Q2 2020 eBay Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the E Bay Q2, Twentytwenty earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today kill Bill on tape, Vice President Communications and Investor Relations. Thank you. Please go ahead.

Thank you. Good afternoon. Thank you for joining us couldn't welcome to todays earnings release conference call for the second quarter 2020.

Joining me today on the call or Jamie I and owning our Chief Executive Officer, and then decreasing or interim Chief Financial Officer, we're providing a slide presentation to accompany Andy's commentary during the call which is available to the Investor Relations section of the ebay web site at investors start ebay Inc.'s Dot com.

Before we begin I'd like to remind you that during the course of this conference call. We will discuss discuss some non-GAAP measures related to our performance you can find a reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. Additionally, all revenue in GMB growth rates mentioned and Jamison Andy's remarks represent.

Full year over year comparisons unless they indicate otherwise.

In 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 and 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.

It could affect our operating results in 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 of July 28, 2020, and we do not intended undertake no duty to update this information.

With that let me turn it over to Jamie.

Thanks, Joe and good afternoon, everyone.

Before I turn the call over to Andy to discuss our recent performance in near term outlook I will take some time to share thoughts and my return to ebay highlight a few observations from the quarter and share our vision for the company.

I'm thrilled to be speaking with all of you today as CEO of ebay I've a long admired this unique company for a special culture and its enormous potential I.

I spent my first 100 days, primarily focused on three areas immersing myself in the business connecting with our buyers in our sellers to other world and meeting different teams across the organization.

Throughout these engagements I've been fortunate to observe first hand, the significant opportunity we have ahead of us.

Our purpose has always been to empower people and create economic opportunity for all and there's never been a better time, where this is Matt at more than right now.

We are globally recognized brand with a strong heritage incredible assets and a talented and dedicated team who serve our passion and loyal customer community.

As we look into the future we have a clear vision to build on these trades and through a technology led reimagination of ebay, we will become the best global marketplace to buy and sell.

Before I get into our vision for the future I want to frame, where we are in the context of today's market.

Consumer behavior is rapidly evolving and this dynamic has been accelerated by Kobin 19, contributing to significant volume acceleration and new customer acquisition. This led to a very strong quarter coming in ahead of the recently increased expectations. We shared in early June.

Volume was strong across most major markets in the marketplaces business growing 29% our hires highest quarterly growth rate in 15 years. We also added approximately 8 million more buyers to bring the annual active buyer base to 182 million.

On behalf of our buyers I want to thank our sellers for doing amazing job selling and shipping over the past few months.

Organic revenue was up 22% with strong marketplaces volume offsetting an anticipated decline in classified.

Total margin rate was up five points to 34% and earnings per share was a dollar eight.

The current strengthen demand creates a significant opportunity for us as we embark on the next phase while also providing additional capacity for investment, which we are moving with pace to implement.

In Q2, we were able to deploy incremental investments into marketing and growth initiatives, while still delivering higher margins.

Operationally, our top initiative over the past two years manage payments just reached a very important milestone as we begin to scale globally.

Although the original operating agreement reached the end of its term papers will remain an important partner moving forward as a payment option for buyers.

And from a seller perspective after successful launches and the U.S. in Germany over the past two years, we have started migrating sellers in the UK, Australia and Canada on payments, we expect to transition the majority of all sellers globally over the next 18 months and we remain on track to realize $2 billion in revenue and 500.

Million, an operating profit in 2022.

Manage payments is a great example of a tech glad reimagination of our marketplace. It provides a simpler and seamless experience for buyers and sellers around the world.

Buyers can pay with ease and convenience with more choices of popular local payment methods.

And sellers benefit from a streamline experiences more options on how and when to be paid and the vast majority of sellers are saving money on fees.

We've also recently concluded our portfolio review.

Leading to the pending transfer of the classified business to Atlanta for approximately $9.2 billion. We're excited to bring together two highly complementary businesses in order to create the world's largest online classified grip with leading positions in 20 countries covering 1 billion people around the world.

With a strong partner in Atlanta. This structure allows us to dedicate our day to day focus on marketplace to marketplaces. It provides immediate value for shareholders and allows us to participate in the future growth of classifies.

Against this encouraging backdrop I'd like to share our long term vision for ebay.

Put simply our vision is to build on the company's powerful streams to become the best global marketplace for buyers and sellers through a tech led reimagination of ebay.

We have come a long way and our nearly 25 years growing from our founders first sale of a broken laser pointer into a global platform with more than 180 million buyers and tens of millions of sellers worldwide exchanging over $85 billion of goods.

While there are many accomplishments to be proud of we're not satisfied with where we currently stand.

The reality is that in the past few years, we've not executed to our full potential new competitors have taken share because we neglected our core area of expertise, we focused on new areas that did not drive sustainable profitable growth and.

And to be candid, we did not adapt quickly enough to the rapidly changing needs of our customers.

This leaves us with enormous untapped potential that we absolutely must capitalize on.

This is what brought me back to ebay and it's what the leadership team and I are committed to executing against.

It will be a multiyear journey, but I believe we can drive long term sustainable growth and generate significant value for shareholders.

