EBay Inc (EBAY) — Q2 2019 Earnings Call Transcript

Good afternoon. Thank you for joining us. And welcome to eBay's earnings release conference call for the second 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 third 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 July 17, 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, Joe, and good afternoon everyone. Our plan for this year is to deliver a great customer experience, grow our active buyer base, and scale our immediate growth initiatives, advertising and payments. As we build on our strengths of value and unique selection in our marketplace, we are increasingly intermediating and managing that marketplace, to better control both the consumer and the seller experience, while creating new growth opportunities. In Q2, we executed that plan. We made tangible customer experience improvements; we delivered good active buyer growth, and we continued to scale ads and payments. In addition, we drove efficiency to fund our investments while making progress on our portfolio overview. For the quarter, total GMV was flat, revenues were up 4%, while our active buyer base grew 4% to $182 million. Underlying these results, GMV in our Marketplace platform was down 1%, StubHub volume was up 6%, and our Classified platform grew revenue by 12%. We also returned $1.6 billion in capital to investors through share repurchases and dividends. Scott will go into more detail on our financial results shortly. First, let me provide some context on our core business. We've been reducing and redeploying low ROI marketing spend, resulting in less GMV in the short term, but stable sold item and active buyer growth. Although we've reduced certain types of incentives, we've maintained our focus on driving healthy customer growth while evolving our brand. We're seeing improvements in buyer acquisition, driven by higher conversion of new and lapsed customers, in part due to product enhancements, and also through more targeted marketing and promotion. We have effective levers to acquire buyers and are expanding our efforts to drive frequency and reduce churn. In Q2, we improved the buyer experience by increasing the number of ways buyers can discover value and unique selection. By leveraging data on existing listings, we launched new pages that transform previously unstructured listings into a more intuitive set of product results. We also recently released our brand outlet, an experience that aggregates products from top consumer brands all with fast and free shipping. Following changes to our returns experience introduced last year, more than one-third of our U.S. buyers are now able to instantly receive labels and track their returns. And we started rolling this out to more major markets in Q2. We also introduced significant seller improvements, including Offers to Buyers, Buy Again and Trending in Your Interests. We extended seller protection by making it easier to identify and take action against abusive buyers, which dramatically simplified volume pricing, offering more ways for sellers to offer discounts. And we provided better ways for sellers to contribute more complete structured product information to help buyers find their listings while building new capabilities to drive conversion, by better leveraging this expanded catalog. One emerging challenge for our small business sellers in the U.S. is the rapidly evolving landscape for internet sales tax. At the start of the year, only a handful of states had active legislation requiring marketplaces to collect sales tax. By the end of the year, that number will grow to more than 30 states, and it'll cover most of U.S. GMV. In Q2, this impacted the U.S. business by more than 1 point. And we're taking active measures to mitigate this challenge. However, this headwind is likely to further pressure U.S. results until we surpass a fully rolled out internet sales tax landscape. Looking at our international core markets, overall performance was relatively stable with some notable highlights. In Korea, we drove 2 points of GMV improvement in the quarter through investments in our loyalty platform, supported by promotions such as Big Smile Day. Our European markets were slightly down due to continued macroeconomic pressure in the UK, while Japan