Jul 28, 2020

eBay (EBAY) Q2 2020 Earnings Call Transcript

EBAY Q2 2020 Earnings Call Transcript
RevBlogTranscriptsTechnology TranscriptseBay (EBAY) Q2 2020 Earnings Call Transcript

eBay reported Q2 2020 earnings on July 28. They beat on earnings, but the stock dropped about 4% after the call. Read the conference call transcript here.

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Speaker 1: (00:00)
Ladies and gentlemen, thank you for standing by. Welcome to the eBay Q2 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-one on your telephone. If you require any further assistance, please press star-zero. I would now like to hand the conference over to your speaker today, Joe Billante, vice president communications and investor relations. Thank you. Please go ahead.

Joe Billante: (00:33)
Thank you. Good afternoon. Thank you for joining us, and welcome to eBay’s earnings release conference call for the second quarter of 2020.

Joe Billante: (00:41)
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.

Joe Billante: (00:59)
Before we begin, I’d like to remind you that during the course of this conference call we will discuss some non-gap measures related to our performance. You can find the reconciliation of these measures to the nearest comparable gap measures in the slide presentation accompanying this conference call.

Joe Billante: (01:14)
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.

Joe Billante: (01:40)
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 July 28, 2020, and we do not intend to undertake no duty to update this information.

Joe Billante: (02:03)
With that, let me turn it over to Jamie.

Jamie Iannone: (02:06)
Thanks, Joe. Good afternoon, everyone. Before I turn the call over to Andy to discuss our recent performance and near-term outlook, I will take some time to share thoughts on my return to eBay, highlight a few observations from the quarter, and share our vision for the company.

Jamie Iannone: (02:20)
I’m thrilled to be speaking with all of you today as CEO of eBay. I have long admired this unique company for its special culture and its enormous potential. I’ve spent my first hundred days primarily focused on three areas, immersing myself in the business, connecting with our buyers and our sellers throughout the world, and meeting different teams across the organization.

Jamie Iannone: (02:39)
Throughout these engagements, I’ve been fortunate to observe firsthand the significant opportunity we have ahead of us. Our purpose has always been to empower people and create economic opportunity for all, and there’s never been a better time where this has mattered more than right now. We are a globally recognized brand with a strong heritage, incredible assets, and a talented and dedicated team who serve our passionate and loyal customer community. As we look into the future, we have a clear vision to build on these strengths. Through a technology-led reimagination of eBay, we will become the best global marketplace to buy and sell.

Jamie Iannone: (03:17)
Before I get into our vision for the future, I want to frame where we are in the context of today’s market. Consumer behavior is rapidly evolving. This dynamic has been accelerated by COVID-19, contributing to significant volume acceleration and new customer acquisition. This led to a very strong quarter, coming in ahead of the recently increased expectations we shared in early June.

Jamie Iannone: (03:40)
Volume was strong across most major markets in the marketplaces business, growing 29%, our highest quarterly growth rate in 15 years. We also added approximately 8 million more buyers to bring the annual active buyer base to 182 million. On behalf of our buyers, I want to thank our sellers for doing an amazing job selling and shipping over the past few months. Organic revenue was up 22%, with strong marketplaces volume offsetting an anticipated decline in classifieds. Total margin rate was up five points to 34%, and earnings per share was a dollar eight.

Jamie Iannone: (04:19)
The current strength of demand creates a significant opportunity for us as we embark on the next phase, while also providing additional capacity for investment, which we are moving with pace to implement. In Q2 we were able to deploy incremental investments into marketing and growth initiatives while still delivering higher margins.

Jamie Iannone: (04:37)
Operationally our top initiative over the past two years, managed payments, just reached a very important milestone as we begin to scale globally. Although the original operating agreement reached the end of its term, PayPal will remain an important partner moving forward as a payment option for buyers. From a seller perspective, after successful launches in the US and Germany over the past two years, we have started migrating sellers in the UK, Australia, and Canada on payments. We expect to transition the majority of all sellers globally over the next 18 months. We remain on track to realize $2 billion in revenue and 500 million in operating profit in 2022.

Jamie Iannone: (05:19)
Managed payments is a great example of a tech-led reimagination of our marketplace. It provides a simpler and seamless experience for buyers and sellers around the world. Buyers can pay with ease and convenience with more choices of popular local payment methods. Sellers benefit from a streamlined experience, more options on how and when to be paid, and the vast majority of sellers are saving money on fees.

Jamie Iannone: (05:45)
We’ve also recently concluded our portfolio review, leading to the pending transfer of the classified business to Adevinta for approximately $9.2 billion. We are excited to bring together two highly complimentary businesses in order to create the world’s largest online classified group with leading positions in 20 countries, covering one billion people around the world. With a strong partner in Adevinta, this structure allows us to dedicate our day-to-day focus to marketplaces. It provides immediate value for shareholders and allows us to participate in the future growth of classifies.

Jamie Iannone: (06:21)
Against this encouraging backdrop, I’d like to share our longterm vision for eBay. Put simply, our vision is to build on the company’s powerful strengths to become the best global marketplace for buyers and sellers through a tech-led reimagination of eBay. We have come a long way in our nearly 25 years, growing from our founder’s first sale of a broken laser pointer into a global platform with more than 180 million buyers and tens of millions of sellers worldwide, exchanging over $85 billion of goods.

Jamie Iannone: (06:53)
While there are many accomplishments to be proud of, we are not satisfied with where we currently stand. The reality is that in the past few years, we have not executed to our full potential. New competitors have taken share because we neglected our core area of expertise. We focused on new areas that did not drive sustainable or profitable growth. To be candid, we did not adapt quickly enough to the rapidly changing needs of our customers.

