Good day, ladies and gentlemen, and welcome to your Etsy Second Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would like to introduce for your host for today's conference, Jennifer Buegelman.
Ma'am, you may begin.
Thank you, Esther, and good afternoon, and welcome to Etsy's Q2 earnings conference call. Joining me today are Chad Dickerson, CEO and Christina Salen, CFO. Before we get started, just a reminder that our remarks today include forward looking statements relating to our financial performance and results of operations, business strategy, outlook, mission, products and potential future growth. Our actual results may be materially different. Forward looking statements involve risks and uncertainties, which are described in our press release today and in our 10 Q filed with the SEC on May 5, 2016.
Any forward looking statements that we make on this call are based on our beliefs and assumptions today, 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 a replay via phone, you can find that information in the press release as well.
With that, I'll turn the call over to Chad. Chad?
Thanks, Jennifer, and good afternoon to everyone joining. We're excited to talk with you today about our 2nd quarter results, which included 39% revenue growth year over year, 23% year over year GMS growth, which was an acceleration compared with the 1st quarter and 246% adjusted EBITDA growth that resulted in a 16.5% adjusted EBITDA margin. Our vibrant community expanded to almost 1,700,000 active sellers and 26,100,000 active buyers. Based on our strong performance to date and our expectations for the remainder of the year, we are raising our 2016 guidance. Christina will provide you with more color on our financial performance and updated outlook after my remarks.
Before providing some detail on our progress during the Q2, I want to take a moment to reflect on Etsy's evolution over the past 11 years and our long term plans for the future. Etsy began as an online marketplace that connected thoughtful consumers with creative entrepreneurs around the world. Today, our business is so much more than our marketplace. Over the past 5 years, we expanded Etsy's business from a simple marketplace to include a seller services platform that helps our community of creative entrepreneurs make money by following their passion. We now offer a robust suite of high impact seller services, tools and other features that address our sellers' pain point.
In the Q2 of 2016, paid seller services represented 55% of Etsy's revenue, and we believe we have exciting opportunities ahead to introduce additional services to support Etsy sellers in new ways. Etsy buyers tell us that they come to Etsy to find products that they can't find anywhere else. In a world where most retailers are competing to provide commodity goods at the lowest price with the fastest shipping, Etsy's unique inventory and our vision for a more human, personal and global approach to commerce helps us and our sellers stand apart. Aside from the range and uniqueness of the items from our sellers, we've made it easy for Etsy sellers and Etsy buyers to seamlessly connect online and offline on any device in 10 languages around the world. We're able to do this because Etsy is fundamentally a technology company that can innovate quickly and deliver products and services that work for Etsy sellers and Etsy buyers on a global scale.
Looking ahead, we believe we've built a strong foundation, one that will allow us to tap into new opportunities, further scale our business, reach new audiences and move closer to realizing our mission to reimagine commerce. To do this, we'll continue to to execute our strategies to grow our marketplaces and sell our services platform. As we work on driving growth in our marketplaces, one of our most important initiatives is Etsy every day, our focus on making Etsy a daily habit. Over the past 18 months, you've heard me talk about mobile and how mobile is integrated into everything we do. Over the past several months, we launched several products that made it easier for buyers to come to Etsy, sign in, search, connect and transact across all devices.
We continue to optimize the buyer experience on etsy.com across mobile and desktop. And in doing so, we've been able to drive conversion rate gains across the board over the past year. We believe that this work has helped us achieve sustained active buyer growth and will remain an important focus for Etsy. We also believe, however, that increased engagement and frequency can become long term growth drivers. For example, better connecting our existing base of active buyers with the more than 35,000,000 items for sale on etsy.com through search enhancements or successfully encouraging the 53% of Etsy buyers who made just one purchase in 2015 to come back to Etsy more frequently are two areas of opportunity.
In recent months, we've taken a close look at our brand definition and positioning and we've been exploring ways to raise awareness of Etsy as a go to shopping destination. From special occasions to unique items that express your style and individuality in your daily life, we want to show that there's something for everyone every day on Etsy. We plan to bring this point of view to life in our 2016 holiday campaign, which we believe will be our strongest yet. We're excited to share more details in the coming months. Turning to our international strategy.
