EBay Inc (EBAY) — Q4 2019 Earnings Call Transcript

Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the fourth quarter of 2019. Joining me today on the call are Scott Schenkel, our interim Chief Executive Officer; and Andy Cring, our interim Chief Financial Officer. We're providing a slide presentation to accompany Andy's commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. 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. Additionally, all revenue and GMV growth rates mentioned in Scott and Andy's remarks represent FX-neutral year-over-year comparisons unless they indicate otherwise. In this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. And our actual results may differ materially from our forecast 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 periodic reports on Form 10-K and Form 10-Q in our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of January 28, 2020, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Scott.

Thanks, Joe. Good afternoon, everyone. As I mentioned last quarter, our focus was to deliver our Q4 and full year commitments, execute on our growth initiatives of managed payments and advertising, improve the buyer experience and seller capabilities, and make progress on our portfolio and operational reviews. For 2020 and beyond, we will assess how to deliver for our buyers and sellers while ensuring we focus on investments to serve our customers and shareholders. Let me walk you through each of these in more detail. Specific to our Q4 commitments, volume was in line with our expectations, down 4%, while organic revenue was at the high end of our guide, up 1%. Margin was strong at over 29%, inclusive of our ongoing investment in managed payments. Non-GAAP EPS was $0.81, up 15%, substantially better than expected. In addition, we reached a deal to sell StubHub to Viagogo for $4.05 billion while following a disciplined process that led to a favorable valuation. For the full year 2019, GMV was down 2% while organic revenue growth was 3%, at the high end of our January outlook. Non-GAAP earnings per share grew double digits each quarter and was above our guidance. And we drove strong productivity, allowing us to reinvest in managed payments while delivering 1 point of margin accretion. Additionally, as part of our operating review, we announced plans to further reduce expenses to reinvest in growth initiatives and improved profitability. The net of these actions is expected to yield at least 2 points of margin accretion over the next 3 years. Finally, we returned $5.5 billion to shareholders through share buybacks and our first ever dividend. Since separating from PayPal, we have repurchased approximately 35% of shares outstanding net of dilution. For the year, GMV declined primarily due to two headwinds. First, we indicated that we would reduce marketing that was not activating buyers with high lifetime values. While reducing near-term GMV and buyer growth, this also drove a higher take rate and better profitability. The second was the implementation by U.S. states of Internet sales tax. This rollout happened faster than anticipated and affected small businesses and consumer sellers requiring marketplaces to collect and remit on their behalf. We expect this headwind to continue until we lap a fully rolled-out U.S. Internet sales tax landscape. We remain hopeful and are advocating that the U.S. will take a national approach to simplify compliance requirements and reduce the burden on small businesses. While dealing with those volume headwinds, organic revenue grew 5 points faster than GMV, much of which came from our growth initiatives, managed payments and advertising. Regarding managed payments, we continue to make great progress on our journey to transform our ecosystem. Since launch, we have processed more than $2 billion of GMV for almost 25,000 sellers on our payment rails. While our pricing has been discounted to reward early participation, to date, sellers have saved almost $10 million in fees, and they have more options on how and when they get paid. As we exited the year, our U.S. volume approached the limit permitted under the operating agreement, while in Germany, we ramped from 0% to 3% faster than our U.S. ramp. We remain confident in realizing an incremental $2 billion in revenue and $0.5 billion of operating income in 2022. Advertising continues to drive revenue growth. In Q4, Promoted Listings delivered $136 million of revenue, up 75%. Over 1.1 million sellers promoted more than 320 million listings in the quarter. For the year, Promoted Listings revenue doubled and helped us reach our plan of more than $700 million in total advertising. While we have started to lap significant acceleration from a year ago, we still expect double-digit advertising revenue growth going forward. This performance was supported by deeper integration into listing flows and the Seller Hub, which increased adoption. In addition, ad conversion was up due to improved algorithms, which utilize structured data to enhance search ranking. We remain on track with our plan to build a $1 billion advertising business. Over the course of 2019, we improved the buyer experience by increasing the collection and use of structured data. We collected more aspect data from sellers in fashion and home categories by making it easier to see what buyers were searching for in the listing flows and the seller tools. When sellers uploaded that data, these structured data and rich listings make search better and convert faster. This additional data contributed to improved merchandising algorithms and Promoted Listing relevance and search. We also improved our Seller Hub over the course of the year. In addition to the Terapeak integration, one feature we launched was Seller Initiated Offers, where a seller can engage individual buyers with better deals. This feature has grown to over 1 million offers per day with pricing options and an easy-to-use automated experience. We are pleased that we delivered on our 2019 commitments. As we enter 2020, our priorities are clear. We will continue to drive revenue through our growth initiatives, deliver more seller tools, improve the buyer experience by leveraging our structured data foundation while driving more margin expansion. Managed payments will reach an important milestone in July when our operating agreement expires, and we will be ready to scale rapidly into additional countries and corridors while delivering a better customer experience. For advertising, we will provide sellers more tools to optimize their ad spend. We expect this will increase conversion and improve pricing without adversely impacting the buyer experience. For sellers, we will expand insights and data in the Seller Hub while improving our guidance capabilities. We will also remove friction from the consumer selling experience, particularly on mobile. For buyers, we will build better vertical capabilities that will start in a few categories and scale across the platform with features such as payments for high dollar items with escrow and clear item condition definitions. We will also focus on improving buyer trust through increased shipment tracking in our international markets. All of these experiences will leverage aspect data, which will lead to benefits in search recall, ranking, and relevance. We also plan to collect more data in electronics, fashion, and home and garden to increase the overall aspect data population. While delivering these better experiences for customers, we will drive further margin expansion by simplifying our structure, controlling costs, and reducing ineffective marketing spend. For buyer-focused marketing, we will rebalance spending between acquisition, retention, and frequency. Finally, there are two topics I would like to proactively address. First, regarding the portfolio, our primary objective is to maximize shareholder value. We evaluate each business in our portfolio for long-term synergies and value creation opportunities. When we take action, like with StubHub, we utilize a consistent set of guiding principles, including value to eBay shareholders, speed of execution, certainty to close, and operational simplicity. Our Board and leadership team continue to operate with these guiding principles, and we anticipate having an update to share about our Classifieds business by the middle of this year. We appreciate that our employees continue to maintain focus in a time of uncertainty about what the future structure of Classifieds might be, while everyone is excited about the opportunities it could bring. Second, regarding the CEO search, the Board is actively conducting a process with the support of a search firm and is considering internal and external candidates. In the interim, the leadership team has the full support of the Board, and we continue to make changes to better serve our customers, employees, and shareholders. Over the past few months, we have reprioritized our product road map, reallocated marketing investments, and simplified our structure. By elevating our largest on-platform Marketplace regions and global marketing organization to the executive leadership team, we are increasing focus on the Marketplace business, which is where we see the biggest value creation opportunity. Our top 2020 priorities remain clear: deliver our growth initiatives, provide more seller tools, improve buyer experiences, leverage our structured data foundation, all while delivering margin expansion. We believe these changes will result in a better balance of sustainable growth and profitability that maximizes long-term shareholder value. Our teams are excited about the challenge and look forward to delivering on these commitments. Now let me turn it over to Andy to provide more details on our financial performance.

