Etsy (ETSY) Q1 2018 Earnings Conference Call Transcript

Etsy (ETSY 0.52%)
Q1 2018 Earnings Conference Call
May. 8, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Gabriel Ratcliff -- Senior Manager of Investor Relations

Thank you. Good afternoon, and welcome to Etsy's first-quarter earnings conference call. Joining me today are Josh Silverman, CEO; Rachel Glaser, CFO; and Deb Wasser, our new VP of investor relations. Before we get started, just a reminder that our remarks today include forward-looking statement relating to our business strategy, financial guidance and key drivers thereof, including the impact of our focus areas in key initiatives, our investment portfolio and product launch road map and expected impact on future GMS and revenue growth and the expected impact of external headwinds.

Our actual results may differ materially. Forward-looking statements involve risks and uncertainties, which are described in our press release today and in our 10-K filed with the SEC on March 1, 2018, and 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'll present both GAAP and non-GAAP financial measures.

A reconciliation of GAAP -- 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 reference, we have posted a presentation to talk to our IR website today, highlighting our first-quarter progress we will be referencing our call today.

With that, I'll turn the call over to Josh. Josh?

Josh Silverman -- Chief Executive Officer

Thank you, Gabe, and good afternoon, everyone. In Q1, we delivered our third sequential quarter of GMS acceleration since embarking on our new strategy. We're pleased with the strong progress we've made in that short amount of time through our focus on our four key initiatives; improving search and discovery, trust and reliability, marketing capabilities and seller tools and services. I'm delighted to take you through the highlights of our progress, as shown on Slide 3, and share with you some of the initiatives and pipeline for future quarters.

Last week was my one-year anniversary with Etsy, and I'm extremely proud of what the team has accomplished. Three quarters ago, on our Q2 2017 earnings call, I stated our aspiration to own special. In a world where e-commerce is increasingly commoditized, Etsy provides a differentiated experience where extraordinary goods, handcrafted by creative entrepreneurs all over the world, are made for you. At Etsy, we believe that life is full of special moments that deserve imagination and a human touch, moments of gifting, celebration, and style.

Those moments happen often, a wedding, a first day of school, an important meeting, a birthday, or a holiday. We've been working with focus and speed to bring that vision to life through improved products and user experiences on etsy.com. Our efforts continue to bear fruit. Featured on Slide 4, Q1 GMS grew 19.8% year over year, a 200-basis-point acceleration compared to Q4, marking our third consecutive quarter of accelerating growth.

It's worth noting that currency was a tailwind for us in the quarter, and GMS growth would have been 17.6% adjusted for FX, a 110-basis-point sequential acceleration in constant-currency terms. Revenue growth also accelerated to nearly 25% year over year, and our adjusted EBITDA margins were approximately 22%. We believe the cumulative effect of our recent product enhancements are improving the buying and selling experience in a noticeable way and creating a virtuous cycle that will help drive future growth. Shown on Slide 5, that virtuous cycle is illustrated by, first, a better marketplace experience resulting in buyers searching for and finding the special items they're seeking and having the confidence and the impetus to buy.

Second, this improved experience leads to a higher conversion rate for new and repeat buyers. Third, as visitors convert and have a successful shopping experience, those transactions lead to a higher lifetime value or LTV. And fourth, a higher LTV enables us to spend more in marketing to drive more buyers to Etsy. While it's still early days and these effects take time to play out, we're encouraged by the signs of progress we are seeing and believe that we have a long runway for growth.

Let me give you some color on what we accomplished in Q1 and what we have planned for the remainder of the year. Rachel will follow with more details on financials and our full-year guidance. In our planning for 2018, we created a balanced portfolio of work that focuses resources and investments on three categories shown on Slide 6; foundational projects, initiatives that are aimed at having a more immediate impact and a smaller group of projects we consider longer-term bets. In Q1, we made progress in each part of the portfolio, with some clear wins that impacted GMS and others that we believe will have a longer-term benefit and help us continue to scale.

These investments taken together are intended to ensure that, one, we get faster and more efficient as we grow; two, we deliver reliable progress toward our financial and customer commitments in the near term; and three, we continue to focus on longer-term initiatives to position us for growth into the future. Shown on Slide 7, our foundational work addresses four primary areas; technical debt, operational efficiency, infrastructure imperatives and privacy. First, we think that addressing technical debt will make future development faster and more efficient. We were pleased to accomplish a few significant projects in the quarter that eliminated thousands of lines of dead code and improved page-load times.