We believe we've just scratched the surface when it becomes when it comes to realizing our global potential. Our ability to scale internationally is driven in part by our powerful technology platform. One example of this is our innovative use of machine translation, which helps localize the Etsy experience by making it easier for Etsy sellers and Etsy buyers to transact when they don't share the same native language. With this advanced technology, we support Etsy sellers and Etsy buyers from different parts of the world who would normally be separated by language as they message each other, search and browse listings and reviews. Machine translating listings, in particular, dramatically increases the items available to non English speakers.
In the Q2, we applied this technology to promoted listing searches. We used proprietary data and our own machine learning techniques to optimize and fine tune the quality of translations across our site on an ongoing basis to help enhance the overall experience for our global community. We also continue to foster local communities and marketplaces in 5 key geographies: Australia, Canada, France, Germany and the U. K. Over the long term, our goal is to grow international to represent 50% of our GMS.
Our current priorities are to create more seamless connections between local SE sellers and SE buyers by tailoring content, supporting local events, elevating our brand awareness and listening and responding to the unique needs of our sellers in their respective markets. During the Q2, we continued to organize Etsy seller meetups and educational events, hosted our annual craft party in dozens of cities around the world, and we expanded Apple Pay to Canada and Australia. We also launched localized search in France and Germany, expanding this from the U. K. And Australia.
Localized search makes listings from local Etsy sellers more prominent to Etsy buyers within their respective countries. During the quarter, we saw GMS growth between French buyers and French sellers and between German buyers and German sellers accelerate significantly year over year and sequentially, and we believe that local search encouraged this activity. The U. K. Continues to serve as a powerful example of our emerging success in fostering local communities in our key international markets.
For the first time ever, more than half of U. K. GMS was from U. K. Buyers purchasing from U.
K. Sellers. In addition, the growth rate of GMS between U. K. Sellers and buyers accelerated in the Q2 to more than 75% year over year and continues to grow significantly faster than GMS between U.
K. Buyers and sellers in other countries. We believe all of this hard work has had a particularly positive impact on GMS growth between international buyers and sellers in the same country, and we've seen year over year GMS growth in this category accelerate for 3 consecutive quarters. Let's turn now to seller services, which delivered 58% revenue growth in the 2nd quarter. As we've discussed before, our strategy for growth in seller services involves expanding the geographic reach and functionality of existing services and launching new ones that help our sellers address their most critical business pain points.
In the Q2, we made enhancements to promoted listings and shipping labels, which we believe will make our sellers more successful. We added new inventory to Promoted Listings on mobile web and desktop to create more opportunities for sellers to advertise their items. And we also added FedEx as our newest shipping label carrier so that U. S. Sellers have another option for purchasing and printing labels directly from Etsy.
Early in the second quarter and as we discussed in our Q1 call, we launched a new paid seller service called Pattern by Etsy. Pattern enabled Etsy sellers to create their own custom website in just minutes, leveraging all the work that they've already put into their Etsy shop. Aetern has the same marketplace business model as etsy.com, and it's supported by our direct checkout and shipping label services. As a reminder, we don't expect any material contribution from Pattern this year, but we're pleased with the response it's received from our sellers. Early data suggests a healthy rate of conversion following the 30 day free trial period.
Since launch, we further optimized Pattern and we made a series of updates to improve its functionality. Some of the updates include expanded search capabilities, new design templates, the ability to preview mobile sites, improved SEO across all pages and Pinterest verification. In addition to these new services and features, I also want to emphasize our commitment to serve as a reliable and trusted platform for our sellers. Last month, an issue with our 3rd party processor, Worldpay, led to delays in the processing of payments for purchases made on Etsy using direct checkout. Although Etsy engineered a workaround so that transactions could be processed and the issue has now been resolved, we still recognize the frustration and the inconvenience that it caused Etsy sellers and buyers.
We're working to make the platform even stronger, adding redundancy and resiliency, and we're 100% committed to making sure that checkout on Etsy remains reliable, convenient and secure. We believe we have a long runway for growth of our services platform in the coming years, and we'll continue to look for opportunities to introduce more tools, features and paid services that support creative entrepreneurs wherever they choose to pursue commerce. In addition, we also want to support Etsy sellers as they grow and scale their businesses by bringing new constituents into what we call the Etsy economy. 2 great examples are Etsy Wholesale, which offer a new sales channel for Etsy sellers and Etsy Manufacturing, which enables Etsy sellers to find partners so they can scale their production responsibly. We're excited about our upcoming Open Call event, which is part of our wholesale program.
