Q2 2019 Earnings Call
Yeah, the spelling of your first and last name please.
Yeah, Matthew Davies M.A.J.T.H.C.W.P.A.B. I.
In Q your company please.
Era.
Hey era.
You and telephone number with the area code. Please.
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085 to 41515.
What's your area code 508.
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Yes.
Thank you your line will be on hold until the conference begins.
Thank you.
Joe Bellante, Vice President Investor Relations you May begin your conference.
Good afternoon. Thank you for joining us and welcome to Ebays earnings release conference call for the second quarter of 2019.
Joining me today on the call are Devin Wenig, our president and Chief Executive Officer, and Scott Schenkel, Our Chief Financial Officer, we're providing a slide presentation to accompany Scott's commentary during the call all revenue and GMV growth rates mentioned in Devin and Scott's remarks represent FX neutral year over year comparisons unless they indicate otherwise.
This conference call is also being broadcast on the Internet and both the presentation and call are available through the Investor Relations section of the ebay website at investors day ebay Inc. Dot Com you can visit our Investor Relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for at least three months through the same link.
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.
In addition management will make forward looking statements that are based on our current expectations forecasts and assumptions and involve risks and uncertainties. These statements include but are not limited to statements regarding the future performance of ebay Inc. and its consolidated subsidiaries.
Including expected financial results for the third quarter and full year 2019, and the future growth of our business.
Our actual results may differ materially from those discussed in this call 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 annual report on Form 10-K .
And subsequent quarterly reports on Form 10-Q copies of which may be obtained by visiting the company's investor Relations website.
And investors that ebay inc. dot com or the Fccs website at SCC Dot Gov.
You should not rely on any forward looking statements all information in this presentation is as of July 17, 2019, and we do not intend and undertake no duty to update this information.
With that let me turn the call over to Devin.
Thanks, Joe and good afternoon, everyone. Our plan for this year is to deliver a great customer experience.
Grow our active buyer base and scale, our immediate growth initiatives advertising and payments.
As we build on our strengths of valuing unique selection in our marketplace. We are increasingly inter mediating in managing that marketplace to better control, both the consumer and the seller experience, while creating new growth opportunities in Q2, we executed that plan, we made tangible customer experience improvements we delivered good active buyer growth and we continue to scale ads and payments.
In addition, we drove efficiency to fund our investments, while making progress on our portfolio review.
For the quarter total GMV was flat revenue was up 4%, while our active buyer base grew 4% to 182 million.
Underlying these results GMV on our marketplace platform is down 1% Stubhub volume was up 6% and our classified platform grew revenue at 12%. We also returned $1.6 billion in capital to investors through share repurchases and dividends.
Scott will go into more detail on our financial results shortly.
First let me provide some context on our core business, we have been reducing and redeploying low ROI marketing spend resulting in less CMV in the short term, but stable sold item an active buyer growth, although weve reduced certain types of incentives. We've maintained our focus on driving healthy customer growth, while evolving our brand we're seeing improvements in buyer acquisition, driven by higher conversion of new and lapsed customers in part due to product enhancements and also for more targeted marketing and promotion we have effective levers to acquire buyers and are expanding our effort to drive frequency and reduce churn.
In Q2, we improved the buyer experienced by increasing the number of ways buyers can discover value and unique selection by leveraging data on existing listings, we launched new pages that transformed previously unstructured listings into a more intuitive set of product results. We also recently released our brand outlet in experience at aggregates products from top consumer brands, all with fast and free shipping.
Following changes to our returns experience introduced last year more than one third of our US buyers are now able to instantly receive labels and track their returns and we started rolling this out to more major markets in Q2.
We also introduced significant seller improvements, including offers to buyers by again and trending in your interest we extended seller protection by making it easier to identify and take action against abuses buyers, which dramatically simplified volume pricing offering more ways for sellers to offer discounts and we provided better ways for sellers to contribute more complete structured product information to help buyers find their listings, while building new capabilities to drive conversion by better leveraging this expanded catalog.
One emerging challenge for our small business sellers in the US is the rapidly evolving landscape for Internet sales tax at the start of the year only a handful of states had active legislation requiring marketplaces to collect sales tax by the end of the year that number will grow to more than 30 states and it will cover the majority of us GMP in Q2, this impacted the us business by more than one point.
And we're taking active measures to mitigate this challenge. However, this headwind is likely to further pressure us results until we lap a fully rolled out in internet sales tax landscape.
Looking at our international core markets overall performance was relatively stable with some notable highlights in Korea, we drove two points of GMP improvement in the quarter through investments in our lower and in our loyalty platform supported by promotions such as Big Smile day.
