eBay Q3 2021 Earnings Call Transcript

There are 13 speakers on the call.

Operator

Good day, and thank you for standing by, and welcome to the eBay Q3 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Joe Boglianczyk, VP, Communications and Investor Relations. Please go ahead.

Speaker 1

Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the Q3 of 2021. Joining me today on the call are Jamie Iannone, our Chief Executive Officer and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany Steve's commentary during the call, which is available through the Investor Relations section of the eBay website at investors. Ebayinc.com.

Speaker 2

Before we begin, I'd

Speaker 1

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 a reconciliation of these measures to the nearest 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 forecasts for a variety of reasons.

Speaker 1

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 ks and Form 10 Q and our earnings release from earlier today. You should not rely on any forward looking statements. All information in this presentation is as of October 27, 2021, And we do not intend and undertake no duty to update this information. With that, let me turn it

Speaker 3

over to

Speaker 4

Jamie. Thanks, Joe. Good afternoon, everyone, and thank you for joining us. Today, I'll begin the call with key highlights from the Q3. Then I will share some updates on the progress we are making towards our strategic vision.

Speaker 4

At the end of my remarks, I will turn the call over to Steve, who will discuss our financial performance and outlook in greater detail. Q3 was another strong quarter, driven by our team's relentless focus on sellers and buyers. I'm excited by

Speaker 5

The positive impact this is having on the underlying health of the business.

Speaker 4

The changes we are making to the marketplace are improving results today and are also putting us in a better position to deliver sustainable growth. We remain confident in our long term vision to grow the core, become the seller platform of choice And cultivate lifelong trusted relationships with buyers. Let me highlight a few achievements from the quarter that brought us one step closer to this vision. Our business delivered better than expected revenue and earnings growth on the high end of our guidance. Our strategic playbook continues to improve customer satisfaction and build trust And is leading to faster GMV growth in our focus categories.

Speaker 4

The managed payments migration, which is nearly complete, is helping sellers and buyers by reducing friction, Lowering costs and enabling new capabilities. Our advertising business continues to grow faster than marketplace volume and our product innovation provides sellers new tools to help them scale their eBay businesses. We are also making great strides in our ESG efforts. Recently, we received approval from the Science Based Targets initiative for our multiyear carbon emission reduction goals. And importantly, we announced that eBay will be 100% carbon neutral this year and will remain so going forward.

Speaker 4

I'm pleased to report that all key business metrics either met or surpassed our expectations in Q3. Revenue over performed growing 10%, driven by acceleration in the payments migration and Promoted Listings growth. We also delivered $0.90 of non GAAP EPS at the high end of expectations while increasing technology investments. GMV performed in line with expectations globally, declining 12% versus last year and increasing 9% compared to Excluding transitory macro impacts, we continue to see modestly positive underlying growth in the business. Global active sellers remained unchanged at 19,000,000 and total active buyers were 154,000,000.

Speaker 4

Over the past year, we have focused on attracting and retaining high value buyers by innovating in focused categories and targeting enthusiasts with upper funnel marketing. We've also discontinued legacy couponing that skewed towards low value buyers. These actions are resulting in a gradual evolution of our buyer base over time. Compared to the Q3 of 2019, high value buyers are up 6%. Another ongoing transformation of our marketplace is managed payments, which progressed quickly during the quarter.

Speaker 4

In Q3, we processed over 90% of on platform GMV and remain on track to finish by the end of this year. I am thrilled that we are close to migrating all of our global sellers to a next gen product experience. While we are close to completing the transition, We're only at the beginning of realizing our full payments potential. Owning the entire seller and buyer journey unlocks opportunities To remove friction, improve trust and provide new capabilities to sellers and buyers. We are already starting down this path and here are a few examples.

Speaker 4

Last quarter, we effectively eliminated unpaid items on fixed price transactions and have continued to reduce this issue for best offers. In the U. K, we are paying many sellers as quickly as next business day after buyer payment is confirmed. Based on community feedback, We reduced another pain point for trusted sellers by increasing protection against fraudulent returns by requiring photos and providing return shipping credit. In addition, we continue to improve our stores experience to make eBay the seller platform of choice.

Speaker 4

We've been increasing our traffic to stores and Providing more CRM capabilities to make managing their businesses on eBay easier than ever. Sellers are leveraging these new features to drive repeat purchases. For example, in only 6 months since launch, more than 2,500,000 buyers have completed a repeat purchase from a store using our new seller funded coupons. To further build sellers' brands, we are testing video integration on high traffic pages to help them tell their unique And compelling stories to enthusiast buyers. Our advertising revenue continues to outpace volume due to promoted listings, which drove over $207,000,000 in revenue in Q3, up 9%.

Speaker 4

We also tested 3 new Promoted Listings products and are starting to offer these features to more sellers. In September, we opened up Promoted Listings Express to more sellers in Early adopters have seen substantial growth in impressions and clicks. Last month, we invited eligible sellers to try Promoted Listings Advance, enabling them to create campaigns on a cost per click basis with more budget control. In parallel, we launched a suite of tools to create campaigns, Monitor performance and optimize returns. We are also providing training and webinars to drive trial and adoption.

Speaker 4

During Q3, we explored ways to syndicate ads off eBay through external promoted listings. Through the eBay Partner Network, We are testing tools and incentives for affiliates to drive enthusiast buyers to existing promoted listing sellers. We are also experimenting with other forms of seller funded marketing across various channels. Our new advertising products are in the early days and we are Excited about their long term potential. Moving to our focus categories, I am pleased with the pace of innovation and the positive reaction from our sellers and buyers.

Speaker 4

Volume from these categories continues to outperform the rest of the marketplace, and we are increasing customer satisfaction by improving trust. As you may recall, when we exited last quarter, we had applied our playbook to approximately 10% of global GMV. We remain on track to expand that to roughly 20% by the end of the year. Let me walk you through several examples. Our sneakers business in the U.