Second, we made progress improving operational efficiency, and we launched an improved help center that benefits both buyers and sellers. We're using Zendesk, a customer service software company which allows us to deprecate [ph] a homegrown platform that consumed resources and attention from the engineering team. We are able to deliver a better customer experience, lower costs as more customers are able to access self-service and better agent productivity through improved tooling and processes. The new help center is available on all Etsy-supported languages and capitalizes on our existing member operations team and resources.

We also partnered with Square to implement in-person payments, enabling Etsy sellers to sell their products at live venues and allowing us to retire another homegrown product that consumed time and attention from our engineering team. Third, we believe that our infrastructure enhancements are important to facilitating growth. We made progress and are on track with our migration to Google Cloud, which we expect to enhance our overall infrastructure by providing faster processing speed, improve page-load time and more nimble fulfillment to capacity on an as-needed basis. And fourth, in relation to privacy, we've been preparing for the EU General Data Protection Regulation, or GDPR.

It goes into effect on May 25. A cross-functional team has been updating our systems and policies and notifying our community to help ensure compliance. Etsy deeply values data privacy and clear transparent policies, and we see effective implementation as an opportunity to further enhance the trust of our community. We're pleased with our progress in these foundational areas and expect that they will provide important efficiencies for the long term by helping our teams focus and our business to scale so we can maintain and even accelerate the product development velocity that is so important for our growth.

Next, let me turn to the biggest part of our portfolio, the work that's expected to have a more immediate impact on growth. This work is aligned with the four key initiatives we've discussed on our prior calls, which are shown on Slide 8; search and discovery, trust and reliability, world-class marketing capabilities and seller tools and services. We estimate that over $75 million of annualized GMS will resolve from enhancements launched in the first quarter focused on these four initiatives. First, I'll review our progress enhancing search and discovery.

Our machine learning and visual search capabilities have allowed us to collect more structured data attributes and better categorize in rank listings using context-specific ranking, also known as CSR. A great example of this is shown on Slide 9. A prior search on Etsy for wedding dresses would have prioritized a broad range of items related to wedding dresses, even including hangers and lace. The bottom photos show the results of our improved CSR capabilities clearly delivering specific wedding dresses.

These results are encouraging, yet we're still in the early stages of leveraging our capabilities to their full potential. We continue to enhance search by leveraging CSR to deliver even more relevant search results and expanding CSR through more places in the user churn. What's even more exciting is that we added CSR to Promoted Listings in order to surface more relevant ads for our buyers and to better utilize our sellers' budgets. We know that 90% of purchases occur on the first few pages of search results.

So more effectively ranking items based on their potential to convert is a large opportunity for us. While search and discovery is about finding something you want, our second key initiative, trust and reliability, is about helping to convert that find into a purchase. We believe there's a huge opportunity for continued improvement here as well, with examples of some of our recent initiatives highlighted on Slide 10. Our data indicates that there are several reasons why a buyer who finds an item that they like may not be ready to make a purchase.

First is state of mind. Many buyers come to Etsy to browse and seek inspiration. Often, when they find an item they like, they lack a sense of urgency to buy. But when they come back later to make the purchase, they can be disappointed to learn that the item has already been sold, a particular concern on Etsy where so many of our products are one-of-a-kind.

This insight laid the foundation for our work on scarcity and urgency signals, which is having a big impact. Second, shipping price and timing are key factors for many shoppers. We're hard at work improving transparency unexpected delivery dates, adding shipping options and helping sellers better align their shipping prices with market expectations. Third, for buyers who are less familiar with Etsy, we want to give them peace of mind to make a purchase.

With initiatives like our structured return policies, our goal is to align buyer concerns in order to improve conversions. Lastly, we want to remove as much friction from the checkout process as possible, particularly for shoppers on mobile devices. Initiatives like guest checkout and other checkout optimizations are having a positive impact here. In Q1, we saw encouraging signs that our trust and reliability initiatives are improving conversion rate.

There's still a great deal more to do, and our team has a strong backlog of product enhancements on the road map that are focused on these friction points. Regarding our third key initiative, we're continuing to make progress improving our marketing capabilities. Visit growth is an important driver of GMS. We've been seeing over 1 billion visits a quarter in recent quarters.