Thank you, Scott. I will begin my prepared remarks with our Q4 financial highlights, starting on Slide 4 of the earnings presentation. In Q4, we generated $2.8 billion of revenue, $0.81 non-GAAP EPS, and $672 million of free cash flow while returning $1.1 billion to shareholders through share repurchases and cash dividends. Moving to active buyers on Slide 5. We have 183 million active buyers, representing 2% year-on-year growth. This is a 2 point deceleration from Q3 driven in part by reduced marketing spend that was driving growth in buyers with lower engagement and a higher churn than we expected. Moving to Slide 6. In Q4, we enabled $23.3 billion of GMV, down 4%, decelerating 2 points versus the prior quarter. In the U.S., we generated $8.9 billion, down 8%, while we delivered $14.4 billion internationally, down 1%. Moving to revenue on Slide 7. We generated net revenues of $2.8 billion, up 1% organically. We delivered $2.3 billion of transaction revenue, up 1%; and $539 million of marketing services and other revenue, down 5%, inclusive of a 7 point headwind from the sale of brands4friends. Turning to Slide 8. Our Marketplace platform GMV was down 4% in Q4, decelerating 2 points versus the prior quarter. U.S. GMV was down 9% driven by a 6 point impact from Internet sales tax and 4 points from the continued reduction and redistribution of marketing spend. The impact of Internet sales tax in Q4 was 3 points worse than Q3 as 11 more states, including California and Texas, went live in October. International GMV was down 1%, decelerating 2 points versus Q3, primarily driven by lower consumer confidence in the U.K. from uncertainty surrounding Brexit and a reduced on-platform marketing spend. Total Marketplaces revenue was $2.2 billion, down 1%, decelerating 2 points from the prior quarter. Transaction revenue grew 1%, a 3 point deceleration. The gap between revenue and GMV growth continues. The 5 point gap in Q4 was driven by 3 points from Promoted Listings, nearly 1 point from category mix effects, and nearly another point from the continued growth in managed payments. Looking forward, we expect the contribution of payments revenue to significantly increase in the second half of 2020, leading to revenue growth remaining at higher levels than GMV growth until fully scaled. Marketing services and other revenue was down 17%, decelerating 4 points versus Q3. The year-on-year decline is driven by 13 points from the sale of brands4friends and the continued reduction of third-party ads. Marketplace segment margin was 32%, up nearly 1 point year-on-year, primarily due to reduced marketing and continued cost leverage, partially offset by our investment in managed payments. For the full year, the Marketplace platform generated $85.5 billion of GMV, down 2%, and $8.6 billion of revenue, up 2%. Turning to Slide 9. StubHub GMV was down 5%, decelerating 5 points from Q3, mostly from the weak event landscape in concerts and theater. StubHub revenue grew 2% year-on-year versus 5% in Q3. Transaction revenue was down 2%, a 2 point deceleration driven by volume, partially offset by a higher take rate from pricing changes and event mix. MS&O has more than tripled year-on-year for the fourth straight quarter, delivering $16 million of revenue in Q4. Most of StubHub's MS&O revenue was first-party sales, which provides buyers access to unique and exclusive inventory and insurance for purchase tickets. StubHub segment margin was 22%, down nearly 4 points, primarily driven by investments in our first-party business and consulting costs, partially offset by lower marketing spend. For the full year, StubHub delivered $4.7 billion of GMV, down 1% and $1.1 billion in revenue, growing 4%. Moving to Slide 10. In Q4, Classifieds revenue grew 6%, decelerating 2 points. Our German businesses continued strong double-digit growth driven by our market-leading horizontal, eBay Kleinanzeigen and our vertical motors platform, mobile. In addition, we are delivering strong growth in verticals across the portfolio. The quarter-on-quarter deceleration is primarily driven by continued headwinds in horizontal display advertising across our markets outside of Germany. Segment margin for Classifieds was 43%, down 1 point year-on-year. For the full year, Classifieds generated nearly $1.1 billion of revenue, up 9% versus the prior year. Turning to Slide 11 and major cost drivers. In Q4, we delivered non-GAAP operating margin of 29.3%. This is up 10 basis points year-on-year, inclusive of a full point of investment in managed payments and additional pressure from the growth in our first-party inventory programs in Korea and StubHub, more than offset by reductions in marketing and the divestiture of brands4friends. Cost of revenue was up 160 basis points year-on-year