EBay Inc (EBAY) — Q2 2018 Earnings Call Transcript

Thank you, Operator. Good afternoon. Thank you for joining us. And welcome to eBay’s earnings release conference call for the second quarter of 2018. Joining me today on the call are Devin Wenig, our President and Chief Executive Officer; and Scott Schenkel, our Chief Financial Officer. We are providing a slide presentation to accompany Scott’s commentary during the call. All revenue and GMV growth rates mentioned in Devin and Scott’s remarks represent FX-Neutral year-over-year comparisons, unless they indicate 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 third quarter and full year 2018 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 July 18, 2018, 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. In Q2, we continued to execute our strategy, improving the core eBay experience, investing in service, and clarifying our brand while pursuing significant opportunities in advertising and payments. Total GMV was up 7%, and revenue was up 6%, while active buyers grew 4%. With the addition of buyers from our recent acquisition in Japan, we now have 175 million active buyers. GMV in our Marketplace platform grew at 7% year on year, with U.S. Marketplace GMV growing at 6% while international GMV grew 7%. Our StubHub platforms grew volume at 5%, and our Classified platforms grew revenue at 10%. Finally, we repurchased nearly $1 billion; we returned nearly $1 billion to our shareholders through our share repurchase program, and we closed our acquisition in Japan. While we delivered strong earnings growth this quarter, we encountered some revenue headwinds from foreign exchange and a weaker StubHub event landscape, which will put pressure on our revenue for the second half. In addition, while core Marketplace GMV growth remains steady, we do not expect some of the key initiatives to deliver GMV acceleration until later in the year. None of this changes our strategy and approach, and we expect to deliver core GMV growth acceleration in the second half of 2018. We are focusing even more on initiatives that will have the greatest impact on our customers and our business, including further scaling product-based commerce, Guaranteed Delivery, and our new C2C selling flow while launching a series of innovative new buyer experiences. At the same time, we are ceasing work on less critical projects that are not moving the needle or are more speculative. Now let me update you on some of the progress we made in Q2. We continue to build on our structured data efforts, including our new product-based commerce experience. We have added 12 product lines representing roughly 3% of GMV to a fully product-based experience, and we plan to expand this to more branded high-velocity products in the second half. Users that are new to eBay are responding well to product-based commerce with improved conversion. However, this has yet to translate to our existing active buyers, and we will continue iterating on this experience until we see those conversion gains across most of our base. We continue to scale Guaranteed Delivery in the U.S., and we recently launched in Australia. We exited Q2 with nearly 300,000 sellers and 80 million live listings in the program, both significant increases versus the prior quarter. In the quarter, Guaranteed Delivery purchases represented 5% of volume with 95% order delivery accuracy. Within our broader advertising efforts, promoted listings continued its strong growth trajectory. We launched several enhancements in Q2, including a new item recommendation tool to guide sellers on which inventory they should promote. We now have over 300,000 sellers promoting over 150 million listings, leading to revenue growth in excess of 150%, offsetting declines in non-strategic third-party advertising. We are also adding first-party services, recently launching Highline search ads, which enable sellers to bid for better placement from the top of search results. Finally, we are seeing minimal disruption to date from GDPR to our third-party advertising revenue in Europe. Ensuring our users have access to great customer service is an important priority for us. We continue to scale our premium service offering, Concierge, to more top buyers and sellers. Customers with access to this offering show high satisfaction and drive higher buyer and selling activity. We recently launched a program aimed at new buyers using proactive outreach whenever we see an issue with a first purchase. We are also simplifying and modernizing our self-service platforms with an entirely new AI-based experience now live in the U.S., U.K., Germany, and Australia. And we are moving more of our customer service roles in-house, hiring hundreds of new eBay service jobs over the last year, reducing our reliance on outsourced roles. We continue to advertise our brands to drive awareness and consideration of eBay this quarter. While our brand campaign has been well-regarded externally, it’s not yet materially moved the needle on consideration, which is key to driving new buyer acquisition. We will be back in market with a new advertising campaign this quarter while also activating multiple marketing channels in the second half of the year to drive traffic and buyer activity. Finally, we are making good progress on building our managed payment service. We recently announced that Steve Fisher, our CTO has moved roles and will now focus solely on delivering this critical initiative for us. Product development is well underway, and we expect to launch an internal beta next week. We have also identified the sellers who will be invited into the initial phase of our new payments experience this fall, and we are looking forward to sharing additional plans in this area with our sellers at eBay Open next week. Looking at StubHub, Q2 saw strong NBA and NHL performance in the U.S. and continued strength internationally, offset by a softer event landscape in our three largest genres: concerts, theater, and Major League Baseball. We expect StubHub to continue to face these landscape challenges in the second half of the year. And Classifieds delivered another quarter of strong growth driven primarily by our platforms in Germany. Before I close, I’d like to address the Supreme Court decision on Internet sales tax. In the recent South Dakota versus Wayfair ruling, the court left undecided some significant issues such as what constitutes substantial Nexus requiring an out-of-state seller to collect sales tax. The court did make clear that state tax laws must provide protection for small sellers. We do not currently anticipate any material impact on our business in 2018. Beyond that, any impact will depend upon a number of factors that will take time to play out, including whether the federal government preempts the states or otherwise enacts legislation to protect small businesses, as well as the effect on states that enact Marketplace collection obligations. In the Supreme Court case, South Dakota set a small business exemption threshold of $100,000, which we believe is far too low for states that are more populous. However, hypothetically, if that threshold were applied to each individual state, approximately 80% of our GMV would be excluded from sales tax. You can expect us to continue to work with our community and Congress to urge lawmakers to provide clear tax rules with a strong small business exemption that will allow our sellers to continue to grow and flourish. Regardless of how it plays out, eBay sellers currently have the ability to collect applicable taxes on their eBay transactions, and we will have the capability to collect and remit sales tax on behalf of our sellers should that become a requirement. In summary, we continue to make progress improving the eBay customer experience. While the first half of 2018 has brought some unanticipated challenges that I outlined earlier, we expect core acceleration in the second half while delivering very strong earnings growth. Now let me turn it over to Scott to provide more details on our quarterly financial results and on our outlook.

