Q3 2022 eBay Inc Earnings Call
Yeah.
[music].
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the ebay third quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like classic a question at that time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one thank you.
Now my pleasure to turn the call over to Mr. Joe <unk>, Vice President of Investor Relations. Sir. Please go ahead.
Good afternoon. Thank you for joining us and welcome to Ebay's earnings release conference call for the third quarter of 2022.
Joining me today on the call are Jamie I, noting our chief Executive Officer, and Steve priest, our Chief Financial Officer.
We're providing a slide presentation to accompany Jamie and Steve's commentary during the call, which is available through the Investor Relations section of the ebay website at investors that 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 GMP growth rates mentioned in Jamie 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.
And our most recent periodic reports on Form 10-K, and Form 10-Q, and our earnings release from earlier today.
You should not rely on any forward looking statements all information in this presentation is as of November 2022, 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 Q3 was a strong quarter for the company. Despite a challenging macro environment significant headwinds from inflation higher energy costs and rising interest rates have impacted discretionary income and consumer confidence is near record levels in several markets.
Our focus on non new in season categories has made the platform more resilient against these headwinds.
In the quarter, we continued to execute the tech led re imagination, and we delivered on our near term commitments.
<unk> categories narrowed the gap to market growth rates through higher customer satisfaction increased trust and more effective marketing and once again enthusiast buyer spent more on the platform. This playbook is having a positive impact on <unk> in the U S and internationally.
Sorry, why technology investments create a more seamless customer experience leading to improved conversion rates across the platform.
Our advertising business accelerated due to increased seller adoption and the optimization of our AD products and new payments capabilities remove transactional friction, while adding incremental revenue.
The execution of our strategy is strengthening our competitive position, which drove better than expected financial outcomes in the third quarter.
We delivered over $17 7 billion, and GMB and almost $2 $4 billion in revenue.
We invested in marketing and product, while delivering close to 29% operating margin and our non-GAAP EPS was $1 per share up double digits versus last year.
Before I get into more highlights from the quarter I want to take a step back and look where we are in a long term journey.
As you may recall heading into the pandemic volume was declining since that time, we have invested in game changing product experiences and adjusted our approach to marketing.
And this has resulted in improvement in GMP compared to pre pandemic level.
Specifically focused categories, excluding trading cards are up over 20% since 2019 due to improvements in customer satisfaction trust product experience and marketing <unk>.
Trading cards has more than doubled in that time due to market dynamics and the impact of our innovation.
And the rest of the platform has improved from declining low single digits to flat based on site wide product improvements and the benefits of cross category shopping.
Taking a closer look at Q3 volume excluding trading cards focus categories grew over seven points faster than the rest of the platform compared to last year multiple quarters of improvements in parts and accessories collectibles luxury goods and refurbished products are driving better relative <unk> performance.
Motives parts and accessories is the largest category we have invested in to date and it is nearing market rates of growth.
Investments in marketing over multiple quarters have increased consideration with enthusiasm expanding the top of the funnel.
Most recently, we sponsored an automotive makeover show with MTV U K. We also kicked off the ebay motors parts of America tour showcasing bespoke car builds using parts found on ebay.
With thousands of attendees have joined these events to date and social marketing support for the tour has driven more than 500 million impressions.
The key to unlocking trustful parts and accessories enthusiasts is fitment.
For the last several quarters, we made significant progress on the foundational work needed to innovate the PNA experience. This.
This included modernizing our taxonomy to align our business globally and open up new cross border trade opportunities we.
We also integrated fitment based technologies and the search merchandising and advertising recommendations.
Now, we're able to make fitness more pervasive throughout the <unk> experience, we have started adding highly visible trusting loss throughout the buyer journey in the U S and Canada.
We also are reducing the number of steps it takes to find parts and we've expanded adoption of my garage, leading to more personalized shopping on every visit.
We will continue to invest in trust to deliver even higher customer satisfaction in the coming quarters.
In addition, we are working on increasing the quality and quantity of supply in parts and accessories.
We recently acquired <unk>, Fitbit, which helps P&A sellers improved listing quality and growth conversion.
We are also directly engaging sellers to add more in demand parts inventory, including certified green parts, OEM salvage and high ASP products, keeping our global supply over 500 million live listings.
Collectibles is another focus category, where sellers and buyers are responding positively to recent innovation.
One of the best examples of this is trading cards, where GMB trends remain steady at a trajectory more than double of pre pandemic levels.
In June we launched the ebay bought a seamless end to end physical and digital experience and have initially opened it for trading cards.
<unk> provides a number of benefits, including instant transfer authentication insurance affordable shipping and tax free storage.
Combination of these features Gibson is an unprecedented level of control to grow the value of their collections.
During Q3, we expanded eligibility for vault items, we're seeing continued momentum week over week and are encouraged by the effectiveness of events and accelerating early adoption.
While the vault is in its early days demand is increasing and more enthusiast a pre loading their inventory into the vault to enable faster trading.
In addition to innovation, we are marketing our trading cards business across multiple channels for.
