All right, we're gonna go ah ead and get started. I'm Douglas Anmuth, J.P. Morgan's internet analyst. We're pleased to have with us today Steve Priest, CFO of eBay. eBay, everybody knows, one of the world's largest and most vibrant marketplaces for discovering great value and unique selection. The company empowers millions of buyers and sellers in more than 190 markets around the world and enabled nearly $74 billion of gross merchandise volume last year. Steve has been CFO of eBay for nearly two years. Prior to that, he was CFO of JetBlue, and before that, spent nearly 20 years at British Airways across a wide number of senior leadership roles. Welcome, Steve.
Thanks, Doug. It's great to see you this morning, and good morning, everyone.
All right. Just to start off maybe a little bit bigger picture, eBay has gone through a lot of changes over the last few years, new management team driving the tech-led re-imagination of the business. What stands out to you most through these changes, kind of across both front end and back end?
Yeah. Thanks, Doug. I think when I stand back, I think at a very high level it's the say-do ratio and seeing the levels of execution that the leadership team are driving throughout the organization. If you think about the pivot towards focus categories and the way that has been rolled out on a category-by-category, country-by-country basis, and the levels of trust that we're building on the platform, I'm really, really encouraged by it.
In addition, I suppose the execution of the payments transition that we saw as we migrated to managed payments, I think there was a lot of skepticism about whether eBay could pull that off, and we've executed and delivered over $2 billion of revenue, half a billion of OI, and we're on track with the investor day commitments that we made with an additional $300 million of payments revenue. Advertising, I mean, that's gone from strength to strength. We said that we were gonna drive momentum in advertising. For the third straight quarter, we've seen advertising revenue grow at over 30% over the volume on the platform, and that's really gone from strength to strength. More recently, we've talked about eBay International Shipping and what implications that would have.
At a high level, Doug, I'd just say we've talked about the core platform, we've talked about trust, we've talked about the things that are gonna continue to facilitate that growth and drive investment dollars for eBay, and we're bang on track and the team's really executing.
Okay. Great. We're gonna hit on all those things. Maybe, let's get macro out of the way. At this conference a year ago, you called out some of the early challenges in the market. What are you seeing today across both US and international markets, and are there any key points of difference that we should be thinking about?
Yeah. The macro environment, as everybody knows in the room, is very uncertain. We're dealing with a sort of challenging environment as we navigate through 2023, we've been very thoughtful about planning our business accordingly, we've given a lot of color from a sort of guidance standpoint about our expectations and how we plan the business. If I split the world in two, I'd sort of talk about our international business. We came into the year, really not knowing what Europe in particular was gonna look like. I suppose as you think about the UK, you think about core Europe, some of the concerns about energy costs and how that would go forward, even more rampant inflation than commentators had thought would happen.
It hasn't turned out to be quite as bad as potentially we thought it could have been when we came into the year. From also the other side of the international paradigm is really China opening up and more international trade coming through as supply chain challenges have abated somewhat, coming off the sort of COVID pandemic. When I think about the U.S., the best way I could describe it's very choppy. There's a lot of items and issues progressing through the U.S. market. We've been very, very thoughtful about how we're thinking about driving the short-term operational efficiencies in our business, preparing for the worst, but at the same time exploiting the opportunities that are ahead of us and continue to invest in our business.
Very uncertain, but I think we're well positioned to navigate the storm that we see ahead of us.
Okay. Great. I think people often look at eBay as potentially being, you know, more resilient because of pre-owned and, to a degree, refurbished as well. Have you seen kind of the share of GMV increase there? You know, just given some of the macro pressures and perhaps shifts in how people are spending money.
I mean, undoubtedly from a non-new in-season standpoint, that's about 90% of what transacts on eBay. That's really our focus. I think despite our size, as you said, Doug, $74 billion of GMV, the tide rises and falls from the economic standpoint, and eBay mirrors that to some degree. The focus on non-new in-season, about 1/3 of our GMV is used or refurbed, that gives a natural sort of hedge, I suppose. When the discernible shoppers have less disposable income, they will look to eBay for value. The fact that we're leaning into that is helping us. We talked extensively about as we were running through Cyber 5, we saw the highest ever refurbished volume going through eBay. Last quarter, we saw healthy double-digit growth in refurb.
You know, it's what eBay's about. It's part of our DNA, and we're really happy to sort of see the momentum in this space and we'll continue to lean into it.
