EBay Inc (EBAY) — Q1 2021 Earnings Call Transcript

Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the first quarter of 2021. 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. 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. You should not rely on any forward-looking statements. All information in this presentation is as of April 28, 2021, 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, and thank you for joining us. Today, we'll begin the call with key highlights from the first quarter. Then, I will share some reflections from my first 12 months as CEO and provide an update on the status of our tech-led re-imagination. At the end of my remarks, I will turn the call over to Andy, who will discuss our financial performance and outlook in greater detail. The first quarter of 2021 was an excellent start to the year for sellers and buyers on eBay. Gross merchandise volume grew 24%, ahead of expectations. Revenue grew 38% outpacing volume, primarily due to payments and advertising. This is the fastest our revenues have grown since 2005, and we lean further into technology and vertical marketing investments, but still delivered $1.09 in non-GAAP earnings per share above our expectation. Importantly, our customer metrics grew on both sides of our marketplace. Active sellers grew 8% to 20 million globally, more small businesses are joining the platform and more consumers are engaging and selling. C2C GMV growth outpaced B2C for the fourth quarter in a row. This is positive for the long term as consumer sellers bring unique inventory at compelling prices and spend more than twice as much as buyers who don't sell. Active buyers grew 7% to 187 million globally. We are retaining buyers acquired over the last year at similar rates as pre-pandemic levels, and we're seeing higher customer satisfaction in several categories as well as increased spend per buyer. We have continued to make progress on our multiyear initiatives payments and advertising, which contribute to a seamless customer experience, increase our platform monetization and deliver compelling financial results. Managed payments ended Q1 with over four million sellers migrated. This includes millions of consumer sellers and hundreds of thousands of businesses globally. During the quarter, eBay managed payments representing over 52% of on-platform volume, up from 38% last quarter. In the US, we exited the quarter over 80% complete. By applying what we learned in previous markets, rollouts in France, Italy, and Spain progressed at an even faster pace, and we're on track to launch Greater China this quarter and all remaining markets by the middle of the year. We continue to see higher seller satisfaction due to a simpler end-to-end experience that reduces cost and complexity. For many years before managed payments, sellers had to manage delays between purchase and payment across two platforms that tied up their inventory. As sellers migrate to managed payments, that pain point has resolved saving time and money. In Q1, we reduced unpaid items by approximately 80% on fixed-price transactions. We remain on track to complete the vast majority of the payments transition by the end of this year, which will deliver our stated financial goals of at least an incremental $2 billion in revenue and $500 million in annualized operating income in 2022. In Q1, advertising growth outpaced volume driven by Promoted Listings which delivered close to $224 million of revenue, up 58%. More than 1.3 million sellers promoted close to 400 million listings during the quarter. Growth was driven by increased seller adoption and AI improvements that increased conversion. Inspired by the success of Promoted Listings over the past few years, we are investing aggressively in innovation. We reached $1 billion of advertising revenue in 2020, primarily through Promoted Listings which leverages a risk-free cost per acquisition model for fixed price inventory. To capture our next billion, we are running multiple experiments, including an ad product for auctions and cost per click capabilities. We are also exploring a new capability that expands seller exposure by increasing off-eBay traffic to promoted listings. Q1 clearly demonstrates that the ongoing execution of our long-term vision is driving better results. Small business and consumer sellers are thriving, and buyers are finding unique items at great prices. We have seen strong growth in volume, revenue, and earnings over the past year due to a combination of mobility-driven tailwinds and the execution of our multiyear monetization initiatives. We are driving value through portfolio optimization and returning capital to shareholders. Despite these notable achievements, there's still a tremendous amount of potential to be realized. Now, I'd like to take a step back to a year ago when I rejoined this remarkable company as CEO. I knew eBay as a pioneer in e-commerce with a globally recognized brand, robust organic traffic, and long-standing customer relationships. And I've always been inspired by the purpose and special culture it creates. Last July, we set out a vision for a tech-led reimagination of eBay. First, we believe that we can drive growth in our core by significantly increasing customer satisfaction. Second, we saw the need to better serve our small businesses and consumer sellers to become their platform of choice. And third, we identified the opportunity to evolve our relationship with buyers to drive better long-term retention. I am confident we can deliver on these three pillars positioning us to more effectively compete and win in a huge and growing addressable market. Our results to date are very encouraging. Our underlying growth is accelerating, sellers and buyers are growing, and we are making progress in our pursuit to be the best global marketplace to buy and sell. Simply put, our strategy is working. Let me share some examples with you. In the US we are growing our core. In Q1, sneakers valued above $100 grew at a triple-digit rate once again. Since launching authentication, we verified hundreds of thousands of sneakers, and we're seeing buyer satisfaction above 80 as a result. In addition, we are expanding our engagement with Gen Z and Millennials through a wide range of social channels. Based on the tremendous success we've seen in the US, we are rapidly expanding identical capabilities to other major markets. We have set up local authentication centers and are launching in the UK, Australia, and Canada this quarter. These centers will also unlock cross-border trade opportunities in sneakers and in other categories. In luxury watches, we saw growth accelerate from 16% in Q4 to 38% in Q1 in the US. For authenticated items, we are seeing customer satisfaction that was close to 90% and is changing customer behavior. Sellers are listing more items and seeing a higher price realization. Buyers are visiting eBay more often and spending more. One of the key advantages of our platform is cross-category shopping. Our luxury watch buyers, like our sneakers enthusiasts, spend thousands of dollars on