ve been saying about capital allocation, so there’s really 3 ways to spend our capital. We convert about 90% of our EBITDA to free cash flow on a trailing 12-month basis, and that’s a virtue of our very capital-light business model. We’re not buying inventory or running fulfillmentcenters and retail shops and things like that. So we can choose to replenish our cash reserves lower and invest more in our organic operating investments like product development and marketing, that’s one choice.
We can do M&A. So you’ve seen us do M&A, and we can — we bought Depop. We bought Reverb. We bought Elo7. We don’t have regrets about those investments. So obviously, we’ve just sold Elo7, so that one did not work out. We are super excited about Depop. We wish we hadn’t bought it when we bought it because we probably paid a pretty high premium for that business, but we’re super excited about its growth. So M&A is a second area for capital allocation. And the third is return of capital scenarios.
We’ve been buying back shares to offset current and future dilution created by our stock-based comp. The equity that we grant to our employees, we feel, is not free. There is an expense on our GAAP P&L. It doesn’t show up in EBITDA so we use our balance sheet to repurchase stock. We’ve done that over the — since 2017, the program has been ROI positive. And we — you saw that we just had an authorization for another $1 billion from our Board. And we haven’t spent anything against that authorization, but you would expect to see us continue with that philosophy.
So let me end on a quick AI question. We got 3 minutes. So do you think given where — look, all of the machine learning and kind of AI, you historically had done in the past yourself. It was probably reasonably expensive and you had to make pretty limiting decisions, we can do this, we can’t do that. Now you can’t just test everything because AWS and cloud bills are expensive.
Where we’re now going, where there’s more and more off-the-shelf AI tools, just talk about — and I hate to limit you to 2 minutes, Josh, but just talk about how incremental this will be to you to have access to those off-the-shelf tools presumably at a pretty reasonably low cost.
Yes. I mean, I think there’s a ton of productivity that can be driven through this. It can make our sellers more productive because it can make their lives easier. It can make our team more productive because it can help us to write code. It can help our customer support team do right customer support. And it can help our buyers have a better experience by helping them to find things and have a better conversation with that, see about what it is that they need. So I think all of that is great. I agree with the tone of your question. We will tend to rent from others whatever we can and build ourselves only what we must. When it’s unique to us and there’s a real strategic advantage, we’ll invest to build it.
But in general, a lot of our vendors are going to build tools with a lot of this built in, and we’ll be happy to let them do that and share in the benefit.
Great. So I think we’re going to wrap there. Josh, Rachel, thank you very much for the time today. Thanks, everybody, for joining us. Just feel free to reach out if you’ve got any more questions, and we’ll see you guys next year.
Thank you. Thanks, Jason.
Take care. Happy birthday to your wife.