EBay Inc (EBAY) — Q3 2020 Earnings Call Transcript

Thank you. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2020. Joining me today on the call are Jamie Iannone, our 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 Jamie's 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 and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of October 28, 2020, and we do not intend and undertake no duty to update this information. With that, let me turn it over to Jamie.

Thanks Joe and good afternoon, everyone. Thank you for joining us. Today I'll walk you through some of the key highlights from the quarter and update you on the strategy of the company. Then I will turn the call over to Andy to discuss our recent performance and near-term outlook. Before I do that, I'd like to take a moment and reflect on a major milestone eBay passed last month. 25 years ago during Labor Day Weekend, our Founder Pierre launched eBay as a technology experiment. The aspiration was to create an open, fair, and trusted marketplace that empowered people and created economic opportunities for all. Since our inception, eBay pioneered online shopping and has become an iconic brand that has shaped the modern e-commerce landscape. We are very proud of our accomplishments, and today we connect over 183 million buyers to nearly 90 million sellers around the world in a broad and diverse set of categories. We are operating during historic times when our buyers and sellers need us most while supporting our employees who are working hard to meet the needs of our customers and adjusting to their own circumstances. As we look ahead to the next 25 years, we aim to become the best global marketplace to buy and sell goods through our technology-led reimagination. I will come back to this in a moment, but first let me talk about our most recent achievements. In the third quarter, we delivered strong results. Earlier this month, we updated how we report classified listings, but to be clear, on an apples-to-apples basis, we performed better than expectations on both the top and bottom lines. Gross merchandise volume grew by 21%. To put that in perspective, we added over 4 billion in volume in Q3 versus last year, more than many businesses do annually. Active buyers increased over 183 million globally, and organic revenue grew faster than volume, up 26% driven by payments and advertising. Migration made significant progress in Q3 and is providing buyers and sellers a simplified end-to-end experience. Starting with five of our largest markets, we focused first on transitioning business sellers to the payments form. As a result, we ended the quarter with over 340,000 sellers migrated. During the quarter, eBay managed payments for over 20% of on-platform volume. Additionally, we informed sellers that we are expanding managed payments to France, Italy, and Spain in early 2021. We remain on track and expect to complete the vast majority of our transition by the end of next year. Our feedback has been encouraging as Net Promoter Score from sellers who have migrated to managed payments has averaged more than 10 points higher than those who have yet to migrate. Buyers love the flexibility, choice, and ease of use. We're seeing new and reactivated buyers utilizing forms of payment like credit and debit cards, Google Pay, and Apple Pay across the majority of their purchases. We are confident that we are on pace to deliver $2 billion in revenue and $500 million in income by 2022. Advertising growth continues to be driven by promoted listings, which continue to outpace volumes, a trend we expect will continue for the foreseeable future. In the third quarter, promoted listings delivered $186 million of revenue, up 77%. We are providing sellers with more data-driven recommendations to optimize their ad conversion while we test and build more technology features to drive future growth and position eBay better. Now turning to Classifieds. We believe that the transfer of Classifieds is on track to be completed in Q1 2021 subject to regulatory approvals. We're excited to bring together two highly complementary businesses that can create tremendous value over time. The market agrees, as evidenced by the appreciation of Adevinta's share price, which increased the value of eBay from $9.2 billion to over $11 billion based on recent trading levels. As you may recall, last quarter, I outlined a long-term vision for eBay. Through a technology-led reimagination, we recognize the enormous untapped potential of our marketplace and drive sustainable long-term growth. We have three strategic priorities to support this vision. First, to defend our core by better compelling next-generation experiences for sellers. Second, to become the partner of choice for sellers, and third, to cultivate lifelong trusted relationships with our buyers. We are in the first phase of a multi-year journey with many improvements for buyers and sellers yet to come. But over the past quarter, we were able to take several steps towards realizing this vision. Our first priority is all about defending our core business. Our focus here is on non-new season products and simplifying consumer selling. We're taking a holistic view of customer needs, responding, and launching features to address those needs, and rapidly changing our approach leveraging scalable technology across various categories. A great example of that is the series of changes we made to our luxury watch category. Recently, we launched an authenticity guarantee on all watches above $2,000. This increases confidence for both buyers and sellers. Buyers can perform meticulous verification by third-party experts, and sellers are protected from return issues. Additionally, we announced an expansion for high-dollar transactions plus new app content for watch enthusiasts, and we also reduced fees for sellers. While this service is still in its early stages, we are starting to see a modest increase in supply and higher average selling prices. We've also turned our focus to the sneakers category, which attracts passionate enthusiasts, particularly Gen Z and Millennials. In the US, sneaker GMV has significantly improved from a year ago. These buyers and sellers bring tremendous value to our ecosystem. An average sneaker buyer purchases in 10 unique categories each year—more than double the amount of other eBay buyers. Leveraging similar