Q2 2023 eBay Inc Earnings Call
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's second quarter 2023 earnings Conference call.
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'd like to ask a question at that time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question again press Star one. Thank you. It is now my pleasure to turn the call over to the Vice President.
<unk> of Investor Relations, Mr. John Egbert, Sir Please go ahead.
Good afternoon. Thank you all for joining us for Ebay's second quarter 2023 earnings Conference call. Joining me today on the call are Jamie <unk>, Our Chief Executive Officer, and Steve priest, our Chief Financial Officer, we're providing a slide presentation to accompany our commentary during the call.
Which is available through the Investor Relations section of the ebay website at investors Dot ebay, Inc. Dot com.
Before we begin I'll 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 in our accompanying slide presentation.
Additionally, all growth rates noted in our prepared remarks, we will reflect organic 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. Our actual results may differ materially from our forecast for a variety of reasons you can find more information about risks uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K Form 10-Q, and our earnings release.
Earlier today, you should not rely on any forward looking statements. All information in this presentation is as of July 26, 2023, we do not intend and undertakes no duty to update this information with that I'll turn the call over to Jamie.
Thanks, John Good afternoon, everyone and thank you all for joining us today.
We delivered another solid quarter in Q2 exceeding expectations across all key metrics, while investing in a disciplined manner to support our long term objectives.
Sure I jump into the details around our second quarter results I'd like to discuss the evolution of our strategy.
Three years ago, I articulated our ambition of becoming the best global marketplace to buy and sell through attack glad re imagination of ebay.
It would help us realize the enormous untapped potential of this company and put it firmly on a path to sustainable long term growth.
Since then we've renewed our focus on products, where we are uniquely positioned to offer meaningful choices and value for our customers.
We've accelerated innovation to adapt to the changing needs of buyers and developed a world class shopping experiences in our focus categories.
And we've changed our marketing strategy to support these experiences pivoting to a full funnel approach aimed at attracting and retaining enthusiast buyers. These.
These accomplishments make it a logical time to embark on the next phase of our journey.
The foundational work of our Tech led my imagination will continue including our prioritization of nonhuman season products expansion of focus categories in ads and payments initiatives.
And now we're raising the bar for innovation and have set our sights on an even more ambitious vision, which is reinventing the future of e-commerce for enthusiasts only at ebay.
We will achieve this vision in the coming years by focusing on three key pillars.
Relevant experiences scalable solutions and magical innovations.
Let's start with our first pillar relevant experiences.
This means we are solving specific and ever changing needs of our customers across all shopping occasions.
We are focused category strategy, we've proven that when we build relevant experiences we can dramatically improve customer satisfaction, which translates into faster GMB growth, while we'll continue to understand customer needs and innovate at the category level, we will leverage the new tools capabilities and technologies, we have developed over the.
The last few years to enhance more elements of the site wide experience.
This includes developing a more relevant consistent experience for the next generation of online shoppers through a comprehensive overhaul of our user experience and design rolled out in phases over the course of 2023 and beyond this.
This evolution will result in simpler more personalized browsing experience says that will inspire people to sell shop and connect with their community on ebay.
This initiative is it cross collaborative effort between design prospect core AI search engineering and other key stakeholders to ensure our modernized shopping experience is powered by intelligent computing at scale.
Enabled by artificial intelligence, we will fine tune the breadth of inventory and other aspects of the shopping journey to cater to the varying needs of new buyers infrequent shoppers and ebay enthusiasts.
We believe these innovations will increase our ability to ban cohort curves drive higher lifetime values, and ultimately grow enthusiasm and average spend per buyer.
We began rolling out these changes to consumers in recent months, starting with testing a more modern and intuitive view item page, which is the most visited page on ebay.
The updated page offers a streamlined appearance larger and higher resolution images and optimize information hierarchy.
Early test, indicating measurable uplift in G M b versus our existing design.
Over the next few quarters, you will see a continued evolution of the look feel and experience of our marketplace, including updates to view item, our header homepage search results and other landing pages.