Jamie Iannone: (07:21)
This leaves us with enormous untapped potential that we absolutely must capitalize on. This is what brought me back to eBay, and it’s what the leadership team and I are committed to executing against. It will be a multiyear journey, but I believe we can drive longterm sustainable growth and generate significant value for shareholders.

Jamie Iannone: (07:40)
Our ambition is to become the best global marketplace. That’s been built with customers at the center, with an acknowledgement that the driving force of our success has always been and must continue to be our leadership in technology. This is why the entire team at eBay is rallying around three key priorities to execute on this vision. One, to build compelling next-gen experiences for our enthusiasts. Second is to become the partner of choice for our sellers. Third is to cultivate lifelong, trusted buyer relationships. I will walk through each priority in more detail.

Jamie Iannone: (08:18)
Our first key priority is to defend the core business by building compelling, next-gen experiences for enthusiast customers. We will cater to them by focusing on two areas of historical strength, consumer selling and vertical experiences. Consumer sellers are dedicated eBay customers who have a proven track record of spending more than double the amount of buyers that don’t sell on the platform. This group differentiates our global supply by bringing unique and compelling inventory at great value. We estimate that the average household in our major markets has approximately $4,000 worth of items to resell, and is selling less than 20% of that online today. In addition to making extra money, by keeping products in circulation longer customers are driving social and environmental benefits for all.

Jamie Iannone: (09:10)
To lead in consumer selling, here are the areas where we intend to focus. We will simplify the listing flow. It’s currently, frankly, too long and complicated, and needs to be dramatically simplified. Next, we need to increase conversion to grow the number of consumer selling enthusiasts. Finally, we must make it easier for sellers to reinvest proceeds from their sales back into the things that they need, want, and love on eBay.

Jamie Iannone: (09:37)
One recent consumer selling launch streamlined the local pickup experience by leveraging QR scanning to complete in-person transactions. While we are pleased to see this tech-based simplification, there is a lot more to do to achieve the longterm objective of growing the number of consumer sellers on the platform.

Jamie Iannone: (09:56)
In terms of vertical experiences, we plan to focus on non- new and seasoned products. Within these categories, we have unique inventory at scale, strong buyer consideration, and loyal communities of buyers and sellers who connect through common interest and passions, not just to buy and sell merchandise. This is an important focus for us, as approximately half of our volume in major markets comes from these products.

Jamie Iannone: (10:23)
The TAM for these categories is expanding as more offline inventory transitions online. These categories span from luxury items, to parts and accessories, and motors, to fashion, electronics, collectibles, and more. They represent the core of why people love eBay. Our plan is to focus technology efforts on the evolving needs of these passionate enthusiasts, and we intend to accelerate growth in these categories in the coming years.

Jamie Iannone: (10:52)
The second key priority of our vision is to become the platform of choice for sellers. We will aim to inspire small businesses by introducing tools and features that compel them to start and grow their business on eBay. We will treat them like true partners by making the platform easier to use, grow their brand, drive their sales, and carefully protect their reputation.

Jamie Iannone: (11:16)
By making eBay more compelling, we plan to grow the number of successful businesses on the platform. Hundreds of thousands of small businesses are already active today, and tens of thousands have recently joined through programs like Up & Running across our global markets. Recently we launched several improvements to simplify registration and help sellers start and succeed on the platform. Additionally, we have boosted seller presence by launching storefronts in the mobile app, and we will continue to iterate the stores’ experience over time.

Jamie Iannone: (11:48)
Seller hub tools continue to grow, and in the past quarter we launched several new features based on customer feedback. To name some improvements, we have started providing real-time competitive pricing and traffic data, and also expanded multi-user authentication capabilities. Another great example is seller-initiated offers, where sellers can send custom deals directly to buyers, which launched several new features in Q2 and is expected to drive over a billion dollars in GMV in 2020. This demonstrates the power of the eBay platform, where sellers can connect to individual buyers.

Jamie Iannone: (12:25)
To drive demand for sellers, we continue to augment promoted listings capabilities. In the second quarter, promoted listings delivered $196 million of revenue, up 124%. We see several growth levers, including further promoted listings adoption, conversion improvements, and ad product innovation designed to help sellers drive demand and grow their business.

Jamie Iannone: (12:49)
Finally, the third key priority of our strategy is to cultivate lifelong, trusted relationships with buyers. We plan to modernize and simplify the experience to drive more purchase frequency, by leveraging AI teams to remove friction throughout the buying journey.

Jamie Iannone: (13:06)
In our highly rated app, we are delivering features that customers want. In June, we released dark mode on iOS and dark theme on Android, which was the most requested feature by customers, particularly our Gen-Z customers. We also simplified search filtering on mobile, which is leading to an increase in sold items and better user efficiency.

Jamie Iannone: (13:28)
We have made significant incremental investments in three areas of marketing during Q2. First, we leaned in to performance channels, which are delivering higher efficiency due to competitive spend reduction. Second, we incented more app downloads and adoption to improve buyer retention. Third, we deployed a multichannel campaign to showcase sellers and continue to attract new small businesses. These SMBs bring great selection and value for buyers to discover. We will continue to invest in the buyer experience and marketing technology capabilities as we work to foster lifelong, trusted relationships with buyers. As we look forward, we have a clear vision to realize the enormous, untapped potential of eBay. This will be a multiyear process and will require investment, but, through a tech-led reimagination, our plan is to become the best marketplace in the world for buyers and sellers.