technology launched in watches, we expanded the authenticity guarantee to sneakers. We're requiring all collectible sneakers, both new and pre-owned, above $100 to be verified by a team of independent third-party industry experts. The program kicked off with the authentication of our most popular brands and styles and will expand to all sneaker sales over $100 next year. A year ago, we were losing share in this important category, but now we're seeing over 50% GMV growth year-to-date—and that was before launching the authenticity guarantee. Just last week, we announced the launch of a new elevated experience for certified refurbished products. We see tens of billions of dollars in untapped potential in the global refurbished market. Through our new certified refurbished program, buyers can save up to 50% compared to new branded inventory, with all the assurances of buying new, including a two-year warranty, eBay money-back guarantee, and hassle-free 30-day returns. We are launching this program in partnership with globally recognized brands, including De'Longhi, Dirt Devil, Hoover, and Fila, that will feature all certified refurbished inventory exclusively on eBay. Not only does this program help with buyers' budgets leading into the holiday season, but it also helps to eliminate unnecessary waste by keeping products in circulation for many years to come. We see a long runway to accelerate GMV growth given the $500 billion global total addressable market we are competing for, but it will take time. By leveraging scalable technology, we can uniquely address the needs of customers across a diverse mix of categories in electronics, fashion, collectibles, home and garden, and more. Moving on to the second key priority of our vision, becoming the platform of choice for sellers. Over the past three months, in addition to enhancements in managed payments and advertising, we continue to leverage the scale of eBay to benefit small businesses. We worked closely with UPS to offer new shipping services for sellers on our platform. In addition to a direct integration with eBay labels, sellers now have access to discounted rates saving them time and money. Sellers also have access to order details, customer information, label printing, and shipment tracking—all in one place. Buyers benefit from lower shipping costs and integrated tracking. Additionally, we are supporting seller profitability during the upcoming holiday season by working with the carriers on our platform to eliminate peak season shipping surcharges on eBay. Recently, we rolled out an upgraded communication system that allows buyers and sellers to connect securely on our platform. We have also provided small businesses with a new marketing tool to drive traffic back to their eBay stores through our affiliate platform. Just in time for the holidays, last month, we expanded the time away functionality, making it easier for sellers to update their listings and protect their on-time delivery record while providing buyers with more accurate shipping estimates. Looking forward, we are embarking on a multi-quarter journey to improve selling flows that leverage more AI capabilities to dramatically simplify selling and drive more growth for small businesses. The third key priority of our strategy is to cultivate lifelong trusted relationships with buyers. To achieve this, we are leveraging technology to remove friction throughout the buying journey. In Q3, we improved search results, which led to material increases in conversion by including more behavioral data. We were able to optimize machine learning algorithms at the top of the funnel that led to improved buyer engagement and ultimately, led to increased purchases. These technology advances generate significant impact, as every incremental point of conversion creates almost $1 billion more GMV annually. More importantly, buyers are discovering the items they are searching for in a faster and simpler way. Another way we are building trusted relationships with buyers is by improving our shipping tracking. In the U.K. and Australia, we developed a unique capability to implement virtual tracking for Royal Mail and Australia Post leading to significant increases in tracking coverage. Sellers do not have to explicitly provide information, and buyers can track orders with confidence. We will continue to invest in the buyer experience and marketing technology capabilities as we work to foster lifelong trusted relationships with buyers. Finally, an area that I and the team are extremely passionate about is doing good for our communities around the world. We focused initiatives on sustainability issues material for the long-term strength of our business, and where we can be most impactful to our stakeholders. We have measurable and transparent goals to alert, evaluate our progress, and to hold ourselves accountable to these important milestones such as driving more circular commerce, getting to 100% renewable energy by 2025, and raising significant amounts for charitable causes. We began eBay for Charity in 2003 to make it easier for customers to support their favorite charities, and since then we've raised over $1 billion for charities around the world. We're working hard on our goal of another $600 million raised by 2025. In Q3, eBay for Charity began working alongside international artists through a campaign called Artists Band Together. We are helping to raise funds for organizations that work to increase voter turnout for the upcoming U.S. elections. Additionally, eBay Foundation reached its $1 million Kiva lending goal to support global untapped entrepreneurs through an employee micro-lending initiative. At eBay, everything we do ties back to our purpose of creating economic opportunity for all, and I'm very proud of our team for keeping this in the forefront, especially during these remarkable times. In summary, we have a clear vision to realize the enormous untapped potential of eBay. While we have made meaningful progress in Q3, we still have a long way to go. We are investing in technology and focused on delivering the best marketplace in the world for buyers and sellers. I want to thank all of our employees who have been working diligently to support our customers by bringing our tech-led reimagination to life. With that, I'll turn the call over to Andy to provide more details on our financial performance.