other categories across the platform. In addition, based on the value we are delivering in luxury watches, we have recently raised fees in this category to create more investment capacity. For our certified refurbished experience, eBay sellers continue to see strong velocity and we've expanded in the US to over 150 brands. We've also rolled certified refurbished out to the UK, Canada, and Germany with more than 100 top brands signed up already. Buyers love the low prices on like-new products as well as free shipping, extended warranties, and extended returns. Now I want to highlight the next core category where we see significant potential, trading cards, a key part of our collectibles business. eBay is a market leader in this category with the widest selection across all price levels. We've seen explosive growth to start the year. In the US, GMV was over $1 billion in Q1, which represents more than half of 2020's record-setting volume. Active buyers of trading cards doubled, and existing buyers purchased more items at higher prices than last year. To dramatically simplify selling, we've recently launched image-based scanning for our top selling trading cards. In addition, we introduced a new low-cost track and shipping service and aggressively market it to buyers on social and enthusiast forums. We plan to launch more innovation for trading cards throughout this year. Another area of focus for us is customization. Beginning next month in the UK and Germany, we will offer a new capability to all sellers to offer personalized goods in categories such as home, fashion, and jewelry. This will allow buyers to find and enter specific customization requests to the seller. In the past, this process was manual, which limited GMV. But we believe this new experience can significantly improve customer satisfaction, bring more supply onto the platform, and capture more growth. We plan to expand this capability to all major markets in the coming months. As I mentioned upfront, our playbook to grow the core is working. We have a series of innovations rolling out to more markets throughout the year. While we've only touched a small percentage of global volume so far, all of our largest eBay categories collectibles, home and garden, fashion, electronics, and parts and accessories have addressable opportunities that can benefit from this playbook. In addition to category-specific changes, we are rolling out site-wide improvements for all sellers. For consumer sellers and small businesses, we are focused on significantly reducing complexity, helping maximize value, and driving sustainable growth. We believe these changes will increase seller satisfaction and grow the number of active sellers on the platform. Here are some examples of what we are doing. Image-based listing can remove up to 75% of the time it takes to list an item. We have activated this feature in trading cards, and we plan to expand to multiple categories and geographies throughout the year. Last quarter we talked about how we have migrated almost all of our store subscribers to our new platform that increases traffic to their items by approximately 20%. This quarter we empowered sellers with new CRM features, allowing them to directly issue coupons to acquire buyers. They can set coupon budgets, include QR codes on packing slips, and drive repeat business to their eBay stores. Recently we opened up Terapeak product research free for all Seller Hub users in several markets, including price insights and listing quality reports. In addition, we launched sourcing insights that help sellers analyze trending categories, top products, and signal what inventory is most likely to sell. To acquire more buyers, we are also adding new ad formats to our display and social marketing, including video, and we improved the inventory feeds that power them. Once we acquire these buyers, we are making changes to increase engagement and trust in their first 90 days and beyond. We are leveraging a mobile-first approach and revamping key communications buyers received. We are seeing increased engagement from Gen Z and millennial customers through social shopping, such as eBay Sneaker Showdown. For our experienced buyers, we continue to optimize the end-to-end shopping experience. In Q1, we increased conversion by improving our search engine's understanding of longer complex queries, and we added functionality to help buyers identify free local pickup items in their community. We are excited that all three of our strategic pillars are producing volume, seller, and buyer growth, but we have a long runway ahead of us. We will continue to drive our investment decisions, both organic and inorganic, in pursuit of achieving this vision. While I'm pleased with our business results, I am more proud of the way our employees and our platform are fulfilling our purpose of providing economic opportunity for all. As part of our commitment to empowering small businesses everywhere, we announced an investment of $25 million into the Clear Vision Impact Fund to help support small and medium-sized minority-owned businesses that support historically underserved communities. We continue to support the UK's National Health Care Service efforts and I'm happy to report that we're now up to 2 billion PPE items distributed utilizing eBay's technology. Additionally, we remain active in philanthropy during Q1. We raised over $35 million through eBay for charity. The company also contributed to Asian Americans Advancing Justice and supported employee giving during Black History Month and the Lunar New Year, and we quadrupled employee matching gift limits through the eBay Foundation. Finally, another area that inspires me is eBay's impact on the planet. Many companies make admirable investments into adjacent programs, but at eBay, sustainability is the core of our business. Since eBay was founded over 25 years ago, re-commerce or the resale of pre-owned goods has been an integral part of our platform and purpose. Our community connects and trades pre-owned items that hold meaning and usefulness, keeping these items out of landfills. A recent survey confirmed that re-commerce resonates with our customers. In the US, 87% of respondents say they have sold pre-owned goods in the last 12 months. And they aren't just selling; 81% of Gen Z customers surveyed said that buying pre-owned items has become more common in the last year. In summary, we are making great progress on the tech-led reimagination of eBay. We delivered historically strong Q1 results, putting us in a stronger position today than we thought we'd be coming into the year. Looking forward, we are excited because our long-term strategy is working. By increasing customer satisfaction, we are accelerating our core business while attracting and retaining sellers and buyers. There is more work to do, but I couldn't be prouder of the eBay team. They are focused and driven and they work hard every day to innovate, keeping our customers at the forefront. With that, I'll turn the call over to Andy to provide more details on our financial performance.