Open Call gives a group of Etsy sellers the opportunity to meet, interact and showcase their products to our retail partners and dozens of small boutique owners. At the event, we'll be connecting Etsy sellers with our newest retail partners, HooperHewitt, PaperSource and Giggle as well as existing partners Whole Foods and Macy's Herald Square. In closing, as I look across the business, we're excited about the progress we've made over the past 11 years, but we're even more excited about the significant opportunities that lie ahead. We have a strong technology platform and a robust product road map focused on optimizing our existing marketplaces and services, making Etsy accessible to an even wider group of people, increasing engagement and creating new channels for growth. We also have a world class team that is incredibly excited about building the next chapter for Etsy.
With that, I'll turn the call over to Christina to walk you through our financial results and our revised guidance. Christina?
Thanks, Chad, and hello to everyone. Just to note, unless I say so, all comparisons I'll be referencing here on a year over year basis. Let's start with GMS. During the Q2 of 2016, the Etsy marketplace generated $670,000,000 in GMS, 22.6%, driven by growth in active sellers and active buyers. At the end of the second quarter, Etsy had almost 1,700,000 active sellers, up about 12%.
As a reminder, an active seller's win has incurred at least one charge from us in the past 12 months. At the end of the Q2, we had 26,100,000 active buyers, slightly over 20%. Also as a reminder, active buyers are still spot on Etsy at least point in the household needs. In the quarter, roughly 64% of our visits came to us from the mobile device, which is up 400 basis points from last year, continuing to outpace the rate of growth in the last year. Slightly more than 47% of our GMS came from a mobile device, also up roughly 400 basis points.
During the Q2, we saw conversion rates increase in digital, mobile web and mobile app. In addition, desktop conversion rates expanded at pace similar to overall mobile conversion rates. And therefore, the gap between mobile visits and mobile GMS remains constant when compared to last year. As a reminder, we measure the change in the mobile gap by comparing the yearly change in percent mobile GMS with the yearly change in percent of the visits. We narrowed the gap when mobile GMS grows at a faster pace than mobile visits.
Overall, repeat the progress we've made in mobile. Year over year mobile GMS grew 34% and accelerated compared to last quarter. Etsy's international business continued to expand with international revenue growing roughly 54 percent in the Q2, and we achieved healthy marketplace growth in each of our key focused markets. Percent international GMS expanded to 30 0.7%,
which was
up 50 basis points compared with last year and up 40 basis points compared to the Q1 of this year. This is the 1st year over year improvement we've seen in this metric in 2014. As a reminder, percent international GMS is the percent of total GMS from transactions for either the buyer or the seller is outside of the U. S. This includes both cost transaction and transactions where both buyer and the seller are located outside of the U.
S. The improved international performance this quarter was largely driven by 3 factors. 1st, excluding our French marketplace ALM, 3 out of 4 international GMS categories are growing robust. We have seen continued GMS growth between U. S.
Buyers and sellers, international buyers and sellers in the same country and international buyers and sellers in different countries. These 3 international categories have each grown faster than overall GMS. Although GMS has seen U. S. Sellers and international buyers were down 8% this quarter, this metric has improved for 2 consecutive quarters.
We continue to believe that this year over year decline is indicative of the indirect impact of fluctuating global currency exchange rate through international buyer behavior, although the exact impact is difficult to estimate. And finally, 3rd, pace of seamless growth between international buyers and sellers in the same country has continued to accelerate and has grown 67% year over year. In fact, GMS growth between international buyers and sellers in the same country accelerated for the 3rd consecutive quarter. This has been the fastest growing category of international GMS for the past few quarters to the point that it is similar as a percentage of total GMS across between U. S.
Sellers and international buyers and CMS between international buyers and sellers located in different regions. While still the smallest category, continued acceleration in its growth increased the progress in strategy to build local currency globally. Exchange rates continue to have a direct albeit meaning impact on Etsy's overall GMS growth rate 10% international GMS. Excluding the direct impact of currency translation of GMS for non U. S.
Dollar denominated goods, the trust would have been 0.5 percentage points higher or slightly more than 20 percent this quarter. This currency drag is an improvement compared to both last year and last quarter. Although we're encouraged by the small improvement in international GMS this quarter, given currency and other geopolitical global events, it's really to draw any conclusion if this improvement is sustainable. Finally, with regard to currency, I want to touch on Brexit. Most other companies with global businesses are watching the first one.