Our European markets were slightly down due to continued Mac macroeconomic pressure in the UK, while Japan continues to gain share primarily due to strong buyer acquisition and marketing investments.
Our revenue growth continues to outpace GMP in part due to acceleration in advertising and payments for ads in Q2 promoted listings drove $89 million of revenue up over 130% from a year ago over 940000 sellers promoted over 250 million listings in the quarter.
Sellers are increasingly choosing to invest in promoted listings and are seeing strong conversion and velocity.
We plan to expand these capabilities further while always balancing the impact on the buyer experience. We expect to end the year with more than 700 million in total AD revenue and we're well on track towards our goal of $1 billion in AD revenue over time.
For payments, we continue to see accelerated adoption of managed payments in the us since the launch in late Q3 last year through the end of Q2, we've now processed over $636 million in payments for over 6000 sellers participating that date.
Sellers on ebay manage payments are seeing good conversion and their buyers are able to pay using credit cards, Apple pay Google pay and pay Pal.
Most sellers are saving on payment fees and a simplified their experience with ebay by managing their business in one place.
In Germany, we are on track and subject to regulatory approval, we intend to be live by the end of the year.
We're confident in our managed payment plan and we look forward to realizing 2 billion in revenue and 500 million in operating income at scale.
At Stubhub Q2 volume benefited from increased conversion active buyer growth first party sales acceleration and favorable market conditions, including the longer series for the MBA and NHL playoffs in our international markets. A strong Champions League final in Women's World Cup helped offset lapping pressure from the men's World Cup.
In addition, we launched a new loyalty program for top buyers and we continued to improve fulfillment with more technology integration, leading to reduced service costs and improve margins.
Turning to classified ads, we continue to execute our playbook of building market, leading horizontal marketplaces complemented by scaled vertical experiences in categories, including motors and real estate.
In Q2, we generated another quarter of double digit growth based on the execution of this strategy.
In Germany momentum in our motors platform has extended our leadership position and our horizontal platform is rapidly increasing customer engagement, leading to advertising revenue growth in the UK. Our expanded motors offering continues to scale and drive growth in both our organic and acquired businesses.
Core ebay integration continued to deliver substantial synergies with over $85 million of GMP to E Bay in Q2, while over one point of revenue growth to classify goods.
Now, let me update you on our portfolio review.
We're making significant progress and actively reviewing the role in value of Stubhub and classifieds in our portfolio. The review is underway and we're focused on determining the best path forward to create shareholder value.
In addition to that ongoing work today, we are announcing two other actions aimed at further strengthening our portfolio first weve reached a commercial agreement with TTM mall to bring our global in global inventory onto one of the largest market places in India.
Ebay will open a store on ATM mall, which will provide hundreds of millions of pay TM and TTM malts customers with access to our global inventory as part of this collaboration ebay is making an investment in PCM mall for a stake of approximately 5.5%.
Second we've reached an agreement to sell our flash sale German business brands for France.
Divesting this business will allow our German team to focus on the opportunities in the core business.
Finally throughout this year, we are continuing to drive margin improvement through disciplined cost management and reinvesting savings in our growth initiatives.
Later this year will further communicate our approach to drive growth in margins in summary, we are executing our plan to deliver outstanding customer experiences now, while scaling growth opportunities and driving meaningful shareholder value.
Now, let me turn it over to Scott to give you more details on our quarterly financial results.
Thanks, Devin I'll begin with my prepared remarks, with our Q2 financial highlights starting on slide four of the earnings presentation.
In Q2, we generated $2.7 billion of total revenue 68 cents of non-GAAP EPS two points of non-GAAP operating margin accretion $607 million of free cash flow and we have returned 1.6 billion to shareholders through repurchases and dividends.
Based on these results we have increased confidence in our 2019 earnings outlook.
We are reaffirming our organic FX neutral revenue growth rates, and raising GAAP and non-GAAP EPS guidance for the full year.
Moving to active buyers on slide five in the quarter, we increased our total active buyer base by $2 million to a total of $182 million up 4%.
Similar to Q1, we're maintaining stable buyer growth by increasing marketing spend that targets, new and lapsed buyers, which is offsetting a modest increase in by existing buyer churn.
Turning to slide six in Q2, we enabled $22.6 billion of GMP flat year on year access being one point versus Q1.
The us generated $8.8 billion down 5%, while international delivered $13.8 billion of GMT up 2%.
Moving to revenue on slide seven we generated net revenues of $2.7 billion up 4% organically, we delivered $2.1 billion of transaction revenue and $557 million of marketing services and other revenue up 4%.
