The online e-commerce platform is building detailed consumer profiles to deepen its understanding of customers.

Etsy's gross merchandise sales rose 7.5% year-over-year in its most recent fiscal quarter.

Executive Summary

Etsy is using artificial intelligence to build detailed consumer profiles for its approximately 90 million users.

Etsy's business relies on person-to-person emotional connections, selling handmade goods to millions of consumers, but over the past few years, this e-commerce platform gradually lost some of its personalized experience.

The situation is now changing. Powered by artificial intelligence and detailed user profiles built for the vast majority of its roughly 90 million consumers, Etsy can deeply understand customer needs — even distinguishing whether a user is purchasing home decor for their own apartment or buying it as a gift for a friend.

The platform closely tracks users' browsing and purchase history, preferences, and whether purchases are for personal use or gifting, in order to create a more customized shopping experience.

Chief Financial Officer Lanny Baker said: "In the past, we were somewhat clumsy when it came to personalization. But now we are fully committed to doing this more efficiently."

The related initiatives have already shown initial results. Etsy's gross merchandise sales reached $2.58 billion in its most recent quarter, up 7.5% year-over-year. In the first quarter of 2025, the platform's gross merchandise sales declined by nearly 9% year-over-year.

As the number of active buyers recovered, the company last month raised its full-year gross merchandise sales forecast from low single-digit growth to mid single-digit growth.

Baker attributed the performance recovery to a more personalized shopping experience. He explained that in the past, if a consumer purchased a belt buckle, the system would recommend strongly related items such as matching belts and hats; and if a user was shopping for baby shower gifts, subsequent recommendations would assume the user was expecting a baby.

Now with artificial intelligence, Etsy has built more precise user profiles for over 70% of buyers and plans to complete profiles for the remaining users.

Profiles flag whether users are preparing for back-to-school season, moving homes, collecting rare books, or selecting gifts; the more a user shops, the more accurate the profile becomes.

Deeply understanding consumers is only part of Etsy's strategy. The company is also adapting to changes in consumers' shopping channels and habits, partnering with ChatGPT and other AI platforms, covering everything from advertising placement to one-click checkout within chatbots.

At the same time, Etsy is also courting younger consumer groups. Baker said that for many years, due to a lack of presence on social media and streaming platforms, Etsy's original core user base has been aging.

Young buyers may initially spend less, but by reaching these users early, when they reach major life spending milestones — getting their first job, buying a home, starting a family — Etsy will already have a thorough understanding of their spending preferences.

The company also hopes to push more high-quality products to consumers, many of which are priced higher, while avoiding driving users away.

Baker said that over the past year, platform buyers have accepted seller price increases driven by tariffs. This pushed up Etsy's average order value, despite earlier concerns that consumers would cut back spending.

But actual market demand has remained resilient, and consumers are increasingly willing to pay higher prices for high-quality goods.

To focus on its core e-commerce business, Etsy has been streamlining operations. The company sold secondhand fashion platform Depop to eBay in July, and last month announced plans to lay off approximately 12% of its workforce.

Baker said the layoffs were aimed at optimizing customer experience: breaking down barriers between teams, freeing up positions, and bringing in employees who can improve search results, with the platform's product listings exceeding 100 million items.

The CFO said: "The purpose of the layoffs is not simply to boost profit margins." He also added that analysts pointed out that the low base from the same period last year partially amplified recent strong results; several consecutive quarters of improvement do not necessarily represent a long-term trend.

But there are already signs that growth is sustainable. Even as the favorable effects of tariffs gradually fade, Etsy has still achieved growth in both user reach and user retention.

Jewelry, toys, and party supplies — popular categories on the platform — are all discretionary consumer goods, and many consumers are cutting back on such spending.

Shweta Khajuria, Global Head of Internet Research at Wolfe Research, said the unique nature of the platform's products provides a buffer.

She said: "In an environment where consumers are more cautious about spending, Etsy cannot isolate itself from the impact, but the platform has some advantages that hedge against risk."