Alongside this work, we're investing in new capabilities for search where relevant. It's also critical we are investing in technologies like deep learning and visual similarity to improve ranking of retrieval reduce inquiries with low or no results to surface more of our amazing inventory for customers.
Now, let's turn to our second pillar scalable solutions.
Combined with improving relevance our scale is a powerful asset.
As we discussed at our Investor Day last year ebay has five categories that each generate more than $10 billion annually and G. M b, making up more than 80% of volume on our marketplace in aggregate our.
Our global footprint across 190 markets and density of supply and demand across major trade corridors are tremendous advantages and cross border trade and.
And our proprietary data assets are powered by tens of billions of cumulative transactions and commercially relevant product information and images accumulated over our nearly 28 year history.
Our scale enabled us to logic proprietary managed payment solution capable of processing more than $70 billion in annualized volume in less than two years.
It also allowed us to build our nearly one $3 billion advertising business driven by promoted listings, which help our sellers drive greater velocity and price realization for their inventory.
Ads and payments have dramatically enhanced our financial architecture, but now we are why didn't mean, the scope of scalable solutions on ebay.
To develop a broader suite of value added services.
Our payments infrastructure makes it possible for us to launch new financial services like FX conversion alternative payment options and seller financing partnerships informed by transactions on ebay.
We're also investing in improved in house risk modeling to alleviate transactional friction for sellers and buyers on ebay, which has lead to measurable uplift in conversion and hundreds of millions of dollars of incremental G&A. During the first half of 2023 alone.
Our scale and cross border capabilities allowed us to launch the ebay International shipping program earlier this year.
This program simplifies paperwork lowers cost for buyers streamlines returns and enable sellers to tap into our global demand.
While this program is still ramping up in the U S. We are seeing positive proof points and the number of listings migrated increased exportability of new listings as well as conversion delivery times and operational costs in line with our expectations.
The cross category nature of ebay makes our investments in individual focus categories more scalable to other areas. This is because technology and capabilities that are developed for one category can be adapted quickly and seamlessly to others.
For instance, EBIT authenticity guarantee program has enabled us to rapidly transform trust across new categories and countries from watches to sneakers handbags jewelry and trading cards now.
Now, it's faster and more cost efficient to lodge authentication for a new category like we did this quarter with street, where we believe only ebay is in a position to bring hyper relevant experiences like these to customers at scale across this breadth of categories.
Lastly, our third pillar is magical innovations.
The foundational work we've accomplished over the past three years has set us up for a new phase of innovation.
Our teams are focused on thinking bigger and moving faster as we built game changing features and functionality for customers to keep E Bay at the forefront of ecommerce or improved tech velocity has allowed us to launch and rapidly iterate unexciting features like live commerce other.
Other examples include the ability to instantly buy and sell training cards in the ebay bought and our improved computer vision capabilities that streamline buying and selling on ebay.
Over the next few quarters and years, we expect advancements in artificial intelligence, including generative AI impact nearly every aspect of our organization.
Driving meaningful efficiency and productivity improvements.
More importantly, they enabled truly compelling customer facing experiences that I'm confident our customers will love such as the magical listing experience I'm excited to discuss with you shortly.
You'll continue to hear us talk about the progress of our evolved strategy and how we're delivering on the three pillars of relevant experiences scalable solutions and magical innovations.
This work is all in service of our plan to reinvent the future of e-commerce for enthusiasts only of ebay.
As I've mentioned these efforts are already underway and we've begun delivering these innovative features and functionality ebay customers.
Now, let me turn to the second quarter.
We delivered better than expected results across the board in Q2. Despite continued macro uncertainty gross merchandise volume was over $18 $2 billion, while revenue grew 5% to $254 billion and outpaced GMB growth by roughly six points and.
And we delivered non-GAAP earnings per share of $1 three up 5%.
Our improving growth trends continued to be led by our focus categories, which grew roughly seven points faster than the remainder of our marketplace during Q2.
This outperformance continues to be led by motors parts and accessories, or P&A, where GMB grew mid single digits year over year for the second straight quarter, which we believe is aligned with market rates of growth for this segment of E Commerce.
