EBay Inc (EBAY) — Q1 2019 Earnings Call Transcript

Thank you. Good afternoon, and thank you for joining us. And welcome to eBay's earnings release conference call for the first quarter of 2019. 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. 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 at least three months 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 second quarter and full-year 2019, and the future growth of 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 April 23, 2019, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks. And before I start, let me just publicly thank Selim Freiha, who has been our Head of the Investor Relations and done a great job over the last couple of years, and welcome Joe. We delivered a solid first quarter, driven by healthy buyer growth, strong advertising performance and disciplined cost control. GMV declined slightly year-over-year, which was in line with our short-term expectations, as we noted last quarter. We returned $1.6 billion in capital to investors through share buybacks and our first-ever dividend payment. In Q1, total GMV was down 1%, our revenue was up 4%, while our active buyer base grew 4% to 180 million. Underlying these results, GMV on our Marketplace platform was down 1%, StubHub volume was down 2% and our Classifieds platform grew revenue at 12%. Scott will go into more detail on our financial results shortly. To begin, let me provide some context on our business. As we mentioned last quarter, we entered the year with the intention to reduce low ROI marketing spend while maintaining the focus on driving positive buyer growth with new product experiences and targeted marketing. In Q1, that's exactly what we did. We removed a significant amount of promotional spend that tended to subsidize higher priced items at low ROI. The impact of this change was lower GMV, driven by lower average price but steady sold item growth. In addition, we saw an impact to our business from the adoption of internet sales tax in the U.S., as well as value-added tax in international markets. A number of jurisdictions have enacted legislation requiring marketplace collection of tax. Without a small business exemption, this trend will increasingly impact small domestic sellers, making it harder for them to compete in an increasingly global and large merchant dominated world. On our platform in Q1, we saw approximately one point of impact on U.S. GMV and less than a point internationally. This will be a headwind until we lap a fully rolled out internet tax landscape. However, it's worth noting that the global tax environment remains fluid and will evolve. In Q1, we continued to make the product experience simpler and easier for new users. We scaled the better guest experience and reduced friction for guests to become fully registered customers. We also launched an expedited registration process at multiple points across our experience. Sellers have been provided new guidance to improve their product aspect coverage, which is improving our structured database catalog, and this is beginning to lead to product experiences such as search and product pages that deliver better conversion. Visual search is improving, and we’re making it more accessible. Our customers are now doing 150,000 visual searches a day and eBay guaranteed delivery continues to expand as we exited Q1, a 25% volume coverage in the U.S. At the same time, we provided a series of enhancements to our sellers to make it easier to manage listings and provide value to buyers. Sellers now see competitive pricing data side-by-side when listing or managing their inventory. We also improved recommendations on items that would benefit most from Promoted Listings and expanded seller eligibility in Q1 by more than 20%. Going forward, our focus will remain on empowering seller success, not on competing with them, while maintaining one of the most competitive take rates in our industry. While our GMV is down slightly year-on-year, our revenue is growing, and the gap between GMV and revenue will likely continue. This growth was partly driven by Promoted Listings, where more sellers are opting to invest to grow their business. In Q1, we had more than 800,000 active sellers promote over 200 million listings. This helped drive over $65 million of revenue this quarter, up nearly 110%. As we've mentioned previously, as this business scales, we’re reducing third-party ads, which are not accretive to our ecosystem. We're very pleased with our progress and remain on track towards a $1 billion advertising revenue opportunity. Looking at payments, we continued to ramp sellers and volume in our intermediated experience. We launched Google Pay in early April and its adoption is in line with expectations. We also completed the integration of PayPal on our new platform, which has been live for a couple of weeks with a small set of customers and will continue scaling. Since the late Q3 launch last year until the end of Q1, we've now enabled $363 million of GMV with over 4,300 active sellers who've opted into the program. To date, we saved those sellers $2.7 million in payment-related costs. As we said before, we expect to begin a full rollout in 2020, building to a $2 billion revenue opportunity at scale. Lastly, on payments. Subject to regulatory approval, we’re preparing to launch in our second major market, which will be Germany. As one of our largest international markets, Germany will provide a diverse testing ground for more payment methods as we expand globally. Our StubHub Q1 volume was impacted by landscape softness with the week college football championship game and Super Bowl. This was partially offset by better growth in the NBA. As part of improving the customer experience, we refreshed our merchandising and launched a new homepage in Q1. We’re also driving cross-selling by merchandising more eBay items and check out plus, we continue to direct ticket demand on eBay to StubHub’s tailored vertical experience. In our Classified platform, we continued to see strength in our motors verticals. Our leading position in Germany helped drive another quarter of double-digit revenue growth and our expanded offering in the UK contributed 1 point of acceleration from Q4. We’re repeating this playbook in Canada where we recently launched the Kijiji Autos vertical. We also delivered synergy with our core eBay integration, which drove over $80 million of GMV to eBay in Q1 while delivering nearly 2 points of that revenue to Classifieds. During the quarter, eBay ad yields to Classifieds crossed an important threshold by beating the next best third-party alternative, allowing a more meaningful contribution to Classified's results going forward. Finally, with respect to the operational and portfolio reviews, which we announced in March, the process is underway. While we do not have material updates to share at this time, we remain on track with what we've communicated previously. In summary, we will continue to focus on growing our customer base, delivering on our ads and payment initiatives and returning capital throughout the year. We feel strongly about our ability to deliver value now and in the future to our customers, employees, and shareholders. And with that, I will turn it over to Scott to provide more details on the quarter.