Turning to slide eight our marketplace platform GMP was minus 1% in Q2 flat versus the prior quarter.
US GMI was minus 6% on a year on year basis, driven by five points from the continued reduction in non platform marketing and more than a point from internet sales tax.
Specific to Internet sales tax in January we highlighted that the landscape was fluid and rapidly evolving.
At that time, a small number of states had active legislation requiring marketplaces to collect sales tax regardless of market place or seller Nexus.
As we exit Q2, we are now seeing more states enact.
Enact with faster effective dates than we originally expected in January three states had enacted marketplace collection laws by June nine states have required marketplaces to collect sales tax and 23 more will be live in the second half many with compressed timelines.
We are seeing an impact mostly on higher priced items and in Q2. This drove more than a point reduction of year over year growth in the US. We expect this dynamic to continue and likely accelerate for the rest of the year.
International GMV grew 2% decelerating, one point driven by UK macroeconomic pressure somewhat offset by acceleration in Korea, driven by our Big Smile day promotion.
Total marketplace revenue was $2.2 billion up 3% decelerating one point from the prior quarter.
Transaction revenue grew 5%, a one point deceleration and six points higher than GMP.
The GAAP between GMC and reaffirmed in revenue continues and is being driven by two factors triple digit revenue growth in promoted listings, which made up approximately three of the six points and category mix effects, which contributed approximately two points.
Marketing services and other revenue was minus 6% accelerating two points versus Q1 based on growth in our Korean first party sales.
Our third party AD business continues to decline as we shift efforts away from non strategic third party AD placements towards our first party promoted listings product.
Marketplace margin was 32% up over two points, primarily due to the continued cost leverage and year on year gains from our currency hedging program, partially offset by a stronger us dollar and investments in payments.
Moving to slide nine on payments since our launch in September Weve Intermediated $636 million of GMV in Q2, we intermediated $273 million of GMP with at June penetration rate of 3.8%.
Our buyers on the new platform are demonstrating their desire for increased choice in June they chose to pay with credit cards, Google pay and Apple pay approximately two thirds of the time.
Our run rate of annualize GMP is now well over 1 billion as we continue to make steady progress towards our financial targets.
Turning to slide 10, Stubhub GMV grew 6% accelerating eight points on the strength of our initiatives and favorable market conditions as Devin mentioned.
Stubhub revenue grew 7% accelerating seven points from Q1.
Transaction revenue grew 1% a four point acceleration driven by volume, partially offset by a lower take rate from price changes and event mix.
Mm no more than triple delivering $21 million of revenue in Q2.
Most of step ups M. SNL revenue is first party sales, which provides buyers access to unique and exclusive inventory.
In addition, MSG now includes insurance for purchase tickets, Walter nascent but have potential for significant revenue growth.
Stubhub segment margin was 4% up two points driven by operational leverage and a stronger US dollar partially offset from the increase of first party sales, which operates at lower margins.
Moving to slide 11, Classifieds grew revenue, 12% flat with Q1 revenue continues to grow in double digits driven by ongoing strong performance in both platforms in Germany, and our motors offering in the UK.
Segment margin for classifies was 38% flat year on year as operating leverage is offset by marketing investments and a stronger us dollar.
Turning to slide 12 in major cost drivers in Q2, we delivered non-GAAP operating margin of 26.9%, which is up 170 basis points versus last year 50 basis points of which was driven by a stronger us dollar impacting all spend categories.
I will focus my remaining comments on the operational dynamics of our expenses as we continue to grow margins in 2019, while investing in payments.
Cost of revenue increased one point year over year, driven by Korea, and stub hubs first party cost of sales and site operations.
Q2 sales and marketing expense decreased one point driven by a reduction in marketing that we've discussed previously partially offset by our acquisition in Japan.
Product development costs were down over one point from increased productivity, even as we continue to invest significant resources into strategic opportunities such as payments and ads.
GNSS down year on year, our seventh consecutive quarter of productivity.
Our disciplined execution continues to drive leverage.
Moving to EPS on Slide 13, we delivered 68 cents of non-GAAP EPS up 28% versus the prior year, our fifth consecutive quarter of double digit EPS expansion.
EPS growth benefited from our share repurchase program and margin expansion, partially offset by our investment in payments.
Favorability versus our guidance in April was mostly driven by tax and strong cost could strong cost control.
GAAP EPS for the quarter was 46 cents down 27% versus last year. The decrease in GAAP EPS is primarily driven by lapping a gain created by acquiring TSS and lapping a warrant agreement, which we can now confirm his audience.
As always you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation.