Thanks, Jamie. I will begin my prepared remarks with our first quarter financial highlights starting on slide four of the earnings presentation. The first quarter was another great quarter for eBay. We generated over $27 billion of GMV, our highest GMV quarter ever. We delivered $3 billion of revenue, $1.09 of non-GAAP EPS, and $855 million of free cash flow while returning $414 million to shareholders through share repurchases and cash dividends. Moving to active buyers on slide 5. We exited the quarter with 187 million buyers, representing 7% year-on-year growth consistent with the fourth quarter. We've added 13 million buyers to the ecosystem since the beginning of 2020 and are experiencing retention rates that remain in line with historical trends. And as we said throughout 2020, we continue to see growth in GMV per active buyer across all cohorts. Moving to slide 6. In Q1, we enabled $27.5 billion of marketplace GMV, up 24% accelerating six points versus the fourth quarter. On a spot basis, this represents growth of 29%, an acceleration of eight points versus the fourth quarter. As over 60% of our GMV is generated outside of the US, we saw a five-point translation benefit due to the weaker dollar. On-platform volume, which represents nearly 85% of total GMV, grew at 28% a seven-point acceleration versus Q4, driven by site-wide product experience improvements, progress we're making in key categories, increased mobility restrictions and additional stimulus in the US. Our platform business in Korea was relatively stable versus the fourth quarter at 4% year-on-year growth. In the US, we generated $10.4 billion of GMV in Q1, up 36% year-on-year accelerating 11 points from the fourth quarter, driven by mobility dynamics, stimulus payments, and strength in our core categories including collectibles. International GMV was up 17% year-on-year, a two-point acceleration versus the fourth quarter, driven by strength in our core categories and mobility dynamics. Turning to revenue on slide 7, our Q1 net revenue was $3 billion, up 38% and accelerating 10 points on an FX-neutral basis. As Jamie said this was our strongest quarter since 2005. On a spot basis, this represents growth of 42%. We delivered $2.7 billion of transaction revenue, up 40%, accelerating nine points from the fourth quarter mostly driven by our payments migration and volume strength. In managed payments, we continue to execute and have made great progress on seller migration to the new payments platform. As Jamie mentioned, we processed over half of our global on-platform volume in the quarter, which contributed approximately 15 points of incremental revenue growth versus 2020. Transaction take rate was 10% for the quarter accelerating 20 basis points driven by managed payments, partially offset by category and seller mix in addition to currency hedging impacts. When we started the managed payments journey, we expected it to progressively increase monetization of our site, while delivering better seller economics and improved experience for both buyers and sellers and overall revenue growth for the business. We continue to deliver across all of these dimensions. We delivered $291 million of marketing services and other revenue up 22%, accelerating 19 points from the fourth quarter, driven by first-party growth in Korea which grew approximately 120% in addition to strength in advertising and shipping. Turning to slide eight and major cost drivers. In Q1, we delivered non-GAAP operating margin of 33%. This is up approximately 140 basis points year-on-year driven by volume and advertising, partially offset by product and marketing reinvestments, the impact of managed payments growth, and FX. For each of the non-GAAP expense buckets, volume and a higher take rate provided leverage as a percent of revenue. I will provide additional context for other significant drivers. Cost of revenue was up nearly four points year-over-year as leverage was more than offset by scaling managed payments and our first-party inventory program in Korea. As a reminder, the managed payments cost structure includes payment processing costs that scale in line with payments revenue. This dynamic has been fully contemplated in our 2022 margin targets. Sales and marketing expense was down nearly two points versus the prior year as leverage was partially offset by investments in our vertical strategy and strategic reinvestments in online marketing. Product development costs were down 10 basis points as leverage was mostly offset by investments in end-to-end product experience in addition to managed payments and advertising. G&A was down nearly two points primarily from leverage and a disciplined cost control. Transaction losses were down approximately one and a half points from the benefit of fee netting in our managed payments initiative and lapping COVID-driven deferred fees and seller protection increases. Turning to EPS on slide nine, in Q1, we delivered $1.09 of non-GAAP EPS, up 59% versus the prior year. Non-GAAP EPS growth was driven primarily by higher volume, growth in payments and advertising, and the reduction in share count driven by our repurchases, partially offset by investments in product and marketing. GAAP EPS for the quarter was $0.82, up 44% versus last year. The increase in GAAP EPS is mostly driven by the same factors as non-GAAP performance, partially offset by the fair value of the Adyen warrant. Moving to slide 10, in Q1, we had a very strong quarter of cash generation, finishing Q1 with $855 million of free cash flow, a 65% increase year-on-year driven by topline growth, increased working capital, and lower capital expenditures. Turning to slide 11, for the quarter, we ended with cash and investments of $3.9 billion and debt of $7 billion. In Q1, we repurchased approximately 5.2 million shares at an average price of $55.70 per share, amounting to $292 million. We exited the quarter with $5.7 billion of share repurchase authorization remaining. Moving to slide 12 