EBay Inc (EBAY) — Q3 2016 Earnings Call Transcript

Thank you, operator. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2016. Joining me today on the call are Devin Wenig, our President and Chief Executive Officer, and Scott Schenkel, our Chief Financial Officer. We're providing a slide presentation to accompany Scott's commentary during the call. We've also included a structure data update in the appendix. All revenue and GMV growth rates mentioned in Devin and Scott's prepared remarks represent FX neutral year-over-year comparisons unless they clarify otherwise. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the investor relations section of the eBay website at investors.eBayInc.com. You can visit our investor relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for 90 days through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of eBay Inc. and its consolidated subsidiaries, including expected financial results for the fourth quarter and full year 2016, and the future growth in our business. Our actual results may differ materially from those discussed in this call for a variety of reasons. You can find more information about risks, uncertainties, and other factors that could affect our operating results in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the Company's investor relations website at investors.eBayInc.com or the SEC's website at SEC.gov. You should not rely on any forward-looking statements. All information in this presentation is as of October 19th, 2016, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks, Selim, and good afternoon, everyone. We delivered good top and bottom line financial results in Q3, led by consistent performance in our core eBay platform and strong growth from StubHub and Classifieds. We made progress on our strategy, began activating our new brand marketing messages, and we readied our organization to execute in the upcoming holiday quarter. Overall, total GMV was up 5% for the quarter, while revenue was up 8%. GMV decelerated modestly while revenue accelerated a point. GMV deceleration was driven primarily by StubHub lapping last year's product changes and in part by the shift of marketing spend to longer cycle brand investments on our Marketplace platform. The revenue acceleration was driven primarily by lower contra revenue spend and a VAT settlement. Active buyer growth was 3%, and we added over 1 million additional buyers to our platforms in Q3. GMV on our Marketplace platform grew at 4%, while StubHub grew volume at 23%. And our Classified platform grew revenue at 14%. Finally, we repurchased $0.5 billion of our stock, and we closed several key acquisitions that we announced over the last several months. On our Marketplace platform, we continue to make steady progress against our strategy to drive the best choice, the most relevance, and the most powerful selling platform. In Q3, we signed several new strategic brand partners, including Mattel, Fender, Qualcomm, and Magic Chef, enhancing our efforts to drive more choice for our consumers. Using our data, we're also increasingly reaching out to our sellers to prompt them to source and list in-demand goods where we see gaps in supply. And finally, in the past several months, we've launched several new curated vertical experiences in Fashion and Home and Garden. Most recently, we announced eBay Collective in the U.S., a shopping destination which provides consumers with curated inventory for antique, modern, and contemporary furniture and fine art. This is similar to the approach we took earlier in the year with the launch of our curated wine category on eBay, and it's an approach we'll seek to replicate going forward, where we see the opportunity to do so. I'm particularly excited about the improvements we're making to drive the most relevant shopping experience for our consumers. We continue to process more data from our structured data initiative, which enables us to have better insight into the inventory on our site and to build better user experiences. In Q3, we increased the percentage of structured data listings processed to 48% of relevant live listings. The ongoing growth in penetration of structured data is enabling us to accelerate the pace of new browsed and product page launches, and we ended Q3 with over 100 million pages built on structured data that showcased our inventory in ways that were not possible just a year ago. We're further enhancing these pages by introducing new features, such as multiple top picks, product comparisons, and limited time deals, and we continue to see significantly higher conversion. While these early results give us continued confidence in our strategy, our new pages are currently being exposed to a very small fraction of our traffic. The majority of our business today comes through our organic, on eBay search funnel. Over time, we expect to start introducing these new experiences to our organic traffic. Now while we're moving at an urgent pace, you can expect us to take an intelligent approach to this transition to ensure that we don't disrupt our customers along the way. Another area I'm excited about is mobile. Since the launch of our redesigned eBay mobile apps in May, customer reviews have trended higher as we have significantly improved the speed and usability of our apps. Our ability to rapidly iterate on user feedback has enabled us to keep this positive momentum going. We recently released the fifth update to our new mobile experience in the past five months, and this cadence of improvements is translating into better growth, with Q3 being the second quarter in a row of mobile growth acceleration. We're also beginning to leverage artificial intelligence to power unique commerce experiences for our users. Yesterday, we announced the beta launch of eBay ShopBot on Facebook Messenger, a personalized shopping assistant that enables people to find the best deals from eBay's 1 billion listings. Our vision is to make shopping with eBay as easy as talking to a friend, whether you're looking for something specific or you're browsing for inspiration. eBay continues to be one of the leading consumer brands in the world, having recently been ranked number 32 by Interbrand in their 2016 Best Global Brands report. This is the same position that eBay achieved in 2015, and we view this as positive because the recent ranking reflects the first full year post the PayPal separation. With that, we've also been doing considerable work to sharpen our brand. During Q3, we began to activate our new brand messages by running several marketing pilots externally. We continue to shift more of our marketing resources towards top-of-the-funnel consideration, and we'll further ramp our external efforts during the upcoming holiday season and into 2017. This includes plans to advertise on TV in the U.S. and Europe during this holiday season, which we have not done since 2014. Finally, we continue to execute on our plans to deliver the most powerful selling platform. In August, we launched Seller Hub to all U.S. sellers and have recently begun the process of rolling that out to international markets. Thus far, over 0.5 million sellers have used Seller Hub, and we're seeing early improvements in key listing metrics and strong adoption of marketing features, such as our promotions tool, and we're steadily expanding our promoted listings product, enabling more and more sellers to bid their inventory replacement in search results. We also today announced the launch of an entirely new set of APIs, making it simpler for our developers and sellers to rapidly integrate with eBay and onboard all their inventory using retail and industry standard practices. On the consumer selling side, we continue to simplify selling on eBay. We recently began rolling out our simplified listing flow to a portion of first-time consumer sellers. While still early, we're seeing better completion rates and improved listing quality. We're also seeing strong demand for our assisted selling service, eBay Valet. We now have drop-off sites live in 1,700 FedEx locations and we've made several improvements to enable a better user experience, including upfront value estimation and item eligibility. And in September, we launched quick sell, which enables consumers to trade in their mobile phone with transparent pricing, taking advantage of mobile phone industry upgrade cycles. StubHub continues to innovate and execute against the large and increasingly global market opportunity. The team continues to drive innovative user experiences, expanding our virtual reality technology to 55 total venues, which represents over one-third of ticket sales on our native app platform. We also recently launched our blended primary and secondary ticket experience for the Philadelphia 76ers and launched the ability for users to receive support through a Skype chatbot. Growth began to slow in the quarter as we started to lap the product changes we made last September, and our comps will get more difficult from here. However, we believe our strategy of expanding internationally and selectively tapping into the primary market will serve us well over the long term. Our classified platform continues its good growth, driven by strong vibrancy metrics across our major markets, increased engagement with our native mobile apps, and continued strength in the motors and real estate verticals across our key markets, and we’re working to leverage all three of our platforms to drive great consumer experiences. The eBay and Gumtree inventory integration effort that we launched in Australia in Q2 show good results. And we’ll now roll out the integration of core inventory into our classified sites in several other markets. We also began testing ticketing in inventory integration between Kijiji Canada and StubHub. We envision tying our strong eBay assets closer together over time to enable a more unified experience for all of our consumers. In summary, we’re making meaningful progress on our strategy while delivering good financial results. Replatforming a business of our size and scale takes time. However, our pace of innovation is accelerating. We’re increasingly using structured data and artificial intelligence to transform shopping on eBay, delivering more personalization capabilities, continuing to iterate our mobile experience, and bringing more unique inventory and categories to our customers. We’ve got more work to do, but I'm confident we’re on the right path. Now, let me turn it over to Scott, and he’ll provide more details on our Q3 results.