On slide 14 in Q2, we generated $607 million of free cash flow up 223% driven by the timing of cash taxes, and capex as well as strong operational growth.
Moving to slide 15, our capital allocation strategy and our key tenants and targets have not changed we've executed our second dividend payment of $120 million, while continuing to aggressively buy back shares demonstrating our confidence and commitment to return capital to shareholders in a disciplined and diversified manner.
In Q2, we repurchased nearly 40 million shares at an average price of $37.62 per share amounting to $1.5 billion. We ended the quarter with $4.2 billion share repurchase authorization remaining.
For the quarter, we ended with cash and investments of $6.3 billion and debt of $9.3 billion.
Turning to slide 16, I'd like to remind you of our cat specific capital allocation plans for 2019 and the progress we've made through the first half and since separation.
As planned we've initiated a quarterly dividend and made two payments.
We announced a $5 billion $5 billion of share repurchases in 2018, and Weve repurchased 3 billion worth of shares in the first half.
Since separation, we've bought back $14.3 billion, representing nearly 31% of shares outstanding net of dilution, which amounts to more than 150% of our free cash flow over that time.
Our mid term leverage targets remain 1.5 times net debt and gross debt below three times EBITDA, we expect to pay down 1.6 billion of debt in Q3 without refinancing.
We expect our net debt over the long term between to be between three and $4 billion, while maintaining its triple B plus rating.
On seven on slide 17, before we look closer at Q3 and full year guidance I want to call out a couple of dynamics that are impacting our revenue outlook this quarter, but not our and for the rest of the year, but not our organic FX neutral revenue growth rate or our non-GAAP earnings estimates the sale of brands for friends and the stronger US dollar were lower full year revenue dollars by approximately $100 million.
And in Q3 by approximately $30 million.
For Q3, we are projecting revenue between $2 and our 2.61 and $2.66 billion growing 1% to 3% on an organic FX neutral basis.
We expect non-GAAP EPS of 62 to 65 cents per share representing 10% to 15% growth.
EPS growth is driven primarily by the net benefit of our share repurchase program.
In addition, operational growth, including margin expansion will be offset by our investments in payment intermediation.
We are expecting GAAP EPS in the range of 40 to 44 cents per share in Q3.
For the full year revenue guidance is in the range of $10.75 billion to $10.83 billion.
Maintaining the organic FX neutral growth rate of 2% to 3%.
Operating margin expansion continues at 28% to 29% and non-GAAP effective tax rate decreases slightly to 15% to 17%.
We are increasing our full year, non-GAAP EPS guidance to $2 and $72.75 per share based on a stronger Q2, a modestly improved for go forward tax rate volume leveraged and destroy disciplined cost control.
Cash flow remains $2.1 billion to $2.3 billion as does capex at 5% to 7% of revenue.
Finally, we are increasing full year GAAP EPS to $1.97 to $2.07 per share driven by cost control lower stock based compensation and a modestly lower tax rate.
In summary, we entered 2019 focused on delivering shareholder value through modest revenue growth expanding margins strong double digit non-GAAP EPS growth and more capital return.
Halfway through the year, we continue to deliver on this plan with 3% FX neutral organic revenue growth one point of margin expansion net of foreign exchange, 27%, non-GAAP EPS growth and over $3.2 billion in total capital return to shareholders. We continue to operate as disciplined capital allocators balancing strategic asset acquisitions and investments that provide buyers around the world with value and selection, while continuing to repurchase shares and divest assets that provide a better return for our investors.
We continue to be confident in this year and beyond holding organic FX neutral revenue growth and raising GAAP and non-GAAP EPS guidance for the second quarter in a row.
Looking further out we will preview 2020 during our third quarter earnings call as we've done in the past and now we'd be happy to answer your questions operator.
I will ask a question. Please press star one on your telephone keypad. Please limit yourself to one question only the first question comes from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.
Great. Thanks.
When we look at Gms growth I was wondering if you could help describe some of the.
The drivers behind particularly as it relates to the efficiencies that you are seeing in in marketing.
How should we separate sort of the impacting those marketing efficiencies versus the the ongoing technology improvements and sort of the efforts that you're making.
Around structured data, which I know, we've talked about for a while but also the.
New product wages, just wondering we see the data.
Just hoping you can kind of give us a little bit more on the pluses and minuses by month.
Yes, he thought maybe I'll just comment on numbers, then Devon can elaborate maybe a bit on the product stuff generally speaking overall, if we focus on the us.