Thanks Jamie, and thank you all for joining today. Before I walk you through the results for the quarter, I'm going to take a few minutes to provide some additional context on the financial reporting impact of moving our Classifieds business to discontinued operations. With that designation, our reported results reflect only the performance of our marketplace business. The Q3 results for Classifieds are reflected in GAAP EPS from discontinued operations. You can find the presentation of historical financial statements recapped in the current presentation in the Form 8-K we published on October 1st. When we last provided guidance in July, Classifieds was included in both our Q3 and full-year 2020 guidance assumptions. On slide four, you will see a refreshed look at what our July guidance would have been if we had excluded Classifieds. This will help create an apples-to-apples comparison versus our Q3 results reported today. Let me quickly walk you through the numbers. Adjusting for the Classifieds impact to our July guidance, the implied Q3 guidance for marketplaces was between $2.38 billion and $2.45 billion of revenue growing 16% to 19% on an organic FX-neutral basis, and non-GAAP EPS between $0.68 and $0.74 per share representing 31% to 42% growth. On slide five, we've made a similar adjustment for our full year guide. Adjusting for Classifieds, the implied full-year 2020 guide for marketplaces revenue was between $9.59 billion and $9.78 billion, growing 14% to 16% on an organic FX-neutral basis. Operating margin is expected to be in the range of 30% to 31%, non-GAAP EPS between $3.04 and $3.16 per share, and GAAP EPS between $2.51 and $2.66 per share. Finally, free cash flow is adjusted to the range of $2.2 billion to $2.35 billion. With that, I will move on to our current quarter results. Turning to our Q3 highlights on slide six. In Q3, we delivered revenue of $2.6 billion, up 26% on an organic FX-neutral basis. Non-GAAP EPS was $0.85, up 64%. Both results were significantly above our expectations. Non-GAAP margin came in strong at 30.7%, inclusive of our ongoing investment in managed payments. We generated $584 million of free cash flow. We executed $700 million of share repurchases and delivered $111 million in cash dividends in the quarter. Our Q3 over-performance was driven by a number of factors including our migration to managed payments, strong execution in advertising, and volume growth ahead of our expectations. Based on our Q3 results and an improved topline outlook for the fourth quarter, we are raising our full-year guidance, which I will cover in more detail in the guidance section. Moving to active buyers on slide seven, we ended the third quarter with 183 million active buyers representing 5% year-on-year growth, consistent with the second quarter. New and reactivated buyers continue to drive year-on-year growth. We continue to see strength in GMV per active buyer across all cohorts in Q3. While we initially saw stronger activity levels from buyers acquired in Q1 and Q2, those buyers are now trending toward behavior more consistent with historical cohorts. Moving to slide eight, in Q3, we enabled $25 billion of marketplace GMV, up 21% year-on-year, decelerating eight points versus the prior quarter as global mobility continued to improve, particularly in our international on-platform markets. In the U.S., we generated $9.8 billion of GMV, up 33% year-on-year, decelerating two points from the second quarter. Growth was at its peak in July and then moderated through August and September driven in part by the wind-down of government stimulus payments even as residential mobility remained relatively constant. International GMV was up 14% year-on-year, a 12-point deceleration versus the second quarter driven by moderation in Germany and the U.K. We saw strong ongoing correlation between mobility restrictions and GMV growth across our international markets, where the most pronounced growth deceleration occurred in markets with the biggest increases in mobility. In our off-platform Korean business, growth was 4%, decelerating one point from the second quarter. Looking closer at volume, we continue to assess the impact of COVID to better understand the overall performance of our business. We have seen modestly improved underlying performance versus our pre-COVID 2020 plan driven by increased velocity and product experience improvements and ongoing tailwinds from the recent increases in our active buyer base. In addition, we've seen temporary COVID-related growth acceleration in GMV that we expect will continue to moderate as mobility increases over time. With this component being the biggest wildcard in terms of magnitude and timing, it remains difficult to predict results beyond the near term. Turning to revenue on slide nine, our net revenue was $2.6 billion, up 26% organically, decelerating two points. We delivered $2.4 billion of transaction revenue, up 28%, down five points from the second quarter with strength in payments and advertising partially offsetting the deceleration in GMV. Looking closer at managed payments, the increased seller adoption and high customer satisfaction that Jamie mentioned contributed five points of incremental revenue growth versus 2019 on a continuing operations basis—approximately one point better than anticipated. Transaction take rate was 9.4% for the quarter, accelerating nearly 40 basis points from Q2, primarily from the ramp of managed payments and the continued strength in promoted listings. We expect the take rate to continue to increase further as managed payments and promoted listings continue to scale. We delivered $251 million of marketing services and other revenue, down 1%, accelerating 15 points from the second quarter, mostly from a lower headwind from lapping the sale of Best Friends in the middle of Q3 2019 and our first-party growth in Korea. Turning to slide ten and major cost drivers as a percentage of revenue. In Q3, we delivered a non-GAAP operating margin of 30.7%. This is approximately four points higher year-on-year, driven by volume leverage, partially offset by continuing investments in managed payments and strategic reinvestments. Cost of revenue was down nearly 20 basis points year-on-year as volume leverage is partially offset by managed payments and our expanding first-party inventory program in Korea. Sales and marketing expenses were down over two points versus the prior year, as volume leverage was partially offset by strategic reinvestments in online marketing, branding, and our vertical strategy. Product development costs were down approximately 10 basis points, driven by volume leverage, partially offset by incremental investments in the product experience including managed payments. G&A was down nearly 40 basis points, primarily from leverage and cost control. Transaction losses were down one point as bad debt rates have performed better than expected. Turning to EPS on slide eleven, in Q3, we delivered $0.85 