Thanks Devin. In Q3, business performance was stable, and we delivered good financial results while executing on our strategic priorities. StubHub and Classifieds continued growing double-digits, and the marketplace improvements we saw last quarter are still evident in mobile C2C and SEO. As we reflect on the last nine months, we remain confident in our strategy and we continue to make progress. During my discussion, I’ll reference our earnings presentation beginning on Slide 4. In Q3, we generated $2.2 billion of total revenue, $0.45 of non-GAAP EPS, $617 million in free cash flow, and we repurchased $500 million of our stock. In addition, we are raising the full-year guidance on revenue and expect to be in the middle of the previously communicated non-GAAP EPS range. Let's start with Q3 active buyers on Slide 5. In the quarter, trailing 12-month growth was down 1 point to 3% year-over-year. The quarter-over-quarter deceleration was driven by lapping last year’s increased marketing spend in India. On Slide 6, we enabled $20.1 billion of GMV in Q3, up 5% versus last year, decelerating 1 point versus prior quarter, driven by StubHub and U.S. marketplace platform. By geography, the U.S. generated $8.4 billion of GMV, up 3%, while international delivered $11.7 billion of GMV, up 7% year-over-year. Moving to revenue, we generated net revenues of $2.2 billion, up 8% versus last year, accelerating 1 point versus Q2. We delivered $1.7 billion of transaction revenue, up 8%, and $470 million of marketing services and other revenue, up 10%. Transitioning to our Marketplaces platform on Slide eight, Q3 metrics showed 4% year-over-year growth, rounding down 1 point versus Q2. U.S. GMV decelerated as we shifted marketing spend to more brand awareness, which tends to have a longer payback as we start to influence consideration. International GMV improved slightly quarter-over-quarter rounding up a point. Total Marketplace revenue was $1.8 billion, up 5% year-over-year, a two-point acceleration versus prior quarter. Transaction revenue grew 5%, up three points quarter-over-quarter. This acceleration is attributed to reduced marketing incentives that show up in contra revenue along with the VAT settlement. Marketing services and other revenue grew 5%, decelerating six points versus Q2, driven by tougher comps from the PayPal operating agreement. Moving to Slide 9, StubHub had another strong quarter, delivering 23% GMV growth and 32% revenue growth, driven by strength in concerts, theater, and major league baseball. In the quarter, we closed both the TicketbiS and Ticket Utils acquisitions, adding to our international presence and improving seller tools. Moving to Slide 10. In Q3, Classifieds revenue grew 14% year over year, a 1 point deceleration from last quarter. The automotive and real estate verticals in our key markets remain strong while ad revenue growth modestly decelerated. Our key engagement metrics like visits, replies, and listings remain healthy, and we will continue to innovate across our mobile apps, which are increasingly more important as traffic continues to shift to mobile. Turning to Slide 11 and major cost drivers, in Q3 we delivered a non-GAAP operating margin of 29.9%, which is down 200 basis points versus last year. The impact of a strong U.S. dollar pressured margins 200 basis points. The foreign exchange impact was felt across all spend categories. So I'll focus my comments on the operational dynamics of our expenses. Roughly half the increase in cost of revenue was driven by the mix of our faster-growing platforms like StubHub, which have an inherently lower gross margin. Q3 sales and marketing expenses increased slightly as we shifted spend away from seller incentives that show up in contra revenue and redeployed to top-of-the-funnel channels like brand marketing. Product development is an area where we have been investing more heavily and half of the year-over-year increase is from our work on the Marketplace product experience. G&A expense was down roughly 80 basis points year-over-year from strong operating leverage. Moving to Slide 12, in Q3 we delivered $0.45 in non-GAAP EPS, up $0.02 versus prior year, driven by revenue growth and the net benefit of share repurchases, partially offset by the impact of a stronger U.S. dollar. In Q3 GAAP EPS was $0.36, down $0.09 versus last year. The drop in GAAP EPS is driven by last year's investment gains in SnapDeal and the difficulty in reporting in that quarter. As always, you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. On Slide 13, in Q3 we generated free cash flow of $617 million, up 34%, largely due to lapping separation-related costs incurred last year. We remain on track to deliver our full-year