Etsy bets on AI to attract shoppers it keeps failing

Etsy had brand recognition and 86 million active buyers. What was missing was a system that could get the right product to the right buyer at the right time. The company is currently building it using AI. And in the first quarter, the number of buyers increased sequentially for the first time in eight quarters.

Etsy’s mobile app accounts for approximately 47% of total product sales, and the new model is the most thoroughly tested. Search and recommendation engines tuned to maximize conversions are rebuilt over time based on individual buyer behavior. Mobile app sales increased 11.2% year-over-year in the first quarter, up from 6.6% in the previous quarter. Desktop and mobile web also turned positive.

AI enters the transaction layer

The core mechanism is a new class of machine learning models that build persistent buyer profiles and map past shopping behavior to Etsy’s catalog in real time. Early testing shows high add-to-cart and conversion rates. This model also drives discovery beyond a shopper’s stated search intent and brings out categories they may not have previously viewed.

“We are moving to a more personalized and relevant approach using ML (machine learning) models that learn from both past behavior and real-time intent,” CEO Kurti Patel Goyal said on an earnings call. “We are already starting to see some bright spots.”

The same buyer profile logic now drives Etsy-owned marketing channels. Push notifications and email campaigns drove double-digit year-over-year growth in gross merchandise sales (GMS) without a similar increase in spend. The company also brought its paid social business fully in-house during the quarter, reducing agency costs and increasing targeting control.

On the seller side, Etsy uses AI to speed up listing times. The company built an AI-powered listing tool last year and has now expanded to more automated workflows to reduce the manual input required to describe, tag, and price products. In the first quarter, we shipped two conversational agents, one that helps buyers find gifts through natural language and one that uncovers performance data for sellers. Both were built and deployed in a matter of weeks.

Etsy is also building agent commerce channels through integrations with OpenAI, Microsoft, and Google. ChatGPT’s Etsy app is in development. The company explained that while initial agent traffic was high-intent, it still represented only a few percent of total visits.

Where buyer behavior is changing

Average order value increased year over year. Three factors drove this. Foreign exchange tailwinds amounting to approximately 190 basis points of GMS growth, higher listing prices due to the expiration of the US minimum exemption, and search changes that surfaced higher priced inventory. Currency and tariff-related appreciation is expected to moderate throughout the year.

GMS, a non-U.S. buyer, grew on a constant currency basis for the first time since 2023. The US import trade lane, which slowed after the initial tariff shock, has returned to positive growth. Growth in GMS was broad across income cohorts, with the largest growth at the top.

Purchase frequency was below the previous year’s level. This is a number that Etsy has not yet corrected. The company said the personalization efforts currently showing up in its engagement metrics portend a change in frequency, but did not say when.

Other notable points

• The number of active buyers reached 86.6 million, down 2.1% year-on-year, but increasing quarter-on-quarter for the first time in eight quarters. Total purchaser growth was 11.9 million, an increase of 4.8% year over year.
• Etsy ads were a key driver of viewership growth as machine learning improvements to ad relevancy and seller budget pacing improved monetization. Offsite advertising and Etsy Payments also contributed to the 180 basis point increase year over year.
• The company implemented opportunistic marketing efforts during the quarter, including a collaboration with Tanner Fletcher at New York Bridal Fashion Week and a Pink Pantherless partnership at Coachella. Birthdays were the largest and fastest growing gift segment in Q1.
• Etsy has launched the Etsy Insider Loyalty Beta, expanding ownership of royalties across products, engineering, marketing, and operations.

Top line results

Etsy Marketplace’s revenue for the first quarter of 2026 was $631 million, an increase of 7.6% year over year. Marketplace revenue increased 6.3% to $432.8 million. Services revenue increased 10.5% to $198.5 million. The take rate was 25.7%, an increase of 180 basis points from the same period last year. Net income from continuing operations was $104.7 million, compared with a loss of $35.1 million in the year-ago period. Etsy had $1.6 billion in cash and investments at the end of the quarter.

In the second quarter, the company offered GMS of $2.48 billion to $2.53 billion, an increase of 3% to 5% year over year.