Analysts. I'm joined today by Steve Priest, CFO of eBay. We've got about 25 minutes for the discussion, so I'll ask a few here, and then, at some point, we'll open it up to the group for any questions. Steve, thanks for traveling to Nashville to be here with us.
Thank you, Tom. Good morning, everyone. Good to see you.
Steve, maybe to begin, why don't you set the table for us a little bit? I know it's been a reimagination journey that eBay has been on the last couple of years under Jamie's leadership, and he sort of alluded to maybe entering in a new phase here at 2Q and a little bit of a change of direction. Maybe you could kind of give us the overview of the strategy and what stage, what inning we're in of the reimagination.
Yeah. So, again, good morning, everyone. Great to be here, Tom. Thanks for having us. I think the way I would frame this is that, we've been at sort of this strategic pivot for about three years, in terms of just changing the foundation of eBay, leaning into non-durables, and really thinking about this area of driving focused categories and building trust on the platform, while at the same time, really driving some of the tech debt, as I would describe, out of the business, and focusing on innovation. The strategy that was sort of laid out at the last earnings call is just really an evolution in terms of how we take that forward. We've put the foundational pillars in place. As you're probably all aware, we've made significant progress in the focused category playbook.
We've really enhanced a lot of the horizontal initiatives on the marketplace. We've integrated payments, we've seen great momentum in ads, we've launched sort of scalable solutions like eBay International Shipping. For us, the pivot really is around making sure we embed relevant experiences for customers, whether they're shopping for sneakers, whether they're shopping for parts, accessories, whether they're shopping for trading cards. We have five mega categories across the platform that are over $10 billion each, so we have tremendous scale. It's about having that relevance for the customers that come in, whether they're looking for pre-loved items, or they're looking for new items, or everything else. The second item is really about just looking at scalable solutions. I mentioned about payments and ads, eBay International Shipping.
We're looking at solutions for the customers irrespective of what they're buying. Another good example of this is like additional services, like tile installation services, where consumers will get great value by buying tiles on eBay, have them shipped to a third-party shop, and then they'll get installed accordingly.
Yep.
Then the real unlock for us is around sort of Magical Listing. We're very, very excited about the opportunities-
Yeah
-this can provide with regards to customers coming onto the platform. The speed of listing has been transformed. We're going from ideation to execution in a matter of weeks, and I'm really excited about some of the tech that we're bringing out there.
Um.
Can I test the audio for you guys? I can show the.
Yeah
A mock-up of our Magical Listing flow, which is on our IL website. We shared that last week publicly. And again, it's a matter of weeks before that will be out there. So really pleased with the levels of innovation that we're seeing at eBay.
Excellent. Okay. So I think any discussion of eBay, we have to talk at the top with GMV, with kind of the dynamic in terms of growth. Certainly a ton of progress over the last couple of quarters, but just walk us through the trajectory, the possibility, the potential of a return to growth in the marketplace. You talked about it at the Analyst Day in March 2022, but where are we? What should we be watching in terms of getting back to that growth?
Yeah, you're right. We laid out our medium-term architecture at the Analyst Day in March of last year, which we're still aligned to. We're making tremendous progress under the hood. I think about, you know, at the end of 2022, we talked about having 25% of the platform touched by focused categories, really leaning into those trust initiatives and innovation. The advertising and the payments businesses are helping fuel that level of innovation, the amount of investment that's sort of driving forward. And again, we're really pleased with the trajectory. What's clear is that we've obviously been impacted by the macro headwinds. No one would have anticipated what happened in Ukraine, the subsequent economic paradigm that's gone on since there. And so that's really having an impact, and the...
I suppose, the severity and the duration of the macro headwinds that we face will be a function of the timing. However, what I'm, like, really pleased to see under the hood, things like parts and accessories. That's growing, we believe, at market levels of growth, in the sort of low- to mid-single digits. We've seen things like refurb, grow healthy double digits. Over the last couple of quarters, we're seeing buyer counts stabilize. We talked about having 132 million buyers across the platform, and for the last two quarters, we've seen new buyer increases on the platform. We've seen new and reactivated buyers who hadn't been on eBay for a while, in positive territory for the last four quarters.
Overall, we've seen CSAT, which is a really key measure for us about how customers perceive eBay, as growing sort of, you know, double digits, on each of the categories that we've leaned into. So under the hood, we're seeing some really good momentum. And I suppose where I would point you to is the implied guide, that we put out for the fourth quarter. At the high end of that guide, you know, which contemplates less of a macro headwind, contemplates that we get to flattish GMV as we exit the year. But obviously, as I said, we are dealing with a lot of macroeconomic uncertainty, and that will be a function in terms of what top-line growth ultimately looks like this year.