Thanks Devin. Let’s begin with Q2 performance starting on slide four of the earnings presentation. In Q2, we generated $2.6 billion of total revenue, $0.53 of non-GAAP EPS, $188 million of free cash flow, and we repurchased approximately $1 billion of our stock. Finally, in the quarter, we closed the acquisition of Giosis Q10 program platform, which expands eBay’s footprint in Japan. Moving to active buyers. In the quarter, we increased our total active buyer base to 175 million, including 3 million buyers from our Japan acquisition. Our trailing 12-month growth was stable at 4% including our new Japan buyers on a pro forma basis. Growth excluding Japan was 3%, down one point versus the prior quarter, due primarily to the lapping of new buyers from fidget spinners in the prior year. Scaling of new user experiences and our broader marketing programs will continue to be a key area of focus to drive more active buyer growth. On slide six, in Q2, we enabled $23.6 billion of total GMV, up 7%. The U.S. generated $9.3 billion of GMV, up 5%, while international delivered $14.4 billion of GMV, up 7%. Moving to revenue. We generated total net revenues of $2.6 billion, up 6% on an FX-Neutral basis and up 6% organically, both down one-point versus the prior quarter. As Devin mentioned, we encountered unexpected headwinds from a weaker events landscape for StubHub and a stronger U.S. dollar, which more than offset revenue from our Japan acquisition. We delivered $2.1 billion of transaction revenue, up 7%, and $563 million of Marketing Services & Other revenue, up 5%. Turning to our Marketplace platform on slide eight. GMV grew 7% in Q2, flat versus the prior quarter, including approximately 60 basis points driven by the Japan acquisition. U.S. GMV grew 6%, decelerating 1 point quarter-over-quarter due to lapping C2C growth in the prior year and the impact of a stronger U.S. dollar on exports. International GMV accelerated 1 point to 7% driven by the addition of Japan. Total Marketplace’s revenue was $2.1 billion, up 6%. Transaction revenue grew 7%, with promoted listings contributing roughly a point of growth. The transaction take rate is slightly lower year-over-year due to hedging activity recognized in net revenues and some mixed pressure from the growth of lower take-rate categories, offset by reduced seller incentives and strong promoted listings growth. Marketing Services & Other revenue grew 2%, a deceleration of two points versus the prior quarter as we continue to reduce non-strategic third-party ad placements in favor of promoted listings. Moving to slide nine. StubHub GMV grew 5% year-over-year, decelerating eight points from Q1, while revenue grew 3%, decelerating six points, reflecting a softer event landscape. Moving to slide 10. In Q2, Classifieds grew revenue 10%, flat versus Q1. We continue to see strong performance from Germany and our Motors platform, while managing advertising monetization pressure from the ongoing shift to mobile. Turning to slide 11 and major cost drivers. In Q2, we delivered a non-GAAP operating margin of 25.2%, which is down 120 basis points versus last year, driven by increased investments in payments, marketing, and Japan. As a reminder, our operating margin now includes the impact of buyer incentives in marketing expense due to the revenue accounting standards 606 adopted this year. Cost of revenue decreased year-over-year by 50 basis points, helped by efficiencies in our customer service organization. Q2 sales and marketing expense is up 170 basis points driven by promotional spending on our Marketplace platform, StubHub, and the addition of our Japan acquisition. Product development costs were up 30 basis points as we continue to invest in our product experiences across all of our platforms, including building out managed payments. G&A was down year-over-year through operating leverage. Turning to EPS on slide 12. In Q2, we delivered $0.53 of non-GAAP EPS, up 17% versus the prior year. EPS growth was driven by volume growth, the net benefit of share repurchases, and a lower tax rate, offset by our investments in managed payments, marketing, and Japan. As we stated at the beginning of the year, our guidance range for tax was slightly wider than normal, driven by uncertainty on how all elements of U.S. Tax Reform would impact us. In Q2, we initiated actions to mitigate some of these elements, and therefore refined our estimates, providing a net benefit to the quarter of $0.03, as well as a benefit to our going-forward tax rate. GAAP EPS for the quarter was $0.64, up $0.61 versus the prior year, driven by the lapping of last year’s non-cash income tax charge of $311 million caused by the foreign exchange re-measurement of a deferred tax asset and three discrete items in this quarter. Let me give color on each of these. First, we took a disciplined look across our cost base and took action to create capacity to invest more marketing in the second half, while delivering on earnings growth. The reduction was completed in the second quarter, resulting in