Good day, ladies and gentlemen, and welcome to the eBay Q3 2018 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Mr.
Salim Freiha, VP of Investor Relations. You may now begin.
Thank you, operator. Good afternoon. Thank you for joining us and welcome to Ebay's earnings release conference call for the Q3 of 2018. Joining me today on the call are Devin Wenig, our President and Chief Executive Officer and Scott Schenkel, our Chief Financial Officer. We're providing a slide presentation to accompany Scott's commentary during the call.
All revenue and GMV growth rates mentioned in Devin and Scott's prepared remarks represent FX neutral year over year comparisons unless they indicate otherwise. This conference call is also being broadcast on the Internet and both the presentation and call are available through the Investor Relations section of the eBay website at investors. Ebayinc.com. You can visit our Investor Relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for at least 3 months through the same link.
Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of Ebay Inc. And its consolidated subsidiaries, including expected financial results for the Q4 and full year 2018 and the future growth in our business.
Our actual results may differ materially from those discussed in this call for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent annual report on Form 10 ks and subsequent quarterly reports on Form 10 Q, copies of which may be obtained by visiting the company's Investor Relations website at investors. Ebayinc.com or the SEC's website at sec.gov. You should not rely on any forward looking statements. All information in this presentation is as of October 30, 2018, and we do not intend and undertake no duty to update this information.
With that, let me turn the call over to Devin.
Thanks, Lynn. Good afternoon, everyone. In Q3, total GMV was up 5% and revenue was up 6%, while our active buyer base grew 4% to 177,000,000 dollars Underlying these results, GMV on our marketplace platform grew at 5%. Our StubHub platform grew volume at 7% and our classified platform grew revenue at 11%. Scott will go into more detail on our financial results in his section.
We continue to make foundational investments to improve the long term health and competitiveness of our marketplace this quarter, while setting the stage for significant growth opportunities in payments and advertising. New eBay users are responding well to the evolution of our platform. But as we mentioned last quarter, our existing buyer base has been slower to adapt to these changes. This has limited our ability to scale some new experiences. And as we plan coming into Q3, we made significant marketing investments this quarter with a focus on buyer incentives and top of funnel activities such as our brand campaign.
While some of these activities were successful and will scale, others did not deliver a sufficient return. These dynamics coupled with the impact of a strong dollar on our U. S. Export business, led to a 2 point deceleration in marketplace volume growth this quarter. Setting eBay up for future growth requires us to continue to build a comprehensive catalog, further simplify and improve the user experience and address customer imperatives such as trust and shipping.
It also requires that we redefine perceptions of eBay's brand and business. Given that we have a large stable and successful business, but must also build for the future, we're shifting our tactics to balance the needs of a habituated base of customers who are used to shopping on eBay a certain way, while pursuing an even larger base of potential customers who have different expectations. We'll continue to focus on delivering significant product experience changes for new customers, while evolving the experience for our existing base of users at a more measured pace. Similarly, we'll continue to market our brand, but we plan to target our marketing to focus more heavily on acquiring new buyers, while reducing our overall investment. We expect that this will result in slower growth for a period of time as we grow our user base and change the mix of customers.
However, this will also allow us to deliver strong earnings growth over this period of time through operational margin expansion and ongoing aggressive capital return while positioning the business for stronger growth in 2020 as payments and advertising continue to ramp. Let me now discuss some of the progress we're making to improve the eBay user experience. Structured data powered services are delivering comprehensive catalog by enabling sellers to contribute product information to our catalog for the first time, which will improve accuracy and coverage over time. And we continue testing new iterations of product based commerce to find a balanced experience that drives higher conversion for both our new and existing consumers. Ultimately achieving this balance is the key to enabling a scale rollout for the experience.
One of our key initiatives is to improve the shipping experience on eBay and that's guaranteed delivery. This experience continues to gain share in the U. S. Exiting the quarter with 9% of U. S.
Volume and we recently launched this service in Australia. We're also reducing friction across our platform, simplifying registration and checkout while allowing unregistered users to save searches and add items to watch list without the need for an account. And we continue to scale our new consumer listing flow, which leverages our catalog to simplify the selling process, which is leading to improved conversion to sale. Looking at marketing, we rolled out the latest iteration of our brand campaign this quarter. We plan to continue activation of our brand messages, which highlight eBay as a mainstream commerce destination across multiple channels throughout the holiday shopping period.
But we will further target and segment marketing spend, driving efficiency in our overall investment. As we've discussed previously, advertising and payments are 2 significant opportunities in front of us. Our total marketplace advertising portfolio is expected to top $600,000,000 this year. Within this, we expect Promoted Listings to represent approximately 180,000,000 dollars The strong growth of promoted listings has enabled us to continue to reduce our reliance on non strategic third party advertising. In Q3, we began expanding promoted listing placements and we've seen positive results across the board.