Jamie Iannone: (14:26)
Our key priorities to deliver this vision are to build compelling next-gen experiences for our enthusiasts, to become the partner of choice for sellers, and to cultivate lifelong, trusted buyer relationships. While pursuing this vision, we will never lose sight of our purpose, which is to empower people and create economic opportunity for all. It’s that purpose that inspired the company and the eBay Foundation to commit an additional $10 million in the second quarter to support COVID-19 relief efforts globally. Additionally, during the quarter we donated more than $1.3 million to the NAACP legal defense fund-

Jamie Iannone: (15:03)
… $1.3 million in the NAACP Legal Defense Fund and Equal Justice Initiative in an effort to take action against systemic racism and injustice. With that I’ll turn the call over to Andy to provide more details on our financial performance. Andy…

Andy Cring: (15:17)
Thanks, [Jamie 00:00:17], and thank you all for joining today. The last 90 days have been an incredibly exciting time for eBay. First, we’ve begun the process of ramping managed payments, which will greatly improve the experience for both buyers and sellers while delivering incremental revenue and operating profit to the business. Second, we’re extremely pleased with our announced agreement to transfer our Classifieds business to Adevinta for $9.2 billion in cash and stock. And third, we had an outstanding quarter financially. Our Marketplaces business continued to see significantly higher growth levels for traffic, buyers, conversion, GMV, revenue, and operating margin, and our Classifieds business is recovering faster than our previous outlook.

Andy Cring: (16:04)
On the basis of that strength, we are raising our full year guidance for revenue, earnings, and free cash flow. Marketplaces’ on-platform GMV growth in both the US and international markets was in the mid-30% range for the quarter with acceleration across all major verticals compared to Q1. We are well positioned to benefit from the offline to online shift that is occurring as we continue to deliver significant year on year volume growth. As Jamie said, while there’s much to be proud of, we are certainly not satisfied. The current strength in demand is providing an opportunity for eBay to attract and retain new buyers and sellers, and we’re investing during this period to position the company for a higher longterm sustainable growth rate.

Andy Cring: (16:52)
Turning to slide four. In Q2 we delivered revenue of $2.9 billion, up 22% on an organic FX-Neutral basis, above the high end of our most recent guidance. Non-GAAP EPS was $1.08, up 63%. Non-GAAP margin was strong at 34.3%, inclusive of our ongoing investments in managed payments. We generated $964 million of operating cash flow and $866 million of free cash flow. We returned $112 million to shareholders in cash dividends in Q2. And in early July, we completed our $3 billion accelerated share repurchase at an average share price of $40.77.

Andy Cring: (17:44)
Moving to active buyers on slide five. We ended Q2 with 182 million active buyers, representing 5% year on year growth, accelerating three points from Q1, with new and reactivated buyers driving the acceleration. To put that number into perspective, the increase of approximately 8 million buyers in the trailing 12 month metric is more than we’ve seen in the last six quarters combined. While the growth rate and the trailing 12 month metric is a bit muted, we are excited about the significant increase in buyers and are focused on increasing engagement and retention. It’s clear that stay at home mandates and a more restrictive offline shopping environment drove more buyers online. While it’s extremely early in the lifecycle of these newly acquired buyers, the second quarter we saw increased engagement. Repurchase rate frequency, multi-category shopping, and migration to the app are all significantly higher than previous cohorts, and our retained buyer base is purchasing with a higher frequency compared to pre-pandemic levels.

Andy Cring: (18:55)
Moving to slide six. In Q2 we enabled $27.1 billion of marketplace GMV, up 29% year on year, accelerating 29 points versus the prior quarter. The growth in volume was driven primarily by consumer behavioral shift to online shopping, which brought more buyers to the platform who, on average, spent more per buyer than in the past. Approximately 80% of the GMV growth came from increased purchase frequency in our existing buyer base, and the remaining growth came from new buyers. In the US we generated $10.5 billion of GMV, up 35% year on year, and accelerating 39 points from Q1. Although difficult to precisely measure given the magnitude of volume, the year on year growth figure includes a four point headwind from the continued impact of internet sales tax across the US, improving two points compared to Q1 and slightly better than our expectations. Next quarter will be the last quarter with a material impact on growth rates, as the majority of States had gone live before October 1st, 2019. Please refer to the appendix to see the impact of internet sales tax over time. International GMV was up 26%, accelerating 23 points versus Q1, driven by strength in the UK in Germany. Growth in Korea was 5.5%, decelerating one point.

Andy Cring: (20:27)
Moving to revenue on slide seven. For the company we generated net revenues of $2.9 billion, up 22% organically, accelerating 20 points from Q1. We delivered $2.4 billion of transaction revenue, up 33%, and $418 million of marketing services and other revenue, down 20%, inclusive of a five point headwind from the sale of brands4friends.

Andy Cring: (20:54)
Turning to slide eight. Our marketplace revenue was $2.7 billion, up 26%, accelerating 25 points from the prior quarter. Transaction revenue grew 33%, a 30 point acceleration versus Q1, driven by strength in GMV and promoted listings. Marketing services and other revenue was down 16%, decelerating one point versus Q1. The year on year decline is driven by 11 points in the sale of brands4friends in addition to lower third party ads, partially offset by growth in our Korea first party business, which grew at over 80% year on year. Marketplace segment margin was 40%, up eight points year on year. The margin expansion was driven by strong volume leverage and continued cost control, partially offset by incremental marketing and technology investments as we aim to increase engagement with new buyer cohorts and accelerate product delivery.