Our ambition is to become the best global marketplace and that's been built with customers at the center with an acknowledgment of the driving force of our success has always been and must continue to be our leadership in technology.

This is why the entire team at ebay is rallying around three key priorities to execute on this vision.

One to both compelling nexgen experiences for our enthusiasts second it's become the partner of choice for our sellers.

And third is to cultivate lifelong trusted buyer relationships.

I will walk through each priority in more detail.

Our first key priority is to defend the core business by building compelling nextgen experiences for enthusiast customers, we will cater to them by focusing on two areas of historical strength consumer Sally and vertical experiences.

Consumer sellers are dedicated ebay customers, who have a proven track record of spending more than doubled the amount of buyers that don't sell on the platform.

This group differentiates our global supply by bringing unique and compelling inventory at great value.

We estimate that the average household in our major markets has approximately $4000 worth of items to resell and is selling less than 20% of that online today.

In addition to making extra money by keeping products in circulation longer customers are driving social and environmental benefits for all.

Leading consumer selling here the areas, where we intend to focus we will simplify the listening flow. It's currently frankly, too long and complicated and needs to be dramatically simplified next we need to increase conversion to grow the number of consumer selling enthusiasts.

And finally, we must make it easier for sellers to reinvest proceeds from their sales back into the things that they need want and love on ebay.

One recent consumer selling launch streamline the local pickup experience, but leveraging Q, our scanning to complete in person transactions.

While we are pleased to see this tech based simplification, there's a lot more to do to achieve the long term objective of growing the number of consumer sellers on the platform.

In terms of vertical experiences we plan to focus on non new in season products.

Within these categories, we have unique inventory at scale strong by our consideration and loyal communities of buyers and sellers, who connect through common interest and passions, not just to buy and sell merchandise.

This is an important focus for us as approximately half of our volume in major markets comes from these products.

And the Tam for these categories is expanding as more offline inventory transitions online.

These categories span from luxury items, two parts and accessories and motors to fashion electronics collectibles and more and they represent the core of why people love ebay.

Our plan is to focus technology efforts on the evolving needs of these passionate enthusiasts and we intend to accelerate growth in these categories in the coming years.

The second pre key priority of our vision is to become the platform of choice for sellers, we will aim to inspire small businesses by introducing tools and features that compel them to start to grow their business on ebay, we will treat them like true partners by making the platform easier to use grow their bran drive their sales.

And carefully protect their reputation.

By making even more compelling we plan to grow the number of successful businesses on the platform.

Hundreds of thousands of small businesses are already active today and tens of thousands have recently joined through programs like up and running across our global markets.

Recently, we launched several improvements to simplify registration and help sellers start and succeed on the platform.

Additionally, we have boosted seller presence by launching storefronts in the mobile App and we will continue to integrate the stores experience over time.

Seller hub tools continue to grow and in the past quarter, we launched several new features based on customer feedback.

To name some improvements we have started providing real time competitive pricing and traffic data and also expanded multi user authentication capabilities.

Another Great example is seller initiate it offers where sellers consent custom deals directly to buyers, which launched several new features in Q2 and is expected to drive over $1 billion in GMB in 2020.

This demonstrates the power of the ebay platform, where sellers can connect to individual buyers.

To drive demand for sellers, we continue to augment promoted listings capabilities in the second quarter promoted listings delivered $196 million of revenue up 124%, we see several growth levers, including further promoted listings adoption conversion improvements and AD product innovation designed to help seller.

As drive demand and grow their business.

Finally, the 30 party of our strategy is to cultivate lifelong trusted relationships with buyers, we plan to modernize and simplify the experience to drive more purchase frequency by leveraging AI teams to remove friction throughout the buying journey.

In our highly rated App, we're delivering features that customers want in June we released dark mode on iOS and dark theme on Android, which was the most requested feature by customers, particularly are generally customers.

We also simplified search filtering on mobile, which is leading to an increase in sold items and better user efficiency.

We have made significant incremental investments in three areas in marketing during Q2.

First we leaned into performance channels, which are delivering higher efficiency due to competitive spend reduction.

Second we instead in more app downloads and adoption to improve buyer retention.

And third we deployed a multichannel campaign to showcase sellers and continue to attract new small businesses.

These smbs bring great selection and value for buyers to discover.

We will continue to invest in the buyer experience and marketing technology capabilities as we work to foster lifelong trusted relationships with buyers.

As we look forward, we have a clear vision to realize the enormous untapped potential of ebay. This will be a multiyear process and we will will require investment but through a tech led reimagination. Our plan is to become the best marketplace in the world for buyers and sellers and our key priorities to deliver this vision our to build compelling.

Our next gen experiences for our enthusiasm to become the partner of choice for sellers and to cultivate lifelong trusted buyer relationships.

And while pursuing this vision, we will never lose sight of purpose, which is to empower people and create economic opportunity for all.

It's that purpose that inspired the company and the ebay foundation to committed an additional $10 million in the second quarter to support Coven 19 relief efforts globally.

Additionally, during the quarter, we donated more than $1.3 million the NAACP legal defense fund and equal Justice initiative in an effort to take action against systemic racism and injustice.