Speaker 4

S. Continues to grow at healthy double digit rates. During Q3, we launched authentication in Germany, added 30 more brands to our catalog and improved SEO performance for top sneaker brands. We also leaned further into upper funnel marketing and sponsored key industry events To strengthen our reputation with Enthusiasts. Starting tomorrow, we will be trialing a new 3 d image capability on select sneaker listings.

Speaker 4

Leveraging AI and machine learning, the experience will allow buyers to interact with a detailed 360 degree view of the actual item They are buying. We're excited about the potential of this new technology, particularly the ability to reinforce buyer confidence at the point of purchase. Moving to luxury watches, this category is also growing at strong double digit rates in the U. S. Buyers are finding more inventory on eBay than other marketplaces As many brands have decreased production and pre owned supply is limited on other platforms.

Speaker 4

Since launching authentication in luxury handbags, Growth has accelerated in this category and was positive in Q3, outperforming the total U. S. Site by double digits. We are seeing the same high customer satisfaction as other authenticated categories. As I've mentioned in the past, Part of our strategy is to drive enthusiasts to new trusted experiences and then leverage those buyers across our vast supply in other categories.

Speaker 4

The average buyer who purchases sneakers and luxury watches spends approximately $2,000 $8,000 respectively, In other categories, we are seeing the exact same behavior in our latest focus category. Buyers of authenticated handbags are spending over $5,000 outside of handbags. This cross category benefit for sellers and buyers is a unique advantage for eBay. One of the reasons our growth has improved in luxury categories is the improvement in buyer and seller trust. We recently celebrated the 1 year anniversary of Authenticity Having now processed over 1,400,000 items across multiple categories, customer satisfaction has consistently exceeded 90% And we are operating in 5 countries with a mix of in house and third party resources.

Speaker 4

Another focus category that is driving growth in the U. S. Is trading cards, which is growing significantly faster than the total marketplace. In late July, we launched new features, including price guides and collections, which allowed trading card enthusiasts to view, manage and track the value of their portfolios. To date, close to 4,000,000 cards have been added to customer collections.

Speaker 4

In addition, close to a quarter of a 1000000 buyers have used eBay's newly launched price guide to visualize the changing value of their favorite trading cards. These features cater to the needs of high value enthusiasts and our increasing engagement and trust in eBay. The next focus category we're applying the innovation playbook to is motors, parts and accessories. Among the changes we are making is to take our Higher parts inventory and added to the eBay Motors app, creating a one stop shop for vehicles and parts enthusiasts. We are excited by the potential of bringing together one of the world's largest vehicle selections with 100 of millions of parts in one customized experience.

Speaker 5

We are

Speaker 4

exploring further changes to parts and accessories that leverage our strong market position to capture more untapped growth. ESG remains critical to our business health and to our customers, and I am pleased to announce that we have reached some significant milestones in our journey toward establishing eBay as We will reduce Scope 1 and 2 carbon emissions by 90% by 2,030. This is the most ambitious designation available and aligned with the Paris agreement. Additionally, we will reduce value chain emissions from downstream transportation by 20% in the same time frame. To reduce emissions from goods shipped using our platform, we will partner with our logistics providers to encourage low carbon alternatives.

Speaker 4

I'm also proud that eBay will be carbon neutral for our offices and data centers in 2021. We expect to maintain this going forward as we continue efforts to reduce our overall carbon footprint. At eBay, one of our core values is to be for everyone. As part of this focus, Supporting our seller community is critically important. Earlier this month, we issued a new report on equitable entrepreneurship, which revealed how selling on eBay helped women during the pandemic.

Speaker 4

We found that 82% of women who are new to eBay or increased their selling Did so because of job loss, reduction of income, illness, loss of childcare or some other hardship. This vast majority of women surveyed So the ability to sell on eBay was a benefit during the pandemic, citing the need to earn additional income for themselves or drive revenue for their businesses. I'm proud that our platform can provide flexibility and opportunity to so many during tough times so that they can earn extra income through selling on our marketplace. I'm also inspired by the continuous generosity of sellers and buyers on eBay. During Q3, approximately $35,000,000 was raised through eBay for Charity, up 11%.

Speaker 4

Additionally, thousands of global employees helped select small businesses to receive grants totaling $3,000,000 from the eBay Foundation. These grants are focused on serving underrepresented entrepreneurs And are used to provide training, coaching and mentorship needed to help their businesses thrive. In closing, as I mentioned at the start of the call, Q3 was yet another strong quarter. We continue to make progress on our multiyear journey and it's clear that our strategy is working. Enthusiasts are responding to innovation in our focus categories and are increasingly putting their trust in eBay.

Speaker 4

Managed payments is on track to complete the migration this year and is driving friction out of the experience while opening up new capabilities for sellers and Our advertising business is innovating by providing a portfolio of tools our sellers can leverage to build and grow their businesses on eBay, And we are accomplishing all of this while setting and achieving ambitious climate goals and providing a platform where economic opportunity is I want to thank our passionate employees who have tirelessly worked to bring our vision and purpose to life. Their dedication to serving sellers and buyers is inspiring. With that, I'll turn the call over to Steve to provide more details on our financial performance. Steve, over to you.

Speaker 2

Thank you, Jamie, and thank you all for joining us today. I'll begin with our Q3 financial highlights on Slide 4 of our presentation. We delivered another strong quarter. Our results met or exceeded expectations across all key metrics, while our year over year comparisons Reflect the extraordinary growth we experienced last year as a result of the pandemic. These results were underpinned by continued execution against our strategic pillars, including contributions from payments, promoted listings and focus categories.

