Q1 2020 Earnings Call
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Before I 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 a reconciliation of these measures to the nearest comparable GAAP measures and the slide presentation accompanying this conference call.
With the February completion at the sale of Stubhub all figures in this presentation or the remaining company inclusive of marketplace and classified.
Stop results are presented as discontinued operations. Please refer to our recent they finally with adjusted prior periods.
Additionally, all revenue and GMP growth rates mentioned that Scott and his remarks represent FX neutral year over year comparisons unless they indicate otherwise.
This conference call management will make forward looking statements, including without limitation statements regarding our future performance and expected financial results. These forward looking statements involve known and unknown risks uncertainties and our actual results may differ materially from our forecast for a variety of reasons.
You can find more information about risks uncertainties and other factors that could affect our operating results and our most recent periodic reports on form 10-K, and form 10-Q, and our earnings release from earlier today, you should not rely on any forward looking statements. All information in this presentation. This as a people 29 2020, I mean do not intend and undertake no.
Duty to update this information.
Lastly, I'd like to share todays agenda as you know the board recently announced the appointment of Jamie I know many is our new CEO.
Given that he officially started to roll two days ago, Jamie will obviously not be fully participating in this quarter's earnings call, but he will make a few introductory remarks before we begin.
Following that Scott will provide a business update and Andy will provide a financial update at the end we will open today, we're Scott and Andy will be available to answer your questions.
With that let me turn it over to Jamie.
Thank you Joe and good afternoon, everyone I'm thrilled and honored to be with you today I look forward to speaking directly with all of you over the coming months says I settled into my new role at ebay.
For today ill keep my comments brief.
Some of you know he days, where I spent the most time in my career and I'm really excited to be joined the company.
He pays a remarkable success story with amazing assets robust organic traffic and longstanding customer relationships around the globe I truly believe the company has tremendous opportunities to capitalize on this foundation innovate for the future and grow its ecosystem.
These are some of the reasons why we're so compelled to return to ebay and play a leading role in shaping the company's path forward.
I look forward to working with our global teams to enhance bar experiences and provide more capabilities that will help small businesses sustain and grow.
I will focus on continuing to evolve the company strategy, while delivering on the base commitment to maximize long term shareholder value.
Before I close I'd like to acknowledge and thank Scott for his leadership over the last several months Scott has led and implemented huge change the business all gotten the company to one of the biggest crises our society's ever faced thank you Scott. Thank you Andy and the entire leadership team here assistance and guidance as you work towards a smooth transition.
I'd like to turn the call over to Scott to begin the earnings update and I look forward to speaking with you again 90 days from now Scott.
Thanks, Jamie Good afternoon, everyone. We had a strong start to the year ahead of where expectations or volume is accelerating managed payments in ads are delivering growth and are on track for long term success.
We are executing our product roadmap, improving buyer and seller experience and conversion and we are driving margin expansion.
We closed the Stubhub deal in February quickly deployed for streets to reward shareholders made progress on the classifies portfolio and strengthened our balance sheet.
Well executing on our Q1 priorities.
<unk> 19 dramatically change the world.
Individuals and families are sheltering in place.
Millions of people we've lost their jobs in communities are struggling.
Our purpose has always been to empower people and create economic opportunity for all.
We are fortunate to have a resilient business that can help in times like these.
That purpose and resiliency of inspired us to deploy well over $100 million to support our employees communities customers and around the world at a time when they needed most positioning our stakeholders to exit this creates a stronger.
The health and safety of our employees and their communities.
As our top priority and I want to thank our team for their remarkable dedication during this difficult time.
In line with government guidelines, we shifted the vast majority of our team to work from home. Many for the first time, including thousands of customer service team members around the world.
We provided them with equipment training and resources to support their transition.
We also financially protected our hourly and alternative workforces, ensuring they get paid well society is asking them to do their part.
We have also empowered our leaders to provide employees flexibility to balance health, well being family and professional responsibilities.
We're also investing millions of dollars into our communities.
Through E Bay for charity, we're matching contributions made by us customers to feeding America direct relief and the opportunity fund in the U.S. buyers can also purchased gifts that give back to support relief efforts and in the UK buyers can donate at checkout to support NHS charities together.
Through the E Bay Foundation, we have funded several non profit organizations supporting small businesses in community relief efforts around the world, including Silicon Valley strong in our home city of San Jose.
During this crisis ebay marketplaces remained open for everyone granting buyers access to a wide selection of global inventory and aggregate aggregating growing demand for sellers.
For hundreds of thousands of small businesses worldwide, we offered to defer fees provided stores subscribers with more free listings and protected seller performance standards.
We're also supporting small brick and mortar retailers by offering free listings and free stores subscriptions for first time sellers, along with mentors to help get them started.
Dozens of new sellers have signed up across our global markets further expanding the strength of our supply.