continues to gain share, primarily due to strong buyer acquisition and marketing investments. Our revenue growth continues to outpace GMV in part due to acceleration in advertising and payments. For ads, in Q2, Promoted Listings drove $89 million of revenue, up over 130% from a year ago. Over 940,000 sellers promoted over 250 million listings in the quarter. Sellers are increasingly choosing to invest in Promoted Listings and are seeing strong conversion and velocity. We plan to expand these capabilities further while always balancing the impact on the buyer experience. We expect to end the year with more than $700 million in total ad revenue, and we’re well on track towards our goal of $1 billion in ad revenue over time. For payments, we continue to see accelerated adoption of managed payments in the U.S. Since the launch in late Q3 last year through the end of Q2, we’ve now processed over $636 million in payments for over 6,000 sellers participating to date. Sellers on eBay managed payments are seeing good conversion, and their buyers can pay using credit cards, Apple Pay, Google Pay, and PayPal. Most sellers are saving on payment fees and simplifying their experience with eBay by managing their business in one place. In Germany, we’re on track, and subject to regulatory approval, we intend to be live by the end of the year. We're confident in our managed payment plan and we look forward to realizing $2 billion in revenue and $500 million in operating income at scale. At StubHub, Q2 volume benefited from increased conversion, active buyer growth, first-party sales acceleration and favorable market conditions, including the longer series for the NBA and NHL playoffs. In our international markets, a strong Champions League final and Women's World Cup helped offset lapping pressure from the Men's World Cup. In addition, we launched a new loyalty program for top buyers, and we continue to improve fulfillment with more technology integration leading to reduced service costs and improved margins. Turning to Classifieds, we continue to execute our playbook of building market-leading horizontal marketplaces complemented by scale vertical experiences in categories including motors and real estate. In Q2, we generated another quarter of double-digit growth, based on the execution of this strategy. In Germany, momentum in our motors platform has extended our leadership position, and our horizontal platform is rapidly increasing customer engagement, leading to advertising revenue growth. In the UK, our expanded motors offering continues to scale and drive growth in both our organic and acquired businesses. Core eBay integration continued to deliver substantial synergies with over $85 million of GMV to eBay in Q2 while adding over 1 point of revenue growth to Classifieds. Now, let me update you on our portfolio review. We're making significant progress in actively reviewing the role and value of StubHub and Classifieds in our portfolio. A review is underway, and we're focused on determining the best path forward to create shareholder value. In addition to that ongoing work, today we are announcing two other actions aimed at further strengthening our portfolio. First, we’ve reached a commercial agreement with Paytm Mall to bring our global inventory onto one of the largest marketplaces in India. eBay will open a store on Paytm Mall, which will provide hundreds of millions of Paytm and Paytm Mall's customers with access to our global inventory. As part of this collaboration, eBay is making an investment in Paytm Mall for a stake of approximately 5.5%. Second, we've reached an agreement to sell our flash sale German business brands4friends. Divesting this business will allow our German team to focus on the opportunities in the core business. Finally, throughout this year, we are continuing to drive margin improvement through disciplined cost management and reinvesting savings in our growth initiatives. Later this year, we’ll further communicate our approach to drive growth in margins. In summary, we are executing our plan to deliver outstanding customer experiences now, while scaling growth opportunities and driving meaningful shareholder value. Now, let me turn it over to Scott to give you more details on our quarterly financial results.

