Q2 2021 eBay Inc Earnings Call
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Good day and thank you for standing by welcome to the Ebay, Inc. Second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question.
During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Joe <unk> VP of Investor Relations. Thank you. Please go ahead.
Yes.
Operator, just checking can you hear us okay.
I can yes, just one moment please.
Okay.
Yeah.
Good afternoon. Thank you for joining us and welcome to Ebay's earnings release Conference.
Call for the second quarter of 2021 John.
Joining me today on the call are Jamie <unk>, our Chief Executive Officer, and Steve priest, our Chief Financial Officer.
We're providing a slide presentation to accompany Steve's commentary during the call, which is available through the Investor Relations section of the ebay website at investors <unk> ebay, Inc. Dot com.
Before we begin I'd like to remind you that during the course of this conference call. We will discuss some non-GAAP measures related to our performance you can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. Additionally, all revenue and GNP growth rates mentioned in Jamie's in Steve's remarks represent FX.
Neutral 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 that 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 is as of August 11, 2021, and we do not intend and undertake no duty to update this information.
With that let me turn it over to Jamie.
Thanks, Joe Good afternoon, everyone and thank you for joining us today I'll begin the call with key highlights from the second quarter.
I will share some updates on the progress towards our strategic vision at the end of my remarks, I will turn the call over to Steve <unk>, our new CFO, who will discuss our financial performance and outlook in greater detail.
Second quarter of 2021 March several important milestones in the ongoing transformation of ebay and wanted to thank our team for making it happen.
We've accelerated our pace of innovation, while executing several complex transactions their dedication and focus have created tremendous value for our customers and shareholders. Let me start with a few of our portfolio enhancements, we completed the transition of ebay classifieds business that event.
This deal was originally valued at approximately $9.2 billion, but at closing in June had appreciated to $13.3 billion.
Shortly after closing we announced the deal with Premier to sell approximately $135 million of our added into shares for over $2.4 billion.
This agreement is it sales regulatory commitments, while returning value to ebay shareholders. We also increased our share buyback plan for the year from $2 billion to $5 billion.
In June we announced the sale of over 80% of our Korean business to earmark for approximately $3 billion.
Bringing together two leading ecommerce and retail companies that can unlock significant potential in Korea, we anticipate the deal will close either later this year or in early 2022.
These portfolio changes allow us to intensify our focus on the core ebay business moving forward.
When I spoke to you last July I outlined our renewed vision and strategic plan for the company, we set out on a multiyear journey to become the best global marketplace for sellers and buyers to a tech led re imagination.
Priorities were to grow the core become the platform of choice for sellers and to cultivate lifelong trusted relationships with buyers.
Turning them into enthusiasts.
To date, our progress is very encouraging our underlying growth is positive and the strategy is working Q2 results were strong in all key business metrics met or exceeded expectations revenue grew 11% driven by acceleration in the payments migration and advertising growth, we funded incremental investments in product development.
While delivering 99 of non-GAAP EPS above the high end of our range as expected GMB declined 11% when compared to last year. When results were heavily impacted by the initial pandemic Lockdown importantly, compared to pre pandemic levels. Two years ago, we are seeing positive underlying GMB growth.
Our customer metrics remain healthy on both sides of our marketplace active sellers grew 5% to $19 million globally as more small businesses and consumers continue to turn to ebay's global platform to reach millions of potential customers from around the world.
This quarter global active buyers totaled a $159 million down 2% versus last year and up 3% versus 2019, we.
We have been focused on building lifelong trusted relationships with enthusiasts buyers changes in our marketing mix and product investments have been focused on attracting and retaining these enthusiasts, particularly gen Z and millennials in parallel we have discontinued legacy tactics that led to low value infrequent for one and done buyers.
Our buyer base is starting to evolve based on this strategy. These high value buyers are growing compared to a year ago and their spend on ebay is growing even faster this higher quality mix of buyers increases value for sellers and will lead to improved health of our ecosystem over the long term.
Moving on from buyer trends, the payments and advertising initiatives continued to deliver a simpler product experience and meaningful benefits for sellers buyers and shareholders managed payments is now live in every market globally and the transition is progressing faster than expected during the second quarter, we processed 71% of on platform.
I am through managed payments, we exited Q2 at a run rate over 80% and are on track to process over 90% this quarter.
Managing that payments experienced ourselves enables us to eliminate a pinpoint that sellers occasionally face on ebay.
<unk> items.
Changes to checkout have been made to address this issue and today, 99% of fixed price transactions are paid upfront. We have also started to address this issue for best offers and auctions by asking buyers to provide a payment method in order to bid. This is a significant win for sellers as it frees up inventory and reduces their post transaction.
<unk> costs.
Our advertising business continues to perform well in Q2 AD revenue outpaced volume driven by promoted listings, which delivered almost $224 million up 8% more than $1.4 million sellers promoted over 430 million listings during the quarter.
Both was driven by higher adoption and technology improvements to increase conversion.
We see tremendous growth opportunities in advertising both from our existing promoted listings offerings and from new product innovations. Following a number of successful trials in Q2, we are scaling several new products globally over the next few months.
Previously sellers can only promote fixed price listings, but now they can increase visibility for a flat fee on auctions to increase conversion.
In June we also introduced a cost per click AD product to sellers in our major markets initial results from the first 100000 listings showed that sellers return on AD spend was higher than industry benchmarks. We are placing more AI powered recommendations for pricing and keyword bidding into the seller hub to help sellers drive predictable volume.