We now have over 400,000 sellers promoting over 160,000,000 listings leading to revenue growth of 120%. We have further aggressive expansion plans for this service and we believe that our total advertising portfolio has the potential to contribute $1,000,000,000 in annual revenue in the next few years. Looking at payments, we're a month into our multiyear managed payment journey and we are more excited than ever about this opportunity. Our new experience is live and it's working well in the U. S.
With an early product, we have over 3,000 sellers enabled and they have enabled 900,000 transactions and $38,000,000 of GMV thus far, which represents an annual run rate of over $500,000,000 From the buyer perspective, our guest checkout buyers who have historically indexed to credit card payments are showing higher conversion and will allow us to simplify the end to end experience for buyers and sellers. In particular, most sellers can expect reduced costs for payment processing with a simplified selling process and access to more buyers who will have more payment choices. Sellers are already realizing significant savings and a simpler interface with one place to manage their eBay business. We're working to expand the program with more sellers driving more volume and realizing more savings as we ramp to 5% in the U. S.
At the same time, we'll continue to improve the experience, implementing new features and functionality, including new payment methods such as PayPal. Shifting focus to other platforms, Step Up delivered modest volume acceleration in Q3 driven primarily by strength in concerts, partially offset by a weaker NFL performance. And classified growth accelerated as well with continued strength in our German platforms Klein and Zeigen and Mobilet. In summary, we will continue to make investments to improve the long term health and competitiveness of our marketplace. We are evolving our approach and plan to further target our product and marketing resources to address the needs of both new and existing users.
At the same time, we will invest aggressively to deliver significant growth opportunities in payments and in advertising. While this will result in a period of slower top line growth, we will grow operating income through margin expansion and we'll continue to aggressively return capital to deliver strong earnings growth. Let me now turn to Scott to provide more details on our quarterly financial results and on our outlook.
Thanks, Devin. Let's begin with Q3 performance starting on Slide 4 of the earnings presentation. In Q3, we generated $2,600,000,000 of total revenue, dollars 0.56 of non GAAP EPS and $381,000,000 of free cash flow, while repurchasing $1,000,000,000 of our stock. Moving to active buyers. In the quarter, we increased our total active buyer base to $177,000,000 Our trailing 12 month growth was 4%, stable versus the prior quarter, driving 2,000,000 incremental active buyers.
On Slide 6, in Q3, we enabled $22,700,000,000 of total GMV, up 5%, decelerating 2 points versus the prior quarter. By geography, the U. S. Generated $9,000,000,000 of GMV, up 3%, while international delivered $13,700,000,000 of GMV, up 7%. Moving to revenue, we generated total net revenues of $2,600,000,000 up 6% on an FX neutral basis and up 5% organically.
We delivered $2,100,000,000 of transaction revenue, up 5% and $560,000,000 of marketing services and other revenue, up 7%. Turning to Slide 8. Our marketplaces platform grew GMV by 5% in Q3, a 2 point deceleration versus the prior quarter. U. S.
GMV grew 2%, decelerating 4 points quarter over quarter. While we anticipated some export headwinds coming into the quarter based on U. S. Dollar strength, our product and marketing efforts did not scale to the extent we expected to offset this pressure. Underlying these GMV dynamics, volume bought by U.
S. Buyers or GMB grew 5% in Q3, a one point deceleration versus Q2. And while not to our aspirations, it decelerated more modestly than GMV. International GMV was stable at 7% with the full quarter from our Japan acquisition offsetting modest deceleration in the UK and other small markets. Total marketplace revenue was $2,100,000,000 up 5% year over year.
Transaction revenue grew 5% in line with GMV with Promoted Listings growing 120% and contributing over a point of growth to transaction revenue. Transaction take rate is slightly higher year over year due to the favorable impact of hedging activity and strong Promoted Listings growth offset by geographic and category mix dynamics. Marketing services and other revenue grew 3%, an acceleration of 1 point versus the prior quarter. Moving to Slide 9, total GMV for StubHub grew 7%, accelerating 2 points from Q2, while revenue grew 7%. Moving to Slide 10.
In Q3, classifieds grew revenue 11%, a 1 point acceleration versus Q2. On major cost drivers, in Q3, we delivered non GAAP operating margin of 26.4%, down 2 points versus the prior year, net of approximately 1 point of foreign exchange favorability. Cost of revenue increased nearly 1 point year over year driven primarily by our first party inventory program in Korea. Q3 sales and marketing expense was up over 3 points driven by marketing and promotional spending on our marketplace and StubHub platforms and the addition of our Japan acquisition. Product development costs were down 1 point due to increased productivity across our product initiatives even as we redeploy into strategic opportunities such as managed payments and first party advertising.