of non-GAAP EPS, up 64% versus the prior year. Non-GAAP EPS growth was driven primarily by higher revenue growth and our share repurchase program, partially offset by our investment in managed payments and FX. GAAP EPS for the quarter was $0.88, up 250% versus last year. The increase in GAAP EPS is mostly driven by the change in fair value of the Adyen warrant and the same factors as non-GAAP performance, in addition to lapping the divestiture of brands for friends. The value of the Adyen warrant stands at $777 million at the end of Q3, an increase of $573 million year-over-year. This is an additional value driver stemming from our payments initiative, incremental to the $2 billion of transaction revenue and $500 million of operating profit that is expected in 2022. You can find more information on the Adyen warrant and our 10-Q, and as always, you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. Moving to slide twelve, we generated $584 million of free cash flow in Q3, down 18% driven by the timing of cash taxes and partially offset by higher earnings. Year-to-date through the third quarter, our free cash flow was $1.9 billion, up nearly 30% year-on-year. Moving to slide thirteen, we ended the quarter with $4.1 billion in cash and investments and debt of $7.8 billion. In Q3, we paid down over $900 million in debt, bringing our total debt back to the 2019 year-end balance of $7.8 billion. This completes actions taken in 2020 to strengthen our balance sheet by leveraging favorable market conditions to improve rates on our outstanding debt. Additionally, we paid over $700 million in income taxes from the divestiture of StubHub, which is presented in operating cash flow from discontinued operations, leaving approximately $250 million to pay in Q4. We returned $111 million to shareholders in dividends in the quarter. We executed $700 million in share buybacks in Q3, bringing our total share buyback to $4.7 billion so far this year. We entered Q4 with $2.5 billion in share repurchase authorization remaining. Our capital allocation strategy and key tenets and targets have not changed. We remain committed to maintaining our BBB-plus credit rating, mid-term leverage of approximately one and a half times net debt and gross debt below three times EBITDA, and a target cash balance of approximately $3.5 billion. We also remain committed to our dividend. Moving to slide fourteen, I'd like to provide an update on the pending Classifieds transaction. We remain excited about this deal as it allows us to realize near-term value while enabling us to participate in the future upside potential of the world's largest online classifieds company. We are on track to close the deal in Q1 subject to regulatory approvals. When we announced the deal on July 20, the valuation was $9.2 billion based on a mix of cash and net of shares. The share price has appreciated by over 30%, which increases the value of the Classifieds business to over $11 billion based on recent trading levels. Finally, we expect that the cash portion of the deal will provide approximately $2 billion net of tax, and we currently expect any potential future sale of shares would be a taxable event at the prevailing statutory rate. Turning to slide fifteen and guidance. We continue to operate in an environment with low visibility which makes it difficult to provide guidance. Each month, sometimes each week reveals new external drivers that can have a material impact on consumer behavior. The dynamics we faced in Q3 were different from those in Q2, and it’s clear that Q4 will be different than what we experienced in Q3. The shape and speed of the pandemic recovery, the strength of the holiday season, and the size and timing of potential government stimulus programs are among the many variables that could have a significant impact on our outlook. For Q4, we are projecting revenue between $2.64 billion and $2.71 billion, growing 19% to 22% on an organic FX-neutral basis. This assumes marketplace volume growth at low double-digit rates with gradual moderation through the quarter. We expect managed payments to continue to deliver revenue acceleration contributing approximately eight points to Q4 revenue at the midpoint of our guidance, driven by continued seller migration. We expect non-GAAP EPS of $0.78 to $0.84 per share, representing 18% to 27% growth. Non-GAAP EPS growth is driven primarily by volume and lower share count partially offset by continuing investments in technology and marketing. We are expecting GAAP EPS from continuing operations in the range of $0.58 to $0.64 per share in Q4. After adjusting for Classifieds moved to discontinued operations, this Q4 guidance represents a material improvement on volume, revenue, and non-GAAP EPS versus our expectations back in July. For the full year, our revenue guidance is $10.04 billion to $10.11 billion, representing an organic FX-neutral growth rate of 19% to 20%, driven by an improved GMV outlook and continued scaling of managed payments and advertising. We expect operating margins to be in the range of 31% to 31.5% with the non-GAAP effective tax rate of 15% to 16%. With the above dynamics, we expect non-GAAP EPS in the range of $3.34 to $3.40 per share driven by Q3 over performance and an improved topline outlook for the fourth quarter. We now expect free cash flow of $2.5 billion to $2.6 billion, capex in the range of 4% to 5% of revenue, and we are increasing our outlook on share repurchases to approximately $5 billion for the full year. Finally, we expect GAAP EPS from continuing operations in the range of $3 to $3.06 per share. In closing, we are excited about the progress we've made this quarter. Externally, the macro environment is helping to drive strong business performance. Internally, with the leadership team now solely focused on the marketplaces business, we're making progress with our new strategy. We're pleased by the increase in speed of execution demonstrated by our launching authenticity guarantees across multiple categories, rolling out our certified refurbish program, expanding shipping services, tracking, and helping buyers find items in faster and simpler ways. We're doing all of this while delivering on our revenue growth initiatives of managed payments and advertising, which are both becoming critical material pieces of our financial architecture. Our margin commitments remain in place, and we're on track to deliver at least two points of operating margin growth by 2022 as compared with 2019. We will continue to balance topline growth and margin expansion as we find new opportunities. We will capitalize on them to drive growth. We remain focused on improving the underlying health of the marketplace business. This is going to be a multi-year journey. Although it's early, the results tell us we are on the right track furthering our conviction to compete and win in the $0.5 trillion total addressable market we're focused on. Jamie and I would be happy to answer your questions.