Okay, great. Let's talk about focus categories. Focus category GMV, I think grew in the positive, low single digits in 1Q, and outpaced other categories by more than 8 percentage points. You've also talked about rolling out focus categories to 50% of GMV by 2024. That would basically be kinda doubling or so from last year. How are you tracking toward that goal? How do you think about getting there across kind of deeper and existing categories versus expanding into new ones?
We're making great strides. We're seeing great momentum in our focus category playbook. It's all about driving trust for customers on the platform. If you think about sneakers and watches and handbags, for example, and trading cards, it's about authentication. We've leaned in hard with regard to that. If you think about parts accessories, which is probably our biggest focus category to date, it's one of those over $10 billion categories on eBay. We've seen significant increase in trust. We drove Guaranteed Fit, which basically means currently for U.S. customers, if you see the Guaranteed Fit badge on eBay, we backstop the fact this part will fit your vehicle. It's all been about fitment.
Thirdly, if you think about refurb, you think about, you know, buying a refurbished seller refurb or the manufacturer's refurb program, two-year warranty, 30-day eBay money-back guarantee, giving the customer the guarantee and commitment that the product's gonna be as they see fit or they're gonna get their money back. Leaning into trust has been an essential part of that. We've seen great traction in the focus categories as we roll this out category by category, country by country. As at the end of the Q4, we'd covered 25% of the overall platform, 28% in the key markets. We've seen modest improvement since the end of the year, so we're right on track. It's working very effectively.
I think, Doug, you know, as I think about the levels that we get to in terms of penetration, like some of the other items, that will be a function of the macro environment.
...the duration and severity of what we're seeing and how long that goes forward. We're committed to those medium-term goals that we laid out. I'm really pleased with the traction, what we're seeing, and particularly, as you said, the 8 points delta between the focus categories and the rest of the platform last quarter, really going from strength to strength.
Okay, great. maybe we can dig in a little bit more on parts and accessories. you mentioned, you know, one of the big 10 billion dollar plus-
Yeah
... type of categories. It accelerated a few points sequentially in 1Q. I guess, what's been the reception from the enthusiast community out there around your product and, you know, how are they kind of viewing all your efforts there?
I mean, they're loving it. I mean, we talked about the concept of fits your vehicle. Now you go onto eBay, you've got your specific cars in My Garage on the platform. The Guaranteed Fit backstop, which basically means I have absolute confidence when I shop at eBay. The beauties I talked earlier about the trade channels opening up and the discernible buyers who are retaining some of their vehicles a little longer because of the macro environment leading into some of that cross-border trade. We have an incredible level of inventory on the platform, over half a billion parts and accessory items. Needless to say, we're seeing our CSAT, our customer satisfaction, go from strength to strength. We're seeing the penetration of parts and accessories on eBay go from strength to strength.
We called out on the last earnings call about our perspective that we are now at market levels of growth because of what we've been doing. That's really a function of building what the customers want and driving the right products and telling them about them and driving, you know, very robust full-funnel marketing campaigns, including sort of penetrations, penetrating social channels, and whether it's through paid, whether it's owned or whether it's earned media, is having a huge impact on the category. It just goes to show that the playbook is clearly working, the strategy's in good shape, and we're looking forward to seeing the same levels of success in the other categories that we're leaning into.
When you, I know that in terms of where you're going and launches, obviously you keep that pretty tight, but it feels like some categories, it might be harder to, you know, to kinda drive the level of trust or perhaps the products aren't as straightforward. You know, it may not be as easy to do authentication or Guaranteed Fit, for example. How do you think about that as you look to just continue the tech-led re-imagination?
Yeah. I think we've been very thoughtful as we've gone through. We do a huge amount of customer research. Again, it's very, very important that we deliver the products that customers need. We're not just focused on one sort of category. As you mentioned, Doug, if you think about those items that require authentication, we've launched them in certain markets. Think about trading cards. We launched that in the U.S. relatively, like recently, over the last 2 years. We've just launched in Canada, and we built authentication in Canada. We're rolling out other categories on a market-to-market basis. I'm pleased with the traction that we're seeing. We recently launched fine jewelry. Again, an authentication side of things has worked through that.
You should expect us to go category by category, country by country. We will be a little thoughtful about what we put out there publicly because of, as you said, Doug, the competitive dynamic. But we're right on track, and I'm pleased with the traction that we're getting.
Okay, great. Enthusiast buyers, clearly a big differentiator for eBay, driving about 70% of GMV and I think spending around $3,000.
That's right, yeah.
annually. If you can talk about the trends that this group has displayed kind of since your last Investor Day, and how are they holding up through tougher macro?
