Etsy Bets on AI to Attract the Shoppers It’s Been Losing

Artificial intelligence (AI) is changing how people shop. On Etsy, it’s changing how they discover.

Etsy had brand recognition and 86 million active buyers. What it lacked was a system that could surface the right product to the right buyer at the right moment. The company is now building that with AI. And in Q1, the buyer count grew sequentially for the first time in eight quarters.

Etsy’s mobile app drives about 47% of total gross merchandise sales and is where the new model is most thoroughly tested. Search and recommendation engines once tuned to maximize conversion are being rebuilt around individual buyer behavior over time. Mobile app sales grew 11.2% year over year in Q1, up from 6.6% the prior quarter. Desktop and mobile web turned positive too.

AI Enters the Transaction Layer

The core mechanism is a new class of machine learning models that build persistent buyer profiles, mapping past shopping behavior to Etsy’s catalog in real time. Early tests show higher add-to-cart rates and conversion. The models also push discovery beyond a shopper’s stated search intent, pulling up categories they haven’t previously browsed.

“We’re shifting toward a more personalized, relevance-driven approach with ML (machine learning) models that learn from both past behavior and real-time intent,” CEO Kruti Patel Goyal said on the earnings call. “We’re already starting to see positive signals.”

The same buyer-profile logic now drives Etsy’s owned marketing channels. Push notifications and email campaigns grew gross merchandise sales (GMS) in the double digits year over year without a comparable increase in spend. The company also fully in-sourced its paid social operation during the quarter, cutting agency costs and tightening targeting control.

On the seller side, Etsy is using AI to compress listing time. It built AI-powered listing tools last year and is now expanding into more automated workflows, reducing the manual inputs required to describe, tag and price a product. Two conversational agents shipped in Q1, one to help buyers find gifts through natural language, one to surface performance data for sellers. Both were built and deployed in weeks.

Etsy is also building into the agentic commerce channel through integrations with OpenAI, Microsoft and Google. An Etsy App in ChatGPT is in development. The company described early agentic traffic as high-intent but still a fraction of a percent of total visits.

Where Buyer Behavior Is Shifting

Average order value rose year over year. Three factors drove it: foreign exchange tailwinds worth about 190 basis points of GMS growth, higher listing prices following the expiration of the U.S. de minimis exemption and search changes surfacing higher-priced inventory. The FX and tariff-related lift is expected to fade through the year.

Non-U.S. buyer GMS grew in constant currency for the first time since 2023. The U.S. import trade lane, which slowed after the initial tariff shock, returned to positive growth. GMS gains were broad-based across income cohorts, strongest at the top.

Purchase frequency stayed below prior-year levels. That’s the number Etsy hasn’t fixed yet. The company said the personalization work now showing up in engagement metrics is the precursor to a frequency inflection but gave no timing commitment.

What Else Stood Out

Active buyers reached 86.6 million, down 2.1% year over year but up sequentially for the first time in eight quarters. Gross buyer additions came in at 11.9 million, up 4.8% year over year.

Etsy Ads was the lead driver of take rate expansion, as machine learning improvements to ad relevance and seller budget pacing lifted monetization. Offsite Ads and Etsy Payments also contributed to the 180-basis-point year-over-year increase.

The company ran occasion-based marketing activations during the quarter, including a Tanner Fletcher collaboration for New York Bridal Fashion Week and a PinkPantheress partnership for Coachella. Birthdays were the largest and fastest-growing gift segment in Q1.

Etsy launched an Etsy Insider loyalty beta and is expanding loyalty ownership across product, engineering, marketing and operations.

Top-Line Results

Q1 2026 revenue was $631 million, up 7.6% year over year for the Etsy marketplace. Marketplace revenue was $432.8 million, up 6.3%. Services revenue was $198.5 million, up 10.5%. Take rate was 25.7%, up 180 basis points year over year. Net income from continuing operations was $104.7 million, compared to a loss of $35.1 million in the year-ago period. Etsy held $1.6 billion in cash and investments at quarter-end.

For Q2, the company offered GMS of $2.48 billion to $2.53 billion, up 3% to 5% year over year.