And in Q1, visits grew approximately 13% compared to the prior year. The biggest source of visit growth was direct traffic. That's people typing www.etsy.com to go directly to our site. Other drivers of visit growth were improvements in SEO, email marketing and social referral traffic.

Paid marketing efforts were also a contributor to visit growth. In Q1, GMS from paid channels, primarily search engine marketing and Google product listing ads, was 16% of overall GMS, compared to 12% in Q1 of last year. The improvements we've seen in conversion rate make our marketing spend more efficient, allowing us to invest more while maintaining a positive ROI. Our ability to curate experiences related to the current season or the current event continues to differentiate Etsy in a world where e-commerce is becoming increasingly commoditized.

In Q1, and shown on Slide 11, we featured a beautifully curated Valentine's Day experience. The landing page was framed around the idea of things made with love, which is not just relevant for Valentine's Day but also hits at the heart of what makes Etsy different. Lastly, regarding our fourth key initiative, we've continued to improve seller tools and services, enabling our sellers to improve their own listings and have an impact on conversion rate and the overall buyer experience. As shown on Slide 12, the No.

1 request from sellers continues to be demand for more tools to help them drive traffic and sales. In response to this, we're excited to have launched Targeted Offers in April. This is a paid marketing tool that enables sellers to send discounts and offers directly to targeted buyers who have previously interacted with their shops by utilizing Etsy emails and push notifications. Early results are encouraging.

Sellers with an active campaign are seeing a high return on spend. In order to reduce the amount of time our sellers spend on administrative tasks, during the quarter, we successfully launched our new order-management system for sellers, which is designed to help sellers fulfill [Inaudible] more accurately and better manage their inventory. And our new self-service channel for Etsy customer is more effective, more discoverable, easier to navigate and provides improved content to address the most frequently asked questions. Finally, in addition to our nearer-term investments, we also reserve a meaningful portion of our investment portfolio for longer-term events.

These projects are more exploratory and imaginative. We're less certain about their outcomes, and their timelines are longer and evolving. For example, one of these is work around discovery. Our machine learning, search and design teams are immersed in inventing what new Etsy experiences could be for less directed visitors seeking inspiration, with the goal of driving increased engagement, time spent and repeat visits.

We plan to continue to invest in areas that are less certain but that we believe have high potential in order to help ensure we have multiple avenues for future growth. Q1 set the foundation for what we expect to be successive quarters of new product launches that fuel strong continued GMS and revenue growth. We have a long list of ideas that we think can have a meaningful impact in the near and medium term, and we feel really good about the initiatives under way and our growth trajectory for 2018. We're also aware of in managing some headwinds in the external environment, which potentially offset some of the growth we expect.

The EU's GDPR, foreign exchange, changes to VAT and state sales tax loss and the potential for geopolitical events that impact trade are all part of our thinking related to our 2018 guidance. Rachel will provide more details on this in a moment as we think these considerations are certainly worth factoring into the calculus by which you view our business. Acknowledging it has been one year since I became Etsy's CEO, I want to conclude by highlighting the tremendous progress we've made in charting a new course for the company. I want to thank everyone who has supported our vibrant community, including our buyers and sellers who make our marketplace special.

GMS, revenue and adjusted EBITDA are all on a healthy growth trajectory. In the past year, we successfully reorganized the team and its objectives to focus on fewer things with higher impact to significantly increase the velocity with which we deliver new products, to organize ourselves to be nimble in decision-making and to be results-oriented, holding ourselves accountable for the decisions we make. Last year had certainly had its challenges, and I want to sincerely thank our employees who've shown tremendous heart and talent in making our collective success a reality. We said in the last two calls that our employee attrition rates were higher than we wanted, and I'm pleased to tell you that they are now in line with market levels.

There's a buzz at Etsy. We have a culture and a tempo of enthusiasm, energy and passion. We're excited about the first phase of this journey and even more excited about what is to come. And with that, I'll turn the call over to Rachel.

Rachel Glaser -- Chief Financial Officer

Thank you, Josh, and hello, everyone. We started the year on a strong note, delivering the highest quarter of GMS growth since Josh and I joined last year. We have been investing for long-term growth, balancing our efforts on enhancing the product and experience to drive acceleration and GMS and revenue while also fortifying our infrastructure to optimize operations and to remain efficient and nimble. The result is evident in our financial performance, with growth in both top- and bottom-line results.

Please refer to Slide 13, which illustrates these Q1 achievements. My remarks today will cover three areas. First, I will update you on our key operating metrics for the quarter. Second, I'll review highlights of our financial results.