For example in Q3, we expanded our presence at New York comic Con to showcase the ebay bought and continued live commerce pilots highlighting brands like Tango and med <unk>.
Another important investment for our trading card business is the acquisition of TCG player a trusted marketplace for collectible card game enthusiasts that operates a leading technology platform I am pleased that we were able to close this transaction earlier. This week ahead of schedule TCG player brings strategic omnichannel capabilities popular with trading card.
Sellers, including inventory management tool order fulfillment and cost optimization I'm excited to see what we can do together to delight, our sellers and buyers over time.
And luxury categories quarter after quarter of innovation has led to higher customer satisfaction and faster GMB growth. This has been true in watches handbags and sneakers since the introduction of authentication, resulting in higher <unk> in every country, where we've launched to date in Q3, we began authenticating jewelry above $500.
In the U S and are seeing similar results with other focus categories with initial customer satisfaction rates for jewelry buyers over 90%.
Focus category is not the only area, where we are investing to drive <unk> significant site wide initiatives that impact our sellers and buyers are driving volume benefits across all categories.
Multiple quarters of technology investment drove statewide conversion improvements in Q3 for.
For example in search we leveraged new deep learning models to better understand purchase intent leading to increased conversion at the top of search. In addition, search recall has materially improved for low and middle searches, enabling buyers to discover more relevant inventory. These capabilities have rolled out to English and German speaking markets, adding more.
More than half a billion dollars in DMD annually.
As the <unk> improvements are driving better growth across the platform and focused categories like sneakers, we build a more modern browsing experience, which is driving benefits to our SCO traffic.
We also optimized our site to allow significantly more items to show up on search engines, increasing visibility to our newest and best performing listings.
For sellers, we have been making investments over several quarters to modernize our technology stack and I'm excited to announce that we recently completed the migration of all desktop sellers to a single unified listing experience globally. This.
This transition eliminates multiple legacy tool and enables faster innovation, particularly as we invest in new focus category listing experiences.
There are a number of benefits sellers are already seeing in the new platform.
For example, when listing an item sellers are receiving better price guidance recommendations that are driving conversion in multiple categories.
Sellers can now directly upload videos that can showcase items highlight unique details.
It's a commonly asked question.
So those are also benefiting from multiple quarters of innovation in advertising.
Our return on AD spend is leading to increased adoption of promoted listings and higher ad rates.
Q3 first party AD revenue was $249 million up 27% year over year. This was more than 30 faster than GMB, keeping us on track towards our long term advertising targets, despite volume headwinds from the macro environment.
Investments in AI have resulted in improved search algorithm performance and more accurate adnate recommendations that are increasing conversion. This is one factor driving up adoption of standard promoted listings.
In Q3, almost 2 million sellers adopted at least one add product and our coverage has expanded to over 600 million listings.
Our newer AD products are also driving faster growth, which once again grew double digits quarter over quarter for promoted listings advance we expanded availability in search we.
Also improve the broad match experience and upgraded our recommendation tools, allowing sellers to further optimize their campaigns.
Payments capabilities are increasing trust between sellers and buyers by removing transactional pressure the <unk>.
Buyer FX experienced that we released earlier this year is resonating with customers close to 70% are adopting it for cross currency transactions, allowing them to pay in their local currency.
With the new seller education offering of ebay Academy.
Launched across our major markets, our new course teachers sellers, how to assess their current practices and understand how ebay can help them operate more sustainably.
So those are contributing positively to global communities in other ways.
During the third quarter, we raised more than $33 million to ebay for charity.
In addition, the EBIT Foundation issued grip to 50 nonprofit organizations that support inclusive entrepreneurship and communities around the world.
These purpose driven efforts helped us drive economic opportunity for all.
Finally, we're excited to announce that tomorrow, we will be publishing our inaugural small business report.
This report highlights our progress towards becoming the seller platform of choice.
Those of you in the past about how ebay creates access for entrepreneurs and through our recent small business survey, we found that seven out of 10 sellers that ebay help them start their business.
We are proud to partner with our sellers, helping them get up and running on our marketplace and providing the tools they need to build scale and grow their business.
Recognize these efforts with over half of our seller survey strongly agreeing that ebay helped their small business grow.
As a third party marketplace ebay only wins with our sellers win and we have earned trust from our seller community over time.
In this report 95% of sellers surveyed said they rely on ebay for their business with almost one third thing Theyre small business would not exist without ebay.
This data helps to reinforce that the investments we are making reflect the role we play in creating and growing small businesses around the world.
Having just come off a number of large seller events in our major markets. We continue to be inspired by our seller community and we are proud to play a key role in helping our customers navigate these challenging economic times.
All of this couldnt be possible without our talented and dedicated teams who work so hard to innovate on behalf of our customers. Thank you to the <unk> team for all you do every day for our community.
In closing the resiliency of our platform year at better than expected quarterly results. Despite a challenging macro backdrop Lucas.
<unk> categories grew over seven points faster than the rest of the platform and maintained higher levels of customer satisfaction.
We acquired TCG player and my payment to better serve enthusiasts and two of our largest focus categories site wide improvements in search SCO and selling improved conversion rates.