Finally, we are beginning to syndicate ads off ebay platforms drive more buyers to listings importantly, sellers maintain control of pricing and visibility while benefiting from the scaled marketing capabilities of ebay.
In addition to advertising and payments, we are driving a number of other statewide initiatives for consumer sellers, we're simplifying the selling process with a heavy focus on mobile. This includes easier label printing solutions in the App and faster listing through image or barcode scans and trading cards, where we first launched image based lifting some.
I was able to match scans over 80% of the time.
Jim It takes to create a listing has been dramatically reduced and we plan to expand the capability to more product categories. Later this year.
For small business sellers, we continue to expand and optimize their ebay toolkit.
To help drive repeat businesses from enthusiasts to ebay stores, we build a CRM tool that enables sellers to fund and distribute their own coupons.
Since launching a few months ago over 1 million buyers have purchased items through these targeted campaigns.
As you've heard me say in the past we are focused on a number of categories, where we are well positioned to serve both sellers and buyers. These categories are growing significantly faster than the overall business and I'm delighted with the progress our team is making.
Our innovation playbook has included increasing customer satisfaction, improving trust growing supply and marketing to enthusiasts.
As we exited Q2, we have applied this playbook to approximately 10% of our volume across our top three markets with our current plan and ongoing momentum we expect to expand coverage to approximately 20% by the end of the year.
One of these categories is trading cards.
North America, we continue to see substantial growth with approximately $2 billion of GMB and the first half of the year equal to all of 2020.
Despite these strong results, we see additional untapped potential in the market that we plan to capture with further innovation.
We recently launched a price guide and collection tools aimed at trading card enthusiasts.
These new features leverage unparalleled inventory and pricing data, allowing customers to view manage and track the value of their collections in real time.
As a leader in trading cards with 25 years of transactional data no. One is better positioned to estimate the value of every card ever sold.
In addition, the collection towards seamlessly tracks all ebay activity in offline inventory in one place.
Makes it easy for enthusiasts to assess opportunities quickly trade and increase the value of their collections.
Sneakers and watches continue to outgrow our overall marketplace since launching one year ago, we have authenticated nearly 1 million items, enabling a game changing level of trust.
Categories are seeing close to 90% customer satisfaction rate on authenticated transactions.
Our sneakers business saw strong double digit growth despite tougher comps from a year ago and based on the success, we've expanded sneaker authentication to the U K, Canada and Australia.
Luxury watches are also sustaining double digit growth improved buyer trust is leading to strong cross category shopping behavior similar to what we have seen in sneakers. In fact luxury watch buyers spent $8000 on more than 50 items and other categories well above the average ebay buyer.
The next luxury category, where we're focused on is handbags, we plan to leverage a similar playbook from watches in sneakers to deliver a higher NPS for buyers and sellers. We have started in the U S breast density handbags over $500 from major brands.
Please furbished electronics continues to be another area of growth across our largest markets are certified refurbished experience and strengthening relationships with best in class brands by opening new sales channels.
We recently welcomed Samsung Galaxy to the program, providing ebay buyers access to exclusive like new products at exceptional prices.
Vehicles parts and accessories has historically been one of the strongest performing categories on ebay and remains so today.
Our platform offers a wide inventory selection supported by a robust catalog the fitments shopping experience matches car parks to vehicles to help buyers shop efficiently and confidently.
In Q2, we expanded this capability by enabling a motorcycle parts binder in Germany, and the U K. We also expanded the my garage feature which allows buyers to store their vehicle data leading to a more tailored shopping experience to Canada, Italy, France and Spain.
We plan to launch more technology driven innovation in this category later this year to further build on our success.
Taking a step back EBIT exist to create economic opportunity for all that purpose guides our approach to our customers our communities and our team at ebay. This.
This year, our leadership teams individual goals focus on accelerating meaningful change in diversity equity and inclusion throughout every level of our company.
We formed an ESG council composed of senior leaders across the company, whose role is to guide and ensure the success of sustainability initiatives.
During the quarter, we published our fifth annual impact report and third annual diversity equity and inclusion report detailing the progress we made in the past year as well as outlining our 2025 goals. The full list of activities is extensive but I would like to share a few highlights we.
We made progress on our journey to be more diverse equitable and inclusive our communities and inclusion have conducted 150 events with more than 10000 attendees in the past year. We've also continued multiyear efforts to ensure gender pay equity, resulting in a 100% pay parity in the U S and 99, 7% globally.
Another priority is managing our environmental impact investing in clean energy as a focus for the company and our goal is to source, 100% renewable energy by 2025, we have already reached 74% of our goal through a combination of power purchase agreements and local programs.
Just last week, we announced that we are teaming up with Mcdonalds and an agreement with light source BP to purchase power from Louisiana's largest solar project the <unk>.
Electricity produced will be greater than the power used at our largest data center.
Finally, I would like to call out the incredible generosity of our buyers and sellers during Q2 customers contributed over $35 million to their favorite causes to ebay for charity. This represented a 16% growth versus last year and the platform is on track to hit the 2025 goal of raising $600 million.
These are just a sample of the ongoing ESG related activities and I encourage you to check out more at ebay, Inc. Dot com.
Q2 was another step forward in the multiyear transformation of ebay the business delivered strong results and it is clear that our strategy is working and customers are delighted with the innovation and our focus categories, leading the volume growth. Despite tougher comps from a year ago. We are harnessing the power of Nextgen technology to make ebay the seller platform.
Choice and to attract lifelong enthusiasts.