With that I'll turn the call over to Andy to provide more details on our financial performance Andy.

Thanks, Jamie and thank you all for joining today.

The last 90 days have been an incredibly exciting time for ebay.

First we've begun the process of ramping manage payments, which will greatly improve the experience for both buyers and sellers, while delivering incremental revenue and operating profits of the business.

Second we're extremely pleased with our announced agreement to transfer our classified business out of into for $9.2 billion in cash and stock.

And third we had an outstanding quarter financially.

Our marketplaces business continued to see significantly higher growth levels for traffic buyers conversion GMT revenue and operating margin.

And our cost parts business is recovering faster than our previous outlook.

On the basis of that strength, we're raising our full year guidance for revenue earnings and free cash flow.

Marketplaces on platform GMB growth in both the U.S. and international markets was in the mid 30% range for the quarter with acceleration across all major verticals compared to Q1.

We are well positioned to benefit from the offline to online shift that is occurring.

As we continue to deliver significant year on year volume growth.

As Jamie said, while there's much to be prouder, we're certainly not satisfied.

The current strengthened demand is providing an opportunity for you back to attract and retain new buyers and sellers.

And we're investing during this period to position the company for a higher long term sustainable growth rate.

Turning to slide four.

In Q2, we delivered revenue of $2.9 billion up 22% on an organic FX neutral basis.

Above the high end of our most recent guidance.

Non-GAAP EPS was one dollar an eight cents up 63%.

Non-GAAP margin was strong at 34.3% inclusive of our ongoing investments and managed payments.

We generated $964 million of operating cash flow and $866 million, our free cash flow.

We returned $112 million to shareholders and cash dividends in Q2.

And in early July we completed our 3 billion dollar accelerated share repurchase at an average share price $40.77.

Moving to active buyers on slide five.

We ended Q2 with 182 million active buyers, representing 5% year on year growth.

Accelerating three points from Q1.

With new and reactivated buyers driving the acceleration.

To put that number in perspective, the increase of approximately 8 million buyers and the trailing 12 month metric is more than we've seen in the last six quarters combined.

While the growth rate and the trailing 12 month metric is a bit muted. We are excited about the significant increase in buyers and are focused on increasing engagement and retention.

It's clear that stay at home mandates and a more restrictive offline shopping environment drove more buyers online.

Well, it's extremely early in the lifecycle of these newly acquired buyers.

Second quarter, we saw increased and get engagement.

Repurchase rate.

Frequency multi category shopping and migration to the App are all significantly higher than previous cohorts.

And our retained buyer base is purchasing with a higher frequency compared to pre pandemic levels.

Moving to slide six.

In Q2, we enable $27.1 billion of marketplace, GMV up 29% year on year accelerating 29 points versus the prior quarter.

The growth in volume was driven primarily by consumer behavioral shift to online shopping which brought more buyers the platform who on average spent more per buyer than in the past.

Approximately 80% of the GMB growth came from increased purchase frequency in our existing buyer base and the remaining growth came from new buyers.

In the U.S., we generated $10.5 billion of GMP up 35% year on year, and accelerating 39 points from Q1.

Although difficult to precisely measure given the magnitude of volume the year on year growth figure includes a four point headwind from the continued impact of Internet sales tax across the U.S.

Improving two points compared to Q1 and slightly better than our expectations.

Next quarter will be the last quarter with a material impact on growth rates as the majority of states had gone like before October Onest 2019.

Please refer to the appendix to see the impact of Internet sales tax overtime.

International JV was up 26% accelerating 23 points versus Q1, driven by strength in the UK and Germany growth in Korea was 5.5% decelerating one point.

Moving to revenue on slide seven for the company, we generated net revenues of $2.9 billion up 22% organically accelerating 20 points from Q1.

Delivered $2.4 billion of transaction revenue.

Up, 33% and $418 million of marketing services and other revenue down 20%.

Inclusive of a five point headwind from the sale of brands for friends.

Turning to slide eight our marketplace revenue was $2.7 billion up 26% accelerating 25 points from the prior quarter.

Transaction revenue grew 33% of 30 point acceleration versus Q1, driven by strength in GMT and promoted listings.

Marketing services and other revenue was down 16% decelerating one point versus Q1.

The year on year decline is driven by 11 points from the sale of brands for friends. In addition to lower third party ads, partially offset by growth in our Korea first party business, which grew at over 80% year on year.

Marketplace segment margin was 40% up eight points year on year.

The margin expansion was driven by strong volume leverage and continued cost control, partially offset by incremental marketing and technology investments as we aim to increase engagement with new buyer cohorts and accelerate product delivery.

Moving to slide nine in Q2 classifies had a tremendous quarter and an incredibly tough environment.

The leadership team had to deal with the realities of the pandemic pressures and the uncertainty of a pending transaction.

Through it all the team executed beyond expectations revenue was down 24% year on year decelerating 24 points versus Q1, driven by motor speed discounts. In addition to continued headwinds and display advertising across markets.

Revenue growth was at its lowest point in April before delivering steady acceleration through may and June.

The acceleration was primarily driven by a combination of ending the fee discounts, we provided to dealers as lockdown restrictions east through the quarter.

