Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Etsy fourth quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Deb Wasser, Vice President of Investor Relations. You may begin your conference.
Thank you. Good afternoon, welcome to Etsy's fourth quarter and full year 2019 earnings conference call. Joining me today are Josh Silverman, CEO, Rachel Glaser, CFO, and Gabriel Ratcliff, our Senior Manager of Investor Relations. Before we get started, just a reminder that our remarks today include forward-looking statements relating to our financial guidance and key drivers thereof, anticipated product launches, our ability to bring buyers back to the Etsy marketplace, anticipated continued benefits of our migration to the cloud, anticipated benefit of our marketing strategy, anticipated investments in timing and benefits of our seller initiatives, and the strategic benefit and impact on our financial performance of our acquisition of Reverb. Our actual results may differ materially.
Forward-looking statements involve risks and uncertainties which are described in our press release, our 10-Q filed with the SEC on October 31st, 2019, and our 2019 10-K that we expect to file with the SEC in the coming days. Any forward-looking statements that we make on this call are based on our beliefs and assumptions to date, and we don't have any obligation to update them. Also during the call, we'll present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which you can find on our investor relations website. A link to the replay of this call will also be available there, and if you prefer to access the replay via phone, you can find that information in the press release as well. We've created a slide presentation to accompany today's remarks and recommend you follow along.
With that, I'll turn the call over to Josh.
Thanks, Deb. Good afternoon, everyone. We believe Etsy is uniquely positioned to address a huge market opportunity. Last March, we described that opportunity and laid out our long-term strategy to capitalize on it, underpinned by a marketing, product, and technology roadmap which deepen our powerful rights to win, giving us the confidence to sign up to ambitious growth targets through 2023. We're off to a really strong start with our 2019 performance. At our Investor Day last March, we targeted a five-year GMS growth CAGR of 16%-20%, faster than e-commerce averages. In the first year, our core Etsy marketplace delivered GMS growth of 20.4%, above the high end of the targeted range. We also said we expect revenue to grow slightly faster than GMS over that five-year period, and in 2019, the core Etsy marketplace delivered revenue growth of 32%, significantly higher than GMS.
Last August, we also completed the acquisition of Reverb, another very special marketplace, driving even more growth. Our full-year GMS grew nearly 27%, and revenue grew almost 36% on a consolidated basis, and we had a very strong finish to the year. Etsy reported fourth quarter consolidated GMS up 33% to $1.7 billion, revenue up 35% to $270 million, and consolidated adjusted EBITDA margins of approximately 23%. The core Etsy marketplace delivered strong growth, with fourth quarter GMS up 20% year-over-year, revenue up 28%, and our take rate reached 17.2%, all up from the high bar set the prior year. We're proud to be one of the handful of companies simultaneously delivering very strong top-line growth and EBITDA margins north of 20%. You've probably heard of the Rule of 40. It's an elite club. Heck, in 2019, we were Rule of 50.
2019 was a big year, and we've made meaningful strides in keeping commerce human. When I reflect on our efforts, I'm really proud that our team tackles complex challenges head-on with boldness and urgency. I'm also inspired by the team's dedication to bringing world-class experiences for our customers. We do the hard things that set us up for success now and for years to come. We're hyper-focused on doing the fewest things that can make the greatest impact. For example, we enhanced the buying experience to capitalize on our unique and defensible right to win by making search more personalized, elevating human connections, improving trust, and giving sellers a path for growth. Etsy's mission is incredibly relevant and powerful. We stand for something different.
We are just getting started leveraging our strengths in the $100 billion-plus available market we've identified for Etsy's special merchandise, pulling our growth levers of more active buyers, improved frequency, and higher AOV. We've done all of this while continuing to make strong progress on our economic, social, and ecological impact goals, which are deeply integrated into all aspects of our business. We apply the same focus and discipline to our impact metrics as we do to our financial metrics, and together they make us stronger and more resilient, which is why we now publish an integrated annual report, including both our financial and impact metrics.
In that report, you'll see that in 2019, the Etsy marketplace drove over $6 billion in U.S. seller economic output and created 1.7 million jobs in the independent worker economy, enough to employ the entire city of Phoenix, Arizona, the fifth largest city in the U.S. We continued to attract and retain world-class talent, strengthened through diversity, leading the industry in gender balance, and exceeding our goal to double hiring for underrepresented minorities. In 2019, we became the first global e-commerce company to offset 100% of our emissions from shipping with the introduction of Carbon Neutral Shipping in the Etsy marketplace. We believe being a great corporate citizen is an integral part of being a great business, and our results over the past year demonstrate that Etsy is leading from the front.
Digging a little deeper into the drivers of our strong fourth quarter performance, etsy.com and our sellers had a great holiday season. All of the work we've done to make Etsy a great destination for holiday shopping paid off. Etsy was ready for the holidays with an improved search experience, targeted multi-channel marketing campaigns, and product improvements, including on-site landing experiences, free shipping, and more. Etsy sellers were ready with seasonal merchandise across home decor and gifting, and personalized items from toys to jewelry to leather goods topping our bestseller lists. As a result, Cyber Monday and Tuesday were etsy.com's first and second highest GMS driving days ever. In fact, we delivered approximately $20,000 in GMS per minute during each of these two days. GMS for the five days from Thanksgiving through Cyber Monday was up 30% compared to last year.
