Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the eBay Q2 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Joe Belante, Vice President, Investor Relations, you may begin your conference.
Good afternoon. Thank you for joining us, and welcome to Ebay's earnings release conference call for the Q2 of 2019. 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 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 Q3 and full year 2019 and the future growth of 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 July 17, 2019, and we do not intend and undertake no duty to update this information. With that, let me turn
the call over to Devin. Thanks, Joe, and good afternoon, everyone. Our plan for this year is to deliver a great customer experience, grow our active buyer base and scale our immediate growth initiatives, advertising and payments. As we build on our strengths of value and unique selection in our marketplace, we are increasingly intermediating and managing that marketplace to better control both the consumer and the seller experience while creating new growth opportunities. In Q2, we executed that plan.
We made tangible customer experience improvements. We delivered good active buyer growth and we continue to scale ads and payments. In addition, we drove efficiency to fund our investments while making progress on our portfolio review. For the quarter, total GMV was flat, revenue was up 4%, while our active buyer base grew 4% to 182,000,000 dollars Underlying these results, GMV on our marketplace platform is down 1%, StubHub volume was up 6% and our classified platform grew revenue at 12 We also returned $1,600,000,000 in capital to investors through share repurchases and dividends. Scott will go into more detail on our financial results shortly.
First, let me provide some context on our core business. We've been reducing and redeploying low ROI marketing spend, resulting in less GMV in the short term, but stable sold item and active buyer growth. Although we've reduced certain types of incentives, we've maintained our focus on driving healthy customer growth while evolving our brand. We're seeing improvements in buyer acquisition, driven by higher conversion of new and lapsed customers in part due to product enhancements and also from more targeted marketing and promotion. We have effective levers to acquire buyers and are expanding our effort to drive frequency and reduce churn.
In Q2, we improved the buyer experience by increasing the number of ways buyers can discover value in unique selection. By leveraging data on existing listings, we launched new pages that transformed previously unstructured listings into a more intuitive set of product results. We also recently released our brand outlet, an experience that aggregates products from top consumer brands all with fast and free shipping. Following changes to our returns experience introduced last year, more than 1 third of our U. S.
Buyers are now able to instantly receive labels and track their returns. We started rolling this out to more major markets in Q2. We also introduced significant seller improvements, including offers to buyers, buy again and trending in your interest. We extended seller protection by making it easier to identify and take action against abusive buyers. We dramatically simplified volume pricing, offering more ways for sellers to offer discounts and we provided better ways for sellers to contribute more complete structured product information to help buyers find their listings, while building new capabilities to drive conversion by better leveraging this expanded catalog.
One emerging challenge for our small business sellers in the U. S. Is the rapidly evolving landscape for Internet sales tax. At the start of the year, only a handful of states had active legislation requiring marketplaces to collect sales tax. By the end of the year, that number will grow to more than 30 states and it will cover the majority of U.
S. GMV. In Q2, this impacted the U. S. Business by more than one point and we're taking active measures to mitigate this challenge.
However, this headwind is likely to further pressure U. S. Results until we lap a fully rolled out Internet sales tax landscape. Looking at our international core markets, overall performance was relatively stable with some notable highlights. In Korea, we drove 2 points of GMV improvement in the quarter through investments in our loyalty platforms supported by promotions such as Big Smile Day.
Our European markets were slightly down due to continued macroeconomic pressure in the UK, while Japan continues to gain share primarily due to strong buyer acquisition and marketing investments. Our revenue growth continues to outpace GMV in part due to acceleration in advertising and payments. For ads in Q2, Promoted Listings drove $89,000,000 of revenue, up over 130% from a year ago. Over 940,000 sellers promoted over 250,000,000 listings in the quarter. Sellers are increasingly choosing to invest in promoted listings and are seeing strong conversion and velocity.
We plan to expand these capabilities further while always balancing the impact on the buyer experience. We expect to end the year with more than $700,000,000 in total ad revenue and we're well on track towards our goal of $1,000,000,000 in ad revenue over time. For payments, we continue to see accelerated adoption of managed payments in the U. S. Since the launch in late Q3 last year through the end of Q2, we've now processed over $636,000,000 in payments for over 6,000 sellers participating to date.