In addition to investing in small businesses, we're partnering with government officials on a local state national and international level to prevent price gouging stop false health claims and prevent the legal products from being sold.
To ensure that our platform remains safe and trusted weve block to removed more than 15 million listings to date from our global marketplace that violate covert 19 policies.
We're also advocating on behalf of small businesses with legislators through a grassroots advocacy program to ensure they benefit from important economic relief decisions and programs.
And our classified motors verticals, many dealers were forced to close their business temporarily and we provided them with immediate help by waiving fees and extending payment terms. We also added new ways in our experience for customers to connect directly with dealers to drive leads.
On our horizontal classifies platforms, we rapidly adapted our product experiences by educating users how to trade safely and by launching a neighborhood assistance category that connects customers confined to their home to those who want to help.
These efforts have improved vibrancy, while protecting our supply and demand in the near term.
Well some of these.
So while some of these auctions impacted Q1 and create short term financial headwinds across fourth our cross fights platforms are positioned to exit stronger went businesses reopened as we are starting to see in Germany.
Well supporting our customers and employees, we over delivered for our shareholders on our Q1 commitments before the dynamics surrounded covert 19 started impacting our business in late Q1, our key metrics were performing better than our expectations through the first 11 weeks the rollout of new and expanded experiences for.
For years, and sellers, along with the acceleration and manage payments and adds were driving improvement in GMT in revenue. Despite the continued headwinds from internet sales tax and reductions in marketing spend that skewed towards us.
Since then cobot 19 impacted or major markets.
Shelter in place auctions were required and we saw an immediate change in the growth trajectory.
In marketplace. There was an initial surge in home confinement categories in late March, which then expanded in April across all verticals, including parts and accessories fashion and more.
Since the start of April GMP has been growing over 20% in our major on platform markets every week.
Andy will go into further detail about recent trends in his remarks.
In total for Q1 volume was flat compared to a year ago at four point improvement versus Q4 with us more than five points better and international volume four points better.
Organic revenue was up 2% above the high end of our guidance margins were strong at 31.5% driven by operational cost savings that helped fund managed payments as well as incremental investments and expenses related to covert 19.
Non-GAAP EPS was 77 cents ups, 19% substantially better than expected.
In addition, we close the Stubhub deal in February expanded our 2020 share buyback plan to $4.5 billion paid our dividend as planned and strengthen our capital structure.
Independent of covered 19 effects, we made progress in our key priorities in the first quarter, our underlying operating plans remain the same as we communicated in January which were to deliver our growth initiatives have managed payments in ads provide more solar tools improved prior experiences and leverage our structured data foundation.
Delivering margin expansion.
Our growth initiatives continue to stay on track and are making meaningful contributions to our results at testimony to our employees and partners working from home around the world into our leadership teams tenacity.
The manage payments transition continues to gain momentum buyers are getting more choice and a seamless checkout well sellers are saving money on a simpler experience that offers quick and flexible ways to get paid.
Since launch we have process more than $3 billion of GMP for over 32000 sellers and our payment rails, while saving them millions in fees U.S. volume remains at the limited at the limit permitted under the operating agreement well in Germany, we ramp from 3% in December to 6% in March on our way to 10% by May.
Dear.
We recently announced it to sellers in the UK, Australia, and Canada that Theyre transitions will begin in July.
Many are already pre registered and we encourage sellers to visit our solar center for more information on how we can accelerate their ability to save money and simplify their ebay experience.
We are confident in our plan to transition the vast majority of sellers starting in July through the end of 2021 as manage payments will become the only way to buy and sell on ebay.
We remain on track to realizing an incremental $2 billion in revenue and half a billion dollars of operating income in 2022.
As a reminder, these economics do not include any benefits from improved experience or reduce friction for buyers and sellers.
Advertising continues to drive revenue growth and had a strong start to the year.
In Q1 promoted listings delivered $137 million of revenue up 111%.
Nearly 1.2 million sellers promoted more than 310 million listings in the quarter.
Sellers continue to adopt promoted listings to drive conversion will buyers are seeing a better ebay experience with fewer third party yet.
Are those third party AD revenue continues to decline our overall advertising revenues grew more than 25% for the quarter.
In Q1, we raise performance standards for all sellers, which modestly reduced the number of promoted listings, but yield that improved conversion.
We remain on track with our plan to deliver $800 million in total AD revenue. This year on our way to building a billion dollar business advertising business in the next couple of years.
In our on platform marketplace business, we continue to invest an expanded solar tools and capabilities.
Seller initiated offers allow our seller to offer lower prices to individual buyers to drive conversion in Q1. This scale to over 1.5 million offers per day, driven by increased adoption in item eligibility we.
We also rolled out an image quality tool, which is helping sellers improve photos on their listings. The majority of the sellers of use the tool or does it have enhanced or images contributing to a more consistent looking buyer experience. We expect this to lead to better conversion over time.