Marketing played a big role in our holiday success, enabling Etsy to reach more buyers and improve buyer frequency. Our TV holiday campaign drove strong results attributable to increased efficiency, stronger performing creative, and expanded reach. In fact, when measured by GMS per dollar of spend, Etsy's Q4 holiday campaign included our best performing TV ads to date. It's also worth noting that Etsy's migration to the cloud enabled us to spin up servers and add capacity just hours before we needed it, compared with just two years ago, when heavy investments in hardware were required in advance to get us through the holiday season. This cloud capacity is really important from a performance and site availability perspective. Fair to say, it's really an unsung hero of our excellent holiday performance.
In 2019, Etsy made valuable long-term investments aligned with our right to win, leading to material improvements in the customer experience. Just a few examples. We made search and discovery better with our transition to nonlinear search models. We made e-commerce feel more human with investments in our core app experience and the introduction of new messaging functionality. We leveraged buyer reviews to build trust in the Etsy marketplace. We've become even more agile and efficient as a result of investments we've been making in our platform and infrastructure. As a result, product development velocity more than doubled year-over-year. We tackled some complex challenges for customers and are showing continued progress on many other fronts, such as free shipping and Etsy Ads. I'll talk more about each of these in a moment.
As I mentioned, etsy.com's transition to the cloud has played a key role in our product development efforts, and last week, we reported that the migration is now complete. During the migration, we moved 5.5 PB of data to GCP, the equivalent of moving 22 times the data of the Library of Congress. We've increased our experiment velocity by fivefold over the past three years while roughly doubling the size of the engineering team. While we are demonstrably more productive, we feel that there are meaningful opportunities to further improve performance and leverage machine learning to advance the customer experience, most importantly in search and discovery. Having successfully completed the cloud migration also means we can repurpose the people and time spent on migration for tech investments to keep experimentation high.
I'd like to congratulate our engineering team for pulling off this large and extremely complex task so smoothly and on time, and without any significant unplanned downtime. 2019 was also a big year for Etsy in marketing. We hired a CMO and expanded investments across the full marketing funnel. We've built a strong team, equipped them with better resources, and our investments are bearing fruit. In addition to the great progress we've made in TV and digital video, we've also begun to unlock and scale paid social and search engine marketing. We're hard at work improving our own channels, optimizing email and push notifications through the buyer journey while building out an integrated buyer CRM strategy across channels and life cycles. We're confident that our marketing investments are fueling profitable growth with continued runway to scale and gain efficiency.
Turning to an update on free shipping and Etsy Ads, we believe that by changing customer perceptions of shipping costs in the Etsy marketplace, we will increase conversion, increase frequency, and drive growth on the marketplace, and we're making great progress. At the end of the fourth quarter, 74% of U.S. listing views were for items with free shipping. About 65% of U.S. buyer GMS shipped for free, and nearly half of all orders received by U.S. buyers were delivered with free shipping. At the time we launched our Free Shipping Initiative last July, only about 24% of items were available to ship for free to the U.S. Now that free shipping has become commonplace on the Etsy marketplace, we can really focus on evolving customer perceptions. There, it's still early days.
In fact, in a survey conducted in January, only 12% of Etsy buyers were aware that we offer free shipping. We also have much more opportunity to help Etsy sellers do a better job incorporating free shipping into their pricing strategy. Let's turn to Etsy Ads. More than many other features, our sellers ask for the ability to invest to drive their growth. Last August, we launched Etsy Ads, a product that combined our on-site Promoted Listings and off-site Google Shopping services. Over the past six months, Etsy Ads has delivered positive returns for sellers and solid revenue growth for Etsy. As a result, we saw increased budgets and minimal seller churn throughout Q4, and we listened and learned a lot. While sellers viewed the advertising interface as visually appealing and simple to use, many sellers perceive off-site advertising as risky.
They're uncomfortable spending money up front to buy traffic from Offsite Ads when they're less confident of a buyer's purchase intent. We could see that it was going to take longer than anticipated to scale the program. In order to address this concern, we rapidly iterated to develop an innovative solution, which we believe will deliver strong value to sellers while mitigating their risk. As announced to our seller community earlier today, we're introducing two updates to our advertising products. First, we're introducing an expanded advertising service Off Etsy called Offsite Ads. Etsy will pay the upfront costs to promote sellers' listings on sites including Google, Facebook, Instagram, Pinterest, and Bing. We'll leverage our performance marketing budget and expertise to drive traffic to sellers' shops.
When a shopper clicks on an online ad featuring a seller's listing and purchases from their shop, the seller will pay an advertising fee on that order, only when they make a sale. For sellers, this means that they will be getting a really competitive ROAS of 6x-8x, utilizing the benefits of our marketing budget and expertise promoting their listings off-site, without the risk that it might not lead to a sale for them. For Etsy, this means that we can rapidly scale our Offsite Ads program without any budget limitations, a win-win solution. Second, our on-site advertising program that you all know as Promoted Listings will now be called Etsy Ads, an optional advertising product sellers can use to bring Etsy traffic to their shop. We'll be investing in Etsy Ads in 2020, continuing to add capabilities and functionality.
Going forward, sellers' Etsy Ads budgets will only go towards advertising listings to shoppers on Etsy. We're excited to be able to accelerate our growth marketing investments, given we can now generate more leverage on our marketing dollars. Turning to 2020, we entered the year on strong footing with a clear strategy and a focused set of investments designed to drive growth in the near and medium term. We'll continue to deepen our right to win by focusing on the four strategic imperatives that serve as the foundation of our long-term strategy: search and discovery, human connections, trust, and our sellers' unique collection of items. We plan to further deepen our competitive differentiation and our relationship with our customers, attract more new buyers, and increase buyer engagement and frequency. We feel really great about Reverb. We're rolling out the Etsy playbook to drive additional growth and success.