And modest improvements in advertising.

Performance was ahead of our expectations as the recovery in motors and that materialized more quickly than originally anticipated.

Segment margin for classifies was 30% down eight points year on year, driven primarily by fee discounts, which resulted in lower topline leverage and our continued investment in verticals.

Partially offset by a reduction in sales and marketing spend.

Last week, we came to an agreement to transfer our classified business to out of into for $9.2 billion.

Upon closing ebay will receive $2.5 billion in cash, which we anticipate will yield approximately $2 billion net of taxes.

In addition, E Bay will receive 540 million shares of out of into valued as of the July 17th closing share price at $6.7 billion.

While the value of the stake will move with the share price from out of into early positive reactions indicate alignment with our view of the long term value in this combination.

We are excited about this deal as it allows us to realize near term value, while also enabling us to participate in the future upside potential of the world's largest online classified company.

Turning to slide 10, and major cost drivers.

In Q2, we delivered non-GAAP operating margin of 34%.

This is approximately five points higher year on year, driven by marketplace volume leverage and continued cost control.

Partially offset by the impact of lower classified to revenue and our investment and managed payments.

Cost of revenue was down nearly two points year on year as a percentage of revenue as volume leverage more than offset investments and managed payments and our expanding first party inventory program in Korea.

Sales and marketing expense was down over three points versus the prior year as marketplace volume leverage and classified spend reductions were partially offset by reinvestments in the marketplace segment.

Product development costs were down one point driven by volume leverage partially offset by incremental investments in the product experience, including managed payments.

Gionee was up 30 basis points as leverage and cost actions were more than offset by advisor costs associated with the cost five transactions.

Charitable donations and costs related to the closure of a large office.

Transaction losses have grown approximately 70 basis points, driven by volume and modest rate increases and our bad debt in ebay money back guarantee reserves.

Turning to EPS on slide 11.

In Q2, we delivered one dollar an eight cents of non-GAAP EPS up 63% versus the prior year, our 10th consecutive quarter of double digit non-GAAP EPS expansion.

Non-GAAP EPS growth was driven primarily by higher revenue growth and our share repurchase program.

Partially offset by the impact of a stronger us dollar and our investment in managed payments.

GAAP EPS for the quarter was one dollar and four cents up 125% versus last year.

The increase in GAAP EPS is mostly driven by the change in fair value of the audience warrant.

In the quarter and the same factors as non-GAAP performance, partially offset by a higher tax rate driven by California tax law change.

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 12 in Q2, we generated $866 million or free cash flow up 54% driven by higher earnings and the timing of cash taxes.

Moving to slide 13.

We ended the quarter with $5.8 billion in cash and investments and debt of $8.7 billion.

We've continued to strengthen our balance sheet and are leveraging the current market to improve the rates were paying on our outstanding debt.

In Q2, we issued $750 million of debt, bringing our total debt raise for the first half to $1.75 billion.

We are using the proceeds to retire our 2020 and 2021 debt maturities.

In Q2, we repaid approximately $830 million and we'd expect to pay the remaining $920 million by the end of Q3.

We paid $112 million in dividends in the quarter.

In early June we completed the 3 billion dollar accelerated share repurchase plan, we announced in February at an average price per share of $40.77.

We have $500 million in share buyback left to hit the $4.5 billion in our guidance.

We ended the quarter with $3.2 billion of share repurchase authorization remaining.

Our capital allocation strategy key tenants and targets have not changed we remain committed to maintaining our triple B plus credit rating.

Mid term leverage of approximately one and a half times net debt and gross debt below three times EBITDA.

And the target cash balance of approximately three and a half billion dollars.

We also remain committed to our dividend.

Turning to slide 14 and guidance.

The guidance, we are providing assumes classifies results are included in both Q3 and full year.

We will provide updates moving forward as appropriate.

As we indicated in April this is an unusually dynamic time without historical precedent.

And president and presents challenges in drawing conclusions on trends and outlooks beyond the immediate term.

In April we experienced a significant broad based acceleration.

At the time it was unclear how long that strength with last or when growth rates would returned to pre pandemic levels if ever.

What we observed throughout the second quarter varied across geographies in countries like Germany, and Italy, we saw the height of GMB growth in April and then begin to see moderation of growth as these countries began to reopen.

Although growth levels continue to be higher than pre covert levels.

In the U.S., where the impact of the virus continues at elevated levels growth has been steady through July so far.

Across most markets, we have yet to settle back into new baseline, making it harder to accurately forecast future growth rates.

We are however, providing updates to both our Q3 and full year guidance today.

Our visibility in the near term is clear, but beyond Q3, it's harder to predict exactly how buyer behavior retail channel shifts and changes in the economic environment will affect our outcome.

There isn't a model of ecommerce growth recovery from a global pandemic and considering these factors, we see a wider range of potential outcomes.

Our guidance assumes continued growth moderation across most of our portfolio throughout Q3, assuming consumer mobility continues to improve.

We expect to continue to invest in technology and marketing to maximize our opportunity to exit the pandemic at a higher growth rate than we entered.

For Q3, we are projecting revenue between 2.64 and $2.71 billion growing 14% to 17% on an organic FX neutral basis.