Multi user authentication capabilities are helping small business teams managed their business securely and these features have extended globally integrated with order management and price guidance tools.
On the buyer experience, we saw an increase conversion through improvements in search that were enabled by growth in structured data.
Based on behavioral data, our algorithms recommend to sellers, which information can maximize the velocity of their listings as sellers add more structured data in the form of aspects their listings are increasingly showing up in filtered search results.
This leads to higher conversion as buyers are more likely to discover and purchase their items.
We also raised to limit of save searches for hundreds of thousands of highly engaged loyal buyers who reached a previous cap of 100 searches, allowing them to expand their shopping on ebay.
Millions of buyers are tracking your shipments on our platform and we're sending notifications to alert them of lower early or late deliveries.
Overall delivery performance has held up well during the cobot 19 crisis as our supply base does not have larger large single points of failure, nor are they are fulfillment constraints for essential or non essential items on ebay.
With the disruption to exports from China during the quarter or speed pack efforts combined with our existing domestic sellers supply allowed for strong inventory availability and delivery performance.
Well executing these and other improvements for buyers and sellers and our product experiences. We also delivered on margin expansion, we realize deficiencies in our marketing spend and reduced operating costs in a number of areas. The cost to scale manage payments are in line with our expectations and we remain on track to deliver at least two points of incremental margin by too.
Thousand 22.
In Q1, our international on and off platform businesses had similar volume dynamics.
In Korea or underlying volume growth rate was consistent with Q4, but total volume accelerated modestly from upside in essential categories due to cover 19.
Revenues grew at double digit rate due to the ongoing expansion of our first party inventory program.
Despite significant significant marketing by cost competitors that is likely deeply negative ROI, we have a leading position in Korea with double digit growth first party FMCG capabilities and significant scale.
Merchant dynamics are well above most peers in the market, although margin contribution is significantly less than our on platform markets in the rest of the world due to marketing spend differences and the first party sales mix.
Aside from ongoing business results I would like to take a step back from recent performance to address the ongoing portfolio review of our class funds business.
As we previously stated we're in active discussions with multiple parties exploring value, creating alternatives, we remain committed to maximizing value for shareholders and will provide an update by our Q2 earnings call in the middle of the year.
Despite the short term disruption to the industry presented by Coven 18, the long term prospects for classified ads are strong.
We believe that the recovery period will create more growth opportunities for our platform as a frame of reference following the OE Onein financial crisis used car sales outpaced new car sales for several years in the shift from offline to online advertising accelerated.
Those two macro dynamics provided tailwinds and rewarded players with strong demand and supply we believe our motors verticals in AD based horizontal platforms are well positioned to perform strongly in that environment.
Over the past several months, we have driven significant changes to position the business for sustainable and profitable long term growth.
Underlying volume is improving.
And the consumer and consumer demand during shelter in place has surged.
We've approached this pandemic striving to support our employees communities and customers and exit this global crisis stronger.
We continue executing on our growth initiatives delivering product experience improvements improving margins and over delivering on our financial commitments.
Looking ahead.
With a distributed and scalable seller base, a strong balance sheet and cash flows low capital intensity and disciplined management, we have the strength and flexibility to adapt to this economic environment.
Personally I'm grateful for the opportunity to lead this team in business over the past several months not you mentioned my time as CFO and the eight years before that.
I remain excited freebase future prospects and look forward to my next chapter.
Now, let me turn it over to Andy to provide more details on our financial performance Mr. Craig.
Thanks Scott.
Before we dive into financial highlights and the earnings presentation.
I'll begin my prepared remarks with a few comments on the impacts we are seeing related to covert 19.
These are unprecedented times and we're working hard to support our employees, who in turn our working at home around the world to support our communities customers and shareholders.
We believe our culture shines in these moments.
And our robust model.
This model and strong balance sheet and cash flow provided a backstop that enables us to withstand these disruptions and directly support all of our stakeholders.
In Q1 before we felt the full global impact of Cobot 19.
Our underlying business performance was better than our expectations.
Through mid March volume was accelerating compared to Q4, and we are tracking above the high end of our revenue and earnings guidance range.
Late in March our segments Big began to see a more pronounced impact of the global pandemic.
Our marketplace volume further accelerated as our seller stepped up to serve the increasing needs of buyers around the world.
However in classified advertising came under significant pressure.
Overall, while the revenue impact of Cobot 19 in Q1 was relatively muted at the ink level. We did experience roughly two points of margin pressure driven in part by implementing programs to support our customers.
In April we have seen a surgeon buyer demand, resulting in double digit marketplace volume growth. While classified revenue has further decelerated based on continue advertising pressure coupled with the actions we've taken to support our motors dealers.
More specifically, there's a little more color on how the progressive impact of Cobot 19 has been felt by our customers. How we've responded and how that shows up in our results.
First as stay at home mandates rolled out across geographies advertisers to begin pulling spent negatively impacting third party advertising revenue in both classified and marketplace.