Advertising growth accelerated while delivering high returns on AD spend for our sellers paint.
Payments innovation enabled more services and further reduce transactional friction.
And we continue to support our small business sellers helped raise $33 million of charity and drove close to $1 billion and economic impact through E Commerce.
All of these accomplishments contributed towards our long term tech led re imagination of ebay.
With that I'll turn the call over to Steve to provide more details on our financial performance Steve over to you.
Thank you Jamie and thank you all for joining us today.
Beginning with highlights from the third quarter on slide nine of our earnings presentation.
Next I'll walk through our key operating and financial metrics in greater detail.
Finally, I'll provide our outlook fourth quarter.
<unk> thought before we begin Q&A.
As usual my comments will reflect year over year comparison.
FX neutral basis.
Okay well.
Overall, I'm pleased with our third quarter results as we made significant progress against our long term objective, while efficiently navigating a challenging short term macro environment.
At DMV revenue, non-GAAP , EPS, which came in above expectations.
<unk> talked about high end.
Yes.
Gross merchandise volume declined 5% compared to nearly nine points sequentially.
Revenue was down 2% surplus of $2 4 billion.
Our pricing volume by nearly four points.
Meritage due to continued momentum within our advertising business.
non-GAAP operating margin of $28, 9% modestly quarter over quarter as we continued to invest in our strategic pillar.
We delivered $1 <unk> non-GAAP earnings per share.
11% over the prior year.
We generated $633 million of free cash flow, while returning 421 million.
Shareholder repurchase and dividend.
Our Q3 results highlight the strength of our.
Scaled marketplace durability of our financial model and the impact of that.
Great imagination on ebay's underlying growth trajectory.
Let's take a closer look at the drivers of our financial performance during the third quarter.
Gross merchandise volume was down 5% year over year, but accelerated nearly $9 sequentially.
<unk> com offset a tougher macro environment.
The war in UK inflationary pressures and rising interest rates continue to weigh on consumer confidence.
Demand for discussion.
In addition, recent currency volatility was on the FX headwind to our reported <unk> growth.
<unk> six points in Q2 compared to roughly four points from the prior quarter.
Yeah.
Despite these headwinds our business remains resilient, our markedly healthier than when we entered the pandemic basic.
Basic by returns on our investments which focused categories.
<unk> innovation of the ebay platform.
Our focus on non living season goods has multiple benefits.
Aligns us with the fastest growing portion of our time and extends the life of products.
It also makes our marketplace more durable during periods of economic turbulence.
Refurbished.
Limbach vintage goods are.
Attractive alternatives to brand new items.
Patrick.
Ebay scout global demand, but these goods, but supplemental income seller, which can mitigate the rising.
<unk> talked a little.
300 refurbished goods alone.
Microfiber, one third of our GMP and are growing significantly faster than branded goods on APAC.
That disparity has become more pronounced since the onset of macro weakness plus book.
CMV from Houston referred goods has maintained double digit growth versus 2019.
Part of the pandemic.
Even as demand for discretionary goods being pressured in recent quarters.
Our focused casualty steps to continue to drive underlying growth in that business.
Excluding trading part focused Catholic Atms at our.
<unk> for the remainder of our marketplace by August .
Seven points year over year as.
Has increased more than 20% versus 2019.
In Africa.
<unk> grew 6% versus Q3 of 2019, primarily driven by faster growth in focused category, but also supported by relatively stable volume and other category.
It's important to note we've been seeing compelling editor.
Categories are benefiting from our strategy as well.
Higher customer satisfaction and focused categories licensed trust across the <unk> platform.
Yes, so engaging cross category shopping provide a multiplier effect for our business.
<unk> product improvements I believe yes, its friction to status empire across our marketplace.
Even amidst the challenging macro environment.
As of the end of the categories in Q3.
Roughly flat.
The same period in 2019.
Looking at our business on a geographic basis.
Our U S. <unk> grew 17% compared to Q3 of 2019 are more than two points faster than Q2.
Despite slightly easier comps.
International <unk> was down 3% over the same period roughly in line with Q2.
But that is a macro headwinds I outlined earlier are weighing on global economy, we expect a more pronounced in Europe is September .
Consumer confidence remains near historic lows across most of our largest markets European consumers demand even.
Even more cautious as they face significant energy plus hot Switzerland.
Latest strike occupied rising cost of living also threatened.
With that outlook.
Despite these headwinds growth in focused customer you've already modestly at the cap.
Great internationally in Q3.
A very strong value proposition and parts and accessories and that type thing counter cyclical wafer product contributes to the delta.
However, the economic situation in Europe .
<unk> strengths in other categories, which now is the relative growth.
For example demand for.
Energy products in Germany.
Temporarily says consumers carrier with rising utility platform.
With energy availability.
So intermodal.
Moving to active buyers.
135 million occupied shutdown ebay during the trailing 12 months.
<unk> 2 million box my package business, while we ceased operations in July .
<unk> five excluding hurricane.
$2 million for third quarter, a modest step down from prior quarter.
Notably.
90% of our policy churn in Q3.