It's a great brand, community, and team. On the product side, we're investing in the right infrastructure to enable a more iterative experimentation process that delivers faster returns. In marketing, we're focused on improving attribution models and developing integrated campaigns. A few weeks ago, Dave Mandelbrot joined Reverb as CEO, bringing more than two decades of marketplace leadership experience. We're extremely encouraged by the progress Etsy made in 2019. Our team has always been very balanced in our approach. We are a growth company focused on growing in a sustainable way. I'm highly confident in our ability to do that in 2020 and beyond. With that, I'll turn the call over to Rachel.
Thanks, Josh. My commentary today will cover consolidated results as well as key drivers of performance, which include Etsy marketplace results where appropriate. You can find further details on Reverb's contributions in our press release and soon-to-be-filed 10-K. On a consolidated basis, Etsy's fourth quarter GMS grew 33% to $1.7 billion. Revenue grew 35% to $270 million, and we delivered adjusted EBITDA of nearly $55 million, finishing a strong year where we delivered profitable growth while leveraging investments in product, technology, and marketing. Etsy marketplace GMS growth in the fourth quarter on a constant currency basis was 19.7%, and for full year 2019, we accelerated GMS nearly 100 basis points to 21.3% compared to last year. On a two-year basis, the GMS CAGR in the Etsy marketplace has been greater than 20% for three consecutive quarters. Etsy had an especially strong holiday season, lapping a very strong Q4 last year.
Revenue for the core Etsy marketplace grew 28.4% year-over-year in the fourth quarter, and our take rate expanded 10 basis points sequentially to 17.2%, driven by growth in both marketplace and services revenue. In particular, we reported strong growth in advertising revenue related to Etsy Ads, primarily driven by Promoted Listings. Promoted Listings revenue has increased 30% or more for 10 consecutive quarters. Google Shopping contributed approximately $13 million to advertising revenue for the quarter, but with zero margin, as it carries an equal offset in cost of revenue. Operating metrics for the Etsy marketplace continued to show signs of improvement throughout the year. For example, we made significant progress driving frequency on the platform.
Etsy's GMS per active buyer on a trailing 12-month basis grew 3.8% year-over-year, and on a two-year stacked basis increased by over 6%, the highest ever increase in this metric since we've been a public company. Buyers who shop on Etsy for two or more purchase days in a year grew nearly 20% in 2019, driven by habitual buyers, which grew 23% in the fourth quarter of 2019, outpacing overall active buyer growth. The positive improvement in these metrics indicates that our investments in marketing and product development are delivering sizable returns and improving marketplace fundamentals. In Q4, active buyers on the Etsy marketplace grew to approximately 46 million, and active sellers grew 20% to over 2.5 million. Percent international GMS for the Etsy marketplace was approximately 37% of total GMS, up from 36% a year ago.
There are three parts of our financial story I want to spend a few extra minutes on, as they are an integral part of our 2019 performance and will continue to be in 2020. These three parts are about profitability, the impact of our new Offsite Ads product on our financials, and the performance of the Free Shipping Initiative. On profitability and how we think about our investments. Etsy has been investing for profitable growth, and this is evident in our adjusted EBITDA margins today. In 2019, we made material investments in people, primarily product and engineering, to drive growth in GMS and revenue. Our Free Shipping Initiative, the launch of a new ad platform, and continued advancements in search and machine learning are a few of the results of these investments.
Revenue per average headcount for Etsy standalone was over $800,000 in 2019, up 11% compared to 2018 and above our peer benchmark. This is one metric that provides evidence that our disciplined investment process generates solid returns. Another contribution to profitability is our marketing efficiency. We've been expanding Etsy's marketing initiatives for about a year and a half now, leaning in more heavily to new channels like paid social and have expanded our investments in upper funnel strategies like TV. Total marketing expense grew from $158 million to $203 million for Etsy on a standalone basis in 2019 and decreased as a percentage of revenue by 80 basis points. Performance marketing spend also decreased as a percentage of revenue, and our frequency metrics continued to improve. This implies improved efficiency in our marketing investments. Overall, we grew adjusted EBITDA by 34% year-over-year and delivered margins of nearly 23%.
In fact, if not for the accounting impact of Etsy Ads, our reduced overall level of capitalized labor, and the 2019 impact from the shift to Google Cloud, which moves more infrastructure costs from the balance sheet to the P&L, we estimate adjusted EBITDA margins would have been approximately 300 basis points higher in 2019. As you know, Reverb has also impacted our adjusted EBITDA margins. We've continued to convert a high amount of EBITDA into free cash flow. On a consolidated basis, Etsy's free cash flow conversion has been over 100% for the fifth consecutive quarter on a trailing 12-month basis, as seen on slide 21. All in 2019, we generated $192 million in free cash flow, evidence of our financial discipline and strong business model. We leveraged our cash flow in 2019 to repurchase $177 million of stock, or approximately 3.1 million shares.
The second topic I want to unpack is our new ad platform. We launched the platform in late Q3. It was live and active in all of Q4 and in Q1 of this year. In its current incarnation, the Offsite Ads component of the product, ads purchased on Google Shopping, is accounted for as a revenue, with an equal offset in the cost of revenue. It is revenue with zero margin. In Q2, as Josh explained, we are evolving our Offsite Ads program to a cost-per-sale model. This means the seller only pays for the advertising if they have a successful transaction attributed to one of the ads we purchased, eliminating the risk they will pay for offsite advertising without then making a sale. Sellers will pay a 15% advertising fee in addition to their normal fees, only on transactions attributed to a visit from an Offsite Ad.