Thanks, Devin. I'll begin with my prepared remarks, covering our Q2 financial highlights starting on slide four of the earnings presentation. In Q2, we generated $2.7 billion of total revenue, $0.68 of non-GAAP EPS, 2 points of non-GAAP operating margin accretion, $607 million of free cash flow, and we returned $1.6 billion to shareholders through repurchases and dividends. Based on these results, we have increased confidence in our 2019 earnings outlook. We are reaffirming our organic FX-neutral revenue growth rates and raising GAAP and non-GAAP EPS guidance for the full year. Moving to active buyers on slide five. In the quarter, we increased our total active buyer base by 2 million to a total of 182 million, up 4%. Similar to Q1, we're maintaining stable buyer growth by increasing marketing spend that targets new and lapsed buyers, which is offsetting a modest increase in existing buyer churn. Turning to slide six. In Q2, we enabled $22.6 billion of GMV, flat year-on-year. The U.S. generated $8.8 billion, down 5%, while international delivered $13.8 billion of GMV, up 2%. Moving to revenue on slide seven. We generated net revenues of $2.7 billion, up 4% organically. We delivered $2.1 billion of transaction revenue and $557 million of marketing services and other revenue, up 4%. Turning to slide eight. Our marketplace platform GMV was down 1% in Q2, flat versus the prior quarter. U.S. GMV was down 6% on a year-on-year basis, driven by 5 points from the continued reduction in on-platform marketing, and more than a point from internet sales tax. Specific to internet sales tax, in January, we highlighted that the landscape was fluid and rapidly evolving. At that time, a small number of states had active legislation requiring marketplaces to collect sales tax, regardless of marketplace or seller nexus. As we execute this, we are now seeing more states enact with faster effective dates than we originally expected. In January, three states had enacted marketplace collection laws. By June, nine states have required marketplaces to collect sales tax, and 23 more will be live in the second half, many with compressed timelines. We're seeing an impact mostly on higher-priced items. In Q2, this drove more than a point reduction of year-over-year growth in the U.S. We expect this dynamic to continue and likely accelerate for the rest of the year. International GMV grew 2%, decelerating 1 point driven by UK macroeconomic pressure, somewhat offset by acceleration in Korea, driven by our Big Smile Day promotion. Total marketplace revenue was $2.2 billion, up 3%, decelerating 1 point from the prior quarter. Transaction revenue grew 5%, a 1 point deceleration and 6 points higher than GMV. The gap between GMV and revenue continues to be driven by two factors: triple-digit revenue growth in Promoted Listings, which made up approximately 3 of the 6 points, and category mix effects, contributing approximately 2 points. Marketing services and other revenue was down 6%, accelerating 2 points versus Q1, based on growth in our Korean first-party sales. Our third-party ad business continues to decline as we shift efforts away from non-strategic third-party ad placements towards our first-party Promoted Listings product. Marketplace margin was 32%, up over 2 points, primarily due to the continued cost leverage and year-on-year gains from our currency hedging program, partially offset by a stronger U.S. dollar and investments in payments. Moving to slide nine on payments, since our launch in September, we've intermediated $636 million of GMV. In Q2, we intermediated $273 million of GMV with the June penetration rate of 3.8%. Our buyers on the new platform are demonstrating their desire for increased choice. In June, they chose to pay with credit cards, Google Pay, and Apple Pay approximately two-thirds of the time. Our run rate of annualized GMV is now well over $1 billion as we continue to make steady progress towards our financial targets. Turning to slide 10. StubHub GMV grew 6%, accelerating 8 points on the strength of our initiatives in favorable market conditions as Devin mentioned. StubHub revenue grew 7%, accelerating 7 points from Q1. Transaction revenue grew 1%, a 4-point acceleration driven by volume, partially offset by a lower take rate from price changes and event mix. MS&O more than tripled, delivering $21 million of revenue in Q2. Most of StubHub’s MS&O revenue is first-party sales, which provides buyers access to unique and exclusive inventory. In addition, MS&O includes insurance for purchase tickets. Both are nascent but have the potential for significant revenue growth. StubHub’s segment margin was 4%, up 2 points, driven by operational leverage and a stronger U.S. dollar, partially offset by the increase of first-party sales, which operates at lower margins. Moving to slide 11, Classifieds grew revenue by 12%, flat with Q1. Revenue continues to grow in double digits, driven by ongoing strong performance in both platforms in Germany and our motors offering in the UK. Segment margin for classifieds was 38%, flat year-on-year as operating leverage is offset by marketing investments and a stronger U.S. dollar. Turning to slide 12 and major cost drivers. In Q2, we delivered a non-GAAP operating margin of 26.9%, which is up 170 basis points versus last year, 50 basis points of which was driven by a stronger U.S. dollar, impacting all spending categories. I will focus my remaining comments on the operational dynamics of our