Andy Cring: (21:57)
Moving to slide nine. In Q2 Classifieds had a tremendous quarter and an incredibly tough environment. The leadership team had to deal with the realities of the pandemic pressures and the uncertainty of a pending transaction. Through it all the team executed beyond expectations. Revenue was down 24% year on year, decelerating 24 points versus Q1, driven by Motors’ fee discounts in addition to continued headwinds in display advertising across markets. Revenue growth was at its lowest point in April before delivering steady acceleration through May and June. The acceleration was primarily driven by a combination of ending the fee discounts we provided to dealers as lockdown restrictions eased through the quarter and modest improvements in advertising. Performance was ahead of our expectations as the recovery in Motors and ads materialized more quickly than originally anticipated. Segment margin for Classifieds was 30%, down eight points year on year, driven primarily by fee discounts, which resulted in lower top line leverage, and our continued investment in verticals, partially offset by a reduction in sales and marketing spending.

Andy Cring: (23:12)
Last week, we came to an agreement to transfer our Classifieds business to Adevinta for $9.2 billion. Upon closing, eBay will receive $2.5 billion in cash, which we anticipate will yield approximately $2 billion net of taxes. In addition, eBay will receive 540 million shares of Adevinta, valued as of the July 17th closing share price at $6.7 billion. While the value of this stake will move with the share price of Adevinta, early positive reactions indicate alignment with our view of the longterm value in this combination. We are excited about this deal as it allows us to realize near term value while also enabling us to participate in the future upside potential of the world’s largest online classifieds company. Turning to slide 10 and major cost drivers. In Q2 we delivered non-GAAP operating margin of 34%. This is approximately five points higher year on year, driven by marketplace volume leverage and continued cost control, partially offset by the impact of lower Classifieds revenue and our investment in managed payments. Cost of revenue is down nearly two points year on year as a percentage of revenue, as volume leverage more than offset investment and managed payments, and our expanding first party inventory program in Korea. Sales and marketing expense was down over three points versus the prior year as marketplace volume leverage and Classifieds spend reductions were partially offset by reinvestments in the marketplace segment. Product development costs were down one point, driven by volume leverage, partially offset by incremental investments in the product experience, including managed payments. G&A was up 30 basis points, as leverage and cost actions were more than offset by advisor costs associated with the Classifieds transactions, charitable donations, and costs related to the closure of a large office. Transaction losses have grown approximately 70 basis points, driven by volume and modest rate increases in our bad debt and eBay money back guarantee reserves.

Andy Cring: (25:28)
Turning to EPS on slide 11. In Q2 we delivered $1.08 of non-GAAP EPS, up 63% versus the prior year, our 10th consecutive quarter of double-digit non-GAAP EPS expansion. Non-GAAP EPS growth was driven primarily by higher revenue growth and our share repurchase program, partially offset by the impact of a stronger US dollar and our investment in managed payments. GAAP EPS for the quarter was $1.04, up 125% versus last year. The increase in GAAP EPS is mostly driven by the change in fair value of the [inaudible 00:26:08] warrant in the quarter, and the same factors as non-GAAP performance, partially offset by a higher tax rate driven by a California tax law change. As always, you can find the detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation.

Andy Cring: (26:28)
Moving to slide 12. In Q2 we generated $866 million of free cash flow, up 54%, driven by higher earnings and the timing of cash taxes.

Andy Cring: (26:41)
Moving to slide 13. We ended the quarter with $5.8 billion in cash and investments, and debt of $8.7 billion. We’ve continued to strengthen our balance sheet, and are leveraging the current market to improve the rates we’re paying on our outstanding debt. In Q2 we issued $750 million of debt, bringing our total debt raised for the first half to $1.75 billion. We are using the proceeds to retire our 2020 and 2021 debt maturities. In Q2 we repaid approximately $830 million, and we expect to pay the remaining $920 million by the end of Q3. We paid $112 million in dividends in the quarter.

Andy Cring: (27:27)
In early June, we completed the $3 billion accelerated share repurchase plan we announced in February at an average price per share of $40.77. We have $500 million in share buyback left to hit the $4.5 billion in our guidance. We ended the quarter with $3.2 billion of share repurchase authorization remaining. Our capital allocation strategy, key tenants, and targets have not changed. We remain committed to maintaining our triple B plus credit rating, midterm 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 dollars. We also remain committed to our dividend.

Andy Cring: (28:16)
Turning to slide 14 and guidance. The guidance we are providing assumes Classifieds results are included in both Q3 and full year. We will provide updates moving forward as appropriate. As we indicated in April, this is an unusually dynamic time without historical precedent and presents challenges in drawing conclusions on trends and outlooks beyond the immediate term. In April, we experienced a significant, broad-based acceleration. At the time it was unclear how long that strength would last, or when growth rates would return to pre-pandemic levels, if ever.

Andy Cring: (28:56)
What we observed throughout the second quarter varied across geographies. In countries like Germany and Italy we saw the height of GMV growth in April, and then began to see moderation of growth as these countries began to reopen, although growth levels continue to be higher than pre-COVID levels. In the US, where the impact of the virus continues at elevated levels, growth has been steady through July so far. Across most markets we have yet to settle back into a new baseline, making it harder to accurately forecast future growth rates. We are however providing updates to both our Q3 and full year guidance today. Our visibility in the near term is clearer, but beyond Q3 it’s harder to predict exactly how buyer behavior, retail channel shifts, and changes in the economic environment will affect our outcome. There isn’t a model of e-commerce growth recovery from a global pandemic, and considering these factors we see a wider range of potential outcomes. Our guidance assumes continued growth moderation across most of our portfolio throughout Q3-

Andy Cring: (30:03)
Moderation across most of our portfolio throughout Q3, assuming consumer mobility continues to improve. We expect to continue to invest in technology and marketing to maximize our opportunity to exit the pandemic at a higher growth rate than we entered.