Our payments transition is nearly complete delivering benefits to sellers buyers and shareholders. Our advertising product portfolio is expanding giving sellers more tools to grow their business.
And we simplified our portfolio, enabling us to focus on the core while creating significant shareholder value.
Our team continues to be relentlessly focused on executing for our customers I'm delighted to welcome four new exceptional leaders to our executive team. This year. In addition, we have hired critical talent in areas such as technology, AI analytics and category management. The teams in place are well positioned to propel the business forward with that.
I'll turn the call over to Steve to provide more details on our financial performance before I do I want to say how excited I am to have another world class customer centric leader on our team to help us realize our vision Steve over to you.
Thank you Jamie and thank you all for joining today.
I would like to start by saying, how excited and honored I am to be at ebay.
I'd also like to thank Andy for his leadership and guidance during my transition into the role here.
He has done an excellent job, creating value for the company and leading our finance team.
Last couple of years.
I'll start on page four of our presentation.
The impact of maybe not Korean business to discontinued operations.
Drivers for Q2 earnings.
In aggregate yield level.
<unk> guidance by approximately two points of GMP growth.
$400 million of revenue.
<unk> of EPS.
The Q2 results clearly reflect the performance of our continued marketplace business on July 13th we published a form 8-K that included recast historical financial statements back to the start of 2019.
These figures provide an apples to apples comparison versus our actual results.
Excluding Korea implied Q2 guidance is between 258 to.
$2.63 billion with revenue growing 8% to 10% on an organic FX neutral basis.
Non-GAAP EPS was between 89 and 94 cents per share represents a decrease 5% to 10% year over year.
Turning to our highlights from the quarter on slide five despite lapping an exceptional quarter last year, we delivered strong operational results.
<unk> grew double digits, driven by payments and ads.
Non-GAAP EPS was <unk> 99 per share and our operating margin was 33% we generated $910 million of free cash flow, while returning $1.6 billion to shareholders through share repurchases and cash dividends.
We generate significant value from our portfolio as we work to transform API and ASP.
The agreement to sell about 80% of our Korean business to earmark for approximately $3 billion.
We completed the classified transaction the total value of $13.3 billion.
Including $2.5 billion in cash.
<unk>, 44% stake in other venture with.
We then reached an agreement to sell a quarter of that stake to permira over $2.4 billion in cash.
Finally, we increased our estimated 2021 share buyback of $5 billion for the initial $2 billion.
Moving to active buyers on slide six.
We exited the quarter with 159 million buyers, representing 2% decrease year over year on a trailing 12 month basis.
At the beginning of the pandemic in Q2 last year, we added more than 7 million buyers on largest quarterly increase ever.
Cohorts of buyers as mature in line with historical trends.
Also seeing a reduction in buyers of low priced items due to changes in our marketing mix.
As Jamie mentioned, our strategy to attract and retain buyers has changed over the past several quarters. We are intentionally focused on marketing and product innovation on high value buyers.
Include biases cell or biotech at least six days a year and spend over $800. This high value segment represents approximately 20% of our buyer base on my parents is around 75% of our G&A.
<unk> grew in Q2 as did the spend per buyer Larry value buys an ebay like approximately half of our buyer base, but only purchased about 5% of our G&A.
As we drive this strategy, we expect to see a further drop in active buyers on a rolling 12 month basis, but an increase in J&J profile over the coming quarters.
Moving to slide seven.
In Q2, we delivered $22.1 billion of DMV Donald.
111% year over year.
On a spot basis. This represents a decrease of 7% year over year.
Compared with Q2 of 2019, J&J grew 19% on an FX neutral basis.
<unk>, 3% on a spot basis.
Several factors that contributed to the Q2 JMP dynamic first we love the peak of the impacts of the pandemic, including the first wave of mobility restrictions stimulus payments and supply chain disruptions.
Second there was a meaningful ongoing macro benefit from global mobility, although it was significantly less at the end of the quarter than at the beginning of Q2.
Third our underlying business continued to show positive growth from sidewalk product experience improvements in.
Category performance.
The U S. We generated approximately $10 billion of DMV in Q2 down 5% year over year.
International J&J decreased 16% year over year to $12.1 billion.
Our U S volume outpaced international primarily due to strength in trading cards.
Well as benefits from government stimulus earlier in the quarter.
Turning to revenue on slide eight.
Our net revenue for the quarter was $2.7 billion.
At 11% on an FX neutral basis, and up 14% on a spot basis.
We delivered $3.5 billion of.
Transaction revenue up 11% year over year, mainly driven by payments.
We continue to make great progress on set in migration.
As Jamie mentioned, 71% of our global <unk> platform volume with price is through managed payments during the quarter, which contributed approximately 18 points of incremental revenue growth.
Ed.
The success of the payments ramp also drive quarterly acceleration of it.
This points to a transaction take rate, which is 11, 3% for the quarter.
We expect this rate to continue to grow throughout 2021, as we complete the payments rollout.
We delivered $172 million of marketing services and other revenue up 11% year over year driven by strength in shipping programs.
We continue to purposely reduce third party advertising the drag on total <unk> growth rate was less.
Is it comes from a year ago.
Turning to slide nine and major cost drivers in Q2, we delivered non-GAAP operating margin of approximately 33%. This.
This represents a six point year over year decrease driven primarily by lower volume.
Cost of revenue has increased in line with payments growth due to processing costs.
While these variable costs will increase as payments revenue growth the incremental revenue provides leveraged traffics expenses, most notably sales and marketing and G&A.