G and A was down nearly one point through operating leverage, our 4th consecutive quarter of G and A productivity. Turning to EPS on Slide 12. In Q3 we delivered $0.56 of non GAAP EPS, up 19% versus prior year. EPS growth was driven by volume growth and the net benefit of share repurchases and a lower tax rate offset by our investments in managed payments, marketing and Japan. Our non GAAP tax rate was lower than expected due to the benefit of discrete items.
GAAP EPS for the quarter was $0.73 up $0.25 versus last year. This includes a $313,000,000 gain on the sale of our Flipkart stake and $126,000,000 gain recognized due to the change in the fair value of a warrant agreement. Stock based compensation for the quarter including related taxes was $127,000,000 up 7% as we continue to utilize equity programs to compete for talent in a highly competitive environment. While our non GAAP financial results exclude stock based compensation, we take a considered approach to granting stock and per our capital allocation strategy, we are committed to offsetting this dilution via stock repurchases. As always, you can find the detailed reconciliation of GAAP to non GAAP financial measures in our press release and earnings presentation.
On slide 13, in Q3 we generated $381,000,000 of free cash flow, which was down 47% on a year over year basis, primarily driven by a Flipkart cash tax payment and the timing of working capital flows pushing into Q4. CapEx was 7% of revenue in Q3 and we now expect to be in the range of 6% to 7% of revenue for the year. Turning to Slide 14, we ended the quarter with cash, cash equivalents and non equity investments of $9,000,000,000 which includes the net Flipkart proceeds of nearly $1,000,000,000 During Q3 as part of our ongoing commitment to capital return, we repurchased $1,000,000,000 of our stock. We ended the quarter with $4,700,000,000 of share repurchase authorization remaining and you can expect us to continue to be aggressive buyers of our own stock. Turning to our Q4 guidance on Slide 15.
We are projecting revenue between $2,850,000,000 $2,800,000,000 representing organic FX neutral growth of 4% to 5%. Implied in our guidance is continued pressure on marketplace volume growth driven by ongoing export pressure from the stronger dollar and similar dynamics with our product and marketing efforts. We expect non GAAP EPS of $0.67 to $0.69 share representing growth of 14% to 18% on an as reported basis. EPS growth will be driven by top line growth, the ongoing benefit of our share repurchase program, foreign exchange and a lower tax rate, partially offset by our investments in managed payments in Japan. For Q3, we expect GAAP EPS in the range of $0.87 to $0.92 per share.
This includes a $389,000,000 benefit resulting from an adjustment to the deferred income taxes effects of the U. S. Tax reform reducing the provisional amounts recorded in the Q4 of 2017. For the full year, we expect revenue in the range of $10,720,000,000 to $10,760,000,000 representing organic FX neutral revenue growth of approximately 6%. We expect operating margin in the range of 27% to 28% and non GAAP EPS in the range of $2.29 to $2.31 per share.
We now expect free cash flow in the range of $1,900,000,000 to $2,000,000,000 This is lower than our previous guidance primarily to the Flipkart cash tax payment. While our free cash flow in 2018 has been negatively impacted by a number of cash tax payments related to the effects of U. S. Tax reform and the Flipkart sale, the underlying cash flow dynamics in the company have not changed. And we are updating our full year GAAP EPS guidance to $2.62 to $2.67 per share.
Given our recent performance and the shift in our approach that Devin referenced in his remarks, we thought it would be helpful to give some initial context on our expectations for 2019. First, we will exit this year having delivered approximately 6% FX neutral organic revenue growth, which is one point below the low end of our original guidance range of 7% to 9%. That said, we still expect to deliver between $2.29 $2.31 per share of non GAAP EPS, which is at or above the upper end of our original EPS guidance range of $2.25 to $2.30 per share. As we look forward to 2019, we believe it is prudent to manage our product and marketing costs to better align to our growth profile. At the same time, we have 2 significant growth opportunities in advertising and payments that require ongoing investment.
In advertising, we will continue to drive significant growth in Promoted Listings, providing our sellers with new tools to drive growth, while increasing adoption, coverage and monetization. We expect Promoted Listings to double in 2019, which will benefit marketplace transaction revenue growth by more than one point, while seeing more modest declines in our non strategic third party advertising. As Devin mentioned, we believe our overall ad portfolio could easily generate $1,000,000,000 of revenue a few years from now. With payments, as we highlighted earlier, we are seeing good traction in our first test market. Prices for participating sellers are lower and we have leveraged our scale to negotiate beneficial pricing on processing cost.