as a percentage of revenue driven by scaling managed payments and our first-party inventory programs, partially offset by the divestiture of brands4friends. Q4 sales and marketing expense was down over 3 points versus the prior year, primarily driven by a double-digit reduction in marketing and promotional spend in our Marketplace on-platform business while increasing year-over-year investments in our Marketplace off-platform businesses. Product development costs were up 70 basis points from investments in managed payments and in Classifieds to expand our vertical offerings. G&A was up 1 point, mostly driven by portfolio and operating review costs and our continued investment in managed payments. For the year, operating margin was 28.2%, up 1 point and in line with our original 2019 full-year guidance. Turning to EPS on Slide 12. In Q4, we delivered $0.81 of non-GAAP EPS, up 15% versus the prior year, our seventh consecutive quarter of double-digit non-GAAP EPS expansion. The non-GAAP EPS growth was driven primarily by our share repurchase program, a lower tax rate, and operating efficiencies, partially offset by FX and our investment in managed payments. Favorability versus our guidance in October was mostly driven by continued cost control and an in-period tax benefit. For the year, we delivered 22% growth in non-GAAP EPS, primarily driven by our share repurchase program and expanding operating leverage. GAAP EPS for the quarter was $0.69, down 14% versus last year. The decrease in GAAP EPS is mostly driven by a higher tax rate as we lap a 2018 deferred tax adjustment, partially offset by gains associated with the Adyen warrant and share repurchases. As always, you can find the detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. Moving to Slide 13. In Q4, we generated $672 million of free cash flow, down 39%, mostly driven by the timing of both working capital and cash taxes. We had another strong year of cash generation, finishing 2019 with nearly $2.6 billion of free cash flow, a 27% increase year-on-year, driven by lower cash taxes, improved working capital, and lower capital expenditures. Moving to Slide 14. Our capital allocation strategy and key tenets and targets have not changed. For the quarter, we ended with cash and investments of $3.8 billion and debt of $7.8 billion. In Q4, we repurchased nearly 28 million shares at an average price of $36.19 per share, amounting to $1 billion. We ended the year with $2.2 billion of share repurchase authorization remaining. Turning to Slide 15. In July, we shared progress on our capital allocation plan for 2019. Looking at that same view today, we have delivered against all the markers we set out for the year. We initiated and executed our first-ever dividend. We completed $5 billion in share repurchases. We ended the year with cash of $3.8 billion, above our year-end target of $3.5 billion, driven by our overperformance on free cash flow. And we maintained our BBB rating while delivering on our stated ratio targets of 1.5x net debt and below 3x gross debt to EBITDA. Moving to full year guidance on Slide 16. The 2020 guidance we are providing assumes our current portfolio, including StubHub, is in place for the entire year. We will provide updates as appropriate moving forward. I also want to provide a little more context on the impact of Internet sales tax. Throughout 2019, as states implemented marketplace responsibility to collect sales tax, our sellers and our volume were negatively impacted. In each state, we saw an immediate drop in volume followed by relatively stable growth rates in the months that followed. We expect growth to recover as we lap the launch dates in affected states, and early data from the states that launched in January of 2019 shows that recovery. Given these dynamics, we expect the negative impact of Internet sales tax to be modestly larger in the first half with more states launching and then start to taper off in the second half as we lap quarters where a larger number of states went live in 2019. Please refer to the appendix of the earnings deck for additional details on the impact of Internet sales tax on our U.S. Marketplace business throughout 2019, including the timing of when states launched. With that as background, we are projecting 2020 revenue between $10.72 billion and $10.92 billion, growing 1% to 3% on an organic FX-neutral basis and minus 1% to plus 1% on an as-reported basis. We anticipate 2 points of growth to come from the continued ramp of managed payments and 1 point from advertising, which we expect to be approximately $800 million in 2020. Underlying this guidance, we expect Marketplace year-over-year volume to decline low single digits, consistent with our 2019 performance as an incremental point of