While it's still very early, in the Q2, we didn't see an impact particularly related to Brexit. We continue to monitor developments in the U. K. And Greater Europe executing our strategy to build those businesses globally, which we believe may help mitigate the impact of currency fluctuation and other macro development. Turning to revenue.
Earnings and services totaled total revenue was $85,300,000 up 39%, driven by growth in seller services revenue and accelerated growth in marketplace revenue. Marketplace revenue grew 23%, mainly due to growth in transaction fee revenue and to a lesser extent growth. Seller services revenue was up 58%, driven primarily by revenue growth in the Exanea brand, which continued to benefit integration of KPAK. Those services revenue also benefited from both the silicon shipping label, which each grew faster than our service revenue. Our newest seller service revenue growth quarter.
As a reminder, we expect a complete distribution service over the next 3 years. The 2nd quarter was $26,300,000 43%, gross was 66%, 160 basis points. Once again, gross profit grew by year over year. This is due to the leverage we see in our technology infrastructure and in play related. Turning now to operating expenses.
Q2 operating expenses $51,600,000 or approximately 19%. Total operating expenses as a percent of revenue declined to about 60% in the 2nd quarter compared with approximately 71% for the year. Operating expenses planned as a percentage of revenue was primarily to leverage in digital marketing expenses and to a lesser extent related Marketing expenses totaled $18,300,000 up 11%, entering about 20% of total revenue versus 25% last year, roughly 19% in the last quarter. The increase in marketing expenses was driven by higher employee related costs. For comparison purposes, remember that marketing expenses grew approximately 77% in the Q2 of last year.
The second half of this year, we expect growth in marketing expenses to accelerate compared with the first half of this year as we ramp up our most significant annual campaign. Digital marketing expenses in the 2nd quarter climbed roughly 7% year over year, continued to generate strong returns for Etsy and a positive ROI based on our global attribution model. Similar to the last few quarters, this resulted in a big GMS growth rate to triple our reported GMS growth rate. Product development expenses rose $11,800,000 up about 18%, reflecting nearly 14% of total revenue at 16% last year and about 18% last quarter. Increase in product development expenses by higher employee related costs continued to grow product and incentive compensation.
G and A expenses totaled $22,500,000 up 28%, representing roughly 26% of total revenue, roughly 29% last year, roughly 23% last quarter. The business and G and E expenses was driven by cost, overhead related to new office locations, including depreciation expense related to our new Brooklyn headquarters and expenses associated with Sarbanes Oxley compliance. Headcount at the end of the quarter reached 921 people compared with 852 as of March 31, 2016, which was an accelerated rate of growth compared with the Q1. In the second half of twenty sixteen, we expect the pace of hiring to continue at a pace similar to the first half of twenty fifteen. The 2nd quarter net loss was $7,300,000 compared with a net loss of $6,400,000 last year.
Etsy's net loss included interest expense associated with the build to suit lease accounting related to our new Brooklyn headquarters, a $6,400,000 foreign exchange loss and an income tax provision of $4,300,000 all three of which were primarily non GAAP. Non GAAP adjusted EBITDA was $14,000,000 up roughly 2 46%. This resulted in adjusted EBITDA margin of 16.5 percent, up from 6.6% in the Q2 of 2015. This increase was driven by high margin incremental revenue growth and to a lesser extent leverage in digital marketing expenses and employee related costs. During the quarter, we reported positive cash flow from operations, dollars 17,200,000 This compares with $4,700,000 in cash from operations generated last year.
The year over year increase in net cash provided by operating activities for the quarter was mainly due to revenue growth and leverage in operating expenses. To date, we've invested $32,000,000 in the build out of our new Brooklyn headquarters. And as we've said before, we intend to invest up to $50,000,000 for the build out by the end of 2016. As of June 30, 20 16, we had cash, marketable securities and short term investments totaling approximately $278,000,000 To wrap it up, we had a strong first half of twenty sixteen, we're raising our full year guidance for CMS, revenue and adjusted EBITDA margin. We're also reiterating our 3 year guidance.
For GMS, we are raising our 2016 growth outlook to a range of 15% to 17% growth from the midpoint of our original 13% to 17% guidance range. At this time, we don't expect the payment processing issues early in Q3 to have a material financial impact on our future results and our updated guidance reflects this. For revenue growth, we're raising our 2016 outlook to a range of 25% to 28%, up from the high end of the 20% to 25% guidance range previously. I'd add that we expect 2016 gross margin we continue to expect 2016 gross margin in the 64% to 65% range. Also in 2016, we now expect to gain leverage in total operating expenses for the full year.
