eBay Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2022

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the eBay Q1 2022 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. I would now like to turn the conference over to your host, Joe Bilanti, VP of 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 Q1 of 2022. Joining me today on the call Jamie Iannone, our Chief Executive Officer and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany Jamie and 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 like

Speaker 1

to remind you that during the course of this conference call, We will discuss some non GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures And the slide presentation accompanying this conference call. Additionally, all revenue and GMV growth rates mentioned in Jamie's and Steve'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 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 All information in this presentation is as of May 4, 2022, and we do not intend and undertake no duty to update this information. With that, let me turn it over to James.

Speaker 3

Thanks, Joe. Good afternoon, everyone, and thank you for joining us. Before discussing our Q1 results, I want to acknowledge the terrible human tragedy that continues to unfold in Ukraine. This is a very difficult time for many, and I'm proud of how eBay employees and customers have mobilized to support those affected. At our core, eBay exists to help people and communities around the world.

Speaker 3

This role is fundamental to our purpose and motivates our workforce. In addition to direct and indirect support for refugees and citizens, we will continue policy actions to help customers in the region. These events have had a negative impact on consumer health, primarily in European markets. Despite this unexpected headwind, our global results for Q1 were strong. Let me highlight a few achievements from the quarter.

Speaker 3

Focus category innovation expanded and these categories continue to grow faster than the rest of the marketplace. 18,000,000 enthusiast buyers continue to shop regularly on eBay, purchasing items over 30 times per year. Sellers are seeing a simpler unified listing experience and we made several improvements to eBay stores in the quarter. We announced a deal with Klarna to provide more popular payment methods to German buyers and we started testing the new eBay wallet. Our advertising business grew faster than GMV due to increased optimization and adoption of new products.

Speaker 3

And finally, We made significant progress on our e commerce, DE and I and sustainability goals. Sellers and buyers are turning to eBay and this led to financial results At the high end of our expectations, we delivered over $19,400,000,000 in GMV and close to $2,500,000,000 in revenue. We continue to make the long term investments laid out at Investor Day, while achieving a 32% operating margin. And our non GAAP EPS was $1.05 $2 ahead of consensus. Given the challenges our customers are facing around the world, We are pleased with our performance to start the year.

Speaker 3

Since late February when the war in Ukraine began, we have seen lower e commerce traffic, Inflation in gas prices and home energy costs and historically low consumer confidence, particularly in the U. K. And Germany. As we look forward to the rest of 2022, we find ourselves in the most dynamic macro environment I have seen since returning to eBay as CEO. We expect more near term headwinds to e commerce growth rates this year, and our revised guidance reflects our best view based on recent trends.

Speaker 3

Steve will go into more detail about our full year expectations later. During these uncertain times, one thing that remains clear is that the tech led reimagination is improving the underlying health of our business and we are on track towards our long term growth targets. One example is in focus categories. The investments in trust, user experience and marketing are driving higher customer satisfaction leading to faster GMV growth. In Q1, excluding trading cards, focus category GMV grew 9 points faster than the rest of the platform.

Speaker 3

This growth is on top of last year's Stimulus driven surge, which drove exceptional volume in many high ASP products. Despite challenging year over year comps, Trading cards remains one of our healthiest growth businesses. In the first half of twenty twenty one, we saw an unprecedented surge boosted by mobility restrictions and stimulus. Since that time, volume has remained elevated. And in Q1, GMV was more than double the size of pre pandemic levels.

Speaker 3

As a leading trading cards platform, we continue to innovate our experience, increase trust between buyers and sellers. In Q1, we launched Authenticity Guarantee for ungraded cards above $7.50 Just this week, We expanded authentication to graded cards by signing a strategic partnership with PSA, the global leader in trading card grading and authentication. We expect this partnership will increase customer satisfaction and result in more GMV growth. We are incredibly excited for the launch of the Vault this quarter, Which will transform our collectibles business. Items in the vault will be able to securely transfer between sellers and buyers in a matter of seconds without the need to ship or the need to re authenticate.

Speaker 3

We see an opportunity to hold up to $3,000,000,000 of inventory in our vault in the next few years, Creating significant GMV and revenue growth potential. Looking beyond collectibles, we continue to expand coverage of focus categories to more products and markets. Let me share a few examples. At the end of March, we started authenticating high value handbags in the UK and Australia. We also expanded the number of handbag brands covered by our authenticity guarantee and began to authenticate men's bags in the U.

Speaker 3

S. Another focus area in Q1 was eBay Refurbished. After success with certified products direct from manufacturers, We have significantly expanded the program across smartwatches, tablets, laptops and desktops. Now buyers can shop from dented sellers across a wide range of refurbished inventory backed by eBay's money back guarantee and warranties. These trusted products contribute to e commerce, Which saves consumers money and reduces carbon emissions.

Speaker 3

The luxury watch category continues to grow at positive double digit rates On top of last year's strong growth rate. To date, we have authenticated watches over $2,000 across three markets. This quarter, we added the ability for buyers to request expert verification for a fee for watches valued between $1,000 $2,000 This additional service marks an important milestone in our journey to increase trust through authentication. This feature is portable to other categories and markets across the platform And demonstrates the scalability and effectiveness of our playbook. In our seekers category, we reintroduced final value fees in the U.

Speaker 3

S. In January And growth momentum continued. These fees are lower than most other platforms and customer satisfaction remains near historically high levels. Sneaker GMV is also growing significantly faster than the rest of the business in our international markets. We repeated the successful approach first deployed in the U.

