Q4 2022 eBay Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today at this.
This time I would like to welcome everyone to the ebay fourth quarter 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 to ask a question at that time simply press star followed by the number one on your telephone keypad.
He would like to withdraw your question again press Star one thank you.
Now my pleasure to turn the call over to Mr. John Egbert Senior director of Investor Relations. Sir. Please go ahead.
Good afternoon. Thank you for joining us for ebay's fourth quarter of 2022 earnings Conference call.
Joining me today on the call are Jamie Tony Our Chief Executive Officer, Steve Priest, our Chief Financial Officer.
We're providing a slide presentation to accompany jamie's and Steve's commentary during the call which is available through the Investor Relations section of the ebay website at investors start ebay, Inc. Dot com.
Before we begin I'd like to remind you that during this conference call. We will discuss certain non-GAAP measures related to our performance you can find a reconciliation of these measures to the nearest comparable GAAP measures.
A slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect FX neutral year over year comparisons unless indicated otherwise during 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.
Actual results may differ materially from our forecast for a variety of reasons.
You can find more information about risks uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K Form 10-Q, and our earnings release from earlier today.
Should not rely on any forward looking statements all information in this presentation is as of February 22023, and we do not intend and undertake no duty to update this information.
With that I'll turn the call over to Jamie.
Thanks, John Good afternoon, everyone and thank you for joining us today.
2022 was a year of consistent execution for ebay as we made significant progress against our long term objectives.
Our focus categories drove underlying growth in our business as we expanded global coverage for our 16 million enthusiast buyers and.
In motor parts, and accessories or P&A growth accelerated as we improved our fitting capabilities increased supply of OEM parts and enhanced trust signals for buyers, we extended authentication into new categories like trading cards, and fine jewelry and opened up dedication centers in several new countries for handbags, we opened the vault <unk>.
Store and digitally transact valuable items and adoption has been steadily week over week. We retired legacy technology simplify the architecture of our core services and improved our tech velocity, our advertising growth accelerated as we scaled our three newer promoted listings products optimize performance and automated more ela.
<unk> of campaigns, we extended our financial services portfolio by adding FX conversion, new forms of payments like Florida, and after pay faster debit card payouts and the digital wallet.
And we balanced our investments innovation with prudent cost discipline to establish a strong foundation for sustainable profitable growth for many years to come.
Now turning to the fourth quarter, we delivered solid results in Q4 as our key financial metrics came in ahead of expectations. Despite the ongoing macro uncertainty we generated over $18 billion in G. M D and more than two and a half a billion dollars in revenue we.
We delivered an operating margin of close to 30%, while making critical investments in product and marketing to support our long term growth strategy.
non-GAAP earnings per share for the quarter were $1.07 up 2% year over year.
Our focus category strategy was a major component of our strong financial performance during the fourth quarter.
Most categories grew more than seven points faster than the rest of our marketplace. During Q4, which was two points faster than the prior quarter.
Establishing a game changing level of trust between sellers and buyers has been an important driver of the momentum in our focus categories.
Fantasy guarantee enables trusting our luxury categories like watches sneakers and bags and fine jewelry, we have observed notable turnarounds and GMP growth since we launched authentication improve the product experience and your awareness to the great inventory in these categories in aggregate our luxury.
Categories have grown at roughly double digit CAGR since Q4 of 2019 proving these investments have been highly effective.
We dramatically improved trust are not refurbished offering by introducing warranties and hassle free returns, which attracted more brands and new categories to our marketplace.
Those investments paid dividends in Q4 with positive year over year, GMB growth and the biggest sales week ever for refurbished goods during cyber week.
Charleston, a motorist parts and accessories category is most reliant on fitness or ensuring the compatibility of auto parts with a specific vehicle.
During the last few months, we have taken major steps forward with our fitment capabilities. We acquired my statement in Q3 top sellers populate their listings with accurate fitment data, which ensures compatibility for buyers in.
In Q4, we began making my parents technology accessible to all buyers starting with a pilot group of TNI sellers listings enhanced by this technology are seeing measurable uplift in conversion and we will expand this program further in 2023.
Our significant investments in fitbit over the past few years allowed us to launch a prominent fits your vehicle badge in Q4.
Similar to the authenticity guarantee logo, we show on luxury goods. This bad provides a clear indication of which parts fit your vehicle throughout the buyer journey across search merchandising view item and checkout.
This is no small feat with over 500 million active P&A listings on ebay and the increasing complexity of vehicles in the marketplace.
These advancements have significantly elevated our kicked bodies for P&A shoppers and I'm pleased to share a new program. We launched just last week called ebay guaranteed fit.
This program is the breakthrough for trust and P&A that authenticity guarantee is a luxury and warranties are for ebay refurbished. It provides buyers with assurance that ebay will stand behind them and day part doesn't fit their vehicles guaranteed fit is a huge milestone for the PNA category and the culmination of a multiyear fitment journey.
I'm incredibly proud of our teams for executing the foundational work, making this program possible and I'm looking forward to seeing their continued innovation in the category.
I'm also excited about our team's work in collectibles, which has benefited from a steady cadence of product development and partnerships, including most recently our live commerce data.
During Q4, we scaled up the number of ebay live events with select sellers, bringing a healthy level of viewer's engagement and GMB participating sellers. We also introduced the ebay live hub, where users can subscribe to channels and received notifications about future events. This hub will serve as a central discovery point as we broaden the availability of.
Live commerce to more sellers and categories. This year.