Based on our early results, we have increased confidence in our ability to deliver on an annual revenue opportunity of over $2,000,000,000 with incremental operating profit of approximately $500,000,000 once the majority of the volume on our core marketplace platform has transitioned. Looking at buyer payment preferences, as expected, we have seen some friction from buyers who are accustomed to paying with PayPal, which was required on eBay for a number of years. However, we are seeing higher conversion with buyers who are more accustomed to paying with a credit card. As a frame of reference, eBay guest users who are offered all payment methods including PayPal choose to pay with a credit or debit card nearly 80 percent of the time. And at StubHub where buyers have similar choice of payment methods, we already see 90% using credit cards for their transactions.
Additionally, buyers are excited about alternative payments like Apple Pay, where we are already seeing strong adoption with more than 1 in 10 customers on the iPhone and iPad choosing Apple Pay. These data points reinforce our belief that buyers ultimately want payment choice for their e commerce transactions. Finally, we have hit our product milestone so far and expect to invest approximately $0.05 of EPS in 2018. With all of this as context, our preliminary 2019 expectations are to grow GMV and revenue in the low to mid single digits. With growth at these lower levels, we expect to drive margin expansion and solid operating income growth while making significant investments in payments and our advertising capabilities.
We will continue to return capital to shareholders at accelerated levels similar to this year, while deploying capital to grow via M and A. This should ultimately result in double digit EPS growth in the low to mid teens. We will give more detailed 2019 guidance in our January earnings call as per our normal process. And now we'd be happy to answer your questions.
Our first question comes from Stephen Ju with Credit Suisse.
Okay, thanks. So Devin, I think in your prepared remarks, you disclosed that you have 400,000 sellers promoting 160,000,000 listings. Not to sound childish here, but there are of sellers and over a 1,000,000,000 listings. So granted some of the stuff is in the long tail and probably not appropriate for promotion, But what can you do to drive higher adoption from incremental sellers? And at this point, do you feel like you have any inventory constraints against growing this at a much faster rate?
Thanks.
Yes. Thanks for the question. I mean that is in essence the opportunity, what you just said, which is the last period of time we've been growing in triple digits. As we said, we expect to continue to grow in triple digits next year. And I think that there are opportunities on both the source and the demand side.
So on the source side, we continue to see more and more sellers adopt this. We're opening it up to more placements and we're opening it up to more opportunities for sellers to promote their listings. So as an example, for a long period of time, consumer sellers didn't have that opportunity, now they do. And business sellers are getting more chances in different parts of our product flows to promote at their option. I'll remind you that promoting a listing is an option for a seller.
It's not a requirement. On the other side, ultimately, we've moved to fixed placements within both search and merchandising and somewhere is on our view item page. But I think that where it will ultimately move is that an algorithm will decide there won't be fixed positions. They'll ultimately be a unified way that we can monetize pixels on every screen. And there may be some flows where there doesn't make sense to have any promoted listings because of cannibalization and there may be other flows where they may all be promoted because that's the highest way that we can monetize on behalf of not only ourselves, but on behalf of our sellers.
So there is a lot of runway. I mean, I really think we're in the first inning of this. And I want to also be clear, we're going to be very careful of the buyer experience. We don't think a good buyer experience is to have every pixel on every page promoted. We've done a lot of good work simplifying and clarifying relevance and personalization.
We don't want Promoted Listings to undermine it, but we don't think that it will. And we think we have so much runway for buyers and sellers on this that it will be, as we said in the prepared remarks, advertising and payments are 2 big new businesses on top of the existing eBay business.
Thank you.
Thank you. Our next question comes from Eric Sheridan with UBS.
Thanks so much for taking the questions. Maybe a little bit of clarity on the new framing around where the business is going as you exit 2018 and into 2019. On the marketing side, wanted to know what you learned from some of the marketing investments you made in 2018? And as you sort of aim for a combination of harvesting existing users and being a little more targeted and growing the user base of the platform, if I heard the messaging right, what does that mean for volume of dollars and where you expect to get the best ROI on your marketing dollars? And then on the return side, just want to understand how much of return of capital is driven by free cash flow versus possible leverage in the model?
Thanks guys.
Yes, Eric, this is Scott. Look, I think as context, remember last year we held marketing flat as a percentage of revenue, while as we entered 2018, talked about leaning into marketing throughout the year, really on a number of different fronts. And to your question, some of these have worked out well and others haven't and just let me try and break down a few. First off, as we entered the year and a little bit last year, we were spending on what we would call seller incentives or inventory incentives. And as we diagnose the different cohorts and tranches of those customers and those transactions, what we've seen is that the CLV in those are lower.
And so the ROIs aren't as good over time. And so what you'll see as we head forward is less of that. Another aspect is the is kind of middle of funnel, if you will, driving more buyers to the ecosystem. And those are candidly there is not one ROI within that ecosystem. There is a number of different ways you can measure it and there is not one answer.