guidance of $2.2 billion to $2.4 billion. CapEx was 8% of revenue in Q3, and our full-year guidance remains at 7% to 9%. Moving to Slide 14, we ended the quarter with cash, cash equivalents, and non-equity investments of $10.4 billion, of which $2.7 billion is in the U.S. In Q3 we repurchased 16.5 million shares at an average price of $30.29 per share, amounting to $500 million in repurchases. We have completed share repurchases of $2 billion this year, or roughly 115% of our year-to-date free cash flow. We ended the quarter with $2.3 billion of share repurchase authorization remaining, and we are on track with our full year plans for share repurchases, which will represent $500 million for Q4. Let me remind you about our strategy and overall philosophy on investments. We regularly review and actively manage our investment portfolio to ensure that our investments support the Company's strategic direction and complement our disciplined approach to value creation, profitability, and capital allocation. With this in mind, we recently sold most of our stake in MercadoLibre. We remain committed to our customers in Latin America and we have signed a strategic agreement with MercadoLibre that is designed to advance cross-border opportunities for our sellers who are targeting buyers in Latin America. The sale has enabled us to realize roughly $1.2 billion of gross proceeds. We are currently working through the exact U.S. and international tax implications, including the timing of cash payments which could have an impact on our free cash flow. We intend to use the net proceeds in a manner consistent with our capital allocation policy. Now moving to guidance on Slide 15, for Q4 we are projecting revenue between $2.36 billion and $2.41 billion, growing 4% to 6% year-over-year. We expect non-GAAP EPS of $0.52 to $0.54 per share, representing a 4% to 8% as reported year-over-year growth. The EPS growth is driven by revenue growth and the net benefit of our share repurchase program, partially offset by the impact of a stronger dollar. Based on Q3 performance, we are raising revenue guidance for the full year. Revenue is now projected to be $8.95 billion to $9 billion, growing 6% to 7% year-over-year. Our non-GAAP margin guidance range of 31% to 33% is unchanged. However, we continue to expect to be at the low end of this range. We are raising our full-year non-GAAP tax rate slightly to 19.5% to 20.5%, and now we expect our non-GAAP EPS to be in the middle of our previously disclosed guidance range of $1.85 to $1.90 per share. Due to the sale of our stake in MercadoLibre, we are raising our full-year GAAP EPS guidance to $2.22 to $2.32 per share. As we enter Q4, I'd like to take a moment to reflect on 2016. We started the year expecting to grow revenue in the 2% to 5% range. Year-to-date, we have executed on and aligned our investments behind our strategic initiatives while increasing our revenue growth outlook to 6% to 7%. The Marketplace platform began seeing green shoots from our re-platforming and while our efforts are positive, they have not yet materially impacted the trajectory of the overall business. StubHub enjoyed performance over the past three quarters and has now started lapping the product changes from last September, which will carry into next year. Classifieds continued its double-digit growth while investing in mobile innovation, and we started lapping the PayPal operating agreement revenue in July, which puts pressure on our marketing services revenue growth. While accelerating our revenue growth this year, we increased investment in product development and brand to invest in future growth. That combined with our recent acquisitions and integrations has been paid for with operating leverage in G&A and redeployment within marketing. And while we are relatively well protected on net income due to our hedging program, the stronger U.S. dollar has driven roughly 150 basis points of ongoing margin compression year-over-year. Throughout 2016, we continue executing on our disciplined capital allocation strategy, and we have been acquisitive in the areas of geographic expansion in tech and talent while returning $2 billion worth of capital to shareholders in the form of share repurchases. Since the separation with PayPal last July, we have repurchased $3.2 billion worth of our shares or roughly 11% of gross shares outstanding. Our strong ongoing cash flow, along with the cash and the sale of our stake in MercadoLibre allows us to continue our disciplined capital allocation strategy, including returning of capital to shareholders through share repurchase. In closing, we are focusing on the holiday season in Q4 and continuing to lay the foundation for 2017 and beyond.