a pretax restructuring charge of $84 million. Second, as part of our acquisition in Japan, we relinquished our investment in Giosis’ non-Japanese businesses, recording a one-time gain of $266 million. Finally, we recognized a gain associated with the warrant agreement entered into with a service provider. As always, you can see a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. Moving to slide 13. In Q2, we generated $188 million of free cash flow, which was down 64% on a year-over-year basis, primarily driven by timing differences of cash tax payments related to both U.S. Tax Reform and other international tax payments. CapEx was 7% of revenue. Turning to Slide 14. We ended the quarter with cash, cash equivalents, and non-equity investments of $8.6 billion. Our capital allocation strategy is designed to manage the capital structure in a way that optimizes our financial flexibility for organic opportunities and M&A, balanced against capital returns to drive long-term shareholder value. In May, we completed the acquisition of Giosis’ Qoo10 platform in exchange for $306 million in cash and the previously mentioned relinquishment of our investment in Giosis’ non-Japanese business. We also announced the intention to sell our holdings in Flipkart and expect gross proceeds of approximately $1.1 billion. This transaction is expected to close in the second half of 2018, subject to regulatory approval. During Q2, as part of our ongoing commitment to provide meaningful returns for our shareholders, we repurchased $989 million of our stock. Since separation, we have repurchased 281 million shares or approximately 23% of shares outstanding at an average price of $31.40 a share amounting to $8.8 billion in total. We ended the quarter with $5.7 billion of share repurchase authorization remaining. Before walking through guidance on slide 15, let me provide a little more context on how the stronger U.S. dollar will impact our full-year results. As you know, we have a global business with nearly 60% of our revenue from markets outside the U.S. The U.S. dollar has strengthened versus our main international currencies by approximately 4% compared to what we guided in January. At current exchange rates, revenue is negatively impacted by approximately $150 million for the full year. Our earnings for the full year are largely protected from currency movements, but revenue will continue to be partially exposed if the dollar continues to strengthen. On an organic FX-Neutral basis, the mid-to-high-end of our guidance assumes Marketplace’s GMV acceleration will come from further scaling our new product experiences, including product-based commerce and Guaranteed Delivery, while ensuring we invest more heavily in our marketing programs. For StubHub, while we do not guide by platform, we are not currently assuming any improvement in the trajectory of the market in the second half, and we will also be lapping a particularly robust Q4 in the prior year. We are now projecting 2018 revenue between $10.75 billion and $10.85 billion, growing 6% to 7% on an organic FX-Neutral basis and 8% to 9% on an as-reported basis. We expect operating margin at the mid to low end of the 27% to 29% range for the year, driven primarily by our Japan acquisition. We now expect our non-GAAP effective tax rate in the range of 17% to 20%. We continue to expect share repurchases of approximately $3.5 billion per year over 2018 and 2019. We are projecting non-GAAP EPS of $2.28 to $2.32, up 14% to 16% as reported versus last year. This includes the impact of topline growth, the ongoing benefit of our share repurchase program, and a lower tax rate, partially offset by our investments in managed payments in Japan. We expect free cash flow towards the lower end of the $2.1 billion to $2.3 billion range, driven by our Japan acquisition and foreign exchange, while the underlying cash flow dynamics of the company have not changed. This also includes to assume capital expenditures in the range of 6% to 8% of revenue. Full year GAAP EPS is projected to be $1.91 to $2.01 per share. Any gain from the sale of our holdings in Flipkart is currently not factored into our GAAP guidance. Turning to Q3 guidance on slide 16. We are projecting revenue between $2.64 billion and $2.69 billion, growing 5% to 7% on an organic FX-Neutral basis and 6% to 8% on an as-reported basis. We expect non-GAAP EPS of $0.54 to $0.56 per share, representing 14% to 18% growth. For Q3, we expect GAAP EPS in the range of $0.37 to $0.41. In summary, we continue to execute our strategy and remain focused on improving the core eBay experience. We have made adjustments that enable us to continue to deliver strong earnings growth while we scale the new experiences and invest more in our marketing efforts. Looking ahead, we are on track for payments testing in the second half, which is a very significant opportunity to improve the customer experience and deliver significant economic benefit for our sellers and shareholders over time. Now, we’d be happy to answer your questions.