Some lower price coupons for buyers have worked really well, some higher price ones haven't worked as well, etcetera. But we continue to work on refining the ROIs, the appropriate level of spend, making sure we're focused on both activity per buyer as well as new buyer acquisition. And finally, we shifted a fair amount of our spend to upper funnel, if you will, brand, not just TV, but social and others. And obviously that just takes longer. Let Devin weigh in on those aspects of it, but I think overall we're still committed to a brand campaign, but the reality is it's going to take longer and we expected that going into it.
As related to that to the outlook, what you can expect is that next year we will be getting leverage off of the 2018 base, reducing our marketing as a percentage of revenue and kind of deploying within those 3 buckets as I talked about. And Devin, you want to weigh in on the brand and then I'll ask the last one.
Well, I guess what I'll say all I'll say is what we've said before which is we have a unique situation. The eBay brand is very well recognized, but not always well understood. And we're very proud of the user experience. We think it's excellent and it's evolved so much even over the last couple of years and we're seeing this that new buyers are responding really well to the changes that we've made in the last few years. So we need more of them.
And I think part of that is messaging our brand. Brands are harder to measure than our lower funnel spend as Scott said, but we're committed to it. We'll use all channels. And it will take time. This is one of the top 30 brands in the world.
It's very well habituated. So it does take time to change the perception of it, but we are committed to it. We will move it and we will make sure that we invest appropriately and don't waste money
while doing it. On your I think your last one there, Eric, free cash flow versus leverage. We have $9,000,000,000 of debt today. I don't anticipate that we would be delevering at any point in the near future. At the same time, we've got some pretty robust plans for share buyback and capital returns to shareholders.
We've got about $4,700,000,000 of free cash flow authorization remaining and we'll and sorry, stock buyback authorization remaining And we'll continue to be buying back at these elevated levels like we've talked about over the last 9 months or so.
Thanks so much.
Thank you. Our next question comes from Edward Yruma with KeyBanc Capital Markets.
Hey, good evening. Thanks for taking the question. On the issue of the behaviors of the well habituated consumers, I guess, is it an issue of refining the functionality of the products you're rolling it out? Obviously, you're slowing down some of the rollout. Or is there some kind of training or other way that you can help bring those behaviors of the habituated users more closely aligned to the new users?
Thank you.
Thanks for the question. Certain of our services have been well received across the board and others of them take more time. And an example of something that takes more time that is really going well with new customers, but it's taking more time is a full product based commerce experience, where we fully compress the product side. What we see is that as you would expect new customers who don't haven't shopped with eBay before come to it and they respond very well to that. Existing customers, some of them shop on eBay, they've been shopping on eBay for 20 years, so it's a new experience and there's always some friction when you change an experience.
I think some of it is time and habituation, some of it is education. And as we said, our approach is going to change a little bit, which does slow things down a bit. And that is we'll go fast with new customers and we'll go slower with the existing base. And over time, the mix will change. So we're still very confident in what we're doing.
And we do believe that the existing base will evolve and it will come along. But we are very conscious that we don't want to screw up the existing ecosystem. We want to we have a good stable base of customers, a very successful business and we don't want to disrupt that. So we'll be more aggressive with the new and we'll go a bit slower with the existing buyers and eventually we'll get them both there.
Great. Thanks so much.
Thank you. Our next question is from Ross Sandler with Barclays.
Hey guys. Two questions. So you mentioned again the FX impacting U. S. Export in the quarter?
And as we look forward to the lowtomidsingles GMV and revenue growth in 2019, Are there things that are impacting the business globally like this that are temporary? Or do you see this as kind of more of a structural deceleration in terms of what's happening with just overall growth? And then the second question is, the market really isn't assigning any value to StubHub or Classified currently. So do you think things make sense stepping back to keep the overall company structured the way that it is with 3 different entities all under one roof? Or do you think there could be opportunities to unlock value by looking at other possible corporate structures here?
Thank you.
Thanks for the question. Let me do the second one and then Scott will talk about FX. Look, we're really clear eyed about our portfolio. I mean, we have always done the right thing for shareholders. And remember going back to selling stakes in MercadoLibre and Flipkart, we sold eBay Enterprise at the time of the PayPal spin.
So we don't approach the world as we need to collect assets. With that said, we think this is the right portfolio. The reason is we've got market leading positions in these assets and we are adding significant value to them. They don't stand in a vacuum. They're not floating in space inside an eBay ecosystem.
We are helping those assets quite a bit through the core synergies with the core. So again, we've never said never to anything. Our job is to create value for shareholders. But this is the right portfolio for the company now we believe. We'll always evaluate it.
And our standard is do we have market leader and are we adding unique value to it? And with StubHub and Classifieds, the answer is yes, we are.
Hey, Ross. On foreign exchange, I don't know if I'd say the strength of the dollar at this point is temporary or not. I think our assumptions at this point is it stays at these levels and that we'll continue to work on our product and change our product in either search or promotion or visibility of U. S. Dollar or U.
