Good day, ladies and gentlemen, and welcome to the Etsy, Inc. 3rd Quarter 2015 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 be given at that time. As a reminder, this call is being recorded.
I would now like to turn the conference over to Jennifer Buegleman. Please go ahead.
Thank you, Sabrina, and good afternoon. Welcome to Etsy's 3rd quarter earnings conference call. Joining me today are Chad Dickerson, CEO Christina Phelan, CFO. Before we get started, just a reminder that our remarks today include forward looking statements relating to our financial performance, the results of operations, business strategy, outlook, mission 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 August 6, 2015. 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 will present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in today's earnings press release, which you can find on our website, 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. With that, I'll turn the call over to Chad. Chad?
Thanks, Jennifer, and thanks to each of you joining us today. We're excited to talk with you about the progress we made at Etsy in the Q3. Etsy's Q3 2015 results showed continued strength in the business. This quarter Etsy grew in its key metrics. GMS was up nearly 22% and Etsy's revenue growth was approximately 38% year over year.
Our number of active sellers increased approximately 19% to more than 1,500,000 and our number of active buyers increased approximately 25 percent to 22,600,000. As we've shared before, we are focused on 4 key areas, making Etsy an everyday experience, building local marketplaces globally, offering high impact seller services and expanding the Etsy economy. First up is our focus on making Etsy an everyday experience, which is all about mobile. We believe it's our most important strategic initiative and that's why we talk about it first every quarter. As we shared previously, we're quite proud of Etsy's mobile offering and in fact during the Q3 we saw 60% of our visits and 44% of our GMS come to Etsy through a mobile device.
Most of this mobile traffic comes to us through mobile web, which generally converts at a significantly lower rate than desktop and both of these channels convert at a lower rate than mobile apps. So with the shift in traffic patterns that's occurred over the past several quarters, a majority of our traffic that previously came into Etsy through the desktop experience now comes to us through mobile web. Our strategy has been and continues to be to drive traffic from the lower converting mobile web experience into our higher converting app experience. We measure our progress in the narrowing of the gap between mobile visits and mobile GMS. In fact, it is one of the most important metrics for tracking our progress in mobile.
In the 3rd quarter, I'm history. We also continued to grow our mobile app downloads, which increased to more than 30,000,000 this quarter and drove a significant increase in smartphone GMS, app GMS compared with last year. Our continued progress with mobile at Etsy is the fruit of the long term investments we've made in building a mobile first company with particular strength in product design and engineering along with our investments in technologies like deep linking and app indexing, 2 technologies that drive usage from the lower converting mobile web to the higher converting mobile apps. We also continue to build uniquely engaging mobile features like shop updates, a social marketing tool that enables sellers to share engaging behind the scenes photos and updates across their social networks to buyers on and off Etsy. This vibrant content is intended to drive purchase activity by inspiring new and repeat buyers to come to Etsy to explore updates from their favorite sellers.
To date, approximately 30,000 shops have used this feature and this number continues to grow. We believe that there's no single silver bullet that will lead to the ultimate win on mobile and that our continued success will be based on many steps forward like these that collectively illustrate that our long term investments are working. Turning now to building local marketplaces globally. We're focused on building on Etsy's global foundation by developing local markets in key countries outside the U. S.
Where we see both local buyer activity and where we can generate strong network effects. During the Q3, Etsy's international GMS was approximately 20 9% of our total GMS, a decline from last year and about flat with the Q2. While we think we're continuing to face headwinds created by the strong U. S. Dollar, we also think we can improve our performance by continuing to apply the strategies that have led the signs of success in our key markets.
In the UK, our largest and fastest growing international market, we continue to see the positive results of our localization efforts during the Q3. We saw a greater than 60% year over year increase in purchases by UK buyers and UK sellers. Similar to the Q2, this growth rate remained nearly 5 times the rate of growth for goods imported into the U. K. This quarter.
Our build local marketplaces globally strategy is ultimately about helping our sellers make more sales by meeting buyer needs and expectations around the world. For example, internal Etsy purchase data and our research show that buyers in the UK and Australia often prefer to purchase items from sellers in their own countries. Based on this data and research, which is further supported by our success in the UK, we've recently begun testing a new search experience that makes locally made items for buyers in the UK and Australia more prominent to buyers, while still offering a global inventory. We hope that making domestic shops more prominent in the results will generate more sales for our sellers in the UK and Australia and improve the buyer experience in those countries. Let's turn now to high impact seller services.