We accelerated point, so more or less the same but if you really tease out the underlying some of our export our quarters out of the us that a little bit better and that was partially offset by the internet sales tax dynamics that I laid out if you look year over year and that was versus Q1, but if you look at year over year. The deceleration really is driven by and large by the reduction in marketing spend as we redeploy and reallocate and also caught marketing costs and then.
And then a little bit as I called out in my prepared remarks, our year over year.
A little bit more than a point from internet sales tax underneath that we did make a series of product changes that in aggregate haven't yet moved the move the bigger picture number in the us, but our I think making a difference to the ecosystem and we feel good about the future.
I mean I'd just add that this year is playing out exactly as we had said it would and I guess our confidence is that.
We can we have line of sight to the reason GMB is suppressed right now its marketing which is in our control its internet sales tax which will.
Rollout and.
It will we'll we'll lap out of it.
At some point next year. So we know those things they are explainable and to some extent controllable.
Underlying that the marketplace is healthy we've never had more buyers. We've never had more inventory the product is improving we're hitting another good stride right now in our product development process.
So I have a lot of confidence in the core health and strength of the marketplace because I can understand why there's.
A short term suppression in GMI and Thats, what we said would happen early in the year, it's exactly playing out as we had said.
Yes.
Yes, the other thing I'd add heat internationally as I called out there is some pressure.
We are down <unk> points quarter to quarter, that's really driven by a mix.
Bennett.
A little bit a downside from the UK, partially offset by a little bit of benefit from from Korea, and so those dynamics continue to play out and.
As we go forward.
Theres a lot of dynamics at play, including Internet sales tax that that are implied in our guidance and now we'll continue to work through those and hopefully the product changes that we made will continue to amplify as we get into the second half of the year.
Great. Thanks, guys.
Your next question comes from Ross Formulary of Barclays. Please go ahead. Your line is open.
Great.
Question on the marketplace.
Segment margin, so it's been improving 200 bips.
It's still in the low Thirtys, I guess, where do you see that going.
Kind of medium to long term.
How much how much more upside.
In terms of.
Expense efficiency, and just kind of the natural lift in that margin do you see and then second question on the portfolio review.
Just curious to hear your thoughts on.
The idea that that's out there about.
Selling cloud provides potentially in separate pieces kind of country by country versus doing like a spin or a sale for the whole entity.
Thank you and any thoughts on that thank you.
Yes, so first off on margin, let me comment in the short term. So we had nice margin expansion this quarter and marketplaces.
I think you can expect continued margin expansion driven by marketing that we've talked about over the course of the year, but in the second half of the year that as you might remember I called out last quarter on there is that dynamic.
First half versus second half from foreign exchange and we've been calling those differences out roughly half a point this quarter the.
That normalizes in the second half of the year. So there won't be as much margin leverage in the second half of the year and that will some of that will show up in marketplaces.
But we expect to continue to be.
To be rationalizing, the and reallocating the marketing and focusing it in ways that we've spoken about.
So I would expect some marketing benefits going forward as well as just ongoing continued cost control. So in the longer term medium and longer term, we'll talk about at least 2020 in October at their earnings call, Dan and I'll give you a bit more definitive answer on that on that front.
And Ross on the portfolio review, we're just not going to say anything about it we'll let people know when there's something to say, but until then were just not going to say a word about the process or what's going on.
Your next question comes from Mark May of Citi. Please go ahead. Your line is open.
Thank you on Internet sales tax you talked about a one or I guess now greater than 1% impact, but there have been very few states that have had it implemented with the.
Pretty significant ramp that's starting up in the back half of the year. How are you guys thinking about the impact on.
What are you assuming in your guide and then I believe in the May June timeframe, Google made some search algo changes some data out there suggests that ebay may have been negatively impacted by that obviously.
Over the years in the past that.
This has happened and just curious.
What if anything you've seen so far thanks.
Got it.
I was just going to say on.
On Internet.
Sales tax implied in our guidance is that more states will roll out and that the impact will get worse before it gets better.
That is implicit in our guidance is that as you are going to reach sort of the peak.
Of states Rolling out probably in Q4 and Thats implied in what we're seeing I think some of it we're not 100% sure. How it plays out because there are replacement theres or replacement inventory and as this gets more penetration in the marketplace or other dynamics that may end up substituting.
But right now what we're assuming is that the impact on the US business will continue to grow and then we'll start lapping out of it and then hurdles than it will shrink and basically fade into the background, but it is certainly we are certainly not through it.
And I'll just take the opportunity to say for a second as a policy matter. This is exactly what we said, which would happen which is small us businesses are being dis favor. The impact is disproportionate on strong on small us businesses, it's favoring larger businesses and retailers and it's also favoring international businesses. So we again, we will call for a federal legislation on Internet sales tax and a small business exemption.