Thanks, Devin. I'll begin my prepared remarks with our Q1 financial highlights starting on slide four of the earnings presentation. In Q1, we generated $2.6 billion of total revenue, delivered $0.67 of non-GAAP EPS, 2 points of non-GAAP operating margin accretion, $368 million of free cash flow, and we have returned $1.6 billion to shareholders through buybacks in our first-ever dividend. Based on these results, we have increased confidence in 2019 and are raising revenue and EPS guidance for the full year. Moving to active buyers on slide five. In the quarter, we increased our total active buyer base by 1 million to a total of 180 million, up 4%. We have maintained stable buyer growth, driven by dynamics we've previously discussed while coming back on lower ROI incentives. Turning to slide six. In Q1, we enabled $22.6 billion of GMV, down 1%, a 3-point deceleration versus the prior quarter. The U.S. generated $8.9 billion of GMV, contracting 6%, while international delivered $13.7 billion of GMV, up 3%. Sold items growth remained flat, despite this deceleration in GMV. Moving to revenue on slide seven. We generated net revenues of $2.6 billion, up 3% organically, decelerating 2 points from the prior quarter. We delivered $2.1 billion of transaction revenue, up 5%, and $535 million of marketing services and other revenue, up 1%. Turning to slide eight. Our marketplace platform GMV was 1% in Q1, a 4-point deceleration versus the prior quarter. U.S. GMV was down 7%, a 6-point deceleration versus Q4. 5 points of the deceleration resulted from significant reduction in marketing, including contra revenue, and the dynamics associated with volume and average item price that Devin mentioned. We also see approximately 1 point of pressure from internet sales tax as sellers and marketplaces changed in remit taxes in the states that have passed new laws. International GMV grew 3%, decelerating 2 points versus Q4, driven by increased competitive couponing in Korea and UK macroeconomic pressures which continued to have a negative impact on consumer spending. Total Marketplace revenue is $2.2 billion, up 4%, decelerating 2 points from the prior quarter. Transaction revenue grew 6%, a 1 point deceleration and 7 points higher than GMV, highlighted by Promoted Listings growth of nearly 110%, which contributed almost 2 points. In addition, our higher take rate, driven by a reduction in lower ROI marketing investments and incentives, drove nearly 2 points, and our acquisition in Japan drove over 1 point. Marketing services and other revenue was down 8%, decelerating 4 points versus Q4. This was primarily the result of shifting our advertising efforts away from non-strategic third-party ad placements towards our first-party Promoted Listings product. In addition, MS&O revenue generated from our operating agreement with PayPal declined 20% year-on-year and will continue to be a headwind with the expiration in July of 2020. This decline will be more than offset by revenue from intermediated payments on the eBay rails, which is reflected in transaction revenue. As you can see on slides 8, 10, and 11, we are now providing segment margins for marketplace StubHub and Classifieds. Driven by several events that occurred in 2019, including the recent reorganizations and our increased focus on margins, we believe this new structure will enable strategic alignment of global priorities across markets, streamline resource allocation, and ultimately increase speed of decision-making and execution. Margin for each of the three segments will include costs associated with cost of revenue, including customer support, site operations and payment processing; marketing, brand and other programs and people costs to support; product and technology, inclusive of data centers, developers and support to deliver the product experience; costs related to facilities, IT, human resources, finance and legal that directly support the segments; and finally, the impact of foreign exchange across the segments and hedging activities specifically in marketplaces. Corporate and other costs consist of expenses not directly related to the segments, inclusive of corporate management costs, like human resources, finance and legal and other non-allocated costs, representing approximately 3% of revenue annually on a non-GAAP basis. Finally, consistent with prior reporting, items such as amortization of intangible assets, stock-based compensation and restructuring charges are excluded from our overall non-GAAP operating income. In our GAAP reporting, these items are reflected in corporate and other costs. Please refer to our 10-Q for more details. All of our segments have seasonal cadences with higher margins in Q1 and forward at the Inc. level. Keep in mind that one-time costs may have a bigger impact in our smaller segments. With that as context, marketplace margin is 36%, up 3 points versus Q1 2018, primarily due to a reduced cost base and benefits from our currency hedging program, partially offset by the acquisition in Japan and investments in payments. Moving to slide nine. We continue to make good progress in our payments initiatives, adding sellers and intermediating more GMV, while our sellers continue to realize savings in payment-related costs. As a reminder, we are gated by the existing operating agreement of up to 5% of GMV between July 2018 and July 2019 and 10% between July 2019 and July 2020 in two markets. Our Q1 run rate of annualized GMV is nearly $1 billion. Our buyers are presented with more and more choices on how they want to pay on eBay's payment rails. Options now include most major credit cards, Apple Pay, Google Pay, and PayPal as we progress towards our $2 billion annualized revenue and $500 million annualized operating income goals at scale. Turning to slide 10. StubHub GMV contracted 2 points decelerating 1 point from Q4. A weaker college football championship game and Super Bowl were the primary drivers of the deceleration, reaffirming the event-driven nature of the tickets marketplace. StubHub revenue was flat, down 2 points versus Q4, driven by volume deceleration and event mix. MS&O revenue for Q1 is $7 million, most of which is first-party inventory. This is a nascent area of our business where we leverage our relationship with primary sellers to purchase tickets directly and provide more inventory to our buyers. While it