Andy Cring: (30:17)
For Q3, we are projecting revenue between $2.64 and $2.71 billion, growing 14% to 17% on an organic FX neutral basis. This assumes Marketplace’s volume growth in the high teens, with gradual growth moderation through the quarter. In classifieds, we are expecting revenue acceleration from the second quarter.

Andy Cring: (30:40)
We expect managed payments to continue to deliver revenue acceleration, contributing approximately three points to Q3 revenue at the midpoint of our guide. Partially based on heightened GMB growth rate but also on strong execution.

Andy Cring: (30:55)
We expect non-gap EPS of $0.81 to $0.87 per share, representing 27% to 36% growth. EPS growth is driven primarily by Marketplace’s volume and lower share count partially offset by continuing investments and technology and marketing. We are expecting gap EPS in the range of $0.58 to $0.64 per share in Q3.

Andy Cring: (31:21)
For the full year, we are increasing our revenue guidance to the range of $10.56 to $10.75 billion and organic FX neutral growth of 12% to 14%. This represents Marketplace revenue growth in the mid-teens and classifieds revenue at negative mid single digits.

Andy Cring: (31:41)
We are raising operating margin to be in the range of 30.5% to 31.5%, and maintaining a non-gap effective tax rate of between 15.5% and 17.5%. With the above dynamics, we are increasing our full year non-gap EPS guidance to 3.47 to 3.59 per share. We are increasing our free cash flow to $2.55 to $2.7 billion and narrowing the cap X range to 4% to 5% of revenue. Finally, we are increasing full year gap EPS to $2.85 to $3 per share.

Andy Cring: (32:23)
In closing, we feel great about our progress. The business performance continues to be very strong. Our revenue growth initiatives of managed payments and advertising are on track, reducing friction on the site and providing more options for buyers and sellers. We are well on our way to delivering our cost structure improvements that will drive at least two points of operating margin growth by 2022, as compared with 2019. We are excited to have clarity on the next steps for classifieds and a transaction that we believe creates great near term value with the opportunity for more shareholder value over time. While we’ve made great progress, we know we have more work to do to achieve our full potential. And we are focusing all resources towards driving improvements in the Marketplace’s business to fully realize the opportunity in front of us. With that, Jamie and I would be happy to answer your questions. Operator?

Operator: (33:19)
To ask a question, please press *1 on your telephone keypad. The first question comes from Ed Yruma, of KeyBanc Capital Markets, please go ahead, your line is open.

Ed Yruma: (33:30)
Hey, good afternoon. Thanks for taking the question, and Jamie, great to work with you again. I know you mentioned you’re [inaudible 00:33:35] a lot of conversations with sellers, I know you were trying to improve the selling process. What are the complaints you hear from sellers and how quickly can you act on it? And then as a followup, obviously it’s been great momentum because of the current situation, any specific plans to maintain those buyers and keep them active? Thanks.

Jamie Iannone: (33:56)
Yes. Good to hear your voice, Ed. So, on the seller side, what we’re really focused on is how do we make that initial process of coming onto the platform extremely easy? So, simplifying the registration process, simplifying onboarding and simplifying getting up and running on the experience. And then as they progress and build their business on eBay, how do we give them more tools and capabilities to help them continue to grow that business on eBay?

Jamie Iannone: (34:22)
We talked about one, which is enhancing our Stores product, bringing that into the native app. I’ll be honest with you though, I think we have a lot more work to do in areas like that where we can make it even better and give them increased tools. And so that’s going to be a huge focus for us on that second pillar of being the partner of choice for sellers.

Jamie Iannone: (34:42)
On the momentum, we feel great about the 8 million new buyers. That’s more than the last six quarters combined. And what we’re really focused on is turning those buyers into enthusiasts and keeping them on the platform. So, you saw us this quarter reinvest in areas like app downloads and convincing new buyers on the platform to get the app, that’s where the majority of our transactions happen on the platform. And I talked about some of the innovations that we’re doing there, like the dark mode on the app, which is exciting.

Jamie Iannone: (35:12)
But we’re also working on revamping the whole onboarding process for buyers. So, how they come in, their first 30 days. And we’ve just started that this quarter to really take advantage of the new buyers, but that’s part of the vision that we’ve laid out is really just enhancing that ability to bring buyers along on the journey and increase their lifetime value with us. But we’re excited by what we’re seeing, excited by the early momentum of what we’re witnessing from those buyers.

Ed Yruma: (35:42)
Great, thanks so much.

Jamie Iannone: (35:44)
Thanks Ed.

Operator: (35:45)
Your next question is from Brian Nowak of Morgan Stanley. Please go ahead, your line is open.

Brian Nowak: (35:51)
Thanks for taking my questions. I have two. Just the first one on the 3Q GMV commentary, I think you talked to teens’ growth and [inaudible 00:36:03] sounds like the US has been steady. So, question is what are you seeing in the US as steady, is that still growing over 30? And what are the assumptions and the deceleration in GMV throughout the quarter and the guidance? Why would that slow down? And then the second one, bigger picture question. Maybe talk to us a little bit about the demographic of these new buyers you’ve brought on. Are you cracking in to new types of households, new incomes of households? Who are the new people and how are they different from the older eBay buyers? Thanks.

Jamie Iannone: (36:37)
Yeah, so I’ll start and take the second one and then Andy, maybe you can take the first one. So, what I found the demographics of the new buyers that we’re bringing is it’s really across the board and across all geographies. So, all of our major markets saw strong buyer growth and it’s really twofold. One, it’s new buyers actually coming onto the platform, and then it’s also reactivating existing buyers or buyers that had been on the platform but hadn’t purchased for us for a while. And then obviously a huge amount of the growth was also just our existing buyers buying more.