Thanks for taking my question. Just to want to talk about sort of the back half and the new full year guide. Just want to talk to what gives you sort of confidence in the continued ability to reaccelerate GMV in the back half as the comps get somewhat easier? And how should we think about as you’re triangulating the acceleration in GMV with the lower revenue expectations for the year? Thanks.

Thanks Brian. I will let Scott talk about the translation of revenue, but let me just talk about the business drivers. So, there are really two significant drivers to the second half. The first is the product and customer experience, and the second is marketing. On the product, we have some significant product changes coming into the market, some of which are already in the market performing well, which we are going to scale. So, I mentioned Guaranteed Delivery, already out, scaling, performing well. Our new C2C selling flow is delivering meaningful consumer selling conversion, scaling already out in the market. Structured data’s tentacles are now touching every part of the company, and they’re making a meaningful impact in many areas. The one area that we still got to iterate is on the full product-based prior experience, where as I mentioned in my remarks, we are seeing really good conversion from brand new buyers who come to eBay, and we have some work to do on the existing base. So, on the product side, we have been working at this for quite a while. We have driven improved acceleration and better operating results over time, and we believe that will continue in the second half. At the same time, because we are seeing good performance of new buyers that come to eBay, we want to bring more of them, and to do that we are going to continue to activate our marketing channels and market aggressively. We are responding to a competitive e-commerce landscape. We love our proposition. We think that when people come to eBay they see what a great proposition we have. So you can expect us to light up our brand in the second half further. You can expect us to be active in all marketing channels and to plus that up along with the new product releases. So, all of that helped us factor in to the guide on core acceleration. Scott can talk a little bit about the core GMV to revenue translation.