Our acquisition of TCG player has also greatly enhanced our collectibles category and in Q4, we began developing synergies between our respective marketplaces. In addition to its customer base of nearly 800000 hobbyists a major competitive advantage for TCG player is its relationship with thousands of local brick and mortar hobby shops.
With many subscribing to its point of sale and channel management solution.
It has software sellers can now more easily streamlined listings and inventory on both GCG player and ebay CTG.
CTG player also further diversified its marketplace by introducing comex during Q4, which is a natural adjacency to collectible card games.
E based historical sales data enabled TCG player to launch comments with robust pricing intelligence, which will help us scale this offering.
While our integration is in its early days I'm incredibly excited to see what TCG by our community will bring to ebay overtime.
What are the key pillars of our strategy is being the platform of choice for sellers.
<unk> scale and global footprint represent key advantages for our platform as we work towards achieving this vision.
In 2022, roughly one fifth of our GMB was facilitated through cross border trade.
So as to activate their listings internationally can reach buyers and over 200 countries globally.
However, less than half of the inventory in our top three markets. It's currently available for exports due to the friction associated with these transactions.
To unlock more valuable inventory for global buyers last fall, we announced a major revamp of our cross border capabilities with the launch of ebay International shipping.
Under this program ebay handle any customs forms coordinates duties with buyers and intermediates returns sellers are protected from item not received complaints while buyers benefit from greater selection and lower shipping costs.
The program is resonating well as we gradually ramp enrolment for sellers, while buyer satisfaction on ebay international shipping transactions reached 80%.
Steve will discuss the financial implications of this program and I'm confident it will increase cross border inventory and drive incremental <unk> for ebay.
Investments in AI are also improving customer perception of our shipping capabilities in Q4, we deployed a new machine learning model for estimated delivery date from the U S and select international markets, enabling us to make more accurate delivery predictions to buyers.
Applying this model in the U S reduced the average delivery estimate by one and a half days for all domestic listings.
Hoping in a noticeable uplift in conversion.
A separate model deployed for eligible authenticity guarantee products resulted in an average reduction of approximately two days for U S. Listings. These rollouts are just the latest example of our.
Buddy to leverage AI to make our existing processes more efficient, which will be a continued focus for us in 2023 and beyond.
Moving on to ads, our marketplace continues to benefit from innovation in our advertising business, which delivered strong growth in Q4, despite headwinds in the broader digital ad market.
Motive this things Joe first party AD revenue of $276 million up 27% or more than 30 faster than GMB growth over 2 million sellers adopted a single AD product in Q4, and we eclipsed 700 million lifeblood of listings.
Additionally, our total AD revenue is the only one 8% penetration of GMB.
Promoted listing standard was again the largest contributor to growth both on a sequential and annual basis as optimization gains from prior quarters continued to benefit ad rates and.
In Q4, we also improved our merchandising algorithms to show a greater diversity of products, which improved buyer satisfaction, while also preserving relevance and conversion.
Our newer AD products also continued to scale nicely in Q4 and grew more than 20% quarter over quarter promoted listings advanced our cost per click products continues to be a standout among the new products.
Seller adoption of advanced has grown as we've expanded access and automated more elements of campaign management to make this powerful AD unit easier to use.
In Q4, we launched quick setup, a one click campaign creation solution for sellers, where ebay automates and Optimizes the campaign structure add groups targeting and keyword bids for CPC advertisers.
We also introduced multiuser account access across our full suite of product listings, which enables ebay sellers to delegate campaign management to trusted third parties like brands or ad agencies.
Turning to payments, we continue to rollout additional payment services to support high Asps transactions and improved buyer conversion. During Q4, we introduced split payments in the U S for transactions over $1000, enabling buyers to spread large purchases across two credit cards with.
Already processed transactions from thousands of buyers at an average order value of over $3000 and we're excited to expand this offering globally later this year to better support our focus categories.
Additionally building on the success of after pay we recently partnered with Ziff to introduce a suite of buy now pay later options to Australia and buyers ZIP supports purchases of up to $10000 extending our ASD coverage in this valuable market.
By managing our end to end payments process, we're also able to leverage our own proprietary risk models to assess transaction requests across our marketplace.
Last year, our risk and protection scheme rollout enhanced controls that allowed us to approve transactions that may have otherwise been declined in the past, enabling over half a billion dollars in annualized GMB and reducing potential escalations to customer service.
In connection with risk management, we continue to invest in the security of our marketplace to ensure our capabilities remained world class last week, we announced the acquisition of <unk> a provider of state of the art marketplace compliance tools.
<unk> offers effective solutions for the prevention and identification of counterfeit listings and prohibited items combining this technology with our proprietary data will further enhance the integrity of our marketplace.
Before I move on I'd like to touch on the actions we've taken to sharpen our focus as a company and run our business more efficiently, particularly in light of the uncertain economic environment earlier. This month, we made the difficult decision to eliminate approximately 500 jobs or roughly 4% of our global employee base.
This decision follows a thoughtful review of our organization to ensure our people and roles were aligned with priorities that advance ebay's commitment to long term sustainable growth. These changes provide additional flexibility for us to invest efficiently and create new roles in high potential areas of our business like new technologies trusted cut.
Our experiences and key markets.
There is no easy way to say goodbye to our talented colleagues the passion and accomplishments over the last few years have helped us get us to where we are today, we are incredibly thankful for their contributions and are committed to supporting them through this difficult transition.
Next I'd like to share a few milestones from our ESG efforts last year, starting with re commerce.