Hi, and thank you. In Q3, items sold decelerated a bit more than GMV. I was wondering what caused that, whether it's some changes in ASP driven by category mix or was there some other factor at play there? And then secondly, this was partly answered but, in 4Q, I think you fully comp the sales tax collection implementation. It was a 600 basis point headwind in 4Q '19. You did just a 22% in Q3. It seems like we're going to have limited mobility again this quarter, certainly in the U.S., and there were some announcements today in certain countries in Europe. In 4Q, you guided to low-double-digit GMV growth. I'm just wondering if there is anything that you're seeing in the business that is leading to that, or if that is simply a conservative approach of guidance given the uncertain business conditions.

I'll start with the question on guidance. To your point, there is new information coming out on a daily basis, which makes this tough. The way that we have looked at it, clearly, there are multiple factors moving that can influence our volume outlook for the quarter. It's really hard to predict how any of them will play out and certainly to try to itemize which pieces we've included for which amount. We can't do that at this point. What we have tried to do with our guidance is compile what we've learned through the third quarter and what we've seen. It implies a continued growth moderation in the fourth quarter, following what we saw in the third quarter and what we're seeing at the beginning of the fourth quarter with regards to consumer behavior and mobility. What we provided, I wouldn't call it conservative; I think it's our best outlook based on these factors, and certainly any one could change and could impact our results. On the sold items, there is GMV and category mix, and similar to what you see on buyers, and what you see on GMV, there's just a magnitude of things changing on a quarter-over-quarter basis given the breadth of categories that we have in the different price tranches.