typically operates at lower margins, we believe it to be positive for our customers. Looking at StubHub segment margin, there are a few dynamics to keep in mind. First, seasonality is more pronounced than in the other segments; second, the Major League Baseball agreement adds pressure to margins during the season; finally, international expansion will continue to be modestly dilutive. With that as context, margin in Q1 is 11%, down 2 points versus Q1 2018, driven by an increase in marketing spend, largely search engine marketing. Moving to slide 11. Classifieds revenue grew 12%, accelerating 1 point, supported by our acquisition of Motors.co.uk. Organically, journey continues to be the leading driver of our growth. Looking at Classifieds margin, there are a few dynamics to keep in mind. First, we run our diverse portfolio comprised of mature platforms that run higher margins and strategic bets at lower margins. Underneath, we work to get scale through a common technology infrastructure and by adding capabilities that enable our vertical motors playbook. Segment margin for classifieds is 36%, up 1 point compared to Q1 2018, driven by volume leverage from our larger platforms. Turning to slide 12, the major cost drivers. In Q1, we delivered non-GAAP operating margin of 29.8%. This is up 190 basis points versus last year, primarily due to our reduced cost base, in line with previously communicated plans to grow margins in 2019. Additionally, approximately 1 point favorable impact from foreign exchange offsets the acquisition spend and investment in payments. Cost of revenues was up over 1 point year-over-year as a percentage of revenue, driven by investments in site operations and payment processing. Q1 sales and marketing expense was down over 1 point versus the prior year, driven by 1 point reduction in the cost base, 1 point favorability from a stronger U.S. dollar, partially offset by 1 point from our acquisition in Japan. Keep in mind that most of the low ROI program reductions are reflected in contra revenue. Product development costs were down nearly 2 points as a result of our increased productivity, even as we continue to invest significant resources into strategic opportunities such as payments and ads. G&A was slightly down, our sixth consecutive quarter of productivity. Our disciplined execution continues to drive leverage and more than offset our investments in payments, data, and security within G&A. Moving to EPS on slide 13. We delivered $0.67 of non-GAAP EPS, up 26% versus the prior year, our fourth consecutive quarter of double-digit EPS expansion. EPS growth was driven by the net benefit of share repurchase, margin expansion, and the lower tax rate, partially offset by our investments in payments. GAAP EPS for the quarter was $0.57, up 45% versus last year. The increase in GAAP EPS includes a $113 million gain, recognized due to the change in fair value of the warrant agreement. As always, you can find the detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. On slide 14, in Q1, we generated $368 million of free cash flow, up 9%, driven by strong operational growth, partially offset by a one-time restructuring payment. Turning to slide 15. Last quarter, we talked in detail about our capital allocation strategy and our key tenets and targets have not changed. We've executed our first dividend payment of $125 million while continuing to aggressively buy back shares, demonstrating our commitment to return capital to shareholders in a disciplined and diversified manner. In Q1, we repurchased 42 million shares at an average price of $35.90 a share, amounting to $1.5 billion and $12.8 billion total since separation. We ended the quarter with $5.7 billion of share repurchase authorization remaining. For the quarter, we ended with cash and investments of $7.3 billion, debt of $9.3 billion for a combined net debt position of $2 billion. We expect to pay down $1.6 billion of debt in Q3 and continue our capital return program as we target 1.5 times net debt to EBITDA in the midterm. Turning to Q2 guidance on slide 16. For the quarter, we're projecting revenue between $2.64 billion and $2.69 billion, growing 2% to 4% on an organic FX-neutral basis. We expect non-GAAP EPS of $0.61 to $0.63 per share, representing 15% to 19% growth. EPS growth is driven primarily by the net benefit of our share repurchase program and operational growth, including margin expansion. This is partially offset by lapping a lower tax rate in Q2 of 2018 and our investment in payments intermediation. We are expecting GAAP EPS in the range of $0.41 to $0.45 per share in Q2. For the full year, we're raising revenue to the range of $10.83 billion to $10.93 billion, representing organic FX-neutral growth of 2% to 3%. This raise reflects a combination of Q1 performance, increased confidence in our first-party advertising plan, and increased clarity on overall monetization, partially offset by the strength of the U.S. dollar. In addition, while online sales tax are contemplating our outlook, it is important to keep in mind that the global landscape is dynamic and rapidly evolving. Operating margin expansion continues at 28% to 29%, and non-GAAP effective tax rate remains at 16% to 18%. We're increasing our full-year non-GAAP EPS guidance to $2.64 to $2.70 per share, reflecting Q1 operational performance. Cash flow remains at $2.1 billion to $2.3 billion as does CapEx at 5% to 7% of revenue. Finally, we are increasing full-year GAAP EPS to $1.94 to $2.04 per share, driven by the increase in the fair market valuation of a warrant and the increase in non-GAAP guidance, partially offset by Q1 restructuring charge. In summary, we entered 2019 focused on delivering shareholder value through modest revenue growth, expanding margins, strong double-digit EPS growth, and more capital returns through share repurchases and the dividend. One quarter in, we're executing against that plan with 3% organic revenue growth, inclusive of planned marketing reductions, 26% EPS growth, and over $1.6 billion total capital return to shareholders. Based on this result, we have increased confidence in 2019 and are raising revenue and EPS guidance. Advertising and payments on eBay are significant opportunities that continue to demonstrate progress. And we're executing on a marketing and product roadmap, positioning eBay for healthy long-term growth.