Internet sales tax pressure will be offset with improvements in conversion. We expect StubHub to deliver low single-digit revenue growth, and in Classifieds, we expect similar top line growth to 2019. We anticipate the stronger U.S. dollar and the disposition of brands4friends to negatively impact 2020 revenue by approximately $200 million compared to 2019. We plan to deliver additional operating margin expansion while we invest in the long-term growth of our business. We expect margin of 28.5% to 29.5% for the year, which at the midpoint represents an increase of 80 basis points versus 2019. This margin expansion will be driven by continued marketing optimization, focused product and technology investments, best-in-class corporate functional costs, and more effective procurement, partially offset by approximately 1 point from our investment in managed payments and currency headwinds. We expect non-GAAP effective tax rate in the range of 15.5% to 17.5%. With regards to capital allocation, our guidance implies approximately $1.5 billion of share repurchases in 2020, inclusive of dilution offset. In January, our Board approved a 14% increase to our quarterly dividend, raising it to $0.16 per share. The dividend will be payable to shareholders of record as of March 2 with a payment date of March 20. Our Board has also approved an additional share repurchase authorization of $5 billion with no expiration. We have not made any assumptions in this guidance for the use of StubHub proceeds. Should the deal close in Q1, as anticipated, you can expect that we will deploy that cash in a manner consistent with our capital allocation tenets. We are projecting non-GAAP EPS of $2.95 to $3.05 per share, up 4% to 8%. This includes the impact of modest top line growth, additional margin leverage, and the ongoing benefit of our share repurchase program. Growth is partially offset by our investment in managed payments and approximately 7 points from the combination of a stronger U.S. dollar less interest income based on lower cash balances and a higher tax rate as certain benefits impacting 2019 won't repeat. We expect free cash flow of $2.2 billion to $2.4 billion, which assumes capital expenditures in the range of 4% to 6%. Full year GAAP EPS is projected to be $2.18 to $2.28 per share. Turning to Slide 17. For Q1, we are projecting revenue between $2.55 billion and $2.60 billion, growing minus 1% to plus 1% on an organic FX-neutral basis. It's important to note that given the second half ramp of managed payments following the end of the operating agreement and the lapping of the Internet sales tax headwind that we expect our second half performance will reflect higher growth rates for volume and revenue compared to the first half. We expect non-GAAP EPS of $0.70 to $0.73 per share, representing 4% to 9% growth. EPS growth is driven primarily by the combined effect benefit of lower share count and operational growth, partially offset by investments in managed payments. In addition, there are 4 points of headwinds from the combination of a stronger U.S. dollar and less interest income based on lower cash balances, partially offset by a lower non-GAAP tax rate. We are expecting GAAP EPS in the range of $0.50 to $0.53 per share in Q1. In summary, while 2019 volume growth was challenged, we delivered on our financial commitments and our growth initiatives while laying a strong foundation for 2020 and beyond. We ramped managed payments according to plan and scaled better buyer and seller experiences, including launching in a second market. We delivered strong advertising revenue, including triple digits within Promoted Listings. In 2019, we delivered 1 point of margin expansion despite pressure from lower volume and our investment in managed payments. We executed a comprehensive operating review and are on track to deliver at least an additional 2 points of margin expansion over the next 3 years. We continue to return capital to shareholders, initiating our first ever dividend, and we repurchased $5 billion of our stock. We continue to make progress on our portfolio review, divesting brands4friends and reaching an agreement to sell StubHub at a favorable valuation. We've reorganized the leadership and operational teams to deliver better outcomes in our Marketplace on-platform business, increasing focus on our customers and speed of decision-making. We entered 2020 focused on our top priorities: managed payments, advertising, providing more seller tools, improving buyer experiences, and leveraging our structured data foundation. As we navigate through a period of lower volume growth, our plan is to deliver continued revenue and earnings growth, margin expansion, and a consistent capital allocation strategy to maximize shareholder value.