First a high-level question and a follow-up on the buyer growth. So the high-level one is, I think most investors understand that these re-platforming exercises take a number of years, as we've seen with other companies who have gone through the same thing, and you guys have said that the aspirational goal at the end of the day is to get back to double-digit e-commerce growth rates. So as we look over to next year and you start cutting more traffic over to these higher converting pages, when do you think we'll start to see the GMV growth start to pick up? Any color there would be helpful? And then on the active buyer side, what are you seeing right now in the current quarter in terms of churn and new buyers coming in to get to that 1 million that you added in the quarter? Thank you.

Ross, thanks. I'll start and then I'll turn it over to Scott. Yes, as we've said, I think consistently for the last year, this is a large effort to re-platform our business. We have an amazing flywheel, but the re-platforming is necessary to simplify eBay and to make it more relevant for our consumers and our sellers globally. We feel very confident we're on the right track. Where we've been able to add structured data, where we've been able to build new experiences on it, now 100 million pages, we're very happy with those results. In fact, they're in line with exactly what we had hoped when we engaged in this initiative. We've also said that it's not a light switch that you turn on or off. Because we have such a strong core business and so much of our traffic is organic through the core search funnel, it's a careful exercise and it isn't a switch that you just turn on. We've got to introduce these new experiences carefully because we have a high converting, high traffic channel, which is the organic eBay funnel and the organic search channel. So, we think we're on track and vis-a-vis GMV, one of the things I just note is that in our business, it's always been very difficult or impossible to look at GMV without revenue. We spend and subsidize at times. We do deals and promotions. We'll do that through the holiday. As we said here, the U.S. deceleration here was driven by a very conscious effort to begin to move our marketing spend into top of the funnel. As we start to introduce these new experiences and we think our customers like it, that's evidenced in higher conversion, we think it makes more sense to spend up the funnel. That does lengthen the timeline. That does mean you may move it from say a subsidized deal, which would have been GMV in the quarter to a brand campaign, which doesn't tend to work that quickly. But that's okay. We said we’re doing this for the long-term. We’re building a moat around eBay’s business, and we’re going to do this in a considered way, so that the business is more competitive and relevant than it's even been. And I'm really pleased with that. I think that’s right where we want to be. I’ll turn it over to Scott, and maybe he can comment on the second part of your question, which is a buyer question.