Thanks for taking the question. Maybe two parts. On active buyers, you continue to see strong active buyer growth. Can you give us a little bit of color about how those buyers might be acting differently, both positively and negatively than the broader cohort on the platform? And then, the second part of the question would be, how should we think about that active buyer growth translating into GMV growth and revenue growth as the cohorts begin to age, as you look through 2019 and through 2020? Thanks, guys.

Thanks for the questions. On the first part, we've been very careful to measure that and we don't see material differences between buyers that we've acquired recently, let's say in the last year than we have historically. There's a little bit of difference when we acquire a user as a guest versus a fully registered member on their customer lifetime value, but we're very focused. That's why we’re, as I said in my remarks, very focused on converting those guests to members. But, absent that, if you look just at time longitudinally, there's no real difference, and that's been really important that we focus on healthy buyers, not just any buyers. I have said before that it can dislocate quarter-to-quarter, even for several quarters at a time. But in the long run, buyers are a very excellent metric for where GMV wants to go. We said a year ago when GMV was above buyers that we were trying to get the buyer number up, and ultimately GMV came down to meet that buyer number. Now GMV is below that buyer number. But, if we keep growing the buyer number, we have confidence that the ecosystem is healthy and the financial metrics do follow that. So, that's the reason ultimately that we keep growing the customer base is that we think almost the best correlate to where ultimately GMV and then revenue and the other metrics that flow from that want to be is the buyer number over time. It doesn't have to be quarter-to-quarter. But that’s why we are focused on continuing to grow that customer base.