Product development cost increase year over year as we continue to invest in product innovation supporting our strategic initiatives.
<unk> losses were flat versus the prior year as the benefits of net incentive fees against our net proceeds were offset by higher customer protection losses.
Turning to EPS on Slide 10, we delivered 99 of non-GAAP EPS in the second quarter flat versus the prior year negative impact from lapping Covid driven volumes were offset by our strategic initiatives, particularly payments as well as a lower share count related to share repurchases.
GAAP EPS for the quarter was 43.
A decrease of 56% year over year.
We elected fair value accounting method for our investments in other venture.
The change in stock price between the close of the sale on June 24th in the quarter ends on June 30.
A majority of the GAAP EPS decrease.
In addition, while we recognized further guidance on the adient launch in Q2, we are lapping significant guidance and the trough year maybe.
Moving to slide 11.
So another strong quarter of cash generation with $910 million of free cash flow.
7% year over year growth was driven by strong operational results led by payments and improvements in working capital.
This was partly offset by higher cash taxes.
Turning to slide 12.
We ended the quarter with cash and investments of $7.6 billion.
That's a $9.1 billion.
As I mentioned in my earlier remarks, we completed the side of the classifieds business to other than for during the quarter generating cash proceeds of $2.5 billion.
We expect to pay cash taxes associated with the sale of approximately $400 million.
Third quarter.
As a result of our strong underlying free cash flow performance of the proceeds from this transaction, we updated our capital allocation plans for 2021 by increasing the estimated share buyback to $5 billion.
Q2, we returned $1.6 billion to our shareholders through stock repurchases and dividends.
We repurchased approximately 24 million shares at an average price of $62.60 per share amounting to $1.5 billion.
The dividend of a $121 million.
We exited the quarter with $4.3 billion share repurchase authorization remaining.
Our board has approved an additional share repurchase authorization of $3 billion with not expiring.
Horizon, a total to approximately $7.2 billion.
Finally, we issued $2.5 billion.
On your unsecured notes during the quarter part of which will be used to repay our 2022 debt maturities.
Moving to investments on slide 13.
On June 24th we closed the classified style.
And investments on our balance sheet of $10.8 billion.
To reflect the 540 million shares we received as consideration.
The value of this stake stood at $10.4 billion at quarter end based on other lines of stock price.
Between the announcement that the deal last July and the size of the transaction as to the value of our equity stake appreciate at 61%.
As the regulatory condition of the classified style, we agreed to reduce our ownership stake in advance it to 33% or less over the 18 months following the close of the deal.
We recently announced an agreement with Humira to sell approximately 135 million shares for more than three 4 billion.
This will reduce our ownership stake to 33%.
We expect this transaction to close in the fourth quarter.
Turning to other than the ones, we acquired in the second quarter of 2018.
That $1.1 billion at the end of the second quarter, an increase of over $500 million year over year.
Youll find more information on the idea of one <unk>.
Thank you.
Also I want to highlight as taking to carryback.
At the end of the second quarter, our investment is worth approximately $300 million.
On August 6th they completed their IPO, which increase the value of ASP stake so over $900 million.
Finally on June 24, we announced plans to sell over 80% of activewear business remarks.
We will retain an interest of less than 20%.
The implied value of our interest was approximately $800 million at the time of the announcement.
Might excited about all these investments the optionality that drive the.
A significant value that each generated for our shareholders.
Turning to guidance on slide 14.
For Q3, we are projecting revenue between 242.
347 billion.
Growing 6% to 8% on an organic FX neutral basis, and approximately 7% to 9% on a spot basis.
We anticipate payments and advertising will continue to drive revenue to grow faster than volume.
Need to titrate expansion.
This revenue guidance implies <unk> is down low to mid teens on an FX neutral basis versus last year and up high single digits compared to 2019.
On a spot basis today's rates would indicate a two point benefit versus FX neutral growth rates in Q3.
This is two points lower than the four point benefit we saw in Q2 J&J.
We are ashamed macro benefits, including stimulus and mobility will be significantly less in Q3 and Q2.
We also expect our efforts to improve the business will continue to enable modestly positive underlying growth.
We expect non-GAAP EPS of <unk> 86 to <unk> 90 per share representing 4% to 9% growth.
Year over year, we plan to continue investing in product and technology to deliver better catalog expenses, while improving marketing efficiency.
We are expecting GAAP EPS in the <unk>.
Range of <unk> 64 to <unk> 69 per share in Q3.
At the full year, the macro environment remains dynamic and difficult to predict.
Not providing full year guidance at this time.
However, there are variables within our control that we are sharing this contract.
Given the accelerated pace of the payments transition.
Raising our full year forecast for payments revenue from $1.7 billion to $1.8 billion.
Payments margin contribution continues to ramp towards our long term target of 25%.
Total operating margin for the business is expected to launch approximately 33%, which would be close to 150 basis points better than 2019.
As I mentioned before we expect to repurchase shares totaling $5 billion.
2021 at this time, which implies an additional $3.2 billion in the second half.
In conclusion during the quarter, we delivered strong short term results ahead of expectations, while transforming the company for the longer term we are.
Cited about the path forward on the growth potential of ebay.
Innovation is leading to volume growth and our focus categories. Despite tougher comps from a year ago.
Our payments and advertising initiatives are driving better customer experience, resulting in incremental revenue and earnings growth.
Balanced approach to cost management allows us to reinvest in our customers, while delivering high margins with low capital intensity.