Sellers on eBay Managed Payments are seeing good conversion and their buyers are able to pay using credit cards, Apple Pay, Google Pay and PayPal. Most sellers are saving on payment fees and they've simplified their experience with eBay by managing their business in one place. In Germany, we're on track and subject to regulatory approval, we intend to be live by the end of the year. We're confident in our managed payment plan and we look forward to realizing $2,000,000,000 in revenue and $500,000,000 in operating income at scale. At StubHub, Q2 volume benefited from increased conversion, active buyer growth, 1st party sales acceleration and favorable market conditions, including the longer series for the NBA and NHL playoffs.
In our international markets, a strong Champions League Final and Women's World Cup helped offset lapping pressure from the Men's World In addition, we launched a new loyalty program for top buyers and we continue to improve fulfillment with more technology integration leading to reduced service costs and improved margins. Turning to classifieds, we continue to execute our playbook of building market leading horizontal marketplaces complemented by scaled vertical experiences and categories including motors and real estate. In Q2, we generated another quarter of double digit growth based on the execution of this strategy. In Germany, momentum in our motors platform has extended our leadership position and our horizontal platform is rapidly increasing customer engagement leading to advertising revenue growth. In the UK, our expanded motors offering continues to scale and drive growth in both our organic and acquired businesses.
Core eBay integration continued to deliver substantial synergies with over $85,000,000 of GMV to eBay in Q2, while over one point of revenue growth to class supplies. Now let me update you on our portfolio review. We're making significant progress and actively reviewing the role and value of StubHub and Classifieds in our portfolio. The review is underway and we're focused on determining the best path forward to create shareholder value. In addition to that ongoing work, today we are announcing 2 other actions aimed at further strengthening our portfolio.
First, we've reached a commercial agreement with Paytm Mall to bring our global inventory onto one of the largest marketplaces in India. EBay will open a store on Paytm Mall, which will provide 100 of millions of Paytm and Paytm Mall's customers with access to our global inventory. As part of this collaboration, eBay is making an investment in Paytm Mall for a stake of approximately 5.5%. 2nd, we've reached an agreement to sell our flash sale German business Brands for France. Divesting this business will allow our German team to focus on the opportunities in the core business.
Finally, throughout this year, we are continuing to drive margin improvement through disciplined cost management and reinvesting savings in our growth initiatives. Later this year, we'll further communicate our approach to drive growth and margins. In summary, we are executing our plan to deliver outstanding customer experiences now while scaling growth opportunities and driving meaningful shareholder value. Now let me turn it over to Scott to give you more details on our quarterly financial results.
Thanks, Devin. I'll begin with my prepared remarks with our Q2 financial highlights starting on Slide 4 of the earnings presentation. In Q2, we generated $2,700,000,000 of total revenue, $0.68 of non GAAP EPS, 2 points of non GAAP operating margin accretion, $607,000,000 of free cash flow and we have returned $1,600,000,000 to shareholders through repurchases and dividends. Based on these results, we have increased confidence in our 2019 earnings outlook. We are reaffirming our organic FX neutral revenue growth rates and raising GAAP and non GAAP EPS guidance for the full year.
Moving to active buyers on Slide 5. In the quarter, we increased our total active buyer base by 2,000,000 to a total of $182,000,000 up 4%. Similar to Q1, we're maintaining stable buyer growth by increasing marketing spend that targets new and lapsed buyers, which is offsetting a modest increase in existing buyer churn. Turning to Slide 6. In Q2, we enabled $22,600,000,000 of GMV, flat year on year, accelerating 1 point versus Q1.
The U. S. Generated $8,800,000,000 down 5%, while international delivered $13,800,000,000 of GMV, up 2%. Moving to revenue on Slide 7. We generated net revenues of $2,700,000,000 up 4% organically.
We delivered $2,100,000,000 of transaction revenue and $557,000,000 of marketing services and other revenue, up 4%. Turning to Slide 8. Our marketplace platform GMV was minus 1% in Q2, flat versus the prior quarter. U. S.
GMV was minus 6% on a year on year basis, driven by 5 points from the continued reduction in non platform marketing and more than a point from Internet sales tax. Specific to Internet sales tax, in January, we highlighted that the landscape was fluid and rapidly evolving. At that time, a small number of states had active legislation requiring marketplaces to collect sales tax, regardless of marketplace or seller nexus. As we exit Q2, we are now seeing more states enact with faster effective dates than we originally expected. In January, 3 states had enacted marketplace collection laws.
By June, 9 states have required marketplaces to collect sales tax and 23 more will be live in the second half, many with compressed timelines. We're seeing an impact mostly on higher priced items. And in Q2, this drove more than a point reduction of year over year growth in the U. S. We expect this dynamic to continue and likely accelerate for the rest of the year.