Yeah. Brian, the way I would think about the translation from GMV to revenue is, it’s roughly the same. So when we talked about guidance for the year, we expected roughly 1 point of acceleration from our Marketplace’s business. And in the new guide, essentially, what we are saying is, at the high end we’d have 1 point of acceleration in the second half of the year and stable in the first half. And that would translate through in the form of revenue, much the same way. I wouldn’t highlight any differences between GMV and revenue from a Marketplace’s standpoint. We do have, as I called out, some pretty good lapping with the very strong quarter in Q4 from StubHub, that given their current trajectory and the market landscape is a pressure versus last time we spoke as well.

Okay. Great. Thanks.

Thank you for addressing my questions. From my perspective, it seems that eBay implemented more promotions in the second quarter than usual. Is that correct? If so, what was the reasoning behind that, and what can we anticipate moving forward? Additionally, regarding the reduction in force, could you provide an estimate of its impact on revenue and earnings per share in the latter half of the year? Thank you.

Sure. Mark let me take those. First off, on the marketing, yeah, I’d say, we spent more and I think the additional sales and marketing as a percentage of revenue highlighted that. Look, we are in a very competitive market and in an e-commerce landscape that’s really competitive. It’s important for us to adapt our approach as we try to remain competitive and drive traffic and activity, you all saw was inventory. And so, we are increasingly focused, as we have talked about, on making sure that we are driving engagement and usage of the platform, whether that’s from increasing share of wallet with our existing buyers or attracting new buyers, and so the promotional activity is intended to do both of those. And while we are on the topic, when you think about those incentives, there is a wide variety of different incentives that you’ve seen both in the Kontron in the form of seller couponing, as well as buyer coupons, marketing expense, box boosters, et cetera. And we have been leveraging those promotions more heavily in recent times, and I think we have been pretty clear and it’s been showing up in marketing as a percentage of revenue. And look I think you should expect, and as implied in our guidance that that will continue, and certainly the re-architecture of our cost base that we did in June was intended to enable that without having an impact on earnings. In terms of the actual EPS impact, what we are trying to architect on a GAAP, non-GAAP basis is that there is no impact to revenue and there is no impact to non-GAAP EPS from the restructuring that we did. However, we have enabled a significant amount of marketing incremental to our original plans to buffer the second half.

And let me just comment on that as well, which is it’s incredibly important to me that we are disciplined in our project approach that we are always allocating resources just towards the highest value customer projects that we experiment with, and when things don’t work, we reallocate, and we kill those projects. We do that always. In this case because we had, at the top particularly of the technology organization, a significant reorganization with Steve moving to payments, it gave us an opportunity several years into this journey to take a deep look and to say, okay, we need to plus these things up and there are other areas that we just weren’t getting a return on them. So I think it’s really good discipline to stop projects that aren’t working and reallocate to projects that are, where resource is fungible, we move it, but not all resources are, and that’s what you saw us do in Q2.

Thanks.

Hey, guys. I just had a question on the buyer growth rate and the units sold growth rates. So you’ve been doing promotions that you just mentioned, and you recently launched the Best Price Guarantee program. So it seems like there was an interesting value prop that’s out there, but isn’t yet really translating into an increased amount of active buyers, or it might be and we have an increased amount of buyer churn. So can you just walk us through kind of what’s going on with the kind of organic, I think, the last two quarters you added about one million new active buyers. And then how does that translate to the unit growth rate, which has been plus one last quarter and flat this quarter? Any color there on units versus ASP will be helpful? Thanks.

Ross, this is Scott. I would highlight that there are actually a couple of underlying dynamics that we have called out in the past that continue and will continue to pressure in a rolling 12-month metric for the time being. First off, as we kind of talked about, there is a fidget spinner dynamic that in Q2 of last year brought a lot of low ASP items that were a lot of new buyers as well, and we have not retained those new buyers to the extent that we have in the past. They’re kind of one and done if you will, buying those fidget spinners, and they were very low ASP items. So, as we lap that, that certainly makes it feel like the underlying growth rate is decelerating when in fact it’s more a one-off aspect of that. And that same thing is pressuring active buyers. But now the other thing we talked about was we had been favoring higher ASP branded items in our search, and as that has pushed ASP up a bit, it has offset some of the ASP pressure from the fidget spinners in the sold item number pushing ASP up a bit but really sold items down. So hopefully that’s clear. But that’s the dynamic between those two both active buyers and sold items.