We also extended our focus category coverage through new launches and category expansions during the quarter in early June we launched authenticity guarantee for street, where in the U S. I don't know authenticating, new and Preowned Street wear items from 'twenty trusted brands, including Kith off White Palace and Supreme.
In July we expanded eligible street wear to mass appeal brands like Adidas, Jordan and Nike.
And later this year, we'll expand coverage to luxury brands, including Gucci Prada Louis Vuitton.
This marks our entry into authenticated apparel, a category that has strong overlap with our passionate community of sneaker enthusiasts, adding another layer of trust when they shop.
In April we launched a certified by brand program, which we also expect to facilitate more re commerce in the luxury space. There are already more than 20 brands participating in this program offering new and certified pre owned inventory across the watch jewelry and handbags categories.
Listings from this program will show a direct from Brad or.
Authorized seller batch, bringing enhanced level of trusted these listings.
It's individual trust signals for authenticity guarantee.
Brands benefit from ebay scale demand gain access to consumer and pricing insights, while being able to maintain control of their brand equity and image online.
Shoppers will benefit from these brands unique inventory and enhanced trust as these products will include certifications and our warranties from the brands themselves.
Our expertise in fashion is further extended by our recently closed acquisition of sort of logo a provider of AI powered authentication for apparel.
The logo empowers brands and designers to manage the lifecycle of their garments protect their customers from counterfeits and encourage us re commerce via QR codes that service digital product passports.
While we are just beginning to explore the synergies between our companies.
The logo already works with a number of leading global fashion brands and we're incredibly excited to leverage this technology to accelerate the circular economy.
Next I'd like to discuss the groundbreaking work our team is doing with artificial intelligence.
In particular I'm excited to announce that this quarter, we're ramping up a new feature we've been calling magical listing.
Which will make it significantly easier for sellers to list their inventory.
One of the biggest challenges operating a listings based marketplace is the burden on sellers to fill and descriptions and item aspects for their products.
In May we launched the first version of our magical listing experience, which dramatically reduces this friction for our sellers via AI generated item descriptions, we integrated as yours open AI API into our core listing flow and now sellers can choose to have detailed product information instantly populated by generative AI based on.
Products title category and any item aspects that had been input during the quarter. We ramped. This beta feature it's more than 50% of iOS and Android users in the U S and expect to reach 100% in the coming weeks early signals have been extremely positive approximately 30% of users have tried to feature at least once and we've.
Observed acceptance rates of over 90% for AI generated descriptions, including those with edits custom.
Customer satisfaction is over 80%, thus far which is among the highest <unk> for any new feature launch in recent memory.
Sellers have told US that this feature will unlock more of the unique inventory in their closets and on average we are seeing description length double when gen. AI is used.
But we are just getting started the next generation of our magical listing will leverage our improved image recognition capabilities to provide sellers with the option of a more seamless camera based listing.
Others can utilize their smartphone camera or existing photos to start a listing and based on our visual understanding of the product. The EBIT app can pre populate the title category description and I know specifics wherever possible.
We have been testing this tool with our employees for several weeks and we're incredibly excited to launch in public beta in the coming months.
The advent of generative AIG as far as an explosion of creativity at ebay among our product and engineering teams, who have conceptualized new and innovative shopping experiences that can be rapidly deployed onto the site.
Two compelling examples that launched in July or the shop by upgrade and engine code lookup features that went from concept to production in the ebay motors up in just a few weeks.
Shopify upgrade uses generative AI to help customers discover the most relevant fitbit enabled upgrade options for their vehicles, which are personalized based on the specific users' preferences.
And you can go look up offer specific P&A products available on ebay that can address the root cause of hard to decipher error codes aiding them in identifying and fixing the source of the problem.
I'm thrilled to see how quickly our teams are moving with this technology at their disposal and look forward to more of these experiences launching in pilots in the months ahead.
Turning next to our advertising business, which continues to build impressive momentum.
We reached a major milestone in Q2 as advertising revenue reached 2% penetration of GMB totaled.
Total ads grew 35% well first party AD revenue grew roughly 50 points faster than G. M D.