And I'll say that you'll continue to hear me say that because what were seeing is exactly what we had feared and what we had said.
On the Algo change, we haven't seen a material change in search in the May June timeframe from from Google.
Thanks.
Your next question comes from Stephen Ju of Credit Suisse. Please.
Please go ahead your line is open.
Okay. Thank you.
Devon or Scott I guess.
We've got the sense. The last time, we talked to you guys that youre being extraordinarily careful with the payments roll out and moving sellers into the program almost one by one as opposed to chunks at a time. So nothing gets broken on the way. So you have added one looks like 1700 sellers versus about 800 last quarter. So should we take this to assume that the process to transfer the incremental seller is getting progressively easier.
And once you start doing this more formally in Germany do you expect the transfer to be more easier or more difficult.
And separately.
Not that you are in a position to offer US 2020 guidance, but some of the GMB deceleration. This year is self inflicted due to marketing and Additionally, as you said from the sales tax friction so should we be thinking where you've been hoping for an in line with retail type of would be growth for the us next year.
And further for your marketplaces revenue.
The GMB growth no longer disconnect like it did this year. Thanks.
On on on on payments.
A couple of dynamics that I think are interesting. So first of all today is the one year anniversary of the.
A year from today will be five years, and Thats, where the restriction.
On the rollout will fade away so.
You can expect us to pick up the pace I think some of it has been the product built some of it has been there is no need to go faster because were kept under the law anyway.
As we start to roll up here to 12 months from today.
You will see us begin to pick up the pace and I'm, particularly pleased with the seller experience.
Sellers are seeing really good conversion buyers are seeing choice sellers are seeing unified accounts and they are saving money everything that we would have hoped so I'm very pleased with the payments execution.
And on the buyer side, it's very interesting you heard in Scott's remarks that now with pay Pal rolled out virus are showing that they want choice. We're seeing after pay Pal has been rolled out penetration of pay Pal of approximately 35% roughly.
And thats compared to almost double that on the rest of the marketplace. So buyers are voting with their wallets and they.
Our our choosing for choice.
So you will expect us to to pick up the pace in terms of GMP. Obviously, we're not giving you 20 guidance I'll, we'll just say what we say all the time, which is we think the long term sustainable growth rate of the business is probably somewhere above retail in below E Commerce and at these margins, we think thats, a great business and a sustainable growth rate, but what where we'll be next year. We'll obviously talk about that in October and remember Steven the other the other dynamic for next year and year after will be that scaling of payments revenue.
In our business and so the well we'll get into what TMB looks like later in the year front from a guidance perspective, you can expect that the revenue will be in a reasonably higher than that in addition to the the first party ads dynamics that we've talked about in the past so.
I think we feel pretty good about the revenue and we've got a lot of work to do between now and the end of the year.
When we start talking October by 2020.
Thank you.
Your next question comes from Bob Fehlman of BMO Capital markets. Please go ahead. Your line is open.
Hi, Good afternoon, everyone I'll go to the other driver and advertising and promoted listings.
I think Kevin you mentioned that Youve expanded now to 940000 sellers from I think 800000 last quarter, but I think it was in May you announced sort of a broader rollout to all sellers in good standing just curious.
If you can help us understand the impact of that announcement and where we expect that seller should we expect the number of sellers using promoted listings to start to accelerate as well.
As a result of that and then just.
On the flip side, just any color you can add on the continued wind down of the third party ads is there.
Yes, maybe not a specific guidance to when we might see that drops out but.
But but but a timeline that could help us feel that out a little bit better any color you can add would be helpful.
Yeah on the first part.
Yes, it's a good call out you know I think we said last quarter that growing the first party ads business as both both sides of the funnel, it's it's supply and demand.
For supply we've opened it up to more sellers were giving them more tools were giving them better data. So that they can understand and calculate an ROI on their AD spend on ebay, which we think is actually very strong. We think we have a very compelling value proposition I mean sellers advertise on ebay and they have it they look at that as a choice just like they could advertise on other AD platforms and actually what we see is that we have a really good.
Value proposition for them and that's playing out in the growth that we're seeing in the sellers and the density of ads in the way that they are using it I should also point out that next week, we have a very large seller event called the Bay open and we have thousands of our customers coming to that and we'll have more to say about the future of ads and we'll have more to say about that and other things and it should be an exciting week for us next week.
And on the buyer side, obviously, there is the exposure of those ads in both search and browse and merchandising and that also as we get confident that were not cannibalizing.