and investments, when we announced the classifieds transaction with Adevinta on July 20 of last year, the valuation was $9.2 billion based on a mix of cash and the value of Adevinta shares at that time. As of April 27th, the Adevinta share price had appreciated by nearly 37%, which increased the value of the deal to over $12.7 billion. We continue to expect the deal to close in the second quarter with the cash portion of the transaction providing approximately $2 billion net of tax. Turning to Adyen. The warrants we acquired in the second quarter of 2018 are valued at $1 billion at the end of the first quarter, an increase of over $700 million year-on-year. You can find more information on the Adyen warrant in our 10-Q. We remain excited about both of these investments, the optionality they provide, and the significant value each can generate for our shareholders. Turning to guidance on slide 13. For Q2 we are projecting revenue between $2.98 billion and $3.03 billion, growing between 8% to 10% on an organic FX-neutral basis, representing 12% to 14% growth on a spot basis. This assumes marketplace volume declines high single to low double digits on an FX-neutral basis, representing a decline of mid to high single digits on a spot basis. This volume guidance is driven by three main components. First, the negative impact from lapping our second largest quarter ever, which was fueled by the first wave of mobility restrictions, stimulus payments, and supply chain disruptions. Second, the ongoing benefit from macro factors, including mobility and stimulus payments across our on-platform businesses, which we estimate are contributing high single-digit growth this quarter. Third and most importantly, continued delivery on initiatives driving us towards our vision, many of which Jamie highlighted earlier. On a year-over-two-year basis, this guidance represents growth in the high teens on a spot basis, which is more than $4 billion of incremental GMV versus the same quarter in 2019, as our sellers and buyers have discovered or rediscovered the power and reach of our global platform. We expect non-GAAP EPS of $0.91 to $0.96 per share, representing a 6% to 11% decrease, primarily driven by volume deleverage and continued investments in product and marketing in support of our strategy, partially offset by managed payments and a lower share count. We expect a non-GAAP effective tax rate of 16% to 18%. We are expecting GAAP EPS from continuing operations in the range of $0.67 to $0.72 per share in Q2. Finally, on Q2 our EPS guidance assumes approximately $400 million of share buyback. While we aren't providing guidance for the full year, we do want to provide some additional context on our path forward. On volume, our conviction in the vision is increasing and we are confident these efforts will continue to drive additional growth as we scale. While difficult to forecast, mobility will likely continue to improve throughout the second half, pressuring growth. When combined with easier lapping, that could result in second half FX-neutral volume growth rates similar to those of our second quarter guidance. For buyers, similar to GMV we expect growth will be pressured as we lap periods of high buyer acquisition. We expect revenue growth will continue to materially outpace GMV growth, as our monetization initiatives drive a higher effective take rate. Specifically, in payments, we're more than halfway done with the migration of on-platform GMV and expect to deliver at least $1.7 billion of revenue in 2021, well on our way to realizing at least $2 billion of revenue in 2022. On margin, we are on target and remain committed to delivering 2 points of margin expansion versus 2019, achieving at least 30% by 2022. We said along the way that margin accretion won't be linear. In 2021, we expect margin will be approximately 29% for the full year. With regards to cash and capital allocation, we will continue to deliver strong free cash flow. We remain committed to our targets and tenants and will continue to optimize our capital structure within them. Specifically, on buybacks, for the full year we anticipate repurchasing approximately $2 billion of stock excluding deal proceeds. We will update plans for the use of proceeds from the classifieds transaction at the time of closure. For our Korea business, we have a strategic review process underway, which includes the possibility of a sale, with interest from multiple parties. We are exploring that interest and will provide an update when we have material information to share. Finally, on FX, at current rates, we'd expect the benefit of currency to be smaller in the second half as we lap a relatively weaker US dollar. In conclusion, Q1 was a record quarter for eBay and we entered Q2 excited about the path forward to deliver on all aspects of our long-term plan. We will continue to execute on our multi-year monetization initiatives, which are driving material benefits to our customers and shareholders, as we move towards at least $2 billion of revenue and $0.5 billion of operating income in managed payments and the next $1 billion of advertising revenue. We're delivering on our core strategy, increasing customer satisfaction and attracting and retaining customers as we capitalize on a $0.5 trillion addressable market that is growing double-digits. We're delivering consistent strong free cash flow and continue to deploy that cash in a disciplined manner by investing in our platform for the long term and returning capital to shareholders. On margins, we remain on target for at least two points of improvement in 2022 compared to 2019, while we continue to drive efficiencies and strategically reinvest to accelerate growth. Finally, we're executing on our portfolio reviews and will deploy capital in a disciplined manner balancing reinvestment in the core, capacity for mergers and acquisitions, paying a dividend, and buying back our undervalued stock. And now, we'd be happy to answer your questions.