We continue to expect marketing expense as a percent of revenue to decline and G and A expense to increase due to overhead associated with our new Brooklyn headquarters. We continue to expect to recognize on average $3,000,000 of additional depreciation and interest expense per quarter for the duration of our lease for our new booking headquarters. Finally, we are increasing our 2016 adjusted EBITDA margin guidance to a range of 13% to 14% from a range of 10% to 11% based on our higher expectations for revenue growth and operating leverage. This means that at the midpoint of our updated revenue guidance, adjusted EBITDA will grow about 2x revenue. As a reminder, historically, adjusted EBITDA margin in the 4th quarter is seasonally higher than adjusted EBITDA margin in the 3rd quarter.
And with that, I'd like to turn the call back over to the operator, Esther, to open it up for Q and A. Thanks.
Thank
Our
Our first question comes from the line of Heath Terry with Goldman Sachs. Your line is now open.
Great, thanks. Christina, you touched on the impact that in country sellers had on the quarter. Can you give us a sense of sort of where you are in terms of building out that network? Are we 2nd inning, 3rd inning in terms of the impact that we could reasonably expect that to have on the business? And then when you're thinking about sort of guidance for this year, clearly given the acceleration that we saw in Q2, the guidance that you provided implies pretty significant deceleration.
Is there anything beyond just sort of pragmatism behind that that we should be thinking about in terms of maybe putting that into context?
Sure Heath. So just a clarification on your first question. When you said in seller, you meant GMS between local buyers and sellers like U. K. Seller to U.
K. Buyer?
Exactly. The initiative that you guys have had in the 5 countries.
So in the U. K, as we mentioned, we're above 50% of our GMS generated in the U. K. Is between local buyers and sellers, and we're super excited about that. But when we look at our other key focus countries, Australia, Canada, France and Germany, none are close to that 50%.
So we're still in early days in other countries. I would say Australia is probably the closest, but, it's where the U. K. Was a couple of years ago. So I wouldn't want one to walk away with the assumption that we have this pipeline rolling in over the next couple of months.
But I think what it points to is a long term opportunity to drive growth in this category. With regard to guidance, I think you're right. On the revenue front, it points to a deceleration in the second half from the perspective of revenue growth. I think there's a couple of things that to note. First of all, we're super excited about 40% revenue growth in the first half of this year, and we don't want to take away from that great achievement.
But historically, as you know, Heath, you've seen deceleration in revenue growth as we move into the second half of the year. Our guidance does not extrapolate the first half into the second half. And that's because, just as a reminder, what support our revenue growth guidance assumption. And what we've seen in the first half doesn't move us to increase our assumptions in the second half. And what are those things?
Remember, underlying our growth is the assumption that the pace of the narrowing of the mobile gap will continue as it had in 2015. Well, as you just saw in the most recent quarter, we were able to sustain that gap. We didn't narrow it. And so there's no reason to be overly ambitious about that in the second half. What we've also said is underlying our guidance is the expectation that percent international GMS in 2016 remains flat with 2015.
And we're really excited about what we saw in the Q2, the Q1 since 2014, where we actually saw an expansion in that. But maybe I'm pragmatic, but 1 quarter does not a trend make. And given what we've seen in global currency fluctuations just in the last few months, as well as geopolitical events, we don't think there's any reason to deviate from our guidance, which is flat percent international EMS year over year. And finally, our guidance underlying revenue guidance is continued penetration of our existing seller services and modest contribution from our new seller service. When you think about our existing seller services, we talked about very positive developments in automotive listings and shipping labels that drove growth in the Q2, and there's no reason to expect that they won't drive growth in the second half.
But I would remind you that we start to anniversary the integration of PayPal at the end of October of this year. So that's something to consider. And remember that direct checkout is our largest contributor to seller services revenue just in terms of size. And I would also add then with regard to our new seller service, we're very excited as Tad pointed out. We're very excited in the trends that we're seeing in terms of conversion from free trial and just the general up our sellers.
But that doesn't cause us to change our expectation that the contribution will still be modest relative to the rest of seller services.
Got you. Thanks, Kristine. That's really helpful.
Sure. Thanks Heath.
Our next question comes from the line of Andrew Bruckner with RBC Capital. Your line is now open.