And finally, I will provide our updated 2018 guidance. 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. Starting with key operating metrics. Etsy generated $861 million in GMS in Q1, up nearly 20%.

As Josh mentioned earlier, on a currency-neutral basis, GMS growth would have been approximately 18%. As international becomes a larger part of our business, we believe that currency fluctuations may have a greater impact, so we think it is helpful to share our results in both U.S. dollars and in constant currency beginning this quarter. At the end of the first quarter, Etsy had nearly 35 million active buyers, up 17%, and nearly 2 million active sellers, up 9%.

GMS from repeat buyers is gradually improving and represented approximately 18% of overall GMS and was up 20% compared to last year. GMS from paid channels, which was roughly 16% of overall GMS, was up 51% and continued to grow much faster than overall GMS. In Q1, the majority of our marketing spend was related to paid marketing, primarily SEM and Google product listing ads. In addition to our direct dollars at work, we also helped our sellers purchase promoted listings ads using our Google Shopping product, which we estimate drove nearly $23 million of GMS.

Mobile GMS was 54% of our overall GMS, up 300 basis points year over year, growing from approximately 30% in 2013. Mobile GMS grew 31% year over year, largely as a result of increased mobile traffic in line with our industry and, to a lesser extent, continued improvements to our mobile shopping experience. Our product work to optimize the mobile web interface and improved checkout has led to continued improvement in mobile web conversion rates. Turning to international.

Percent international GMS was 35%, up 300 basis points compared to last year. International GMS growth accelerated to 30%, largely driven by currency exchange rates as well as growth in markets where Etsy Payments is not offered, global product work and seller outreach. On a currency-neutral basis, international GMS would have been 24%. Similar to our global GMS results, Etsy's international revenue grew faster than international GMS, increasing 42% year over year in the first quarter.

However, we noticed a slight headwind in international revenue from GMS growth in countries where Etsy Payments isn't available. This means our revenue per dollar of GMS is lower in those countries. As a reminder, Etsy Payments is available in 36 countries and 12 currencies. With these operational metrics in mind, let me now turn to some financial performance highlights.

As you can see on Slide 14, in connection with the adoption of a new revenue recognition standard, we reclassified our revenue category to distinguish marketplace-based fees, essentially fees that are required to do business on the Etsy platform, and services fees, essentially those that are optional value-added services for sellers. In our new categorization, marketplace revenue includes listing fees, our 3.5% transaction fee and our Etsy Payment fees for those sellers in countries in which we offer. All revenue comparisons that I'll be discussing reflect our new revenue presentation. As a reminder, during the second quarter of 2018, we will anniversary the mandated use of Etsy Payments for sellers in eligible countries, which has been a significant driver of revenue growth.

Once we wrap the mandate, we expect year-over-year Etsy Payments revenue growth rate to trend more in line with GMS growth in future quarters. As shown on Slide 15, total revenue was $121 million, up 25%, driven by growth in marketplace and services revenue. Marketplace revenue grew 25%, primarily due to growth in Etsy Payments and, to a lesser extent, growth in transaction fee revenue and listing fee revenue. Services revenue was up 35% and represented 27% of total revenue.

Services revenue growth was driven primarily by growth in Promoted Listings. One of the drivers of growth for Promoted Listings was enhancing fee rate to CSR on Promoted Listings, which increased the relevance of promoted search results. Promoted Listings revenue growth was our fastest-growing Seller Service and accelerated for the fourth consecutive quarter, which improved quickly. Our full P&L is presented in the slide -- in our -- in the table in our press release and can be found in our first-quarter 10-Q, which we plan to file shortly.

There are a few noteworthy items in our opex that I will highlight in my discussion here. First, marketing expenses in the quarter totaled $26 million, up 12%, representing 22% of total revenue, compared to 24% last year. The majority of our marketing spend remains focused on digital acquisition marketing, primarily Google product listing ads and search engine marketing, which generate a positive ROI based on our acquisition model. Earlier, Josh described the virtuous cycle of product enhancements that can enable more marketing spend as LTV improves.

This means we expect to invest in marketing spend when we see positive return. In other words, when the marginal return on investment for each incremental dollar spent exceeds our cost of capital. Second, G&A expense totaled $19 million in Q1, down about 17% and represents 16% of total revenue, compared to 23% last year. The changes to our organizational structure in 2017 have had a positive impact on G&A expenses.

