r strategy is built around four priorities,” said Etsy CEO Kruti Patel Goyal. “Showing up where shoppers discover, matching them with the right inventory, retaining and rewarding our most valuable customers, both buyers and sellers and amplifying human connection, one of our core differentiators. These aren’t independent initiatives. They operate as a system. We believe that investing in this system is how we’ll rebuild frequency over time.” The latest results have far outshone expectations. Its Q1 revenue was $631.3 million, sharply beating Wall Street expectations of $621 million, as gross merchandise sales on its marketplace climbed 5.5 per cent year over year to $2.5 billion. Additionally, the company confirmed that its earnings before interest, taxes, depreciation and amortization (EBITDA) increased by 29.3 per cent since the last quarter to reach $185 million and that, for the first time in two years, the number of active buyers was consistently growing. Shortly after the company’s results were released, Etsy’s stock jumped 29 per cent, outpacing gains by other players like Amazon (27 per cent), Ebay (14 per cent) and Shopify (2 per cent). How Etsy’s investments in the realm of AI are paying off Since taking over the role from former CEO Josh Silverman on January 1, Goyal has been on a mission to shift how Etsy presents products to customers, making the experience more personalized and relevant to their searches through investments in AI and machine learning. In an earnings call, Goyal explained that historically, Etsy’s systems prioritized what was most likely to convert in the moment, often favoring popular items over those that were truly tailored to a specific buyer. However, over the past few months, the company has shifted toward a more personalized, relevance-driven approach, powered by machine learning and AI. The system is designed to better understand what a buyer is looking for right now, their taste over time and the vast inventory offered by sellers on Etsy. For instance, in Q1, Etsy began introducing AI-generated buyer profiles that helped it go beyond a shopper’s past activity, with the goal of expanding the categories customers explored and inspiring new purchases. Etsy has also been using AI to improve its relationship with its sellers, including through tools that generate product titles and descriptions, as well as a writing assistant to help draft messages to buyers. “These are early examples of how ML and AI can make the marketplace meaningfully better for our customers,” said Goyal. “Just as importantly, they’re allowing us to move faster, building and iterating in weeks, not months, which helps us learn more quickly and drive growth. “Stepping back, we’ve now delivered two consecutive quarters of year-over-year Etsy marketplace growth, and our outlook points to growth again this quarter. Our progress won’t always be linear.” While Goyal remains optimistic about the company’s ability to integrate AI and ML to optimize operations, she acknowledged that growth will not be linear for the brand and that there is much more work to be done. “What gives me confidence is not just what we’re seeing in our metrics, but what’s driving them. We have a clearer understanding of how Etsy works at its best. We’re rebuilding the marketplace based on that understanding, and we’re executing with greater focus and discipline than we have in the past.” Retail strategist Christine Russo, principal of RCCA, told Inside Retail that Goyal’s AI-centered mission is ongoing confirmation that retailers need to stop dragging their feet on this technology. “Etsy attributes its strong quarterly results to none other than the funnel by stating: they had systematic focus on discovery and matching,” she said. “At a time when most are questioning if the funnel even exists anymore, Etsy just provided a resounding, ‘Yes! It does!’ This also serves as a signal to the broader retail ecosystem that investment in machine learning shows results.” On May 5, Etsy announced another major AI move, the launch of its native app within OpenAI’s ChatGPT. The app is intended to help shoppers move beyond the limits of traditional keyword searches and express what type of items they’re looking for in more natural language. For instance, instead of typing in a search query like “cute photo album”, shoppers can type something more specific, such as, “Help me find a Mother’s Day gift under $100 for my mom who loves cooking.” Now live in beta, the feature allows users to tag Etsy directly within a prompt. From there, the Etsy app in ChatGPT will surface relevant product listings that users can browse, compare and click through to Etsy for additional details or purchase. Can Etsy keep up this momentum? Neil Saunders, managing director at GlobalData, noted that while Etsy benefited from some temporary factors such as an increase in seller prices due to tariffs and favorable exchange rates, there has been, nonetheless, a meaningful uplift in underlying sales growth thanks to the initiatives Goyal set in place. “A lot of this is down to Etsy improving the experience, especially on mobile devices and making it easier for customers to search and buy.” In fact, the brand’s Q1 report showed that sales via the Etsy app grew by 11.2 per cent over the last quarter and now represent approximately 47 per cent of gross merchandise sales. “Going forward, now that Etsy has sold off some of the distractions like Depop [to Ebay for $1.2 billion], it needs to keep the focus on the user experience, including making better use of AI to help product discovery,” said Saunders. Melissa Minkow, global director of retail strategy at CI&T, added that a combination of smart AI investments as well as shedding unnecessary baggage has led to Etsy’s improved numbers this quarter. “Etsy has refocused on its core value proposition, selling off Depop and updating its search experience. The brand has invested deeply in leveraging AI to improve the buyer journey, while also making it more visually inspiring, which is what the target customer wants in this space. A key part of the platform’s value comes from its ability to foster collaborative partnerships between creators and buyers.” Moving forward, Minkow stated she would like to see the marketplace further invest in tools to power even more custom projects. “Consumers are so detailed in what they want, and as Etsy continues to develop its marketplace model, it could build never-before-seen technologies that support the buyer-seller relationships in new ways.” Further reading: Etsy vows ‘sustained growth’ after revenue lift