So, Devin, I want to ask a bit about the payment platform and its growth. You've reported $220 million in facilitated payments. This isn't a criticism, but that figure represents a small portion of the overall GMV and is quite below the limits of your agreement with PayPal. Are you just being very cautious in the rollout during this transition, or are you facing challenges with the acceptance from buyers and sellers? Additionally, can you share any thoughts on when you might be able to incorporate other online payment platforms that weren't available with PayPal, allowing you to potentially expand your buyer base? Thanks.

We are very pleased with our progress regarding payments and are approaching the limits set by our operating agreement. Currently, we are close to 4% of U.S. GMV and will reach the limits in due time without a need to rush. This quarter has been exceptional for sellers, and it's important to note that participation in this program is optional. We've seen an increase in the number of sellers, and our pipeline is substantial, though we are currently unable to onboard all of them. Notably, we've conducted our trials without PayPal until the very end, and this has not significantly hindered seller onboarding, which has yielded impressive results. We maintain substantial influence over buyer payment methods at checkout. Over the last few quarters, we've added several new payment options, including Apple Pay and Google Pay, with more to come in Germany, where various payment methods like direct bank transfer and direct debit make it a complex market. We are on course and very satisfied with our payment performance. We anticipate reaching the 5% mark this quarter and then aim to scale to 10%. We also plan to rapidly expand this program in just over a year.

Great. Thanks. I wanted to clarify a few things. First, with the significant decrease in sales and marketing compared to last year, I'm aware that enhancing efficiency in this area was a priority for you. I'm interested in understanding the trade-off you've experienced. Was the reduction in spending aligned with your expectations regarding its effect on Gross Merchandise Sales or profit growth? Additionally, could you provide some clarity on the strong performance in the take rate? I'm aware that hedging and promoted listings contributed, but it would be helpful to understand how to rank or break down these components.