We expect G&A to grow slower than revenue for the foreseeable future. The operational efficiency initiatives Josh described also enable and contribute to this dynamic and are expected to benefit our back-of-house costs as a percent of revenue over time. The details of our balance sheet and cash flow are also in our press release, so let me highlight a few points. We recorded net cash provided by operating activities of $26 million in the first quarter, compared to $3 million in the first quarter of 2017.

The 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. In addition, shown on Slide 16, we raised $345 million by issuing 0% interest five-year convertible senior notes, with a 37.5% premium on the conversion option. Our capital raise demonstrates a thoughtful strategy to leverage the strength of our balance sheet and strengthen Etsy's ability to make growth investments. We will continue to weigh opportunities to invest organically to improve our market spend, opportunistically pursue strategic partnerships and evaluate return of capital scenarios such as share repurchase.

In Q1, we repurchased $69 million of common, stock or approximately 2.8 million shares. At the end of Q1, we had $21 million remaining from our $100 million share-repurchase authorization approved by our board in Q4 of 2017. As of March 31, 2018, we had cash, marketable securities, and short-term investments totaling approximately $601 million. Turning to our guidance.

I'm pleased to report that we are raising our full-year 2018 guidance for GMS, revenue and adjusted EBITDA margin. We expect GMS growth to be 16% to 18% year over year, revenue growth to be 22% to 24% year over year, and adjusted EBITDA margin to be 21% to 23%. You can see how this revised guidance compares to our prior guidance provided in February on Slide 17. There are a few key metrics that we expect to positively impact revenue and GMS growth in 2018.

These include continued growth in visits, improvements to conversion rates, continued international GMS growth and growth in services revenue fueled by Promoted Listings. Potentially offsetting some of this growth, we believe there could be some downward pressure on GMS and revenue growth from macro events. Let me touch on a few. While currency fluctuations have been a slight tailwind for us, we want to acknowledge that if exchange rates stay stable, it will be less of a tailwind in the back half of the year.

The EU's General Data Protection Regulations, which take considerable time and effort, could impact progress on our growth initiative. GDPR could also limit our ability to customize and personalize our experience and negatively impact GMS. In addition, there are other regulatory changes in motion such as new VAT and U.S. state tax requirements that could decrease conversion rates in the states and geographies in which they are implemented.

And lastly, midterm elections in the U.S., evolving global trade agreements, and possible tariff and other geopolitical events can create a certain level of distraction for both buyers and sellers, which could impact our market opportunity and GMS growth. We anticipate that the key factors impacting adjusted EBITDA margin in 2018 are lower operating expense as a percent of revenue from changes we made to our operating structure in 2017. We expect to gain the most leverage in G&A, followed by product development. These expense savings are partially offset by higher expenses related to our planned migration to Google Cloud.

We expect the migration will take approximately two years, and we estimate $10 million to $15 million of incremental expense in 2018. As we make progress on this migration, we will ramp down the number of resources required to support our former data center infrastructure while increasing the amount we paid Google for services. We expect to reduce capital expenditures related to maintaining our existing data center infrastructure by $4 million to $5 million in 2018 versus 2017. We believe that the investment in our migrations to the cloud creates cost efficiencies that will be realized as we grow.

Before I close, I want to welcome our new head of investor relations, Deb Wasser. Deb brings nearly 30 years of investor relations experience, having served as the head of IR for a public technology company and, more recently, leading Edelman's IR practice, where she advised many leading global companies on their investor relations strategies. Together with Gabe Ratcliff, our senior manager of IR, we have an amazing in-house IR team to help shape and deliver communications to our shareholder base and sell-side analyst. In closing, as we execute our strategy, invest in our sellers' success and make investments to drive growth, we believe we can capture more of our addressable market opportunities and captivate more buyers by owning special.

We are excited about the year ahead, and we look forward to speaking to you in the coming days and weeks. I will now turn the call back over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Matt Yamamoto from D.A. Davidson. Your line is now open.

Matt Yamamoto -- D.A. Davidson -- Analyst

Hi, guys. Thanks for taking my question. In regards to the EBITDA margin, you suggested in the past that eBay was a good proxy for your long-term margin potential, except for the fact that you got a higher portion of revenue from Payments. That said, could you achieve a long-term adjusted EBITDA margin north of 30%?