This assumes marketplaces volume growth in the high teens with gradual growth moderation through the quarter in classifies we're projecting revenue acceleration from the second quarter.

We expect managed payments to continue to deliver revenue acceleration contributing approximately three points to Q3 revenue at the midpoint of our guide.

Partially based on heightened GMB growth rate, but also on strong execution.

We expect non-GAAP EPS of 81 to 87 cents per share representing 27% to 36% growth.

EPS growth was driven primarily by marketplaces volume and lower share count, partially offset by continuing investments and technology and marketing.

We are expecting GAAP EPS in the range of 58 cents to 64 cents per share in Q3.

For the full year, we're increasing our revenue guidance to the range of $10.56 billion to $10.75 billion.

And organic FX neutral growth of 12% to 14%.

This represents marketplace revenue growth in the mid teens and classified revenue at negative mid single digits.

We are raising operating margin to be in the range of 30.5% to 31.5% and maintaining a non-GAAP effective tax rate of between 15.5 and 17.5%.

Well the above dynamics, we're increasing our full year non-GAAP EPS guidance.

3.47 to 3.59 per share.

We are increasing our free cash flow to $2.55 billion to $2.7 billion.

And narrowing the capex range to 4% to 5% of revenue.

Finally, we are increasing full year, GAAP EPS to $2 and 85 to $3 per share.

In closing, we feel great about our progress.

The business performance continues to be very strong.

Our revenue growth initiatives have managed payments in advertising are on track, reducing friction on the site and providing more options for buyers and sellers.

We are well on our way to delivering our cost structure improvements that will drive at least two points of operating margin growth by 2022 as compared with 2019.

We are excited to have clarity on the next steps for classified and a transaction that we believe creates great near term value with the opportunity for more shareholder value over time.

While we've made great progress we know we have more work to do to achieve our full potential.

And we are focusing all resources towards driving improvements in the marketplaces business to fully realize the opportunity in front of us.

With that Jamie and I would be happy to answer your questions operator.

Good question. Please press star one on your telephone keypad. Your first question comes from.

<unk> of Keybanc capital markets. Please go ahead your line is open.

Hey, good afternoon. Thanks for taking the question Jamie agreed to work with you again I know you mentioned year charting the conversations the seller I know you're kind of.

I guess what.

Do you hear from sellers and how quickly can snack on it and then as a follow up obviously, great momentum because of the current situation I guess any specific plans to.

Maintain those buyers and keep the Mac. Thanks.

Yeah, good to hear your voice Ed so on the seller side, what we're really focused on is how do we make that initial process of coming onto the platform extremely easy so simplifying the registration process, simplifying onboarding and simplifying getting up and running.

On the experience and then as they progress in build their business on ebay, how do we give them more tools and capabilities to to help them continue to grow that business on ebay, we talked about line, which is.

Enhancing our stores product, bringing that into the native app I'll be honest with you, though I think we have a lot more work to do in areas like that where we can make it even better and give them increase tools and so thats going to be a huge focus for us on that second pillar of of being the the partner of choice for sellers you know on the momentum we feel great about the 8 million.

In new buyers. It's been yeah, you know that's more than the last six quarters combined and what we're really focused on is turning those buyers into enthusiasts and keeping them on the platform. So you saw less this quarter reinvest in areas like.

App downloads and convincing new buyers on the platform to to get the App, that's where the majority of our transactions happen on the platform and I talked about some of the innovations that we're doing there like the the dark mode on the App, which is exciting but we're also working on revamping the whole onboarding process for buyers. So how they come in their first 30 days.

Yes, and we've just started that this quarter to really take advantage of the new buyers, but thats part of the you know the vision that we've laid out is really just enhancing that ability to bring buyers along the journey and increase their at their lifetime value with us, but we're excited by what we're seeing excited by the the early momentum.

What we're witnessing from those buyers.

Great. Thanks, so much.

Thanks, Ed.

Your next question from Brian <unk> of Morgan Stanley. Please go ahead. Your line is open.

Thanks for taking my questions I have two is the first one on the mid to Q as are the Threeq you GMB commentary I think you talked to sort of teens growth in for in the guidance good ones like the U.S. been sort of steady. So question. What are you seeing you asked a steady is that still growing over 30.

And what are the assumptions in sort of the deceleration in GMB throughout the quarter and all the guidance why would that slow down and then the second one terminal certainly bigger picture question, maybe talk to us a little bit about the the demographic of these new buyers. You brought on are you cracking into new types of household incomes of household who are there.

New people and how are they differ from the older ebay buyers. Thanks.

Yes, so I'll start and take the second one and then Andy maybe you can take the first one so what I'd say on the demographics of the new buyers that we're bringing is it's really across the board and across all geographies. So all of our major markets saw strong buyer growth and it's really two fold. It's one its new buyers actually coming onto the platform and then it's also receive reactivating existing.

Payers are buyers that had a bit on the platform, but hadn't purchased for us for awhile and then obviously a huge amount of the growth was also just our existing buyers buying more but what we're working on and you probably saw this in some of the the TV advertising that we're doing in some of the the digital is really appealing to the fact that small businesses are bringing unique inventory on the ebay.