S. Dollar denominated seller inventory in other markets. And we continually work on that. But right now, it assumes kind of status quo, if you will.
Thank you. Our next question comes from Brian Nowak with Morgan Stanley.
Thanks for taking
my questions. I have 2. The first one is on payments. Appreciate the color on the early payments rollout. Devin, if you could sort of talk to the 1 to 2 key areas that you're focused on executing correctly to really fully scale the payments opportunity over the next 1 to 2 years?
Then the second one is on guaranteed delivery. I thought your comments were interesting around the size of it. Do you see that as a necessary area to invest to continue to push more guaranteed delivery to grow over time?
Yes. Thanks for the question, Brian. On payments, we're really happy with where we are. We have some product features and functions to roll out. As we said, PayPal will become a form of payment on within managed payments at some point next year.
We'll enter the 2nd market at some point next year. But we're completely focused on customer benefits. We are completely focused on driving an integrated product experience at lower cost for sellers and payment choice for buyers. And that's exactly on our roadmap. And as I said, we're whatever we are a month a little bit more than a month in and this is going exactly as we would have hoped at this early stage.
And what's really encouraging is that we are delivering real benefits to customers. You see it in the form of payment choices buyers are making. You see it in the savings and the feedback that we're getting from sellers. I'm really look, it's a long road, but it's not that long. I'll remind you that the operating agreement with PayPal is up in June of 2020.
And after that, we're free to do whatever we want. And we're racing as fast as we can to deliver customer benefits up to get to that date. On EGD, we are investing in delivery. And we're seeing really good results with Guaranteed delivery and the share is going up. We're going to keep driving it up.
I think the question is do we need to invest more. I'm not sure right now. Within the framework do is deploy large amounts of capital to build a warehouse strategy. I've never thought that. I don't believe that.
And I think that we use data and we use the diversity of our inventory to close the gap. And just as one example, as we've said before, 2 thirds of packages are delivered within 2 business days in the United States. That's pretty good, particularly given the breadth of our inventory. And we do that without a warehouse strategy. So we're going to keep driving hard to close delivery gaps.
We're going to keep driving hard to give customers increased penetration of free, more clarity on tracking and time, but we're on the right trajectory. Customers Thank
you.
Thank you. Maybe 2 if I could please. On payments, it's clear how eBay earnings and how this helps eBay earnings over time and how you can also save sellers money and simplify the process. But just curious if you see the new payment platform in any way helping to improve active buyers and or GMV from sort of some of the top line metrics? And then on the marketing, marketing spend obviously ramped about a year ago and remained elevated even through Q3.
But U. S. GMV growth still decelerated, I think, below 3% in the quarter. So just curious what gives you the confidence that as you pull back at what seems to be a fairly meaningful amount on marketing that you can actually maintain mid single digit growth?
Thanks.
Yes. I'll let Scott handle the second part and let me handle the first. Let me start by saying this again. We are the only marketplace in the world that handles payments and checkout the way that we do because of the very unique relationship and history with PayPal. So I absolutely believe, aside from the direct economics, that we will have more buyers because there are many buyers in many jurisdictions where they have a preferred means of payment that we don't offer.
And this unique situation of in essence, favoringrequiring PayPal for buyers, look, I think PayPal is a great company and there are a lot of customers who want to use PayPal and they will be able to. But there are we could give you dozens of examples of other payment choices that people want to make that we don't make available today and we're going to as this rolls out. On the seller side, I don't want to minimize that as well. We need to reduce sellers' costs. We need to deliver an integrated product experience.
Every other marketplace that you can mention, every other digital marketplace handles the way that they provide information to their sellers or their drivers or their home renters in one place. They say, here's your transactions and here's where the money went. Only in this eBay world do we say here are your transactions and then go somewhere else to figure out where the money went. It really makes no sense. And that's the essence of what we're doing.
We're going to bring it together for sellers. That means better economics for sellers and more competitiveness and ultimately a better checkout experience, not just on Payment Choice, but seamless checkout. I am very optimistic that when we get there to the other side and the majority of our transaction volume is through managed payments, we won't just pick up the direct economics of it. We'll also pick up a better experience and we'll see a direct impact on accelerating marketplace dynamics.
Yes, Mark, to your second question, point you to kind of activity per buyer in terms of what gives us confidence as we look forward. At this point, this year, we're really lapping some pretty big gains we made last year on our both product and marketing efforts that weren't repeated this year and fundamentally we started to lap and weren't able to offset the lapping of the gains that we made last year. So we feel at this point we're sort of limited by our ability to grow active buyers faster until we can scale our experiences for new buyers. But at the same time ensuring we don't disrupt our existing buyers. So if you look at our active buyer growth growing at about 4%, while it's not our aspiration that level of stability in active buyer growth combined with kind of stability now in GMV buyer as we look forward makes us more confident in how we stand albeit not to our aspirations to date, but certainly in line with the guidance that we've given for both Q4 and next year.