Speaker 3

S, which includes authentication, influencer partnerships and increased social marketing investments. In parts and accessories, supply chain Strength in low vehicle inventory are driving up the price of new and used cars. These trends are driving more consumers to extend the life of their current vehicles. With approximately 500,000,000 P and A listings, we are well positioned to supply all the parts they need. We have been investing in full funnel marketing for parts success rate since December, and we are starting to see modest gains in initial consideration.

Speaker 3

This includes partnerships with leading influencers and enthusiasts to showcase our vast Inventory selection. A recent example was the eBay Auto Parts Show in New York, where several top influencers showcased their restored and custom vehicles. These do it yourself enthusiasts crafted re concept cars using unique and hard to find parts on eBay. This event generated 3,000,000,000 media impressions in 1 week, supporting the momentum we are seeing in the P and A category. While sellers and buyers love what we are doing in focus categories, we are also making site wide enhancements to help all sellers grow their business.

Speaker 3

In Q1, we made several significant changes to further modernize our stores' experience. First, our new storefront page provides sellers the ability to tell their story, Showcase their brand and increase trust in their business. 2nd, we optimized SEO for stores to drive more free traffic. 3rd, we increased the prominence of store inventory and made it easier for enthusiasts to find stores throughout the buyer journey. To support sellers and help them grow their buyer base, we also increased the ability for buyers to save sellers for future purchases.

Speaker 3

Now when buyers purchase items, They are prompted after checkout to save that seller. This has driven a 4x increase in the number of saved sellers to date, Which leads to more purchase frequency. New buyers who save a seller in their 1st 90 days are more than twice as likely to repurchase an item. More sellers are sending coded coupons to drive repeat purchases. To date, over 7,500,000 buyers have purchased an item from a seller funded coupon, Equating to approximately $500,000,000 in GMV.

Speaker 3

To help sellers improve targeting, they can now categorize their buyers into unique groups for customized marketing campaigns. Our payments platform is enabling new services and reducing transactional friction for sellers and buyers. We signed an agreement with Klarna in early March, bringing 2 popular payment methods, pay upon invoice and installments to our German buyers. Testing is underway and we are on track to make it available to all German consumers this quarter. We started testing and scaling other payment capabilities in Q1, Including the new digital wallet we announced at Investor Day.

Speaker 3

When sellers earn money, that balance is stored on eBay and readily available for them to purchase items or pay for selling expenses like shipping labels. We will continue to optimize this feature and expand to more customers during the year. Approximately 1 in 5 transactions occurs across borders and our payments platform is reducing friction on these purchases. In Q1, we started giving buyers the option to pay in their local currency in addition to the currency of the listing. This feature simplifies cross border trade And also enables incremental payments revenue to fund further innovation.

Speaker 3

I'm excited by the pace of innovation in payments. After completing the migration last year, we are moving quickly to reduce friction, launch new services and leverage our scale to benefit sellers and buyers. Another area where innovation is driving growth is advertising. In Q1, our ads business once again outpaced volume. Ad revenue growth was driven by Promoted Listings, which generated $222,000,000 in revenue, up 2%.

Speaker 3

This was 19 points faster than GMV and it has accelerated due to product innovation. Our standard Promoted Listings product, Which still drives most of our first party ad revenue, continues to drive growth through increased adoption and conversion optimization, And we see further runway in the quarters and years ahead. The 3 new products launched last year are early in the growth cycle, but are up more than 50% versus Q4. The first product, Promoted Listings Express, is increasing conversion and price realization for auction sellers. A typical auction that leverages this feature is attracting several 100 more buyers per listing.

Speaker 3

The second product, external promoted listings, is now open to our entire global seller base. Similar to standard Promoted Listings, sellers choose the value of their ad spend. We continue to expand the list of affiliate partners in the program to drive more traffic directly to sellers with Promoted Listings. The 3rd product, Promoted Listings Advanced, while still limited beta, has been scaled to more professional sellers. In Q1, we expanded the number of ad groups, providing more bidding capacity and flexibility.

Speaker 3

This product will take time to reach its full potential And we see opportunities for significant growth. We are continuing to invest in our advertising platform and expect ad revenues to outpace volume for the foreseeable future. We continue to make meaningful progress on ESG. Let me share a few highlights. Firstly, on re commerce.

Speaker 3

In 2021, Our platform generated over $4,000,000,000 in positive economic impact from the sale of used and refurbished goods. This activity avoided 1,500,000 metric tons of carbon emissions, equivalent to taking 300,000 cars off the road for a year. Recommerce on eBay is growing due to our focus on non new and seasoned categories. Demand for refurbished and used goods is growing in many categories And we are well positioned to hit the long term goals I shared with you at Investor Day. Secondly, I'm proud of our team's efforts around DE and I.

Speaker 3

We are about to publish our 6th Annual Diversity, Equity and Inclusion Report. This report provides insights into our 4 strategic objectives: Increased representation, cultivating a sense of belonging, engaging our communities and building inclusive technology. Aligning and executing on these objectives is how we build a richly diverse, truly equitable and fearlessly inclusive place to sell, buy and work. The 3rd area of progress I would like to highlight is reducing our impact on the planet. Last year, we set ambitious long term science based targets.

Speaker 3

For the full year 2021, we reduced Scope 1 and 2 emissions by 26% versus 2019. For Scope 3, Which includes the impact of shipments on our platform, we reduced emissions by 7% versus 2019 despite volume growth. Lastly, 90% of our energy now comes from renewable sources, and we remain a carbon neutral company. You can find more details about our sustainability programs in our annual impact report later this month. I'm always impressed by the generosity of our sellers and buyers.