In 2022, our marketplace generated $4 6 billion and positive economic impact to the sale of Preloved and refurbished goods. This.
This activity avoided $1 6 million metric tons of carbon emissions and kept 73000 metric tons of waste from going into landfills re commerce continues to provide significant economic benefit for sellers and buyers during these uncertain times and.
And buying Preloved items shows no sign of slowing down in fact, just yesterday, we published our third annual re Commerce report, which found that 90% of survey respondents engaged and re commerce during 2022.
Cost savings were the most popular motivated for buying Preloved, especially among gen Z buyers, 64% of homes that had financial savings as a primary reason for shopping E Commerce and sustainability was the second most important factor with people increasingly turning to preload to help the environment.
This positions us well as we continued to pave the way as an industry leader, enabling economic empowerment and sustainability through our platform.
Now, let's turn to impact I'm always amazed by the tremendous generosity of ebay community.
In Q4, EBIT for charity enabled sellers and buyers today is more than $35 million and for the year customers raised over $163 million. This represents an all time high and fund raised through E Bay for charity. Since we started this program 20 years ago.
The ebay foundation granted nearly $23 million in 2022, primarily to nonprofit organizations advancing inclusive entrepreneurship and through our employee matching gifts programs. This represents another all time high for annual Foundation brands.
I am fortunate to lead a purpose driven company with a team dedicated to helping communities around the world while protecting our planet.
For the fourth year in a row EBIT was included in the Dow Jones sustainability World and North American indices.
We were also included on Cdp's, a list for 2022, which recognizes companies that are leading the way and environmental transparency and performance on climate change.
Additionally, ebay ranked number one on cross border Commerce, Europe's list of the top sustainable marketplaces operating in Europe .
Looking to 2023 I'm incredibly excited about the roadmap ahead of US today I'll offer just a glimpse of a few areas, where you should expect to see progress from us this year.
We will continue to innovate for customers and our focus categories and extend to new countries and categories. This year.
We will continue our work in P&A by expanding the guaranteed fit program and fits your vehicle badge globally.
We'll also grow our tire installation Kate bodies. After we began improving the end to end tire shopping experience and broadened our network of installation partners in five markets during Q4.
We'll ramp assets in the Voc and extend eligibility for more collectible items, while integrations with TCG player and known origin will strengthen our value proposition for collectors. We will also continue to iterate next Gen shopping features like live commerce to better engage with enthusiasts.
And we will further develop the category landing pages, we debuted for sneakers watches and handbags in Q4, which offer trending inventory and personalized recommendations powered by machine learning.
Sellers across our marketplace will benefit from the expansion of our international shipping program to more markets, which will drive incremental <unk> as sellers tap into our global demand.
We will continue to scale, our advertising offering as we track toward our next $1 billion by 2025, we will simplify and grow adoption of Florida listings advance deliver more AI, driven optimizations and further expand our ads portfolio.
Finally, just as we've done in focus categories. This year, we will adapt our one size fits all approach to build more relevant and compelling localized experiences and some of our European markets, we will enhance local discover ability reduce friction through simplified selling experiences offer new logo forms of payment and address other markets.
<unk> experienced gaps and search language and return policies.
In closing I would like to thank our extraordinary ebay employees for their accomplishments. This year their unrelenting focus on serving our community has supported our sellers and buyers during these challenging economic times.
I'm confident that with our talented ebay team, our strategic vision and our persistent focus on operational excellence, we will continue to develop compelling experiences for customers and create long term value for our shareholders with that I will 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.
Ill begin with highlights from the fourth quarter on slide nine of our earnings presentation next I'll review, our key operating and financial metrics.
Finally, I'll provide our outlook for the first quarter and some additional color on 2020 before we begin Q&A.
As usual my comments will reflect year over year comparisons on an FX neutral basis, unless I note otherwise.
Delivered solid results in Q4, as our key financial metrics exceeded expectations and London near the high end or above our expected guidance advisors.
Gross merchandise volume declined 6% to $18 $2 billion, while FX was a six point headwind to reported growth.
Revenue was down 1% to approximately $2 5 billion, which outpaced volume by five points, primarily due to FX robust growth within our advertising business non.
non-GAAP operating margin was 29, 9% down 1.8 points due to volume deleverage and continued investment, but the marketing to support strategic initiatives.
A little bit $1 seven of non-GAAP earnings per share.
<unk>, 2% year over year, and we generated $533 million of free cash flow of 43% year over year, while returning $419 million shareholders.
Susan dividends.
Our Q4 results demonstrate the continued resilience of our marketplace amid economic uncertainty I am extremely proud of our teams delivering on our quarterly financial commitments.
Planning prudent cost discipline and executing key deliverables in support of our long term growth objectives.
Let's take a closer look at our financial performance during the fourth quarter.
Gross merchandise volume was down 6% year over year decelerating roughly one point sequentially.
Our business remains resilient despite headwinds from geopolitical uncertainty inflationary pressures low consumer confidence rising interest rates.
FX was a headwind of approximately six points of JM very roughly half a point greater than Q3.
Momentum and focus categories continues to drive underlying growth in our business.
In aggregate focused categories outgrew the remainder of our marketplace by over seven points year over year during Q4, roughly two points faster than the prior quarter Delta.
<unk> parts and accessories growth accelerated sequentially.
The largest contributes to this outperformance.
Just to see what recent Rollouts like fits your vehicle badge guaranteed program will do for momentum in this category.
Refurbished goods also contributed positively to growth in Q4, as we continued to expand to new brands and categories.