International GMV grew 2%, decelerating 1 point, driven by U. K. Macroeconomic pressure, somewhat offset by acceleration in Korea driven by our Big Smile Day promotion. Total marketplace revenue was $2,200,000,000 up 3%, decelerating 1 point from the prior quarter. Transaction revenue grew 5%, a 1 point deceleration and 6 points higher than GMV.
The gap between GMV and revenue continues and is being driven by 2 factors: triple digit revenue growth in Promoted Listings, which made up approximately 3 of the 6 points and category mix effects, which contributed approximately 2 points. Marketing services and other revenue was minus 6%, accelerating 2 points versus Q1 based on growth in our Korean first party sales. Our 3rd party ad business continues to decline as we shift efforts away from non strategic third party ad placements towards our 1st party Promoted Listings product. Marketplace margin was 32%, up over 2 points, primarily due to the continued cost leverage and year on year gains from our currency hedging program, partially offset by a stronger U. S.
Dollar and investments in payments. Moving to Slide 9 on payments. Since our launch in September, we've intermediated $636,000,000 of GMV. In Q2, we intermediated $273,000,000 of GMV with a June penetration rate of 3.8%. Our buyers on the new platform are demonstrating their desire for increased choice.
In June, they chose to pay with credit cards, Google Pay and Apple Pay approximately 2 thirds of the time. Our run rate of annualized GMV is now well over $1,000,000,000 as we continue to make steady progress towards our financial targets. Turning to Slide 10. StubHub GMV grew 6%, accelerating 8 points on the strength of our initiatives in favorable market conditions as Devin mentioned. StubHub revenue grew 7%, accelerating 7 points from Q1.
Transaction revenue grew 1%, a 4 point acceleration driven by volume, partially offset by a lower take rate from price changes and event mix. MS and O more than tripled, delivering $21,000,000 of revenue in Q2. Most of StubHub's MS and O revenue is 1st party sales, which provides buyers access to unique and exclusive inventory. In addition, MS and O includes insurance for purchase tickets, both are nascent, but have potential for significant revenue growth. StubHub segment margin was 4%, up 2 points driven by operational leverage and a stronger U.
S. Dollar, partially offset from the increase of first party sales, which operates at lower margins. Moving to Slide 11. Classifies grew revenue 12%, flat with Q1. Revenue continues to grow in double digits, driven by ongoing strong performance in both platforms in Germany and our motors offering in the UK.
Segment margin for Classifieds was 38%, flat year on year as operating leverage is offset by marketing investments and a stronger U. S. Dollar. Turning to Slide 12 and major cost drivers. In Q2, we delivered non GAAP operating margin of 26.9%, which is up 170 basis points versus last year, 50 basis points of which was driven by a stronger U.
S. Dollar impacting all spend categories. I will focus my remaining comments on the operational dynamics of our expenses as we continue to grow margins in 2019 while investing in payments. Cost of revenue increased 1 point year over year, driven by Korea and StubHub's first party cost of sales and site operations. Q2 sales and marketing expense decreased 1 point, driven by a reduction in marketing that we've discussed previously, partially offset by our acquisition in Japan.
Product development costs were down over 1 point from increased productivity, even as we continue to invest significant resources into strategic opportunities such as payments and ads. G and A was down year on year, our 7th consecutive quarter of productivity. Our disciplined execution continues to drive leverage. Moving to EPS on Slide 13. We delivered $0.68 of non GAAP EPS, up 28% versus the prior year, our 5th consecutive quarter of double digit EPS expansion.
EPS growth benefited from our share repurchase program and margin expansion, partially offset by our investment in payments. Favorability versus our guidance in April was mostly driven by tax and strong cost control. GAAP EPS for the quarter was $0.46 down 27% versus last year. The decrease in GAAP EPS is primarily driven by lapping a gain created by acquiring Geosys and lapping a warrant agreement, which we can now confirm as Audient. As always, you can find a detailed reconciliation of GAAP to non GAAP financial measures in our press release and earnings presentation.
On Slide 14, in Q2, we generated $607,000,000 of free cash flow, up 2 23%, driven by the timing of cash taxes and CapEx as well as strong operational growth. Moving to Slide 15. Our capital allocation strategy tenants and targets have not changed. We've executed our 2nd dividend payment of $120,000,000 while continuing to aggressively buy back shares, demonstrating our confidence and commitment to return capital to shareholders in a disciplined and diversified manner. In Q2, we repurchased nearly 40,000,000 shares at an average price of $37.62 per share, amounting to $1,500,000,000 We ended the quarter with $4,200,000,000 of share repurchase authorization remaining.