Certain sellers, depending on their size, will be required to participate in this program and are also eligible for discounted pricing. At the same time, this allows Etsy to scale our Offsite Ads investments and fund upper funnel marketing programs such as TV ads. Once we transition to our new advertising model, the accounting for the Offsite portion will change. In Q2 and beyond, Etsy's investment in Offsite Ads will be accounted for as marketing expense, and you will see an increase in our marketing expense line. Offsetting some of this investment, we will earn incremental transaction revenue when a seller makes a sale that is attributed to one of the Product Listing Ads we purchased. This new Offsite Ads model is accretive to EBITDA and EBITDA margins.
Previously, as you recall, the Google Shopping component of our ad product had a dilutive effect to EBITDA margin, but neutral to EBITDA dollars. We will continue to have Etsy Ads revenue, a product formerly called Promoted Listings, in our services revenue line, as it has been all along. Last, the impact of the free shipping initiative on our P&L. GMS growth has benefited from the transfer of shipping costs into item price. Because some sellers have transferred less than 100% of the shipping cost into their item price, this has had the effect of reducing our overall take rate, as we earned a 5% transaction on a smaller total order value. Despite this headwind to revenue, Etsy's take rate grew to 17.2% in the fourth quarter, an increase of about 70 basis points from the average in the first half of 2019.
Expanding buyer awareness of free shipping options on Etsy and educating sellers on pricing strategies will take time, and our teams will continue to make improvements on both fronts. A great Q4, capping off a really strong 2019. Looking forward, we are forecasting 2020 GMS growth in the range of 25%-28%, revenue growth of 27%-30%, and adjusted EBITDA in the range of $220 million-$235 million, which implies a margin of approximately 21%-22%. We are targeting Etsy standalone GMS growth for 2020 to be in line with our long-term GMS target of 16%-20%, with revenue growing at a faster rate. I'd like to provide some additional insights to help inform your 2020 models.
We currently expect Etsy marketplace GMS growth will be higher in the first half of the year versus the second half due to the lapping of our free shipping initiative. In addition, keep in mind that our consolidated guidance for GMS includes lapping the Reverb acquisition in Q3 2020. While marketplace sales taxes did present a modest headwind to our 2019 GMS, we do not expect this to be a significant factor to our consolidated growth in 2020. As a reminder, we will anniversary the launch of many of these tax laws in Q4. Consolidated take rate will be approximately 16.7% for the full year. On a standalone basis, we expect the Etsy marketplace take rate will be approximately 17.5% on a full year basis in 2020.
As you think about modeling our profitability, please remember that in Q1 of 2019, we conducted a number of experiments on our marketing portfolio to test the incrementality of certain performance channels. This resulted in a significant decrease in marketing expense in that quarter. We did not run any TV advertising in Q1 of 2019, but we did run a five-week campaign for Etsy in January of this year. This means that we expect Q1 2020 consolidated marketing expense will be higher year-over-year, and adjusted EBITDA margins will be lower. Moving to costs, on a consolidated basis in 2020, we expect to gain leverage in cost of revenue and G&A. Product development expense will reflect our continued investments in product and engineering to support improvements to the customer experience on both the Etsy and Reverb marketplaces.
The impact of lower capitalization of our internal development labor means we are forecasting product development to modestly de-lever in 2020. We expect marketing as a percent of revenue will increase based on the revamped Etsy Ads model, as well as our continued investment to grow both new buyers and increase frequency. Lastly, with many growth investments during the year, we continue to expect Reverb to achieve breakeven exiting 2020. We are really pleased with the growth we achieved in 2019 and have real confidence in the 2020 roadmap. We expect to continue to drive top-line growth while also delivering attractive profit margins. Thank you all for your time today. Josh and I will now take your questions.
At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We kindly ask you to limit your questions to one question and one follow-up. The first question comes from Edward Yruma of KeyBanc Capital Markets. Please go ahead. Your line is open.
Hey, good afternoon, and congratulations on a great quarter. Lots to unpack here. I guess first on Etsy Ads. I know one of the thought processes behind the legacy product was that you'd be able to pull back on SEM and spend more at the top of funnel. I know that's part of the objective with the retooled program, but help us understand, do you think that you'll fund all of the SEM marketing today using the 15% you're charging in the new program, or are you still expecting to kick some in as well?
Yeah, great question. The overall philosophy remains the same, that overall sellers will take on primary funding for advertising their individual listing offsite, and that will allow Etsy to invest more in upper funnel things that only Etsy can do, like advertising the Etsy brand on TV, or getting people to download the app, or driving people to the homepage. In terms of the structure of the Offsite Ads program in particular, we do anticipate that there will continue to be some subsidy of Etsy to the program. The 15% and 12% fee will cover much, but not all of the cost. For example, if somebody clicks on a listing and doesn't buy, there's cost in that, and Etsy might absorb better if they land on one seller's page and they end up buying from another seller. Those are things.
We think that that's appropriate because, if you think about it's the case that the seller makes an incremental sale, which is great, and gets a happy customer that they might be able to resell to. Etsy also has gained a customer, the idea that we are chipping in together with sellers to make this a great program, we think is important. We're really proud of this program. I do want to say that a six to eight ROAS, we think, relative to what sellers would get if they had their own standalone shop, is a really strong ROAS. We take on the risk that the money they invest might not convert to a sale.
That's exactly the kind of thing that a platform can do, is pool the resources of the sellers together to deliver something that they each individually could never get on their own. We're excited about this. We think it does deliver great value for sellers, and we think it's going to be really good for Etsy.