Rachel Glaser -- Chief Financial Officer

Hi, Matt. This is Rachel. So I think what we've said is that our EBITDA margin, there's no reason to think that our margin at scale wouldn't be the same as the marketplace companies or an entire group of peers, and that eBay might be the one exception because of the way that they have their payment platform on another P&L. So -- and I -- we haven't given any firm guidance on what number might win, but what we said, high 20s and realistic compared to what our peers are reporting.

Matt Yamamoto -- D.A. Davidson -- Analyst

Thanks for the color. And just as a follow-up on the sales front. If you are successful with your four initiatives to drive GMS growth, could you generate a high-teens sales CAGR over the next 3.5 years?

Josh Silverman -- Chief Executive Officer

Well, we are facing a really big total addressable market. We've talked about if you just take our top six categories and you take just our top six markets and you look at only the online portion of those, you get to $155 billion, which would suggest that we're at 2%, heading to 3% penetration with a highly differentiated product. So we think that our market opportunity is substantial. We think with this being our third quarter of sequential acceleration, we're demonstrating that we're making progress toward that.

So we feel great about that. We feel really excited about that. We haven't given any specific long-term guidance, but we feel like the opportunity is big, and we're pleased with the progress we're making on unlocking the potential.

Matt Yamamoto -- D.A. Davidson -- Analyst

Thanks for the color. I'll step back.

Josh Silverman -- Chief Executive Officer

Thank you

Operator

Thank you. And our next question comes from Heath Terry of Goldman Sachs. Your line is now open.

Heath Terry -- Goldman Sachs -- Analyst

Great. Thank you very much. I was wondering if you could give us a sense -- obviously, really strong growth in Payments this quarter. Wondering if you can give us a sense of sort of what was underlying that, whether it was adoption by consumers or adoption by sellers in terms of what drove that? And then also, to the extent that we saw the traction that you did in advertising or seller promotion and within that platform, is that -- can you give us, sort of disaggregate that a bit? And how much of that is pricing versus seeing higher levels of volume or seller adoption? Thanks.

Rachel Glaser -- Chief Financial Officer

So, Heath, this is Rachel. I'll take the first part of that. On the Etsy Payments side, so you may recall that in May of 2017, that was the first month that we mandated the use of Etsy Payments for all sellers that were in countries where we offer Etsy Payments. So in Q1, you're still seeing the -- we haven't yet anniversaried that mandate, so about 85% of our GMS is now flowing through Etsy Payments and the growth is coming largely from there.

In fact, what we did say on this call was that we actually saw growth coming from other countries in which Etsy Payments is not offered. So that was a slight dampening effect, because the growth of Etsy Payments, it helped our growth margins a little bit because of the higher margins that Etsy Payments have. But we're still seeing nice growth. And we'll be anniversarying the Etsy Payments mandate in next week, actually.

So going forward, we'll be showing that Etsy Payments will grow more in line with GMS.

Josh Silverman -- Chief Executive Officer

And on the Pro List side, there's a number of levers that affect Pro List. Some of them, the big ones are how many sellers have adopted it and how much budget have they given us to use, on one side. The other side is how many ads do we show, so how much real estate if we dedicated it to the site, and then how good are we at picking the right ad for the right -- for any given visit, which results in higher revenue per page view. And so much of the upside this quarter was driven by improvements in relevance so that we are doing a better job of picking the right ad, which gets higher click-through rates and higher conversion resulting in better sales.

We do hold ourselves to a high standard in Pro List in terms of delivering good return on investment for our sellers. So we make sure that when we're spending their money, we're doing in a way that we feel good at driving incremental sales. We think there's a long runway to do a better job picking the right ad at the right moment, which drives better yield and is a real win-win for everybody. We're starting on that.

We saw great progress on that this quarter, but there's still a long, long way to get better.

Heath Terry -- Goldman Sachs -- Analyst

Great. Thank you, both.

Josh Silverman -- Chief Executive Officer

Thank you.

Operator

[Operator instructions] Our next question comes from the line of Edward Yruma from KeyBanc Capital markets. Your line is now open.

Edward Yruma -- Keybanc Capital Markets -- Analyst

Hey, good afternoon guys. Two quick ones from me. First, on the targeted seller promo that I know you said that there was some good initial response, I guess, could you quantify the opportunity from an economic perspective relative to promoted listings? And then second, we noticed that you're changing the terms by which sellers pay Etsy, I think, beginning early June. I guess, kind of what was the driver behind that? And will you receive any economic benefit from the new process? Thanks.