We've also made the onboarding process for third party sellers most scalable.
Increase the breadth and depth of refurbished selection on our marketplace.
The non luxury and trading costs such group, we continue to stay healthy trends certificated item transactions in Q4, which was mitigated the macro driven ISP pressure.
Across these industries in recent months.
As you'll recall, we closed the acquisition of TCG player at the end of October .
Partial quarter DMV revenue and expenses are included in our financials for Q4.
Just on the timing of the deal close.
<unk> contribution was not material to results.
Looking at our business on a geographic basis.
Our <unk> declined 9% year over year in Q4, decelerating by roughly two points versus the prior quarter.
International Gms declined 4% on an FX neutral basis, which was stable sequentially.
Compared to Q4 of 2019.
Marketplace grew 2% a deceleration from 6% last quarter.
Firstly 2019, <unk> rose, 12% in Q4, while international <unk> was down 5%.
Macro headwinds remained more pronounced in Europe , our focus tactically strategy continues to drive underlying growth internationally, including positive year over year growth in C&I and notable strength in luxury categories during Q4.
Moving to active buyers.
134 million active buyers shop on ebay during the trailing 12 months.
We had 132 million active buyers, excluding our TCG player acquisition from buyers from our Turkey business, where we ceased operations in July .
Excluding these impacts occupiers are roughly $1 million sequentially was a gradual improvements in buyer reactivation over the past few quarters has led to modest stabilization.
Firefox continues as far as accounted for over 16 million active buyers in Q4, one less than half a million sequentially and churn within enthusiasm remains de minimis.
Net downward migration of infused yes. The mid body group was also the lowest with observed.
Since we began disclosing these buyer groups as lapping pressure has eased in recent quarters.
Average spend per enthusiasts rose again sequentially and continues to be healthy and above $3000 annually.
Turning to revenue Youll notice in our Q4 earnings release and upcoming 10-K, but we are not presenting a single net revenues lines, which better aligns our reporting with how our business is operated it.
We provided one final quarter marketing services and other revenue in slide 12 of our earnings presentation.
I am moving forward when we refer to take rate, we will be referencing are all in net revenue divided by GM, but.
Net revenue was down 1%.
I've, a $2 5 billion during the fourth quarter, a one point acceleration versus Q3.
Hi, Craig was 13, 8% in Q4, roughly 40 basis points sequentially.
Although FX hedge gains were the most significant driver of our sequential increase in Q4.
To see healthy contributions from both advertising and payments revenue.
Our advertising business continues to build momentum.
Total AD revenue grew 19% during the quarter, while first party ads grew 27% our pricing volume by more than 30 points for the second straight quarter.
This extraordinary result was primarily driven by optimization and performance improvements in our standard promoted listings product.
Healthy growth in our newer products, most notably our cost per click outs also contributed meaningful.
Our legacy third party display ads will weaken in Q4.
Industry wide headwinds over the holidays.
These ads represents an increasingly smaller portion of our mix.
Managed payments contributed nearly 10 basis points to a sequential expansion driven by new financial service offerings.
Includes borrowings silo, FX conversion, but facilitates cross border trade.
Faster debit card passed a new highest pay transaction services supporting our luxury categories.
Importantly, both advertising impediments remain on track to meet our multiyear revenue targets, we discussed at our Investor day.
Moving to profitability non-GAAP operating margin was 29, 9% in Q4, but nearly one point sequentially.
One eight points year over year.
Gross margins were down modestly year over year due to volume deleverage and authentication costs, partly offset by lower payment processing fees.
Sales and marketing rose by over one point as a percentage of revenue as we invested in full funnel marketing support our focus categories, while product development was relatively flat.
Some one time impacts offset continued hiring of technical product.
Our G&A expense rose as a percentage of revenue due to charitable contributions and other onetime items.
In Q4, we recognize the GAAP charge within G&A expense of $15 million related to pending legal matters.
Further adjustments included in our GAAP to non-GAAP reconciliations in the appendix of our earnings presentation. Additional details on this accrual will be rewarded in our upcoming Form 10-K.
We generated $1 seven of non-GAAP earnings per share in Q4.
2% year over year.
<unk> from a 12% reduction in share count from our share repurchase we.
We delivered GAAP earnings per share of $1 23.
With the Delta being driven by a recovery in our equity investment portfolio.
Turning to our balance sheet and capital allocation.
Free cash flow grew 43% to $533 million in Q4, driven primarily by the lapping of cash tax payments on investment sales in the prior year.
Balance sheet position remained strong as we ended the quarter with cash and non equity investments of $5 9 billion.
And gross debt of $8 9 billion following a successful $1 $2 billion debt raised in November .
We repurchased roughly $300 million of shares an average price of approximately $42 during Q4 and have over $2 billion remaining under our current authorization.
Paid a quarterly cash dividend of $119 million in December was <unk> 22 per share.
Our investment portfolio is detailed on slide 20 of our earnings presentation.
I could see investments provided approximately $3 4 billion at the end of the fourth quarter.
Following the sale of a de minimus number of shares in December to satisfy regulatory requirements.
$404 million advanced chefs, we're valued at roughly $2 7 billion.
IGN investment value is calculated based on the probability of a remaining one tranche Russell.
In addition to the acquisitions, we completed in 2022, we continue to evaluate inorganic opportunities to accelerate our strategic objectives.
<unk> build by partner framework.
The acquisition of three P. M shared last week, which will strengthen trust in our marketplace.
<unk> is prevent and detect pablo market listings with even greater precision.