Low value buyer.
Enthusiastic fire accounted for approximately $17 million about occupies in Q3.
With migration between the enthusiasm of mid value Barclays decelerated lapping headwinds.
Macro pressure might continue to cause migration between buyer groups from the short term, but average spend per user grew sequentially and continues to be healthy at over $3000 per year up double digits versus 2019.
Turning to revenue.
Net revenue was down 2% to approximately $2 4 billion during the third quarter.
An acceleration nearly five points compared to Q2.
Our transaction take rate was 12, 8% due to an increase of nearly 40 basis points sequentially.
Close to 100 basis points.
Yes.
Advertising was the primary driver of our pipe I think.
Both sequentially and year over year.
Recent foreign currency volatility was also a significant driver of increase there.
In Q2.
As reported <unk> growth is more impacted by FX headwinds.
When revenue due to our hedging program.
Total advertising revenue grew 22% during the quarter, while first party ads grew 27%.
Our pricing volume by more than 30 points.
This marks an acceleration more than 10 points versus the JM readouts from Q2.
But most of the lifting and political AD clicks with double digit growth we have anticipated.
This strong result.
Mainly driven by continued optimization.
Standard for mentioned listings product along with ramping contributions from our new App.
Our products, which continue to grow adoption and evolve our capabilities.
Although as growth benefited from some onetime changes on our significant portfolio expansion this year.
We are pleased that our business remains on track.
If we double by 2025.
Despite the tougher macro environment.
Had contemplated back in March.
As expected advertising surpass managed payments as the primary driver of our type rate growth with the pilots migration nearly complete in Q3 of last year.
<unk> contributed roughly 10 basis points sequentially.
Sequential take rate increase.
These type of services they.
We are pleased these additional services remain on track to meet the $300 million target.
We discussed at Investor Day.
Moving to profitability.
non-GAAP operating margin was approximately 28, 9% in Q3.
Nearly 30 basis points sequentially.
Posted three points year over year.
Gross margins are roughly in line with prior year.
Sales and marketing and product development with notable areas of investment as we continue to invest in a focused category.
<unk>.
We delivered $1 of non-GAAP EPS in Q3.
11%, which is ahead of expectations due to a volume upside in cost efficiency agenda.
We generated a GAAP loss per share.
<unk>.
Primarily driven by losses on our investment portfolio.
Ongoing market volatility.
Turning to our balance sheet and capital allocation.
Free cash flow.
96% to $633 million in Q3, largely due to the timing of working capital items.
Our balance sheet position remained strong as we ended the quarter with cash and non equity investments of $4 8 billion.
Gross debt to $7 7 billion.
We repurchased roughly $300 million of shares at an average price of approximately $44 during Q3 and have more than $3 $1 billion remaining under our current authorization.
We paid a quarterly cash dividend of $120 million.
Timbre, but 22 per share.
Year to date, we've returned over $3 $2 billion to shareholders could be pressured and dividends or roughly.
While our free cash flow.
Although our share repurchases elevated during the first half of the year due to our excess cash position our capital allocation philosophy remains unchanged.
Earlier this week, we closed the acquisition of TCG flat.
Schedule.
Total consideration of up to $295 million in cash.
Started to have the team on board.
Let's accelerate innovation and our collectibles category.
Our investment portfolio is detailed on slide 19 of our Investor presentation.
Our equity investment stake.
Approximately $3 billion at the end of Q3.
Our 405 million vested shares valued at roughly $2 4 billion.
So the remainder of the audience shares acquired through the first tranche of warrants and approximately $120 million in Q3.
Remaining adient investments.
Calculated based on the estimated value of our remaining warrant tranches.
As always.
We continue to manage our investment portfolio with the goal of maximizing shareholder value.
Moving on to our outlook.
Despite a resilient performance in Q3, the macro environment.
And my dynamic.
To predict.
Consumer confidence remains near historic lows across our major market.
While the effects of the energy crisis in Europe .
Watson temperatures for during the fourth quarter.
Recent and upcoming well amounts dropped from the UK.
The industry workforce disruptions across the region.
Incremental risk during the holiday.
Despite the relative strength of the U S consumer through September <unk>.
A lot of exposure to decades by inflation.
Faced with softening demand dimension as well.
However growth in our U S volume slowed by several points versus our 2019 by Scott.
In addition, recent declines in the Euro and Sterling, that's an incremental FX headwind.
That's a $300 million.
Q4, <unk> versus our prior outlook.
Our hedging program to mitigate much of the incremental FX impact to revenue operating income and EPS within the fourth quarter.
The Q4, we now expect to generate between $17 five and $19 $1 billion of DMV.
Presenting an FX neutral decline between nine 6% with an FX headwind to spot growth of roughly seven points.
We anticipate revenue between $2 40.
Too early in.
The crisis to decline between 4% and 1% year over year.
We forecast non-GAAP operating margin between $29 seven.
33%.
We expect to deliver non-GAAP earnings per share between $1 three.
And $1 nine.
Well between negative 2%.
4%.
EBITDA growth.
The deterioration in severity of the current macro headwinds remind et cetera.
