Etsy Q3 2026 Growth Accelerates As Search Changes, Advertising Revenue Rises
Etsy's marketplace growth accelerated in Q3 2026, with active buyers increasing year over year for the first time in two years as improvements to search and personalization helped drive stronger sales, while advertising boosted revenue and customers continued to make purchases less frequently.
The company reported gross merchandise sales (GMS) of $2.65 billion for the quarter ending September 30, up 8.8% year over year, while revenue increased 10.9% to $692.5 million. Marketplace revenue, including transaction, payment processing and listing fees, grew 9.1% to $468.1 million, while services revenue, including Etsy Ads and shipping labels, rose 15% to $224.3 million.
Net income from continuing operations increased 8.6% to $113.6 million, while adjusted EBITDA grew 14.6% to $210.4 million, representing a 30.4% adjusted EBITDA margin. The results mark the sixth consecutive quarter of sequential improvement in currency-neutral GMS growth as CEO Kruti Patel Goyal continues efforts to refocus Etsy on its core marketplace following the sale of Reverb and Depop.
Active buyers increased 1% to approximately 88 million on a trailing twelve-month basis, reversing two years of year-over-year declines and adding roughly 540,000 buyers compared to Q2. Etsy says new buyer acquisition, reactivation and retention are all improving, with modest sequential increases in repeat and habitual buyers, while active sellers grew 6.5% to approximately 5.8 million, with seller retention reaching its highest level since 2021.
However, purchase frequency remains below last year's levels, with growth increasingly driven by higher average order values rather than customers shopping more often. GMS per active buyer increased 3.9% year over year, reflecting Etsy's efforts to improve search relevance, surface higher-quality inventory and encourage purchases for occasions where buyers may be willing to spend more.
CFO Lanny Baker acknowledged that inflation, tariff-related increases in listing prices and favorable currency movements contributed to Etsy's growth earlier this year, but said those benefits have diminished as comparisons become more difficult. Improvements to search, personalization and marketing are now accounting for a larger share of growth.
During the earnings call, Baker said the addition of new and reactivated buyers, who typically shop less frequently than established customers, is contributing to the continued weakness in purchase frequency. He also pointed to improving engagement measures, including repeat visits, favoriting items and shopping across additional categories, as early indications that Etsy's efforts to strengthen customer relationships are beginning to work.
Search and recommendation algorithms are increasingly incorporating quality, value and expected post-purchase experience rather than simply prioritizing listings most likely to convert into a sale.
Etsy estimates personalization improvements alone contributed approximately two percentage points to its annualized year-over-year GMS growth rate by Q3, with expanded buyer profiles now powering personalized feeds, recommendations and marketing for four out of five active buyers. Those changes also include adjusting the prominence of physical versus digital products based on what Etsy's systems believe individual shoppers are looking for.
Asked by Evercore ISI analyst Rob Coolbrith how much digital products contribute to marketplace sales and advertising revenue, Baker declined to disclose those figures but acknowledged that previous search optimization sometimes favored lower-priced digital items because they converted well.
"One of the things that we found is that there were times where our search results were optimizing for conversion," Baker said. "And the digital items tend to sell at a lower price than the physical items do."
As Etsy collects more detailed buyer profile data, its systems are becoming better at determining whether someone is looking for a digital download or a physical product, allowing the company to adjust results accordingly. Baker said those changes have shifted the merchandise mix slightly and provided a modest boost to average order value, describing the financial benefit as a secondary outcome of better matching buyer intent.
Advertising helped push Etsy's take rate up 50 basis points year over year to 26.2%, primarily driven by improvements to Etsy Ads and, to a lesser extent, additional revenue from Offsite Ads.
Etsy says changes to advertising matching and ranking models have improved click-through and conversion rates, while better budget pacing has helped sellers direct spending toward opportunities more likely to generate sales. The company also disclosed that the majority of Etsy Ads revenue comes from sellers generating less than $100,000 in annual GMS.