Moving onto our outlook.
For the first quarter, we forecast Janvey between 18 and $19 3 billion.
Representing organic FX neutral growth between negative, 5% and negative 4% year over year.
This outlook includes an estimated $100 million.
From one time benefits already recognized in Q1 and anticipate an FX headwind.
Posted growth between two and three points were.
Expect to generate revenue between 246 and $3 5 billion.
<unk> organic FX neutral growth between flat and up 2% year over year.
We anticipate our non-GAAP operating margin between $29, one and 29, 7%.
And we forecast non-GAAP earnings per share.
$1 five.
$1 nine.
Representing EPS growth between flat and up 3% year over year.
Although we are not providing full year guidance at this time, given the dynamic operating environment, we will share some directional color on how we're currently thinking about 2023.
Ah Pythonic propulsion external demand environment does not materially improved during the first half of the year as a result of continued macro uncertainty across our largest markets.
While we do see potential for an improvement in underlying economic conditions.
Progresses.
It is too early to predict the second half recovery playing out with confidence.
As a result, we currently expect a sequential GMB growth beyond Q1, so roughly approximate the seasonality we observed during 2022.
The impact of currency for the full year, we expect to grow total non-GAAP expenses inclusive of cost of revenue by approximately 2% year over year on a spot basis as we continue to invest in strategic growth initiatives in 2023.
This forecast contemplates onetime impact swap P&L.
I'm an eye on the Rollouts of the ebay International shipping program. This year. Please.
These one time factors combined are expected to represent a year over year headwind to operating margin of approximately 120 basis points versus 2022.
Our expense growth forecast is also roughly $100 million of Opex savings from our structural cost program as we continue to look inward for cost efficiencies in our business.
I would like to share some additional context on the one time impacts to margin.
Over the past year, we accelerated our progress towards several core strategic objectives.
Acquisitions of TCG player known origin, my Fitments from three PM Shield.
While we are excited about the synergies and long term growth potential of these assets.
Having them into a scaled in the marketplace with our level of profitability does presents a natural drag on margins in the short term, which will diminish as our integration work progresses.
The rollouts of ebay international shipping, while improved seller velocity when global availability of unique inventory over the long run.
Our role in intermediates and shipping and returns in this program will shift us to our principal relationship with sellers.
Since being an agency and a previous global shipping program.
From an accounting perspective.
This means revenues from the new program will be recognized on a gross basis, while the vast majority of expenses are variable and recognize the cost of revenue.
While the operating margin headwind from this program will abate as we progressively scattered through 2020 as good as primarily variable costs will impact our reported gross margins were.
We expect this program to generate incremental operating profit this year, despite representing a headwind of 30 basis points of gross margin in Q1 rising to 120 basis points in Q4.
Additionally, we expect foreign exchange to represent a headwind of approximately 1% to <unk> in 2023 and between 3% to 4% non-GAAP EPS. Following the unwinding of recent U S dollar strength.
Before costs, our non-GAAP tax rate to remain at 16, 5% throughout 2023.
On the capital allocation front I am pleased to announce our board recently approved a 14% increase to our quarterly dividend.
<unk> 25 per share in 2023.
We continue to target returning approximately 125%.
Free cash flow to shareholders between 2022, and 2024 and our broader capital allocation priorities remain unchanged.
Fortress balance sheet is a tremendous competitive advantage in this environment.
Enables us to invest organically in our business accelerates, our strategic objectives with disciplined inorganic investments, while still delivering healthy capital returns to shareholders.
In the current macro environment, we believe it is prudent to balance the timing and magnitude of share repurchase with our capital needs from quarter to quarter.
Our first priority is offsetting dilution.
We expect to be opportunistic with regard to larger repurchase.
In closing our Q4 results capped off a resilient for ebay in 2022, as we make meaningful progress towards our long term strategy despite significant macro uncertainty.
We exceeded consensus expectations for <unk> revenue and EPS during Q4.
Our focus categories continue to outperform.
Driving underlying growth in that business.
Advertising revenue continues to meaningfully outpace volume growth, while payments initiatives continuing to scale in line with expectations.
We achieved our full year operating margin of 30% despite contending with a more challenging macro environment that we anticipated at the beginning of the year.
We generated nearly $2 $2 billion in free cash flow in 2022, and returned over $3 $6 billion to shareholders through repurchases and dividends.
It's nearly 170% of our free cash flow.
I am proud to ebay continues to price away as an industry leader, enabling economic empowerment and sustainability through our platform.
We once again achieved carbon neutrality in 2022, and we remain committed to reducing 90% of our carbon emissions from our operations by 2030.
I am incredibly appreciative of our team's focus and execution during 2022 as we delivered on a number of our core strategic objectives, despite navigating uncertain macro environment.
I'm confident our investments in 2022 enabled us to exit the year stronger than when we entered it keeping us on a path to sustainable long term growth.
With 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.
Your first question is from the line of Colin Sebastian with Baird. Your line is open.
Great. Thanks, and good afternoon, guys a couple of questions for me.
Jimmy at a high level first off you've seen generally satisfied with the strategic focus on enthusiast buyers in the non new in season segment that you outlined a year ago, but I wonder if you could talk about any ways in which you would say this strategy has evolved.
Through the year as you plan for the next couple of years.
Some of that may be more nuanced, but curious on your views there and then Steve I just wanted to drill down a little bit more on the on the 2023 outlook I think we understand the GMB.
Aspect of and the and some of the margin impacts.
On the take rate.