Speaker 3

In Q1, eBay for Charity raised over $36,000,000 up 2%. We recently announced the grand finale of the Power of 1 Charity Auction With Warren Buffett. Since launching on eBay over 20 years ago, over $34,000,000 has been raised to support Glide, A nationally recognized center for equity. The eBay Foundation, whose mission is to remove systemic barriers to entrepreneurship, Committed $11,000,000 to non profits in Q1. In addition, during March, over $2,400,000 was raised from employee contributions And eBay Foundation matching gifts, many of which went to support Ukrainian relief efforts.

Speaker 3

Across a number of other employee and customer channels, The company has raised 1,000,000 of dollars for Ukraine related causes. In several countries, customers contributed to give at checkout campaigns That support of the Red Cross, Nova Ukraine and Save the Children. We are very fortunate to work for a purpose driven company With the team relentlessly focused on helping people and the scale to deliver meaningful impact to our communities. In closing, Q1 was a strong start to the year. We extended focused category coverage in watches, handbags, trading cards and eBay refurbished, and we laid the groundwork to launch The Vault this quarter, A game changing experience for collectors.

Speaker 3

We released several new features for eBay store sellers like new storefronts and enhanced SEO. And we are encouraging more buyers to save their favorite sellers to drive repeat purchases. In payments, we launched Quanta for German buyers, Started testing a new digital wallet and increased currency payment options for cross border buyers. Our advertising business is meaningfully outpacing volume growth through optimization and new product innovation. And we're achieving all of this while executing on an ambitious ESG agenda To support our communities and the world we live in.

Speaker 3

Before I hand it over to Steve, I would like to express my sincere appreciation to our seller and buyer community, whose energy and unique inventory make our marketplace truly differentiated in e commerce. I would also like to thank all of our global employees For their tireless efforts to delight customers and support our communities. Their dedication and focus are improving our underlying business health every day. Lastly, I'm thrilled to welcome Eddie Garcia back to eBay as our new core product leader. His wealth of eBay knowledge and track record of innovation We'll be great assets to continue to drive the tech led reimagination.

Speaker 3

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 our discussion with financial highlights on Slide 9 of our Q1 earnings presentation. Next, I'll provide a deeper look The key operating and financial metrics including a discussion of how ongoing macroeconomic and geopolitical developments are influencing our business. Finally, I'll share our forward outlook and some closing thoughts before we begin Q and A. Please note, my comments will reflect year over year comparisons at constant currency unless I note otherwise.

Speaker 2

Overall, we delivered strong results in Q1 as GMV, revenue and EPS met or exceeded expectations And perform near the high end of our outlook ranges. Our Q1 results were driven by continued progress against the strategic objectives We are aligned at Investor Day, including an expansion in coverage and capabilities of our focus categories and improved tools and technology First, sellers and buyers. Our first quarter revenue was down 5% to $2,480,000,000 Outpacing volume growth by approximately 12 points. Non GAAP operating margin was 32.4%, At roughly 80 basis points sequentially, we delivered non GAAP earnings of $1.05 per share, down 2% as compared to a record quarterly EPS results last year. We generated $546,000,000 Our free cash flow and returned approximately $1,400,000,000 to shareholders through repurchases and dividends.

Speaker 2

We achieved these results despite some backend softness associated with changing macro conditions and a tragic conflict in Ukraine. I'm extremely proud of our team's focus and execution amid these challenging circumstances. Let's take a closer look at our performance in Q1. Gross merchandise volume declined 17% As we lap to 7 point sequential acceleration during 2021, which was driven by global mobility restrictions And U. S.

Speaker 2

Stimulus payments. As compared to our pre COVID baseline in Q1 of 2019, GMV grew 7%. We were extremely pleased with the pace of growth, innovation and execution within our focus categories during Q1. Coming off a record surge in growth in early 2021, trading card volumes appear to be stabilizing at a quarterly run rate, More than double pre COVID levels indicating continued healthy demand for this asset class. Excluding trading cards, Year on year growth in focus categories outpaced the remainder of our marketplace by approximately 9 points.

Speaker 2

We sustained strong positive growth within our luxury categories compared with last year's stimulus driven results, including sneakers over $100 While we reintroduced monetization in the U. S. In January, trailing 12 month active buyers were 142,000,000 during the quarter, Time roughly $5,000,000 sequentially due to the same lapping dynamics. But importantly, this anticipated decline was skewed towards our low value buyers. Trends within our high value groups remained healthy as our 18,000,000 enthusiast buyers spent an average of over $3,000 Across 9 categories over the last 12 months.

Speaker 2

Average spend per enthusiast also rose sequentially And increased low double digits versus 2019. U. S. GMV grew 17% Compared to Q1 of 2019, while international GMV was roughly flat, similar to prior quarters, Our U. S.

Speaker 2

Volume benefited from stronger underlying e commerce growth, beneficial category mix and earlier launches of focused category initiatives. Meanwhile, our international business has experienced softer economic growth and greater exposure to the supply chain challenges Impacting cost border trade. When we spoke at our March Investor Day, we were beginning to observe modest softness in our European markets During the early weeks of Russia's invasion of Ukraine, as the conflict intensified in the weeks that followed, The headwinds to our business became more pronounced. We estimate the Ukraine war represents the low single digit negative impact to our global business in Q1. Notably, these macro headwinds have not impacted our product road map or other strategic initiatives.

