Etsy Uses AI to Fix Its Discovery Problem

Etsy CEO Kruti Patel Goyal said during a second-quarter earnings call Thursday (Aug. 6) that the company is applying artificial intelligence in three distinct ways: making Etsy more personal, making Etsy more discoverable, and learning how the next generation of shopping will work through native conversational tools.

Traffic from AI agent platforms remained under 1% of Etsy’s total, although it converts at a higher rate and larger average order size. Machine learning also helped expand Etsy’s ad take rate this quarter by improving relevance and seller budget pacing.

Most companies talking about AI and commerce right now are chasing agentic shopping traffic, the orders that arrive when an outside AI assistant sends a buyer to a marketplace. Etsy’s leadership spent part of the call explaining why that traffic barely matters yet.

Where Etsy Is Employing AI

Patel Goyal broke Etsy’s AI strategy into three buckets. Agentic traffic was the smallest of the three by volume. She said the bigger opportunity sits inside Etsy’s own platform, where AI already shapes what buyers see every time they open the app.

Etsy’s clearest AI wins are happening in search and personalization, not in outside agent traffic. The company has built richer buyer profiles covering more than 65 million shoppers, feeding real-time personalization into search results, home feed content and marketing outreach, Patel Goyal said. The system creates a compounding effect, as the more a buyer engages, the more relevant each subsequent visit becomes.

That personalization layer is showing up directly in revenue. Etsy’s overall take rate reached 25.9%, up 130 basis points year over year. Roughly 80 of those basis points came from the divestiture of Reverb rather than organic gains, Chief Financial Officer Lanny Baker said on the call. The rest came from Etsy ads, where machine learning is improving relevance and seller budget pacing.

Etsy’s third AI bucket, native conversational tools, is still in early testing. Its gifting assistant lets buyers describe an occasion or a person in natural language rather than typed search terms, an approach Patel Goyal described as a way to capture shopping intent earlier and more precisely than traditional search allows.

Buyer Growth Turns Positive for the First Time Since 2023

The quarter gave Etsy something it hadn’t had in years: proof that the AI strategy is producing results. Etsy’s active buyer count grew by 350,000 sequentially to approximately 87 million, roughly stable year over year after a long stretch of decline. More significantly, gross buyer additions accelerated. Both habitual and repeat buyer cohorts, the platform’s most valuable customers, grew sequentially for the first time since 2023, Patel Goyal said.

Mobile app engagement is driving much of that shift. App GMS growth accelerated to 12.5% year over year, with the app now representing 47% of Etsy’s total GMS, Baker said. Visits per monthly active user and orders per visit both increased year over year, a pattern Baker attributed to fresher, more diverse content replacing recently viewed listings in the app’s feed.

Young buyers are entering the funnel through different channels than before. Etsy shifted marketing investment toward YouTube and TikTok, including a partnership with pop singer Olivia Rodrigo that combined an in-person activation with an exclusive merchandise collaboration, Patel Goyal said. The shift drove a fivefold increase in visits from millennial and Generation Z audiences on those platforms during the first half of 2026.

What Else Stood Out

The company closed the sale of Depop, its secondhand fashion marketplace, to eBay on July 30, generating $1.4 billion in cash proceeds, and used part of that capital to accelerate share buybacks during the quarter.

Etsy has no current plans to launch live shopping, Patel Goyal said, although there has been “real innovation” in the space from competitors, according to Baker. The company is watching the channel rather than building it.

Trailing 12-month gross merchandise sales per active buyer rose 2.8% year over year. Average order value was driven up partly by sellers raising listing prices and partly by Etsy’s search improvements surfacing higher-quality inventory.

Seller retention improved alongside seller growth, with the company describing a healthier seller base overall compared to the prior year.

Topline Results and Third-Quarter Outlook

Etsy reported second-quarter Etsy marketplace GMS of $2.6 billion, up 7.5% year over year. Revenue reached $668 million, up 9.3% for the Etsy marketplace on a standalone basis, with a take rate of 25.9%.

For the third quarter, Etsy guided Etsy marketplace GMS to a range of $2.53 billion to $2.58 billion, representing 4% to 6% year-over-year growth, with a take rate of approximately 26%. The company raised its full-year 2026 outlook to mid-single-digit GMS growth, up from a prior low-single-digit forecast.