Should we assume that that gap between <unk> and revenue growth continues to grow given the increasing contribution of advertising and payments through the year. Thank you.
Yeah. So first on the kind of where we are we're pleased with the progress that we're seeing so if you think about focused categories outgrowing the rest of the business by seven points the double digit change that we've seen in customer satisfaction. We took on our largest focus category at the end of last year with parts and accessories and were seeing that returned to market share growth, which is great.
A very large business, we outlined at Investor day being over $10 billion and the shifts that we've made to 91 season, I think is really helping us, especially in these challenging economic times.
All the work we did in refurbished to build that as a strong category on ebay now we're seeing we had our largest week ever during cyber week and during challenging economic times people really turned to value and I think we're leaning into where the consumer is headed I would point you to their ecommerce report, which we put out yesterday, which says.
Ed you know 90% of the respondents are bought re commerce in 2022 and Gen Z, 64% of them said it was because of the financial value that is provided so we think we're right in there we're going to continue to enhance and build on that strategy. We're doing a lot of additional work and artificial.
Intelligence, and bringing that not only to our focus categories, but also to our horizontal businesses I'd talk about the work that we did in search as one example of that the work that we did in.
In in.
<unk> with the merchandising there is a second one.
And then you see us continuing to expand what we're doing on the horizontal side I'll just end with ebay International shipping Cross border trade is now one in five transactions on ebay. It's one of the unique value propositions that we have especially for the individual consumer and we're making that a whole lot easier with what we're doing with ebay international shipping.
And that's another kind of huge opportunity across the board on the on the horizontal side. So over the course of the year I'll get into more and more details about it but we feel really good about the vector that we're on Steve do you want to take the second part, yes, hi, good afternoon Colin.
With regards to as in payments versus say is really pleased with the execution and the teams did a tremendous job.
Talking well.
While towards the.
The direction that we gave at Investor day in terms of our medium term targets in terms of payments and ads.
Don't give any specific guidance on the call associated with ads and payments of 23, but you should expect them to continue to outpace GMB as they did in 2022, so great execution from the teams I am pleased with where we are.
Alright, thank you.
Your next question is from the line of Tom Champion with Piper Sandler Your line is open.
Hey, good afternoon guys.
Steve maybe a quick one for you.
Could you. Please talk about the GMB growth you've seen internationally it looks like international FX neutral exceeded.
Domestic for the second quarter in a row and I'm. Just curious if you are kind of surprised by that result, I think you referenced P&A and maybe luxury driving that.
And then curious that the $100 million.
Benefit.
I believe too.
PMT.
In the guidance I think there was there were some reference to that in the guidance.
Jamie just a quick one for you if I if I could.
Can you just talk about authenticity and how you feel like you are executing and whether you've turned a corner. There I think most of the recent acquisitions had been centered around authenticity.
Removing fake goods, how do you feel about your progress there.
And how much further do you need to go thank you.
Hi, Tom I'll pick up the first one obviously, we are seeing different dynamics based on our international business and the U S business based on the macro environment in.
Dynamic macro environment, we've been operating in and obviously some of those challenges were more pronounced in the international business earlier than the U S and we called out some color with regards to that as we guided the fourth quarter actually in terms of some of the U S. Softness that we saw in October coming through that the thing I would say is that.
The execution of our focused categories, both in Europe , and the U S.
Is seeing underlying momentum.
For example, we're number one in the Cup.
The key markets in Europe , and the UK and Germany are number two in the U S and things like P&I luxury refurb is seeing good momentum both internationally and in the U S. Specifically pertaining to the $100 million that we laid out in the prepared comments. This is a specific to NV benefit as a one timer.
I mean, Q1, which we do not expect to continue through the year, it's most notably around Chinese sellers keeping their stores open through the lunar new year, which is not typical for this time of year.
Jeremy It's Tom so on authenticity were feeling great about what we're seeing in terms of the impact that it's having on customer satisfaction and the execution of it. If you think about it for those focused categories like luxury handbag sneakers watches authenticity is what provides the game changing level of trust that's different than other category. So.
In refurbished for example, if the two year warranty and a 30 day hassle free returns and in something like P&A. We just launched this week guaranteed fit which is really the game changing level of trust, which is guaranteeing that that part is going to feature product, which is which is really key the acquisition that we did recently with <unk>.
It's really a state of the art market compliance capability that they have built using really advanced AI technologies to help keep prohibited items off the platform and that's really just continuing on this theme of building trust on the marketplace and ebay as a trusted place to shop, which is paid massive dividends given us a great ROI from the investment.
That we've made to date and we feel really good about the progress and where we are.
Got it thank you.
Your next question is from the line of Nikhil <unk> with Bernstein. Your line is open.
Hey, guys. Thank you for taking the question I had a couple on GMB growth. Please.
Steve You mentioned that U S softness that you called out in October .
Did that persist or or did you see any kind of changes in trends, there better or worse.
And then in terms of the 2023 growth framework thanks for that.
But it is 'twenty two the right year to use for seasonality given omicron and just post COVID-19 dynamics. It feels like you started the year well just wondering why <unk> would step down in Q2 Q3, especially as you invest in the marketplace as well to make it better thanks a lot.
Thank you for the questions first of all with regards to the fourth quarter and coming in as.
As we've said in the prepared comments very pleased to see some of the execution, particularly in a couple of the key focus categories, but P&I and refurb continue to sort of be.
The highlights for the fourth quarter as we came through it.
We as we've mentioned came through towards the top end.
The guide.