Speaker 2

Net revenue during the quarter was $2,480,000,000 down 5%, as positive contributions from payments and ads We're offset by comparisons with last year's extraordinary volume growth. Our transaction take rate increased by over 30 basis points sequentially to 12.1%. Managed payments contributed over 8 points of revenue growth during the quarter as we fully migrated to our proprietary platform, while new initiatives like Bayer and Seller FX are scaling in line with expectations. 1st party ads, primarily promoted listings, grew 2% during Q1 and outpaced volume by approximately 19 points. This marks an acceleration from roughly 15 points in Q4 as we further optimize our standard Promoted Listings product And recent additions to our ads portfolio grew in scale and adoption.

Speaker 2

Turning to margins, we delivered a non GAAP operating margin 32.4% in Q1, an increase of more than 80 basis points sequentially. This improvement was driven by lower seasonal spend In sales and marketing, which was offset by volume deleverage as we lap last year's GMV acceleration. During the Q1, We delivered $1.05 of non GAAP EPS, down 2% from our record quarterly EPS In Q1 of 2021, the impact of share repurchases and contributions from payments and adds We're offset by the lapping of mobility tailwinds. We generated a GAAP loss per share of $2.28 With the delta driven by losses on our investment portfolio amid recent market volatility. We generated $546,000,000 of Free cash flow in Q1, down 37% due to lower volume and the lacking of onetime working capital benefits Associated with the managed payments migration, partly offset by lower cash taxes.

Speaker 2

As we discussed at Investor Day, We do expect our cash taxes to rise this year due to the timing of repatriation payments and new federal tax treatment of R and D credits. These dynamics are not unique to eBay and we expect to revert to a more normalized cash tax rate after 2025. We ended the quarter with cash and non equity investments of $6,300,000,000 and gross debt of 8,300,000,000 We paid down $750,000,000 of notes during March. We repurchased $1,250,000,000 of shares during the quarter At an average price of approximately $57 This was in addition to a portion of shares from our Q4 accelerated share repurchase This settled in early Q1. Additionally, we paid a quarterly cash dividend of $129,000,000 in March, representing $0.22 per share.

Speaker 2

Our investments are detailed on Slide 19. Our remaining portfolio is valued at over $5,000,000,000 at the end of Q1 after a quarter of significant market volatility. We sold roughly $600,000,000 of Adient and Kakao Bank shares during Q1. We will continue to manage our investment portfolio With the goal of maximizing shareholder value, which includes maintaining our investments when we believe we can generate incremental value for shareholders or monetizing them when we see an opportunity to do so. To that end, we sold add in shares during Q1 At an average price, more than 7 times the strike price of our first tranche awards.

Speaker 2

Moving to our outlook. Russia and Ukraine have historically made up less than 1% of our global volume, but the war in Ukraine has measurably impacted the economic growth And consumer confidence throughout Europe and other parts of the world. This conflict arose as global economies were already contending With inflationary pressures and supply chain challenges. On top of that, rising interest rates may further hinder near term economic growth, While sanctions related to the war could raise already high fuel prices, leading to additional pressure on consumer spending. We're confident our business will remain resilient in the current environment.

Speaker 2

We are revising our expectations for the remainder of 2022 To reflect the macro conditions we've observed over the last 2 months. Despite the near term uncertainty, We continue to invest in our focus categories and other strategic initiatives to achieve the long term growth targets We outlined at Investor Day. For the full year, we are lowering our FX neutral growth forecast for GMV by approximately 5%. The strengthening U. S.

Speaker 2

Dollar also reduces our spot GMV outlook by roughly $1,300,000,000 This is our prior guidance. We now expect GMV of between $73,200,000,000 $75,200,000,000 In 2022, representing a decline between 12% 10%. We forecast revenue of 9.6 To $9,900,000,000 representing a decline of between 6% 3%. Our updated forecast Total operating margin between 29% 30% as we expect to mitigate some macro driven volume pressure Through cost efficiencies, we forecast non GAAP earnings per share between $3.90 $4.10 Representing negative 3% to positive 2% growth. Looking to the 2nd quarter, We expect to generate $18,020,000,000 to $18,420,000,000 of GMV, Representing a decline between 16% 14% or between 2% 4% growth versus Q2 of 2019.

Speaker 2

We forecast revenue between $2,350,000,000 $2,401,000,000 representing a decline Between 9% and 7%. We anticipate non GAAP operating margin between 26.5% and 27.5% As we scale our planned investments in product and full funnel marketing initiatives, and we project non GAAP earnings per share Between $0.87 $0.91 representing a decline of between 12% 8%. In closing, Q1 was another strong quarter for eBay. We met or exceeded expectations Across all key metrics despite facing a challenging confluence of geopolitical and macroeconomic developments in March. We expanded our coverage and capabilities within focus categories, which are delivering negative new shopping experiences For our community, I'm fueling positive underlying growth in our business.

Speaker 2

Advertising and payments initiatives are outpacing volume growth, Delivering incremental revenue at healthy margins and helping eBay sellers grow their businesses. Our balanced approach to capital allocation enabled us to invest in strategic initiatives, maintain our best in class margins and return more than double our quarterly free cash flow to shareholders. And our focus on e commerce and sustainable inclusive business practices has enabled us to achieve these results While supporting our people, our purpose and our planet. Finally, I'd like to echo Jamie's thanks To our extraordinary eBay employees, their focus and execution amid the challenges of the last few months It's been truly inspiring. We continue to innovate and remain on track to deliver on the product roadmap we laid out at Investor Day.

Speaker 2

And with that, Jamie and I will now take your questions.