For the quarter, we ended with cash and investments of $6,300,000,000 and debt of $9,300,000,000 Turning to Slide 16. I'd like to remind you of our specific capital allocation plans for 2019 and the progress we've made through the first half and since separation. As planned, we've initiated a quarterly dividend and made 2 payments. We announced a $5,000,000,000 of share repurchases in 2019, and we've repurchased $3,000,000,000 worth of shares in the first half. Since separation, we've bought back $14,300,000,000 representing nearly 31% of shares outstanding net of dilution, which amounts to more than 150% of our free cash flow over that time.
Our midterm leverage targets remain 1.5x net debt and gross debt below 3x EBITDA. We expect to pay down $1,600,000,000 of debt in Q3 without refinancing. We expect our net debt over the long term between to be between $3,000,000,000 and 4,000,000,000 while maintaining its BBB plus rating. On Slide 17, before we look closer at Q3 full year guidance, I want to call out a couple of dynamics that are impacting our revenue outlook this quarter, but not our and for the rest of the year, but not our organic FX neutral revenue growth rate or our non GAAP earnings estimates. The sale of Brands for Friends and the stronger U.
S. Dollar will lower full year revenue dollars by approximately $100,000,000 and in Q3 by approximately $30,000,000 dollars For Q3, we are projecting revenue between $2,610,000,000 $2,660,000,000 growing 1% to 3% on an organic FX neutral basis. We expect non GAAP EPS of $0.62 to $0.65 per share, representing 10% to 15% growth. EPS growth is driven primarily by the net benefit of our share repurchase program. In addition, operational growth, including margin expansion, will be offset by our investments in payment intermediation.
We are expecting GAAP EPS in the range of $0.40 to 0 point 4 $4 per share is in the range of $10,750,000,000 to $10,830,000,000 maintaining the organic FX neutral growth rate of 2% to 3%. Operating margin expansion continues at 28% to 29% and non GAAP effective tax rate decreases slightly to 15% to 17%. We are increasing our full year non GAAP EPS guidance to $2.70 to $2.75 per share based on a stronger Q2, a modestly improved go forward tax rate, volume leveraged and disciplined cost control. Cash flow remains $2,100,000,000 to $2,300,000,000 as does CapEx at 5% to 7% of revenue. Finally, we are increasing full year GAAP EPS to $1.97 to $2.07 per share, driven by cost control, lower stock based compensation and a modestly lower tax rate.
In summary, we entered 2019 focused on delivering shareholder value through modest revenue growth, expanding margins, strong double digit non GAAP EPS growth and more capital return. Halfway through the year, we continue to deliver on this plan with 3% FX neutral organic revenue growth, one point of margin expansion net of foreign exchange, 27 percent non GAAP EPS growth and over $3,200,000,000 in total capital return to shareholders. We continue to operate as disciplined capital allocators, balancing strategic acquisitions and investments that provide buyers around the world with value and selection, while continuing to repurchase shares and divest assets that provide a better return for our investors. We continue to be confident in this year and beyond, holding organic FX neutral revenue growth and raising GAAP and non GAAP EPS guidance for the Q2 in a row. Looking further out, we'll preview 2020 during our Q3 earnings call as we've done in the past.
And now we'd be happy to answer your questions. Operator?
The first question comes from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.
Great. Thanks. When we look at GMS growth, I was wondering if you could kind of help disaggregate for us some of the drivers behind that, particularly as it relates to the efficiencies that you're seeing in marketing. How should we separate sort of the impact of those marketing efficiencies versus the ongoing technology improvements and sort of the efforts that you're making around structured data, which I know we've talked about for a while, but also the new product pages. Just wondering, we see the net effect, just hoping you can kind of give us a little bit more on the pluses and minuses behind that?
Yes. Heath, maybe I'll just comment on numbers and then Devin can elaborate maybe a bit on the product stuff. Generally speaking, overall, if we focus on the U. S, we accelerated points. So more or less the same, but if you really tease out the underlying, some of our export quarters out of the U.
S. Did a little bit better and that was partially offset by the Internet sales tax dynamics that I laid out. If you look year over year, that was versus Q1, but if you look at year over year, the deceleration really is driven by and large by the reduction in marketing spend as we redeploy and reallocate and also cut marketing costs. And then a little bit, as I called out in my prepared remarks, year over year, a little bit more than a point from Internet sales tax. Underneath that, we did make a series of product changes that in aggregate haven't yet moved the bigger picture number in the U.