Yes, Ross, on active buyers, look, as you saw, we have 165 million active buyers. That’s 5 million more than last year this time and 1 million more than last quarter. And that’s 3% of trailing 12-month growth, a little less than 1 point of deceleration. Specific to the deceleration, it's really driven by lapping a campaign we did last year in India, to push the efficient frontier around CLV in that business. The underlying cohorts of our major markets remain stable. New buyer acquisition is stable. To Devin’s point, we're not yet really seeing acceleration from our structured data and SEO efforts and what we’re doing around the replatforming. But it's stable. And retained and reactivated and GMV per buyer in those buckets and the retention curves also remain stable.

I have one question. You mentioned that you plan to increase marketing in the fourth quarter and beyond, but at the same time, you noted that the number of visits or users engaging with the new browse pages based on the structured data is still quite limited. So why increase marketing if the new experience will only reach a small segment of the traffic? Can we assume that this will change as you increase marketing efforts, or is there another explanation? Thank you.

That's a great question, Carlos. I would say two things. First, our top-of-the-funnel brand marketing enhances everything we do. Regardless of whether people find us through the core eBay funnel or through Google’s search results, we believe that improving the consideration of the eBay brand takes time but will ultimately benefit all our channels. That's an important reason to initiate this effort. With 100 million pages already available, even if we don't increase exposure through our core channel, we will still see benefits since many visitors come to our site via external search results. Additionally, we are planning to expand our reach this holiday season, specifically through our category and landing pages, which will feature many of our holiday campaigns. We will gradually increase the visibility of these new pages to more of our traffic over time. The benefits to our brand are quite clear. Although we wish for a quick payback period, brand development typically doesn't work that way. To reiterate, I appreciate our sharper brand positioning. Despite commentary on the functional gaps we need to address, such as our inventory of new and in-season goods—60% of which arrives within three business days—those factors alone are not enough. What makes eBay truly unique is that everyone can find their version of perfection among our vast inventory, which includes items you can only find here and great deals on our core products. It's a more emotional and resonant shopping experience, yet many consumers are unaware of this. Thus, it's worthwhile to shift marketing funds, even if it has a short-term impact on subsidizing deals. The balance we aim to achieve is delivering consistent financial results while pivoting our marketing spend to strengthen the eBay brand. This thought process guides our decisions on marketing expenditures and the pace at which we introduce new structured data pages.

Following up on Ross and Carlos' question, I'm curious about the impact of structured data, which is still developing. We've discussed the auto category in previous calls. Can you provide insights into how other product categories are performing? Are there areas with more benefits and others with less? It would be helpful to understand how different product categories are responding to structured data across the broader platform. Additionally, regarding StubHub, I would like to hear your thoughts on the competitive landscape, especially considering the improved take rate for the second consecutive quarter. What factors are driving this improvement, and how does it relate to competition? Thank you.