As we've talked about before, seller services let Etsy sellers spend more time doing the work they enjoy most, making, designing and curating and less time on the administrative task of running their shops. Currently, we provide 3 seller services that generate revenue for Etsy, promoted listings, direct checkout and shipping labels. Over time, Etsy's goal is to increase usage of these 3 seller services, expand their geographic reach and launch new ones. During the Q3, seller services represented approximately 49% of total revenue. I'd like to highlight one recent enhancement added to direct checkout that demonstrates our focus on reducing friction in the marketplace.
As of October 27, we fully integrated PayPal payments into direct checkout, which enabled our sellers to accept PayPal on the Etsy platform and reach more buyers. This integration expands the number of sellers that accept PayPal and makes it easier for them to accept and manage various payment methods. For our buyers, this new feature expands their payment options and delivers a more seamless purchase experience on the Etsy platform no matter what payment method they choose. We're excited about this launch and believe that this new feature further demonstrates that direct checkout is the best way for buyers and sellers to transact on Etsy. Finally, I want to update you on our progress expanding the Etsy economy.
We've had several new developments this quarter and I'd like to highlight one of them. We're very excited about the recent launch of Etsy Manufacturing. Etsy's mission is to reimagine commerce in ways that build a more fulfilling and lasting manufacturing. During our 10 years of working with sellers, we've heard again and again that finding the right team to help expand a creative business is a real challenge. With manufacturing in particular, designers strive to build direct relationships with partners they can trust and value their craft as much as they do.
Our new manufacturing marketplace reimagines manufacturing by connecting Etsy designers and manufacturers to form responsible partnerships. The range of manufacturers is exciting with everyone from individual Etsy sellers who have excess making capacity to emerging startups to decades old family run factories. 1 of these manufacturers is Voodoo Manufacturing, a 4 person 3 d printing operation here in our hometown of Brooklyn. Co founder Patrick Beam described his participation in the marketplace this way, we're helping other people realize their dreams and to me that's something I'm proud to be a part of. Another manufacturer is Sarah Mandel.
Her Etsy shop is called Once Again Sam and she's been an Etsy seller since 2,009. Sarah says people who are already selling on Etsy get the community. We all understand what's involved in each other's businesses. Being able to offer our services to each other is just another way of collaborating and sharing in that community. We want to provide our sellers with the help they need to grow their creative businesses on their own terms in a way that is aligned with Etsy's core values while creating the opportunity for more people to participate in the Etsy economy.
We're excited to be working with our community on this long term bet to reimagine manufacturing with this new marketplace that we will be building over time. We're really excited about our competitive position as we head into the Q4 and holiday season. I think this year's holiday campaign is our strongest holiday effort to date. We're rolling out a rich holiday experience across desktop, mobile and app as well as a fully integrated onlineoffline marketing strategy focused on driving users to Etsy as a unique holiday shopping experience. We remain focused on building and strengthening the characteristics that have always differentiated Etsy from other marketplaces like our relationship with our community, our commitment to our artisans and our values.
Serving a special community of creative entrepreneurs is our singular focus at Etsy and we couldn't be more excited to work with this community every day. We know from our decade of working alongside our seller community that more than 50% of our sellers already sell through other channels like craft fairs, their own websites and other online marketplaces, but that Etsy is the largest source of income to these sellers. Based on what we've seen in the market, we don't expect this to change. We believe that we're executing the right long term strategy and that our 4 key areas of focus making Etsy an everyday experience, building local marketplaces globally, offering high impact seller services and expanding the Etsy economy will allow us to deliver results to our shareholders, support our vibrant community and build a successful business for the long term. We appreciate the opportunity today to report our progress.
And with that, I'll hand it over to Christina to go over our financial results in more detail.