Thank you and great quarter. I'm wondering if you can talk a little bit about what you're seeing on the mobile front in terms of mobile visits and mobile GMS, the gap closing there? And if there's any initiatives that you've done or if it's just kind of behavior on the whole? Thank you.
Yes. Thanks, Andrew, for the question. So I think it's really important to understand that when you're narrowing that gap with mobile visits and GMS, it's really the accumulation of a lot of different types of work. We talked about the work that we've done in sign in and search and checkout and other areas of the business. So it's really and I mentioned that we've driven conversion increases across the board over the past year.
So I think our mobile success has largely been due to many of those initiatives on the core buyer experience really resulting in a great mobile experience for buyers and for sellers. And Christina, did you have something to add there on the numbers?
I just wanted to point out that what we've highlighted since the beginning with regard to narrowing the gap is it won't be a straight line up until the right. It's a long term strategy, and we feel like we're still in the early innings of narrowing that gap. Indeed, we've only narrowed it a little bit over the past few quarters. So it's really a long game as opposed to something we expect to see every single quarter narrowing of that gap.
Understood. Thank you.
And our next question comes from the line of Mark Kelley with Citi. Your line is now open.
Hi, thanks for taking the question. I guess now that you've added FedEx as an option for shipping labels, can you talk about how you expect that to impact the growth for that segment in isolation? Maybe there's something you can draw on from when you added to seller service categories in the past like adding PayPal to direct checkout? And then second, the Worldpay issues, I know it's not impacting much, if anything, but is there a way for us to think about what percent of transactions use that service?
Sure. On the FedEx point, we just rolled out FedEx this quarter. We it's really our goal with sellers is to provide and buyers provide as much choice as possible, and that's only in the U. S. So we don't expect any significant contribution from FedEx.
And I would just add to that, just to underscore it, we don't expect FedEx to have anywhere near the impact of an integration like something like PayPal, for example. FedEx is just a great partner, but is one of many service shipping label services that our sellers could use.
And the second question was about
the kind of transaction.
Yes. So on Etsy, we run transactions through PayPal and through direct checkout. So and PayPal is embedded in direct checkout. So our credit card transactions run through Worldpay, and that's why we had the issues that we described with the credit card transaction.
Great. Thanks.
And our next question comes from the line of Brian Nowak with Morgan Stanley. Your line is now open.
Hi, this is Michael Constantini on for Brian. Chad, can you please explain expand a little more on the improved conversion rates you're seeing on both desktop and mobile in the quarter? Specifically, what changes did you make to the site? And did you make these changes globally? And how should we think about that in terms of impacting buyer growth and GMS per buyer looking ahead?
Sure. So as I noted in my remarks, we've seen conversion increases across the board on all platforms, desktop, mobile web and mobile apps. And it's really our success there is really just very focused product development and improving the core experience. Everything from sign in to browse to search, we talked about exploratory search a couple of quarters ago, but that's still going quite well. And finally, with checkout.
So the mobile experience as well as the desktop and on the mobile side, the app and mobile web have all improved and we continue to improve that day after day after day. So it's really in baseball terms, it's really about having a lot of base hits consistently, and that's what we've been doing over the past year. Thanks.
And our next question comes from the line of Tom Forte with Maxim Group. Your line is now open.
Great. Thanks for taking my question and great quarter. So when you talk about PayPal being a tough comparison and when you talk about adding FedEx to your shipping options, is what makes PayPal a tough comparison that you're seeing both increased adoption and you have better economics on PayPal versus some of your other payment options? And then is it possible then to think that if you could get higher conversion rates for FedEx and higher price points that that also could then over time be beneficial to your shipping seller services?
So I think it'd be helpful, Tom, just to take a step back before we dive a little deeper and just remind everybody the relative size of these revenue buckets. So remember that direct checkout is the largest of the seller services, Promoted Listings is a solid number 2 and shipping labels is a distant 3. And shipping labels, recall that it's booked net of the costs associated with providing the shipping label. Typically, we receive volume discounts from our partners, and we passed nearly 100% of those savings on to our sellers. So shipping label is a welcome seller service.
It adds great value to our sellers, saves her a ton of time and money. It also is 100% incremental margin, which as a CFO, I love those businesses. But from a contribution perspective, these are the direct checkout business is just significantly larger than shipping labels.
And then one other quick follow-up then. Do you talk historically about the percent of listings that are dollar denominated as a way to gauge the effective currency changes. Can you update that number?