We continued to deliver strong free cash flow.
Return value to our shareholders through stock repurchases and dividends.
Our portfolio simplification.
You guys had over $20 billion.
A shareholder value, allowing us to intensely focus on growing the core.
As a purpose driven company right now.
Leveling economic opportunity for all.
While supporting our people our communities.
And our planet.
I would like tier one small take this opportunity.
To thank our teams across <unk> for their tremendous work over the last quarter and for the support for our buyers and sellers in the by community.
We will now take your questions.
Peter.
As a reminder to ask a question you will need to press star one on your telephone.
Sorry, Your question press the pound key please standby, while we compile the Q&A roster.
Your first question is from Tom champion with Piper Sandler.
Hi, good afternoon. Thanks for taking the question Jamie I'm wondering if you could elaborate a little bit on your buyer strategy. It sounds like we should expect maybe that metric.
Is under pressure in the next couple of quarters, but.
Sort of underlies that.
Strategy around around focus around that.
This is 20% of the of the buyer base.
And I guess relatedly with.
Portfolio improvements and streamlining the business.
Does this enhance your ability to execute more rapidly.
Going forward and maybe just the last one for Steve I would love to.
Youre a little bit more about your your thought process and what drove you to the business.
Given it's a little bit different from your prior background. Thanks very much.
Yes, so first on the buyer strategy. This is something that I laid out last July when we talked about the tech led re imagination is being focused on turning buyers into lifelong enthusiast on the platform and moving away from the tactics that we had in 2019, where it was really just about the number of active buyers even low value buyers are one and done buyers.
I've got the whole organization pivoted to focusing on those high value buyers buyers that are buying over $800 buying six times, a year or buyers, who sell and so as you think about these buyers there so strong at EBIT or 20% of them. They make up 75% of <unk> and the goal is is how do we turn more buyers into these into.
These lifelong enthusiasts.
Met a lot of these buyers they wake up and they get a cup of coffee.
And they turn to ebay and open the ebay app.
And our focus is really not on just the total number but really focused on how are we driving these these buyers to become enthusiasts.
Metrics that we show in the board deck, our trailing 12 month metric. So we're obviously lapping the buyers that we acquired in Q2.
Going forward, our focus will really be on these long term enthusiasm I'm excited to say that <unk> is growing theyre growing as the population and more and more you're going to see us doing things to drive that longevity, because we know the things that move buyers up the cohort curves into into long term buyers on your second question on the portfolio absolutely a huge part of the portfolio simplification.
<unk> is.
Is about being able to focus on the marketplace.
Steve talked about we generated $20 billion in value for shareholders, starting with the Stubhub transaction, but I think more importantly, now enables us to focus all of our attention on the marketplace business as I've talked about we see a lot of growth opportunity in that business. This strategy that we have is working we're in year one of our multi year re imagines.
<unk> of ebay, but if you look at what we talked about a second ago with the 10% now about to reach 20% of categories. It's really working customer satisfaction is at 90.
Leading to very strong <unk> and we see the same potential for this innovation playbook in every category on the site.
And Steve maybe you want to take the last one yes. Thank you Jamie and thank you Tom for your question.
This afternoon.
Advisory costs, which are in two areas.
Come from two companies, which were leaders in an industry around customer centricity and innovation and coming over to a buy a company that's got real sense of purpose and amazing team.
Haas around customer Centricity, and innovation, where some of the core assets.
I looked at when I came to ebay since I've been here, it's really clear about the sheer size and scale of the enterprise.
Opportunities are ahead of us.
In terms of its growth.
We really do have incredible.
The ability of our financial model.
A fortress balance sheet.
Best in class margins incredible free cash flow.
After a few weeks I fail.
The Friday, where the enterprise is really misunderstood.
Because of the potential that's ahead of us and the strategy that Jim has laid out so im really excited to be here.
Huge opportunities for the enterprise.
I am looking forward to my journey here anyway.
Thank you Ben.
Your next question is from Stephen Ju with credit Suisse.
Okay. Thank you so much so Jamie.
I know this question goes back away in terms of what we could be doing.
Once the managed payments as fully deploy but now we're pretty much at the goal line here.
There has to be pockets of the global demand base, you otherwise could not cater to the floor.
Just simply could not take that money so.
What are the prospects.
Opening up the buyer acquisition funnel to that audience a bit more.
Those regions I guess.
Second point.
Recently, you launched the fulfillment services in the UK with Parker.
So can you talk about what kind of improvement do you think you may see to either conversion rates and a better experience as you know.
Step up the level of service for the buyers in the country.
Yeah. Thanks, Thanks for the question.
First one we're excited that as we get through managed payments, we announced that next quarter, we'll be at 90% that it opens up even more opportunities for us from a how do we service our buyers and sellers. So some examples of things that we've already launched for example is we launched a partnership with after pay as an additional form of payment in Australia, allowing people to in that market.
Pay with installments, it's very strong in Australia, and that's certainly helped us in Australia business and our UK business. We've launched a partnership that allows us to do seller financing and to help sellers out there and we'll continue to expand in different ways throughout the globe on more opportunities around managed payments. The other big one that I talked about.
Earlier is that now that commerce and payments are one and we can manage all of that on ebay theres a lot of friction we can take out of the platform. So unpaid items is a great example, where for 25 years since I was here the first time.
Others have had to face items, where buyers willing to pay we've now eliminated that and the 99% of options on our way to do that in best price Im sorry, best offer in auctions, we've eliminated fixed price on a way to do it the best offer in auctions.