Thanks, Chad, and hello to everyone joining us today. Just to note, unless I say so, all comparisons I'll be referencing here are on a year over year basis. Let's start with GMS. During the Q3 of 2015, the Etsy marketplace generated $568,800,000 in GMS, up 21.7%. Growth in GMS was driven by growth in active sellers and active buyers.
At the end of the Q3, Etsy has 1,500,000 active sellers, up 19.4%. As a reminder, an active seller is one who's incurred at least one charge from us in the past 12 months. Also at the end of the 3rd quarter, Etsy had 22,600,000 active buyers, up 24.9%. And also as a reminder, active buyers are those who have bought on Etsy at least once in the past 12 months. Etsy's 3rd quarter results demonstrate our continued year over year progress in narrowing the gap between mobile visits and mobile GMS and highlighted the results of continued improvements in our mobile offerings.
Approximately 60% of our visits come to us from a mobile device, which is up 500 basis points year over year and flat quarter over quarter. This growth continued to outpace the rate of growth on desktop. More importantly, about 44% of our GMS came from a mobile device, up 600 basis year over year and 100 basis points quarter over quarter. Etsy's international business continued to expand with international revenue growing 36.6% in the 3rd quarter. However, percent international GMS declined to 29.3% in the 3rd quarter compared with 31.6% last year and 30.2% in the 2nd quarter.
As a reminder, percent international GMS is the percent of total GMS from transactions where either the buyer or the seller is outside of the U. S. We continue to believe that we can grow percent international GMS over time to represent 50% of our total GMS. Currency exchange rates, however, have continued to directly and indirectly affect Etsy's overall GMS growth rates and percent international GMS. Based on the direct impact of currency translation of our non U.
S. Dollar denominated GMS and based on our assumptions surrounding the indirect impact of currency exchange rates on buyer behavior outside of the U. S, we believe that we saw a 3 to 5 percentage point drag on our overall GMS growth rate in the 3rd quarter from currency. Turning to revenue. During the 3rd quarter, total revenue was $65,700,000 up 37.9%, driven by growth in seller services and to a lesser extent, growth in the marketplace revenue.
Marketplace revenue grew 19.7%, primarily due to growth in transaction fee revenue and to a lesser extent growth in listing fee revenue. Seller services was up 66.7% and revenue from each of our 3 services
grew
faster than GMS and faster than marketplace from the relaunch of the product late in Q3 of 2014 as well as from overall improvements to Promoted Listings ad quality. Shipping labels revenue growth was driven by a combination of enhancements to the product and an increase in the overall number of orders shipped. And finally, direct checkout revenue growth was driven by increased adoption and overall GMS growth. Gross profit for the 3rd quarter was $41,500,000 up 40.7 percent, and the gross margin was 63.2 percent, up 120 basis points. Similar to the 1st and second quarters, in the 3rd quarter, gross profit grew faster than revenue.
This is because of the leverage we achieved in the cost of revenue for employee related costs. This was also because of the growth of Promoted Listings, which you may recall is a higher margin revenue stream and which outpaced the growth of direct checkout, a lower margin revenue stream. Turning now to operating expenses. Etsy's total 3rd quarter operating expenses were $43,200,000 up 32.6%. Total operating expenses as a percent of revenue declined to 65.8% in the 3rd quarter compared with 68 0.4% last year.
Reported marketing expenses totaled $16,500,000 up 87.8 percent, representing 25 percent of total revenue versus 18% last year and 25% in the last quarter. The increase in marketing expenses continues to be driven primarily by increased spending on Google product listing ads and on higher employee related expenses within our seller development and brand design cost centers. Growth in reported marketing expenses in the Q3 was also impacted by business changes and reorganizations that occurred in September 2014. At the time of these changes, we moved certain expenses such as brand design, brand research and seller development into marketing expenses, most of which had previously been recorded in product development expenses. Excluding the impact of these changes, comparable marketing expenses in the 3rd quarter grew 74%.