I was wondering if you could give us just a sense of the guidance as we look at 2020. Is there a way to kind of disaggregate the impact both of the Internet sales tax, which you guys have given us a lot of information on, which I think we all appreciate, but some of your initiatives around focusing more on what you see as being kind of the core eBay revenue or the core eBay businesses and sort of chasing what I think in the past you've kind of described as being less profitable revenue as you look to sort of focus more on sort of the higher value or core eBay experience? Is there a way to disaggregate sort of the impact that that's having on guidance or the impact that that's having on the growth that you're guiding to for this year? And then as we think about sort of the process around the Classifieds side of the business, you've in the past talked about sort of the complication of pursuing anything less than a full sale of the asset. And I was just wondering if you could give us a bit of an update on sort of your thoughts around, as you've gotten further into this, sort of what would make sense along those lines as well.

Sure. I'll start with a couple of answers on guidance, and then Scott will elaborate on the Classifieds side. The volume guidance remains fairly consistent year-over-year in the low single digits for Marketplaces, but the dynamics will vary significantly between the first and second halves of the year. The first half will resemble Q4, while the second half is expected to see some acceleration as we move past certain states. Looking at the full year, we expect a slight increase in the IST impact from just over 1 point in 2019 to a little over 2 points in 2020, indicating an additional point of pressure from IST or a total of 2 full points of negative volume pressure in 2020. Regarding the less profitable revenue segment, we are continuing to refine our marketing spend allocation. Similar to the IST effect, we anticipate about a 1 point negative impact in both 2019 and 2020 as we optimize our strategy and eliminate lower ROI expenditures.