Hey, guys. I have three questions if that's okay. For the guidance, you gave like kind of loss in the year-on-year. But if we look at 1Q to 2Q sequentially, I think, it assumes about a 7% decline Q-on-Q for GMV, normally kind of flat Q-on-Q. So, I guess, can you parse that into how much is like stimulus burning off versus these economies reopening in the context of what Jamie said about buyers retaining at a high level and spend per buyer going up just trying to reconcile that. Second one is on the margins. So, the 29% margin guidance, is that just from all this payment revenue coming in at a lower margin or are there other discrete areas that you're layering in on the investment? And then lastly on the trading cards, are there other categories like this that just kind of have emerged over the last year that you guys maybe had that were nascent and just now are being like activated because consumer behavior has changed? Anything else besides trading cards you would point to that would be an example of coming out of this whole thing why eBay would be in much better shape from a category perspective. Thanks a lot.

I'll start with the trading cards and then let Andy discuss the other two. We have a strong history in the collectibles business, particularly with trading cards. In Q1, we saw impressive results, exceeding $1 billion, which accounted for over half of last year's record. Generally, we find that when we improve the customer experience and adjust the Net Promoter Score by category, it positively affects both buyers and sellers, leading to increased gross merchandise volume. This is akin to the changes we've witnessed in sneakers and watches, where similar adjustments resulted in significantly better performance. The customization feature we launched this quarter represents another opportunity. Currently, we have millions of items on the site, but the process is often cumbersome for buyers and sellers; streamlining this will help us expand our gross merchandise volume. Additionally, we have yet to fully explore major categories like home and garden, fashion, electronics, and parts and accessories, all of which present substantial growth opportunities that can benefit from our strategy.

Yes, Ross. Regarding the two questions about the dynamics between Q1 and Q2, the first quarter was our largest quarter ever, and we experienced growing restrictions in most markets that continued into Q1. The growth we saw in Q1 was mainly due to two factors: the ongoing strong performance and the relationship between mobility and GMV. As the quarter went on, we learned many things, particularly regarding the pace of vaccine rollouts, which has improved significantly since January. Mobility has enhanced in most markets throughout the quarter, and while it's hard to pinpoint the exact effect of the stimulus payments in the US, we believe the most significant impact was likely felt around March. When comparing Q1 with the outlook for Q2, the key difference is that mobility has improved since the start of Q1. We continue to experience strong underlying performance and are seeing positive progress on payments. This leads into your second question about the margin rate for the year. We are still aiming for the 30% target we mentioned for next year, and as we've stated, the growth won't be linear. There will be quarters with fluctuations, and we will balance growth with margin throughout. Historically, Q1 has typically been higher than the other quarters, particularly compared to Q2. Last year was somewhat an exception due to our overall growth, but we believe this year we are aligning more closely with that trend. Looking ahead to the second half of the year, there are three factors to be mindful of. First, we expect moderated growth, which may impact volume and lead to some deleverage. We will continue investing for long-term health rather than focusing solely on quarterly margin targets. Lastly, payments are scaling quickly, generating substantial incremental operating income, which may slightly pressure our operating margin, but we are confident in the progress and its positive effects on our financials.