S, but are I think making a difference to the ecosystem and we feel good about the future.
Yes. I mean I'd just add that this year is playing out exactly as we had said it would. And I guess our confidence is that we can we have line of sight to the reason GMV is suppressed right now. It's marketing, which is in our control. It's Internet sales tax, which will roll out and it will lap out of it at some point next year.
So we know those things. They're explainable and to some extent controllable. Underlying that, the marketplace is healthy. We've never had more buyers. We've never had more inventory.
The product is improving. We're hitting another good stride right now in our product development process. So I have a lot of confidence in the core health and strength of the marketplace, because I can understand why there is a short term suppression in GMV and that's what we said would happen early in the year. It's exactly playing out as we had said.
Yes, I guess the other thing I'd add Heath is internationally as I called out, there is some pressure. We were down a point quarter to quarter. That's really driven by a mix, a little bit of downside from the UK, partially offset by a little bit of benefit from Korea. And so those dynamics continue to play out. And as we go forward, there's a lot of dynamics at play, including Internet sales tax that are implied in our guidance, and we'll continue to work through those.
And hopefully, the product changes that we made will continue to amplify as we get into the second half of the year. Great. Thanks, Scott.
Your next question comes from Ross Sandler of Barclays. Please go ahead. Your line is open.
Great. Guys, just a question on the marketplace segment margin. So it's been improving 200 bps. It's still in the low 30s. I guess, where do you see that going kind of medium to long term?
How much more upside in terms of expense efficiency and just kind of the natural lift in that margin do you see? And then second question portfolio review, just curious to hear your thoughts on the idea that's out there about selling classifieds potentially in separate pieces kind of country by country versus doing like a spin or a sale for the whole entity? Just any thoughts on that? Thank you.
Yes. So first off on margin, let me comment in the short term. So we had nice margin expansion this quarter in marketplaces. I think you can expect continued margin expansion driven by marketing that we've talked about over the course of the year. But in the second half of the year, as you might remember, I called out last quarter, there's a dynamic first half versus second half from foreign exchange and we've been calling those differences out roughly 0.5 point this quarter.
That normalizes in the second half of the year, so there won't be as much margin leverage in the second half of the year and some of that will show up in marketplaces. But we expect to continue to be rationalizing the and reallocating the marketing and focusing it in ways that we've spoken about. So I would expect some marketing benefits going forward as well as just ongoing continued cost control. So in the longer to medium and longer term, we'll talk about at least 2020 in October at the earnings call then and I'll give you a bit more definitive of an answer on that front.
And Ross, on the portfolio review, we're just not going to say anything about it. We'll let people know when there's something to say, until then we're just not going to say a word about the process or what's going on.
Your next question comes from Mark May of Citi. Please go ahead. Your line is open.
Thank you. On Internet sales tax, you've talked about a 1% or I guess now greater than 1% impact, but there have been very few states that have had it implemented with the pretty significant ramp that's starting up in the back half of the year. How are you guys thinking about the impact on what are you assuming in your guide? And then I believe in the May June timeframe, Google made some search algo changes. Some data out there suggests that eBay may have been negatively impacted by that.
Obviously, over the years in the past, that this has happened. And just curious, what, if anything, you've seen so far? Thanks. Go ahead.
I was just going to say on Internet sales tax implied in our guidance is that more states will roll out and that the impact will get worse before it gets better. That is implicit in our guidance is that as you're going to reach sort of the peak of states rolling out probably in Q4 and that's implied in what we're seeing. I think some of it we're not 100% sure how it plays out because there are replacement there's a replacement inventory and as this gets more penetration in the marketplace or other dynamics that may end up substituting. But right now, what we're assuming is that the impact on the U. S.
Business will continue to grow and then we'll start lapping out of it and then it'll shrink and basically fade into the background. But it is certainly we're certainly not through it. And I'll just take the opportunity to say for a second, as a policy matter, this is exactly what we said, which would happen, which is small U. S. Businesses are being disfavored.
The impact is disproportionate on strong on small U. S. Businesses. It's favoring larger businesses and retailers and it's also favoring international businesses. So we again will call for a federal legislation on Internet sales tax and a small business exemption.
And I'll say that you'll continue to hear me say that because what we're seeing is exactly what we had feared and what we had said. On the algo change, we haven't seen a material change in search in the May June timeframe from Google. Thanks. Your
next question comes from Stephen Ju of Credit Suisse. Please go ahead. Your line is open. Okay. Thank you.