Second.
As automotive dealers around the world. We're focused we're forced to close their doors to comply with local stay at home mandates. We acted quickly to protect our customers by eliminating subscription fees. While these dealers are closed.
Third we took several additional steps across both both segments to assist customers and this critical time.
Some of these actions such as extending payment terms resulted in adjustments to bad debt and other reserves that are having a short term impact on operating margins across our business.
Fourth in the last two weeks of March we saw even more volume acceleration in marketplace as buyers traffic conversion sold items GMT and revenue growth all improved.
In March in the first part of April the strength was driven by confinement categories. As buyers were focused on products for home offices, Jim equipment, an indoor leisure activities like video games and consoles.
More recently, we've seen a lift and other categories, such as parts and accessories and fashion.
As buyers started expanding their online shopping.
The growth has been broad based and global in nature.
In summary, thus far in Q2 marketplace growth has significantly accelerated compared with Q1 with classified seeing near term pressure.
The net impact of this is favorable in total.
While some of the actions we've taken put short term pressure on our financial performance, it's clear that taking care of our sellers who need some extra help during this time.
The right thing to do for them.
We will make us an even stronger company over the longer term.
You can see examples of our actions that we've taken for our stakeholders on slide three of the earnings presentation.
And this rapidly changing environment, it's unclear how long these dynamics will last.
Ill discuss how they influence our outlook for Q2, and the rest of the year and our guidance section.
Turning to slide five in Q1, we delivered revenue of $2.4 billion up 2% on an organic FX neutral basis above the high end of our guide non-GAAP EPS was 77 cents up 19% non-GAAP margins were strong at 31 of the half percent include.
We have ongoing investments in managed payment and the incremental investments and expenses related to cope with 19.
We generated $702 million of operating cash and $604 million of free cash flow.
In addition, we closed on the sale of Stubhub for 4.1, Bill billion dollars and cash subject to working capital adjustments and net proceeds of $3.2 billion.
In Q1, we returned $4.1 billion to shareholders through share repurchases and cash dividends.
Moving to active buyers on slide six.
We have 174 million buyers, representing 2% year on year growth flat with Q4.
Coming into Q1, we expected and saw modest buyer growth deceleration driven in part by our planned reduction of marketing spend on buyers with lower engagement and higher churn.
This was completely offset by buyer acceleration in March as more buyers came to ebay for their shopping needs as stay at home mandates were put in place around the world.
Moving to slide seven in Q1, we enabled $21.3 billion of marketplace GMP flat year on year and accelerating four points versus the prior quarter.
We estimate that cobot 19 drove approximately two points of volume acceleration for the quarter, mostly in the second half of March.
In the U.S., we generated $7.6 billion down 4% year on year and accelerating five points from Q4.
The year on year growth figure includes a six point headwind from the continued impact of the internet sales tax across the U.S.
In line with our expectations and approximately the same as Q4.
Please refer to the appendix to see the impact of Internet sales tax overtime.
The five point acceleration versus Q4 is driven by approximately two points of upside from cobot 19.
Approximately two points from increased marketing efficiency and product experience improvements.
And one point from the impact of leap year.
International GMB was up 3% accelerating four points versus Q4, driven by the same factors I mentioned for the U.S.
Moving to revenue on slide eight for the company, we generated net revenues of $2.4 billion up 2% organically accelerating one point from Q4.
We delivered $1.9 billion of transaction revenue up 3% and $474 million of marketing services and other revenue down 8% inclusive of a six point headwind from the sale of brands for friends.
The net impact of Cobot 19 in the quarter was minimal overall with marketplace volume driven upside offset by classified downside.
Turning to slide nine our marketplace revenue was $2.1 billion up 1% accelerating two points from the prior quarter.
Transaction revenue grew 3%, a two point acceleration versus Q4, driven by GMP and promoted listings, partly offset by increased credit reserves related to cope with 19.
Marketing services and other revenue was down 15% accelerating two points versus the fourth quarter.
The year on year decline is driven by 12 points from the sale of brands for friends. In addition to cope with 19 pressure on third party ads, partially offset by six points of growth in our Korea first party business, which grew over 60% year on year.
Marketplace segment margin was 36% flat year on year as the benefit of reduced marketing the sale of brands for friends and continued cost discipline were offset by and our investment managed payments and the impact of cobot 19 related impacts I mentioned earlier.
Moving to slide 10 in Q1 classified revenue was flat year on year decelerating six points versus Q4, driven by continued headwinds in horizontal display advertising across markets.
In addition to cope with 19 related pressure.
Segment margin for classifies was 33% down three points year on year, driven primarily by increased reserves related to cope with 19, as we extended payment terms across markets and continued investment in verticals, which pressured margin in a period of lower revenue growth.
Turning to slide 11, and major cost drivers.
In Q1, we delivered non-GAAP operating margin of 31.5%.