Jamie Iannone: (37:06)
But what we’re working on, and you probably saw this is in some of the TV advertising that we’re doing and some of the digital, is really appealing to the fact that small businesses are bringing unique inventory onto eBay and attracting buyers across the board. A key focus for us over the next couple of years will be our Gen Y customers, it’s why we’ve made certain investments in our sneakers business and growing that. And also why a feature like dark mode in mobile and app also appeals to a younger demographic. So, it’ll be a continued focus for us, Brian, over the next quarters and years. Andy, do you want to take the first one?

Andy Cring: (37:42)
Yeah. Hey Brian, on guidance, look, as I said in my prepared remarks, there’s a lot of unknowns. I’ll say that we know more today than we did in April and we see more trends. I don’t want to get into specific country and monthly trends, but we’ve seen an increased correlation with mobility around the world, and as I indicated in my prepared remarks, particularly Germany, Italy and countries where mobility is improving and approaching, in some cases, pre-pandemic levels we’ve seen a moderation in growth rate. That growth rate is still above pre-COVID levels, but it’s lower than it was at the peak.

Andy Cring: (38:29)
And then similarly in the US, yes, the growth rate is stronger than … It’s not stronger, it’s sustained, but it’s stronger than some of the other countries given some of the progress on the virus that we’ve had in the US.

Brian Nowak: (38:50)
Great, thanks.

Operator: (38:52)
Your next question is from Doug Anmuth of JP Morgan. Please go ahead, your line is open.

Doug Anmuth: (38:59)
Great, thanks for taking the questions. I have two. First, Jamie, you talked about the tech-led reimagination of eBay. Can you just talk about the company’s ability to retain and attract the right engineering and product talent to make this happen and just how you shift eBay to be more positioned with this tech-driven approach? And then just second, can you also just talk about the decision to keep the 44% stake in classifieds? Did you start there or how much was that influenced by the current environment and recent pressure on the segment? Thanks.

Jamie Iannone: (39:34)
Yeah. So, on the first one, Doug, on the technology side, you’re absolutely right, a huge focus for us. So, first off, we have a really great world class technology team in a lot of different geographies in the business. But we are focusing on augmenting that with even new capabilities. So, we’re building up our capabilities in AI and data science and computer vision. You may have seen features like easy image enhancing for our sellers. All that’s coming out of a next gen technology group that we’ve been building up. But it’s a key focus for us because in the tech-led reimagination, this company has been and always be about how to create those game-changing technologies.

Jamie Iannone: (40:14)
To be candid though, there’s also areas where we’ve got to get off of old legacy technology. So, part of it is just moving off of some of the older technology stack and modernizing that. The good news is that’s in progress, but we’re accelerating even that work. On the classifieds deal, what I’d say is that we’re really excited by the combination of the assets that our classifieds business combined with [inaudible 00:40:43]. When you look at the two of them together, it creates 20 leading markets in the classifieds business and creates the world’s largest online classifieds business. So, we’re excited because it not only gives value to shareholders in the short term, but allows us to participate in the long term potential of this exciting new venture.

Jamie Iannone: (41:04)
And then the third thing that was important for us is now that we’ve divested StubHub and with this transfer of assets on classifieds, it allows the whole management team, all of our technologists, the whole organization to focus on the Marketplace business. And as I stated in my remarks, I see a lot of untapped potential in that business but there’s also areas where we haven’t kept pace. And so I think that focus will also be good for the whole organization.

Doug Anmuth: (41:32)
Thank you, Jamie.

Operator: (41:34)
Your next question is from Stephen Ju of Credit Suisse. Please go ahead, your line is open.

Stephen Ju: (41:39)
Okay, thank you. So, Jamie, welcome aboard by the way. So, it sounds like you want to consolidate a lot more the out of the season as well as a more unique inventory both new and used. So, theoretically you’ll see a greater variety of merchandise and hopefully a spike in listings. But given the company’s history with data and figuring out what people are buying and selling, what can you do to make sure that you maintain or even improve the buying experience?

Stephen Ju: (42:08)
And secondarily, interested in following up with what you brought up earlier in terms of generating liquidity of your consumers as they sell things on eBay. After they sold what they wanted to sell, they have the money which they can go spend anywhere. So, what can you do to make sure that the money that they generated on eBay stays on eBay? Thanks.

Jamie Iannone: (42:27)
Yeah, so great question. I’ll start with the liquidity one. One of the benefits of the managed payments that we’re launching and scaling here, we added several new countries and now we’re able to really grow and ramp that with the changes a week ago with the expiration of the PayPal agreement is the exact ability to do what you’re saying. So, to make it easier for sellers and buyers to have their whole wallet and payments contained on the platform. It gives us more flexibility of things that we can do to really make that easy for them. And so obviously that transference is a huge benefit.

Jamie Iannone: (43:07)
The other thing I would say is that just getting buyers to sell, so just getting them to try it out, bring some inventory on, makes them a better buyer. And it’s because they’ve played on both sides of the Marketplace, they’ve experienced the power of eBay. And so what we’ve seen is there’s a more than doubling of benefit to their buying behavior just by getting them to try selling. So, we’re really happy with that flywheel effect and that’s something we’re going to continue to lean into. As I talked about that first pillar of consumer selling, that’s a key piece of it.

Jamie Iannone: (43:36)
To your question on the inventory, we feel really beneficial because of the open and level playing field that we have. We can bring on that new consumer selling inventory, which is really valuable to have on the platform because it attracts a lot of buyers, along with the SMB inventory that’s there.