All right. Great. Thanks for the questions. I guess, first off, bigger picture question for you Jamie. You talked a bit about some of the additional product planning with advertising, and so more broadly, I wonder, how you think about the ramp of overall seller monetization, how much additional upside you see there or if you see perhaps an opportunity longer term to shift the model towards more ad orientation like we see with marketplaces in other markets? And then secondly, on the margin side, on the spending side, obviously dynamics this year are a little bit different given the comps. But we've seen periods of reinvestments with eBay over the last decade. And so Jimmy, you outlined a bit of a division last year and it sounds like you're happy with the progress this year so far this year with the verticals. But how do you weigh the need to invest long term and measure your performance on a short-term basis? And how quickly are you going to be able to pivot if necessary?

First, on monetization, both payments and advertising are driving significant revenue growth, particularly in payments. Regarding advertising, we’re pleased with the business as our sellers are experiencing a strong return on their ad spend. There’s still considerable opportunity to assist them in moving their products quickly. This quarter, we are introducing three new experiments in our advertising sector. The first involves auction placements, as our prior growth has been primarily from fixed-price listings, making this a new capability. Additionally, we are testing a CPC-based model for our sellers, which offers a new potential for growth. We're also exploring off-eBay opportunities to enhance seller exposure. We continually assess monetization and our value addition to sellers. For instance, in watches, we identified a chance to increase our fees due to the value provided in that category. Advertising still constitutes only 1% of GMV, and benchmarks suggest there is substantial room for growth. As long as we keep adding value to sellers, we believe this will present ongoing opportunities. Regarding investments, in July, we outlined a strategic plan categorizing verticals aimed at reinventing the experience, enhancing NPS, and boosting GMV. Recent results have shown triple-digit growth in sneakers for four consecutive quarters, reversing a trend of previous declines. Our watches category increased from 16% to 38% last quarter, and notably, customer satisfaction metrics are in the 80s and 90s. We plan to extend this approach across other parts of the business in the coming quarters and years. Our major categories, including parts and accessories, electronics, and fashion, share similar opportunities for this strategy. We will continue to pursue this in a balanced manner, managing expenditure against growth potential. We've already implemented this in various areas, particularly in marketing, over the past few quarters.

Great. Thank you.

Hey. Thanks so much for taking the question. I guess just first as a follow-up to the previous question, it was interesting that you took up take rate and watches. I guess, Jamie if you step back and look at take rate overall base take rate, are there more opportunities to take uptick rate? Are there services you can continue to add that exclude advertising that would allow you to have that higher take rate? And then I guess as you guys make some of these muscle moves in specific verticals, any sense as to how large these verticals are as a percent of total GMV? And then a follow-up on fashion. I know you've been doing some off-price fashion tests in the UK timing on rolling that out to the US? Thank you.

Yes. Regarding take rate, we believe that most sellers will face lower fees, which will contribute at least $0.5 billion to our operating income. We are actively exploring new ways to enhance the seller experience, such as off-eBay advertising. When it comes to watches and other categories, we assess the value we provide and the opportunities for sellers on a case-by-case basis. We are particularly focused on the non-new in-season market because we see it as a $500 million total addressable market. Our site's categories show high single-digit to low double-digit penetration in this area, indicating substantial opportunity. Our emphasis on re-commerce reflects a growing interest, especially among younger generations, in previously owned items. This focus on consumer-to-consumer sales is proving effective, as our C2C sector grew 34%, outpacing our B2C growth of 21%. This trend not only provides unique inventory but also transforms buyers into more valuable customers when they engage in casual selling. Additionally, our brand outlet tests in the UK have been successful, achieving double-digit growth above market rates. Initially, we sourced programs, but now brands are approaching us to join the initiative. We have been applying a consistent strategy of testing in various markets, identifying successes, and expanding those efforts, as seen with our sneaker initiatives in the US, which we are now rolling out in the UK, Canada, and Australia this quarter. We plan to continue this approach.

Good. Thank you.