Yes. I think there are a couple of factors to consider regarding take rate. Part of it was influenced by Promoted Listings and foreign exchange, but there was also a significant decline in contra revenue. These were the main contributors to the take rate. If you connect this to your earlier question about ROI, it was generally in line with our expectations. We anticipated it would cost us about 4 points of GMV growth in North America, where most of the reductions happened, and that’s roughly what we experienced. As we evaluate the revenue benefits, we'll continue to monitor the active buyer cohorts this quarter to see how that translates into customer lifetime value going forward. At this point, everything aligns with our expectations and feels positive for our plans for 2019.

This is Deepak on for Ross. The new segment margin is very helpful, thanks for that. It seems like the Classifieds segment margin is healthy at around 40%, EBITDA margin is probably a few points higher. Do you feel the pace of margin expansion that you saw over the past two to three quarters at Classifieds is sustainable? And then second question, on the core marketplace business, it sounds like Promoted Listings was up triple digits, what inning are we in currently with respect to Promoted Listings adoption? Is there a way perhaps to quantify it, either as ad load or maybe as a seller penetration at this time?

Yes. First, on the segment margins. We published the six quarters on the charts that you saw. When I say, the Classifieds business is driven by the mix, the margin rates are driven by the mix of businesses that you've got, and whether they are larger at scale platforms or whether they are subscale and growing in growth markets where you tend to have to invest a bit more. Alessandro and the Classifieds team have done an excellent job of balancing that over the course of the last several years. I don't look at their margin rates and go from here to skyrocket. I think, what we look at is where can we invest in the next incremental market or the next incremental vertical, like we did with the Motors.co.uk acquisition, that gives us a lot more bandwidth from a vertical expansion and kind of serving the market and monetizing the market perspective, which is great. But, as you go through the course of growing a business, you're going to have some pressures on margins and the team has done an excellent job of balancing those and trading them off.

In terms of Promoted Listings, it's still very early. If you look at analogs to eBay, other marketplaces with consistent rolled out products that are similar, our penetration and monetization rate are still in the early stage of scaling. And we know that because, as great as it is that we've had 800,000 sellers promote listings, that means that there are tens of millions that have not yet. And we also are just in the phase of fully integrating from the buyer side, where Promoted Listings show up in a unified search ranking. And there's a whole bunch of other plans to expand both the seller side and the buyer side. So, we think there's a lot of runway, and that's why we said last quarter that we think it's a $1 billion opportunity. Remember, we're being very selective about removing third-party advertising as it scales. But, one of the things that I'm happiest about is that the seller NPS on this, if you will, their happiness with this product is extremely high. It's been one of the most successful new products we've rolled out from a seller perspective ever. And they're adopting it. And remember, it's completely optional. Nobody has to use it. And they are flocking to it. And to me, it's a way that you can, if you want, trade off some margin for some velocity. And there are many sellers that want to do that. So, we're really happy with it. It's early, and it'll be a key contributor to the $1 billion revenue advertising opportunity.

I mean, I think to Devin’s point, in Q1, we started to iterate on the capability to have merchandising promoted listing placements, and that gives another way and place for sellers to advertise in a way that I think is highly functional from a buyer perspective to give you new ideas or adjacent ideas as you go through the selection of your item process and check out.

Great. Thanks and congrats on the quarter. I guess, bigger picture question first, going back to the take rate. I know there are a lot of moving parts. But I'm wondering, what you have in mind perhaps as more of a normalized take rate in the core marketplace segment, assuming of course that Promoted Listings and payments continue to ramp? And then, secondly, any progress on reengaging the older buyer cohorts? I know you've mentioned previously that being a goal as well, in addition to the new buyer growth. Thanks.