Thanks, let me address both of those questions. First of all, we have processed 42% of live listings, which covers a variety of categories. Additionally, 48% of experiences built on this data indicate that we are not limited to specific verticals; we are encompassing a broad range. It's important to note that we are still largely focused on external search rather than the core search funnel. The two key metrics that simplify this are traffic and conversion. When I compare the new page to the old one, I see that the new version is simpler, better organized, and highlights what makes eBay unique. Beyond aesthetics, the data clearly demonstrates a significant increase in conversion rates. After replacing the page, the conversion improvement is evident and meaningful. However, as we approach channels with better conversion rates, such as core search, I anticipate we may not sustain these gains due to competition with those more effective channels. Nevertheless, these experiences are positive, and our data indicates that customers appreciate them and are converting well on these pages. The performance is consistent across categories, and the data improvements are quite significant. Regarding StubHub, we are very pleased with the business. They have made notable enhancements to their brand, product features like ticket recommendations, and have launched an updated marketing campaign. Their careful entry into primary markets through partnerships with top franchises and teams has been beneficial. Following significant product changes last September, we saw rapid growth, although we are now reaching a limit. This, however, does not alter our view on their competitive standing. Through the acquisition of TicketBis, we have also entered the international market, and we believe we are just beginning to explore the opportunities in the secondary ticket market globally. Competitively, StubHub remains strong, and we regard it as the leading player in both the secondary and increasingly the primary ticket markets. While we will continue to confront the effects of last year's rapid growth for several quarters, we remain confident that this is a promising long-term business that thrives as part of eBay, and we are committed to its growth.

I have a question about the recent slight increase in the overall take rate in the Marketplaces business and the shift towards more brand advertising this quarter. Can you clarify how these two factors might be connected, particularly in relation to the reduced reliance on some of the contra revenue promotions to drive GMV growth?

Heath, I have a few points to mention. First, as we have discussed before, we always anticipate some degree of variation in the mix between different geographies, categories, seller types, and countries. Quarter-over-quarter, we've seen a 10 basis point increase in transaction take rates for the Marketplaces business, which is consistent with historical trends and relatively flat compared to last year. Regarding our spending on contra, we have been exploring the limits of our investments in areas such as buyer coupons, seller incentives, and inventory incentives from one quarter to the next. As previously mentioned, we view these expenditures as part of a larger category, whether they appear as marketing spend, negative or positive revenue, or marketing expenses. Our main focus is on identifying avenues for growth, customer acquisition value, and similar metrics. This quarter, we reduced our reliance on buyer couponing, seller incentives, and inventory incentives compared to last quarter and year-over-year, which had a positive effect on the overall revenue rate. Additionally, as Devin pointed out, this shift, along with reallocating some lower marketing channel expenditures, marks the beginning of our transition to activating our brand. I think that's fair. While we could analyze each channel individually, when considering COV, it doesn't mean we won't invest in the future. We are continuously monitoring it. Regarding the GMV baseline you mentioned, I agree. To add to that, everything we focus on isn't about quickly generating GMV with our balance sheet. Offering discounts on products isn't particularly challenging. We're quite disciplined and only do it to acquire customers and enhance growth. Our priority is on achieving sustainability and distinguishing ourselves in the market. The brand and product contribute to that. That's how eBay becomes more robust over time, and that's where we are directing all of our efforts. If we can shift away from less valuable subsidies to investments that will have a long-lasting impact and genuinely differentiate us, we will do so without hesitation, even if it affects us in the short term.

Yes, and Heath, to put the GMV in context, U.S. was down a point really, catching around and international was up a point. So in total, while we're down quarter-over-quarter 1 point, it's relative around the edges on the underlying GMV being stable.

I just have a couple of questions. Devin, just thinking about structured data, just the timing. I think people want to be patient but want to think about when the board or when shareholders could really think about when we really should see the biggest impact or when you'd be in the sweet-spot for that. And then are there other initiatives in the pipeline beyond that, if structured data doesn’t turn out to have a material impact on GMV, other things that you think are really important to point out as you look out the next couple of years? And then maybe if you can help at all, just wondering about StubHub and Classified margins versus the core. If you can give us any help with that. Thank you.