Over $2 1 million sellers adopted a single AD product in Q2, while we reached more than 800 million lie promoted listings.
Promoted listing standard our CPA product once again, the largest contributor to growth in Q2, driven by attribution enhancements continued optimization and AD rate improvements.
At the end of March we adjusted our attribution methodology for CPA ads expanding the definition of what constitutes a qualified sales. This change referred to as a halo attribution and the industry enables us to more efficiently optimize our ads as we capture a more complete picture of the downstream sales driven by promoted listings.
While sellers maintain the full flexibility to adjust their bidding behavior. After this change.
Hello attribution had a net positive impact on our AD business in Q2 during.
During the quarter, we also introduced a new way to rank ads on search, which leverages our in house AI capabilities optimized CPA placements for both conversion and ad rates.
Additionally, we improved our precision and calculating trending and suggested AD rates and made it easier to adopt dynamic bidding both contributed to a modest lift in Q2 ad rate.
Our emerging promoted listings products also scaled nicely in Q2 growing more than 30% quarter over quarter promoted listings advanced our CPC product was the largest contributor advanced.
Advanced recently exited beta into generally lease as we've simplified the process of creating and managing campaigns increase the visibility of CPC ads on ebay and demonstrated healthy return on AD spend levels to sellers.
During Q2, we introduced suggested campaigns for adverse which provide a one click activation experience by offering customized keywords bid and add group structures for BDC sellers across five major markets.
These campaigns will be pushed out to sellers on a monthly cadence and can drive further adoption of CPC ads.
Now, let's discuss the impact we're having on the communities. We serve last quarter, we published our annual impact report, which recognizes the progress we've made to our environmental and social goals as a pioneer of E. Commerce, we are committed to helping sellers earn extra cash selling preloved items, and helping buyers find items of value while pro.
Noting a healthier planet any economy I'm proud that we continue to make important strides toward our own climate goals, while weaving sustainability throughout our company culture and philanthropic efforts.
Additionally, we will soon published our first ever U K, social impact report, which takes a closer look at the programs were delivering for hundreds of underserved entrepreneurs, social enterprises and charities in the U K.
This includes programs like ebay for change, which support social entrepreneurs and creates jobs and marginalized and vulnerable communities.
Another program with considerable impact is ebay for charity, which raised more than $38 million during the quarter.
And I'm excited to announce them engaged for good a nonprofit organization dedicated to supporting the practices cause marketing recognized ebay for charity as of 2023 charity Checkout champion.
In closing I would like to thank our incredible employees for another strong quarter of execution and for continuing to bring our strategic vision to life I have never been more confident that we are on the right path to unlocking our enormous untapped potential and re inventing the future of e-commerce for enthusiasts only at ebay.
Our focus on relevant experiences scalable solutions and magical innovations will greatly benefit our loyal community of sellers and buyers in the quarters and years ahead as well as better cater to the needs of the next generation of online shoppers with that I'll turn the call over to Steve to provide more.
On our financial performance, Steve over to you.
Thank you Jamie and thank you all for joining us today.
I'll begin with highlights from the second quarter on slide 10 of our earnings presentation.
Next I'll review, our key financial operating metrics in greater detail.
Finally, I'll provide our outlook for the third quarter and offer some additional commentary on the remainder of the year before we begin Q&A.
As usual my comments will reflect year over year comparisons on an organic FX neutral basis.
Otherwise.
We delivered solid results in Q2, <unk> revenue and EPS exceeded expectations and timing.
Or above the high end of our guidance ranges despite ongoing macroeconomic uncertainty.
Gross merchandise volume was down 1% to $18 2 billion, an improvement from down 3% in Q1.
Revenue was up 5% to $254 billion, which outpaced volume by six points driven by accelerating growth within our advertising business.
non-GAAP operating margin was 26, 9% down roughly one seven points year over year, primarily due to the impact of international shipping routes and recent M&A.
We delivered $1.03 and non-GAAP earnings per share up 5% year over year.
We generated $492 million of free cash flow, while returning $393 million to shareholders through repurchases and dividends.