The marketplace take rate has a lot of dynamics involved. The underlying take rate was 8.7%, showing an increase year-over-year due to favorable conditions from foreign exchange, Promoted Listings, and a decrease in lower ROI marketing investments. That said, Promoted Listings impact transaction revenue, which increases the take rate. As Devin mentioned, it's entirely up to sellers to opt in, as we're not mandating participation. We're focused on providing a positive experience that enhances transaction speed. Over time, and even now, you will see that the take rate will also benefit from payments monetization. The specific impacts in each market will vary, but it's likely that it will predominantly appear within transaction revenue. Overall, I believe that the core marketplace's underlying take rate will remain stable with typical fluctuations we've previously discussed, and the payments take rate will be an addition to that. Ultimately, sellers have the choice to use Promoted Listings or not.

On the topic of reengaging existing buyers, we are very focused on increasing frequency and engagement within the Company to help lower churn rates. Many buyers currently only shop in a single category on eBay, such as camera equipment. However, we have a strong inventory and competitive pricing across multiple categories, presenting a significant opportunity to encourage these shoppers to explore more. Throughout the remainder of the year, you can expect various product and marketing initiatives aimed at prompting existing buyers to shop more frequently and across categories. We have some exciting plans, a few of which are still under wraps, but we believe this represents a great chance to better engage existing buyers and broaden their perception of eBay. Ultimately, we anticipate that this will help reduce churn rates and positively impact our buyer numbers. This has been a major focus internally, and we will share more updates as the year continues.

Devin, just a couple of questions. First, any updates on rolling out potentially cost per click or CPC pricing for Promoted Listings? I think you mentioned last call that that was probably coming this year, just be interested to hear an update on that. And then second, both you and Scott have reiterated a couple of times here those big long-term goals of $2 billion in revenue and $500 million in OI for payments. Wondering if you could help us elaborate a little bit on how you’re thinking about the timeline to that. You said a moment ago I think that once that year and three months is up, you are ready for a rapid expansion. Are we headed to those sort of numbers, fairly quickly? Does it take several years to get to that type of level? Would love to hear a little bit more on that. Thanks.

Yes. Regarding CPC, we are certainly exploring it. I don’t have any product announcements to share today, but we see solid demand for a CPC product, and we will provide updates when we’re ready to announce something. As for payments, remember that in July of next year, we will no longer face constraints from the operating agreement. We expect to have much of the product functionality developed, but we will also be entering a holiday period shortly after July, which requires caution regarding changes. We aren’t prepared to present a detailed rollout plan yet, but you should assume that our current efforts and significant investments, which we've discussed for a year, indicate that we are pleased with our progress. This has been a successful, albeit challenging, program. If someone had told me a year ago that I would be in this position today, I would have accepted that without hesitation. While there is more work to be done, our first year has gone as well as we hoped, and we’re thrilled with the positive feedback from sellers and buyers regarding more payment options. You can expect that with the investments we’re making and the foundational work we’re establishing, we will not hold back in our rollout come July 2020. We will share more details on the overall rollout plan later this year or early next year, but I want to emphasize that we are committed to being aggressive.

Maybe just one quick one for Scott, just I might have missed a footnote or a comment here. But, the segment margins disclosed, are they GAAP figures, non-GAAP, EBITDA, what's all in those numbers, precisely?

Non-GAAP margin with all the reconciliations are in both the press release and ultimately in Q. Yes.

Thank you very much. I have a couple of quick questions. The average take rate in international markets did not increase sequentially, whereas it had previously. However, in the U.S., we saw a significant increase. What explains the difference? Perhaps it relates to the adoption of Promoted Listings and the lag effect, but I would like more insight into this difference. How should we view the international take rate in comparison to the U.S. moving forward? I also have a follow-up question, if that's okay.

The majority of the sales incentives that appear as contra revenue were reduced in the U.S., which positively affected the take rate there. This was the main difference between the international and U.S. take rates. What was your follow-up?

Just a quick follow-up on that. Promoted Listings have seen broad adoption internationally. There is not a material difference in the uptake of Promoted Listings in the U.S. or in our international markets. It's been broadly adopted.

I think there was a follow-up.