Two weeks ago, we had ebay open with thousands of sellers on our mind and we announced this and it was <unk>.
Massive rejoicing from them because this has been a key pain point. So the other thing I'm excited about is just eliminating those pain points on your question on the fulfillment service what we saw in the in the U S and <unk>.
Especially in our cross border trade coming out of greater China. For example is the ability to forward deploy inventory is a benefit because of the predictability that again to buyers from that from that standpoint. So we're using it to help scale small business is to drive to drive the ability to have for deployment and basically pass.
Those savings on to the customer. So we're just getting started with that program, but we've learned a lot about cross border trade and we're excited that fulfillment service is going to help scale some of our small businesses and in their in their cross border inventory.
Thank you.
Your next question is from Michael Mcgovern with Bank of America.
Hey, guys. Thanks for taking my question.
Two if I may the first just on promoted listings it looked like they were.
So the promoted listings revenues.
Change quarter on quarter, so theres a bit of a deceleration I was just wondering if there is anything to call out specifically for that in Q2.
And then secondly, looking at the decline in sold items. It looks like the sold items was down by more than <unk> was down and looking back to last year.
GMB grew more than sold items last year. So it doesn't want to be driven by comps. So.
Is there anything to call out for the decline in sold items for Q2 as well. Thank you.
So on the first one on promoted listings.
That business is doing well so we grew at 8% in the quarter, despite volume being down 11.
And we actually are starting to scale up a couple of pilots that we launched in Q2, specifically ads for auctions.
What we're calling party listings express, which is the CPC business and then off ebay advertising business. So we continue to see lots of potential in that business. In these three areas are just getting started on the solar items that that's really a reflection of the purposeful decisions that we've made two one is move away from low value items.
That werent driving the type of return and low value buyers, specifically as well as a shift to higher ASP in general because of the strategy to focus category strategy working so we talked about the strength that we're seeing in and trading cards in collectibles already having done $2 billion. This year the same as all of <unk>.
<unk>.
Really driving our CVC business and see to see tends to have an higher ASP.
Our higher average selling price than our <unk> business and so thats also driving kind of that dynamic so it's actually.
In line with where we wanted to be we think it's healthy for the ecosystem and we think it's going to continue to be driven that way because see to see as we look at it and we hope to continue to outpace BDC and lean in on these categories of value like our luxury goods collectibles et cetera.
Got it that's great. Thank you.
Your next question is from Colin Sebastian with Baird.
Thanks, Good afternoon, everyone welcome Steve.
I guess, Jamie first I just wanted to follow up on the buyers strategy.
I'm just trying to I'm trying to figure out how we should think about that ultimately translating into marketplace growth.
Is there going to be for example, an extended period of decay in those less active users before the marketplace essentially normalizes and then you can show growth.
And then secondly, I guess more housekeeping in terms of what was behind the acceleration in the move to managed payments. During Q2. It seems like you maybe about a quarter or two ahead of plan there.
The metrics right. Thank you.
Yes. So on your first question on the buyer strategy, Yes, we're purposely moving away from some low value buyers are kind of low LTV low GNP for buyers. If you remember back to 2019, we talked about that strategy and because some of these are trailing 12 month metrics. Some of those numbers are actually still in our numbers even from 2019.
But the reason I'm focused on is if you look at those 50% of buyers they only contribute 5% of GNP and the top 20% contributed 75% and so by focusing the organization not on just how many buyers do we have in the platform, but how many of our buyers are returning into these high value buyers. We think that's much healthier for the growth of the profit.
And our long term much healthier for sellers et cetera.
<unk> better with the marketing strategy that we're going after we're really focused on the first 90 days of the customer and getting them up their lifecycle. So this is going to be a purposeful strategy youre going to see us on for years walking away from the work that we did back in 2019, well when you ask about the managed payments, but I'm really happy about is the execution.
<unk> from the team.
Look at when we started for example, enabling greater China, we got to 90% penetration within 10 weeks and so we took the learnings from what started two years ago with U K with the U S and Germany.
And we've learned a lot as we brought out all the other countries and that pace speaks to the pace of execution of the team and what Theyre doing I know there are a lot of questions of would we be able to even reach the targets. We had for next year originally and I'm. Just excited that we're ahead of schedule and we're starting to do things like the after pay.
The seller financing because theres just a lot of potential for this business as we as we fully manage the payments by.
All through ebay.
Okay. Thanks, Jamie.
Your next question is from Edward Youre Rama with Keybanc capital markets.
Hey, guys. Thanks for taking my question. Thanks for taking my questions, but I guess first.
You guys have made a big push into authentication as part of your focus on somebody's vertical enthusiast community isn't I know or we believe that a lot of this has been an outsourced basis I guess at some point do you need to bring that in house and kind of how scalable are your current authentication solution.
And then kind of broadly speaking it seems like you guys had been fairly innovative with adding more functionality to ebay stores.
Is the uptake of the subscription product and kind of what does the product roadmap look like from here. Thanks.
Yes. So first on your question on authentication look we're really excited at how we've been able to scale. This program. We've now authenticated 1 million items on the platform, we've expanded that authentication to for sneakers to UK, Australia and Canada.
This quarter, we announced that we're authenticating handbags over $500 in the U S.
And we're using a mixture of a third party and in house resources to do so, but what we're seeing is that sort of thing.
Allocation has a great ROI.
It's able to do in terms of driving Gms driving new buyers into the site.