Jamie Iannone: (43:55)
And when I say we’re focusing and getting back to non-new and season, it’s not saying that you’re not going to be able to buy a ton of new product, in season product, on eBay. We’ll have that and always have that. But in terms of a focus, we think there’s this massive opportunity, $500 billion, in what eBay is fantastic and unique at. And we can build great fertile experiences, we can attract that supply and that’s where I believe there’s just an enormous amount of untapped potential in going after it. And so really making sure that we nail everything about the buying experience end to end, have an extreme customer focus will allow us to capture the potential.

Stephen Ju: (44:33)
Thank you.

Operator: (44:35)
Your next question is from Thomas Forte of D.A. Davidson. Please go ahead, your line is open.

Thomas Forte: (44:41)
Great, thanks for taking my question. I have two high level questions. So, Jamie, I want to know what success looks like from a sales standpoint. Do you aspire to have sustainable, double-digit FX neutral topline growth? And then second, I want to know what your preference was on capital allocation, M&A versus buy back versus dividend. Thank you.

Jamie Iannone: (45:02)
Yeah. So, look, what will-

Speaker 2: (45:03)
Thank you.

Jamie Iannone: (45:03)
Yeah. So, look, what we’re really focused on is how do we improve the overall experience between buyers and sellers and create a really healthy business in the long term? So, I think the things that we’ve laid out lead us to a long-term healthy growth of the core marketplace business. We’re not going to quantify the long term, what those numbers are, but I think the steps that we’re going to take there will get us to a point where we’re driving healthy growth. In terms of the capital allocation, we’re going to stick really to the capital tenants that we’ve been talking about all along. Andy, do you just want to reiterate what those are?

Andy Cring: (45:41)
Yeah. I mean, look, if you look at the history of what we’ve done since separation, I think it’s close to $20 billion, maybe a little over $20 billion, of return to shareholders, either through dividends or share buyback. It’s important to step back at that and then look at what we’ve done recently with StubHub. Our view is the most value we create for shareholders is going to be getting the marketplace business back to growth. So, we’re going to continue to balance margin growth rate, M&A, buyback, all of those different levers with the purpose of improving the performance in the marketplace business and increasing shareholder value.

Speaker 2: (46:30)
Great. Thanks for taking my questions.

Operator: (46:34)
Your next question is from Colin Sebastian of Baird. Please go ahead. Your line is open.

Colin Sebastian: (46:40)
Great. Thanks. Jamie, welcome back, and thanks for the vision for the marketplace longer-term. I’d like to start there, specifically going back to the technology reinvestments. We have seen some of that over the last four or five years with structured data. So, I’m hoping you can provide a little bit more context on the scale of that investment. Is this more tactical things? I mean, there’s been investment in data science and AI already, or with the re-platforming away from the older stack is this a larger scale technology investment phase? Then, secondly, on managed payments. So, congrats on that finally, formally progressing. Was curious how that’s not only the pace of managed payments transferring over but also what the roadmap looks like in things like seller financing, buy now pay later, things that sellers and buyers had with PayPal that I assume are a part of the eBay managed payments over time as well. Thank you.

Jamie Iannone: (47:48)
Yeah. So, on the first question, it’s two parts. It’s one about where we’re focusing our technology investments and a key part of that is that I think for quite some time, we were chasing a little bit the new in-season and not really focused on what’s the core experience and how do we leverage technology in those key core verticals where eBay has an amazing stronghold and in the inventory, in non-new in-season where there’s an over $500 billion opportunity. So, to be candid, I feel like there’s certain areas where we’ve let niche competitors take business away from eBay that should be done on eBay and shows you the potential that we have on eBay if we really focus our technology efforts in those areas that we know are features, tools, capabilities, and new experiences that help buyers and sellers connect.

Jamie Iannone: (48:39)
A small example of that is, while we don’t have a huge pickup business, there’s a lot of categories where people do meet in person to exchange goods. We just made it more seamless through these QR codes for the buyer and the seller. It’s kind of a magical experience. The money flows, and that’s the benefit of doing managed payments and technology together is we can create those experiences for buyers and sellers.

Jamie Iannone: (49:04)
On the managed payments side, what we’re really focused on right now is scaling that business. So, we’ve got a lot of work left to do in opening up all of the remaining geographies, bringing more sellers on, et cetera, but once we do hit that point, yes, like we were talking about earlier, there’s opportunities to do more and help connect and make it more streamlined for sellers on the payments. We do have a buy now pay later option or a monthly pay option. That’s in partnership with PayPal. PayPal continues to be an option for how to pay on the platform and a key partner for us, but to answer your question, yes, we’ll be continually looking at ways that we make buying and selling via payments easier and managed payments gives us that flexibility.

Andy Cring: (49:51)
Colin, maybe one more thing on margin rates. I just want to reiterate from my script, we remain committed to the margin commitments from last year, the at least two points of margin by the time we get to 2022, but through that time, you’ll see us invest with balance and we’re going to pace incremental revenue, incremental investments with growth rate and earnings along the way. So, no change to the long-term market structure.

Colin Sebastian: (50:22)
Thank you.

Operator: (50:24)
Your next question is from Ygal Arounian of Wedbush Securities. Please go ahead. Your line is open.

Ygal Arounian: (50:31)
Hey guys, thanks for taking the questions. So, I had a few [inaudible 00:50:35] macro GMV level. You noted in some of the international geographies that, where mobility is getting back to normal, the growth rate’s still higher than pre-pandemic but coming down from the peak of it. Is there any way to quantify that a little bit more? Is it slightly above where it was before? Is it still meaningfully above? Any way in the U.S. to quantify or think about what the contributions from stimulus has been? Is the pace of the pandemic really the biggest piece of why the U.S. GMV was so much stronger than internationally? Then, one real brief one on payments, just thinking about where you have intermediated and managed payments has rolled out for those merchants, any positive signals you’re seeing in terms of better conversion, anything else that’s really giving you a good feel or good outlook of why and how managed payments can drive better opportunities for stronger GMV growth going forward? Thanks.