Great. Thank you. I guess, Devin, just wanted to try and get some clarity on a couple of things. Can you outline for us some specifics on the marketing initiatives that you’re talking about that didn’t deliver in the first half and why you expect them to later this year? Were those all technology projects that you’re talking about or marketing programs? Just want to better understand what didn’t work and why it might go in forward? And then, specifically, towards the technology projects that you’re talking about cutting, I guess, where and how quickly do you expect to be able to reallocate those resources and those investments? What type of projects are at the top of your priority list these days?

Regarding the second part of your question, I won’t delve into specifics, but we take many risks, some of which are long-term investments and others are experiments. It's beneficial for us to continually experiment and maintain a mix of near-term and long-term projects. For some of the longer-term initiatives, we are continuing while others are being halted. I don't want to detail all the smaller projects, but the overall reduction was not significant; it reflects our decision to discontinue certain projects that should have been stopped, as those resources could not be reallocated. As for the second half of your question, there are aspects that haven’t performed as expected and are taking longer than we anticipated back in January. I’m encouraged by our progress with Guaranteed Delivery and C2C in the market, as well as our structured data efforts. While I appreciate what our teams have accomplished, we haven't been able to deploy these initiatives as quickly as I had hoped. However, I believe that with time, we will see the benefits; we just need to ensure they reach a wider audience. A great example of this is our investment in brand. I'm pleased that we are dedicated to investing in our brand. Everyone I’ve talked to, from customers to investors, recognizes we have a strong brand, which can sometimes be misunderstood, and it’s our responsibility to bridge that perception gap. Brand building takes time, and I’ve mentioned previously that I am focusing on moving aided consideration as a key metric for our brand spending, and we are starting to see progress in that area. Although this has not yet translated into growth in our buyer numbers, I am confident it will. However, we need to stay committed and manage the company for the long term, avoiding cutbacks just because we haven’t seen immediate results this quarter. Thus, there are ongoing projects we’ve halted alongside those we believe will come to fruition and deliver benefits in the second half of the year and beyond.

Great. Thank you, Devin.

Great. Thanks. Good afternoon. First off, based on the pending rollout of the payments beta, can we assume that the integration and testing with Adyen is on track? And then, secondly, if you have any comments on any notable differences in performance in markets outside of the U.S. internationally. Thank you.

Yeah. Let me take on the payment strategy. As Devin mentioned, the team has made great progress this quarter on executing the plans. In fact, next week we expect to launch our employee beta. We are working already with sellers who will be invited to the initial 5% phase with our new managed payments experience later this fall, and we will actually be sharing some of those plans with our sellers at the eBay Open next week. International versus U.S. markets, look, underlying excluding the addition of the Japanese business, our international markets were flat quarter over quarter at 6%. That kind of hides some underlying strength in a few of our larger markets, offset by some weakness in some of our smaller markets. But in particular, I’d call out Australia and the U.K., and some modest improvement in Germany, where we feel pretty good about the underlying performance. But on the other side, there is some weakness in other markets on aggregate; we are flat. I don’t know, Devin, if you have anything else.

No. It might just be worth adding that one of the headwinds in the U.S. business was the export business this quarter, given the strengthening dollar. So we did see, as the dollar strengthened, U.S. exports came under pressure, and that contributed to the 1 point deceleration in the U.S. business.

Is it too early to say whether the eBay Plus program is helping Australia, or is there something else in that market?

I believe it's still early, but we are very pleased with Australia's performance. The customer proposition is strong, and we don't anticipate any changes in trends. Overall, we are really happy with how Australia is doing.

Thank you.

Hi. Thanks very much for taking my questions. I guess, first, you talked about a difference in behavior between new customers and existing customers, and that the existing base was less favorable. I guess, how do we think about your initiatives going forward to target that base? And then, second, obviously, you’ve talked a lot about this ramp up and marketing. How do we think about the balance between kind of brand marketing versus some of these targeted promos? Thanks.