Hi. Good afternoon. Just wanted to ask a follow-up to the prior question. I think last quarter, you framed GMV covered by new category experiences and it was single-digits or kind of less than 10% of GMV in the fourth quarter. I'm just curious if you could update that metric, where these new category experiences reach this quarter and maybe what could be achieved by year-end? Any comments on that would be helpful. And then Jamie I'm just curious, if you could talk about what are the remaining seller pain points that you're really focused on? You've clearly done a lot of work with payments and maybe reach on the advertising side. But what are you hearing from sellers as to the features that they'd like to see? Thank you.

We are still seeing low single-digit percentages in the categories we've focused on so far. We believe that over the coming years, more than half of the gross merchandise volume is available in this type of opportunity, particularly in key categories. There are likely opportunities across all categories over time to make improvements. We've wanted to validate the strategies we've implemented, and they have been consistently effective, based on feedback from both buyers and sellers. We're seeing positive results in the business and recognize significant potential on the seller side. We are currently migrating all of our stores to the NextGen platform, which is nearly complete and offers substantial improvements. This quarter, we are introducing CRM capabilities that sellers have long requested, allowing them to market to buyers through packing slips and emails. This addition is significant, along with the customization features we are launching to support sellers' growth. One persistent issue for sellers has been unpaid items, which has existed since a separation of payments from purchases. With our new managed payments system and the introduction of new technologies, we have successfully reduced that issue by 80%, which is a major relief for our sellers. On the consumer-to-consumer side, we are focused on improving ease of use, which is why we are launching features like image-based listings. Our goal is to minimize friction in the user experience, making it quick and simple to list items. We are also enhancing education around seller tools to further boost the C2C business. Each quarter, we will be rolling out features aimed at removing barriers to create the best marketplace experience possible.

Thank you.

This is Shweta for Mark. I would like to ask about buyer growth. You mentioned several initiatives aimed at driving growth. What do you see as a sustainable growth rate for buyers? Additionally, you identified some of your top categories, which include collectibles, home and garden, electronics, fashion, and parts and accessories. Can you explain their current size as a percentage of GMV? How do you anticipate the cross-category shift will evolve with the reopening? Thank you.

Yeah. So first on buyers look in Q1, we added 7% to our active buyer count to $187 million globally. Over the past year, we've added 13 million buyers to the marketplace. What we're seeing is that those buyers are behaving with strong performance like pre-pandemic. They're not just coming to eBay during the pandemic time period and leaving. We're converting a good amount to our strategy of long-standing enthusiasts. We're really focused on the first 90 days for buyers and making sure that they have a great experience on the site. The NPS is up, especially in focused categories like watches and sneakers, certified refurbished where you now have a two-year warranty and have the free returns. We're really pleased with that. The cross-category nature and the size of these categories is one of the best assets of eBay. We talked last quarter about our sneaker buyer where we acquire a new Gen Z buyer; they end up buying $500 in sneakers but another $2,000 outside sneakers. We're seeing the same type of thing in watches where we're acquiring a buyer of new high-end watches and they're spending thousands of dollars outside of other categories. We continue to lean in because it's a huge accelerator for us to get buyers purchasing cross-category and a lot of the marketing technology that we've built and worked on, the AI with recommendations etc. is really centered on this idea of capturing buyers and having them transact in multiple categories.

Okay. Thank you.

There's going to be a lot of moving parts this year with e-commerce facing the comps and it's not just you. What do you think is the best way to measure your progress this year as we think about it? Is it market share versus e-commerce spend? And what specific milestones if GMV matches your outlook should we be looking for that really show you're making progress this year? Thank you.

Yes. I mean one that we're clearly looking at is with last year being such an anomaly with the pandemic is a year over two-year and the growth that we're seeing there, which we're excited by. Clearly we'll be lapping some of the buyer, extensive buyer growth that we had last Q2 but we're looking at the performance of those active buyers on a go-forward basis and we're pretty pleased with that performance. The core thing is the playbook that we put in place is working. This thesis of really changing the growth trajectory of the category by investing in the playbook is what the team is focused on. Coming into this in 2019, we were I think declining 2% from a GMV perspective. If you look at our revenue growth projected next quarter, we're looking at double-digit revenue growth. We feel good about where we're positioned coming out of the pandemic.

Great. Thank you.

Okay. Thank you so much. So Jamie, now that the US payment penetration seems to be approaching the finish line here, is there anything you can say about how the simplified checkout versus what the buyer has had to go through before? And how that might be resulting in, hopefully, a decrease in the overall friction and hence an increase in conversion rate or purchase velocity? And I guess as a follow-up to some of the earlier questions on advertising, as an increasing portion of the transactions end up being C2C or what might be more unique, collectible, or enthusiast items, should we still be thinking that that type of gross merchandise value is still appropriate for PLA because it seems like advertising should work best for probably those categories where there are multiple sellers trying to sell a fairly homogeneous item? Thanks.