expenses as we continue to grow margins in 2019, while investing in payments. Cost of revenue increased 1 point year-over-year, driven by Korea and StubHub's first-party cost of sales and site operations. Q2 sales and marketing expense decreased 1 point, driven by a reduction in marketing that we've discussed previously, partially offset by our acquisition in Japan. Product development costs were down over 1 point from increased productivity, even as we continue to invest significant resources into strategic opportunities such as payments and ads. G&A was down year-on-year, our 7th consecutive quarter of productivity. Our disciplined execution continues to drive leverage. Moving to EPS on slide 13. We delivered $0.68 of non-GAAP EPS, up 28% versus the prior year, our fifth consecutive quarter of double-digit EPS expansion. EPS growth benefited from our share repurchase program and margin expansion, partially offset by our investment in payments. Favorability versus our guidance in April was mostly driven by tax and strong cost control. GAAP EPS for the quarter was $0.46, down 27% versus last year. The decrease in GAAP EPS is primarily driven by lapping a gain created by acquiring Giosis and lapping a warrant agreement, which we can now confirm as Adyen. As always, you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. On slide 14, in Q2, we generated $607 million of free cash flow, up 223%, driven by the timing of cash taxes and CapEx, as well as strong operational growth. Moving to slide 15. Our capital allocation strategy and our key tenets and targets have not changed. We've executed our second dividend payment of $120 million, while continuing to aggressively buy back shares, demonstrating our confidence and commitment to return capital to shareholders in a disciplined and diversified manner. In Q2, we repurchased nearly 40 million shares at an average price of $37.62 per share, amounting to $1.5 billion. We ended the quarter with $4.2 billion of share repurchase authorization remaining. For the quarter, we ended with cash and investments of $6.3 billion and debt of $9.3 billion. Turning to slide 16. I'd like to remind you of our specific capital allocation plans for 2019, and the progress we've made through the first half and since separation. As planned, we've initiated a quarterly dividend and made two payments. We announced a $5 billion share repurchase in 2018, and we've repurchased $3 billion worth of shares in the first half. Since separation, we’ve bought back $14.3 billion, representing nearly 31% of shares outstanding net of dilution, which amounts to more than 150% of our free cash flow over that time. Our midterm leverage targets remain 1.5 times net debt and gross debt below 3 times EBITDA. We expect to pay down $1.6 billion of debt in Q3 without refinancing. We expect our net debt over the long-term to be between $3 billion and $4 billion while maintaining its BBB plus rating. On slide 17, before we look closer at Q3 and full-year guidance, I want to call out a couple of dynamics that are impacting our revenue outlook this quarter, but not our organic FX-neutral revenue growth rate or our non-GAAP earnings estimates. The sale of brands4friends and the stronger U.S. dollar will lower full-year revenue dollars by approximately $100 million and in Q3 by approximately $30 million. For Q3, we are projecting revenue between $2.61 billion and $2.66 billion, growing 1% to 3% on an organic FX-neutral basis. We expect non-GAAP EPS of $0.62 to $0.65 per share, representing 10% to 15% growth. EPS growth is driven primarily by the net benefit of our share repurchase program. In addition, operational growth, including margin expansion, will be offset by our investments in payment intermediation. We are expecting GAAP EPS in the range of $0.40 to $0.44 per share in Q3. For the full year, revenue guidance is in the range of $10.75 billion to $10.83 billion, maintaining the organic FX-neutral growth rate of 2% to 3%. Operating margin expansion continues at 28% to 29%, and non-GAAP effective tax rate decreases slightly to 15% to 17%. We are increasing our full-year non-GAAP EPS guidance to $2.70 to $2.75 per share, based on a stronger Q2, a modestly improved go-forward tax rate, volume leverage, and disciplined cost control. Cash flow remains $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 $1.97 to $2.07 per share, driven by cost control, lower stock-based compensation, and a modestly lower tax rate. In summary, we entered 2019 focused on delivering shareholder value through modest revenue growth, expanding margins, strong double-digit non-GAAP EPS growth, and more capital return. Halfway through the year, we continue to deliver on this plan with 3% FX-neutral organic revenue growth, 1 point of margin expansion net of foreign exchange, 27% non-GAAP EPS growth, and $3.2 billion in total capital return to shareholders. We continue to operate as disciplined capital allocators, balancing strategic acquisitions and investments that provide buyers around the world with value and selection while continuing to repurchase shares and divest assets that provide a better return for our investors. We continue to be confident in this year and beyond, holding organic FX-neutral revenue growth and raising GAAP and non-GAAP EPS guidance for the second quarter in a row. Looking further out, we’ll preview 2020 during our third-quarter earnings call as we’ve done in the past. And now, we’d be happy to answer your questions.