Thank you.

Thank you very much. Jamie, I've got two questions. The first is, I'd like to get some more detail on your tech-led reimagination, especially given that you've seen declining R&D and relatively low capex. Specifically, can you talk a little bit about how eBay might be developing infrastructure for social commerce, be it with more modern messaging, video, or some material revamp of what has been a very consistent user experience and look and feel? And then maybe second question, since you mentioned, eBay is a global marketplace. When we last got the geographical detail, you had roughly 80% of your business in four countries and a very wide range of markets covering the other fifth. So, what's your approach going to be to reaching scale in other countries? How important is that global footprint to you, and what sort of investment requirements do you see in 2021 and beyond to make eBay go beyond 80% coming just from those four markets? Thanks.

Yes, on the first one on the tech-led reimagination. It's why you see us making the investments that we're making. We believe that there are some big horizontal things that really move the business like payments and advertising, where we are obviously putting a lot of technology focus. You saw this quarter some specific vertical experiences of focus for us in both watches and sneakers and also in certified refurbish. We think this is the start of leveraging our technology in a horizontal plus vertical focus. This brings together just a much different experience on eBay. You think about the level of trust that we have put in place in those three categories. It's really game-changing versus where we were before. You asked specifically about marketing; there are a lot of things that we're dealing with specifically in paid social and using new channels that we haven't used before. That's a key part of it for us. If you think about the sneaker category as an example, we're bringing on a lot of Gen Z and Millennials. We're reaching them where they are because when we acquire them in the sneaker category, they end up buying in 10 unique categories across the site. The second thing I'd say on our footprint is that we've got some very strong growth in some of our smaller markets. There are a lot of advantages to the scale of cross-border trade where we're bringing products from very different countries to our smaller countries or exporting out of our smaller countries. That plays a role in that. So, we continue to believe that those are important good growth opportunities, not only for the domestic business, but also for the cross-border trade.

Okay, thanks.