Recent trends suggest it's increasingly likely that will represent a meaningful headwind to our business well into the coming year.
Additionally, the strength of the U S dollar.
At today's rates.
<unk> represents an estimated headwind of three points to year over yea GMB growth 2022.
We will also cite five to six point headwind and non-GAAP earnings per share next year.
In closing Q3 was another strong quarter for APAC.
We exceeded expectations for DMV revenue and EPS.
Spice and increasingly challenging macro environment.
Our marketplace remained resilient.
The sites are inflationary pressures.
Dominating statement focus.
That was to offer consumers a low cost alternative to brand new products.
Our advertising business accelerated meaningfully while new payment services are scaling in line with expectations, providing incremental capacity for investment.
Our fortress balance sheet differentiate Scott and durable financial model in order to mitigate the margin impact of recent macro pressure.
<unk> investments in our core strategic initiatives and generate healthy earnings and cash flow.
We returned roughly double our free cash flow to shareholders through repricing dividends this year.
Alongside inorganic investments to accelerate our strategy.
Finally, I'm incredibly efficiently.
Our employees have maintained their focus on <unk>.
Part of our community during these challenging times.
That Jamie and I will now take your questions.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
First question comes from the line of Doug Anmuth with Jpmorgan. Your line is open.
Thanks for taking the questions I know you talked about doing more full funnel marketing and focused categories.
Curious about some of the results that you're seeing there and then how you've expanded those efforts more materially just some other categories as well and if you could just comment on the buyback as well smaller number than what we've seen in recent quarters. If there's any commentary you can add there. Thank you.
Yes, Hi, Doug I'll take the first one so part of our strategy and the shift in our marketing was really to approach. This full funnel marketing and move away from just kind of lower funnel optimization and that's worked out really well for us. So if you look for example at <unk>, we're seeing good strength in P&A, we're approaching market growth rates and what we're doing there and importantly, we're drive.
The consideration and that whole strategy has really been around not just going after buyers, but going after enthusiast buyers. It's why you see us in.
In the parts of shows in the sponsoring like I talked about the UK MTV reboot is really aimed at that and so we started that playbook with sneakers and some of our luxury and it worked well we've been expanding it to P&A and so we're continuing to look at it because what we're seeing is it changes initial consideration for those categories.
<unk> and then we get the multiplier effect that I talked about at Investor Day, plus it makes the lower funnel work harder work easier with the support of the upper funnel, Steve you want to take the one on buyback, yes close to high <unk> as well.
Yes, we continue to demonstrate our commitment to returning excess cash to shareholders. We've been doing this extensively over the last number of years and we'll continue to do so.
Wouldn't be looking at this on a quarter to quarter basis and in fact, if you look year to date, we are tracking well ahead of the targets you laid out on Investor day, while we committed to return 125% of the free cash front year to date, we've returned $3 2 billion.
200% of our free cash flow side.
Buybacks and dividends will continue to be a core component of our <unk>.
Value creation for our shareholders.
I'm pleased with where we are.
Thanks, Jamie.
Yeah.
Your next question is from the line of Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the questions maybe two if I can first you know curious what is embedded in the guidance in terms of the macro environment changing Q4 versus Q3 or are you willing to give us some sense of the bottom end of the range versus the top end of the range and may be some elements of how macroeconomic volatility might push.
<unk> in one direction or another as you look out over the next couple of months and then looking beyond just one quarter forward. If the macroeconomic activity did become more volatile how should we be thinking about those investments that you want to make next year, whether it's enthusiast buyer growth through our focus categories that are most investments where youre willing.
To make them irrespective of the margin impact in a downward economic activity environment versus elements of where you can pull on levers to sort of manage margin outcomes. If the overall volumes were slow thanks, so much.
Thank you Eric and good afternoon, Steve here I'll pick this up so as you might imagine we've taken a very balanced and thoughtful approach to our Q4 guide is an incredibly dynamic macro environment that we're in.
Advocating three so there's a number of factors that highlight the first one would be the underlying consumer environment that obviously continues to be pressured.
We've seen that for several quarters in Europe and.
<unk> heard about in line with the prepared comments, we began to see U S consumer demand starts to weaken.
Secondly, we do expect further energy challenges as we enter the winter and we are also citing labor challenges in Europe , particularly the Royal Mail.
Got series of strikes in the UK and then thirdly, we are seeing the impact of currency. The U S is obviously, particularly strong against the euro and Sterling, which is impacting both our forecast and our reported results.
I would say in terms of the fourth quarter given the uncertainty of this environment, we have purposely given a wider range of potential outcomes.
But really the why are we ultimately land in the quarter will be a function of the macro environments and how that goes forward specifically as we think going forward in terms of investment I think that's the abuse ESP ebay architects, yet and the durability of our financial model, we've continued to lean.
In the short term to drive operational effectiveness as we think about our business and not such a manifest itself in cost savings as we guys say secondly, the business continues to be fueled by the strength that we saw in the third quarter and the momentum that we're seeing and the investments that we're making in payments.