They're holding up well. We have 16 million enthusiast buyers. They're a very important cohort. To Doug's point, the categorization of enthusiast buyers is to shop on at least 6 individual days during the year and actually buy something and spend over $800. Actually, the average enthusiast buyers shops over 30 times a year. To your point, Doug, spends over $3,000, so incredibly loyal customers. What I love about the enthusiast buyers, they will not only shop in the category that they're passionate about, but the beauty of eBay with the size and scale that we have, it really facilitates cross-category shopping. It's aligned very much with the focus categories. We saw about 16 million this quarter, 16 million last quarter.
It's clear that we're getting good traction with that group. From a broader buyer standpoint, for the last 3 quarters, we've seen new and reactivated buyers driving positive territory. Last quarter, we saw new buyers increase on a year-over-year basis. It's clear by the focus category playbook, the trust we're driving on the platform, we're certainly seeing good levels of buyer acquisition, and we're pleased with the traction that we're seeing.
Just to clarify, the 30 days of shopping that you mentioned, that's actually transacting on...
Correct.
30 different
Transacting on the platform on average.
Okay. Not just browsing-
Correct
for example.
Correct.
Okay. Okay. I guess maybe putting kind of all these components together, a lot of the product things that you're doing, how do you feel about your ability to grow, GMV in the back half of the year?
We haven't guided the back half for the year. What I would say, we laid out some architecture about a year ago at our investor event. We wanted to share with the community about the aspirations for eBay, what our targets were for the medium term, and we're executing bang on track. When I look at the underlying signals of the business, like, you know, the levels of CSAT, the level of focus category penetration, the growth in the focus categories, everything that we're seeing, we're exactly where we wanna be. The function of the timing of that is really a function of the macro environment that we're operating in. We purposely haven't guided beyond the Q2 because of the levels of uncertainty that we're seeing, Doug.
We're really happy with where we're standing at the moment. Again, the non-new-in-season focus, the growth we're seeing in the focus categories, I think puts eBay in a very healthy, competitive position, compared to the competitive set.
Advertising is expected to generate, I think at the Investor Day, you talked about around $2 billion by 2025.
Yeah.
Which would materially outpace GMV growth. Maybe you can just talk about how you're tracking toward that goal, and where you think that can go as a % of GMV.
Yeah. As we mentioned, in the earlier comments, for the last three quarters, we've seen advertising revenue outpace GMV by over 30 points, which is really, really incredible. There's the core product, which is Promoted Listings Standard. The team are doing an amazing job in terms of increasing penetration across our seller base, in terms of driving that forward and exploiting the likes of AI and changing the algorithms to really make sure that we monetize it effectively. At the same time, we've developed three more nascent products. Promoted Listings Advanced, which is about our CPC product, which again, is going from strength to strength. Our auctions product, which is Promoted Listings Express. Also, Off-eBay ads, where we're in partnership with our sellers to see the further opportunities and drive monetization forward.
Really pleased with the work that Alex, that runs advertising and the team are doing at eBay, going from strength to strength. As you can sort of see from the latest three quarters of results, well on track. Seeing the traction that we want and, really pleased that we're executing towards the strategy that we laid out.
Okay, great. Maybe just shifting gears a little bit, thinking about profitability. You've historically had strong non-GAAP operating margins in, you know, 29%-30% range. We're likely to see margins compress a bit this year. Maybe you can just talk about some of the drivers, some of the factors there, in terms of the deleverage near term.
I think there's three things I would call on. Number one is operating deleverage. As you think about the macro environment, which is driving some of the deceleration in GMV, the business works very well when the top line grows, as you can well imagine based on our financial architecture. The macro pressures that we're seeing is having an implication on that. That's why for the medium term, we're completely focused and committed on growing GMV. The second thing I would say is that we are leaning into investment. While others are pulling back, we are leaning in. eBay has a tremendous financial architecture. We are being very focused on the short term, driving operational efficiencies through the structural cost program, which is bang on track. We delivered $100 million of savings last year.
We're on track to deliver the same this year, and that is increasing the capacity for us to invest, and we will continue to do that because we're seeing traction in the strategy, whether that's in product development, whether it's in full-funnel marketing. We will continue to do that. Thirdly, we are, as we've called out on a couple of earnings calls, seeing some margin pressure in 2023 associated with M&A. We have been a little bit more acquisitive recently, and also the eBay International Shipping program, which gives us a further unlock in terms of ancillary services going forward, which are putting a little bit of pressure on margins in 2023.
The medium-term architecture that we laid out a year ago remains intact, and that, again, that will be a function of the macro environment and how we drive things going forward.
Okay. your number two in there was leaning into investments.