Operator

Please stand by while we compile the Q and A roster. Our first question comes from the line of Colin Sebastian from Baird. Collin, your line is open.

Speaker 4

All right. Thanks. Good afternoon, guys. Two questions for me. I guess the message here is the tech led reimagination is on track, but you hit these macro headwinds that depress volumes in the near term.

Speaker 4

So with that context, Jimmy, I was hoping you could drill down a bit more on growth in Enthusiast Buyers and in particular, How do you expand the size of this group, drive more engagement? And if this relies on converting less active buyers into enthusiasts, Those that are already on the platform and I have a follow-up.

Speaker 3

Yes. Thanks for the question, Collin. Absolutely. So when you look at our enthusiast buyers, We have $18,000,000 of them. They drive 70% of our GMV.

Speaker 3

That group is a very productive group for us. It's they shop more than 30 days. They spend over $3,000 and even though some of them are mid value move in and out of mid value. When you look at our mid value buyers that we outlined at Investor Day, they're actually of the cumulative lifetime value of most other platforms. So they're also very valuable customers as well.

Speaker 3

So the key things we're doing is, A, driving our focus category strategy. When we look at those Enthusiast buyers, 94% of them shop in focus categories. So that's a big opportunity. 25% of them are selling on eBay And that obviously drives the flywheel of performance. When we look at it versus 2019, it's not just about the numbers, but how do we get that group To buy more, so versus 2019, they're buying double digits more on the platform.

Speaker 3

And that has to do with getting them to go cross category, Getting them to be more sticky within their focus category or their initial category, and then all of the pieces that we know kind of drive retention. The last one I'll just pick up on is, it's also tied into our seller strategy. So part of the things that we announced this year this quarter with sellers, Things like new eBay storefronts, enhancements to the eBay coupons, improvements to SEO, it's all about how do is it just not eBay and the platform driving retention of those enthusiast buyers, but how do we put more tools in our sellers' hands so that they can drive the retention of the buyers as well. So Feel really good that the strategy is working and the plans are intact.

Speaker 4

That's helpful. And then secondly, maybe for Steve. It looks like guidance for the back half of the year Somewhat normal sequential seasonality and volume for Q3 and Q4 off of that lower Q2. So I guess this suggests the outlook assumes no improvement or no worsening in the macro environment, if that's the right way to think about it.

Speaker 2

Hi, Colin. Good to speak to you. As you can imagine, we've been very deliberate in terms of how we've looked at the outlook for the remainder of 2022 based on this very sort of uncertain and challenging environment. I'd just like to you're correct In terms of your assumptions as we go forward with regards to seasonality, just as a reminder, as we talked about at our first our last earnings call, We do have a half one, half two underlying story for 2022 as we lap some of the significant Tailwinds associated with COVID in 2021 in the first half as we go forward. But we despite the I suppose at a macro level, We do see this overall softness driven by the macroeconomic environment, but we still expect a sort of seasonal shape At the GMV as we go forward.

Speaker 3

Great.

Speaker 4

Thank you.

Operator

For our next question, we have Eric Sheridan from Goldman Sachs. Eric, your line is open.

Speaker 5

Thanks very much for taking the question. 2 if I can, just following up on Colin and following up on the macro issue. Are you seeing different behaviors in the macro environment between Your high value buyers and low value buyers, would that inform any decisions of maybe accelerating some of the investments you want to make in terms of improving the SKU of your buyer base as we go through 2022? That would be sort of question Number 1. And then secondarily, you pointed out the gap between GMV and ads, which was quite wide.

Speaker 5

How should we think about that gap between ads outperformance relative to GMV beyond just what you reported in Q1 Given against your innovation curve run ads longer term. Thanks so much.

Speaker 3

Yes. Thanks, Eric. So look, when we think about the impact macro, it's really across the board. We can look at obviously our own traffic and traffic of our competitors and specifically in Europe or more so in Europe, Really coincidental with the war, we saw the impact overall to the business. So there's various movements.

Speaker 3

I would say last year with the pandemic, we Move some mid value up into enthusiast buyers as we looked at the segments. But really it's kind of across the board. Everyone's energy prices are going up, More cost of fuel inflation, etcetera. To your second question, we're really happy with the performance of ads being at 19% above GMV, this quarter and we talked about kind of the growth that we're seeing in the new products, although the large part of it is still our core product, which is the

Operator

For our next question, we have Tom Champion from Piper Sandler. Tom, your line is open.

Speaker 6

Great. Thank you. Good afternoon. Jamie, maybe you could talk about the focus category growth of 9%. I think it was 15% previously.

Speaker 6

Can you help us interpret that in terms of ongoing sustainability? Thank you. Thank you.

Speaker 3

Yes. So a couple of things. One is, really pleased to see that 9 points faster growth in terms of the focus categories. We are lapping some stimulus from last year in our numbers. So that's certainly a factor.

Speaker 3

And then over time, Tom, the math I would say as we increase our coverage of focus categories, obviously, the delta will decrease just because of the math of more of the numerator being in the denominator as well. But as we look at this as a multi year, the strategy that we laid out at Investor Day is right, is consistent Getting them to grow at or above market growth rates. What I'd say I'm really happy about this quarter is that we're seeing the same type of deviation between focus categories In international that we saw in the U. S. In terms of their outperformance of the rest of the site.

Speaker 3

So we've been talking for a couple of quarters now about how international was more nascent And we're starting to see that traction in the focus categories and we talked about some of the new launches that we're seeing internationally.

Operator

For our next question, we have Deepak Mathivan from Wolfe Research. Deepak, your line is open.