Okay, and attracting buyers across the board a key focus for us over the next couple of years will be our Gen. Y. customers. That's why we've made certain investments in in our sneakers business and growing that and also why you know a feature like dark mode. In mobile App also appears to two younger demographic. So it'll be a continued focus for us price.

And over the next.

Well that quarters in years any doing take the first yeah, Hey, Brian on on guidance look at highlights as I said in my prepared remarks, there's a lot of unknowns I'll say that we we know more today than we did in April and we and we see more trends.

Don't want to get into specific.

Country and monthly trends, but.

We've seen an increase correlation with mobility around the world and as I indicated in my prepared remarks.

Particularly Germany, Italy.

And countries, where the mobile mobility is improving and approaching in some cases.

Pre pandemic levels, we've seen a moderation in growth rate.

That growth rate is still above pre cobot levels, but it's lower than it was at the peak.

And then similarly in the U.S. you asked the growth rate is.

Stronger.

Then I don't it's not stronger its sustain.

But it's stronger than some of the other countries given up given some of the the progress on the virus that we've had in the U.S.

Great. Thanks.

Your next question is from Doug Anmuth of JP Morgan. Please go ahead. Your line is open.

Great. Thanks for taking the questions Ive to.

First Jamie you talked about with Tech led Reimagination that ebay can you talk about the company's ability to repeat in the tracked the right engineering and product talent to make this happen and just how you ship ebay to be more positions.

With respect driven approach and then just second Q3 was talking about the decision to keep the 44% stake in classified did you start there or how much was that influenced by the current environment and the recent pressure on the segment. Thanks.

Yeah. So on the on the first one Doug on the technology side, you're absolutely right a huge focus for us. So first off we haven't really great a world class technology team and a lot of different geographies.

In the business, but we are focusing on augmenting that with even new capabilities. So we're building up our capabilities in AI and data science and computer vision. You may have seen features like you know easy image enhancing for our sellers all that's coming out of kind of a next gen technology group that we've been building up but it's a key focus for us.

Because of the Tech glad Reimagination. This company has been and always will be about how to create those game changing technologies to be candid, though there's also areas, where we've got to get off of old legacy technology. So part of it is just.

Moving moving off of some of the older technology stack and modernizing that the good news is that some progress, but but we're accelerating even that work.

On the on the on the classified deal what I'd say is that you know we're really excited by the combination of the assets that.

Our classified business combined with that event when you look at the two of them together it creates 20 leading markets.

In the classifieds business and creates the world's largest online classifieds business. So we're excited because it and not only gives value to shareholders in the short term, but allows us to participate in the long term potential of this exciting new venture and then the third thing that was important for US as you know now that we've.

Divested stubhub and with this transfer of assets on classified it allows the whole management team all of our technology as the whole organization to focus on the marketplace business and as I stated in room in my remarks, you know I see a lot of untapped potential in that business, but there's also areas, where we haven't kept pace and so I think that focus will also begin.

Good for the whole organization.

Thank you do.

Your next question from Stephen Ju of Credit Suisse. Please go ahead. Your line is open.

Okay. Thank you so Jamie.

Welcome aboard by the way.

So it sounds like you want to consolidate a lot more the odyssey's on as well as a more unique inventory both new and used so theoretically you will see greater variety of merchandise and hopefully a spike in listings.

But given the company's history with data and figuring out what people are buying and selling what kind of two to make sure that you maintain or even improve the buying experience.

And secondarily interest that following up with what you brought up earlier in terms of generating liquidity for consumers as they sell things on ebay.

After they sold what they wanted to sell the out the money, which they can go spend anywhere. So what can you do to make sure that the money that they generated on ebay stays on ebay. Thanks.

Yeah. So great question I'll start with the liquidity one one of the benefits of the managed payments that were that we're launching and scaling I'm here. We added several new countries and now we're able to take really grow and ramp that with the changes that we could go with the expiration of the Paypal agreement is the exact ability to do what you're saying so to make.

Get easier for.

Sellers and buyers to have their their whole kind of while it and payments contained on the platform. It gives us more flexibility of things of that we can do to really make that easy for them and so obviously that transference is it is a huge benefit the other thing I would say is that just getting buyers to.

Sell so just getting them to try it out bring some inventory on makes them a better buyer and it's because they played on both sides of the marketplace they've experienced the power of ebay and so what we've seen is there's a more than doubling of benefit to their buying behavior are just like getting them to try selling so we're really happy with that with that flywheel effect and that's something we're gonna.

I continue to lean into as I talked about that first pillar of consumer selling that's the key piece of it to your question on me on the inventory you know, it's we feel really beneficial because of the the open and level playing field that we have we can bring on that new consumer selling inventory, which is really valuable to have on the platform 'cause it a true.

Thanks, a lot of buyers along with the SMB inventory that that's there and when I say, we're focusing and kind of getting back to non new win season, if not saying that you're not going be able to buy a ton of new product in season product on ebay well have that and always have that but in terms of a focus we think theres this massive opportunity $500 billion.