As we think about going forward, we will continue to invest in the core business and we will protect that as we navigate the forthcoming quarters to continue to drive forward the strategy.
The long term growth of the enterprise that's what we've done for the last few quarters and they certainly will can continue today and our financial architecture enables us to do that.
I appreciate the color. Thank you.
Your next question is from Colin Sebastian with Baird. Your line is open.
Thanks, and good afternoon, I guess first off I wanted to go back to the comment I think Jamie you made around cross category shopping from from focus over to non focus categories. I was hoping you could dig into that a little bit more with respect to how large an impact that's having and if that's something that will pick up speed in coming.
<unk>.
And then maybe regarding the October trends in the U S does that suggest that some of the resiliency of the platform and non new in season, you mentioned in Europe that maybe that's not as applicable in the U S market or is it just a matter of timing with respect to when these geographies are weakening.
Yes. So first thing I'd say is that and we are seeing strength in our refurbished and used its about a third of our <unk> and that's up.
Double digits versus 2019, so in terms of the consumer reacting to the challenging economic times.
Those are the cross category that we laid out in March we continue to see that and the metrics are very helpful. As we think about the tax we can afford to play to pay and how we leverage our focus categories across the business. So if I take the example of our sneakers buyer and average buyer, who buys a hunter on a pair of sneakers they'll spend about $5 million.
Sneakers, but $1900 outside of sneakers and other categories. If I look at that number for handbags, we just expanded what we're doing in handbag authentication.
As a buyer who buys over 500, they will spend $2500 in handbags, but 5000 in the other category. So that is really key for us when you think about our strategy that we laid out at Investor day, with really driving focus categories part of the propping up of non focus in addition to the horizontal work that we're doing.
Is the impact of the cross category shopping when we bring a buyer into to focus category. So we're doing more and more.
Programs to help make that available to buyers and accelerate that but we feel really good about the stats of what we're seeing there.
And I'll pick up the other one specific to your question about the U S. As we get into the fourth quarter and the holiday season, it's pretty broad based.
I continue to be pleased to see the delta between our focus constant great penetration as I mentioned versus non <unk> investments.
The investments that we're making.
As we look forward as we look into October it's pretty broad based across all the categories that we have on the platform.
One of the things I would say on an international basis, we are seeing some.
Non focus cassa, great momentum in Germany in particular.
Jeremy community continues to be concerned about energy availability as you got into the winter and we've seen pockets of non focus category inventory.
Get some momentum on the platform.
Overall I think it will this is a reflection of the Florida macro economic climate that we're operating within.
Great. Thanks, guys.
Okay.
Your next question is from the line of Stephen Ju with Credit Suisse. Your line is open.
Okay. Thanks, guys. So can you talk about generally cross border activity I guess on the back of the stronger U S dollar versus almost all other global currencies and I know there is a natural hedge there but are there are certain larger corridor or categories, which might be giving you an outsize headwind.
Or a tailwind.
Yes, so a couple of things I'd say, one is theres been some easing of the supply chain as demand has come down which is certainly.
From that perspective, all of our sellers, obviously currency differences make an impact in terms of certain corridors are stronger and depending on the strength of <unk>.
Any given currency, but we're leaning into the opportunities in cross border trade and I'd highlight two specific things one is that we've actually with the rollout of buyer effects made it easier in terms of currency choice for the buyer to buy in their local currency or in there in the.
The currency of the seller and we've seen a 70% adoption of that and it's been performing well, we expanded that now into 38 currencies.
The other thing that we're doing is making it easier starting with our U S business to to do exports and execute exports on the business. So we've had a global shipping program.
For quite some time to make it easier, but the new enhancements that we're making are attempting to make it as easy to ship from northern California to Southern California.
As chipping in international product off to Central America, and really taking the friction out of that four for our sellers. So those are the things that I would highlight in terms of the focus of what we're doing on a on a cross border business.
Thank you.
Okay.
Your next question is from the line of Deepak <unk> massive Bannon with Wolfe Research. Your line is open.
Great. Thanks for taking the questions and apologies. If this was asked before sorry, I was jumping around a few calls I know you've called out the outperformance of focus categories versus the rest that's encouraging to see trends in the right direction, but can you give additional color on what the growth is on some of the larger focus categories inside that.
Generic Tom with some of them now.
<unk> months under the new experience, how do you feel about these efforts, helping with sustainable long term growth in them and then.
Maybe a second question can you also provide some additional color on how currency weighs on your margins is there sort of a framework to think about how some of the key currencies like euro.
Maybe.
On a sensitivity basis, good way on percentage of margin points. Thanks, so much.
So first one focused categories, we're pretty pleased with the performance that we're seeing across the board I'd highlight a couple of things first of all our our trading cards business continues to be at twice the volume it was coming into the pandemic when I look at parts and accessories. The work that we're doing around fitment and specifically around.
Driving initial consideration is helping us move towards market rates of growth there and as we highlighted at Investor day, It's a huge category over $10 billion of GMB. The other thing that I would highlight is that as we've expanded the playbook from the U S to international we're seeing the same type of impact that we saw in the.