Devin or Scott, I
guess, we got the sense the last time we talked to you guys that you're being extraordinarily careful with the payments rollout and moving sellers into the program almost 1 by 1 as opposed to chunks at a time so nothing gets broken on the way. So you have added what looks like 1700 sellers versus about 800 last quarter. So should we take this to assume that the process to transfer the incremental seller is getting progressively easier? And once you start doing this more formally in Germany, do you expect the transfer to be more easy or more difficult? And separately, not that you're in a position to offer us 2020 guidance, but some of the GMV deceleration this year is self inflicted due to marketing and additionally, as you said, from the sales tax friction.
So should we be thinking or even hoping for an in line with retail type of GMV growth for the U. S. Next year and further for your marketplaces revenue, the GMV growth to no longer disconnect like it did this year? Thanks.
On payments, a couple of dynamics that I think are interesting. So first of all, today is the 1 year anniversary of a year from today will be 5 years and that's where the restriction on the rollout will fade away. So you can expect us to pick up the pace. I think some of it has been the product build. Some of it has been there's no need to go faster because we're capped under the OA anyway.
As we start to roll up here to 12 months from today, you will see us begin to pick up the pace. And I'm particularly pleased with the seller experience. Sellers are seeing really good conversion, buyers are seeing choice, sellers are seeing unified accounts and they're saving money, everything that we would have hoped. So I'm very pleased with the payments execution. And on the buyer side, it's very interesting.
You heard in Scott's remarks that now with PayPal rolled out, buyers are showing that they want choice. We're seeing after PayPal has been rolled out penetration of PayPal of approximately 35% roughly and that's compared to almost double that on the rest of the marketplace. So buyers are voting with their wallets and they are choosing for choice. So you will expect us to pick up the pace. In terms of GMV, obviously, we're not giving you 2020 guidance.
We'll just say what we say all the time, which is we think the long term sustainable growth rate of the business is probably somewhere above retail and below e commerce. And at these margins, we think that's a great business and a sustainable growth rate. But where we'll be next year, we'll obviously talk about that in October. Yes.
October. Yes. And remember, Stephen, the other dynamic for next year and the year after will be that scaling of payments revenue into our business. And so the while we'll get into what GMV looks like later in the year from a guidance perspective, you can expect that the revenue will be reasonably higher than that in addition to the first party ads dynamics that we've talked about in the past. So I think we feel pretty good about the revenue and we've got a lot of work to do between now and the end of the year and when we start talking in October about 2020.
Thank you.
Your next question comes from Dan Salmon of BMO Capital Markets. Please go ahead. Your line is open.
Good afternoon, everyone. I'll go to the other driver and advertising and promoted listings. I think, Devin, you mentioned that you've expanded now to 940,000 sellers from, I think, 800 1,000 last quarter. But I think it was in May you announced sort of a broader rollout to all sellers in good standing. Just curious if you can help us understand the impact of that announcement and where we expect that seller should we expect the number of sellers using Promoted Listings to start to accelerate as well as a result of that?
And then just on the flip side, just any color you can add on the continued wind down of the 3rd party adds? Is there maybe not a specific guidance to when we might to see that trough out, but a timeline that could help us feel that out a little bit better. Any color you can add would be helpful.
Yes. On the first part, yes, it's a good call out. I think we said last quarter that growing the 1st party ads business is both sides of the funnel. It's supply and demand. For supply, we've opened it up to more sellers.
We're giving them more tools. We're giving them better data so that they can understand and calculate an ROI on their ad spend on eBay, which we think is actually very strong. We think we have a very compelling value proposition. I mean sellers advertise on eBay and they have they look at that as a choice just like they could advertise on other ad platforms. And actually what we see is that we have a really good value proposition for them and that's playing out in the growth that we're seeing in the sellers and the density of ads and the way that they're using it.
I should also point out that next week, we have a very large seller event called eBay Open and we have thousands of our customers coming to that and we'll have more to say about the future of ads and we'll have more to say about that and other things. It should be an exciting week for us next week. And on the buyer side, obviously, there is the exposure of those ads in both search and in browse and merchandising. And that also as we get confident that we're not cannibalizing organic results, if you will, we can expand the results there. So the growth this quarter, which was really outstanding as a result of both the sell side and the buy side expansion.