Andy Cring: (51:47)
I’ll start I think with the second one on U.S. contributions. I think it’s really hard to point to any one thing. Particularly, stimulus is being a major driver I’m sure. There’s some impact at some level. I’m going to point back to the best thing we’ve seen globally in terms of an indicator is mobility. I think it is fair to say the U.S. is significantly stronger than international regions, just given the impact of the virus in the U.S. In terms of on the macro question on international levels of GMV pre-pandemic versus posts, I think I’d point you probably to the Q3 guide relative to Q2 actuals. If you have the U.S. similar to Q2 levels and the company with moderation from a 29% growth rate to a high teens, you’ll start to see something. You can back into maybe a little bit of the pressure in international.

Andy Cring: (53:01)
In addition to the fact, internationally, keep in mind Korea, with relatively stable growth rates quarter over quarter, significantly lower with much less impact from COVID in Q2 and then into Q3. So, again, moderating growth rates, but still sufficiently higher than pre-COVID.

Jamie Iannone: (53:26)
Yeah. What I’d say on the managed payments side is a couple of encouraging things. One is the feedback that we’re getting from sellers generally very positive. The vast majority of them will see lower fees and have a simpler fee structure with the result of rolling it out. A lot of them have signed up preregistered. So, waiting for when we can open up the platform, which we did two weeks ago. I would say the same thing on the buyer side, especially for a new buyer, creates a lot less friction, so we’re excited and optimistic for what that means for the overall experience. When I talk about a tech-led reimagination, payments is the perfect example. It just makes the whole experience easier and better. We committed to it and put a lot of resources behind making it a great experience, and so far, that’s the feedback that we’ve been getting by both buyers and sellers.

Ygal Arounian: (54:19)
Thank you.

Operator: (54:21)
Your next question is from Justin Post of Bank of America. Please go ahead. Your line is open.

Justin Post: (54:27)
Great. Thanks. Jamie, welcome back to eBay. A couple of questions, I guess, big picture thinking about how the management team is now compensated. Is it relative growth to the eCommerce industry? Is it overall growth? Is it certain margin targets? Could you talk a little bit about the incentive team for the management team seven structure? Then, the company has gone through a pretty big period here of divestiture and cash returns. How do you think about if that could change? Do you see adjacent M&A opportunities? Do you see a real chance here post-COVID to really accelerate growth? Just talk about is there a big change going on at eBay at this point or more of the same, but hopefully, some innovation on the edges? Thank you.

Jamie Iannone: (55:16)
Yeah. So, our incentive structure really hasn’t changed over the years and it’s based on a combination of top and bottom line. On the M&A opportunities and the acceleration and the focus, what I’d say has changed is the whole organization is now really focused on the vision that I’ve outlined. Now, without StubHub, and now with Classifieds transferred in Adevinta, you’ve got the whole organization thinking about this overall tech-led reimagination from technology, marketing, product, and these three key focus areas. So, yeah. We will look at opportunistic M&A where we think we can really help accelerate that focus on the core business.

Jamie Iannone: (55:57)
But, like I said before, we see a huge amount of untapped potential just in going after these key experiences and key verticals of getting back to the core of C2C selling and moving this idea of I think for some years we were acquiring buyers at all costs and really focusing on how do we turn buyers into lifelong trusted relationships and putting all of our efforts across product, marketing, technology, et cetera, around that focus. I think it’s that focus and that lean-in on the technology side in a big way, that’s going to allow us to capture it.

Justin Post: (56:35)
Thank you.

Speaker 3: (56:37)
Operator, I think we’ve got time for one more.

Operator: (56:40)
Your last question is from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.

Heath Terry: (56:45)
Great. Thanks. We obviously talked about a lot of investments in technology, so I won’t go down that path, but when you think about maybe the marketing side of things and how you want to think about customer acquisition from here, particularly as the tailwind from the current environment that we’re in potentially starts to dissipate, how should we think about the level of investment that you want to see and to the extent that there’s a path or an optimal channel mix that you see as working better for eBay in the future than maybe what we’ve seen in the past, given your background obviously, would really appreciate how you’re seeing that side of the opportunity.

Jamie Iannone: (57:33)
Yeah. So, look, this quarter on the marketing side … Heath, great question. On the marketing side, we were able to lean in pretty well to the new buyers that we were acquiring. So, both with brand advertising, talking about the small businesses, but also in a less competitive environment on the performance side of the business. When I talk about marketing, it’s not just the spend but it’s also just our CRM programs, how we communicate, how we leverage things like email notifications, et cetera, and I think that we’ve built some good capabilities over the years, but I think we have a massive opportunity there to help buyers get up the life cycle in an even better way. So, that will also be an opportunity that we’re really focused on.

Jamie Iannone: (58:16)
On the channel mix, we have the benefit of obviously having lots of different channels for driving it. I would say the newest ones that we’re really focused on are acquiring the Gen Y customers and looking at new opportunities and paid social and going after and making sure that customer’s attracted. I talked to really understanding the categories that attract that demographic on the platform, so I think you’ll see slight shifts in terms of the marketing mix that we’re looking at but overall, we tend to leverage all the channels that we have to maximize the ROI that we can get off of that spend. As I talked about, we’re really focused on how do we get not just a new buyer onto the platform, but how do we turn that new buyer into an enthusiast? That’s where I think the real unlock and the power of the model lies.

Heath Terry: (59:01)
Great. Thank you.

Operator: (59:04)
This concludes today’s conference call. Thank you for your participation. You may now-