Yeah.
Also you kind of talked about some of the cost savings that you're getting. I guess, you know, maybe you can just talk a little bit more about the rationale there. We've seen lots of peer companies in the Bay Area, you know, really everywhere, that have cut costs in a bigger way and boosted margins more materially. I guess, how much was there that discussion for you internally, and maybe just talk more about the rationale for where you're kinda ending up.
Yeah. It's obviously, as you can imagine, running a public company, it's an ongoing discussion. It's very important for the investor community and for the business as a whole that we continue to think about operational efficiency. We did it in earnest in 2022. You saw the earnings power of the business, you saw the margins that we produced, you saw us leaning hard in terms of driving the operational savings. At the same time, we have continued to invest. That's why the structural cost program is incredibly important. Early this year we made the difficult decision to go through a reduction in force of about 4% of the workforce. Those things are never easy.
We sort of went through that exercise again to create the capacity for us to continue to invest in the areas that we needed to invest in going forward. I think, Doug, what I would say, eBay continues to be very balanced about making sure that we focus on the bottom line while continuing to invest. You've talked about some of the competition not having the capacity to do that. When you've got a business like ours that prints about $2 billion of free cash flow a year, and we're seeing the traction in things like parts and accessories, where we're growing at market rates of growth, we are getting the returns on investment that we are looking for to drive that medium-term architecture that we laid out just a year ago.
Okay. Great. I know you don't, you don't have long-term margin guidance, but, I mean, the business has changed over time through some divestitures, migrating payments, ramping the advertising business now, certainly. I guess, when you think about the other side of macro, how do you think about margins relative to historic levels?
Yeah, I mean, again, I refer to the Investor Day materials. We were very thoughtful about how we laid that out. We were thoughtful about the capacity and the returns that would come from the ads business for the incremental financial services in payments, and then ads overall and other things. With that mid-single-digit GMV growth, we talked about margin accretion associated with that. For us, on a medium-term basis, that architecture remains intact and really would be a function of when we cycle through the macro environment and we come to the other side of that. Again, the timing of that will be a function of the duration and severity of what we're in. You know, we're committed to those longer-term targets that we laid out a year ago.
Okay. Maybe let's just talk about marketing spending a little bit. You mentioned it for parts and accessories. You're doing a lot of marketing, especially for that category right now, as you have for other focus categories previously. I guess, how do you think about whether, you know, you continue to push on that spending, you know, perhaps as you get to or even above maybe market, rates of growth?
If you think about eBay, 80% of our traffic comes direct to eBay, 10% is paid search, and 10% is free search. We have a rather unique model, which we benefit from. I mean, our work is never done within a specific focus category. We build it, we build the tech, we tell customers about it, and we continue the traction. We will continue to invest in the focus categories that we deploy, whether it's trading cards and handbags and sneakers and P&A, for example. We move on to the next category.
We do that in the U.S., and we do it internationally. I think the big pivot for eBay is we've moved away from sort of the low-calorie couponing, one-and-done buyers that came to the platform, and investing in really good sort of full-funnel marketing, as I mentioned earlier, whether it's sort of owned, earned, or paid as we go forward. We will continue to invest. We'll continue to invest in product. We'll continue to invest in full-funnel marketing as we believe that it's gonna give us that advantage over the medium term. It's an important component of our investment sort of criteria.
I wanna hit on the International Shipping Program.
We did talk about how it weighs on margins currently. There's also some accounting changes in here as well. At the same time, you're forecasting, you know, positive operating income contribution this year, and basically getting to corporate level margins, right, by 4Q. Can you just talk about the benefits of the program, what it opens up for you going forward?
We're excited about the unlock from eBay International Shipping. Think about the opening comments that I referred to, which is you think about the core GMV, and then you think about the opportunities to scale that and drive ancillary opportunities for eBay. We've done it in payments. We've done it for ads. We've just launched eBay International Shipping. If you stand back and think about a customer sitting in New York, for example, wanting to sell to San Francisco versus the customer that's trying to sell from New York to say Frankfurt in Germany, there's naturally more friction associated with that. Customers think about, well, what about the shipping process? What about customs duty? What about forms, et cetera, et cetera?
eBay is taking the friction out of that so that customer sitting in New York ships to Chicago and forgets about it and becomes ambivalent about whether they're shipping it domestically or internationally. The beauty of it is that currently less than half of our inventory on eBay in our key big three markets has the accessibility for international shipping. That inventory does not get international eyeballs on it.