Great, thanks. Good quarter. Given some of the concerns around carrier capacity during the holiday period, I wonder if the long tail of sellers are more impacted by that or are your contracts with the shippers largely protecting them from those bottlenecks? Then looking at active buyer growth, what's the potential to accelerate that growth over the near term, certainly given the secular shift we're seeing? Or are you more focused in terms of the marketing efforts on driving engagement with existing buyers and recent cohort ads? Thank you.

Yes, so on carrier capacity, part of why we did the UPS deal this year was to open up more flexibility and options for our sellers. They will save on the rates that they will have and the integration is going to simplify things for sellers and provide all that tracking for buyers. Now, they have multiple options, even as a small consumer seller between USPS, UPS, and FedEx. One of the things we worked on is deals that protect them from peak shipping surcharges over the holiday. We think the combination of that flexibility of choices, plus the negotiation on behalf of our community, will work out well for them on the shipping side. On active buyer growth, our real third priority is turning buyers into lifelong enthusiasts. We've focused on how when we bring in a new buyer, we can expand them into multiple categories because we know that drives their lifetime value. I use the sneakers example earlier: they come in via sneakers and buy in 10 categories. It's also a big vision for our push-to-consumer selling. In this quarter, fee GMV growth grew faster than our B2C growth. This push is critical because once we get a buyer to sell, they become more than twice as valuable as a buyer, so that's our focus—accelerating those things and driving the long-term potential of the people we are bringing to the site.

Okay, thanks.

Hi, good afternoon. On GMV trends, it looks like the growth between the US and international is really starting to diverge with international decelerating more. I'm just curious, what do you think might account for that or whether it's all explained by mobility? And then on managed payments, it sounds like you added about 300,000 sellers into the program this quarter and added 5% of revenue. Is this approximately the right magnitude?

Yes, I'll take the third-quarter volume first, U.S.-international. Look, there are differences we see globally. We indicated on our Lian, in July, that we were seeing continued strength through July in the U.S. Post-July, we did see some moderation in August and September. I think that's driven in part by the expiration of U.S. stimulus, so that's part of the strength you're seeing in the U.S. In addition to the mobility and the progress of COVID, internationally, there was a little more mobility sooner, particularly in Germany and the U.K. than we had in the U.S. So, I don't think there is a drastic business shift between any of those regions other than some of the dynamics associated with the reopening. Another important factor: consumer behavior patterns are definitely impacted by mobility, and that is different depending on location and country and sometimes state. The other key thing is that customer and consumer behavior patterns aren't the same. As mobility and lockdown happened in April and May, we had more time and less scarcity; some of that behavior is not as drastic as we saw early on in the pandemic. On managed payments, yes, your logic is about right on that.

Great. Thanks a lot.

All right. Thank you. So, Jamie, for some of these categories that you're leaning into, like watches and sneakers, it seems like there is a greater requirement to work with external parties through you to authenticate refurbished items. To some degree, you are putting the eBay brand at risk with your buyers. What are you doing to minimize bad behavior? And second, on the C2C activity ramp, it seems like consumers are not always going to be savvy as some of the more professional sellers about planning the correct prescriptions for what they're selling. How are you addressing the complexities of ensuring that items being sold are correctly served in search results?

Yes, on the first one—thank you for the question. We work with industry-leading experts to do the authentication specific for each category and conduct a very intense multipoint inspection to make sure the product is truly authentic. It involves not only trusting the seller piece but every single product, every sneaker over $100 by the start of next year will actually go through a third-party authenticator. This really mitigates the risk of a potential issue before it gets to the buyer. Making sure the seller is getting back the product they shipped to the buyer is also crucial because the authentication works in both directions. We're seeing positive feedback from our community regarding the trust this brings to the category. On the C2C ramp, we're using artificial intelligence and technologies to make it easier for the casual lister to come on and list items. Many listers will utilize the 'sell similar' feature or list based on specific catalog descriptions. What you will see from us over the coming quarters is a continued effort to make that process easier to onboard more C2C sellers. Defending the core is a priority for us, and consumer selling is a significant part of that. The unique inventory they bring to the platform is also very important to us.

Thank you.