Yes. So first on the payment side, I would say, yes, not only do buyers now have more choices of how to pay including Google Pay, Apple Pay, credit card, debit, PayPal, etc., but you no longer have to set up two different accounts. You no longer have to manage a claims process or returns process in two different areas. It's one eBay money-back guarantee. To us, it dramatically simplifies the whole experience for a buyer and makes it easier. They keep that payment on file and it's just a dramatically easier experience. It's helping the seller too because I mentioned the unpaid item example earlier on the call but also the ability for them to manage all their business in one place makes it much more streamlined to just run a business on eBay. On the Promoted Listings, we see opportunities really across every category and every price point of GMV. The beauty of the CPA model that we've had of the cost per acquisition model has been just the simplicity of it of just adding the percentage and it makes it really easy. But the PC model that we're launching also gives the opportunity to really push volume in a different way with a different set of capabilities. Even on single and unique items, people want to promote those items and get more exposure. They have for the longest period of time. It's why we're launching the ad feature for auction and testing that is to really go after it. We still have a lot of opportunities across our listings to increase the penetration. Like I said before, we're only at 1% of GMV.

Thank you.

Great. Hey, guys. Thanks for taking the question. First can you provide some color on what categories are specifically seeing reversals with mobility improving in the second quarter? And then on the commentary around the second half GMV trends, comps are also progressively getting easier once you navigate past the second quarter, but you're saying that potentially GMV trends could be similar to second quarter. I know there are always certain one-time items in 2Q and there are potentially some geographies coming out later in terms of mobility. But can you parse out between those? And do you expect further reversal in terms of kind of comparable basis on volumes beyond 2Q?

Yes. I'll take the first one and I'll let Andy take the second. So on the category piece, we talked about last year was, people started by panic buying everything that was related to kind of health needs across the board on eBay. Then we saw that expand into kind of stay-at-home categories, fitness and laptops, those types of things in our electronics business. Really, it went kind of across the board over the course of the year. As you think about this year, it's really just a change against the backdrop of what we were buying last year. I'll let Andy take the second part of that.

Yes. We did not provide guidance for the second half due to the dynamic environment and the uncertainty of outcomes. You are correct that the comparisons for Q3 and Q4 are somewhat easier as the year progresses. Additionally, we still expect the underlying business to perform well. The unpredictable macro factors related to mobility and stimulus could significantly influence this situation. There is some advantage in the second quarter from these factors. If certain regions begin to open up and mobility increases, it may counterbalance the easier comparisons we anticipate in the second half. This is a possibility, but it is challenging to predict the direction of mobility accurately.

Operator, we've got time for one more.

Thank you for taking my question. I wanted to ask about how you've effectively dealt with categories such as authenticated sneakers, luxury watches, and now trading cards. As someone who sold a Barry Sanders rookie card, I can say it has been a much better experience. Looking ahead to the next stages of GMV growth, what do you see as the main technological limitations that may influence how quickly you can expand the rest of the categories on the platform? Additionally, as you discuss the second half of the year, are you expecting to roll out more categories onto the new, enhanced interface?

Yes. So the first thing I'd say is that, on the category piece, in some cases the categories have overlapped in terms of features or capabilities we need to build in order to make that a winning NPS for us. So we build authentication once. It took us a couple of months to build it out, but then we're able to roll it out to the next category in a couple of weeks and expand that geographically. I think that's actually true for a lot of areas where there's components or features that we're building specifically to drive the NPS of a category that will be applicable to a broad set of categories across the experience. In terms of pace, we're going to continue to do what we've done before, which is roll them out in a specific geography, make sure that we're seeing the intended impact, and then roll it out across the board. We don't want to talk about which category is next for competitive reasons, but I would just say that we're really pleased with the playbook. We're really pleased that we're able to drive significant growth and a significant change in trajectory and most importantly, a significant change in the customer experience. You're just going to see us continue feature after feature, category after category. The second thing I'd say is that the verticals is not the only investment that we're making. A lot of our investment is going to site-wide investments that impact all categories. Clearly, that's true for payments and advertising, but the same is true across our seller tools, across our API business, across the CRM and couponing capabilities that we just rolled out, and investments that we have in search and in SEO, which apply to the whole business. The way I think about them is kind of a good amount of investment in verticals to really change the NPS of those categories, but a significant amount of site-wide investments as well, which lifts all categories. That's the strategy. That's how we think about it and we're really pleased with the performance.