One follow up, if I may. You hinted at some innovations or some work you're doing around Promoted Listings or I guess what you're now calling Etsy Ads. Then also something we've been impressed with, that you've grown as strong as you have over the past 10 quarters. I guess, with these innovations, do you think it's likely that you continue the 30% type growth trajectory, or are you starting to hit some ceiling from an availability perspective? Thank you.
Thanks, Ed. We're not going to give specific guidance on how much we think Promoted Listings will continue to grow. It's a really strong, one might call it a workhorse product for our sellers. They love the product, and we've been able to continue to improve the efficacy of it for them by making the Promoted Listings terms more and more relevant so that even though they're promoted ads, they're very relevant to the search query. That gets them a better ROI because they're getting more clicks from the placement of their ad. We have Josh's reference to continuing to innovate would be that, because we're investing in machine learning and our search engineering team to continue to make those results more and more valuable and higher and higher ROI.
Thanks so much.
Your next question comes from Kunal Madhukar of Deutsche Bank. Please go ahead. Your line is open.
Hi. Thanks for taking the question. A quick clarification, Josh, on what you just said, the 6x-8x ROAS. You also said that the money to invest may not convert into a sale, that's a risk. Does that mean that the seller will pay for the click and the traffic regardless of whether there is a sale? Will they not pay if there is no sale?
Thanks for that question. It's a really important clarification. No, the seller will only pay if they make a sale for Offsite Ads, and we think that's really important. What we heard from sellers is that they're really nervous to put their money up front for Offsite Ads where they just don't know the intent of a buyer who's on Google or Facebook or other places. Etsy is taking on that risk for them and sort of pooling that risk, if you will. They will only pay the 12% or 15% fee when the click converts to a sale.
Okay, great. Thanks. Thanks, Josh. Then on the Promoted Listings side, wanted to understand how that growth has kind of trended in the fourth quarter. You mentioned that there was only modest churn, or actually modest churn in the sellers as far as Promoted Listings was concerned. What did you hear from them in terms of their experience with Etsy Ads that led you to go in and come up with this new Etsy Offsite Ads program?
Great. Let me start with churn. It's the case that in any given month, there will be some level of churn in the program. There's just natural, it's a very dynamic market, and we've got sellers coming in and sellers coming out. What I would say is that we did not see a material increase in churn through the fourth quarter. Churn did not materially change and budgets went up. We think that the program, in that way, was successful. Yet, we are responsive to what we hear from sellers. What we heard was that a limitation to them continuing to enter the program and grow their budget was this fear that they're going to spend money upfront and not have it convert to a sale.
Not just a fear, I mean, that's a reality for sellers, that some of them will invest money and have it not convert to a sale. So when we looked at that and said, at the pace we want to scale this program, that's something that's going to limit us. This is a very reasonable concern that sellers have, and we as a platform are positioned to take that on. We think this is kind of an innovative program, but we think it's a great example of innovating to meet the needs of sellers in a way that's a real win-win for Etsy as well.
Great, thanks. A quick one, if I could squeeze this. There has been increasing concern about the impact of, or the potential impact of coronavirus, and if it could impact supply chain and product availability. As you think of the products that are available on Etsy, what do you think is the estimate on, the original raw material might have emerged from China, which could potentially disrupt? What percentage of the GMV do you think that could potentially disrupt if there is a disruption?
A very small percentage of both our supply and our demand is in China, where the majority of coronavirus has been cited. We obviously keep a very close watch on all of this, and we think there's no impact to Etsy at this point. In fact, when you think about the response that some of the CDC and others have talked about, which is ability to work remotely if needed. We have probably one of the largest remote workforces in the world when you think about our sellers being already working from their homes. They're uniquely set up to continue business as usual. Of course, any major macro trend that happens, I think Etsy would be subjected to the waves of that as well. Thus far, we haven't seen any impact to our business.
Great. Thank you, Rachel. Thank you, Josh.
Thank you.
Your next question comes from Shweta Khajuria of RBC Capital Markets. Please go ahead. Your line is open.
Great. Thank you. Let me try two, please. First, on the guidance, Rachel, for 2020, could you help us understand or give some direction on how much you're thinking the Reverb contribution is for the full year? The second question is on EBITDA margins for 2020. You helped with the modeling for where you expect leverage and deleverage. Help us understand what the puts and takes are with Reverb, with the cloud expenses, with Etsy Ads, with the Offsite product. There are quite a few things moving around, and some of them likely are one-time that can potentially allow for greater margin expansion in 2021 and beyond. There are a few moving pieces. I want to make sure it's clarified. Thank you.
For starters, we did say, to give you some sense of how much Etsy's standalone business is growing in 2020, we said that we believe that Etsy on a standalone basis will grow in line with our long-term guidance that we gave at our investor day of 16%-20% for GMS. We were very specific on take rate as well. We said take rate will be about 17.5% for Etsy on a standalone basis on average for the full year. That sort of helps you with the revenue and GMS for the Etsy standalone basis. I think you've got enough data to figure out, to back into Reverb's GMS from that, and Reverb's take rate can be applied to develop their revenue.
We've also said that Reverb's EBITDA is going to be break even as we exit 2020, so there is some headwind on EBITDA margins coming from Reverb. The other headwinds to margin, we did go into some detail on which things we gain leverage on in 2020 and which things would deleverage. Because of the Etsy Ads movement in all of Q1 and a portion of Q2, we have basically the old accounting treatment for Etsy Ads, which would be revenue with a corresponding equal amount of cost of revenue, so dilutive to margins. Going forward, it would actually be incremental marketing expense that would show up in Etsy's marketing line. Because of that, we think we'll see a little bit of deleverage in the marketing line, but accretive to EBITDA margins and EBITDA dollars.