As we've shared with you before, unique to an Internet company our size, roughly 90% of our traffic comes from organic sources. So it can be difficult externally to see the positive impact of our marketing investment on GMS growth strictly on a quarterly basis. Digital marketing expenses in the 3rd quarter increased approximately 95% year on year and generated positive ROI based on our global attribution model, resulting in a paid GMS growth rate that, similar to our first and second quarters, was more than double our reported GMS growth rate. It's important to keep in mind that while digital marketing expenses nearly doubled in the third quarter year over year, this is off of a very small base. During the Q3, our digital marketing expense, which is mainly spent on Google product listing ads, search engine marketing and affiliate marketing, was approximately $10,000,000 And as you may have read in our press release, we expect year over year growth of digital marketing expenses to decelerate in the 4th quarter compared with the 3rd quarter.
Reported product development expenses totaled 11 point $4,000,000 up 13.2 percent, representing 17% of total revenue versus 21% last year and 16% last quarter. The increase in reported product development expenses was driven by higher employee related expenses as we continue to grow products and engineering staff. Similar to reported marketing expenses growth, year over year comparisons for reported product development expenses are also affected by the 20 14 business changes and reorganizations that I just mentioned. Excluding the impact of these changes, comparable product development expenses grew 18.3%. G and A expenses totaled $15,300,000 up 11.4%, representing 23% of total revenue versus 29% last year and 29% last quarter.
The increase in G and A expenses primarily resulted from an increase in employee related and professional services 7 as of June 30, 2015, and 685 as of December 31, 2014. Non GAAP adjusted EBITDA was $6,200,000 up 46.5 percent. This resulted in an adjusted EBITDA margin of 9.5%, up 60 basis points year over year. 3rd quarter net loss was $6,900,000 compared with a net loss of $6,300,000 last year. Etsy's net loss was impacted by a $4,100,000 tax provision.
This compares with a $4,900,000 tax provision last quarter and a $2,100,000 tax provision last year. During the quarter, we generated $5,400,000 in cash from operations compared with $5,100,000 last year. As of September 30, 2015, we had cash, marketable To close, I'd like to highlight a few factors you should consider when thinking about Etsy's Q4 of 2015. Although we won't be providing quantitative quarterly guidance, we will continue from time to time to highlight qualitative factors to keep in mind that could impact a specific quarter. For the Q4 of 2015, I'd like to highlight 2.
First, from an overall business perspective, as Chad mentioned, we're excited about our competitive position as we head into the Q4, our biggest of the year and the upcoming holiday season. We have a great holiday campaign planned. Some of it is already visible on our site and we believe this campaign is our strongest holiday effort to date. We're confident that Etsy will be the shopping destination for unique items with a personal connection to the maker. Even so, just like we conveyed in the 1st and second quarters of 2015 and as we have pointed out in our 3rd quarter results, if currency exchange rates remain at current levels, then they will negatively impact our year over year GMS growth rate.
The second qualitative factor I'd like to highlight is that from a modeling perspective, the operating leverage that we achieved in the 3rd quarter will not repeat in the 4th quarter for three key reasons. Number 1 is that we don't expect our gross margins to expand year over year in the Q4 as it has during the last three quarters of this year. This is because Promoted Listings is anticipated to grow more slowly than direct checkout in the Q4 after 3 consecutive quarters of growing at least 2x as fast. I'd remind everybody that the Q4 will be the 1st full quarter following the anniversary of the relaunch of Promoted Listings. As such, we expect the year over year revenue growth rate for this service to decelerate significantly when compared to the 1st 3 quarters of 2015.
We also expect direct checkout growth to accelerate following our recent integration of PayPal. So in short, we anticipate that this shift in seller services revenue growth drivers will be a drag on our gross margin. The number 2 reason we won't show the same operating leverage is, as we have in the 1st three quarters of the year, we plan to spend more on marketing in absolute dollars in the Q4 compared to the Q3 2015 and the Q4 of 2014. Therefore, we expect marketing expenses to continue to grow faster than our revenue in the 4th quarter. That being said, we do expect the year over year growth rate for marketing expenses to decelerate in the 4th quarter compared with both the Q3 of 2015 and the Q4 of 2014 as our marketing spend growth begins to plateau.
Finally, the number three reason we won't show the same operating leverage, as has been the case in the 1st 3 quarters of the year, we expect our number of net hires in the 4th quarter to be greater year over year, but flat quarter over quarter. And with that, I'd like to turn it back to our operator, Sabrina, to open up the call for Q and A. Thanks.