The international markets as we saw in U S. So if I look at our luxury categories. This is sneakers watches and handbags were seeing double digit year over year growth in those categories internationally.
And higher customer satisfaction similar to what we saw in our in our U S market. So we're continuing to lean in and you saw our recent announcement of jewelry and authenticating jewelry over $500. That's led to customer satisfaction over 90% and we're going to continue to push forward and roll out additional categories and continue.
To improve the focus categories that we've already lives, Steve you want to take the currency effect.
Good afternoon, and first further highlights on the short term.
We have a great track record here.
Managing FX volatility and it seems to have a very nice gentleman, obviously GMB is an operational metric.
Not.
That continues to be expiring soon is not insulated from changes in exchange for that.
Quarter to quarter, we can see as a hedge.
Roy.
Revenue and EPS, and so the quarter to quarter impacts of Robert de Minimis.
We've called out today is about a longer term. So if the U S. Dollar remains in a strong position. It is today and that continues through 2023. There is a natural challenge that you would think of as you get into 'twenty three because it's much further out from a hedging standpoint.
You would expect that headwind to be approximately three points on GSV and between 5% and six points to EPS, which obviously from that perspective, because product is going to be revenue would have an implication on margins and really that's a reflection of if the U S. Dollar remained at its current state versus the euro.
Got it.
Got it thanks, so much.
Okay.
Our next question is from the line of Curtis Nagle with Bank of America. Your line is open.
Good afternoon, and thanks very much for taking the question.
So I wanted to dig a little bit more into.
The strong advertising members in the quarter.
I guess, just what drove the incremental improvement.
Two Q right. So you guys are one of a number of initiatives like the promoter.
Listing is advanced and a few other things does that pick up more or was it perhaps sellers maybe.
Maybe trying to get a little bit more visibility to your platform with the retail backdrop that is just.
A little more competitive in a little bit more promotional.
What's driven that improvement.
Yeah. So look we're really pleased with the performance of the ads revenue up 27% year on year on an FX neutral basis I would say the re accelerated growth is really driven by two factors. One is just the optimization of our promoted listing standard that improves search algorithm performance and we created more accurate AD rate recommendations that.
Help us increase conversion and the second is just the ongoing contribution from our newer ad products.
Our three new products contributed double digits quarter on quarter. So certainly in Q3 and it had some onetime step ups from from the product optimization and from that portfolio expansion of three new products.
External.
Advanced and our.
Yeah.
Our other products, but when I think about it you know the thing that makes me bullish on them on our product is when I think about the ROE as we are still having a really healthy ROE ads and so the benefit.
Our sellers is continues to be healthy. So we're on track to meet our stated goals of doubling our ads business by 2025.
Okay. Thanks, that's really helpful. I appreciate it.
Your next question is from the line of Youssef Squali with Truest. Your line is open.
Alright, great. Thank you very much two questions from me. Please one.
That analyst day, you guys presented some.
Targets I think it was mid single digit GMP growth in 2023, 2024, and total margin expansion of about 100 bps 2022 to 2024 I know a lot happened since then.
Dan already just wanted to get a sense from you guys.
Sitting where you sit right now on the back of this performance. If you think those targets are still.
Achievable and second on the M&A was wondering.
Jamie maybe if you guys have any interest in expanding further into the use of luxury apparel, maybe through M&A, just given some depressed valuations for some of the players that we've seen out there.
I think through the acquisition of TCG you guys now have some fulfillment order fulfillment capabilities.
I'm wondering if I'm doing the same thing in luxury apparel could be attractive to you. Thank you.
Hey, Steph I'll pick up the first one we remain confident in the long term goals that we laid out at our investor event back in March.
Our strategy is clearly working we're coming out of the pandemic.
Stronger position than we went to Ethernet.
<unk> has continued to be fueled focused categories by the investments we continue to Mike.
Payments entity within our enterprises has continued to deliver.
We are well on track for $300 million that we laid out back in March and as you've heard from our prepared remarks, our advertising business is moving very strongly.
I am very encouraged by the investments, we're making in our long term strategy and how that's getting executed the timing at.
The delivery of the Golar rely that is really going to be a function of the <unk>.
Macro environment in which we're operating in.
It's very very clear in terms of the severity.
The headwinds are going through is likely to continue to impact us in 2023.
As we've talked about we expect that to.
For next year.
Savannah severity and duration.
That will imply that the timing of when we get to those long term targets that we continue to be confident in it.
So let me just take the M&A one yes, M&A has been and will continue to be a key part of our strategy I've talked about the build by partner framework that we have and as you noted TCG player was really about helping us in our core category of collectibles, and specifically in collectible trading cards, giving us new capabilities and tools and access to.
Local hobby shops, I'd also point to my fitment, which I've talked for two quarters now about the importance of Fitments building trust in the parts and accessories category and so excited by that one. So you should expect us to continue to look at key areas such as vertical expansion booster, our core strategy Tech and talent.
And then opportunities to expand our overall capabilities always doing it in a framework that I've outlined of build by partner that we think has the best return for shareholders.
Great. Thank you guys.
Okay.