Josh Silverman -- Chief Executive Officer

Yes, great. I'll take the first, maybe, and, Rachel, you take the second?

Rachel Glaser -- Chief Financial Officer

Sure.

Josh Silverman -- Chief Executive Officer

Terrific. So the No. 1 thing sellers ask us is for more tools so that they can drive their own success, and they're ready, willing, and able to invest behind that. So Promoted Listings is one opportunity to do that where they're getting more promotion on etsy.com.

Google Shopping is another opportunity where they can leverage our capabilities to get themselves exposure in Google. This new capability that we just launched this quarter is really about allowing them to reach out to buyers who've interacted with their products before, maybe they favorited a product or they've put it in the cart, but they didn't buy it. And so this allows the seller to reach out with a targeted offer to that community of buyers. And we think, over time, the potential for that is meaningful.

But really, I would think about all of these together as giving sellers more tools to drive their own growth on Etsy, off Etsy and even in places like Google and elsewhere. By the way, we did launch not this most recent quarter, but the quarter before, the opportunity for sellers to promote their listings in social channels as well, and there's been good uptake of that. So it's one of the most exciting things about Etsy is we've got 1.9 million sellers that are highly motivated to go and evangelize their products in places. And the more we do that, the more we drive their growth and the growth of Etsy.

Rachel Glaser -- Chief Financial Officer

And the second thing that you asked, the project, we call it the single-ledger project. And just to note that we announced it to our sellers a couple of weeks ago, but we have not yet launched. So you may be observing some discussion about that in the seller forum. That project is really -- our sellers spend a lot of time for every hour that they spend working on creating products.

They spend an hour just on the administration. So part of this is designed to help them streamline what they do, the administrative part of their job. And yes, there is also an economic benefit to Etsy. What we've done is we've -- we're creating a single bill, basically, so that when we disburse funds to them, we disburse some net of the fees that they owe us rather than having those two separate transactions.

What that does will also save Etsy some of its payment processing fees that are attached to them charging for the fee that they owe us. So we do net some economic benefits, but it also has a net benefit to our sellers.

Josh Silverman -- Chief Executive Officer

So the one thing I'd pile in on there is our sellers report that for every hour they spend making a product and taking care of customers, they spend an hour on administration and overhead. So anything we can do to save them time is really important. And this is an important streamlining that will make life easier for sellers.

Edward Yruma -- Keybanc Capital Markets -- Analyst

Thanks so much, guys.

Josh Silverman -- Chief Executive Officer

Thank you.

Operator

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

Brandon Hoffman -- Morgan Stanley -- Analyst

Hey, everyone. This is Brandon Hoffman on for Brian Nowak. So, yes, we had a question on -- where is the current buyer frequency per year at this point and what they assumed in the guide? Then a follow-up to that, essentially, what would be the driver then to improve that frequency? Thank you.

Rachel Glaser -- Chief Financial Officer

So -- thanks for the question. So we have -- the metric we've given on buyer frequency actually comes from annual cohort data. And so I think the most quoted metric we've given there is that 60% of our buyers come only one time a year. So -- but what we have observed, we have some early encouraging signs from the last 90 days because both new buyers and repeat buyers grew approximately 20% in the quarter.

And so we're seeing that as -- and we've only really been at our new strategy since mid to late May. So we're starting to see the cumulative positive effect that those strategies are having on repeat visits and repeat purchases. So it's a little early still to tell what -- we're not going to claim victory on a sequencing number at this point, but we're seeing some encouraging signs that people see is beginning to pick up. The good part about that, and Josh spent some time talking about this in his prepared remarks, is that we actually look at our LTV continuously literally every day.

And the higher the LTV, the more we can spend on buying traffic that we think has a positive ROI. So we -- when we get higher frequency, that's one of the ways that we're actually growing lifetime values, so we're encouraged by that.

Josh Silverman -- Chief Executive Officer

And I think we all feel like it's a huge opportunity for Etsy. The data that we've shown in the past suggest that people shop on average -- they visit more than once here, but they shop on average -- many people buy here once a year. And when you look at the broad range of things and occasions where Etsy is relevant, we are relevant far more often than that. We've also talked about how our Net Promoter Score among people who've shopped in the past is very, very high.