Thank Our first question comes from the line of Heath Terry of Goldman Sachs. Your line is now open.
Great, thanks. Christine, I was wondering if you
could give us a bit of an update on the progress in building out local sellers in some of the key markets that you've been working in as a way to offset the impact of FX on the dollar based sellers that you have cross border transactions? And then, to the extent that you're exploring, same day delivery here in New York, around the holiday season. I realize it's way too early to say anything specifically about how what kind of impact that's having. But curious as to the response from sellers to the rollout of that. What sign up has been like and what the interest level has been like from sellers outside of New York City?
So Heath, I'm going to jump in. This Chad speaking, obviously. Thanks, Chad. The local marketplaces, as I mentioned in my remarks, one of the things that we've learned from talking to our sellers and our buyers, I mean, in the UK and Australia, for example, and again, the UK is the strongest market, is that those buyers tend to prefer buying local goods in those markets. So as I mentioned, we've been running tests and search to local merchandise, domestic merchandise in those markets more prominently to really meet those buyer needs and expectations.
We're just testing that right now, but that's one way that through the search experience, which drives a lot of traffic and transactions to drive that local marketplace. On SCSAP, it's very much a test at this point. What we noticed in the last holiday season was a lot of local activity here in New York City. So as the days go on and it gets closer to Christmas or Hanukkah, we noticed that buyers in the New York area were buying from local sellers even through our normal system. So we're just piloting that out.
It's one of the best, but I think what we're really focused on there is it's more about buying local and promoting that local community. I think it's important to note to those of you on the call who live in the New York area on Wall Street that we deliver to you. So please take advantage of it.
And Heath, I'll just add a couple of quantitative points to Chad's comments. With regard to international seller, as we've talked in the past the different buckets of GMS, U. S. Seller to international buyer being the biggest bucket of international GMS, But international seller to U. S.
Buyer continuing to grow nicely. And of course, as we mentioned on the call, local international seller to international buyer doing very well. So we continue to see great health in our international sellers. And a lot of it has to do with the kinds of efforts that we're making, Chad mentioned on the product side and also continued grassroots effort to attract sellers to the platform. On the question of Etsy ASAP, I think it is important to note, it is a pilot.
The sellers who are in it were handpicked. So we're not expecting sellers to sign up for the program because it's a pilot. It's a small group of sellers who are participating. But still a lot of nice inventory and I encourage you to go to site and look at what we're offering in SCA ASAP right now on the platform.
Great. Thank you.
Thank you. And our next question comes from the line of Brian Nowak of Morgan Stanley. Your line is now open.
Thanks for taking my questions. The first one on the lifetime value and the way you're evaluating the ad spend. Can you just help us better understand kind of the how you're quantifying in the global attribution model the positive ROI? And what's the best way externally for us to kind of get an understanding for the ROI in your ad spend? And then the second one, just be curious for any impact at all since Amazon launched Hand Made and kind of how you think about the seller overlap and any impact from the sellers moving on to Amazon at all so far?
Thanks. Yes. We'll take the second one first, the question about Amazon Handmade. As I've said before in other venues, we know our sellers extremely, extremely well. We've been working with them for a decade.
And we believe that Etsy is the best platform for them to be creative entrepreneurs and build businesses on their own terms. We also know and have talked about before on these calls that half of our sellers sell in multiple venues and that Etsy is the primary source of income for those sellers who sell in multiple venues. So really based on what we're seeing in our conversations with our sellers, we have no reason to believe that any competitors are having an impact on our seller business right now.
And Brian, to follow-up on your marketing question, I'm really glad you asked this question. I think there's been some analysis done out there that doesn't capture our marketing spend accurately. And so this gives us a chance to talk openly about it. As we noted in our prepared comments, year over year growth in marketing spend during the 1st 3 quarters of the year has been impacted by business changes in reorg that we put in place in September 2014. So it's actually not comparable.