Speaker 2

Revenue grew 10% year over year on an FX neutral basis. The transaction revenue grew by double digits for the 6th consecutive quarter, primarily due Contributions from managed payments. Non GAAP EPS was $0.90 per share and our operating margin was 31.7%. We generated $502,000,000 of free cash flow and returned approximately $2,400,000,000 to shareholders through share repurchases and cash dividends during Q3. Given the underlying growth in our business and strong free cash flow generation.

Speaker 2

I'm pleased to announce we've raised our share buyback target for 2021 $5,000,000,000 to $7,000,000,000 Our pending portfolio transactions remain on track to close within previously communicated timelines. We anticipate the sale of Adeventa shares to Premier will close during Q4, while the Korea deal should close early next year or potentially by the end of 20 21. Turning to active buyers on Slide 5. We exited Q3 with 154,000,000 active buyers on a trailing 12 month basis, Representing a 5% decrease year over year. This decline was primarily driven by low value buyers, a group that makes up more than half of our buyer base, but only 5% of GMV.

Speaker 2

As Jamie mentioned, this ongoing trend is Our strategy to prioritize attracting and retaining high value buyers. We are confident in this approach, but we recognize the reduction in low value buyers Could pressure our rolling 12 month active buyer count in the coming quarters. Compared with Q3 of 2019, low value buyers are down 7%, while high value buyers were up 6%. Moving to GMV on Slide 6. In Q3, we delivered $19,500,000,000 of GMV, down 10% year over year on a spot basis and down 12% on an FX neutral basis, in line with our expectations.

Speaker 2

The macro benefits to our business from mobility was significantly diminished in Q3 as restrictions faded across the globe, We continue to see modestly positive underlying growth in our business. Compared with Q3 of 2019, GMV grew 9% on an FX neutral basis. Consistent with prior quarters, our performance by market varied based on a number of factors, including relative mobility and country specific macroeconomic trends. Internationally, GMV was roughly flat versus Q3 of 2019 on an FX neutral basis. A number of factors influenced the growth differential between the U.

Speaker 2

S. And our international markets during the quarter. Mobility is back to pre COVID levels in many of our largest international markets, diminishing the volume tailwinds we benefited from in prior quarters. Changing consumer behavior, including an uptick in leisure activities and travel, Also may have impacted e commerce growth internationally. Additionally, category mix varies in our international markets, which have lower exposure to certain fast growing verticals like collectibles, but higher concentration of items from cross border trade that are more difficult to source Amid the ongoing supply chain disruptions.

Speaker 2

Finally, our focused category rollouts are more nascent in our international markets. However, as our innovation playbook expands to more categories and countries, we are confident our international growth trajectory In the U. S, GMV grew 22% versus Q3 of 2019. Growth in our domestic marketplace It was driven by strong execution against our strategic pillars, more product rollouts within focus categories and steady growth within e commerce. Residential mobility improved in the U.

Speaker 2

S. But continues to Travel increased in line with normal seasonal trends. Other external factors may be benefiting our U. S. Business Relative to international markets, including the lingering impact of government stimulus and scarcity benefits into supply chain disruptions.

Speaker 2

The precise impact of these effects is unclear, but they are likely a net positive contributor to U. S. Growth in the near term. In aggregate, there are numerous puts and takes between regions, but we remain encouraged by the modestly positive underlying growth in our business. Turning to revenue on Slide 7.

Speaker 2

Net revenue for Q3 was $2,500,000,000 up 10% year over year on an FX neutral basis And 11% on a spot basis. We delivered $2,400,000,000 of transaction revenue, also up 11 on an FX neutral basis. Growth was primarily driven by managed payments, which contributed roughly 20 points of incremental revenue growth during the Q3. The payments ramp drove an 80 basis point sequential increase in our take rate, which surpassed 12% in quarter 3. Moving forward, we expect our sequential take rate increases to moderate as the managed payments rollout is nearly Within our advertising business, Promoted Listings grew 9% year over year, outpacing volume by 21 points.

Speaker 2

Early adopters of the new promoted listing products are seeing significant increases in performance, giving us confidence in the long term potential for advertising Marketing services and other revenue declined 7% year over year to $151,000,000 Driven by the impact of sold item declines on shipping programs and headwinds within third party advertising, we continue to purposely reduce 3rd party advertising in favor of Promoted Listings, which deliver superior performance and offer a better experience for both sellers and buyers. Moving to expenses on Slide 8. In Q3, we delivered non GAAP Operating margin of approximately 31.7 percent. This represents the 2.7 point year over year decrease, primarily driven by lower volume. Our cost of revenue was scaled in line with payments growth due to variable processing costs.

Speaker 2

This dynamic has pressured gross margins during our transition However, once the transition is complete, we expect gross margins to be more stable. Moreover, the incremental Tremendous revenue from payments drive significant leverage in our fixed expenses, most notably sales and marketing and G and A. Sales and marketing fell by nearly 4 points as a percentage of revenue year over year in Q3. In addition to leverage from payments revenue, sales and marketing was lower due to reduction in coupons and rewards programs that were previously targeted towards low value bias. Product development increased 21% year over year as we continue to accelerate product innovation and support our longer term strategic initiatives within payments, advertising and focus categories.

Speaker 2

Transaction losses rose as Percentage of revenue by nearly 2 points versus last year due to higher consumer protection losses from the payments transition and the lapping of one time benefits In the prior year, which were partially offset by the benefits of fee netting. Turning to EPS on Slide 9. It delivered $0.90 of non GAAP EPS in Q3, up 9% year over year as ramping contributions from payments and the net benefit Share repurchases more than offset the lapping of COVID driven volumes a year ago. GAAP EPS for the quarter was $0.43 roughly 50% lower than last year. The delta was primarily driven by a fair value adjustment on our Adeventa shares, partly offset by gains from Thanks.