Yes. Heath, on the sale of Classifieds, look, it's, as I think everyone understands, a great business and a wonderful space. We've got one of the leading, if not the leading asset in the industry. And this is about shareholder value creation. So at this point, I would not exclude any option, although it's unlikely that we would pursue an option of divesting platform by platform, which a lot of people have reached out on. That's not really in our best interest or in line with maximizing shareholder value creation. But it's completely doable, and we're looking at all those options. And as I said, in fact, we'll have an update on that by midyear.

Maybe two, if I can, on the marketing piece. How far along are you on the marketing optimization against your goals in multiple years? You talk about continuing to reduce exposure to the lower ROI channels. Just want to get a better sense of like the linearity going through '20 and beyond of how you'll sort of accomplish those goals. And then with the growth headwinds you might be facing in the first half as you characterized it as the 2 half type year in 2020, any thoughts around leaning into some of the paid marketing channels that are delivering for you? And sort of how did you have a first half, second half component to the marketing expenditures in 2020 or how we should think about that?

Yes, Eric, this is Scott. I'd characterize 2020 marketing costs are coming down approximately in line with the same as we came down in 2019. And so we don't expect material headwinds in growth, but it will be reducing our underlying marketing spend. But within that, for sure, we'll be reallocating, as I mentioned, and that would include reallocating into paid search to help growth where we think it makes the most sense and where the returns make sense as well.

First, I guess on the pricing experiments with sneakers, wondering what you're seeing there in terms of listing activity and who would determine if that's a model that could work in other categories outside of shoes. And then maybe as a follow-up on the marketing spend, but more specifically on the sequential plateauing of active buyers, since I think, in past quarters, you guys have indicated that this is an important KPI in terms of the health of the platform overall and potential future growth. Are there any specific efforts geared at reaccelerating the number of active buyers?

First on sneakers. Yes, look, it's an interesting question and certainly interesting in terms of what we did in December. As you might know, our online marketplace has one of the widest and most unique sets of inventory of sneakers out there. And we have a history of experimenting with different types of selling promotions across different markets. In this case, what we announced in December was a sneakers promotion that was a continuation of that practice of experimentation. It's in 2 markets and in sneakers over $100. What we're looking for is really how does the monetization change as you think about no final value fees in sneakers over $100, but there are other dynamics at play here, including first-party ads and other dynamics where we're trying to look at conversion and accelerated active buyers in those categories. As we look at that and then consider what we're going to do with the product, it gets pretty interesting from here. But right now it's a very small scale but very interesting experiment.

Yes. I think the only thing I'd add to that, Scott, to your point, it's one category in two markets, but it's a way we can really highlight the breadth and depth of the inventory we have across this competitive vertical. So feel good about that. And then active buyers?

On active buyers, I have a few thoughts. Firstly, active buyers are always important. We've recently focused on increasing the number of active buyers in this ecosystem. Throughout 2019, our efforts have primarily supported growth in active buyers, especially new and reactivated ones. As we approach 2020, we'll continue to invest in acquiring new buyers, but we're also shifting some of that investment towards encouraging the new buyers we've brought into the ecosystem over the past four quarters to make more purchases. Our goal will be to generate more GMV from these buyers while we also look for ways to increase the GMV per buyer in our retained buyer base, which remained very stable in Q4, which is encouraging. Moving into next year, you can expect us to place less emphasis on bringing in a large number of new buyers while still making some investments in that area and focusing more on converting the buyers we acquired last year and engaging our retained buyer base.

Just two questions. So thanks for the detail on Slide 20 on the IST. So are you basically saying that if we look at these 4 quarters, the improvement that you've seen ex IST, is that just lapping the couponing initiatives? Or are there other things that you're working on that are driving that uptick from down 6% to only down 3% in recent quarters? And then as we look forward, your guidance assumes like the year starts kind of flat in 2020 and the back half is going to be up about 4%. So is that GMV growth picking up? Or is that from payments kicking in, in the second half? Any color there on those two, that'd be great.

Certainly, there is an increase in revenue growth from payments, which we estimate to contribute around 2 points this year. It's important to note that our capacity in the U.S. is limited until July, and we will reach that limit in Germany during the first and second quarters. Consequently, most of the 2 points in revenue growth will be generated in the second half. Additionally, the gross merchandise volume will benefit from both conversion improvements and various initiatives we're pursuing, alongside a 1 point improvement from the previous year when excluding IST.

Scott, I wanted to clarify your thoughts on how payments might evolve now that you have another quarter of operations behind you. In the past, you discussed a hard fork scenario when a contract ends, but it seems like you're moving towards a more gradual transition. Has your perspective changed regarding the pace at which you're willing to implement this, especially with the current limitations? Additionally, could you provide any insights on what percentage of your sellers are leveraging Promoted Listings and how that percentage might compare between newer markets in the West and established markets like Korea where this has been in place for some time?