Speaker 7

Great. Thanks for taking the questions. Just sticking with the macro discussion, Now the 5 points lower revision on full year GMV guide, maybe can you elaborate a little bit on what signals you're seeing now to arrive at the 100 basis points reduction. I mean, a lot of uncertainty is still kind of ahead of us. So does this revised guide reflect what you're Seeing now or does this also factor in potential unfavorable trends in the second half?

Speaker 7

And then how should we think about Your expectations for 2023 2024 based

Speaker 6

on the

Speaker 7

revised 2022 targets. Thank you so much.

Speaker 2

Hi, Deepak. I'll pick those up. As I mentioned on the previous question, we've been very thoughtful and deliberate about the 2022 guide as we look out For the remainder of the year and really reflecting what we see as ongoing macroeconomic challenges in the overall environment, I think I would pull it down to sort of 3 specific areas as you think and contemplate the guide that we put out. First, The continued negative economic impact of the terrible atrocities associated with the war in Ukraine And our expectation that those negative impacts will continue through 2022. The other is overall the continued Headwinds from the broader macro environment.

Speaker 2

You think about things like interest rates, fuel prices, energy costs, This put in additional pressure on the consumer and their discretionary spend. And we're particularly seeing this in Europe And a couple of our key markets in the UK and Germany, where we're seeing consumer confidence at historic lows. And then we are also assuming as a third item, The expected continuation of the supply chain disruptions that we've seen for a number of quarters here That continues to put a drag on our international business. So when I think about those three areas, that's what we've contemplated When we look in the macro environment and we went forward with our 2022 guide. Beyond 2022, as you recall, We talked to the investor community back in March at our investor event, and we remain confident in our long term guide.

Speaker 2

We see these issues as transitory. Our long term guide contemplated mid single digit GMV growth. We remain confident in that. We continue to make the investments for the long term future. You heard Jamie talk about the momentum that we're seeing in our prepared comments.

Speaker 2

And so, we certainly see that as a longer term perspective as we navigate these choppy waters in the near term.

Speaker 7

Got it. Okay. Thank you so much.

Operator

Our next question, we have Stephen Ju from Credit Suisse. Stephen, your line is open.

Speaker 6

Okay. Thank you. So Jamie, your commentary about expanding the Authenticated brands and bags is interesting. It sounds like you're not quite done going deeper into the category. And also kind Along with that, can you talk about how parts and accessories rollout will then proceed?

Speaker 6

I mean, is it going to be a gradual rollout on a category by category or model by model basis? And is there a similar opportunity to go deeper into watches as well? And I think also to follow-up on Eric's question earlier, I think Throughout 2021, you've more than doubled the number of Promoted Listing sellers, but that's still a minority percentage of the total sellers. I get that This product is probably not appropriate for everybody, but what can you do to drive greater seller adoption? Is it just a matter of awareness?

Speaker 6

Or is there Does the products we need to be expanded? Thanks.

Speaker 3

Yes, great question. So first, the way I think about the focus categories, it's not like we invest in the category and that we're done. If you look at it, we're still investing in sneakers, which we launched quite some time ago. So we continue to make innovations even in categories that we've launched. The category that you first brought up Handbags, we expanded what we're doing in authentication to the U.

Speaker 3

K. In a beta this quarter. We also expanded it in the U. S. To men's bags This quarter, so now currently authenticating in the U.

Speaker 3

S, U. K. And Australia. So that will be a continued playbook. I would say the same thing about parts and accessories is in addition to all the things we're doing around consideration, we're continuing to drive quarter after quarter New features, new capabilities for those categories.

Speaker 3

You mentioned watches at the end. That's another category. Even though we launched Authentication a couple of quarters back for watches. This quarter, we've built a new capability, which is actually allowing buyers to pay for If they want it for watches between $1,000 $2,000 So it will be a continued evolution of focus categories as we launch new ones and continue to And handsome. I'd say a couple of things about the collectibles category.

Speaker 3

I'm really excited by this quarter. A, our Vault is on track that we talked about at Investor Day And a lot of potential there, to save re authenticating to savory shipping the products. On Monday, we announced a partnership with PSA. PSA is the most popular grader for trading cards and now you can have your cards authenticated by PSA over $2,000 And so, like I said before, everything is kind of a continued evolution of enhancements to drive customer satisfaction. On your question on advertising, yes, we feel great.

Speaker 3

The thing that makes us feel great about the opportunity For more penetration is the ROAS that we continue to see. We have strong ROAS for our sellers. And so it's obviously easiest to get the largest sellers To start using the product and drive that penetration first, but we're, for example, launching a new unified listing experience, which has a great Advertising inclusion, this quarter we announced some optimization tools for our product listing Advanced. And look, it took us 5 years To get the standard product to where it is today, so these things do take time to drive adoption, to drive optimization, But we feel like the suite of products that we launched is the right one.

Speaker 6

Thank you. Thank you.

Operator

For our next question, we have Ross Handler from Barclays. Ross, your line is open.

Speaker 6

Hey, guys. I just had two questions. First, can you remind us what cross border GMV peaked that pre pandemic compared to the 20% today. And you mentioned the new payment partnerships and this new wallet potentially Getting that going in the future, so how material could that be in, I guess, other than like some of the log jam clearing up in China Outbound, what else can you do to crank up cross border? And second question is, you normally have a downtick in 2Q operating margins seasonally.

Speaker 6

This one is a little bit more pronounced than normal. So just any color on those investment levels? Or is that just from some of the GMV weakness you were talking about previously?