And really we did have less headwinds this would be the expected on an exchange rate basis with the U S. Dollar as you went through some core strength.
The focused categories as we came through the fourth quarter with regards to.
The sequencing with dealing with an incredibly dynamic macro environment.
Wanted to give some color for the Investor community as we start to think about 2023, and obviously the macro dynamic has been challenged during 2022 and so in that directional color we've given our comprehensive.
<unk> for the first quarter, we're continuing to execute in the underlying business based on the uncertainty that we are facing at the moment and the continuation of that macro challenge. We felt it was most prudent just to sort of lay out about sequencing related to 2003.
Got it thanks a lot.
Your next question is from the line of Ross Sandler with Barclays. Your line is open.
Hey, guys just a quick follow up to the <unk>.
<unk> sequencing.
Answer on that last one.
So it doesn't sound like you're really ascribe to the theory that.
Consumers may shift some wallet share.
Wei from services and back to goods.
In 2023, which is kind of the opposite of what happened in 2022.
So.
Any comment on that and then I guess.
What would it take to get back to that GMP framework that you laid out at analyst day is there anything else in your control that you can see to get those GMP growth rates up to the mid.
And then the second question is just we're seeing.
Lot of inflation around the world different rates in different countries you guys have a lot of cross border corridor. So how is.
Lower inflation in the U S. Potentially then places like the UK and Germany.
Impacting your business as far as the cross border. Thanks, a lot.
Hi, Ross I'll take that so with regards to the gym based sequencing we haven't guided the full year. We are just trying to give some directional alignment. We're just trying to plan our business effectively around the dynamic macro environment that we're seeing again put a very comprehensive guide that for the first quarter really pleased with the execution of the strategy.
Which is working well and leaning into the focused categories that we execute well.
We mentioned the fact that we do see as many common types of say a very very challenged in certain first half of the year again, I mean, just given some directional alignment about how we're thinking about things as we navigate through 2023, so just providing some color accordingly.
With regards to the Investor Day GM V frameworks.
We're leaning in and exactly where every surgery with weather.
Whether it's luxury with its P&I, Jeremy talked extensively about the benefits of authentication impacting the business and so we are seeing underlying positive growth in our business as we execute the strategy continues to be fueled by the momentum that we're seeing with payments and ads in terms of the timing of the <unk>.
Framework that relies on Investor day, that's really a function of the potential severity and duration of the macro environment that we're operating in which will obviously have an implication in terms of the timing of when we get to those longer term targets.
And then finally with regards to inflation as you imagine inflation is impacting a number of our businesses.
Across the U S and in Europe , Europe has been more pronounced over recent quarters because of particularly because of the energy challenges as we go forward and in addition, you've got some labor pressure being impacted.
In the in Europe , as well that's impacting the business specifically around <unk>.
We do have.
A resilient business, but however, general inflation does have a surprise a mixed impact on our business because relate into non living season items that really just help impact.
Consumers are looking for value and we have a lot of preloved refurbished items on our platform and that performance in Q4 was a great reflection of that however, because of the macro challenges, we're not immune to the inflationary pressures on discretionary consumer spending so hopefully that gives you a little color in terms of <unk>.
Do we think about the business.
Your next question is from the line of Stephen Ju with Credit Suisse. Your line is open.
Okay. Thank you so Jamie I think we spent quite a bit of time talking through the re commerce opportunity on this call know, Kevin Ebay's history with cataloging no I have to think that having increased parameters on how generally are not certainly used the same item may be and how thats described from <unk>.
That's probably.
<unk> unique sorting problems. So can you talk about you.
You are tackling the opportunity and ultimately certainly the correct results to the user.
Yes, Stephen I basically would just point you to for example, the parts and accessories right. What we're doing there is using our knowledge around statement and all the investments that we've made over the last couple of quarters and being able to say if you're looking on the site and parts and accessories youre going to see these big Green check marks that say fits your vehicle and now with what we've released just last week.
Actually going to say, it's guaranteed to fit think about that as like authenticity guarantee for vehicles. So we're continuing to kind of category by category find the best way to improve that search experience and something like refurbished it.
Certifying the quality of that refurbishment and saying, we're going to stand behind that with a 30 day hassle free return ebay money back guarantees. So the combination of the great work that our search team does with AI to really drive more relevance on the platform drive better recall in our search results and set our combined with the category specific.
That we're doing to really optimize that experience on a category by category basis is really the intersection of those two it's what's working out I think so well for us and why we're seeing strong numbers and we're in the strategy and the focused categories that we've rolled out.
Yeah.
Thank you.
Your next question is from the line of Doug Anmuth with Jpmorgan. Your line is open.
Great. Thanks, so much I just wanted to shift gears and ask about expenses, Steve in the 2% growth in non-GAAP expenses in.
'twenty three if you could just talk about some of the key investments here and puts and takes and I guess in particular, how we should be thinking about sales and marketing assuming that you'll continue to do full funnel marketing on on the focused categories. Thanks.
Good afternoon, Doug.
I think kind of macro level I would say that we will continue as we always have been leaning into the short term to drive operational efficiencies.
Through the likes of the structure cost program wherever we can.
I am very deep on the organization, while at the same time continuing to invest for the future for the long term trajectory and growth of the business.
In terms of the investments we will be making in 2023 is continuing the strategic playbook is continue to invest in products that customers want. It has continued to invest in trust on the platform and then continue to invest in full funnel marketing.
In terms of making sure that we got the communication the messages out to our customers.