Yes, a couple of thoughts on payments first. I view our payments evolution as going right on track right now. The gradualness is only in the near term in the sense that we're guardrailed with what we can do between now and July. Once we're independent of the operating agreement with PayPal, we will go hard at not only the two markets that we're in and expand the number of sellers and the GMV that's covered in the ecosystem in both the U.S. and Germany, but we'll expand into the markets in other corridors. And so we're on track, if not better than we thought as we look towards the second half of the year. With regards to Promoted Listings, maybe I'll let Andy, if he has any numbers, weigh in on that. But on the Promoted Listings within the U.S., roughly 30% of listings are actually getting some form of Promoted Listings utilization. As we look forward, we'll learn from our Korea business, which has a much higher percentage but a completely different take rate. What we've said over time is that as we scale Promoted Listings and modify how we think about not only the user experience but also the monetization of those assets to make sure that it's a valuable thing for sellers, and they view it as marketing expense versus just a take rate and a requirement. I would expect us to continue to iterate that as we move forward within the plans that we've laid out.

And in terms of number of sellers or percentage of sellers, through the year, we grew the number of sellers promoting items by over 80%. We exited the year, that was more than 1.1 million sellers and represents more than 320 million listings in Q4.

I guess first on Payments, are you noticing any change in conversion on when a seller is using payments, whether they're seeing any negative impact from switching over? And then second, maybe just a follow-up to one of the earlier questions. Scott, you had talked about really embracing authentically eBay. And I guess just trying to think about some of the verticals that you've been very successful at historically. Any sense that you'll be able to kind of restart maybe a more favorable growth dynamic in those verticals through greater focus?

Yes. So on Payments conversion impact, no, it's not down. I think that's just sort of a simple answer. What you do see with payments is different user behavior as you would imagine. Buyers now have more alternatives, and sellers have a series of tools from which how to manage their payments and connect their payments with their listing activity, which makes it easier for them. On both sides of the equation, this is a net positive. And certainly, the conversion's fine. On authentically eBay, look, the way I alluded to it last time, and what I would point you to in the script from today and the points that I made is as we think about not only how we've prioritized the product plans for 2020 but also as we think about which verticals that we experiment in. Again, this is based on leveraging the structured data work that we've done, the aspects that we've expanded upon recently, and as we look towards 2020 and beyond, really indexing higher on verticals that are more authentically eBay that people think of. When we talk about vintage, collectibles, interesting items, etc., people think about us, and we just have to be more relevant not only in how we show up on our search results but how that inventory is searchable and findable on the site in a way that doesn't undermine new buyers coming into the ecosystem, as we talked about a lot last year and prior, and then most importantly, over time, also indexing on brands. More to come on that as we move forward. For right now, I think Pete and the team have done an excellent job over the course of the planning horizon in setting us up for a '20 plan that is very clearly focused on vertical categories, along with Jordan and the other regional country leaders, to really focus on where we think we can win.

Maybe just a quick follow-up on the display advertising headwinds in Classifieds, if you could just expand on that a little bit, Scott, and maybe in particular, why you're not seeing it in Germany? And then second, just thanks for the update as well on the CEO search. I may have missed it, but I don't think you put a time line on that one, but just curious to see how you think about how we might expect that to play out while the strategic review continues as well.

Yes, absolutely. Regarding the CEO search, we haven't outlined a specific plan or timeline, but I want to emphasize that the Board and its subcommittee are actively working to find and interview the best possible candidate. On the topic of headwinds in Classifieds, it's important to recognize that there are several factors at play, especially in our horizontal platform businesses, and each is affected to varying degrees. Specifically, display ads are being impacted by the shift to mobile devices, which has been ongoing and is currently accelerating in some countries. Additionally, there are downstream effects from changes in privacy laws and actions taken by Google, which limit the display ad market and its effectiveness, as well as what is displayed on our site. This trend appears to be consistent across the industry. However, as we approach 2020 and beyond, I believe things will normalize. Our teams have done an excellent job, particularly in Kleinanzeigen and our automotive verticals, to continue expanding and growing. I don't view this as a long-term structural concern; it's more of a challenge we need to navigate, similar to the Internet sales tax.

Maybe related to Stephen's question, second question but asked a little differently. With Promoted Listings revenue up 32% sequentially, but actual number of Pro Listings, I think, was less than 10% growth there. Can you walk us through what's the strongest driver there? Is it higher bid? Is it improved conversions? And how much runway for pricing and conversions can we see there going forward?