Product development, we said, might be modestly dilutive to our EBITDA margins because we are investing there, and we are also capitalizing less of our labor. We're also taking a fair amount of the incremental revenue we expect from the new format of Etsy Ads and reinvesting that as we did when we did our pricing change last year in upper funnel marketing and back into our business to continue to do product development. We think both the marketing line and the product development line will have a small, a modest amount of deleverage, but we're going to gain leverage in cost of revenue because of the change to Etsy Ads and in our G&A function.
Okay. Thank you, Rachel.
Your next question comes from Nick Jones at Citi. Please go ahead. Your line is open.
Hi, thank you for taking my questions. One on the Offsite Ads. I think I read on a blog in a seller handbook that every seller would be opted into this. Is there any color you can give around what you think the roll-off will be and how we should think about how that would trickle throughout the year from launch to when sellers may decide to opt out for this product?
I'd start by saying we always start with what do we think is in sellers' best interest. When we look at the program, we think generally writ large, this is going to be a great program for most sellers. When we spent time with sellers, and we spend a lot of time with them and try to know them pretty well. Sellers that are relatively small, maybe early in their life cycle, or for whom this is something they don't dedicate a ton of time to, sometimes tell us, and this might be a little counterintuitive, but that they really don't want to grow more than a certain size. They actually may not want incremental sales. That's true of some sellers.
By the time they hit about $10,000 of annualized sales, they've sort of demonstrated a skill and will and desire to be growing. The threshold where we said under 10,000, you have the ability to opt out of the program because we've seen some sellers who've said that the growth is actually something that they're not necessarily ready for. By the time they've hit 10,000, we see that growth is something they're typically ready for. It's something they're typically wanting. Frankly, the program works better when they're all in it together. We have more data and more ability to work together with partners like Google and Facebook and others to really scale that program. It lifts up the whole program to have all of the larger sellers in the program.
We allow for an opt-out for sellers under 10,000, and they have a 15% fee. For sellers over $10,000, they have a 12% fee, but they don't have the ability to opt out. We think that opt-out rates for sellers under 10,000 will be very manageable. We're not sure what they'll be, but it'll be manageable for the program.
I'll just add a comment because we have a room set up for the announcement day where we have a very robust cross-functional team monitoring forums. Our member support organization has been ready to take calls and respond to emails immediately. I've been spending time with them there today, and the overall tone and tenor has been, we've been very pleased with. Not everybody loves it, but just as we expected, but there's, I'd say, more positive than dissension and positive in the extreme. We're very pleased with how the communication is going thus far.
Great. Thank you for taking my question.
Thank you.
Your next question comes from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.
Great, thanks. Just wanted to get maybe back to some of the work that you're doing on customer frequency. As you look at the components of that you're working on personalization, marketing, some of the search, and really technology investments that you're making, can you give us a sense of sort of the progress that you feel like you've made so far and where as you look at the pipeline for the year ahead, sort of where you see the biggest opportunities and if there are specific road marks or initiatives that you've got that we should be watching for this year, which ones you would call out?
I'd start by saying that we're really pleased with the progress we saw in 2019. Rachel shared that in the fourth quarter, habitual buyers were our fastest-growing segment, yet again, growing 23% year-over-year. GMS per active buyer was up yet again. On the two-year stack, it was up 6%. The percentage of people who shopped two or more days in the year was up again. We're very pleased with a lot of these leading indicators that show that we are, in fact, driving frequency. I'm happy with the way you led in the question, speaking about both product and marketing levers, because they're both important. We are making search better. We've talked about some of the things we've done, like nonlinear models and leveraging the cloud to just use more data and more robust models to deliver better search.
That drives more conversion, and nothing gets someone more likely to come back than having bought and been happy with that purchase. As conversion rate goes up, you get return visitors into buyers, and buyers come back more often. Life cycle marketing is a big opportunity for us. We are bringing in a new set of technology around life cycle marketing that's going to allow us to be much more segmented and much more personalized in how we communicate through our owned channels, things like email and on the app. We're really excited to be able to take that to another level in 2020. If you look at the paid marketing that we are doing, we're pleased with the progress that we're seeing there, and that's all the way through the funnel.
For example, if you look at our television commercials, they really don't do anything to explain what Etsy is. They're not really designed with someone who's never heard of Etsy in mind. They're designed for someone who's already generally familiar with Etsy to trigger very specific purchase occasions. You're seeing very specific merchandise and purchase occasions, and we're seeing benefits from that. The mid-funnel work that we're doing as well, so things like advertising on Facebook and other channels with ads and video that might target, for example, people who are just entering the wedding process. We're also seeing is triggering that I should have had a V8 moment of, "Oh, gosh, of course. Yeah, I should think of Etsy for that." It's a combination of the product work and the marketing work that we're doing that come together and drive that metric.
Great. Thank you, Josh.
Thank you.
Your next question comes from Maria Ripps of Canaccord. Please go ahead. Your line is open.
Great. Thanks for taking my question. I wanted to ask about ROI related to Offsite Ads. With six to eight times ROI sort of guaranteed to sellers, how are you thinking about your own ROI around this initiative, factoring in sort of all other revenue associated with the transaction? I guess, what's a reasonable ROI range for Etsy that you'd be willing to consider here?
We're always very focused on if we spend $1, are we getting more than $1 back, on a risk-adjusted basis. This program, we have the ability to operate and decide how much to invest on a daily and a weekly basis. In fact, it's much easier to operate than the program it's replacing. If you think about the program that Offsite Ads is replacing, we had hundreds of thousands of individual seller campaigns that we were executing, and each one of them had its own budget. On any given day, sellers are hitting their budget, and we're having to manage that. This new iteration of Offsite Ads allows us to run one campaign that pools the data and is therefore more effective and drives better ROAS overall for our sellers, so they benefit from that.