Last year, you made a lot of changes to the consumer experience, product improvements. And I know that there was a divergence between habituated users and non-habituated users. As you rolled some of them back and tweak some of the other changes, I guess, what changes are you finding that are still positive and so contributing versus what kind of have you rolled back in and do not intend to implement?

Yes. We said a couple of quarters ago that what we would do is effectively bifurcate the experience of new users who are getting more of the structured data product-based experience and existing users who are being landed more on the historical experience. That's what we've done. And one of the reasons we've been able to maintain healthy buyer growth is with this significant reduction of marketing that we are seeing great conversion gains for new customers that gives us a lot of confidence for the future. In the core, we're also seeing the impact now that the evolution of structured data is making; this year will be very focused on aspect coverage, meaning knowing the product is important but knowing the attributes of the product in many ways is even more important and will be encouraging sellers to contribute a great degree of richness to their listings because we know that that richness improves our catalog and drives buyer conversion. So I kind of hinted at that in my remarks, but you will see a significant expansion of the coverage and quality of our catalog this year and the early signs are very positive on conversions, so that's where we're going to focus. But for new users, we've been even more aggressive about product-based experiences, and that continues, and we're real happy with the results there.

Got it. Just as a quick follow-up, I know that there was an issue with the habituated users on the new product experience. Have you been able to encourage them to adopt some of the functionality that the new customers are responding to strongly?

Yes. What we're seeing is that what matters to our existing customers is less a fully product-based experience but more of the richness of listings that the catalog and structured data bring. So to me, a product experience is you fully collapse listings into the product. There are definitely cohorts of buyers who love that. But many existing customers did not as we said several quarters ago, but what they do want is better listings and more inventory to surface through search when they are richer attributes, so that's what we're focused on for the existing base and you'll hear a lot more about that through the course of this year.

Hey. This is Mike on for Justin. We just want to ask if you could discuss the marketing strategy going forward and if you could provide any color on how you see the balance between efficiency and potentially constraining GMV growth in the longer term? Thanks.

We historically have been disciplined marketers. We're very focused on ROI, we're very focused on not wasting money in the way we market. And we did say last year over several quarters, we were pushing the efficient frontier to learn how far we could go without getting a healthy return. There were some things we did that we liked and there were some things we did that over time just did not provide a decent return. What we found is that we were subsidizing some existing buyers at higher ASPs we weren't getting a return on that and that's what we withdrew. But going forward, our marketing strategy is to continue to market the brand. We've been a brand every month this year, we will continue to. We will market across channels, social search, obviously, our owned channels like CRM and we will be focused on acquiring new customers at healthy costs to acquire and driving healthy customer lifetime values. That's kind of what we've always done and that's what we're going to do.

Operator, we'll take one more question, please?

Hi, everyone. I appreciate you fitting me in. I'd like to delve a bit deeper into the flat sales figures and the 4% growth in active buyers. You've mentioned that active buyers are a strong indicator, even if it's somewhat limited in predicting future GMV growth. What gives you confidence that the trends in e-commerce and marketplaces have remained consistent over the past few quarters, and how do past experiences inform your expectations for the future?

Things are constantly changing, but I believe Scott's remarks provide the best insight. We took direct action and observed the outcomes we anticipated. While there are always changes in the external environment, we are also evolving. The eBay experience is currently at its best. We have reduced a significant amount of subsidy, achieved the expected GMV results, and continue to see growth in our ecosystem, including the number of business sellers, inventory, and buyers. These are all positive indicators. While it's theoretically possible that we might not grow despite these metrics improving, it’s difficult to envision how that could occur. This gives us the confidence to update our forecast and proceed from there.

Great, thank you. And maybe just one real quick follow-up, on the product-based listings and the existing users versus new users. So it sounds like what you're saying is you will continue at least for the time being to run kind of a side-by-side experience around the product-based listing, am I thinking about that correctly?

We've been doing it and we'll continue to do it, but that doesn't mean the existing experience isn't changing, it's just changing in a different direction with much more aspect coverage less fully product-based, doesn't mean it will never happen, but it's not what we're focused on right now.