I'll just give you I'll reiterate the stat, we talked about last quarter, and sneakers, which is acquiring a gen Z they buy $500 in sneakers, but by $2000 in other categories on the site were seeing the same thing in watches where luxury watch buyer is buying $8000 in categories outside of watches and thats over 50 items.
And Thats one of the benefits of ebay is that is that cross category shopping nature, and that's really hard for other competitors to replicate on EBIT stores, we talked about being the seller platform of choice and a big part of that is our strategy of really growing ebay stores. So this quarter, we announced a new program, where it's much simpler.
To set up your ebay store.
And I'm really excited by one of the features the team now announced which was the ability for a seller to send coupons to repeat buyers. So this is something that sellers have been asking for we build it in as part of the stores platform and in just a few short months since its launch.
That product already has 1 million buyers taking advantage of those coupons from sellers. So another thing that as we had our big ebay open event two weeks ago. Our suppliers, we're really excited by and frankly, we're just getting started on that program. So were even continuing to make sellers are aware of these new capabilities. So you'll continue to see quarter after quarter and year after year.
Our innovation on ebay stores, because it's an important part of our strategy.
Thank you.
Your next question comes from Ross Sandler with Barclays.
Hey, guys two questions on the model here, so you've got about a 10 point easier comp for <unk>.
On a XFX basis in the third quarter, and Youre, calling for a little bit more detail from here should we chalk that up to the kind of purging some of the low quality borrowers and a chunk of that 25% of GMP that they represent or.
Is that just a macro kind of dropping off any color on that would be great and then your 33% operating margin for 2021.
Bronco Volvo payment ramping there so as we kind of look ahead 2022, and we expect.
Mr. Groen again, how should we think about.
That operating margin or what are the puts and takes on that.
On up or going down next year. Thanks, a lot.
Hi, Ross, Steve Hey, appetite is up so I'll start off with the second quarter and as it relates everything else on an apples to apples basis, we've obviously exceeded our expectations across all of the major metrics, we laid out our third quarter guidance and obviously that reflects the best view based on what we're seeing in our most recent.
Trends.
As part of the quarter and our latest outlook on mobility.
Is actually an unchanged view versus what we communicated on our second quarter and what we indicated was that we expected. The second half Gen Z growth will be similar to Q2 as the easier comps will be offset by lower Mastercard benefits in 2021 saw mobility got back to normal and we are seeing.
Some of that in <unk> in particular.
Our key markets and allow us to Germany.
UK setup underpins that.
We still have when we look through that lens, we expect that suddenly so.
Low to mid teen volume declines year over year, which actually at the heart of it.
Indicating modestly positive growth from the underlying business on the basis of us continuing to improve the customer experience and execute on the vision that Chinese light up specifically with regards to your second question about the 33% operating margin for 2021, obviously, we're ramping payments up.
We talked extensively about the fact that thats actually a lower margin part of the business is sort of 25%.
We've guided our expectations.
21, <unk> and with that 33% with a recast financials.
50 basis stronger than <unk> change. So we're right on track, we're seeing margin accretion from all of the initiatives that we're driving forward.
We're not guiding 2022 at this point I'm very pleased with the trajectory that was wrong.
Your next question is from Richard Kramer with Arete research.
Thanks, very much Jamie first of all you spoke about being a platform of choice for seller, but you've also had a record transaction take rate of 11, 3%.
You're suggesting that arrived year on year.
What's your message to sellers.
With the notion that.
What they're seeing in terms of our cost on ebay continue to go up.
Been a lot of interest.
Susan glitches with working on final value fees and taxes, and so forth and then a couple of quick questions for Steve can you give us a bit more detail on the decline in gross margins, you mentioned payments and authentication and also.
Adjusting for the fair value of both warrants in equity and the investments it looks like free cash flow would have been about a third lower so can you talk about what youre seeing in the underlying free cash flow of the business. When we removed all of these very noisy investment income and changes in fair value of warrants.
Yes on your first question I think.
There is important there it is to think about the fact that there used to be a separate take rate associated with payments and know what our sellers are seeing is a blended take rate and in general the vast majority of sellers will actually be paying lower fees. When you look at the combined take rate that they pay because they are no longer paying that separate piece and its and its one single rate the reason.
We're still seeing a rise in take rate and May continue to do so is just because of the ramp of payment. So as payments ramps up that starts to get reflected in ebay's take rate, but the seller is no longer paying that paypal or other form of payment take rate. The second key the second key thing for US is making sure that we return the value to the sellers.
For the fees that were charging and so when you think about the scale demand that we can bring in terms of 159 million buyers in terms of new capabilities that we're bringing to them on the platform like the ability to go back to repeat sellers.
There are areas, where we've discounted our fees like in sneakers, which has worked out really well in terms of growing those categories. When we look in general at the value that we provide and I would say in our core business.
We actually feel really good about that and what we're seeing in our advertising business is that the ROE as with the return on AD spend that our sellers are seeing is actually higher than what they are getting on other platforms.
Which also I think speaks to the value of the demand that we're providing ill, let Steve take the other questions.
Hi, Richard Good to me to make sure you remotely.
Turning off the first question with regards to margin. So I think about the three key areas that the underlying business. There's payments and then there's a lots of authentication and so as a reminder relate.
The strategy around payments a couple of years ago with regards to $2 billion of incremental revenue $500 million.
Of incremental.
Incremental op margin and as Jamey alluded to that is going very well the momentum going while we've increased our forecast for 2021 to one.
On the revenue side and as I said earlier we.