Speaker 2

Switching to free cash flow on Slide 10. We delivered another strong quarter of cash generation in Q3 with $502,000,000 of free cash flow, a 4% decline year over year. The decline was driven by the timing of working capital and CapEx spend, partly offset by operational efficiencies and the timing of 2020 cash taxes. As a reminder, The managed payments transition has yielded meaningful working capital benefits. Through 3 quarters of 2021, this benefit amounted approximately $300,000,000 Moving to capital allocation on Slide 11.

Speaker 2

We ended the quarter with cash and non equity investments of 5 $4,000,000,000 to our shareholders through stock repurchasing dividends. We repurchased approximately 31,000,000 shares for $2,300,000,000 with an average share price of $72.52 We also paid a quarterly dividend of $116,000,000 in September. Given our fortress balance sheet and strong underlying free cash flow, We are updating our share buyback plan for 2021 from $5,000,000,000 to $7,000,000,000 which implies $3,000,000,000 of repurchases during the Q4. Overall, our capital allocation objectives remain unchanged. We'll preserve financial flexibility to execute on strategy and drive long term value creation.

Speaker 2

We aim to drive organic growth in our business and we'll look for opportunities to supplement that growth with disciplined acquisitions and investments. We will optimize our financial flexibility, access to debt and cost of capital, and we'll continue to deliver meaningful returns to shareholders through share repurchases and dividends. Moving to investments on Slide 12. As a reminder, we received 540,000,000 shares in Adeventa From our classified sale, which closed during June of this year, representing an equity ownership stake of approximately 44%. As a regulatory condition of the We committed to reduce our ownership stake in Adeventa to 33% or less over the 18 months following In July, we agreed to sell approximately 135,000,000 shares to Premera for roughly 2 $400,000,000 We believe the Premera share sale remains on track to close during Q4 and the 405,000,000 shares that we would retain were worth close to $7,000,000,000 at the end of September.

Speaker 2

Turning to Adient. The warrants we acquired in connection with our strategic partnership during the Q2 of 2018 were valued at $1,400,000,000 at the end of Q3, an increase of over $300,000,000 quarter over quarter. You will find more information on the Adient warrants in our 10 Q. Our stake in Kakao Bank has appreciated in value following the company's IPO in August. At the end of Q3, Our investment was worth approximately $800,000,000 Finally in June, we announced plans to sell over 80% of our Korea business to E Mart $3,000,000,000 Upon deal close, we will retain an interest of just under 20% of Ebay Korea, which carries an implied value of roughly $800,000,000 at the time of the announcement.

Speaker 2

We believe the deal remains on track To close by early 2022 with a possibility of closing before the year end. We remain excited about our portfolio of global investments, Turning to guidance on Slide 13. For the Q4, we are projecting revenue between 2.57 $2,620,000,000 representing growth of 3% to 5% on an FX neutral basis and approximately 4% to 6% on Our take rate has risen notably in recent quarters due to contributions from payments and advertising. Although we expect advertising to continue growing faster than volume, we expect the impact from payments on our take rate to moderate As we are nearing completion of our managed payments transition, we are raising our 2021 full year outlook for payments revenue from $1,800,000,000 to $2,000,000,000 Our revenue guidance implies GMV is down low teens on an FX neutral basis versus last year and at mid to high single digits compared to Q4 of 2019. Our GMV guidance assumes steady execution against our strategic pillars and continued innovation within focus categories.

Speaker 2

Our outlook also assumes minimal benefits from macro factors like mobility, stimulus and supply chain impacts. However, we note the macro environment remains dynamic and difficult to predict with varied impacts from country to country. We expect non GAAP EPS of $0.97 to $1.01 per share in Q4, representing a 14% to 19% year over year growth. We plan to continue investing in product and technology to deliver better category experiences and improved customer satisfaction. We anticipate our non GAAP tax rate to between 18% 19% Due to recent outperformance of our U.

Speaker 2

S. Business, we expect our GAAP EPS in the range of $0.72 to 0.7 $0.06 per share in Q4. In closing, we delivered strong results in Q3 that matter exceeded expectations across all key metrics. We continue to execute our strategic vision and grow our core marketplace while maintaining the balance and discipline that will enable us to generate tremendous value for our shareholders for years to come. Managed payments is on track to deliver $2,000,000,000 in revenue this year, and our transition is on track for completion by year end.

Speaker 2

However, we believe our payments It's just beginning. This milestone unlocks new opportunities to reduce friction in the marketplace and provide additional financial services. Advertising revenue continues to outpace volume as sellers increasingly leverage our expanded product portfolio to amplify the exposure of their listings. We observed impressive momentum with our focus categories, which are meaningfully outpacing overall volume growth. We are confident we can continue expanding this innovation playbook to more categories and countries in the quarters ahead.

Speaker 2

Our balanced approach to capital allocation has enabled us to reinvest in our business, generate consistently strong free cash flow and deliver attractive returns for Shareholders through share repurchases and dividends. As proud as I am of our numerous business accomplishments, Once again, I'd like to take this opportunity to thank our teams across eBay for their incredible work over the last quarter and the support for our amazing sellers and buyers in the eBay community. One final note, We are in the midst of a multiyear journey to deliver a tech led reimagination of eBay. As the impact from macro factors stabilizes, We are reviewing our internal goals for 2022 and beyond. We anticipate sharing our longer term goals and aspirations at an investor event early next year.

Speaker 2

With that, Jamie and I will now take your questions. Operator, over to you.

Operator

We have our first question coming from the line of Edward Guillermo with KeyBanc Capital Markets. Your line is open.

Speaker 6

Good afternoon, guys, and thanks for taking the question. Really wanted to click down

Speaker 4

a little bit on some

Speaker 6

of the categories that you're reimagining and some of the success you're noting there.