On the first part, I think we have made significant improvements to the Marketplace without causing disruptions. Last year, I received many questions about our pace of change, and I always responded that our focus was on creating a positive experience for both new and existing customers. Many of our changes have aimed to achieve this goal. However, when you have a large, established marketplace and you implement significant changes to the user experience, it takes time due to design and product challenges. I believe we are developing a highly effective product experience that simplifies eBay while showcasing our strengths, such as the range of value, our unique inventory advantage, and competitive pricing for consumers, all without overwhelming them with countless individual listings. Our goal is to create an appealing experience for new customers, who often appreciate it right away. For existing customers, it has required more time, and we need to balance maintaining their experience with introducing simplicity and differentiation. We are seeing progress in certain areas, but it does require time. Overall, I feel optimistic about our direction and confident that we will achieve the anticipated benefits. Regarding the second part of the question about brand versus promotions, I see it as a matter of experimenting with various strategies to create value in the Marketplace. For me, value is straightforward. I've often stated that buying growth is achievable, as many companies do it. We have always exercised discipline in our spending and are continuously experimenting. Currently, we are running promotions, and a couple of years ago, we introduced a strong deals program for the holiday season in response to consumer demand. We observed that when we execute these promotions effectively, the benefit extends beyond just the holiday quarter to include returning customers. We are currently experimenting with these promotional strategies to drive engagement and attract new customers, and it’s still early to evaluate the long-term value generated from this promotional activity. Our aim is to ensure we are not causing any loss of value while adapting to market needs and getting the most out of our marketing investments.

Great. Thank you.

Thank you. I have two questions. First, regarding StubHub, the performance was a bit below expectations. Were there any changes or losses in customers during the quarter, or is it mainly due to the concert schedule, and will that improve next year? Secondly, concerning taxes, are the lower tax rates sustainable for next year or is this a one-time situation? Thank you.

I will address StubHub while Scott will discuss taxes. I don’t believe there has been any change with StubHub. Looking at the events in Q2, we experienced a historically poor start to the MLB season, partly due to a high number of rainouts. The NBA had a four-game series and a five-game finals series, while hockey had a five-game series too. Various factors negatively impacted the event landscape. As we have mentioned previously, having a significant market share in the U.S. means that the event landscape is what it is. I don’t think there have been any changes in the underlying dynamics; we simply faced a challenging environment. Currently, we don’t foresee any particular reasons for optimism regarding improvements in the landscape for the second half, but I believe StubHub’s market position and business fundamentals remain unchanged.

Yeah. And the short answer is, yes, the tax rate that we booked year-to-date will continue as we head into the second half of the year, and you can see that in the EPS walk that we provided. So roughly $0.03 this quarter, which is a catch-up to the first half, and then for the second half a roughly equivalent amount, so that upside will flow through and it will be ongoing.

Got it. And so ongoing does that mean 2019 as well?

Yes.

Yeah.

Thanks for taking the questions. I had two. First, just Devin I was curious if you had any thoughts on tariffs and if that could potentially impact seller inventory on the platform or pricing? And then, second, if you could talk a little bit about the strategy in India post the Flipkart deal and going more cross-border and how we should think about the investment required there? Thanks.

Thanks, Doug. Regarding tariffs, there has been no impact so far. The tariff changes have primarily affected raw materials, commodities, and agricultural products, which do not directly influence our operations. However, we are monitoring the situation closely like any other business. Currently, we do not anticipate any immediate risks to our operations, but if you have insight on the trade wars, let me know. Up until now, we have successfully navigated around any effects. As for India, the first step will be the completion of the Flipkart transaction. Once that is finalized, we will monetize our investment in Flipkart and plan to re-enter the Indian market through both import and export strategies. We will start with exports, allowing Indian sellers to sell on various international platforms, a service we previously handed over to Flipkart. We will regain that capability once the transaction closes, and we intend to activate the Indian seller base to sell across our major markets. The second step will involve reintroducing ebayindia.com. I don't have a specific timeline for that yet, as the timing of the Flipkart transaction closure is uncertain. The plan is to focus on exports and imports, leading with differentiated inventory as soon as the transaction is complete. That’s our strategy.

Okay. Thank you.

Hey. Thanks. Two quick questions. One, you haven’t mentioned at all World Cup. Did that have any impact at all on your business? I hear that was popular with a lot of people. And then secondly, that $50 million to $150 million reduction in Marketplace and StubHub revenue in the back half of the year? Is that kind of equally reduced from both areas, more heavily from Marketplace or more heavily from StubHub, any breakdown there? Thank you.