Great. Thanks. When we look at GMS growth, I was wondering if you could kind of help disaggregate for us some of the drivers behind that, particularly as it relates to the efficiencies that you’re seeing in marketing. How should we separate sort of the impact of those marketing efficiencies versus the ongoing technology improvement and sort of the efforts that you're making around structured data, which I know we’ve talked about for a while but also the new product pages. Just wondering if we see the net effect, just hoping you can kind of give us a little bit more of the pluses and minuses behind that.

Yes. Heath, I'll start by discussing the numbers, and then Devin can provide more details on the product side. Overall, if we concentrate on the U.S., we saw an increase in points, which remains fairly consistent. However, if we examine the underlying factors, some of our export quarters from the U.S. performed slightly better, though this was somewhat counterbalanced by the internet sales tax issues I mentioned. Year-over-year comparisons show that the slowdown is mainly due to a decrease in marketing expenditures as we shift and cut costs. Additionally, as I noted before, there was a slight impact from the internet sales tax year-over-year. Despite this, we've implemented several product changes that, while not yet affecting the overall numbers in the U.S. significantly, are positively influencing the ecosystem, and we remain optimistic about the future.

Yes. I mean, I’d just add that this year is playing out exactly as we had said it would. And I guess, our confidence is that we have line of sight to the reason GMV is suppressed right now. It's marketing, which is in our control, it's internet sales tax, which will roll out, and it will roll out of it at some point next year. So, we know those things, they are explainable and to some extent controllable. Underlying that, the marketplace is healthy. We've never had more buyers. We've never had more inventory. The product is improving. And we are hitting another good stride right now in our product development process. So, I have a lot of confidence in the core health and strength of the marketplace because I can understand why there is a short-term suppression in GMV, and that's what we said would happen early in the year. It's exactly playing out as we had said.

Yes. The other thing I'd add, Heath, is internationally as I called out, there is some pressure. We are down a point quarter-to-quarter. That's really driven by mix, a little bit of downside from the UK, partially offset by a little bit of benefit from Korea. And so, those dynamics continue to play out. And as we go forward, there is a lot of dynamics at play, including internet sales tax that are implied in our guidance, and we'll continue to work through those. And hopefully, the product changes that we made will continue to amplify as we get into the second half of the year.

Great. Guys, just a question on the marketplace segment margin. So, it's been improving 200 bps; it's still in the low 30s. I guess, where do you see that going kind of medium to long term, how much more upside in terms of expense efficiency do you see? And then, second question on the portfolio review, just curious to hear your thoughts on the idea that's out there about selling classifieds potentially in separate pieces, kind of country-by-country versus doing a spin or a sale for the whole entity. Just any thoughts on that? Thank you.

Yes. First, regarding margin, we saw a nice expansion this quarter in our marketplaces. We anticipate continued margin growth driven by our marketing efforts discussed earlier this year. However, as mentioned last quarter, there are differences between the first and second halves of the year relating to foreign exchange, with about a 0.5 point impact this quarter. This should stabilize in the second half, which means we won't see as much margin improvement then, and some of that will reflect in the marketplaces. Nonetheless, we plan to continue optimizing and reallocating our marketing efforts as previously indicated, so I expect to see benefits from marketing in the future alongside ongoing cost control. Looking ahead to the medium and long term, we will provide more concrete details in October during our earnings call.

And Ross, on the portfolio review, we're just not going to say anything about it. We'll let people know when there is something to say, but until then, we're just not going to say a word about the process or what's going on.

Thank you. On the internet sales tax, you've talked about a 1% or I guess now greater than 1% impact. But there have been very few states that have had it implemented with the pretty significant ramp that's starting up in the back half of the year. How are you guys thinking about the impact, what are you assuming in your guide? And then, I believe in May-June timeframe, Google made some search algo changes. Some data out there suggests that eBay may have been negatively impacted by that. Obviously, over the years in the past, this has happened. And just curious what if anything you've seen so far. Thanks.

Go ahead.