It hasn't changed materially from what we've discussed previously, which is a high single digit, low low low double digit percent of our GMS is in non U. S. Dollar denominated goods. In other words, the majority of the transactions on our platform are U. S.
Dollar denominated goods. Even if the seller is located in another country, she chooses to list her items in U. S. Dollar terms for the most part. Thank you.
You're welcome.
And our next question comes from the line of James Kaczmek with Monness Crespi Hardt. Your line is now open.
Hi, thanks. First one, can you just delve a little bit deeper into Promoted Listings, how that's trending? I know you guys are adding more inventory there and if there's other things you can do on that front. And then secondly, since Amazon Handmade has come on board, obviously, you guys are growing solidly through that. Can you just talk about the growth in selection and improvements in selection that you've seen even with greater competition in the states?
Thanks a lot.
Sure. So I'll chime in on Promoted Listings and then I'll hand it over to Chad to talk about Handmade. So Promoted Listings, I think it's important to note that even though we did expand inventory in the quarter, that was really a secondary driver of Promoted Listings growth. What's really growing Promoted Listings growth is improvements in click through rate. And that points to some of the improvements that Chad talked about in his remarks in order to make a promoted listing more relevant to a buyer search.
So we're very excited about those improvements in Promoted Listings. And Handmade, Chad?
Yes. On Amazon Handmade, we haven't seen any impact to date. Our marketplace, we have 35,000,000 unique items in the marketplace. So we're really we feel great about the scale of our inventory. And also just as a reminder, our surveys have told and we've reminded investors that more than 50% of our sellers sell on other platforms.
But for that group, the multi channel sellers Etsy is their largest source of sales.
Thank you.
You're welcome.
And your next question comes from the line of Darren Aftahi with Roth Capital Partners. Your line is now open.
Good afternoon. Thanks for taking my questions. Just 2, can you talk more about the machine learning, excuse me, the machine translation, the impact that's having on your cross border transactions? And then secondly, beyond on the cost side of the equation, the second half of the year, beyond increased assumptions in marketing, what other kind of big items are going to be increasing first half to second half that kind of gets you to a lower blended margin from where you were trying to do in the first half of the year? Thanks.
Yes. Thanks for the question. So as I mentioned, Etsy is very much a technology company. And one of the things that we're doing that's really exciting, we have been doing for some time, is machine translation of listings in order to increase inventory in the marketplace. So to kind of give you an example of how that works, if a French seller is selling and they want to sell to English speaking sellers, then we'll machine translate the French listing so that it shows up in English to other buyers and we do machine translation of messages and that sort of thing.
So, what machine translation really allows us to do is it increases the inventory for non English speakers, but it also allows us to conduct transactions between people who normally wouldn't be able to conduct transactions. So underneath the machine translation, we have a machine learning framework, that we use to update the dictionary to use Etsy specific terms. So it's just one of many things that we've done. Again, I spoke earlier about the many things that we've done to drive growth. And I think that increasing the inventory through machine translation is one of the things that helps us do that.
And it's very from a technology perspective, very difficult. So we're
really proud of that. And
with regard to costs and expenses in the second half, Darren, I'd point you first towards our embedded assumption that revenue decelerates in the second half of the year revenue growth, excuse me, Keith and I talked about at the beginning of the call, our incremental revenue is a high incremental margin. So first half relative to second half, probably the biggest driver is the revenue assumption. I'd also point you to the number of hires. If I were to look at the biggest delta between our EBITDA margin guidance in the Q2 versus what we delivered, the first thing I'd point to you is that our revenue growth exceeded our guidance. Again, our revenue growth is time consuming margin.
The second thing I'd say is, where we'd expected a number of hires to be evenly paced throughout the quarter, most of them came in towards the end of the quarter. And so we'll be bringing all those hires into the Q3 and Q4. And but what we've also said is that we expect to hire at the similar pace in the second half as we did in first half. And by the way, most of those hires will come in, in the 3rd quarter. The hiring really does tend to slow down as you move into the holiday season.
And then finally, the last thing I would highlight to your point, we do expect marketing expense growth to accelerate compared to the first half. Now in the first half, marketing expense growth was roughly 19.5%. So we're going to accelerate from there as we move into the second half. So those are the three things I'd focus on. The revenue growth rate, assumptions around employee hires and when they hit, and third, assumptions around marketing expense growth.
Great. Thank
you.
Ladies and gentlemen, that does conclude our Q and A session. Thank