Or organic results. If you will we can expand the results there. So the growth this quarter, which was really outstanding as a result of both the sell side on the buy side expansion.
Yes to your second question in terms of time I'd just point to is that third party wind down is highly correlated with first party acceleration right first party acceleration in terms of where ads are going to be a place, but the efficiency of those ads and conversions of those ads are and how we change the user experience.
You can do the math, but we've had some acceleration in third party wind down over the last couple of quarters I would expect that to continue as we add forward and.
You know it will continue to break these these growth rates out for you. So you understand the underlying dynamics.
Great. Thank you both very helpful.
Your next question comes from Colin Sebastian of Bard. Please go ahead. Your line is open.
Great. Thank you Devin you called out some opportunities to address higher buyer churn and I guess, just given the efforts to control marketing spend at the same time is that something that you still can address over the near term or is that more of a longer term effort and then hoping for any update on what you're seeing from some of the pilot initiatives with Feldman and shipping into particular, if you're going to plan any expansion of those efforts some out of the holidays. Thanks.
Thanks for the question Collyn.
On buyers, we are very focused now on buyer frequency on reducing buyer churn, we're seeing outstanding new customer acquisition really strong.
Brand, new customers coming to E Bay, which is encouraging those many of those are millennial, we're seeing a better skewed towards women, who are shopping with us some of those cohorts have lower spend than our existing cohorts, but they're all on the right side of positive sale. The so we're happy with what we see.
And the hope is that we can.
Drive frequency and we're very focused on that that's both product and marketing right now are very dialed into driving frequency and my hope is that that isn't a long term.
Plan Thats something that we can do soon in some of that is implicit in our steady buyer growth that we've seen over the last several quarters.
On fulfillment nothing to say right now I think it's worthwhile to stay tuned.
You know what I'd say, calling on our fulfillment just specific to your question. We have we constantly leverage our size and scale on a global basis to provide services to our sellers that are cheaper and we've talked about that with respect to.
Helping sellers position inventory.
In country.
With coordinated and essentially negotiated lower fees from from fulfillment.
And as we look at this fulfillment trial in the U.S. because most of what we've been talking about or in his international different international markets.
70% of what sold on the site already comes with free shipping in the U.S. and in the US nearly two thirds of items horizon arrive in three days or less so I think the intent of the program is to further enhance.
You know via guaranteed ship delivery program those types of metrics to further improve the user experience.
Your next question comes from Mark Mahaney of RBC. Please go ahead. Your line is open.
Thanks you.
Put up two quarters of nice leverage in sales and marketing on a year over year basis, and you've talked about.
Finding efficiencies I think in your marketing spend removing some of your lower ROI channels, how long of a transition is this in marketing I realized it's constantly being optimized but is there a greater level or attention to optimization. This year that then kind of normalizes going into next year and any color at all on what those lower ROI marketing channels are that you have been reducing thank you.
Yes, the simple answer on lower ROI channels, Marcus we last year, we pushed the curve quite aggressively on things like promotions saw a lot of.
Kind of site wide sales and coupons and things like that and as we started to measure those cohorts. We would have kept it going if we were happy with the value of the customers were bringing in their spend profile. The fact is we've always been disciplined marketing allocators and it was worth trying and pushing that limit, but as we saw the returns coming back, particularly the cohort of buyers we were acquiring through that activity.
It wasn't worth it quite honestly so a lot of this is a reduction from us really pushing the marketing curve last year.
And there may be more we're always trying to push efficiency in our channels, but were also trying new channels. Some of them may have lower ROI early on and we grow it over time in particular, we're diversifying.
From Google and search channels into social channels, we're diversifying into affiliate channels.
We're diversifying and always trying to bring direct traffic the one of the best attributes of our business is.
It's very strong mix of direct traffic compared to paid traffic. So we'll keep advertising the brand keep working the other channels and for the rest of the year, we'll keep removing and somewhat lapping the low ROI spend from last year and that's in the dynamic we've been talking about since.
Since February or March and Mark Let me just call out a couple of things that came out my prepared remarks, but just to pull them together based on your question first off both stubhub and classified spend more in marketing this quarter, we called those out in the prepared remarks and in the margin dynamics and add and so thats going to at the company level mute. The reduction that you would have seen that's one dynamic in the second dynamic is within the marketplaces business.
Korea, and Japan actually spend more in contract, which then further mutes. The fact that contra and other marketing expenses further down in call. It the core on ebay marketplaces businesses and so.
Yeah, it's a bit muted at the company level and a lot of the dynamics, we're talking about our core on platform ex stubhub that classifies and ex Japan and Korea, So just to try and navigate through from what you see in the.