Let's take a closer look at the key drivers of our financial performance during the second quarter.
Gross merchandise volume was down 1% to $18 3 billion.
An improvement from down 3% in Q1 due to continued momentum within focused categories and a notable acceleration in cross border trade.
Foreign exchange represented a one point headwind to reported <unk> growth in Q2.
<unk> growth in our focused customers accelerated modestly I'm not opposed to reminder of our marketplace.
Seven points during the second quarter.
We launched a new focus concentrated in U S streetwear extended trading cards to Canada, and broadened our inventory coverage in sneakers, handbags, and jewelry, which drive a sequential increase in JMP coverage.
[noise] P&I was once again, the largest contributor to <unk> growth and then focus categories growing in the mid single digits year over year in line with estimated market growth in this segment of E Commerce.
Refurbished maintained healthy double digit growth in Q2 and was the second largest contributor to focus category outperformance as consumers continue to turn to ebay for value and the current economic climate.
Next looking at our business on a geographic basis. Your SG&A was down 4% organically in Q2 as domestic buyers continue to favor imports due to diminishing headwinds within global supply chains that benefited cross border trade.
International Gms grew 1% on an FX neutral basis accelerating by roughly two points sequentially.
Although e-commerce growth remains weak outside of the U S amid heightened macro challenges.
G M food benefited from a sequential acceleration in volume from cross border trade.
Moving to active buyers.
132 million active buyers shotgun anybody during the trailing 12 months ending in June .
1 million quarter over quarter.
Excluding M&A and buyers from our Turkey business, where we ceased operations in July of last year, We had 131 million active buyers roughly flat versus Q1.
As we lap the Cherokee closure. This month this factor will no longer be a headwind to reported that Dupont is next quarter.
The continued stabilization of our black hat was driven by the fourth straight quarter of positive year over year growth in new and reactivated buyers, which was again led by double digit growth in bars from P&I.
In isolation Newpage grew year over year for the second straight quarter, while gross boccia steadily improved throughout 2023.
And to just pause was stable at $16 million in Q2 with net migration patents improved slightly quarter over quarter spend for them to use us grew modestly year over year, averaging roughly $3000 annually.
Turning to revenue.
We generated net revenue of $2 5 billion in Q2 up 5% and acceleration of roughly three points versus Q1.
Total FX neutral revenue growth inclusive of MNI was 6% while currency was a one point headwind to reported growth.
Our take rate was 13, 9% in Q2 more than 30 basis points sequentially and up nearly 90 basis points year over year.
<unk> revenue was the largest driver of our take rate growth, both sequentially and year over year.
International shipping and recent M&A in aggregate contribution net of 10 basis points to our Q2 target rates sequentially.
New payment services contributed to address two basis points.
Foreign exchange represented a sequential headwind of approximately 10 basis points to take rates in the second quarter.
Our advertising business accelerated notably in Q2 with.
Total AD revenue grew 35%, a 12 point acceleration versus Q1.
First party ads grew 49% roughly 50 points faster than volume.
Geoffrey It's also widened by 17 sequentially.
However, roughly four points of this gap were related to a one time accounting adjustment of deferred revenue on cost per click taxes.
The hydro attribution change Jeremy discussed either.
The deferral release pulled forward approximately $9 million of AD revenue in Q2, which we will lap in Q3.
The outstanding results. We then adds business were driven by continued optimization for merchant listing standards and expansion of our emerging products like advanced and external promoted listings.
As we lapped one time factors like our further expansion recent product optimization ones I don't know.
Contribution in the <unk>.
Onetime accounting change with direct spread the <unk> Delta narrowed from current levels. However, we still anticipate advertising revenue.
<unk> for the foreseeable future.
Moving to profitability.
non-GAAP operating margin was 26, 9% in Q2 down one seven points year over year.
Roughly one five points of this delta is due to the combination of anybody international shipping in recent time in a while FX also represented a modest year over year headwind.
Gross margin was down roughly 80 basis points year over year, primarily due to a one point headwind from the progressive ramp of anybody international shipping, which was partly offset by an increase in take rate driven by adds another monetization efficiency.