Yes. To your second question in terms of the timeline, what I just point to is that 3rd party wind down is highly correlated with 1st party acceleration, right? 1st party acceleration in terms of where ads are going to be placed, what the efficiency of those ads and conversions of those ads are and how we change the user experience. You can do the math, but we've had some acceleration in the 3rd party wind down over the last couple of quarters. I would expect that to continue as we head forward.
And we'll continue to break these growth rates out for you, so you understand the underlying dynamics.
Great. Thank you both. Very helpful.
Your next question comes from Colin Sebastian of Bard. Please go ahead. Your line is open.
Great. Thank you. Devin, you called out some opportunities to address higher buyer churn. And I guess just given the efforts to control marketing spend at the same time, is that something that you still can address over the near term or is that more of a longer term effort? And then, hoping for any updates on what you're seeing from some of the pilot initiatives with fulfillment and shipping and in particular if you're going to plan any expansion of those efforts ahead of the holidays?
Thanks.
Thanks for the question, Colin. On buyers, we are very focused now on buyer frequency, on reducing buyer churn. We're seeing standing new customer acquisition, really strong brand new customers coming to eBay, which is encouraging. Those many of those are millennial. We're seeing a better skew towards women who are shopping with us.
Some of those cohorts have lower spend than our existing cohorts, but they're all on the right side of positive CLV. So we're happy with what we see. And the hope is that we can drive frequency and we're very focused on that. That's both product and marketing right now are very dialed into driving frequency. And my hope is that that isn't a long term plan.
That's something that we can do soon. And some of that is implicit in our steady buyer growth that we've seen over the last several quarters. On fulfillment, nothing to say right now. I think it's worthwhile to stay tuned.
What I'd say, Collin, on our fulfillment, just specific to your question, we have we constantly leverage our size and scale on a global basis to provide services to our sellers that are cheaper. And we've talked about that with respect to helping sellers position inventory in country with coordinated and essentially negotiated lower fees from fulfillment. And as we look at this fulfillment trial in the U. S, because most of what we've been talking about is international and different international markets, 70% of what's sold on the site already comes with free shipping in the U. S.
And in the U. S, nearly 2 thirds of items arrive in 3 days or less. So I think the intent of the program is to further enhance via guaranteed delivery program those types of metrics to further improve the user experience.
Your next question comes from Mark Mahaney of RBC. Please go ahead. Your line is open.
Thanks. You put up 2 quarters of nice leverage in sales and marketing on a year over year basis and you've talked about finding efficiencies, I think in your marketing spend removing some of your lower ROI channels. How long of a transition is this then kind of normalizes going into next year? And any color at all on what those lower ROI marketing channels are that you have been reducing? Thank you.
Yes, the simple answer on lower ROI channels, Mark, is last year we pushed the curve quite aggressively on things like promotions. We saw a lot of kind of sitewide sales and coupons and things like that. And as we started to measure those cohorts, we would have kept it going if we were happy with the value of the customers we're bringing in and their spend profile. The fact is we've always been disciplined marketing allocators and it was worth trying and pushing that limit. But as we saw the returns coming back, particularly the cohort of buyers we were acquiring through that activity, it wasn't worth it quite honestly.
So a lot of this is a reduction from us really pushing the marketing curve last year. And there may be more we're always trying to push efficiency in our channels, but we're also trying new channels. Some of them may have lower ROI early on and we grow it over time. In particular, we're diversifying from Google and search channels into social channels. We're diversifying into affiliate channels.
We're diversifying and always trying to bring direct traffic. One of the best attributes of our business is it's very strong mix of direct traffic compared to paid traffic. So we'll keep advertising the brand, keep working the other channels. And for the rest of the year, we'll keep removing and somewhat lapping the low ROI spend from last year and that's in the dynamic we've been talking about since February or March.
Mark, let me just call out a couple of things that came out in my prepared remarks, but just to pull them together based on your question. First off, both StubHub and Classified spent more in marketing this quarter. We called those out in the prepared remarks and in the margin dynamics. And so that's going to, at the company level, mute the reduction that you would have seen. That's one Korea and Japan actually spend more in Contra, which then further mutes the fact that Contra and other marketing expenses further down in, call it, the core on eBay Marketplaces businesses.
And so it's a bit muted at the company level and a lot of the dynamics we're talking about are core on platform, ex StubHub, ex Classifieds and ex Japan and Korea. So just to try and navigate through from what you see in the prepared remarks and in the presentation and ultimately in the queue.
Thank you.
Your next question comes from Thomas Forte of D. A. Davidson. Please go ahead. Your line is open.