And as we noted in this particular quarter, it was up 74% year over year on a comparable basis, 57% in the 2nd quarter on a comparable basis when we reported 77%. And in the Q1, it was up 45% on a comparable basis when we reported 63% growth. So making a quarterly connection between our marketing spend and its efficiency is disconnected from our global attribution model because our LTV is a 2 year LTV. So when we're looking at a positive ROI, we're still looking at $1 in and $1 out over a 2 year basis. So for example, when you look at quarter when you look at quarterly marketing spend, we don't take into account any seasonal spend, and you'll be able to see this when you look at the 4th quarter, which is our biggest quarter, but from a year over year growth rate perspective, starts to taper down.
Another reason that Kansas marketing spend divided by active buyer is not so accurate for us is because it includes a number of expenses that go beyond direct new buyer acquisition costs. We're only paying, so to speak, in quotes for a small minority of those active buyers. It's another reason why the math of marketing spend over kind of a net ad number doesn't work. We're not spending money to acquire each of our active buyers. And when you look at our marketing expense, at a growth level, it contains many other things, PR, seller development, brand design, brand research and not just our digital marketing dollars.
And the last thing that's important to keep in mind is that 90% of our GMS comes from organic sources. So only 10% of it is a result of our paid marketing dollars. And paid GMS, as we pointed out, has grown nearly 2.5x our reported GMS growth rate in the 1st 3 quarters of the year and has that paid GMS has made an outsized contribution to our new buyer growth. So that's why we feel confident when we look on a quarterly basis, that our digital marketing dollars that are being put in place are performing well. The second layer to that, of course, is the positive ROI model.
And we've committed to remaining ROI positive at the aggregate corporate level.
Great. Thanks. And then one more follow-up just on the manufacturing marketplace Chad talked about. How should we think about kind of cadence of kind of go to market and kind of pushing that out? Or is it a 'sixteen event?
Or is that something you're going to look to do in the 4th
quarter? So it's important to note that this is a slow rollout. We're still working out the business model for it. If you recall, for example, we launched wholesale a little over a year ago, and wholesale is still very much a contained product for us that we're still fine tuning. So what I would say is, not to think of it even, from a 2016 perspective as a significant contributor.
Really think of it for us, it's just the beginning. It's just the first inning of what we think is a great long term opportunity for Etsy.
Great. Thanks.
Thanks, Brian.
And our next question comes from the line of James Kacke of Monness, Crespi, Hardt. Your line is now open.
Hi, thanks for taking the questions. I appreciate all the color you've been you provided on the marketing side. Just, Christine, so I understand correctly, so if I look at just snapshot here for the Q3, it's been about $10,000,000 on search and then product ads and about 10% of your traffic is paid. So is the math looking at $10,000,000 to acquire about 100,000 new buyers this quarter? Is that the way to think about the customer acquisition costs?
And then, Chad, I guess, on the organic growth in buyers, the search is one of the things that you guys have really talked about and want to understand what is that exactly being done on the back end to work with that to create a structured data set which can potentially even further improve your organic traffic?
So I'll take the marketing first and then Ted can answer your search question. So James, just to be clear, we're talking about 10% of our GMS, our paid GMS comes from our marketing spend. So we disclosed that we spent about $10,000,000 in the quarter between GPLA, SEM and affiliate marketing. And if you take out 10% of our GMS, that would be it's not directly correlated in the quarter because of our 2 year LTV. But if you insisted on doing a quarterly comparison, that would be your best comparison as to what that $10,000,000 generated.
And on the search side, I'll talk about it in 2 different ways. We obviously have the question was about organic search. We continue to make investments in SEO. Over the past quarter, we've launched a new category browsing system on Etsy that you'll see if you look at the homepage. We believe that this is more SEO friendly and more search engine friendly, but really early days of that.
On the on-site search, we talked a bit about this in the last quarter, but we've been live now for a few months with exploratory search, which is really leveraging all the investments that we've made in big data and data analysis to create out of all of the unstructured data on Etsy over 30,000,000 listings, a very structured shopping experience that is useful and satisfying to a typical commerce buyer. So we continue to invest on both sides of the organic search via outside search engines, but also our search engine on Etsy.
Okay. Thank you. And just one follow-up. How important is it for you to maintain growth in active buyers that outpaces the growth of active sellers? Is it going to be more about just making sure that flywheel is going?
Because we have seen the growth rates begin to increasingly converge or is it more about gaining more and more wallet share from your existing base? Thank you.