It's also much easier for us to manage, and we now have one budget we can spend, and like we always do, we'll be paying very careful attention to what is the return on the next dollar that we spend in performance marketing. This will change the ROI curve a little bit. It will allow us to invest a little more. With sellers kicking in, it allows us to invest more profitably to drive growth, and we're excited about that. You do see that a bit in the margins. When Rachel talked about the fact that we'll be taking up marketing a little bit, and so we'll be seeing a little bit of de-leverage in marketing, it's because the take rate has changed and we're getting more ROI as we invest.
I just want to underscore two points there. Just like when we did the pricing change last summer, taking up the take rate creates a larger LTV so we can invest more at the same or higher ROI. That's one thing. The second thing is the margin expense goes up not only because we're reinvesting, but also because of the accounting. The way this is accounted for now is our spend will hit the marketing expense line, formerly the portion of the spend that was for Google Shopping was hitting cost of revenue.
Actually, to draw that comparison out a little bit, a couple of years ago, we changed the commission on Etsy. We told sellers we're going to be reinvesting the substantial majority of that money back into the platform in marketing to grow traffic and in product to make the customer experience better. We lived to that. We did reinvest most of that money back, and it has delivered growth. We've seen great growth over the past couple of years. Etsy Ads and Offsite Ads, the idea is we will now be able to invest more, and we will use this money to reinvest in the business to drive growth because we are chasing what we believe is an absolutely enormous TAM.
We think the opportunity for this business is huge. We are in the early stages of unpacking it. We see great opportunities to invest profitably for growth. We want to make sure we're capturing those.
That's very helpful. Thank you both.
Thank you.
Your next question is from Tom Forte of D.A. Davidson. Please go ahead, your line is open.
Great. Thanks for taking my question. My first question is, how should we think about your own advertising efforts and presumably the higher cost of TV and digital advertising during an election year?
First let me say we like what we're seeing. The results have been good, and they were strong in the fourth quarter. TV is always a little harder to measure precisely, but we use multiple different statistical techniques, and they point to that having been a good investment in the fourth quarter. We're also learning. I think our creative is becoming more effective. I think our media strategies are becoming more effective. We're starting to buy up front, which means we get better prices. There's a lot happening in TV now that's getting us more and more efficient. You're right that the election throws some uncertainty into the year in several ways for us. We did do some upfront for 2020, we've locked in some capacity already, we're glad we did. We'll have to see how the election cycle plays out.
We have built some buffer in for that as we've thought about the guidance we've given you.
Great. Then for my follow-up question, I know you said that online sales tax law changes was not a big headwind. I was curious if you noticed any noticeable trends, such as lower conversion rates on higher priced items after online sales taxes were rolled out?
Yeah, we definitely do see a bigger impact to higher AOV items. Etsy has a number of categories where that would apply to, and Reverb also, because their average order value is significantly higher than Etsy's average order value, did see more impact than the Etsy core marketplace did. With that said, we think that's completely de minimis. Reverb relative to Etsy, the overall size is completely de minimis to our overall consolidated results. That's why we said we don't believe there's any material impact from state sales tax going forward. The impact that we called out in the past year is going to be lapped by the time we get to October 1 of 2020.
Great. Thanks for taking my questions.
Thank you.
Thank you.
Your next question comes from Marvin Fong of BTIG. Please go ahead. Your line is open.
Great. Thanks for taking my questions. I jumped on the call a little late. I apologize if these have been asked already. I just wanted to drill down further on the repeat buyers, I think, or the people who shop twice or more a year. It looks like it grew about in line with the total buyer population or actually a little bit better. Can you just comment on what you're seeing there and why you think the habitual buyer growth rate is, the delta between that and the total pool of active buyers continues to widen? That'd be great. Thanks.
We said habitual buyers are growing 23% this year to about $2.5 million, which I think the chart in the slide deck shows it, is that in the quarter, we actually have some pretty big uptick in what we think one of the metrics we use for frequency, which is GMS, trailing 12-month GMS per active buyer, which grew almost 4% in the quarter, and it's over 6% in a two-year stack basis. We're starting to see, if you were to plot those things, I think there's about 130 basis points of growth in the quarter, whereas previous quarters have been smaller than that, and in some quarters, it hasn't increased at all. I think the important part is that the habitual buyers who are really the most valuable buyers for Etsy are the fastest-growing segment.
The message is resonating with the buyers that we care most about.
Great. Thanks, Rachel. Then my follow-up, I was just noodling around on the community forums and what you guys published about the Offsite Ads. I think you said you expect it to be about 10% of a typical seller's volume. Can you just elaborate on, is that based on your experience with the PLAs, and is there any upside to that possible? I know you guys are actually expanding this to other platforms besides Google. If you could just comment on that'd be great.
Yeah. It is based on our existing experience with PLA programs. We're just trying to dimensionalize for sellers what kind of impact this might be, because they've got to think about pricing strategies and other things, and we want to reassure them that for most sellers, this is going to be a very small part of their sales. We don't want them to jump to conclusions around things before they have a chance to experience it. We're also going to give them a couple of weeks of sort of a free trial period where they will actually get to experience it. I think for folks who think that this is going to be a large part of their sales, that will typically be reassuring.
Terrific. Thanks, Josh, for that. Thank you both.
Thank you.
Thanks, Marvin.