I’ll start with the first part, and then Scott can elaborate on the second. It's important to remember that structured data serves as an input rather than an output. Our strategy is focused on relevance, choice, and providing the best shopping experience, with structured data facilitating that process. Therefore, I don’t believe it's accurate to suggest that we are relying solely on structured data. Our approach aims to create a distinct brand, unique inventory, and a simpler, more appealing shopping experience. This effectively sums up our strategy, and we are actively progressing on all fronts. While structured data acts as a foundational element, it is not the only critical factor. It's essential to recognize that our strategy is multi-faceted. Although structured data is a significant part, it is still an input rather than an output. In terms of timing, we maintain that this process will take time. Results won’t be instantaneous; it won’t happen in just one quarter. We mentioned this last quarter as well. The transition involves replacing high-converting pages, and it will be a gradual process. We will continue to achieve good outcomes while this evolves. We will remain disciplined in our capital allocation and strive to create value for our shareholders throughout this period. Our narrative has been consistent since the beginning. Scott, feel free to discuss the margins now.

We have a few additional points to mention. We've highlighted mobile several times, and in Devin's prepared comments, he discussed its ongoing acceleration. Currently, we hold a 47% market share. Feedback on version 5.0 continues to improve, and growth is picking up speed. Regarding C2C, we've implemented several initiatives that Devin outlined in his remarks. Although we are still experiencing a decline, it is less significant than before. These points reflect our strategy and initiatives aimed at driving future growth. Concerning margins, I want to emphasize what I mentioned earlier about the cost of revenue, particularly the gross margin dynamics of StubHub, which is seeing not only a higher take rate but also increased costs. However, we don't have separate margin data for the various platforms, so I'm unable to provide more insight on that.

First as a follow-up. I wonder Devin if it's possible to look at finer points on the time frame, when do you expect to begin giving the exposure of the new product pages to the onsite search traffic, or at least describe the remaining hurdles in the way? And then secondly, outside of the shift to more brand advertising, I think you both have suggested that there's been more engagement with social media channels. If you could talk about what feedback you might have from some of those initiatives? Thanks.

Thanks for the question. Vis-à-vis a more aggressive introduction of new experiences, it's already starting. It’ll certainly continue this quarter or even through the holiday. If you think about it, the least disruptive is exogenous through search channels, then category and browse pages, which we're sort of introducing right now, and you'll see us drive a number of holiday campaigns directly to those experiences for the first time. And then the final one, which is the biggest channel but the one that we have to be the most careful about is the organic search channel. So we're not going to do that through this holiday. We will do more category and landing pages. We'll do more holiday campaigns to take you to those experiences but we're not going to mess around with our core search funnel as we get ready for the holiday. You can expect us to start to do that next year. On social, Colin, we are very aggressive about that and, by the way, top-of-the-funnel, when we talk about brand marketing, I think it sometimes gets conflated with TV. TV is not the largest part of it. It's brand across all channels, including social. So this quarter we added an 18th social channel. We're working aggressively with multiple social channels, including what I mentioned in my remarks, launching a bot on Facebook Messenger, but we're advertising and you'll see eBay's brand messages in addition to bottom-of-the-funnel call to action messages increasingly across major social and messaging platforms.

Thanks for taking the question, I had two I wanted to ask. First, Scott just on the 4Q outlook, can you just talk about the revenue guide, the FX neutral 4% to 6%, just some of the drivers there in terms of that being down from the 8% in 3Q. Obviously, it's up for comp on StubHub, but just hoping you can expand there. And then second, I think last quarter you talked about having 10% higher conversion from SEO to product pages. Can you update that number at all for 3Q?

Sure. The 10% conversion remains intact, and we’re feeling optimistic about it. There's no significant update on that. For Q4, we’ve guided for FX neutral revenue growth of 4% to 6%, with earnings per share expected to be between $0.52 and $0.54, reflecting a 4% to 8% increase. Regarding revenue, this suggests we will maintain stability with a few important factors to note. One of them is the lapping effect from StubHub, where we will experience three months compared to just one month in Q4, which will slow down our overall total revenue. Additionally, there’s about a point of non-repeating VAT settlements from Q3 that I mentioned earlier. Both of these factors will influence the overall revenue growth we discussed. I would describe the underlying revenue growth of 4% to 6% as relatively stable from quarter to quarter. We expect our initiatives to maintain a positive trajectory, although we haven't reached a significant turning point or a specific timeline that everyone is anticipating. We continue to make progress and plan to enhance user experience through structured data. We expect to see some positive outcomes in mobile and consumer-to-consumer segments. Our primary focus remains on our strategic initiatives and holiday plans for Q4, and we’ll share more about 2017 in January.