Sales and marketing as a percentage of revenue was down 80 basis points year over year in Q2, as our continued investments in full funnel marketing initiatives was offset by leverage from monetization efficiencies and lower spend on coupons and incentives.
Product development, most probably 1.1 points as we continued to invest in product and engineering talent to accelerate innovation across the platform.
G&A expense rose by roughly 60 basis points, driven by M&A and higher in place then.
We generated non-GAAP earnings per share of $1, three Q2 up 5% year over year benefiting from a 4% net reduction in share count from our repurchases.
GAAP earnings per share that's <unk>.
But the delta primarily driven by unrealized losses on our equity investment portfolio.
Turning to our balance sheet and capital allocation.
We generated free cash flow of $492 million in Q2.
6%.
Our balance sheet position remains robust and we ended the quarter with cash and non equity investments of $5 3 billion.
<unk> seven $7 billion.
We repurchased roughly $250 million in shares at an average price of approximately $44 during Q2 and of roughly $2 3 billion remaining under our current buyback authorization, we paid a quarterly cash dividend of $133 million in June with 25 per share.
Our investment portfolio is detailed on slide 20 of our earnings presentation.
A major accuracy investments and warrants were valued at over $3 4 billion at the end of Q2.
This represents a decrease of approximately $200 million sequentially, driven primarily by the recent share price decline and other venture.
Moving onto our outlook for the third quarter, we forecast janvey between $17, six and 18 billion, representing organic FX neutral growth between negative four negative 1% year after year.
We expect revenue between $2 46, and $3 5 billion, representing organic FX neutral growth between two and 4% year over year.
We anticipate non-GAAP operating margin to fall between $25, eight and 26, 5% and we forecast non-GAAP earnings per share between <unk> 96.
And $1 <unk>, representing EPS growth between negative four and posted 1% year over year.
We are planning our business around these substitutes total FX neutral <unk> growth between negative two and negative 1% year over year for the full year 2023.
Expect revenue to outpace janvey by approximately four and a half points for the full year on a spot basis.
Although FX neutral revenue growth should continue to outpace Jim.
By mid single digits during the second half.
Current FX rates, our year over year growth in spot revenue and J M V would converge in Q4, as we lapped significant FX hedging guidance and the <unk>.
Five year period.
We are now planning for full year 2023, non-GAAP operating margins between 27 and 27, 4%.
Our margin assumptions contemplates a year over year headwind of roughly one point from the combination of recent M&A in the ebay International shipping program.
However, we do expect the operating margin impact from Aaas to abate by the fourth quarter.
Our margin assumptions and play more than $100 million.
Of Opex savings from our structural cost program in 2023, which will be redeployed into strategic objectives.
If foreign currencies hold at current rates FX would represents a tailwind.
Half a point to <unk> full year 2023.
However, FX would represent roughly half a point headwind to operating margin for 2023.
Two points of impact during Q4 alone due to hedging gains in the prior year period.
FX also represents more than a two point headwind to non-GAAP EPS for the full year.
Lastly for the full year, we expect to generate just under $2 billion and free cash flow due.
Due to the California State disaster tax relief the majority of our cash tax payments scheduled for 2023.
Deferred and will be paid in October .
As such we expect the bulk of our remaining 2023 free cash flow should be recognized in Q3.
We estimate our non-GAAP tax rate will remain unchanged 16, 5% throughout the rest of 2023.
Our capital expenditures for the full year I'll still estimated to be between 4% to 6% of revenue.
In closing Q2 was another strong quarter for Eva as we deliver the guidance that quarterly financial commitments and made significant progress on our long term strategic objectives.
<unk> has expanded their coverage positively influenced growth, but for the marketplace overall.
Advertising business is driving robust growth at scale is first party ads meaningfully accelerated relative to J&J.
We continue to invest in product and full funnel marketing initiatives in a disciplined manner laying the foundation for sustainable growth and.
We generated $492 million of free cash flow returned $393 million to shareholders through dividends and have returned roughly 130% of free cash flow to shareholders over the last 18 months.