Great. Thank you very much. A couple of questions here. So, just on the authenticity guarantee that you've done for sneakers and watches so far, can you speak to any uplift you've seen in sales for these areas and whether there are any other big categories that lend themselves to the same thing? And on managed payments, how is that tracking to expectations? Is there a chance we could see you migrate the majority of all sellers globally earlier than expected? If not, what are the gating factors?

Yes, the change in selling fees on sneakers was done a while ago. What I would say is that it's very early since we just launched the technology for sneakers a few weeks ago. However, the encouraging signs we're getting from the community are leaning in and being excited by what the program can do to unlock these categories. Watches have been live a little longer now, and while early, we're seeing an increase in supply on the platform and an increase in average selling prices. That’s really what we want to see. When we talk about a tech-led re-imagination, it took us a couple of months to launch that technology for watches; we rolled it out a few weeks later for sneakers. We're building capabilities that allow us to compete better in specific verticals, but many of those capabilities can be leveraged across multiple categories and that excites us. On managed payments migration, it's important to note that we still have features to build out to migrate more sellers. As an example, if a seller ships cross-border to a country where we haven't launched managed payments, we won't convert that seller over to the new payment platform until we are ready by country. Therefore, we are still continuing to build out capabilities to ramp. We are on track with our plan to be complete by the end of 2021.

Thank you, Jamie.

Hey, good afternoon and thanks for taking the question. To drill down on these new categories a little more, could you help us understand the cost profile around third-party authentication and whether they have the ability to scale as the business grows? Also, what do you think would be the three most significant or impactful initiatives among the refurbishment, watches, and sneakers in the medium term? Thank you.

Yes, so when we look at the authentication costs, it parallels our cost of acquisition and marketing. When we think about how do we bring new buyers into the platform, we're balancing that investment against the final value fees we collect on those products. We believe there is a lot of potential, and this level of trust in these categories makes a big difference for eBay. We haven't talked much about certified refurbished yet, but I'm excited by that. Sneakers certainly have a lot of potential as well, but certified refurbished is a real sweet spot. We see tens of billions of dollars there, and this initiative brings a level of trust to consumers that feels like they are buying new product. They have all the guarantees, including a two-year warranty and a hassle-free return policy, along with the eBay money-back guarantee. This provides a huge market opportunity.

Hey, evening. I have a couple of questions, mainly on M&A. You have cash on the balance sheet, and I was looking to see if you would consider acquisitions in categories like sneakers to improve your positioning. Can you elaborate on that?

Yes, we're not going to speculate on specific categories or M&A. What I'd say is that we're looking opportunistically at M&A opportunities where we think we could accelerate the vision we laid out on previous earnings calls. We always do things in an asset-light manner to enhance shareholder value. We'll continue to be opportunistic about it.

If I could just follow up on marketing plans for the fourth quarter, can you talk about your efforts to continue to bring in new buyers and sellers?

Yes, we're using new tools and technology over the holiday, really targeting new channels, such as paid social, and combining that with traditional brand marketing. Of course, we're expanding targeted marketing to attract specific buyers to the categories we’re highlighting, like the viral campaign we had on TikTok for sneakers, which performed excellently. You will see similar specific vertical marketing campaigns designed to draw the right types of buyers to the platform quickly.

Great, thanks for taking my questions. Just first, in the second quarter, I think you added about 8 million net buyers sequentially. I know there's focus on turning them into broader shoppers and sellers. Can you talk about what you saw in retention of those buyers and if they are expanding into new categories? Also, how do you categorize low-hanging fruit areas of improvement that could change the business trajectory in 2021 as opposed to your longer-term focus?

Let me start with the latter and then we’ll come back to the buyer retention question. If you look at the initiatives we rolled out this quarter, they represent our focus areas. Defending the core revolves around how to go after non-new season products to help grow that business. This is a huge $500 billion TAM opportunity for us to pursue, and we’re launching many smaller releases throughout the year, continuously innovating. Andy, for the buyer retention?

Yes, what we saw in the second quarter was significant disruption, driving online shopping that boosted acquisition. In the third quarter, we saw a return to more normalized buyer acquisition trends, resulting in some normal repurchase frequency from those cohorts. They haven't performed better or worse than existing cohorts, but overall, we see strong GMV across new buyers compared to the past.