Okay. Thank you.
Thank you. Our next question comes from Thomas Forte with D. A. Davidson.
Great. Thank you for taking my question. So wanted to ask about capital allocation. You've talked a lot about the free cash flow and you still generate very significant free cash flow and using that to maintain your accelerated pace of buybacks. Do you feel any differently about M and A given some of the challenges you've talked about today as far as customer growth, new customer versus old customer?
Thank you.
Yes. No, I don't think specific to the latter question, I don't think we feel any different about M and A. I think the reality is, we set out on a very aggressive capital return strategy given the free cash flow dynamics that you laid out as well as kind of our cash situation and we've executed about half of that to date And as we look forward, not only for capital return, but also M and A, we don't really see a change, while keeping the stock buyback for the next year at the elevated levels that we've talked about.
M and A has and will continue to be part of our playbook. I think we need to continue to maintain a really strong balance sheet in part to return capital to shareholders as Scott said and in part to capitalize opportunities as they come up. We're disciplined acquirers. I think that's the important thing to hear. We don't swing wildly at things.
We have bought companies. We will buy companies. But we believe in our organic future. So we'll buy something when it can add to our organic future, but not to replace it. We have a lot of confidence on the path we're on.
And if M and A can supplement that, then that's great. We'll do it. But we don't if implicit in the question was we have to buy something to replace the path we're on, we don't believe that at all. And I think for our investors, they don't want us to do that. I think our investors want us to be disciplined capital allocators and we've been that and we'll continue to be that.
Great. Thank you very much.
Thank you. Our next question comes from Heath Terry with Goldman Sachs.
Great. Thank you. As we look at sort of the margin expansion that you guys are talking about later this year and next, I'm curious if you can quantify for us in some way how much of that is going to come from your tech and I know a big part of the original goal
Sorry. That's okay.
Can you just repeat what
you said? Okay. So I was just asking basically, tech investment, which of the savings do you expect on expenses next year or margin expansion talking about next year in terms of tweaks. Since so much acceleration that we've expected this year was come from some of those tech investments, what are the top 2 or 3 things that you won't get out of your tech budget going forward? And kind of impact should we expect that they have?
Hey, Heath, this is Scott. So you broke up a lot, but let me answer I think what you asked. First off, as I called out, you can expect leverage in sales and marketing and for that matter in G and A as we head into next year. We do expect to get some productivity within the product and technology efforts last year, a combination of what the Mozart and the site ops team has done on site operational costs as well as focusing our investments with the limited restructuring that we did in the middle of the year and as we look to refine what we will be focusing on next year. And I should say that that's obvious, I think in the prepared remarks, while continuing to invest in payments and advertising over the course of the next 15 months.
Okay, great. Thank you.
Thank you. Our next question comes from Colin Sebastian with Robert Baird.
Thanks for taking my questions. I guess first off just given the shift in approach, I wonder if part of that will include any change with respect to the profile of sellers or the types of seller inventory that you're focused on. Past
the
share of new products on eBay, whereas eBay in the past the share of new products on eBay, whereas eBay clearly has already strong differentiation among older or used segments of retail. And then, you mentioned also the economic benefit to sellers from payments, Devin. I wonder if there's any thought with the ramp in advertising, if there are also opportunities to stimulate additional seller listing activity through perhaps varied marketplace pricing? Or are you satisfied with the current pricing structure as it stands? Thank you.
Yes. Thanks for the question, Con. On the seller base, I don't our business seller base continues to grow and we're really happy with our inventory mix. We continue to grow the inventory on the marketplace. If anything, this has been more of a demand side issue than a supply side issue over the last year.
Has been the constraint on faster growth. There's been more demand side than supply side. I think the one caveat to that is something that we've talked about on prior calls, which is we continue to see good traction with brands. And we continue to evolve our brand experience so that brands have a comfortable place to sit within the eBay marketplace. And by brands, I don't just mean direct from brands, but authorized resellers as well.
So just recently in the last couple of weeks, we rolled out a new direct from brand, direct from authorized reseller experience that you can see on the marketplace. And the number of brands continues to grow because brands want choice. They want to sell on a marketplace that has 177,000,000 customers and doesn't compete with them. And that's pretty rare and we're almost the only game in town that can say that. On the payment side and on the Promoted Listing side, again, I think it may be that we can acquire different types of inventory over time.
But right now we're seeing good traction with SMBs. We're seeing good traction with brands. We continue to grow on that. EBay has never been bigger in the number of business sellers or the amount of inventory as it is today. So there may be opportunities, but again, I think more of the approach is how we approach the buyer side and navigate this divide between the existing and the new customers.