Your next question comes from Darren Aftahi of Roth Capital Partners. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my question. Nice quarter. Just two here. Could you comment in relation to the listings in the U.S. and then orders with free shipping, the disparity between the 74% and 48% for orders? Then on the Offsite Ads piece, Josh, you made some comment during the call about subsidizing. I'm kind of curious what kind of inherent risk does this move have and what are your kind of hedges in place to make sure that this doesn't get out of hand in terms of subsidizing? Thanks.
Yeah. On the first question, I may hold the first two together. On the first one, the difference between 74% and 48%, that's a good catch. Thanks for catching that. The items under $35 typically don't ship for free. Those have a fairly high conversion rate and kind of high velocity because they're pretty cheap. That would explain the difference between 74% of listing views offer free shipping eligible, but only 48% of orders arriving are because of free shipping. The delta there is really about lower priced items, particularly items under $35.
You let me know if I don't answer this the way you are expecting, because I'm not quite sure what you were getting at. We think that the new version of our Offsite Ads program is actually much lower risk for sellers because they're not going to pay for the ad unless they make a sale, but also lower risk for Etsy in a lot of ways, because we had a PLA program before, and we were buying PLAs and driving GMS for sellers, but also GMS for Etsy. The way this is designed now, and then we did our first version of Etsy Ads, where we were basically asking sellers to opt in or assign their own budgets to PLAs.
As Josh said, we saw a nice healthy uptick in budgets and really minimal churn, but we needed the right sellers in the program to make the market. We saw that it was going to take a bit of time to get to that scale that we needed to actually take over Etsy's footprint in what we were buying for PLA. This is a much, it's almost instant. We continue our PLA program. We also are able to do it cooperatively with our sellers. They make money when there's a successful sale, and it achieves the same result where we are, to some extent, subsidized so that we can divert more of our dollars at the upper funnel, brand marketing, as we had always intended to.
No, that's helpful. Thanks, Rachel.
Thank you.
Your last question comes from Ygal Arounian of Wedbush Securities. Please go ahead. Your line is open.
Hey, guys, thanks for squeezing me in. Just on Offsite Ads, maybe you could give a little bit more color on, as you expand this and you'll be spending more on marketing, where are you at right now in terms of social, and how does that fit into your overall performance budget? I guess what I really mean by that is, you've been, I think, exclusively or mostly spending on Google PLAs. You're now going to be stepping into Facebook and Instagram and some of the other performance sites and moving mid-funnel a little bit. Are there dollars that are going to be coming off of Google? Is that budget just going to be expanding while Google remains flat? Can all this lead to, you've had 17% of GMS being driven by paid traffic. Can that expand meaningfully as you expand your performance and social budgets?
Great questions. All right, let's start. Let me try to attack these one at a time. One of the questions you asked is this going to come at the expense of Google? No, we don't think so. As long as the next dollar we spend on Google is a profitable dollar, we'll keep spending. It's an and, not an or, right? We're looking at how can we find more ways to put money to work that drive profitable growth for Etsy and for our sellers. The more, the better, as long as they're providing a good ROI. On social, your next question was, how are we doing on social? On social, I would say it's still early days, and I'm excited about that because that means that there's real upside potential for us to do more.
The tactic that we've unlocked over the course of the past couple of quarters that does seem to really be working for us is retargeting. Finding people who came to Etsy, found something they liked and didn't buy, and then retargeting them. Facebook is turning out to be an effective strategy that is helpful to drive incremental purchases in an ROI-positive way. We are working on other strategies in social that are bottom of the funnel and would love to unlock more that would be part of the off-site advertising program. Again, to be part of the off-site advertising program, we have to be listing a specific listing of an individual sellers on a third-party site like Google or Facebook. Now let's move to mid-funnel.
This would not count as off-site advertising, but showing videos to people who have different life events, talking about Etsy and what we have available for them. It doesn't have to be video, it could be static content. That's an area that we are just starting to learn more about and leverage, and I'm excited about that. Life cycle events make a big impact on Etsy. If you've just moved home or had a baby or gotten engaged, these are important moments in your life and moments for which Etsy's relevant. Starting to target more specific content to people in those moments is something that we're very encouraged by. It's early days, and we are just beginning to learn how to make that an effective part of our media mix.
Using influencers more to promote the brand is something that we are just learning to use more. Even in TV, we're getting more effective, but we are newbies at this, and so I think there's opportunity to continue to become more efficient and effective as we scale and grow and leverage things like DRTV more and more, which DRTV is still a pretty light part of our budget. Most of our TV budget right now is cable. I am excited about the opportunity to continue to scale with Google and the Offsite Ads program, but I'm equally excited about the opportunity to grow social and mid-funnel and upper funnel channels as well.
Thanks. I know we're running late, but there's one more I really wanted to ask, and it's a little bit bigger picture. Just going back to the growth rates in GMS during the quarter. You had 30% growth in Cyber Five, and then you had 20% growth for the whole quarter. I'm just wondering, what drove that gap? Is that normal seasonality? Was it the things that you put into place during that period that really drove the growth rate higher? Are those things that you can implement over the course of a full quarter to drive that gap closer between the 20% for the whole quarter?
Yeah
The 30% for the holiday?
Q4 was an exciting quarter. I think for Etsy, like most the folks that we've heard talk about the quarter, I think many of us have had a very common experience, which is that the shift in Thanksgiving moving had a pretty big impact on consumer behavior writ large. November was slow and December was strong. Net, it seems like consumers spent about the same, and we did great, and we feel great about how we did in the fourth quarter. The pacing of it was very different this year than it was last year.
Okay. Thank you.
Yeah. Thank you. Thanks everyone for your time. We really appreciate it.
This concludes today's conference call. You may now disconnect.