Sure, James. So the first thing I'd say is we don't actively connect active seller growth with active buyer growth. So distinct initiatives for us. On the active seller side, what we said consistently is we don't believe we have an inventory problem. The opportunity we have is to connect our amazing 1,500,000 active sellers with more and more buyers over time.
And so when we think about active seller growth, that active seller growth that you see is largely organic. We don't have plans in place or significant initiatives in place to acquire sellers proactively. And so we get really excited when we see our active seller growth because it's a testament to the whether it's engaging our existing buyers for acquiring new ones, we're certainly focused on proactively focused on growing active buyers. When we look at the current growth in this quarter, we anniversary ALM, the acquisition of a little market, which represents about 2 to 3 percentage points of active buyer growth. And the second thing I'd like to point out also in realm is to remember, that our U.
S. Seller to international buyer, GMS, which is our biggest bucket of international GMS, that GMS declined 12% year on year when compared to 6% decline in the 2nd quarter, flat in the first quarter and then up double digits in both the 4th quarter and third quarters of last year. So what that means is that our international buyer activity has been contracting in the
And our next question comes from the line of Gil Luria of Wedbush Securities. Your line is now open.
Yes, thank you. So you mentioned your seller growth. It looks like the net add the seller net adds in the quarter were the lowest you've reported and were significantly down year over year. What do you ascribe that to?
Jill, as we've said before, we don't really think about it in terms of net adds. When we look at active seller growth, it's active seller growth over the course of the 12 month period. And from an active seller perspective, we're not looking to add on a quarterly basis. So from our perspective, we look at our active seller growth and we're really excited about it. It represents largely organic growth and points to the power of our platform.
Got it. And then you Got it. And then you mentioned the shift to integrating PayPal into direct checkout. So it sounds like you're no longer that now direct checkout is mandatory for any new store. Could you remind us when you you're no longer that now direct checkout is mandatory for any new store.
Could you remind us when you started that and when that anniversary is next year?
We launched it on October 27. So it's actually a 4th quarter launch, not a 3rd quarter launch. So we'll anniversary on October 20 7, 2016.
Got it. Thank you.
Thank you. And our next question comes from the line of Thomas Forte of Breen Capital. Your line is now open.
Great. Thanks for taking my question. So the first one I had was on the Etsy manufacturing marketplace. What gives you confidence you'll be able to roll out this initiative and basically protect your brand, basically meaning forged agreements with manufacturers that are true to the way the Etsy does business? And then second, just so I'm clear, you sort of answered this question, but when did you begin experiencing the pressure on the international FX exchange rates on buyer behavior, we can know when you're going to anniversary that next year?
Thanks.
I'll take the first one and Christina will take the second one. Thanks, Tom. On FE Manufacturing, I think it's really important to understand that the network that we're building is very as I mentioned, we're reimagining manufacturing, and it's more human, it's smaller scale. And what we're seeing in the early days of the launch of our marketplace, it's been out a few weeks now, is that the range of participants are, as I said in my earlier remarks, range from Etsy sellers, we've seen a lot of Etsy sellers who are offering their excess capacity to other sellers to very small operations, like I mentioned, the 4 person, 3 d operation, up to family owned factories. So in terms of the brand, we think that we're really proving this reimagination of commerce via the product and showcasing manufacturers in a way that is very consistent with the brand, very transparent and very values aligned.
So we think over time, we're just proving it with the product and the participants in the marketplace. We're being very selective and very careful in who we allow. Up until now, we've had about 600 manufacturers apply in the marketplace to give you a sense of scale at this point.
And Tom, to answer your FX question, I think our international buyer to U. S. Seller activity mirrored global currency. So if you were to look at the euro, for example, which is the currency we're most exposed to, we're also exposed to the Australian dollar. The euro started to very gradually slide in the 4th quarter and the beginning of the Q1, but it really took a dive, in the second half of March of this year.
If you go back and look at euro to U. S. Dollar charts, you'll see what I mean. And so from our perspective, we start to anniversary this in a significant way in the second half of March of twenty sixteen.
Great. Thank you very much.
You bet.
And ladies and gentlemen, this does conclude the program for today. Thank you for participating. You may all disconnect. Everyone, have a great day.