Speaker 3

Thanks a lot.

Speaker 2

Hi, Ross. I'll pick up the first item on cross border. We've pretty steadily been About 20% of our business has been somewhat from a cross border standpoint as we've gone forward. We haven't sort of seen any Major change of that. Obviously, as we've gone through the supply chain challenges, that we've been seeing over numerous quarters We've talked about extensively.

Speaker 2

That has continued to put some additional pressure on that. Maybe I can just kick off on a few items on payments And then I'll ask Jamie to sort of continue to address other items associated with that. I have to say, I've been really taken by Exceptional execution the team has gone through over the last 18 to 24 months with the integration of the whole payments platform, And it gives us a great opportunity to continue to drive value for our shareholders as we go through that, whether that's Faster payouts, buyer seller FX, higher ASP items that we talked a lot about on our investor event that generates $300,000,000 as we go forward. The wallet, we're really excited about, and that's something we also talked about at the Investor Day. Jamie, do you want to just elaborate a little bit more from your perspective?

Speaker 3

Yes. Ross, I'm happy with our pace of innovation. So the Klarna deal that we announced, which we'll be launching this quarter, actually Allows us to accept forms of payments, which are very popular in Germany, which we've not been able to accept, primarily pay upon invoice and financing. And so that's one component. Steve talked about the digital wallet, which is in beta now, which obviously helps us with the flywheel, also helps sellers because they can store a balance for their Selling costs like shipping, etcetera.

Speaker 3

And then to your question on cross border trade, we are doing things to help They're having somewhat of an impact being able to forward deploy inventory through a partnership that we've done. But our cross border trade elements, as Steve said, have been Roughly steady.

Speaker 2

And then just to pick up your question around sort of Q2 margins, there's naturally an underlying seasonal Impact that we sort of go through. But as we talked about on our last earnings call, we did expect Q2 would be our lowest margin for the year Based on the phasing of our investments, as you can imagine, we are leaning in based on the macro environment So short term costs, but we are continuing to invest in product, full funnel marketing and making sure that the longer term strategy stays on track. And so there are some of the dynamics at play with regard to our 2nd quarter margin profile that you've heard about today.

Operator

Our next question, we have Dan Salmon from PM Capital Markets. Daniel, your line is open.

Speaker 2

Great. Thank you. Good afternoon, everyone.

Speaker 8

Jamie, you welcome back Annie Garcia in your prepared remarks, That's a change that's happened since we last saw you all at the Investor Day. Could you elaborate maybe a little on the transition from Peter Thompson to him? And Is there any particular direction or new initiatives that you expect Eddie to lead as he takes over responsibility for your product, put a

Speaker 2

stamp on it, so to speak? Thanks.

Speaker 3

Yes. With the departure of Pete and that transition, I went out and tried to find the absolute best product person in the world that I could find. Eddie has a really unique ability. He combines product, UX and technology like no other executive that I've met. And Importantly too, he has a decade of background with eBay, which is extremely valuable to come in and really hit the ground running.

Speaker 3

And he's already started. I think he's on day 8 today, and is doing a great job. So really excited to have him here. I would say no, nothing changes in terms of the product roadmap. He's got a great team of leaders underneath them.

Speaker 3

We have a strong organization and the roadmap is very solid for the year. I mean, if I just look at payments as an example, this quarter they announced a deal with Farna at Investor Day, they're about to launch it. They launched a new capability to do buyer FX, so the buyers could pay in their local currency. They've made enhancements and ramped up stored value, All of that within a single quarter. So I'm happy with our pace of innovation across the board and just thrilled that Eddie could be part of the leadership team and help us push forward on the tech led reimagination.

Speaker 2

Okay, great. Thank you. Thank you.

Operator

Our next question comes from the line of Mr. Kramer from REIT Research will return your line is open.

Speaker 9

Thanks very much. Jamie, So there's a big echo here. Jamie, you mentioned quite a bit about the focused strategy in laying that out, but it still seems to leave eBay vulnerable to Vertical sites in specific categories, which have some social commerce or community hosting to engage users, How far might you see stores evolving to allow them to have their own maybe distinct brands or IDs and try to engage users In more ways than just simply commerce or buying. And Steve, I guess the other question, if you look at the guidance for 6 to 7 points Of upside from payments and adds, is that simply lapping the payment saturation or completion? Or do you imply some sort of slowing of ads growth over the course of the year despite all these new formats you mentioned in?

Speaker 9

Thank you.

Speaker 3

Yes. Richard, great question. I'll take the first one and Steve should take the second. So absolutely, one of the benefits that eBay has versus any vertical specific marketplace Is our scale. The fact that we can get buyers to buy cross category that we can acquire them at a lower cost.

Speaker 3

And if you look at, let's say, a parts and accessories buyer, They're going to come in and buy $1200 in parts and accessories, but then $1500 elsewhere on the site. But we are leaning into the areas that you're talking about. How do we make it easier for buyers and sellers to transact on the marketplace? How do we build retention between them? So I'd point to a couple of things that we've launched in the last few quarters.

Speaker 3

The first is our new member to member messaging system. It's very simple and easy to use. It's chat like interface, very familiar for a Gen Z customer To interact between a buyer and seller, and that's a huge improvement over the legacy products that we've had out there, for a long time. We've been opening up the ability for couponing and reaching back out to interested buyers on the platform that have transacted with you. And really the as you talk about stores is really the opportunity to let sellers build a brand and communicate with buyers.