And what ebay is fantastic and unique at and we can build great fertile experiences we can attract that supply idle and that's where I believe there's just an enormous amount of of untapped potential in going after it and so really making sure that we nail everything about the buying experience and and have an extreme customer focus will allow us to capture.

The potential.

Thank you.

Your next question is from Thomas Court T.A. Davidson. Please go ahead. Your line is open.

Great. Thanks for taking my question I had two high level questions. So Jamie I want to know what success looks like from a sales standpoint, I do aspire to have sustainable double digit FX neutral topline growth and then second I want to know what your preference wasn't capital allocation M&A versus buyback versus dividend. Thank you.

Yeah. So you know look what what we're really focused on is how do we improved the overall experience between buyers and sellers and create a really healthy business in the long term. So I think the things that we've laid out lead us to a long term healthy growth of the of the core marketplace business.

We're not going to quantify you know the long term what those numbers are but I think the steps that we're going to take their well get us to a point where were what we're driving healthy growth in terms of the capital allocation, we're going to stick really to the capital tenants that we've been talking about all along and Andy do you just want to reiterate.

What those are yeah, I mean look I think it's if you look at the history of what we've done since separation.

I think it's close to $20 billion, maybe a little over $20 billion of have returned to shareholders a either through dividends.

Or or share buyback and I.

It's important to step back at that and then look at what we've done recently with Stubhub and.

Our view is the most value we create for shareholders is going to be getting the the marketplace business back to growth. So we're going to continue to balance margin growth rate M&A buyback in you know all those different levers with the with the purpose of improving to.

Performance in the marketplace business and increasing shareholder value.

Great. Thanks for taking my questions.

Your next question is from Colin Sebastian Apart. Please go ahead your line is open.

Great. Thanks, Jamie welcome back.

Thanks for the vision for the marketplace longer term and I'd like to start there.

Specifically going back to the technology Reinvestments we.

We have seen some of that over the last four or five years Miss structured data and so hoping you can write a little bit more context on the scale about investments is this more tactical things I mean, there's been investment and data science in AI already or is this you know with the re platforming away from the older stack is it safe.

A larger scale technology investment phase and then secondly on manage payments. So congrats on on that finally formally.

Progressing was curious how that's not only the pace of manage payments transferring over but but also what the road map looks like and things like seller financing by now pay later I think that that sellers and buyers had with pay Pal, but that I assume are part of ebay manager.

Thats overtime as well thank you.

Yeah. So on the first question you know, it's it's two parts, it's one about where we're focusing our technology investments and a key part of that is that you know I think for for quite some time, we were chasing a little bit the new in season, and not really focused on what's the core experience and how do we leverage technology in this key core verticals where.

Ebay has an amazing stronghold and in the inventory in a non new win season, where there's a you know over 500 billion dollar opportunity and so you know to be can't I feel like there's there's certain areas, where we let niece competitors cake business away from ebay that should be done on ebay and shows you the potential that we have on ebay.

If we really focused our technology efforts in those areas that we know our features tools capabilities in new experiences.

That help buyers and sellers connect.

A small example that is while we don't have a huge pickup business on there's a lot of categories, where people do me in person to to exchange good and we just made it more seamless through these QR codes for the buyer and seller, it's kind of a magical experience the money flows and that's the benefit of doing managed payments and technology together as we can create those.

Experiences for for buyers and sellers on the manage payment side you know what we're really focused on right now is scaling that business. So we've got a lot of work left to do and kind of opening up all of the remaining geography is bringing more sellers on et cetera, but once we do hit that point, yes, like we were.

Talking about area, there's opportunities to do more and and help connect and make it more streamlined for sellers on the payments, we do have a and a fine now pay later option or monthly pay option. That's in partnership with pay Pal pick all continues to be an option for how to pay on the platform and a key partner for us.

Bob but to answer your question, yes, we'll be continuing looking at ways that we make buying and selling their payments easier and then its payments gives us that flexibility.

I call, maybe maybe one more thing on margin rate I, just want to reiterate from my script the.

We remain committed to the the margin commitments from last year. The at least two points of margin by the time, we get the 2022.

And and but through that time, we're going to you'll see us invest with balance and we're going to pace, you know incremental revenue incremental investments.

With growth rate and and earnings along the way so no change to the long term margin structure.

Thank you.

Your next question from I go Iranian of Wedbush Securities. Please go ahead. Your line is open.

Hey, guys. Thanks for taking the question so I.

Uh huh.

Macro GMB level, just you noted in some of the Internet international geographies that workwear mobility is getting back to normal growth rate go higher than Pete you panic, but okay, but coming down from our from the peak is there anyway to quantify that little bit more is that slightly above where it where it was before as well meaningfully.

Above and anyway in the U.S. to quantify it think about what the contributions from some stimulus has been and is the is the pace of the pandemic the the really.

The biggest piece of why the U.S.G.M.B. was so much stronger than internationally and then one real brief one off on payments just thinking about in the where you have intermediate it I imagine payment.

As rolled out for those merchants any positive signals, you're seeing in terms of better conversion or anything else, that's really giving you a.

Hi, good feel are good outlook from Y O Y and how managed payments can drive.

Better opportunities for stronger GMB growth going forward. Thanks.