Speaker 4

Just help I understand maybe

Speaker 6

the new customers you're drawing into the platform. I know you've identified some dollar amounts, but just to clarify, are those new customers or is that Customers that are participating in those categories. And then as a follow-up, what are the marketing plans to encourage new customer growth in these categories that you've reimagined? Thank you.

Speaker 4

Yes. So I'll take that. So first on the categories, it really is about both leading into the high value buyers That are on the platform as well as attracting new buyers in. So if you look at what we're doing in watches and sneakers or this quarter we announced we're authenticating Handbags over $500 it is catering to both. One of the great benefits of eBay is the cross category nature of shopping.

Speaker 4

So if we acquire a buyer into a handbag who buys a handbag over $500 they actually end up spending $5,000 in other categories So when we think about acquisition, it's not just acquiring it for that category, it's acquiring it more broadly for eBay. That's one of our significant benefits. Excited because we've expanded categories this quarter. We brought our sneakers authentication program to Germany. We brought watches to the U.

Speaker 4

K. Business, and we launched tan bags in the U. S. In terms of that product. From a certified refurbished, we added New brands Samsung, KitchenAid, Dyson, an expanded number of products there and that's exciting coming into holiday.

Speaker 4

On your question We've really shifted our marketing. I think traditionally, we've been a mostly lower funnel with some broad based campaigns On upper funnel, really driving into how do we acquire high value buyers and high value enthusiasts in specific verticals. So what that means is a whole lot more of upper funnel marketing, partnerships, leaning in with social media influencers in certain categories and basically going much More broad with our marketing plans to find those buyers where they are. And I guess the last thing I'd say is we're really focused on the first 90 day experience on eBay. Many times in my career, I've done this where you really get focused on how do you introduce them to the brand, bring them up the lifecycle, make sure that they turn into the high value buyers That we want to do and that's going to be a continued focus for us over

Speaker 6

the coming quarters. Great. Thanks so much.

Operator

We have our next question coming from the line of Colin Sebastian with Baird. Your line is open.

Speaker 7

Thanks. Good afternoon. Jimmy, maybe first on the core marketplace You've obviously focused a lot on category specific changes and that's working well. How much Effort is there in platform wide enhancements? And if there are any sort of specific initiatives there,

Speaker 5

what will

Speaker 7

be the Timing for those. And then Steve, maybe with respect to the Q4 outlook, just looking at the sequential ramp versus typical seasonality, It's certainly a little light of historical patterns. Even in eBay could be a net beneficiary from supply chain issues. I know You're not really factoring that into the outlook, but maybe some additional color there would be helpful. Thanks.

Speaker 4

Yes. So, Thanks for the question, Collin. So we do talk a lot about the vertical expansion and focus category work that we're doing and we're If you actually step back and look at it, the vast majority of our resources are actually going to sitewide initiatives Across the board and I'd point to a couple. One is obviously our ad business and a lot of investment there across the board, Especially with the 3 new products that were at the beginning of launching, obviously payments huge initiative, but other areas that we haven't talked a lot about are like eBay stores. So working on a next gen experience in eBay stores, incorporating video, so allowing sellers to kind of tell their story from that perspective, Building more CRM tool capabilities so that sellers can be more involved in how we bring buyers back to the platform and drive that repeat business.

Speaker 4

So, the stat I just mentioned earlier about, we launched it 6 months ago, but now sellers are funding the coupons To drive buyers back to the site from past buyers or interested buyers, and that's a huge benefit for sellers and a huge benefit for eBay because We're involving them and driving them and already 2,500,000 buyers have used that in that time period. And so, we're also Testing a new selling experience, if you're on the site, you'll see that there's a beta out there of a new way to sell. So Most of the the vast majority of investments are going to horizontal. But what I like is it's a complement because some of those horizontal lean into some of the vertical work that we're doing. In the vertical work and focus categories, some of the things that we're building for a given category, we're able to use in a number of categories So the 2 also play together well.

Speaker 4

Steve, how do you take the second part of the question?

Speaker 2

Yes. Thank you, Jamie. Hi, Colin. I would say we're expecting a Steady contribution from the strategic initiatives that James continues to lay out with the innovation that we're driving across the platform, not only in The focus categories, but also the momentum around sort of payments and adds as we've gone forward. On a year over 2 basis, I mean, if you think about it and stand back year over year, we're obviously lapping the pandemic.

Speaker 2

On a year over two basis, we're seeing mid to high single digit growth compared to Q4 2019. I think there's a few puts and takes there, Colin. So first of all, Our holiday perspective around Q4 is embedded in the guide. From a headwind perspective, in the prepared comments we had, we talked about Supply chain pressure for cross border trade that we're seeing on one side. But in terms of the tailwind, Obviously, eBay is well known for unique and scarce items, which we do expect some support through the holiday period.

Speaker 2

So A few puts and takes, but overall, I'm pleased with what we believe will be continued modestly positive underlying growth on the platform As a result of the initiatives that we're driving forward. Okay. Thank you.

Operator

Thank you. We have our next question coming from the line of Deepak Mathivanan with Wolfe Research. Your line is

Speaker 8

open. Great. Thanks for taking the question. Just two quick ones. First, can you elaborate on the new

Speaker 5

Promoted Listings offerings? I mean, should we

Speaker 8

expect these offerings to drive adoption among I mean, should we expect these offerings to drive adoption among a broader range of sellers? And maybe related to that, can you provide an update on where you currently are in terms of Penetration among the seller base for promoted offerings. And then second question, I realize this might be a little bit early, but how should we think about the buybacks For next year, it feels like you have plenty of capacity, but wondering if there is a formula you're thinking about to do it in a more

Speaker 4

So on the new Promoted Listings offerings, let me just Kind of explain the 3 in detail. So the first one, which is Express, is really to give us a Promoted Listings product against auction. So since we launched this product 5 years ago, it's really only applied to fixed price. And so this opens up, while a smaller format of the site, a format that has not been open to advertising before. Promoted Listings Express is a CPC based product, gives sellers the opportunity to drive more velocity, goes after a different type of marketing budget for that And gives us the opportunity to work with a secondary and supplementary advertising format.