I continue to be inspired by the accelerating pace of innovation on ebay.
We invent the future of E Commerce strategy.
With that Jamie and I will now take your questions.
Okay.
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 Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, so much for taking the question.
The details of the presentation, maybe bridging the strategy.
The potential impact for the P&L. When you think about the three pillars you laid out that you are investing behind over the medium to long term, how should we be think either collectively or individually as those pillars as drivers of either buyer growth.
New ramp in spend per buyer <unk> potentially amplifying oral ROI on the platform over the medium to long term. Thanks, so much.
Yes look we're excited about the evolution of our strategy here with re inventing the future of ecommerce for enthusiasts are when you look at the pillars, Eric on first on relevant experiences. We've had a lot of success with us today right. Our focus categories had been about creating relevant experiences.
In specific categories, and we've seen a sea change at GMB change et cetera, and so we're expanding this now to kind of every site wide experience that we have on the site, including a new design for Gen Z shoppers, including going to every email every notification and frankly, new technology and tools enable.
To do that and so we feel really great about that and the impact on customer satisfaction and on <unk> on the scalable solutions think about all of the foundational work that we've done in payments and really being able to take that to the next level with things like financial services and building on that or ebay International services. When you can.
Buying the scale of ebay and 190 countries with the <unk> that we do we're able to roll out programs like the ice ebay international shipping and open up that opportunity for our sellers and just drive a lot more cross border trade and a lot easier experience for our sellers and then think of magical innovations is really raising the bar on the.
<unk> that we're going to have on the site I talked about some of the new AI products that we're launching I mean these are products that are out the gate, having over 80% customer satisfaction, having sellers tell us this is going to unlock more inventory because you're making it so easy to list on the platform products like live Commerce, we've now done over 300.
Live commerce, and sellers and buyers are getting really engaged in that and so that opportunity for us is to drive that customer lifetime value for a buyer as well as attract those new buyers on the platform what I am excited by is really the intersection of a couple of these when you think about the intersection of relevant experience.
Combined with our scalable solutions only ebay can provide that and that's why we think we're going to be able to re invent the future of e-commerce.
Really uniquely ebay way.
Hey, Alex if you think about the financial architecture in terms of linked to the P&L, you're seeing us continue to invest.
Your line business as we're moving forward.
<unk> is in a very healthy space, we've seen great momentum now.
And also any with the focused categories total size of monetization initiatives and the stress on the horizontal platform and so we continue to invest to drive the momentum in the underlying business. We remain committed to the architecture that we put out back at our Investor day last year with the sort of.
Mid single digit growth.
The P&L architecture that comes off the back of that the timing of that is just what I said will be a function of.
The macro environment that we continue to operate and so hopefully that covers the.
A question for you from the link between strategy and architecture.
Really helpful. Thanks, so much.
Your next question is from the line of Nikhil <unk> with Bernstein. Your line is open.
Hi, Thanks for taking the question.
My first one is on margins I think the operating margin is kind of a step down this year and that's continuing into the back half as well.
Can you just talk about the primary factors that are weighing on that and the degree to which they are temporary versus structural I know youre not guiding to 'twenty four yet, but when you think about next year and what are the levers that would allow you to improve from this kind of 26% margin level.
Hi, good afternoon.
Good to get the speech and let me give you a little bit of color on a year over year margin. Obviously, we have seen some modest deleverage associated with the current macro environment.
Which obviously reflected in our full year J&J commentary not spent a lot of pressure on margins.
I would refer into four discrete items that are impacting 2023, firstly, we've talking about anybody international shipping. This is both strategically important for us as we open up the aperture across 132 million bonds across 190 countries gives us a great opportunity to drive more commerce through Levi.
Same time drive accretive operating profit dollars as a reminder, fuel we all know the principal in that relationship versus an agent and therefore, the accounting treatment has impacted our margins in 'twenty three.
The second item would be around M&A, we have been more acquisitive of light to drive.
Sustainable long term growth in the business and as I mentioned in our prepared remarks, we would expect.
Together to be a one point headwind to margins in 2012.