This is roughly flat year on year as reduced operating expenses operating cost and the impact of divesting brands for friends were offset by increased reserves related to cope with 19, our investment in managed payments and the impact of a stronger us dollar.
Cost of revenues down 20 basis points year on year as a percentage of revenue.
Driven by the divestiture of brands for friends, partially offset by scaling managed payments and our expanding first party inventory program in Korea.
Sales and marketing expense was down over one point versus the prior year, primarily driven by reductions in marketing and promotional spend in our us business.
Partially offset by increasing year over year investments in our international marketplace business, including off platform, which is comprised of our higher growth businesses in Korea, Japan and Turkey.
Product development costs were up 10 basis points from investments in managed payments and classified to expand our motor motors vertical offerings.
DNA was down 20 basis points, driven by operational efficiency, partially offset by our continued investment managed payments.
We've added a view on transaction losses, given the significant investments made in Q1.
Transaction losses have grown approximately a 150 basis points due to deferred fees and solid protection increases driven by cobot 19 that impact our bad debt and ebay money back guarantee reserves.
Turning to slide EPS are turning to EPS on slide 12.
In Q1, we delivered 77 cents of non-GAAP, EPS up 19% versus the prior year, our ninth consecutive quarter of double digit non-GAAP EPS expansion.
Non-GAAP EPS growth was driven primarily by our share repurchase program.
Revenue growth and our improved cost structure, partially offset by our investment in managed payments and the impact of a stronger us dollar.
GAAP EPS for the quarter was 64 cents up 12% versus last year.
The increase in GAAP EPS is mostly driven by our share repurchase program, partially offset by lapping a higher gain associated with the adient warrant.
As always you can find a detailed reconciliation of GAAP to non-GAAP financial measures and our press release and earnings presentation.
Moving to slide 13 in Q1, we generated $604 million, a free cash flow up 54% driven by higher earnings and the timing of capital expenditures and working capital.
Moving to slide 14, we ended the quarter was $5.2 billion in cash and investments inclusive of the $4.1 billion. We received for the sale of Stubhub business.
And debt of $8.7 billion.
For the quarter, we distributed $4 billion in the form of share buybacks and repurchased nearly 98 million shares inclusive of an accelerated share repurchase plan that will be completed later this year.
We have approximately half a billion in share buyback remaining to hit to $4.5 billion, we guided to in February.
At this time, our expectation is that we will execute on that share buyback before the end of the year, but that will depend on market dynamics in the second half.
We ended the quarter with $3.2 billion of share repurchase authorization remaining.
And we paid $114 million in dividends.
We also took two steps to further improve our liquidity position.
We acquired $1 billion of debt at favorable rates that we intend to used to repay our 2020 maturities that come due in June and October.
We also renewed our $2 billion credit revolver to retain financial flexibility.
Turning to slide 15, our capital allocation strategy and key tenants and targets have not changed.
We remain committed to maintaining our triple B plus credit rating.
Mid term leverage of approximately 1.5 times net debt and gross debt below three times EBITDA and the year end cash balance of approximately $3.5 billion.
We also remain committed to our dividend.
Turning to slide 16, and Q2 guidance.
For the second quarter, we are projecting revenue between 2.38 and $2.48 billion growing 2% to 6% on an organic FX neutral basis.
At the midpoint of our guidance, we expect marketplace revenue and volume to grow in the high single digits year on year.
And classified we expect significant revenue pressure contracting between 30, and 40% year on year, which equates to approximately five points of pressure at the total company level.
Driven by temporarily waiving fees, mostly in April and lower advertising revenue.
For marketplace.
This assumes that double digit growth in April trends April trends back to pre cobot 19 levels by the ended the quarter.
Volume strength continues at a higher pace than this assumption, we just but expect to be at the high end or above this range.
Reclassified this assumes the automotive subscription revenue largely recovers in may with dealers reopening across our markets. It also assumes a modest level of recovery in advertising.
While it's difficult to predict how long these market dynamics will continue as Scott mentioned, we feel great about the long term prospects for this business.
We expect non-GAAP EPS of 73 to 80 cents per share representing 10% to 21% growth.
EPS growth is driven primarily by the combined benefit of the lower share count marketplace volume and cost control, partially offset by lower classified revenue and investments and managed payments.
In addition to approximately nine points of headwind come from a stronger us dollar a higher non-GAAP tax rate and less interest income based on lower cash balances.
We are expecting GAAP EPS in the range of 50 to 57 cents per share in Q2.
Turning to slide 17.
Given these that this dynamic environment, we're not revising our full year revenue margin and EPS estimates, but we wanted to provide you with a little bit more context on how we're thinking about the rest of the year.
First excluding the impact of Cobot 19, our underlying marketplace business is performing in line to slightly better than our expectation across several measures.
We are managing through a dynamic environment.
With uncertainty on potential disruptions that could impact consumer buying behavior. This creates a wide range of potential outcomes for the year.