And that's kind of where some of the focus was in our remarks. Okay. Thanks, Dylan.
Thank you. Our next question comes from Dan Salmon with BMO Capital Markets.
Hey, good afternoon, everyone. Maybe just a follow-up on an earlier question about traction of the number of sellers using Promoted Listings. Could you maybe give us an update specifically on Promoted Listings Lite? I know that was a bit of a follow-up rollout and a bit more of a slim down product. It seems to me that would be an important one for expanding that group of users, but I would just love to hear a little bit more about that.
And then Devin, just to come back to your branding campaign, I think that some of the key themes there are expecting results to take a little bit more time certainly, and also targeting it a little bit more towards new buyers clearly. I'm curious about some of the creative, some of the messaging you talked about highlighting it as a major e commerce destination. And while I'm certain, I haven't seen all of the ads you're running, I've seen some and I know they're oftentimes featuring major brands that are selling on the platform as well. I wonder, do you see the messaging changing to focus a little bit more on educating those new buyers on some of the elements of eBay that they maybe don't know that it is just yet? For example, the level of fixed price sales, the levels of guaranteed delivery, the levels of new goods sold.
I'd just be curious to see on how the messaging may change in addition to the targeting. Thanks.
Yes. Thanks for both questions. I don't have the exact breakdown of Promoted Listings lite versus Promoted Listings, but I don't think it's that meaningful a distinction. It's just some of it was just the way we segmented the product to allow consumers to adopt. And I think they're both basically a promoted listing placement.
There's no difference in pricing monetization or anything else. So I'd say that we continue to see good traction across the board with Promoted Listings. And as we said, we'll continue to as we drive triple digit growth in that area. On the brand, we continue to evolve it. I'd also distinguish when you run a brand campaign, what gets the most attention is a TV spot.
But TV is only one element of it. There are multiple aspects to it. There is social. There is the way we reach people through CRM. There is even the on-site experience is brand.
For me, what brand is, is about educating people about eBay, not about a particular thing that we're asking them to buy or sell. And yes, that message will continue to evolve. You'll see an evolution for holiday. You'll start to see the evolution even in the next few weeks as we evolve the campaign to be more direct. I think what's important is that eBay is a dynamic vibrant place.
We don't want our relevance and the attributes of our business as they exist in 2018. So we're trying to get both of those right. And yes, you'll see it continue to evolve. And we've got a full plan for this holiday across all channels. And we'll do a lot of what you just said in various medium starting in the next few weeks.
Operator, we'll take one more question.
Thank you. Our final question comes from Douglas Anmuth with JPMorgan.
Great. Thanks for taking the question. I just wanted to ask 2. First, just on the strategy But just trying to understand beyond that like into 2020 and I know it's a little far away, but is this just the new normal in terms of how you're going to operate? Or is this more of a temporary thing?
You did talk about being positioned for growth in 2020. And then just second, Devin, hoping you can talk about the operating environment for sellers in terms of just overall retail, some changes that are happening on shipping, example, potentially out of China, collecting taxes, tariffs, that kind of thing? Thanks.
Thanks. On the first part, look, I think this period is a transitional period as we both move the base along to a significant evolution of our platform and prepare for what I hope will be an exciting 2020 beyond. So no, I don't think it's a permanent approach. I think it's the most prudent approach given where we are now to get through whatever it is, 12, 15 months. But I do still believe we'll be able to drive acceleration in the core business and then drive 2 big businesses on top of that.
Many of them, as we said, for various reasons, don't really show up and make a material impact until 2020 beyond. But I think this is the most prudent approach for this transitional period that we're in. On tariffs, I get there's a lot in that question. I guess you're talking about tariffs generally, about China, about the postal changes. I mean, I'd say on tariffs themselves, they've had very little impact.
Most of the tariffs have been consumer goods and we haven't seen very much. On the proposed changes to the China import on the postal side, we don't it's a little early on that, but I'd fruition. A majority of our China inventory is now warehoused in the United States. Obviously, they're not our warehouses, but we've helped our Chinese sellers with warehousing domestically. So that wouldn't be subject to those quarters.
We've also this year rolled out a shipping service called Speedpack and Speedpack gives China sellers multiple delivery options that wouldn't be subject to the proposed postal changes. So I wouldn't say there's no impact, but actually in some ways if the changes happen for everyone importing China inventory, we think we're about the best position given that we've been in this business for a long time and we've taken a lot of changes to shrink time and distance and cost for Chinese sellers and build diversity at the last mile.
Great. Thank you.
Thank you.
Ladies and gentlemen, thank you for participating in today's question and answer session as well as today's conference. This does conclude the program. You may all disconnect and have a wonderful day.