Speaker 3

So this quarter we launched all new storefronts on for our eBay store sellers. We actually improved the ability for them to drive more SEO Via their stores in the platform, we've added video into the stores platform. So now you can tell your story about an eBay seller, and that's very appealing. And we'll continue to build more of those features to improve the interactions between buyers and sellers because it's one of the very unique capabilities of eBay is that vast Army of sellers that we have helping drive retention in buyers and helping drive engagement there. So great question.

Speaker 3

Steve, do you want to take the second part?

Speaker 2

Yes. Hey, Richard. I think you're talking about the Point delta between the FX neutral GMV and FX neutral revenue. I'd say there's 3 dynamics at play. Number 1, you're right.

Speaker 2

We're sort of lapping through the completion of managed payments as we've transitioned from 2021 to 2022. So we see Less of a tailwind associated with that. But on the flip side, the other two items is the continued momentum with regards The investments we're making in both payments with some of the items that Jamie talked about earlier in terms of the execution from the team and what's been driven associated with that And then the continued success in the ads platform. As we mentioned, in the first quarter, Ads has grown 19 points faster than GMV. So it's really the combination of those three factors that I've talked about that gets the implied guide going forward.

Speaker 9

Okay. Thanks.

Operator

For our next question, we have John Blake Klitsch from Cowen. John, your line is open.

Speaker 8

Great. Thank you. Two questions.

Speaker 3

1st, could you expand a

Speaker 8

bit on how the trading card segment performed in the Q1? And how does the launch of the Vault Health HUD trading card and overall collect And then second, which e commerce verticals were the biggest headwinds in GMV or perhaps had the toughest comps In 1Q and 2Q. Thank you.

Speaker 3

Yes. So I'd say on trading cards, what we said in there is that we're obviously lapping The massive stimulus that we saw last year, we're settling out at twice the level of GMV that we were beforehand. And we're really kind of leaning in to fuel the growth in trading cards. So to your question on Vault, the beauty of the Vault is A lot of for a lot of collectors, it's not something that they need to have around their house. They want to be able to trade.

Speaker 3

And you could see trades happening In the middle of a game where a rookie all of a sudden is on fire and people want to start trading that, that trade becomes really seamless when it sits inside the vault. It's authenticated on the way in. It doesn't have to be shipped anywhere, validated, etcetera. And so you could see this 1,000,000,000 of dollars of inventory, we could start to drive Turns on that, on a much more rapid basis. So we're excited by that.

Speaker 3

We're also excited by the grading partnership that we announced On Monday, which complements what we've been doing for ungraded cards over $7.50 because it builds more authenticity and trust into what we're doing from So that builds on top of last year's launches that we had like the Improved shipping labels, the computer vision that we're working on in that category, etcetera. So really excited by that. When I look at the rest of the categories, watches continues to be strong. We sustained double digit growth on top of last year's strong growth rate. We've been able to re monetize sneakers and keep the momentum in that category, strong growth And handbags as well and we talked about some of those announcements in the business.

Speaker 3

So across the board, I think we are The strategy that we have is working. We're seeing the change in customer satisfaction and the change of the business and the deviation These categories are able to create and then we're starting to see that expand internationally.

Speaker 1

Operator, we've got time for one more.

Operator

Thank you. And for our last question, we'll have Justin Post from Bank of America. Justin, your line is open.

Speaker 10

Great. Thank you. Just a couple of questions. There's been a lot of write downs in the group and obviously the e Commerce group is under Pressure. You have the advantage of really strong cash flow.

Speaker 10

How are you thinking about the asset opportunities bringing things into eBay? And then second, just on the U. S. GMV, it was down quarter over quarter, which has happened in

Speaker 3

the past sometimes. Did you

Speaker 10

see a slowdown there related to Ukraine as well and or gas prices are a factor? Thank you.

Speaker 3

Yes. So on the first one, we continue to look at build, buy and in those opportunities. We talked about, sneaker con at the Investor Day and why we did that and how it made sense to accelerate Our focus on what we were doing in that category and we continue to look at opportunities that we think will help push that further In terms of new features, new functionality or new audience, but we do look at it as a build by end partner. So a great example is what we announced on Monday, which is a partnership With the most popular grading, to really build an opportunity to tie that closely into the best marketplace that exists for trading cards on eBay. So So we'll continue to be opportunistic across all of those different elements, as we go forward as long as they align with the strategy and we think create value for shareholders.

Speaker 3

On the international versus GMV, I'll start off and then Steve you can jump in. Clearly a more profound effect in our international business. When I talk to our Ebayers in the UK, they're getting their April energy bills and there are multiple of what they were before. So definitely more of an impact, But definitely an impact across the whole world, including our U. S.

Speaker 3

Business. Do you want to expand

Speaker 1

on the Q

Speaker 2

and A? Yes. I'll just give a little bit of extra color. I think when we bifurcate What we've seen between international and the U. S.

Speaker 2

In terms of consumer sentiment, U. S. And U. K. Consumer sentiment is at Pretty much historic lows based on what they've seen.

Speaker 2

But as you can imagine, some of this has percolated over to the U. S. In terms of inflation going up, Higher prices at the pump and also the inflation that's going forward. So the U. S.

Speaker 2

Is not immune to this. It's more we saw in the Q1 Some deeper penetration of challenges in the European business, but I think it's a fair comment, just in that there has been some slowdown. And As we go further forward during 2022, at a macro level, you can sort of see that implied in our guidance as we go forward.

Speaker 10

Thank

Speaker 3

you.

Operator

And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.

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Earnings Conference Call
eBay Q1 2022
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