The dynamics that could pressure the low end of our guidance range would include.
Marketplace volume regressing to levels below what we're experiencing in early Q1.
Driven by consumer spending weakness and or further macroeconomic dislocation.
If classifies revenue showed improvement, but we face continued disruption in the automotive verticals and or slower prolonged recovery in advertising.
The dynamics that would put us toward the higher end or above our full year range would include marketplace volumes stronger than our original second half plan.
Driven by more permanent offline to online shopping shift and our ability to effectively retain the new buyers and sellers.
And the classifies revenue includes improves more quickly returning to growth in the second half but below previous.
Cobot 19 levels.
We expect that margin rates could have increased variability in the coming quarters, given some of the revenue and macroeconomic dynamics, but our cost discipline remains strong and we're committed to our long term margin structure previously communicated up two points of expansion by 2022.
It's also a volatile time for currency and given given the global nature of our business significant movements can have a material impact on our results.
At current rates hold we would have revenue pressure of approximately $100 million.04 of EPS compared to our February guide.
We now expect free cash flow of $2.1 billion to $2.3 billion. This increase of $1 billion versus our February guidance is based solely on the expectation that the cash tax payments related to the sale of Stubhub will be recorded in discontinued operations.
We have a strong balance sheet, our liquidity is in great shape and our business models continues to generate strong free cash flow in any of the above scenarios.
In closing these are challenging times for everyone.
We remain focused on our employees communities and customers, while continuing to deliver for our investors.
Our key growth initiatives have managed payments in advertising are on track, we continue to fight through the lingering impacts of lower marketing spend and internet sales tax and we'll exit the year stronger than we entered on these fronts.
Above all we will continue to focus on the safety of our stakeholders and on returning the marketplace business to sustainable long term growth by providing a trusted platform for buyers and sellers to transact around the world.
And now Scott and I would be happy to answer your questions operator.
As a reminder to ask a question simply press star one on your telephone keypad again that is star one to ask a question.
Your first question is from Stephen Ju with Credit Suisse. Please go ahead.
Okay. Thanks, guys. So I guess a question on payments and adjusts question on the buyers. So we're only a few months away from the end that agreement with pay Pal. So.
Just wanted to check in with you guys.
How your comfort levels with your own payment rails has evolved as you test to more regions and I guess as a byproduct your willingness to either speed up or slow down the transition.
I guess on a buyer side.
The fear or here is that as the world goes back to some normalcy people came back to engage in by more from ebay was a simply go away. So.
What do you think you can do to hold onto this increased level of activity. Thanks.
So Steven on payment outlook, I think our comfort level remains very strong the teams executing well, we have two markets up and running.
Three now announced as we just went through our pre onboarding customers onto rails that have been working we continue to.
To get great feedback from sellers and continue to expand and so our focus is is going fast and letting our sellers really get the benefit of a simpler experience that's less expensive and a better experience integrated into their selling account and on the buyers having more.
Tons and so we feel good about it on the buyers back to normal anyone to take that.
Look Steven I think the way we think about it is.
We've been working for a long time to improve the buyer experienced across the site.
And.
We have an opportunity here with some pretty healthy buyer growth at the end of the first quarter at the beginning the second quarter.
To further leverage that.
We're going to continue to invest in these buyers to ensure that they're finding and realizing the value in selection that we offer.
And continuing to drive engagement with these customers is critical it's super early in the process new buyers typically.
We'll engage a little less frequency and by a little less than.
Then retained buyers and we're seeing similar behaviors, but one of one of our key focus is in the coming weeks and months is going to be how do we how do we.
Work to drive increased engagement with the with the buyer growth that we've had recently.
Thank you.
Next question operator.
Your next question is from Ross Sandler with Barclays. Please go ahead.
Hey, guys.
Just a follow up on the sustainability of the GMB use I think you set up 20% every week in April and it seems like advertising rates around the internet are coming down.
You know do you view this as an opportunity where you could potentially lead in on SCM are on other forms of kind of customer acquisition too.
To not only trying to hang onto the new buyers that you've got boot.
You know drive more new buyers, even after the quarantines and any color there and then the second question is.
Just an update on the portfolio review.
Good on DCG, given what's going on in the world and what's going on in terms of the deceleration in that business any new plan around the the sale process and then has your thinking around Korea.
That business in the strength that you're seeing in Korea.
Changed at all.
Any thoughts on where that one stands for.
Strategic review process. Thank you.
Yes, maybe a few points and then a jump in.
So the sustainability at 20% I think what we're calling out in our.
In our guidance that we expect it to trend back down although it's obviously very hard to tell.
The benefit that we've seen is first as I called out and then Andy emphasized we've had a really good out of the gate kind of what we term confinement categories and broadly speaking those categories would cover roughly 25% insight and that's started to accelerate.