But Etsy currently deploys only a portion of the advertising budgets sellers have already authorized, leaving what management sees as significant opportunity to increase revenue as its ad systems become more efficient. The company says advertising growth has historically come primarily from improving the relevance and performance of existing placements rather than increasing the number of advertisements shown to buyers.
Etsy has also been expanding its advertising tools, introducing Ad Groups in September and surveying sellers about a potential feature that would allow them to authorize higher ad spending on days when their shops meet specified sales targets. Etsy has not clarified whether those targets would be based on advertising-attributed sales or total shop revenue, potentially allowing sales generated through organic traffic or sellers' own marketing efforts to trigger additional ad spending.
Liz Morton
The company's own marketing investments also increased during Q3, with expenses rising nearly 20% to $207 million, compared to $173.4 million a year earlier. Etsy expanded spending on TikTok and YouTube while testing additional opportunities on Reddit and Snapchat, with management saying improvements to paid search targeting and advertising technology are helping generate stronger returns.
Etsy is testing a seller assistant that uses individual shop data to provide personalized insights and recommendations. The company eventually hopes to allow the assistant to take actions on behalf of sellers, while continuing to develop its own AI shopping experiences and relationships with outside platforms. Goyal told analysts those external services are providing encouraging early signals as discovery channels, but said agentic shopping remains in its early stages.
The company is also tightening its rules on AI-generated products, banning AI-created craft patterns and other functional instructions, prohibiting fully automated AI listings and expanding requirements for real product photography in certain categories.
Liz Morton
Asked during the earnings call whether stricter enforcement could hurt marketplace sales by removing noncompliant listings, Goyal said the changes are intended to strengthen buyer trust and reinforce Etsy's differentiation around human creativity, while Baker said the company does not expect a material near-term impact on GMS.
The company's recent Terms of Use and Privacy Policy updates explicitly authorize Etsy and approved third parties to use seller-uploaded content for AI development, while imposing additional restrictions on unauthorized outside use of marketplace data and automated shopping agents.
Improved profitability follows an August restructuring that eliminated approximately 220 jobs, or 12% of the Etsy marketplace workforce, primarily affecting product and engineering operations. While Etsy initially characterized the restructuring as an effort to simplify operations and speed up decision-making rather than a cost-cutting initiative, its Q3 shareholder letter acknowledged that lower employee-related expenses contributed to improved profitability. The company incurred $33.9 million in restructuring charges during the quarter and says it expects to gradually add product and engineering headcount again to support future growth.
Shareholder returns also accelerated, with approximately $394.6 million in stock repurchased during Q3, bringing total buybacks for the first nine months of 2026 to approximately $789 million, with another $2.2 billion in authorized repurchases remaining.
The $1.4 billion sale of Depop to eBay closed July 30, generating an $839.7 million accounting gain that pushed total reported Q3 net income to $853.5 million, compared with $113.6 million from continuing operations.
Etsy also announced that CFO Lanny Baker will step down March 1, 2027, remaining in an advisory role through July while the company searches for his successor. Under a separation agreement disclosed in the company's 8-K, Baker will continue receiving his salary and equity vesting during the advisory period, followed by benefits under Etsy's executive severance plan. During the earnings call, CEO Kruti Patel Goyal also revealed that Vice President of Investor Relations Deb Wasser is retiring after eight and a half years with Etsy and more than four decades in investor relations, with Sarah Marx taking over the role.
Looking ahead, Etsy expects Q4 GMS between $3.46 billion and $3.52 billion, representing year-over-year growth of 5% to 7%, moderating from Q3's 8.8% increase as the company faces tougher prior-year comparisons and modest foreign currency headwinds. Full-year guidance calls for approximately 7% GMS growth, with a take rate of 25.8% and adjusted EBITDA margin around 30%, compared to projected Q4 levels of 25.6% and 30%, respectively.