Okay, well, let's talk a little bit about macro, because eBay is a wildly international business. You're in a lot of different geographies and different places with their own dynamics. I thought some of your comments last night were very interesting. Can you just kind of give us a map of the world and kind of, you know, contextualize for us what you're seeing within your major geos?
Yeah. So, to take it back to 30,000 feet, we're about, you know, we do over $70 billion of global commerce, so we've got significant scale. And as you would imagine, our platform like ebbs and flows with regard to the overall macro environment, in aggregate. We generally lean into non-new in season, pre-loved items on the platform, customers looking for value. And so we do fare better in certain circumstances, in certain categories, based on the economic impact. As we step back and think about the global footprint, where we report to GMV is a function of where the seller is domiciled, and about half of our business is U.S.-based, and then half of it's international.
So some of the tailwinds, headwinds that we sort of see is Europe undoubtedly has been impacted more heavily over the last 12 months or so with regard to macro challenges. In fact, Germany recently went into recession. The U.K. is teetering on sort of a recession. We've seen e-commerce shrink in sort of B2C side of things for both Germany and the U.K., which are giving them more or less significant markets in the last quarter. And so as a U.S. investor, as a sort of U.S. A lot of our the analysts and investors that we speak to, based in the U.S., having this sort of global perspective is really interesting and seeing what's happening across the globe. The other thing I would point to is cross-border trade.
We've seen the opening up of some of the supply chain challenges that we saw in Greater China, and so, you know, you'll see on our latest Q in terms of the revenue disclosure that we put in there, that shows some of that cross-border trade picking up. So we are a truly global business. We are impacted by the macro environment, but there's obviously sort of pockets of challenge, pockets of strength. But I think we're very well placed with the investments we're making as we come out of this challenged macro environment for sustainable growth as we go forward.
Okay. Okay, got it. Product initiatives, right? You kind of referenced, you know, Jamie's tap dancing into work every day, and he's excited about some of the newer offerings. We're all talking about AI. Steve, what is AI? What does that mean for eBay? What are some of the product initiatives that get you excited?
I think the first thing I would say at a macro level is the speed of execution. It's helping us drive tremendous velocity on the platform. Things that would have historically taken months are taking weeks. We sort of get our scrum teams together in terms of ideation and the speed at which these things go from the whiteboard into the website is we're seeing significant acceleration. I suppose one I called out earlier is about the listing flow, and the speed. If you think about eBay, we have 1.9 billion listings on the platform, and we have 28 years of history. And think about all of those images with commercial data sitting behind them.
So the benefits for seller, just being able to take their, their phone and to take a picture of an item, and because of the data that we have in embracing AI, not only will it ultimately recognize what that is, but also be able to fill in the attribution and descriptions using AI. I recently started selling trading cards, and literally last week, I was listing trading cards in a matter of seconds versus the historical experience, which would have been in minutes. This is a massive unlock for us. If you think about the average consumer has about $4,000 of items in their closets, and the easier it is to list, then the better it is for sort of the health of the marketplace and the opportunity to buy, to drive it forward. In focused categories, we're also seeing tremendous innovation.
So parts and accessories, one of our biggest categories, we've now evolved and used AI to sort of think about what parts are relevant to your specific car, and using AI to sort of enable customers to really upgrade the experience. And then we've also got something like engine lookup. So, you know, we all have cars. You get an error message on the dash, or you get an error message associated with the car. We've now got AI that, you know, you go through eBay, you put the engine fault code into the website, it'll tell you what the issue is and suggest the part to fix it. And so the opportunities are endless to sort of really embrace AI in terms of the customer-facing side of things.
And then on the efficiency side, which is tremendously important for us, which is continuing to drive operational efficiencies in the short term, to create the capacity for us to continue to invest. That runs the full gamut from the likes of co-piloting in tech, where it can really drive that speed of velocity and innovation, all the way through to support functions such as finance and legal and sourcing other areas across the business. And so, we're really leaning in, we're really embracing AI at eBay, and we feel it's gonna be a game changer for our whole organization.
... Got it. Okay, so just, just to be clear, Magic Listing is, is the name of the new product. There's some information on, on the website about it, and, and it's currently available in terms of the description, but, but also, you're, you're, you're working on it still, and there, there will be further in, innovation to come.
Exactly, Tom. So, in the sort of public domain, we've got the ability to use AI to fill in the description and listing for customers. And we've got an employee beta that's been running for about a month or so, which is exactly what I just talked about, where you can take a picture of the image, and it will recognize it and go through all that. And, you know, over the forthcoming months, then we'll be in a position to launch that out to the public. So really excited about the level of innovation that's going on at eBay at the moment.