Great and then what you saw is as that settled down and as that is that the mature you started to see buyers buying in all of the other categories. So which you've seen now is a broad based expansion of the growth in other categories on ebay without really any being left behind per se and so from that.
Active feels good.
I think to the spirit of your question, we will continue to be spending on the nice part as these new buyers fit right into our strategy of going after the buyers. We brought in the last 12 to 24 months trying to activate them and so they'll go right into those cohorts and really will be working on things like getting them to sign up for the.
Mobile app that they didn't come through the mobile app.
Getting them to fully register as a as a user if they were only a guest.
Continuing to hammer them with that with emails and other.
And other value that's available on the site so tons of opportunities there.
Bob.
I don't know Andy do you want to weigh in on the AD rate or anything else that left out on that also maybe double click a little bit on the on the.
GMB comment on the sustainability of it just you know clearly in the guide for the quarter end the year, we're not counting on.
Those rates of growth continuing we havent seen anything through April to suggest that they dealt.
So to the extent that they would.
Continue at or.
Not trend down as quickly.
We'd see some upside but to Scott's point.
Looking to engage and and take advantage of the incremental buyers, we havent leverage them through the process.
Yes, and then hey, Ross to get back to the other parts of your 14 point question here, Let me try and on classified the.
Classified look I think you know certainly we have got the pressure for Matt.
I don't anticipate one dealer ships come back that we'll have ongoing pressure from that and so the dynamic as we look towards the second half of the year. It's certainly for the longer term, we don't feel it impacts the valuation in the company and thus accordingly, we're not really looking at the portfolio just you know.
Discussions that are going any differently than we were three to six months ago and so we're in active conversations with multiple parties as I called out and we'll give you an update.
At that by the next Q3 earnings by the Q2 earnings call.
And then Korea, sorry, Im Korea look treat creates a great platform and we elaborate a bit more at least in my script on a bit more of those dynamics around what we're seeing there and you know.
Good double digit revenue growth in that business this quarter I'm, a little bit a highlight of the contribution operating income dynamics that we get out of that business versus some of the others and I think as we've demonstrated along the way and the board's demonstrated will continue to be clinical about how we approach all of our.
Portfolio.
Around ebay right now we're focused on classified and making sure we maximize value for shareholders and that transaction.
And they get them all there.
Yes ill get back at me here that you more thank guys.
No doubt thanks Smith.
And your next question is from Eric Sheridan with you.
Please go ahead.
Thanks, So much particular question, maybe two if I can with the buyer growth being the same that we saw in Q4 is there anyway, you could sort of tease out what might have been sort of a tale of two parts of the quarter in terms of active buyer growth because I think anecdotally most people would assume that as people reengaging with the platform and you saw a type of.
However, post colder behavior on the platform by buyers and sellers that that number probably would have been little bit better. So I didn't know if we can drill down a little bit on that number and maybe some of the weight of change you saw on it as the quarter progressed and maybe even out in Q1 that would be number one the procurement coming into this year. There was a lot of talk about the headwinds that are going to be created by.
The Internet sales tax initiatives, we're not talking about that now so is that either remains a headwind, but one that youre out running because the demand environment changes that have persisted or is that sort of the headwinds that is still persists through the same degree you've talked before but you read the route rather.
Good to work towards it doesn't matter the buyers buyers that same degree that it did before just curious what the dynamic around I guess PBP. Thank you.
Yes, Hey, Eric it's Andy I'll take both of those.
Look like like I think Scott, both Scott and I, both said in our script. The beginning part of this quarter was performing as we expected on on almost all fronts and buyers are no different.
As we said.
Most of last year, we've been shifting marketing spent expense away trying to drive an increase CLP with buyers and we expected to see some deceleration in the first quarter and we were seeing it.
And.
We've seen healthy.
Buyer growth the last couple of weeks a march so absent the lift in co bid I think that you'd probably be looking at slightly lower buyer growth.
But keep in mind that Thats, a trailing 12 month measure and it's really hard to move that in a period of two weeks so as.
Well Im sure disclose much more as we get through the second quarter on the on the growth rates, but you can assume with 20% GMB growth that we've had some pretty pretty helped the buyer growth as well.
The second question on I Estee look I think part of the reason we're talking less about it is it's just relative to everything else going on it's a it's a smaller issue fundamentally nothing's changed other than it's performing basically exactly as we thought it would when we entered the year we had.
I think two states, we laughed on January Onest.
The thesis at the time and what we're seeing in early January was that we would laugh out of the headwind as as states reach the 12 month, Mark we had a few weeks of data at the time, we said that that's what we saw we now have four states that have left out.
And we're seeing consistent data across all those states.
So we remain confident that we'll see lift half over half driven by SD is that headwind dissipates.
But the reality is we had in the U.S. six points of headwind in the fourth quarter. We thought first quarter would be roughly six we think it was still roughly six in the fourth in the first quarter. So.
You know kind of to our expectations at upfront.