So they like us. We just need to make sure that they know when to think of us. And you're seeing us try lots of things like in Valentine's Day promotion that we did, the world of imagination sale was not tied to the season. It's just trying to trigger them to think of us in different times of the year.

Most importantly, though, if a visit results in a purchase, it means it's a pretty satisfying visit in general. So as we drive conversion rate up, visits are being satisfying, and that means they're more likely to come back more often. So I'd say we're encouraged. I'd also reinforce it's early days.

It was tens of millions of people who've shopped on Etsy before. Most of them haven't been back in the past three to six months. And so it takes time for them to come back and feel and explore the experience and then have that translate into behavior. But it's also big numbers, so small basis point improvements can have a meaningful impact.

Operator

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

Ronald Bookbinder -- IFS Securities -- Analyst

Good afternoon, and congratulations on a nice start to the year. You guys did a terrific job on your Black Friday special event, which was your first sort of targeted promotional event. Then you did a Valentine's event. You're going to be doing a Mother's Day or you're doing a Mother's Day event.

Given that the guidance simply looks like you're passing through the Q1 beat, why shouldn't we expect continued acceleration in revenue going forward, at least in Q2? And are you just being conservative as you pass through the beat?

Rachel Glaser -- Chief Financial Officer

So -- I'm sorry. I'm not quite sure I'm following the "pass through the beat," but let me just talk about our guidance for a minute. So we're really comfortable with the GMS guidance that we gave, because at the midpoint of that guidance, it would imply 17% year-over-year GMS growth. Last year, we did 14.2%, so we're pleased with that amount of acceleration.

And we outlined on the call a number of headwinds that are actually incorporated into that guidance. So if not for those headwinds, perhaps the number would have been higher. So we're -- that's the first thing. And both revenue and EBITDA are also benefiting from that GMS growth.

So you see the flow-through to EBITDA. We're hitting nice double-digit numbers with a 2 in front of them on our EBITDA margins [Inaudible] we dreamed of getting there over some long period of time. So I think the implied guidance of acceleration on all three numbers maybe -- is there some -- now tell me if I'm misunderstanding part of what your question is.

Ronald Bookbinder -- IFS Securities -- Analyst

No, no. I think you got it. And so why would you think that the high 20s -- or is that just the interim goal for the EBITDA margin? Why will it level out somewhere down the road?

Josh Silverman -- Chief Executive Officer

I think what we've said is that there's -- we're a marketplace model, and marketplace models are wonderful things. If you can get a two-sided marketplace to work, it's lightning in a bottle. It happens very rarely to get supply and demand to meet at scale. And there's a couple of things that are great about marketplace models.

First, they get better as they get bigger. And second, they scale really nicely. The economic architecture is great. So they tend to have very high margins.

And we've said that there's no reason to think of us different than other marketplace models. I don't think we've set sort of medium-term guidance for margins. But we've said if you're thinking about other good marketplaces at scale, we don't see any reason why we should be any different. We've also said repeatedly that our focus is growth, and that when we see good opportunities to invest to drive growth, we're going to take them because that is the most important thing.

And we feel really good about our growth and about our progress. So this is our third consecutive quarter of sequential acceleration. We feel great about that. We've got a long list of ideas that we're working to get to market as quickly as possible that we think can continue to drive growth.

And we feel really good about that. And we think we've got a really big market opportunity ahead of us. And at the same time, we're aware of some things, that state sales tax, GDPR, things like that, that we think are real and will have an impact in the second half of the year. And when you balance those two things, our continued good execution and optimism about our ability to build the business and some known headwinds in the external environment, we still feel good taking guidance up this quarter, and we feel great about that.

Ronald Bookbinder -- IFS Securities -- Analyst

OK. Well, thank you, and congratulations once again on a nice start to the year.

Josh Silverman -- Chief Executive Officer

Thank you very much.

Rachel Glaser -- Chief Financial Officer

Thank you so much.

Josh Silverman -- Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 47 minutes

Call Participants:

Gabriel Ratcliff-- Senior Manager of Investor Relations

Josh Silverman -- Chief Executive Officer

Rachel Glaser -- Chief Financial Officer

Matt Yamamoto -- D.A. Davidson -- Analyst

Heath Terry -- Goldman Sachs -- Analyst

Edward Yruma -- Keybanc Capital Markets -- Analyst

Brandon Hoffman -- Morgan Stanley -- Analyst

Ronald Bookbinder -- IFS Securities -- Analyst

More ETSY analysis

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