Got it. Got it. Okay. The other, I think evolution or product change that I think is very interesting is EIS, eBay International Shipping. Steve, maybe you could kind of walk us through that and, you know, where that is in the rollout today.
When I think about the over $70 billion of commerce that we do across the globe, about 20% of that goes across national borders. That can be, you know, product going from Greater China to the U.S., or it could be items going from the U.K. to Germany. In our big three markets, as it currently stands, only about 50% of the inventory that is listed by the sellers is available on a global scale. And a lot of that is really to do with friction. If you're a seller sitting in San Francisco, and you want to sell a pair of sneakers to a customer in Oslo, you've got to think about, well, how is it going to get there?
What if we hit a glitch in terms of, like, the product the customer wants? What if there's going to be a return? What do I do about such as taxes? What do I about customs forms, et cetera? And so we recognize that taking friction out is incredibly important to the seller. And by taking the friction out for the seller, it means they're more open to listing internationally, and then it opens the aperture up to the buyers. And with the more inventory that is available on a global scale, it means that we'll continue to drive health on the platform. And so, we've now partnered with a number of third parties to sort of really drive this concept of eBay International Shipping.
So that seller that's sitting in San Francisco, ships the product to Chicago, and we take care of the rest. And it means that it takes all of that friction away from the seller. It means that they can sort of open things up. The other thing I would say, it really drives bottom line potential income for eBay. We are partnering with others. As I said, this is not about eBay building our own distribution centers. We're doing this with third parties. It's a variable cost structure. We have the size and scale of our platform. That means we can really leverage contracts. And in terms of the flexibility around shipping fees, then we can be flexible in terms of what we charge the buyer for those fees.
So we anticipate that the margin structure around eBay International Shipping will be at corporate rates of margin by year end. You know, we're just starting to roll it out. It's out in the U.S. market at the moment. Some of our European markets will be fast followers over the next couple of quarters, but we're really excited about the scalability of this solution and the offering that it will have for eBay and our sellers on the platform.
I don't know, I don't know if this question makes sense, but who is the primary beneficiary on the marketplace, Steve, from EIS? Is it sellers just accessing more markets? Is it a small market buyer getting access to more inventory, or is it, you know, kind of all of the above? Like, how do you, how do you see it?
Well, it's both.
Yeah.
I mean, if you're a C2C seller or if you're a small enterprise that's sitting in a national state, it's much better for you as a seller because you're getting your inventory out on a more global scale. It's good for the buyers because they get a better breadth of product. I mean, if you're sitting internationally and you wanna... You're a collector or you want to buy some sneakers, or you wanna, you know, you wanna sort of get a car part, for example, the aperture is completely opened up for you as a buyer in terms of the amount of availability for products. And also, it's obviously great for the investor community because of the value that this will continue to drive to the bottom line.
Okay, so maybe working down the, the P&L, there's been a very favorable dynamic with revenue able to grow above the rate of GMV due to the attach of payments and advertising. Steve, where are we with kind of those two you know product lines, revenue lines, and can that dynamic of revenues outgrowing GMV continue?
I've been really taken by the level and speed of execution at eBay. We have some incredible talent, and the say-do ratio has been incredibly high. I mean, going back a few years, when we said we were going to intermediate payments over $70 billion, I think there was a number of naysayers that say, eBay will never manage to do that. We did it early, ahead of schedule, generated over $2 billion of revenue, over $500 million of OI, and it's been a tremendous success. And just by integrating that was sort of the end of the beginning. And then at the investor event last year, we talked about an incremental $300 million of revenue associated with payments.
Just continue to evolve those services like buyer FX, for example, if a buyer sitting in the U.K., seller in the U.S., seller wants to transact in U.S. dollars, buyer in the U.K. wants to pay in sterling, then eBay benefits from the arbitrage. So payments has been a tremendous program for eBay and a great margin and revenue generating creative capacity. That's becoming more mature, and so we get through this heavy lift of payments, and so that that's getting to a greater level of maturity. I think what's overtaken that, and again, we've been very pleased with the executions in ads. Again, at the investor event, we talked about reaching 2% penetration of ads as a percentage of GMV by the end of 2024. We crossed that threshold last quarter.
We've got plenty of runway ahead of us. If I think about, you know, the number of listings, we have 1.9 billion listings on the platform, and Promoted Listings, which is the sort of advertising. So OneP ay business, we have about 700 million listings that are touched by advertising. We've got about 2.1 million sellers that are embracing advertising. You know, the last disclosure we gave on sellers, it was in the mid-teens millions. And so we do expect overall take rate expansion on an FX neutral basis as we continue to go through the rest of 2023. I'm really pleased with the levels of execution from the team, and ads, the ads business continues to go from strength to strength.