Your next question comes from the line of John Blackledge with Cowen Your line is open.
Great. Thanks, two questions first.
How are the enthusiast buyer is holding up and the current <unk>.
Macro environment have you noticed any changes sequentially call it <unk> versus <unk> or versus <unk>, and then second question kind of a follow up on the advertising business.
Should we think that the AD biz will grow through these.
These challenging macro headwinds in <unk> and into 'twenty three similar to the strength that we saw in the third quarter. Thank you.
So I am enthusiast buyers in Q3, we had 17 million enthusiast buyers, which was relatively flat to Q2 and so the way to think about that as we are no longer facing the tough lapping from our comps related to the Covid dynamics, but we do expect some pressure on that count in the coming quarters as a result of the current macro environment.
But when we look at it the vast majority of enthusiasts remain active buyers is just a movement between mid value and enthusiast buyers and for US enthusiastic buyers is a very healthy spend if you think about the average spend of that being $3000 a year, that's up to like membership level spend.
Over the over the next few years, we expect enthusiast buyers to continue to grow and spend more as we continue to execute on our strategy as I talked about their spend is up double digits.
Versus 19, so really healthy.
The only thing I'd say on the AD business is we don't expect it to be linear quarter to quarter, but.
Been enhancing and adding new products I talked about the quarter over quarter growth that we're seeing in our new products.
So we're on track to $2 billion as I said, there are some onetime step up things that we saw in Q3, but overall our ROE as is healthy.
Mentioned the statistics on the call that you know, we now have 2 million sellers, who have purchased at least one add product in their listing which is healthy. So we feel we feel right on track with the goals that we outlined back in Investor day.
Thank you.
Your next question is from the line of Richard Kramer with a REIT research your line is open.
Richard Kramer your line is open.
Sorry, I was on mute.
Jamie in your in your recent FTE interview, you basically raised the white flag about talking about in season, new in season goods and not competing with some of the bigger players can you give us a sense of what proportion of <unk> still represents as you're transitioning the business to.
The enthusiast focus categories. You mentioned and then also just to dig in a little bit on the algo changes you made and that led to the acceleration in advertising can you quantify or track what sort of <unk> resulted from the incremental $40 million. Your sellers would have invested in ads. This quarter are you able to directly see that that advertising is.
Investment that gets made is lifting <unk> in some material way. Thanks.
Yes. So on the first question when we think about the non new in season and represents about 90% of what we sell on the platform. So that's both used and refurbish and think and.
Minus one last year's fashion White label goods all of those types of things.
The majority of what we sell is actually in the nine new in season business that we have on the platform.
The stat that I talked about earlier is that one third of our business is about one third of our <unk> used and refurbished and ethics actually accelerating faster given the given the ties that we see.
In terms of the advertising money that are that our sellers are spending the majority of what we collected via our CPA based program, which is promoted listing standard which is a direct attribution program. So.
As as we're able to drive incremental sales for them, we monetize that so we've added the new products.
Like the CPC based products.
In promoted listings advance, but what we're doing from a CPA standpoint has a direct tie to <unk> I would say the same is true for our external program, which is partnering with our sellers to drive external traffic to their listings on ebay.
As I said before sellers are seeing a really good ROE ads on our platform, especially relative to the other places that they can market their products.
Okay. Thank you operator, we have time for one more.
Your final question comes from the line of Sean Dunlop with Morningstar. Your line is open.
Great. Thanks for squeezing me in so a lot of my questions have been asked but just trying to think a little bit about <unk> sensitivity and potential consumer trade down so for three P. Marketplaces can sometimes be a little bit.
Perfect for us to see but I'm wondering if you could indicate so much pricing sellers have taken on the EBIT platform, even if thats just crudely asps.
Essentially improves the ebay value proposition.
On a relative basis.
And then my second question would be about 32% of <unk> used to recoup goods that you're talking about Jamie I'm, just curious how that held up in the last big downturn, maybe in 2007 to 2009 I appreciate it yes.
Yes, so I'd say in general, we're not immune to the macro impacts and so Steve talked earlier in his remarks about we think there'll be likely meaningful headwinds into 'twenty three but we do have a more resilient business model because of the shift in focus of moving towards non new in season and refurbished and so.
That 32% is growing faster than the rest of the site and I would just say in general value is is a key tentpole for our buyers on the site and we're continuing to push it.
From some perspective I think this is a double win for us because we've been pushing re commerce beloved et cetera, as part of our massive ESG efforts that we have on the platform and really being the pioneers of re commerce and saving products from the landfill et cetera, and know where consumers want to value were.
A real willingness to purchase there the last thing I'd say is that Gen Z.
<unk> is much more inclined to buy pre owned and Preloved good.
So we're leaning into into that trend. So it's.
It's great to see that from a value standpoint, it's also great in terms of the ESG impact that that it has on the business I'd like to say that ESG is so core to E Bay that we should be in every ESG funds because of the importance of it and the role we play in re commerce, but.
That's how I would kind of characterize where we are today and I think what we'll see in the coming quarters.
Great. Thanks very helpful.
Thanks, Sean.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
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