The 2% increase in year over year non-GAAP expense growth includes the 120 basis points of margin headwinds that we talked about associated with M&A.
Ebay International shipping program and its net of a $100 million of the structural cost program that we've laid out so if I stand back we have got a couple of headwinds with those two items have talked about we're leaning in to drive cost efficiencies and we're continuing to.
Invest for the future long term sustainability of the business.
Great. Thank you Steve.
Your next question is from the line of Deepak <unk> with Wolfe Research. Your line is open.
Hey, guys. Thanks for taking the questions. So first can you give us some color on the growth and focus categories, where you've had the user experience enhancements for a while now specifically sneakers and luxury watches and some of those categories I understand that the macros watertight, but are you seeing sustained share gains in these categories now any any additional color on <unk>.
Rent growth there would be great and then Steve can you unpack the 2023.
EPS guide for us for a little bit.
Clearly we recognize that there is a lot of uncertainties, but how should we think about sort of the magnitude and cadence of buybacks for this year and maybe is it fair to use 2022 seasonality also as a proxy for a quarterly guidance on EPS as well.
Yeah, So hi, Deepak, let me take the first one so yes, we're really pleased with what we're seeing with focused categories. It's growing seven points faster than the rest of the platform. The way to think about that is plus 2%. If you look at it on a quarter over quarter basis. When you look at our coverage, we're at about 25% across the whole business.
If you look at our big three markets, where we've been focusing its about a 28% coverage so making nice progress there, but it's not just about investing in new coverage. It's also about investing in existing categories that are driving the underlying growth in our business and balancing reinvestment there and we're really pleased we continue to invest in.
Sneakers, we launched two years ago, but we're continuing to invest with minutes shipping, which we launched in 2022, we talked on the call about luxury goods, having roughly double digit.
Growth rates over the past couple of years, So we're seeing that.
Market share returned to market share growth for those businesses, which is really healthy and I would say the largest one of which is <unk> and we're really excited by the progress that we're seeing in PMA on the product side. The work, we're doing in fitment and guaranteed fed and making the catalog available via the apps the new acquisition with my peers.
<unk> further increasing our ability to do there combined with the marketing that we're doing in the U S. We're doing.
The actual personalities from car talk in the UK were associated with PMI right. So we're really going after that enthusiast buyer and it's really working some I'm really pleased with the performance on focus category, Steve maybe you want to take the second part, yes. So deepak.
We've obviously given a very comprehensive Q1 guide and as I mentioned earlier because of the uncertainty et cetera.
Dynamic macro environment, we've not given a full year guide at this point.
With regards to the seasonality question that you had that pertains to directional color associated DMV.
So thats how it would affect you that specific are you thinking about capital returns that we've laid out.
Taking a step back in 'twenty, two we returned $3 6 billion.
To shareholders through dividends and buybacks, which is 170% of free cash flow as youre thinking about capital returns, we remain committed to the 125% of free cash flow target that we laid out at the investor event between 22 and 2004. So are we still tracking above that and as I think about 2000.
23 <unk>.
Priority <unk>.
Really to start with is going to be to be committed to offsetting dilution in terms of the share count while continuing to balance the capital needs of the business, we have landfill and a 14% increase in the dividend.
From 22 to 25 cents.
For me.
<unk> balance sheet continues to be a key competitive advantage in this environment.
To enable us to continue to invest in the business, but how does that gives you a little bit of color about how we're thinking about 2023.
Operator can we do one last question please.
Your final question comes from Mark Mahaney with Evercore. Your line is open.
Thanks, two questions. Please this advertising continued ramp.
Penetration now to one 8% of GMB.
As you've looked at third party data points and maybe as you've looked at that penetration within verticals do you have a better sense of how high that penetration can rise overall.
Then secondly, just talk a little bit about you had to step up in.
The focus category marketing spend and just your confidence level that you are getting a good return on that there's clear deleveraging the model, but but there's a lot of noise in there. So just how do you look at that and the proof that that's actually working out for you. Thank you.
Yeah. Thanks, Mark so on the AD side look we said at Investor Day, we have line of sight to 3%, which we still feel great about if you look at the performance.
Promoted listing standard continues to be the workhorse of the product and we're continuing to drive additional penetration. They are hitting 2 million sellers and 700 million listings, but we're also excited by our new products. They once again grew 20% quarter over quarter and.
And we're making it easier for sellers I talked about quick setup, which makes it much easier to come into the program and use the program and then we're working on things like multi user access, which we just launched which enables more flexibility to actually bring in an AD agency to help you manage your AD campaigns, so feel great about the potential there growing 30 plus percent over <unk>.
And what we're seeing on the focused categories side, it's been really happy with the performance of the marketing spend if you think about it we've shifted our model from being really kind of lower funnel optimization to doing more full funnel and that's driving more enthusiast buyers into the platform and it's allowing the overall spend to work a little bit hot.
But at the same time.
It's really allowing us to bring buyers in and then leverage them across multiple categories. So if you think about I guess sneaker buyer they will come in and buy $450 in sneakers, but then they'll buy $9500 in other products and other categories handbag buyer will buy $2500, but then spent 5000 elsewhere.
So when you look at the return on marketing spend usually full funnel has a longer return on it but we think it's the absolute right spend we're seeing the right change in consideration and we're really driving I think the unique value proposition that we have to offer and ebay. So youre going to continue to see just like we've done in parts really specific marketing.
Tailored to those enthusiasts with the right.
Our funnel approach because we like the performance of what we're seeing.
Thank you Jamie.
Thanks.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
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