Yes, Brian, it's a great question. I think you answered it. It's a combination of conversion. I mentioned that in my script, and Andy alluded to it as well. A number of things that we've been doing in the ecosystem under the underlying structured data improvements and aspects that we've been collecting have given us the capability to serve those ads up with more certainty about what people are looking for and what might fit on that page to improve conversion. Prices fluctuate and have gotten a little bit better. Finally, you're going to see us continue to look at where and how we place these ads to make sure they're accretive to the user experience.

Great, a couple of questions. First on international. It's decelerated. Obviously, sales taxes aren't an issue. Are there any countries that you'd call out that are doing better or worse? And what are your big product initiatives to maybe help with the users and the growth there that you'd call out for international markets? And the second question is, obviously, you believe eBay stock's a good value here, been aggressive with buybacks and helping grow earnings. Is core eBay at all part of the strategic review? Are you looking at some of your options there?

Internationally, I think the 2 countries to call out are the U.K. and Korea for different reasons. The U.K. is primarily macroeconomic. We've been tracking our performance relatively well with the market basis, and just the uncertainty around Brexit has put pressure on the growth rates in the U.K. Then Korea, as we mentioned for several quarters, though it's been stable over the last quarter with the continued pressure from lower margin, tougher competitive couponing environment in Korea.

Yes. As we focus on international efforts, we need to consider both on-platform and off-platform strategies. Off-platform, Japan and Turkey are showing strong growth. Korea, as Andy noted, remains stable despite challenging macro conditions, and they are actually profitable there, which is not the case for many others. The team is performing exceptionally well. I want to highlight two relevant initiatives that could benefit the entire platform: loyalty programs. They've successfully implemented the Smile Club and other loyalty programs that have attracted over 2 million Koreans. This capability adds significant value, along with a retail-focused first-party inventory. Regarding on-platform operations, the dynamics vary by market. We've discussed the German ePlus with a loyalty program, incorporating insights from Korea into the German platform, and we see similar developments in the U.K. and the U.S., where we continue to refine our approaches. However, nothing stands out quite like the U.K. In 2020, we will introduce a unique integration with Royal Mail that will enable package tracking, which will be exclusive to eBay. U.K. consumers will be able to track their deliveries, enhancing trust and confidence. There are various aspects unique to each country, but the overall trends for on-platform performance are generally applicable across all markets. Yes, the stock is a good buy, which is why we continue to be aggressive with the buyback. In terms of core eBay being part of the review, everything's part of the review. The way we approach is exactly as we've talked to you about, which is we're disciplined in how we look at it and continue to iterate with the Board. So I wouldn't call anything specific out at this point, but we look at everything.

I have two. Just the first one on 2020 GMV. I think you talked about how you're going to have the IST challenges offset by higher conversion. Maybe talk to us about some of the qualitative changes or the product improvements that you see driving that higher conversion throughout 2020? And then back to the Q4 flat buyer number, you mentioned how there was some higher churn than expected. Can you just sort of talk to us about what you saw in the consumers that were churning? Was it an inventory issue? Was it payment frictions? Or what did you observe that was causing that higher churn? And how do you fix that going into 2020?

I'll start with the buyer number, Brian. It's actually up 2% year-on-year. So just to be clear, 183 million buyers. The churn, I don't think it's anything special in Q4. It's more a continuation of what we saw in Q3, and it's really following the increase in marketing we spent, the buyer-driven marketing spend that we had in the second half of last year, which led to a higher churn rate. What we saw with those cohorts is they visited less frequently, spent less, and we're churning out at a higher rate. And that became the Customer Lifetime Value and the value of those buyers started to not be worth the marketing dollars we spent on them. So that's why we've been pivoting away from that towards retention, focusing on some higher-value buyers.

With 2020 GMV, the Internet sales tax headwinds are significant, particularly with higher ASP items in electronics. When people encounter sales tax at checkout, they tend to bounce away. The good news is that they are coming back, and we're not losing them other than that transaction. So there's a chunk of GMV that's not returning, but it's not getting worse in the states that we've seen so far, leading to an overall stable situation. The underlying conversion has had minor benefits, but I wouldn't point to one thing above all the others. A marketplace ecosystem like ours requires ongoing improvements in both seller and buyer experiences. Overall, several efforts in 2019 have improved conversion, and we expect those to continue improving.