I want to point out that our guidance reflects the expectation that more states will implement internet sales tax, and the situation will likely worsen before it improves. We anticipate reaching the peak of state rollouts around Q4. While we're not entirely certain how this situation will evolve, particularly with replacement inventory and market penetration dynamics, we currently believe that the impact on our U.S. operations will continue to increase. Eventually, we expect to move past this phase and see the effects diminish. However, we are still in the thick of it. Importantly, as a policy issue, this aligns with our previous warnings that small U.S. businesses are at a disadvantage and are facing disproportionate effects compared to larger companies and international businesses. We continue to advocate for federal legislation regarding internet sales tax along with a small business exemption. You'll hear me reiterate this position because the reality aligns with our concerns. Regarding the algorithm changes, we haven't detected any significant shifts in search patterns during the May-June period from Google.

Devin or Scott, I guess, we got the sense the last time we talked to you guys that you are being extraordinarily careful with the payments rollout and moving sellers into the program almost one by one as opposed to chunk set of times, and I think that's broken on the way. So, you have added what looks like 1,700 sellers versus about 800 last quarter. So, should we take this to assume that the process to transfer the incremental seller is getting progressively easier? And once you start doing this more formally in Germany, do you expect the transfer to be more easier, more difficult? And separately, not that you're in a position to offer us 2020 guidance, but some of the GMV deceleration this year is self-inflicted due to marketing and additionally, as you said from the sales tax friction. So, should we be thinking or even hoping for in line with retail type of a GMV growth for the U.S. next year and further for your marketplace's revenue, the GMV growth is no longer disconnected like it did this year? Thanks.

On payments, there are a couple of interesting dynamics. Today marks the one-year anniversary, and a year from now will mark five years, at which point the restriction on the rollout will end. Therefore, you can expect us to increase our pace. Some of the slower progress has been due to product development, and partly because there was no urgency to accelerate under the existing limitations. As we approach the 12-month mark from today, we will begin to pick up the pace. I'm particularly pleased with the seller experience. Sellers are achieving good conversion rates; buyers are enjoying a variety of options; sellers have unified accounts and are saving money—everything we hoped for. So, I am very satisfied with the payments execution. On the buyer side, it's noteworthy that, as mentioned in Scott's remarks, with PayPal now available, buyers are indicating their preference for choice. After the introduction of PayPal, we are seeing a penetration rate of about 35%, which is nearly half of the penetration rate seen in the rest of the marketplace. This shows that buyers are voting for choice with their spending. You can expect us to continue to increase our pace. Regarding GMV, we’re not providing specific guidance for 2020. We consistently mention that we believe the long-term sustainable growth rate of our business is likely above retail and below e-commerce. Given these margins, we view this as a solid and sustainable growth rate. We will discuss our outlook for next year in October.

Yes. And remember, Steve, the other dynamic for next year and the year after will be that scaling of payments revenue into our business. And so, while we'll get into what GMV looks like later in the year from a guidance perspective, you can expect that the revenue will be reasonably higher than that in addition to the first-party ads dynamics that we've talked about in the past. So, I think we feel pretty good about the revenue and we've got a lot of work to do between now and the end of the year when we start talking in October about 2020.

I'll turn to the topics of advertising and Promoted Listings. Devin, you mentioned that the number of sellers has grown to 940,000 from 800,000 last quarter. In May, you announced a broader rollout to all sellers in good standing. Could you explain the impact of that announcement and whether we should anticipate an increase in the number of sellers using Promoted Listings as a result? Additionally, can you provide any updates on the ongoing closure of the third-party ads? While you may not have specific guidance on when we might see that reach its lowest point, a timeline would help us understand the situation better. Any additional insights would be appreciated.