I will address the World Cup. In the overall context, it hasn't been significant. We did notice a decline in buying activity during each World Cup game, but in relation to the size of our marketplace, it doesn’t have a meaningful impact. We have seen some international revenue from StubHub related to the World Cup. So, while it likely resulted in a minor decrease, it’s not something that would be considered material. Now, Scott, please continue with the second part.

Yeah. Roughly 75, 25, Marketplace and StubHub.

Okay. Thank you very much.

Yeah.

Hi, guys. Good afternoon. A couple of questions for me; I just want to return, not necessarily to Australia specifically, but more eBay Plus. And Devin, just interested to hear what sort of traction you’ve seen for that specifically and where you think that program could go long-term. Are there markets that it would fit appropriately? That’s first. And then, second, just the launch of the Highline, excuse me, the Highline Search Ad, I think it’s priced on a CPC basis. So I was just curious if it would be reported in marketing services revenue or in transaction revenue like promoted listings? Thanks.

Thank you for the questions. eBay Plus is currently launched in Germany and Australia, and I am very satisfied with its performance. It's important to note that the programs differ slightly depending on the location, and if eBay Plus expands beyond these markets, I expect adjustments will be necessary. In Australia, for instance, it's not solely a shipping service; it also includes a partnership with flybuys, a major national loyalty program that provides benefits for purchases outside our platform, like groceries and fuel. In Germany, it offers exclusive access to deals and various other perks. Looking at Australia, where the program was recently introduced, early adoption has greatly surpassed our expectations, which is encouraging. This week, coinciding with significant global retail events, we leveraged the opportunity surrounding Prime Day to promote our offerings, resulting in a notable increase in eBay Plus membership in Australia, which makes me very happy. Could eBay Plus expand to other regions? That remains a possibility, and we are exploring that option. I don't anticipate that the program will look the same across all markets. However, I appreciate the concept of a loyalty program that offers unique benefits to our most dedicated customers, and we will evaluate its future developments as we move forward.

Hey, Dan. It’s Selim. We just launched the Highline Search Ads as an early beta. At this stage, I consider the revenue from this to be very small, and we are still assessing how it will be categorized. As it becomes more significant and relevant, we will inform you about its position within the revenue, whether it falls under transaction or MS&O.

Okay. Great. Thanks guys.

Thanks. Maybe related to Dan’s questions, with the focus you’re putting on advertising, are you seeing the type of traction you anticipated there? What gates or levers are there that you can pull on to build momentum around advertising on eBay?

You’re talking about our advertising business, not us advertisers?

That’s right. That’s correct. Yeah.

I believe that advertising and payments are two of the most significant mid-term opportunities we have. I want to emphasize promoted listings first-party advertising, which has a very strong growth trajectory, as mentioned in the last few earnings calls. When I compare first-party advertising on eBay to our GMV, I feel that we're just at the beginning. There's plenty of potential to grow this business, and we are committed to investing in it; I see it as a substantial revenue stream. As Scott mentioned, it was significant this quarter and contributed to transaction revenue, and we are just beginning. Looking ahead to the mid-term, we are focusing intensely on our core business and making efforts to accelerate it. We are also concentrating on these two new mid-term opportunities: payments, which we've discussed in recent earnings calls, and advertising, which are exciting areas where we are investing. So, as I see it, the short-to-mid-term focus will be on improving the core business, generating acceleration in the second half, and preparing for significant new opportunities in advertising and payments.

Operator, we will take one more question.

Great. Thanks for taking my question. You made a lot of improvements to improve your search results on Google and then they rolled out a new algorithm with kind of a mobile first emphasis, and you’ve also done a lot to improve the mobile experience on eBay. Just curious to see if any of the changes at Google had either positive impact on your results in the quarter?

Well, I don’t usually comment on Google’s influence on us, but I will say that not all of our SEO pages are built on structured data. We have been aggressively moving them, and those that are using structured data have performed very well. However, the ones that haven’t still face challenges. Our goal is to convert all of them as quickly as possible. We have seen improvements in rankings and traffic where we established our SEO presence with structured data. Conversely, areas we haven't updated have experienced a decline over the years. So, it's essential for us to keep pushing forward and make these updates swiftly.

Thank you.

No. That’s it. You can go ahead and close the call. Thank you everybody.