In the prepared remarks and in the presentation and ultimately in the queue.
Thank you Dan.
Your next question comes from Thomas Forte of D.A. Davidson. Please go ahead. Your line is open.
Great. Thanks for taking my question. So during the quarter, you announced that you were going to.
Potentially participate in Facebook Libra I wanted to know what you thought ebays opportunity could be there because I think thats quite an interesting initiatives by Facebook and how that could fit into kind of ebay 2.0.
Payment options in the future. Thank you.
You know I think that I've been following.
Crypto and block chain for quite some time and without going on a tangent. This short answer is.
The opportunity for the block chain to reduce settlement costs improve security and improve transparency is definite.
Im a believer that a public distributed database.
And reduce settlement costs people still pay a lot for interchange they pay a lot for settlement in clearing.
And that are in systems at a times are not secure and at times don't serve the needs of of the us, particularly small businesses.
So we're advocates about the possibility one of the things that's prevented crypto from really having any penetration with retail is the volatility and nobody is going to pay with the currency that moves up and down 15% a day. So the opportunity with Libra is for buyers because its pegged to fee a basket of currency to build currency that stable the opportunity for sellers is to lower their costs. Even further were going to lower their costs with payment intermediation. The potential if this ever got up and running was we can lower their costs even further.
So I think LIBOR is speculative I think libra may or may not work I understand that the regulatory scrutiny. It is led by Facebook, we'll let them lead that but where participants as advocates on behalf of our customers.
Great. Thank you.
Your next question comes from Justin Post of Merrill Lynch. Please go ahead. Your line is open.
Thank you Scott I Wonder if you could revisit the advertising opportunity I think Youve reiterated 1 billion, where are you on total AD dollars today and then when you think about 1 billion being a little bit over 1% of GMB Amazon's a lot higher do you think $1 billion Conservative is there room to go higher thank you.
Well look, let's let's get to 1 billion first.
I guess the way I'd frame it I think David in his prepared remarks that $700 million.
Well continue to expand above that with the mix of first party, which as I'll remind everyone. I think you know shows up in transaction revenue.
And as that third party ads on wine not old that are lower our overall am SNL and adds reported number and that's why we keep talking about it in aggregate, but 700 million continuing to grow we will get to a billion here and next year or two.
And continue to expand our capabilities and I think the balance is making sure. There is a good user experience. So we'll get to a billion. We would get 2 billion that will be as soon as we possibly can.
We're pushing on that on all fronts with the balance being let's make sure the product experience doesn't get doesnt get.
Destroyed in that and that people can find what they're looking for and that the searches that they do and the ads that we served them are extremely relevant and continue to convert and are worth having our sellers invest in.
Thanks Scott.
Yes.
Okay, Operator, we'll take one more question please.
Your last question will be from idle Iranian of Wedbush Securities. Please go ahead. Your line is open.
Hey, guys. Thanks for taking the question. So in the press release you noted.
The launch of new pages, the transformed the structure from unstructured listings structured product listing pages, it's what the here.
Maybe there was more color around that is that different than than the ongoing strategy.
You guys have had to rollout more pages on to you.
Product listings and then just one quick follow up on.
On the existing buyer churn I know you said it was modest but was there anything specific driving that was that the lower marketing spend or was it something else.
Thanks.
On the first part I think we continue to evolve our catalog unstructured data approach and it's really both top down and bottom up and I'm very excited about the bottom up the top down has been what we've been.
Progressing and still are it's really about attachment to products and Thats really important. What's also important are the attributes of those products the aspects the bottom up like the characteristics of a phone its.
Here's the memory, here's the color and what we see is that as our product listings have more richness in those descriptions and then those attributes they convert better in part that's because they attached to buyer searches better so were encouraging and in some cases mandating sellers add more to those products listings and then we are incorporating that in search and thats driving better conversion and you'll see us continue to make it easier for sellers to contribute and having bought at our search engine on the buyer side pick up those attributes more and more aggressively over time and again, we will have more to say about that next week.
At our big seller event, but we're really pleased and excited about the way forward on our catalog and structured data.
Oh, sorry and on existing.
Buyer churn.
Part of what that is reflecting is a year ago, we had some experiments in mainland China.
We are lapping out of some of those buyers in mainland China. So some of that increase churn.
Reflects that but it doesn't it's not material, it's not a material difference in any of our core on platform markets.
All right great. Thank you so much.
I will now turn the call over to the presenters for closing remarks.
No I think we're all set on our side. So I think we we can close the call.
Thank you very much. This concludes today's conference call you may now disconnect.