Yes, it's an important point. We mentioned last quarter that expanding our first-party ads business involves both supply and demand. For supply, we have opened up to more sellers, provided them with better tools and improved data to help them understand and assess their return on investment on eBay ads, which we believe is quite strong. Our value proposition is compelling. Sellers view advertising on eBay as a choice among various platforms, and we see this reflected in the growth of sellers and the increasing number of ads they use. Next week, we will host a significant seller event, eBay Open, where thousands of our customers will attend, and we plan to share more about the future of ads and other topics. It promises to be an exciting week for us. On the buyer side, there's also the visibility of these ads in search, browsing, and merchandising. As we gain confidence that we are not hurting organic results, we can enhance those results further. The remarkable growth this quarter is driven by expansion on both the seller and buyer sides.

Yes. To your second question in terms of the timeline, I’d just point out is that the third-party wind down is highly correlated with first-party acceleration. First-party acceleration in terms of where ads are going to be in place, what the efficiency of those ads and conversions of those ads are, and how we change the user experience. You can do the math, but we've had some acceleration in the third-party wind-down over the last couple of quarters. I would expect that to continue as we head forward. And we will continue to break these growth rates out for you, so you understand the underlying dynamics.

Devin, you called out some opportunities to address higher buyer churn. And I guess, just given the efforts to control marketing spend at the same time, is that something that you still kind of address over the near term, or is that more of a longer-term effort? And then, hoping for any updates on what you're seeing from some of the pilot initiatives with fulfillment and shipping, and in particular if you're going to plan any expansion of those efforts, ahead of the holidays? Thanks.

Thanks for the question, Colin. On buyers, we are very focused now on buyer frequency, on reducing buyer churn. We're seeing outstanding new customer acquisition, really strong, brand new customers coming to eBay, which is encouraging. Many of those are millennial; we're seeing a better skew towards women who are shopping with us. Some of those cohorts have lower spend than our existing cohorts, but they're all on the right side of positive CLV. So, we're happy with what we see. And the hope is that we can drive frequency and we're very focused on that. That's both product and marketing. Right now, we're very dialed into driving frequency and my hope is that, that isn't a long-term plan. That's something that we can do soon. And some of that is implicit in our steady buyer growth that we've seen over the last several quarters. On fulfillment, nothing to say right now. I think it's worthwhile to stay tuned.

What I'd say, Colin, on our fulfillment just specific to the question, we constantly leverage our size and scale on a global basis to provide services to our sellers that are cheaper. And we've talked about that with respect to helping sellers position inventory in country with coordinated and essentially negotiated lower fees from fulfillment. And as we look at this fulfillment trio in the U.S. because most of what we've been talking about is international, different international markets, 70% of what's sold on the site already comes with free shipping in the U.S. And in the U.S., nearly two-thirds of items arrive in three days or less. So, I think the intent of the program is to further enhance via guaranteed delivery program those types of metrics to further improve the user experience.

Thanks. You have put up two quarters of nice leverage in sales and marketing on a year-over-year basis, and you've talked about finding efficiencies, I think, in your marketing spend removing some of your lower ROI channels. How long of a transition is this in marketing? I realized it's constantly being optimized, but is there a greater level or attention to optimization this year that then kind of normalizes going into next year? And any color at all on what those lower ROI marketing channels are that you have been reducing? Thank you.

Yes. Last year, we aggressively increased promotions, sitewide sales, and coupons in lower ROI channels. We initially thought we could continue this approach if the customer value and spending met our expectations. However, we've always been disciplined in our marketing budget. After evaluating the results, particularly the buyer cohort we attracted through those efforts, we realized it wasn't worthwhile. Much of this change reflects our previous push in marketing, and we might explore more opportunities while prioritizing efficiency. We're branching out from Google and search into social media and affiliate channels while also focusing on increasing direct traffic. One of our strengths is the healthy balance between direct and paid traffic. We'll continue to promote the brand and explore different channels. For the remainder of the year, we will eliminate the low ROI spending from last year, which we've been discussing since earlier this year.

Hey, Mark. Let me just call out a couple of things that came out in my prepared remarks, but just to pull them together based on your question. First off, both StubHub and classifieds spent more in marketing this quarter, we called those out in the prepared remarks and in the margin dynamics. And so, that's going to, at the company level, mute the reduction that you would have seen. That's one dynamic. The second dynamic is within the marketplaces business. Korea and Japan actually spent more in contra, which then further mutes the fact that contra and other marketing expenses further down in call it core on eBay marketplaces businesses. And so just to try and navigate through from what you see in the prepared remarks and in the presentation and ultimately in the queue.