By opening up the lens for the buyers internationally, by taking this friction out, not only does it give us the ability to drive incremental GMV because there's more inventory available to international customers, but at the same time, if you think about buyer effects through the payments lens, someone sitting in the UK and wants to pay in GBP for a US-denominated sell, you know, eBay benefits from an incremental payments revenue side on that. It's gonna help us unlock GMV. It's gonna help us unlock ancillary opportunities. It's in its early days. That's why we've seen some investments in the Q1. You're right, by the end of the year, we'd expect it to be at corporate margins. We're excited about the overall operating income this can potentially unlock for the business as we go forward.
Okay, great. I have some more questions. I think we may have some mics around the room as well. If anybody has questions, you can raise your hand. We'll get a mic to you. You can think about those. Let me ask you about capital allocation, strong balance sheet, generating healthy, sustainable free cash flow. I think you've talked about returning 125% of free cash through 2024. You did more than that last year. I think it was around 170%.
That's right.
How do you think about, you know, the considerations around whether you can be even more opportunistic-?
Yeah.
going forward?
As a reminder for the investor community, at the investor event last year, we talked about returning 125% of our free cash flow on aggregate between 2022 and 2024, and that's through both dividends and buybacks. We've been great stewards of capital. We went through a significant amount of divestitures over the last couple of years. We returned a lot of capital to shareholders. Our first and primary objective is to reinvest in the business-
-through the build/buy partner framework that we've talked about. That is where we see the highest accretive use of capital for our shareholders over the medium term. The beauty of eBay's financial architecture is we can do both. As you've mentioned, Doug, the strength of our balance sheet. To date, in the 15 months since we sort of talked about this, we've returned $4 billion of capital to shareholders, which is around 140% of free cash flow, so we're bang on track. For this year, we've talked about offsetting dilution, and beyond that, we'll continue to be opportunistic. Again, I think I'd say we've been really good stewards of capital, very disciplined, and we'll continue to do the right thing in terms of investing in the business and then returning surplus cash to shareholders.
Great. Anybody? Let's stick with that same topic, M&A transactions. You've, we've seen some to bolster the offerings in focus categories. How should we think about the strategy there going forward?
We have been a little bit more acquisitive recently. We simplified the portfolio, we focused on the core, and we've lent into a number of acquisitions to strengthen the core and accelerate the playbook. Think about TCGplayer in the trading cards side of the business. You think about myFitment for P&A. You think about, 3PM Shield, which is really about driving a higher and continued level of safety on the platform. Just last week, we announced, the acquisition of Certilogo, which will have an impact on, refurbished fashion, in terms of pre-loved, fashion items. It's really about investing to accelerate, the core.
What I would say, Doug, is, despite the fact we've been a little bit more acquisitive recently, we go through the same process, very diligent in terms of making sure we get the right return on investment from the investments that we make. We'll continue to look for those opportunities as we go forward.
Okay, great. can't get through a discussion here without the two letters A and I.
Indeed.
What do you think?
We're excited. I think this provides a significant unlock for eBay. We've already been embracing it. Think about the ads penetration. We've been working very closely with Alex and team to drive benefits there. Secondly, in terms of search, we've really been leaning on AI to sort of make sure that customers get offered up more relevant opportunities in their search, in the search algorithms that go through eBay. We've been thinking about it from a risk standpoint, making sure that we continue to protect good GMV versus bad GMV, and the teams that work in risk are exploiting AI to drive the modeling. I think the big unlock for us-Is in terms of the listing flow.
If you think about eBay, we've got 1.8 billion listings globally on the platform, times X number of photographs, and images that are on the platform, times 28 years of history. Think about the huge level of unlock for our customers, where they're using their smartphones, whether you're a seller and you've got an easy listing flow, where you can take a picture of an image, or whether you're a buyer and you're searching for something that's unique, you know, that you need to find for your home. We really believe that this AI unlock will be very significant for us. Jamie talked about some of this in his prepared comments on the last earnings call. We are integrating ChatGPT into the listing flow as we go forward.
Again, we see this as a huge opportunity for us at eBay, and we're excited about the prospects as continue to lean in with the opportunities that AI provides for us.
Okay. Great. We're gonna wrap up with a quick word association.
Oh.
All right. First thing that comes to mind. parts and accessories.
Fitment.
Macro.
Choppy.
AI.
Exciting.
Focused categories.
Execution.
International Shipping.
Unlock.
Payments.
Revenue.
Margins.
Solid.
Advertising.
Momentum.
Tech-led reimagination.
Fantastic strategy.
Capital returns.
Balanced.
All right. Good. Thank you, Steve.
Awesome. Thanks, Doug.