Okay, great guys. Thanks, so much for the color and say well speak so.
Thanks, Sir Thanks art.
Your next question is from carry with Goldman Sachs. Please go ahead.
Great. Thanks.
We've talked a lot about buyers and buyer growth what are you could give us a sense of kind of what you're seeing on the supply side of the equation.
Obviously, it's really early.
In this whole.
Environment that we're in right now, but in prior recessions, we've seen pretty big spikes in supply on the platform and that's impacted pricing.
Any any sense as to whether you're seeing growth and supply on the platform that.
The old narrative being people cleaning out the quality cleaning up their attic is they will have more time in their homes.
Able to looking for sort of additional income.
Are we seeing that we entered that wave on the platform yet so we're or if it's something that you do expect how do you how do you see it impacting GMB growth as you as you think about.
Getting deeper into into the recession.
And then.
Strategically.
I realize it's sort of early declined as asked.
This question as well as you sort of think about your time as.
How you're going to to manage the company as CEO, but.
The company's lead really hard on on capital returns.
The past as you.
Think about sort of how you want to manage ebay.
How do you anticipate sort of investing for growth investing in technology investing the things that are going to allow you to compete.
Since everyone else that that's in E commerce.
Versus continuing down the path of returning capital to shareholders.
Okay. Thanks, I'll take the first one I think Scott I'll.
Handle the second one.
I will try to give a little more color and then you hinted at at the beginning of of your statement that it's Super early.
And you know it's unclear how any of these.
Things will really mature overtime, but.
A couple of things that we did see early on.
See to see was.
Not really partaking in the growth that we saw relative to second half a March and we think thats related a little bit to the fact that fewer people are moving around maybe less likely to go to the post office or or deliberate things and we've seen that recover.
As we've gotten into April.
In terms of.
Supply.
The listings on the site our healthy despite the fact that.
We've had the relatively quick ramp in spike in volume.
So that we havent seen a reduction in listings on the site in fact, I think they've grown a bit through April.
To support the.
The volume Spike that we're seeing other BDC said, so so we feel like supplies healthy got weve been Onboarding as Scott mentioned, and I mentioned Onboarding, new sellers to this process as well so feel good about supply yes.
The other thing I'd add to that he is.
What we saw in January and February in particular, when China was more shutdown, we saw a dynamic that with kind of confirmed and what we saw was just the strength in the overall global ecosystem of seller and listing and inventory availability, which.
Was even as China was restricted we saw domestic sellers.
Step up with additional inventory into different markets, where we have the buy side. So obviously, we don't have it a buy side of China to speak of its their super small so the quarter out of China is that got a bit restricted.
In January and February in particular, we saw the other sell a step up and really not Miss a beat and so just the quality of the sellers in the global supply chain was it was quite profound and so.
We saw tons of benefit there as kind of supply shifted around.
As other markets Western markets started to show shelter in place China came back online and quickly really with a with a lot of help from our seller team in China helped get them back online and shipping using our speed pack capabilities with give them the capability to get inventory into other markets very.
He quickly and so that was terrific. So I think broadly speaking we walk away from the last six seven weeks feeling or even last quarter feeling very good about the supply quality and to your question I'd see to see I think it's a bit early to really see sums any substantial strength from CDC, but I would expect that as we go.
Forward and certainly what you'll see.
What people have already started to see in our international markets. In particular is additional messaging to see to see sellers to reengage with the platform if they havent been around recently.
So that so that'll be data, you'll see that in most major markets on.
On the quiet on the question for I think Thats, Jamie just in the next time, we'll parked gotten we'll let Jamie come back to that when we get too when we get to at July.
Okay, operator ill talk about one more question. Thanks.
And your next question comes from the line of Justin Post with Bank of America. Please go ahead.
Great. Thank you I think it quick you've you've got some pretty good success with your sponsored listings product I think your target was $1 billion in total marketing any change in your thinking there do you think it could be higher than say, 1% to 1.5% of GMP and any signs that make you think the opportunity could be bigger over time. Thank you.
A couple of things that I think we saw in Q1 that we feel great about first off while we raised the level of what was required for sellers to participate in promoted listings, we saw better quality listings go into search results and other placements that had been.
After conversion and I think you've heard me talk about a number of times that the trickier to CAD $2 billion and then north of there is making sure that this is accretive to the user experience and not a distraction not sending people elsewhere I think we walk away from Q1 are feeling great about that.
We'll work on the 1 billion first and then we'll update you after that but look I think the team's done an excellent job and what you're going to see US continue to do is iterate on placements pricing.
All sorts of things too to just make this accretive to the user experience and I don't think the team sees any limits to this and they are really focused on it that way.
Thanks.
Thank you.
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Operator, I think thats all the time, we've got the questions today.
Thank you.
Thanks, everyone.
Thank you again for joining US today. This does conclude today's conference call you may now disconnect.
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Okay.
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