Speaker 4

And the third is off eBay advertising and that's using the vast marketing reach that eBay does today, partnering with our sellers to drive advertising as part of that off eBay outreach to bring existing buyers and As part of that off eBay outreach to bring existing buyers and new buyers back to the platform. What I would say for you is that it's Early days on these three products. If you look back, we started our ad business 5 years ago and we've grown to $1,000,000,000 now over 5 years. And so we're at the point now where we're testing, we're learning, we've got invited sellers into the program. And just like it took us Time to build up the CPA based program.

Speaker 4

I think it will take us time here to build up the advertising program. In terms of penetration, we still have a lot of Opportunity left, both in terms of the sellers and listings. I believe the last step we shared was that only 400,000,000 The listings have advertising associated with them, so there's a lot of opportunity for additional penetration. I'll let Steve take the second question about how we're thinking about the

Speaker 2

Hi, Deepak. So I'm not going to get ahead of myself for 2022. We haven't put the guidance out there. But I'll give us A little bit of color in terms of where we are. So as we've previously said, reinvestments in the business is our first priority, whether that's billed by our Partner.

Speaker 2

But having said that, beyond that, any excess cash that we do have continue to drive returns, We'll continue with a disciplined return of capital to shareholders. And this is no different to the past. We've had a strong and consistent history I've actually noticed capital returns and in 2021, that's been no exception. So think about us going from $2,000,000,000 at the start of the year, Lifting that to $5,000,000,000 and most recently on this call talking about $7,000,000,000 So I think when I stand back and think about eBay as a whole, the balance So we have and the benefits of the franchise is we often have the ability to do both in terms of reinvesting the business and doing capital returns to Our shareholders, so you should expect that philosophy as we go forward.

Speaker 8

Got it. Okay. Thank you very much.

Operator

We have our next question coming from the line of Ross Sandler with Barclays. Your line is open.

Speaker 3

Hey, guys. Two questions. One on just U. S. Versus international.

Speaker 3

So it seems like A big reason why your U. S. GMV is way above 3Q 'nineteen, I think you said it was up like 23 or something like that, Compared to international is a little bit on the IST comp, but also from these focus category initiatives. So what's holding back the same type of uptick for international? Is it structural or is it just a timing thing And we should see a ramp up after you kind of roll those out after starting in the U.

Speaker 3

S. And then the second question is on How big is eBay Motors these days? I know it's a big category historically. And just can you talk about a little bit about the opportunity there in terms of making that one a Focus category in merging the parts with the motors.

Speaker 4

Yes. So let me start with the U. S. Versus international. First off, let me say, I'm really pleased with the momentum we're seeing in the overall business.

Speaker 4

We're growing at 9% year over 2 year basis based on the strategic vision we have, Clearly different dynamics across the market. So in Q3, our international business was impacted by mobility returning to really pre COVID levels, National cross border trade sellers were also pressured by supply chain disruptions. That tends to be more in our international segment From a cross border perspective than in our U. S. Segment.

Speaker 4

On the other hand, in the U. S, we've seen strong growth, driven by momentum in our core business. To your question on the focus categories, it's not a structural change. We actually think the work we're doing applies across the whole globe. It's really a timing thing.

Speaker 4

So In most of these areas, we actually roll them out in the U. S, get them perfected here and then expand them internationally. So for example, sneakers is just now launching this Quarter in Germany, we launched watches in the U. S. We just started that expansion in the U.

Speaker 4

K. This quarter. Handbags, we just launched in the U. S. And that hasn't expanded yet.

Speaker 4

So it's really a timing thing, but we think the Playbook that we have is relevant in every single market that we have, probably with the exception of trading cards and collectibles, that's just so much Stronger in the U. S. Than it is internationally, but that's a huge U. S. Benefit and a lot of the pieces that we're doing there Our key focus for that.

Speaker 4

But overall, feel great about the health of the business and our ability to expand those focus categories internationally. On your second question on P and A, we haven't disclosed the size of the business. But I will say that if you just step back and look at the market, we're in a leading position In P and A, especially in UK and in Germany, it's a very strong category and a very strong franchise there. And it's a key part of our path that we talked about last Quarter of going from 10% of the site to 20% of the site. It's a strong category for eBay because of the vastness Parts and accessories that we have, we actually do a fairly good job with fitment.

Speaker 4

I talked last quarter about the My Garage feature And how we've expanded that internationally, which helps with fitment. We also recently announced a motorcycle parts finder in that business. And it tends to help And we benefit also from a cross border trade. To give you a sense of the scale, we've got 100 of millions of listings in our parts business. And what I'm excited by is one of the first evolutions that we did was take all of that inventory and make it available on our motors app, Which is a dedicated separate app for vehicle enthusiasts and now you've got vehicles and parts and accessories in a one stop shop from that perspective.

Speaker 4

So You'll continue to hear further updates from us about that category. It's our next big category of focus and one where we're coming into it from a position of strength.

Operator

Thank you. We have our next question coming from the line of Doug Anmuth with JPMorgan. Your line is open.

Speaker 9

Thanks for taking the

Speaker 10

questions. Q1 Payments, you've removed a lot of the friction already, now that you've 90 plus percent of sellers migrated on to managed payments. Just what's next in terms of improving the experience going forward? And then just curious if you have any preliminary thoughts Saw on some of the managed payments numbers in 'twenty two in terms of revenue and operating income. Thanks.