Great. Thanks for taking my question. So during the quarter, you announced that you were going to potentially participate in Facebook Libre. I wanted to know what you thought eBay's opportunity could be there, because I think that's quite an interesting initiative by Facebook and how that could fit into kind of eBay 2.0 payment options in the future? Thank you.
I think that I've been following crypto and blockchain for quite some time. And without going on a tangent, the short answer is the opportunity for the blockchain to reduce settlement costs, improve security and improve transparency is definite. I'm a believer that a public distributed database can reduce settlement costs. People still pay a lot for interchange. They pay a lot for settlement and clearing.
And that are in systems that at times are not secure and at times don't serve the needs of the particularly small businesses. So we're advocates about the possibility. One of the things that's prevented crypto from really having any penetration with retail is the volatility. And nobody's going to pay with a currency that moves up and down 15 percent a day. So the opportunity with Libra is for buyers because it's pegged to a basket of fiat currency that's stable.
The opportunity for sellers is to lower their costs even further. We're going to lower their costs with payment intermediation. The potential if this ever got up and running was we could lower their costs even further. So I think Libre is speculative. I think Libra may or may not work.
I understand that the regulatory scrutiny, it is led by Facebook. We'll let them lead that. But we're participants as advocates on behalf of our customers.
Great. Thank you.
Your next question comes from Justin Post of Merrill Lynch. Please go ahead. Your line is open.
Thank you. Scott, I wonder if you could revisit the advertising opportunity. I think you reiterated $1,000,000,000 Where are you on total ad dollars today? And then when you think about $1,000,000,000 being a little bit over 1% of GMV, Amazon is a lot higher. Do you think $1,000,000,000 is conservative?
Is there room to go higher? Thank you.
Well, look, let's get to $1,000,000,000 first. I guess the way I'd frame it, I think Devin in his prepared remarks said $700,000,000 We'll continue to expand above that with the mix of first party, which is I'll remind everyone, I think you know, shows up in transaction revenue. And as the 3rd party ads unwind, that will lower our overall MS and O and ads reported number. And that's why we keep talking about it in aggregate. But $700,000,000 continuing to grow, we'll get to $1,000,000,000 here in the next year or 2 and continue to expand our capabilities.
And I think the balance is making sure there's a good user experience. So we'll get $1,000,000,000 when we get to $1,000,000,000 that will be as soon as we possibly can. We're pushing on that on all fronts with the balance being, let's make sure the product experience doesn't get destroyed in that and that people can find what they're looking for and that the searches that they do and the ads that we serve them are extremely relevant and continue to convert and are worth having our sellers invest in.
Okay. Thanks, Scott.
Yes. Hey, operator, we'll take one more question, please.
Your last question will be from Ygal Arounian of Wedbush Securities. Please go ahead. Your line is open.
Hey, guys. Thanks for taking the question. So in the press release, you noted that you launched new pages that transformed from unstructured listings to structured and product listing pages. So I want to hear, maybe there was more color around that. Is that different than the ongoing strategy you guys have had to roll out more pages on 2 product listings?
And then just one quick follow-up on the existing buyer churn. I know you said it was modest, but was there anything specific driving that? Was it the lower marketing spend or was it something else?
Thanks.
On the first part, I think we continue to evolve our catalog and structured data approach and it's really both top down and bottom up and I'm very excited about the bottom up. The top down has been what we've been progressing and still are. It's really about attachment to products and that's really important. What's also important are the attributes of those products, the aspects, the bottom up like the characteristics of a phone. It's here's the memory, here's the color.
And what we see is that as our product listings have more richness in those descriptions and in those attributes, they convert better. In part, that's because they attach to buyer searches better. So we're encouraging and in some cases mandating sellers add more to those products listings And then we are incorporating that in search and that's driving better conversion. And you'll see us continue to make it easier for sellers to contribute and having bought our search engine on the buyer side pick up those attributes more and more aggressively over time. And again, we will have more to say about that next week at our big seller event, but we're really pleased and excited about the way forward on our catalog and structured data.
Sorry, and on existing buyer churn, part of what that is reflecting is a year ago, we had some experiments in Mainland China. We're lapping out of some of those buyers in Mainland China. So some of that increased churn reflects that, but it doesn't it's not a material difference in any of our core on platform markets.
All right, great. Thank you so much.
I will now turn the call over to the presenters for closing remarks.
I think we're all set on our side. So I think we can close the call.
Thank you very much.
This concludes today's conference call. You may now disconnect.