Hi, this is Kunal for Robert. Sorry about the noise. Question on MercadoLibre and the rationale for divesting that stake. You already have $2.7 billion of cash in the U.S., you're buying back about $500 million of shares every quarter. Could that indicate that maybe the Board or management is thinking in terms of maybe issuing a one-time dividend?

No, as I indicated in my prepared remarks, we've sold the majority of our stake in MercadoLibre. And if the green shoe is exercised, we'll have sold all of our stake in MercadoLibre. And really this is driven by the fact that we regularly review and actively manage our investments as part of our disciplined capital allocation strategy. The sale is going to enable us to recognize the significant gain. It will be about $1.2 billion of gross proceeds and about $700 million to $800 million of net gain. If the shoe exercises, that will be an addition to that. This is a Q4 event and we're working through the U.S. and international tax implications of this. The timing of the cash payments may impact free cash flow, but this does not change our capital allocation strategy, nor our relationship with MercadoLibre. We have a great relationship with them and we've actually signed an agreement with them to expand our relationship to help connect our sellers to Latin America buyers.

I believe most of my questions have been addressed, but I’d like to revisit the Q4 outlook, particularly regarding the Marketplace numbers and the changes occurring this quarter with StubHub. Could you provide more clarity on what your guidance predicts for Marketplace GMV and revenue growth, or inversely, how much you expect StubHub's revenue to slow down? Additionally, I have a question about M&A. Devin, you've previously mentioned this. My understanding is that the acquisitions you are considering have been relatively small and strategic tuck-ins. Has your perspective on this changed recently?

Mark, first on your first question. The underlying growth assumptions are 4% to 6% for the total company. About a point, we expect about 1 point of StubHub deceleration and about 1 point of VAT deceleration lapping, that we'll have to factor in. We don't give guidance by platform per se, but realistically speaking, the way I would think about it is we're roughly stable quarter-to-quarter in our implied guidance. Devin, I don’t know if you want to take that?

Yes, on the part of your question vis-à-vis M&A, nothing changes. We have a business that generates high free cash flow. We have a strong balance sheet. We have been able to return a meaningful amount of capital to shareholders. As you heard in Scott's remarks, we're going to likely continue to do that. That still provides us the flexibility to do acquisitions where we see that we can create value. And we won't hesitate to do that. I don't think we've said a lot about big versus small. It's more about being disciplined about what we do. We wouldn't hesitate to do something larger if we thought that we could create sustainable long-term value in doing it. And right now, we've built capabilities, particularly in areas like AI and a little bit of geo expansion through small tuck-ins, and it’s likely to continue. But if we saw the opportunity to do something more meaningful, we wouldn't hesitate to do it, but we'll be disciplined about it.

Maybe two quick ones. On the Korigan acquisition, how quickly does that type of tech get integrated? And then any updates on integration efforts with Ticket Utils and SalesPredict? And then finally on StubHub, what percentage of venues are you driving with the VR tech and how should we look at rolling it out to further venues? Thanks.

Thank you for your question. Regarding Korigan, we have previously collaborated with them, and it's already operational. The collective experience we launched this week utilizes Korigan for improving background images, which enhances seller images to a museum-quality standard. If you haven't seen it, I encourage you to search for "collective" on eBay to check out that vertical experience. We're actively using Korigan and plan to expand its application over time. As for other acquisitions like SalesPredict and Expertmaker, we're implementing those within our backend initiatives for structured data to develop catalogs and taxonomies, and progress is accelerating. In fact, we had been working with all three of these before acquiring them, and they are now fully integrated with plans for further utilization in the future. Regarding the VR rollout for StubHub, we have expanded to 55 venues, and we will continue to pursue this path since customers are engaging with it. We believe we have one of the strongest use cases for VR driving commerce, providing an immersive experience for high ASP sales. We're learning how to incorporate VR into more core eBay functions where emerging trends, combined with high ASP, require careful consideration of visual elements before a purchase. We see great potential in VR and augmented reality for commerce and aim to lead in this space.