Speaker 4

Yes. So first on the friction, the whole idea of bringing commerce and payments together gives us great opportunities to remove friction. So on the selling side, People now only have to set up for a single account and get selling, all of their claims are managed in one place, tons of benefits from there. One of the ones that I'm really excited by is that, since I worked at eBay the last time starting in 2001, unpaid items have been on this platform forever. And so now We've eliminated it in fixed price virtually.

Speaker 4

We're doing so in best offer. And so sellers won't have to face that issue and it takes friction out of the platform. On the buy side, it allows us to open up new opportunities for different forms of payments. So clearly, we've already integrated Apple Pay and Google Pay, But we launched a partnership with Afterpay in Australia business for buy now pay later. Afterpay is a very strong brand in that market And that's bringing us new customers.

Speaker 4

It's already at 10% of our business there. And we're continuing to look at new opportunities for forms of payment for our buyers. Secondarily is on the seller financing side. We launched a partnership in the UK with U Lend and opening up more opportunities For sellers now that we're processing such a large volume of payments through the business. So like I said in the call, The way I look at it is the migration is complete, but we're just getting started in terms of the opportunity of what we can do with Commerce and payments together in a single flow and single experience.

Speaker 2

Hi, Doug. With regards to your question on payments rollout 2022, Too early to talk about 2022. We're not thinking guide that at this point, but I did want to reiterate how Dalap. Delighted we are with the progress we've made with over 90% Of the platform volume, with over 18,000,000 sellers going through the platform now, we laid out some goals going back Couple of years with regards to $2,000,000,000 of incremental revenue and $500,000,000 of ROI, we're well on track, Margin is in line. So we're very, very happy with where we are.

Speaker 2

Great. Thank you, both. Thank you, sir.

Operator

We have our next question coming from the line of Brian Fitzgerald with Wells Fargo. Your line is open.

Speaker 9

A couple of quick questions. Any impact on auction bid density from the loss of low quality buyers or any impacts That may have on the marketplace beyond their percentage of GMV. And then you recently, during the summer, started showing buyers all shipping This is offered by sellers, allows them to select carriers and shipping costs and estimate deliveries. It's still early days, but Can you talk about what impacts that's happening, if any, on conversion rates?

Speaker 4

Yes. So on the first question on auction bid density, no, we're not seeing any impact from that. Frankly, that format has actually been really strong because of the strength we're seeing in collectibles, where it tends to be a more used format. And I'm excited that we're starting to launch Express because that will give our auction sellers the ability to drive some more visibility for them and then to have a tool that they haven't Been able to use before. In terms of the shipping services, this has been a constant march for us.

Speaker 4

Last year, we expanded in the U. S. To have USPS, UPS and FedEx in there, and did the same thing with Royal Mail and Australia Post to greatly exceed the amount of Tracking. On the specific shipping test that's going on now, it's kind of too early to tell. What I would say in general is how to think about this, Brian, is I'm trying to get the whole company focused on how do we make things as simple and as easy to do on the platform.

Speaker 4

So what we're doing with our new Our flows with computer vision and trading cards is how do we take all the work out of the listing process. We're trying to do the same type of thing with Our sellers and the stores product are making it really easy to get that set up on the platform. And shipping is one of those areas where there's an You take a lot of the friction out. So the new partnerships that we've created, the integrated tracking, the smoother returns process is all part of this evolution of just Make the whole platform so much easier to use. And so we'll keep you posted on how these tests roll out, but I'm happy with the progress

Speaker 2

Thanks, Jamie. Appreciate it.

Operator

We have our next question coming from the line of Tom Champion with Piper Sandler. Your line is open.

Speaker 11

Good afternoon. Thanks very much. Jamie, Jamie, I'm wondering if you could talk a little bit about Bidadoo. Hopefully, I'm pronouncing it right. It looked like you made an investment, but Seems like kind of a B2B or commercial product.

Speaker 11

How does this fit strategically? And then I noticed the C2C GMV was down 13%. I think that was a little below GMV overall. This usually outperforms. And Just curious what might have driven the result there?

Speaker 11

And Steve, maybe just a quick one for Buybacks, the $7,000,000,000 looks like $3,000,000,000 in repurchases this quarter, increased from 5,000,000,000 In repurchases last quarter, I'm just curious if the increase in the buyback reflects greater confidence in the fundamentals. Any thoughts on that would be helpful. Thank you.

Speaker 4

Yes. So on the first one, look, I've been talking since last July about a game changing level of trust on the platform. And we've been doing that kind of category by So the authentication that we've been doing in the luxury categories really takes trust off the table. These 2 year warranties that we put in place for certified refurbished does the Same thing. And eBay actually has a good sized business and industrial business in capital equipment.

Speaker 4

And Biddedoo allows us to put a whole different level of They're a long time seller and partner on eBay and the capabilities that they will bring to that category will help A new level of trust and just help buyers and sellers in that category move forward. So that's what I would say on BIDU. On the C2C, that's really just a lapping of the COVID dynamics that we saw from last year in terms of the number of sellers that came on during that Time period and just some of the macro dynamics. What I'd tell you is I'm really happy with the progress and continue to be a huge focus for us It's on our C2C selling experience, bringing them onto the platform, making it extremely easy, making that payment sign up process Really simple. And so that's going to continue to be something that we're going to focus on quarter after quarter because as I mentioned in the past, When we talk about high value buyers, that includes buyers who sell.

Speaker 4

So by nature, it helps drive them up their buyer cohort curves as well as bringing that Unique inventory. So we're going to continue to push forward there. And then Steve, do you want to take the last one?

Speaker 2

Yes. Thanks, Jamie. Tom, I think it's been interesting being at the coming 4 months now. And I think the one thing I would say is just what's really struck me is the durability of the financial model with best in class margins, Really significant value in the underlying platform and a fortress balance sheet. If you take that and you pair it with The strategy that Jamie has laid out and the momentum that we're going forward with, I think the eBay franchise candidly is pretty Understood.