Okay. Okay, great. Maybe working further down the P&L, like, just thinking about your margin guide for the year, that you know, there's some puts and takes there. There are some cost savings, but also some investment. How did you land at the 27% range, and where... You know, walk us through the puts and takes there, and especially where you're investing.
So the guide, the expected guide that we put out there for the full year of 2023 is 27-27.4. And there's a number of factors at play. Number one is operating leverage. We have an incredible financial model at eBay, a fortress balance sheet, very, very strong free cash flow generation, about $2 billion a year. So the financial model is really robust, and as you can imagine, when the top line grows, it really sort of flows through the P&L. So we're seeing some operating deleverage pressure, as sort of on the top line associated with macro. The second thing I would say is there's a about a point of margin dilution associated with a combination of EIS, eBay International Shipping, that we talked about, with the investments that we're making, but also M&A.
We've been driving into acquisitions and tucking M&A that's really helping the health of the platform, driving that acceleration. And if you think about those two in tandem, it's about a point of margin pressure. We've also got about 50 basis points of FX pressure. We are lapping sort of a significant FX tailwind that we had in the fourth quarter of last year, when there was a bit of a dislocation between various currencies in the U.S. dollar. This created a hedging gain, so that's about 50 basis points. And then the balance is really about investment. We have the strength, as I mentioned, in terms of the balance sheet. We are confident in terms of the return on investments that we're making. There's a lot of competitors that are struggling in this macro environment.
The cost of investment, the cost of money that was free, is now not quite so cheap. We have the capacity and ability to invest in eBay, and we're very, very focused on the sort of long-term sustainable growth that that will drive. Really, that's a case of, like, the margin commentary that we put out on the second quarter. Again, I'm really pleased the teams have continued to lean in, and I feel like we got the balance right in terms about how we're thinking about driving short-term capacity through efficiencies in the business, particularly through the structural cost program, and at the same time, investing for long-term sustainable growth.
Why don't I pause here for a second to see if there are any questions for Steve? All right, I'll keep going then. I think within the eBay story, capital returns has been kind of a you know, hallmark of the investment case. Steve, where are we today? I mean, you know, how would you characterize 2023 and maybe the longer-term you know, guidance and directives that you've put out there?
I think we've been great allocators of capital, and we've, as you all know, we've generated significant capital returns over the last few years. We created over $20 billion of value through the divestitures that we've gone through the last few years, really focusing on the core of the platform, and returned a significant amount of that capital to shareholders. As I always say, our first priority will be to invest in the business with a build, buy, partner framework, and then beyond that, any surplus cash that we have will go through capital returns. And we're in the privileged position, again, because of the financial architecture that we enjoy, we can do both. We clearly laid out the direction of having 125% of our free cash flow returned to shareholders over the 2022-2024 period.
Over the last 18 months, we've returned $4.4 billion to a combination of buybacks and dividends, which is 130%. And so we're bang on track. I'm pleased with the balance that we continue to have, and it continues to drive healthy returns for our shareholders.
So it is built by and there have been a couple, you know, decent number of tuck-in M&A transactions. Just, you know, one or two or three of those recent transactions that you think are impactful for the business? I'd be, you know, kind of curious your perspective there and kind of, you know, that fit between the need and the tools that you were able to acquire.
As you can imagine, we're very diligent about where we do go and acquire companies, and some of them will start as a partner, and then we ultimately go through the acquisition. So, and they're generally, A, to drive a greater level of speed to drive that trust that I've talked about for our customers. Obviously, in terms of got to drive a good return on investment, and then just sort of really enhancing the platform. So some relatively recent examples, think about Sneaker Con, which was about authentication in the sneaker space. We partnered, and then we acquired them.
We've got myFitment in parts and accessories, which has really enhanced the AI opportunities there and really opened the aperture up in terms of the parts that fit vehicles, and has helped us give the guarantees to customers that if they shop on eBay and they find a part, then it's going to fit their vehicle. 3PM Shield, which is an acquisition we've made to really enhance trust on the platform and make sure that we minimize and eliminate the prohibited, sort of, counterfeit type and restricted items on the platform. And then most recently, Certilogo, which I'm very, very excited about. Certilogo is a company based in Milan that has QR codes, that they partner with brands where they embed the QR codes in the manufacturing process for the likes of fashion.
There's obviously a massive drive from an ESG standpoint for manufacturers to take accountability and responsibility for keeping those garments out of landfill. Through the partnership and now the acquisition of Certilogo, we're able to help track what happens to those merchandise. Then obviously, eBay is the natural place for it to be resold, the pre-loved items, which, A, helps the environment, B, sort of continues to help the platform, but C, also obviously drives better economics for eBay, and ultimately for our customers.
ESG, an important part of the mission for you folks. I think we're about at time. Steve, thanks so much for being with us today.
Thank you, Tom.