So, during the quarter you announced that you were going to participate in Facebook Libra. I wanted to know what you thought eBay's opportunity could be there, because I think that's quite an interesting initiative by Facebook and how that can fit into kind of eBay 2.0 payment options in the future? Thank you.

I think that I've been following crypto and blockchain for quite some time. And without going on a tangent, the short answer is, the opportunity for the blockchain to reduce settlement costs, improve security, and improve transparency is definite. I'm a believer that a public distributed database can reduce settlement costs. People still pay a lot for interchange, they pay a lot for settlement and clearing and that are in systems that at times are not secure and at times don't serve the needs of particularly small businesses. So, we're advocates about the possibility. One of the things that's prevented crypto from really having any penetration with retail is the volatility. And nobody is going to pay with the currency that moves up and down 15% a day. So, the opportunity with Libra is for buyers because it's pegged to a basket of currencies, to build a currency that’s stable. The opportunity for sellers is to lower their costs even further. We're going to lower their costs with payment intermediation, and the potential that this ever got up and running because we could lower their costs even further. So, I think Libra is speculative; I think Libra may or may not work. I understand the regulatory scrutiny. It is led by Facebook; we'll let them lead that. But we're participants as advocates on behalf of our customers.

Thank you. Scott, I wondered if you could revisit the advertising opportunity. I think you reiterated $1 billion. Where are you on total ad dollars today? And then when you think about $1 billion being a little bit over 1% of GMV, Amazon is a lot higher. Do you think $1 billion is conservative, is there room to go higher? Thank you.

Well, look, let's say get to $1 billion first. I guess, the way I'd frame it, I think Devin in his prepared remarks said $700 million. We’ll continue to expand above that with the mix of first-party which is, I'll remind everyone, I think you know, it shows up in transaction revenue. And as the third-party ads unwind that will lower our overall MS&O and ads reported number. And that's why we keep talking about it in aggregate, but $700 million continuing to grow will get us to a billion here in the next year or two and continue to expand our capabilities. And I think the balance is making sure there is a good user experience. So, we'll get to a $1 billion when we’ll get to a $1 billion, that will be as soon as we possibly can. We're pushing on that on all fronts, with the balance being, let's make sure the product experience doesn't get destroyed in that and that people can find what they're looking for, and that the searches that they do, and the ads that we serve them are extremely relevant and continue to convert and are worth having our sellers invest in.

Hey, guys. Thanks for taking the question. So, in the press release, you noted that you launched new pages that transformed from unstructured listings to structured product listing pages. So, I wanted to hear maybe there was more color around that. Is that different than the ongoing strategy you guys have had to roll out more pages onto product listings? And then, just one quick follow-up on the existing buyer churn. I know, you said it was modest, but was there anything specific driving that? Was it the lower marketing spend or was it something else? Thanks.

On the first part, we continue to enhance our catalog and structured data approach, which involves both a top-down and bottom-up strategy. I am particularly excited about the bottom-up aspect. The top-down focus has been on improving our connection to products, which is crucial. The attributes of those products are also important. For instance, the specifics of a phone, such as its memory and color. We have observed that as our product listings become richer in descriptions and attributes, their conversion rates improve. This improvement is partly due to better alignment with buyer searches. Therefore, we are encouraging and, in some cases, requiring sellers to enrich those product listings. We are integrating this into search functionality, which leads to better conversion rates. We will continue to simplify the process for sellers to contribute, and our search engine will increasingly capture those attributes over time. We will provide more details about this at our upcoming seller event. We are pleased and optimistic about our progress in catalog and structured data. Regarding existing buyer churn, part of that is due to our past experiments in Mainland China. We are moving away from some of those buyers in that region, which contributes to the increased churn; however, it does not significantly affect our core markets. I think we're all set on our side. So, I think we can close the call. Thank you very much.