Speaker 2

And one of the things that we need to do a better job is just really ensuring that the investor community understand And again, your point is well made. The momentum we've shown on the buyback and capital allocation as we progress through 20 21, from the $2,000,000,000 to the $5,000,000,000 and now to the $7,000,000,000 is really a sort of reflection of that in terms of our thought process around balanced and disciplined Capital allocation and getting that balance right between reinvestments in the business to stimulate growth and providing The right best returns to our shareholders.

Speaker 12

Thank you.

Operator

We have our next question coming from the line of Stephen Ju with Credit Suisse. Your line is open.

Speaker 12

Okay. Thank you so much. So Jamie, I think in your prepared remarks, So you talked about what sounded like a 3 d modeling technology you're using in the sneakers category. How easy or difficult is this to do? And presumably and hopefully, this is driving higher conversion rates where this is rolled out As you're presenting more information to the buyer, so can you talk about which other categories this actually might be rolled out to?

Speaker 12

And I guess as a follow-up To the earlier C2C question, as you get more and more buyers to become sellers over time, are you seeing pretty consistent behavior with the newest

Speaker 4

Yes. So on your first question, it's a very early test and pilot that we're doing. But The idea is we want buyers to be able to see in real detail the actual item that they're going to be buying. And so you're going to see us launching a Couple of sneakers in the coming weeks using this and it's a very early pilot that we're doing with select sellers. But it's all about building trust on the platform.

Speaker 2

I bought a

Speaker 4

I bought a $4,000 OBO on the platform last year and it was great. I could see a lot of images, but the opportunity to really get in there in 3 d and See what a pre loved product looks like is an interesting opportunity. So like I said, it's fairly, you'll start to see some products that we have using that technology. But what I'm excited by is like the innovation in computer vision, we're using our AI resources and computer vision resources here To do some interesting things that over time, I think will really change the buying experience on eBay. To your question on C2C, It looks pretty similar to historical behaviors and consistent in terms of them coming onto the platform, Continuing to list and then turning into buyers.

Speaker 4

What I'd say is the other thing is that a lot of our business It actually started out as C2C sellers. So it's another reason we lean in there. I was visiting with a seller up in Seattle And he started many years ago, he had an extra set of tires, sold them on eBay, and then just started selling a couple more things in tires. And Now, Tivit is several times and now runs a huge lug nuts business as a business seller with a warehouse and lots of employees. So that's the other kind of Key focus for us on C2C is that's how a lot of our B2C sellers actually got their start on the platform.

Speaker 1

Operator, I think we've got time for one more.

Operator

Thank you. We have our next question coming from the line of Dan Salmon with BMO Capital Markets. Your line is open.

Speaker 5

Great. Thanks. Good afternoon, guys. Thanks for slipping me in.

Speaker 9

For Jamie, can you just expand a little bit on the Affiliate program that you cited that is one of the 3 new initiatives for Promoted Listings, the opportunity to take it Platform. What are you hoping what problems are you hoping to solve for your sellers with that? And if you could add some color on how significant do you think that opportunity could be relative to the $1,000,000,000 run rate that you're approaching for the on-site Promoted Listings business? And then just second for Steve. To what extent, I guess, put simply, will you go to exit low value buyers?

Speaker 9

You said you expect The metrics remain under pressure and the strategy certainly seems sound, but is your goal here to ultimately exit All of those low value buyers? I'm just hoping you can add some context through the scope of the strategy. Thank you.

Speaker 4

So on the first one, the off eBay advertising product, let me separate that from the affiliate advertising we do, so an affiliate can actually come onto the platform And be an affiliate. But the 2 definitely work hand in hand together. The whole vision there is really connecting enthusiasts to sellers. So being out on the platforms where those enthusiasts are and letting our sellers partake in that advertising by putting really interesting items in front of those enthusiasts Of driving that marketing, because eBay has been doing this marketing and when we do it in cooperation with our sellers, it gives us a really broad reach. For sellers, it gives them another tool as well to take all the great inventory that they have on eBay and put it out in front of sellers in various communities, In different places in search, etcetera, to really drive that traffic to their business on eBay.

Speaker 4

I'll let Steve take the second Maybe I'll add on a bit.

Speaker 2

Hey, Dan. No, it's not about exits. It's about focus. And I think we're constantly thinking about acquisition of buyers and growth on the platform. And really, it's about really changing our strategy and our focus.

Speaker 2

And I sort of just want So, if I think about our top 20 high value buyers, 20% of our buyers And deliver 75% of our GMV. And those buyers are making 6 different prices, 6 Different times of year and over $800 and net buyers that sell, whereas the low value buyers are about 50% of our buyers and generate about 5 So you can obviously see why we're focused on that strategy as we continue to evolve the platform, focused on the enthusiasts, Focused on cross category selling, but it's very, very important that we continue to have a pipeline as we evolve the business and grow it going forward.

Speaker 4

It actually ties in well with your first question, Dan, about the eOff, eBay advertising product is how do we make sure we're in those places where we're actually going to acquire those high value enthusiasts And putting our focus and intention, not just around the number of buyers that we have on the platform, but much more focused on how we're turning buyers into high value enthusiasts And how are we altering our marketing plans so that we're out there actually acquiring them onto the platform, because that's what drives the real health of the business is the growth of those high value buyers and And how we're doing in connecting those enthusiasts. So good question because the 2 really tie together.

Speaker 5

Great. Great. That was very helpful. Thanks.

Operator

Thank you. And that concludes the Q and A session for today. Thank you for participating. You may now disconnect.

Earnings Conference Call
eBay Q3 2021
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