We are continuing to build on the path for the incremental 150 basis points over two years on a margin story. So it's not.
Necessarily driving any dilution in the margin story is its growth from a net income standpoint, as we go forward.
Second point on authentication.
Jamie mentioned the return on investment that is providing.
It's rather de Minimis when you look at the overall cost structure in terms of in fact less than half a point of margin that is ready to go from authentication.
Mindset.
Stickiness studies, providing for our customers when our guidance cost cross category by more than pays for itself and it's an investment.
We're very glad we're making as we think about the holiday ecosystem and then the ability for that tomato.
<unk> category with regard to our free cash flow.
At an underlying level, we generated free cash flow of $907 million in the quarter. The warrants are not achieved yet the free cash flow.
<unk> what.
What I would say is that we continue to invest in products as part of our core platform in terms of the payments rollout.
Our extremely well, although the product investments with regards to moving us forward and the cash it gives that Jamie alluded to the audience.
We're doing very well in terms of the organization and how we're moving forward.
<unk>.
Very happy to follow up offline, if there's any further questions.
Your next question is from Jeb Bachman with Wolfe research.
Great Hey, guys. Thanks for taking the question.
Just to follow up on Ross's question low to mid teens <unk> decline in <unk> any way you can sort of give us some color on mobility assumptions behind that should we expect some incremental deceleration in <unk> or is <unk> sort of an inflection of all potential reversal due to mobility I mean, I realize that it's hard to forecast COVID-19 dynamics, but one.
I understand your guidance assumptions and then the second one you monetize some of your adjuvant dose stake how should we think about the approach with the rest is there any specific guidance or timeline that you have in mind. Thank you.
Good afternoon, Deepak <unk>.
Just the first question as you laid out in terms of mobility.
We have as I said in my prepared comments I assume that we start.
The significant lockdowns coming from 'twenty to 'twenty two 'twenty, one we talked about the fact that.
Liability in terms of people getting out and about what increases we went through the second quarter.
So as we got into the third and that's rolling off in fact, if you look at particularly Germany, one of our biggest markets in the UK things are pretty much back to normal from a liability standpoint, travel's going through the roof. If you look at search in terms of leisure opportunities in shallow fastest going forward, obviously it feels that.
It's a different maybe over here at the moment with regards to the south of <unk>.
Since we're missing things were expecting that going forward I am not going to guide beyond the quarter try to impact.
Citizens, because we chose not to guide further than that because of the uncertainty, but we are sharing in the third quarter, but things are starting to get back to some sort of normality.
Laughter scenario with regards to the other venture.
That transaction, obviously that was completed.
When we think about <unk> in Korea.
Whilst we have a great those transactions are not closed yet and.
And obviously, therefore, we not get into any discussions about the proceeds as I said, let's transactions until those are closed so.
Obviously leaning into the adventure very pleased that we were able to increase the share buyback.
From 2 billion to $5 billion. This year in terms of driving those returns to shareholders, but it's too early to say with regards to the other transactions are not closed yet.
Okay, Operator, I think we'll take one more please.
Your final question is from Dan Salmon with BMO capital markets.
Hey, good afternoon, everyone.
Could you come back and.
The rollout of promoted listings express and CPC pricing what are your key goals. There is to grow the advertiser base deeper spend per advertiser and bring more sellers and more deeply to the program any more color on that would be great.
Maybe inappropriate last comments for the call you mentioned the <unk>.
Ebay open.
Seller for them a couple of times here and some of the pieces of feedback that you got.
Did you say, where the two to three most important routes and yourselves accountable.
Yes, so first on the promoted listings, yes. The rollout of CBC is really to have additional AD formats and additional capabilities for for sellers to drive visibility of their listings. So we talked last quarter about how we're only at 1% of GMB and if you look at other platforms. We think there's significant potential in the kind of low to mid single digit <unk>.
<unk> of GMP.
The backs of the existing program, where we've already done over $1 billion grew 8%. This quarter, we're really on a single type of advertising in a single format. So it was all CPA on fixed price. So as we expand now two options as we expand to a CPC, where we introduce more bidding capabilities for our top slot in search.
That just enable sellers to have more tools. So we're in beta on that product right now.
I would just say in general we're really excited by what we're seeing because our ROE as is really strong meeting our buyer experience is performing well and the return that the sellers are getting on that spend is is productive and much more productive than they would get on other platforms.
In terms of ebay open I think we had a lot of really positive feedback about the unpaid item noise.
I've known sellers for ever get frustrated when when when that happens to them, especially for a new seller and so theyre really excited that we're tackling that is part of managed payments.
They're really excited by what we're doing in stores and coupons because they want to build our brand on ebay they want to drive repeat business.
So I think they are really excited by that I'd say the other form that was really well attended and had a lot of excitement was the trading cards forum at the launch of computer vision, where we're driving.
80% of the scans are really identify what the product is and it's simplifying the listing flow. We launched this new my collections, which is a really popular feature for people because they can show off their collections.
And we launched a price guide feature which ebay has this treasure trove of data and the 25 years of history. Nobody has the data that we have it's a really great asset for us So I'd say that area and those sellers that join in particular were.
We're really excited by the innovation that we're making.
I love those forums, because this platform gets better by listening to our sellers and hearing their feedback and they gave us lots of ideas of things to continue to work on in the Tech led re imagination. So a great interaction despite being virtual they all can't wait to be in person again like we can but it was really good session.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Goodbye.
Okay.
Okay.
Okay.
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