Okay.

AOS dark I think with the second one on on U.S. contributions.

Well I think it's really hard to point to any one thing you know, particularly stimulus is having a a major.

Being a major driver I'm sure there's there's some impact at some level.

I'm a point back to the best thing we've seen globally in terms of an indicator is mobility.

So and I think it is fair to say the U.S. is significantly stronger than international regions, just given the impact of the of the virus in the U.S.

In terms of.

On the macro question on international levels of GMB pre pandemic versus posts.

I think I'd point, you probably to the the Q3 guide relative to Q2.

Actuals.

If you have the U.S. you know similar to Q2 levels and the and the company with with moderation of you know from a from a 29% growth rate to a high teens.

You'll start to see so you know you can back into maybe a little bit of the I'm a little bit of the pressure and international in addition to the fact internationally keep in mind Korea.

With relatively stable growth rates quarter over quarter significantly lower with with much less impact from from cobot in in Q2, and then into Q3 so.

Again moderating growth rates, but since you know still sufficiently higher than pre go.

And then what I'd say undiminished payment side is a is a couple of encouraged things. One is a feedback that we're getting from sellers generally very positive Matt. That's majority of them I will see lower fees and have a simpler fee structure with the result of rolling it out and a lot of them have signed out pretty registered so you know waiting for when we can open up the platform.

Which we did a two weeks ago and I would say the same thing on the buyer side, especially for a new buyer creates a lot less friction and so we're excited and optimistic for what that means for the overall experience and when I talk about attacked glad we imagination. You know payments is the perfect example, it just makes the whole experience easier and better.

There are we committed to it and put a lot of resources behind making it a great experience said so far that's the feedback that we've been getting by by both buyers and sellers.

Thank you.

Your next question from Justin Post of Bank of America. Please go ahead. Your line is open.

Great. Thanks, Jamie well welcome back to ebay couple of questions I guess big picture thinking about how how did the management team is now compensated. It is it relative growth to the E. Commerce industry is it overall growth is a certain margin targets could you talk a little bit about the incentive team for for the management team accidents.

Structure and then the company has gone through a pretty big period here of divestiture and and cash returns. How do you think about if that could change do you see adjacent M&A opportunities do you see a real chance here post covert to really accelerate growth. Just just talk about you know kind of is or is there.

Kind of a big change going on at ebay at this point or more of the same but hopefully you know some some innovation around on the I just think it.

Yeah, so our incentive structure really hasn't changed over the years and it's based on a combination of top and bottom line on the on the M&A opportunities and the acceleration the focus on what I'd say, it's changed as you know the whole organization is now really focused on division that outlined now that without stubhub and now.

Classified transferred in Atlanta, you've got the whole organization thinking about this overall tech lottery imagination from technology marketing product and these three kind of key focus areas and so yeah. We will look at opportunistic M&A, where we think we can really help.

Accelerate that focus on the core business, but like I said before you know we see a huge amount of untapped potential just in going after these key experiences in key verticals of getting back to that kind of core fee to see selling.

And and you know moving this idea of you know I think for for some years, we were acquiring buyers at all costs and really focusing on how do we turn buyers into lifelong trusted relationships and putting all of our efforts across product marketing technology et cetera around that focus then and I think if that focus and.

At and that leaning on the technology, starting a big way that's can allow us to capture.

Great. Thank you.

Operator, I think we've got time for one more.

My question is from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.

Great. Thanks, a you know, we obviously talked about a lot of investments in technology. So I won't go down that path, but.

When you when you think about maybe the marketing side of things and sort of how you want to think about customer acquisition from here, particularly as the tailwind from the current environment that we're in potentially starts to dissipate how should we think about the level of investment that you want to see and.

The extent that there's a a path or sort of an optimal channel mix that you did you see as sort of working better for E Bay and the future than maybe what we've seen in the past given given your background, obviously would really but really appreciate sort of how you're seeing how you're seeing that side of the opportune.

City.

Yeah, So I'm not this quarter on the marketing side. He great question on the marketing side, we were able to lean and pretty pretty well to the new buyers that we are acquiring so both with kinda brand advertising talking about the small businesses, but also on the less competitive environment on the on the performance side of the business you know when I when I talk about marketing.

It's not just the spend but it's also just our CRM program, how we communicate how we leveraged things like a email notifications et cetera, and I think that you know we've built some good capabilities over the years, but I think we have a massive opportunity there to help buyers get up the get up the lifecycle in an even better way. So that will also be an opportunity that we're really focused on.

On the on the channel mix.

We have the benefit of obviously, having lots of different channels for driving it I would say the newest ones that were really focused on or acquiring the gen y. customers and looking at new opportunities in paid social and going after making sure that customers attracted I talked to kind of really understanding the categories that attract that demographic onto the platform and so I think you'll see.

Slide shifts in terms of the marketing mix that we're looking at but overall, we tend to leverage you know all the channels that we have to maximize the ROI that we can get off of that spend and as I talked about we're really focused on how do we get not just a new buyer onto the platform, but how we turned out new buyer in doing enthusiasts and that's where I think the real unlock and the power of of the.

Model lies.

Great. Thank you.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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