Third element, which is slightly nuanced as the FX fluctuations and lapping that we have seen or will see through the second half of the year. We did benefit from significant hedging gains in the fourth quarter of 2022, which we will ultimately lap and in totality that will equate to half a point of FX.
<unk> driven margin dilution for the full year and two points in quarter four alignment and then finally, obviously the investments in our business. We are seeing focus Casa Grande momentum seven points of growth over the core platform horizontal investments in such environment set of experience driving dividends and all of us.
The investments in our monetization initiatives like payments and that is bearing fruit.
So as I think about margins for 2023, we have some unique items as I've said, such as ebay international shipping.
And I and the FX fluctuations we've talked about.
We've also been investing in the business because we feel very confident about the trajectory of the business and how it's driving long term sustainable growth.
As it pertains to 2024, I'm not going to get ahead of myself if junior while the color around third quarter. We've added some color for the full year.
<unk> remained committed as I mentioned to Eric So the medium term goals that we put out our investor event.
This was really the timing will be a function of the duration and severity of the macro headwinds we are currently facing.
Obviously, we will give additional color for 24 and the quarters ahead.
Thanks, Steve and you you alluded to that end yesterday, GMA framework, which kind of assumed the non focus categories would be flat I guess whats the strategy your playbook to ensure.
That does non focus verticals also remains stable going forward. Thanks, Yeah, Theres, a theres a couple of them.
One is first of all our strategy when you go back to it in terms of relevant experiences on the site. We're doing a lot of work outside of just the work that we're doing and focus categories. In fact, the majority of our investment is going there. So if you think about the magical listening experience that's going to help unlock CDC inventory across every category.
On the site. The second thing I would say is that when you think about our model and what we laid out we have a real multiplier effect on our buyers. So as we continue to rollout focused categories now as we're seeing success there that actually helps lift all types across the across the ebay marketplace. So take a sneakers buyer the average sneaker bio comes in and buy sneakers over 100.
They're going to spend $400 in sneakers, but then $2000 on the rest of the platform outside of that and that nature really allows us to help grow the overall marketplace, including including our non focus categories. The last thing I'd say is when you think about things like the scalable solutions that we're building take ebay international shipping that's going to help.
Every category, that's going to help focus categories like handbags coming out of Japan et cetera, but it's also going to help our non focus categories and when you think about cross border trade on the platform. It's really one in five transactions are 25%. So it saves you a lot of opportunity both in our focus category work and the non focus category work and we can feel commit.
And confident in our ability to get those to flat in the medium term.
Great. Thank you both.
Yeah.
Your next question is from the line of Michael Morton with Moffett Nathanson. Your line is open.
Hi, Thank you for the question.
Maybe start off with EIF.
<unk> deployed in the U S. Currently if we could talk about any contributions youre seeing at this point in <unk> and maybe some color on timing and kind of contribution expectations going forward would be great because it seems like it's a program that.
Youre very excited about and then a second question.
Yes.
We've talked about the full funnel marketing spend in the past and you've mentioned millennials and Gen Z.
And the active buyer numbers have been improving.
Would love to dig down on those cohorts, maybe a bit or if you could kind of bucket the strength youre seeing in active buyers are you having.
Some effectiveness in converting that millennials and Gen Z, who maybe grown up in a different era interacting with marketplaces.
Yeah. Okay. So first let me talk about ebay international shipping so the whole program makes cross border shipping and selling much easier. So E Bay handles the custom storms, we handle the duties we handle the immediate returns and sellers are protected from things like item not received claims on the platform. So we're in the process of basic.
<unk> Rolling this out most sellers are adopting it and while it's early days for the New program, we're seeing a really positive reception from sellers in terms of shippable listings. The conversion that we're seeing et cetera. Why we're excited by it is because 20% of the business on ebay is cross border, but less than half of our baked three inventory is available to be <unk>.
Internationally, so opening up that inventory, we think is a unique advantage for ebay and unique value proposition for our sellers on the marketplace.
When you think about the full funnel marketing that we're doing in that shift we're really seeing it pay off in terms of our buyer strategy. So this quarter we saw.
Once again newer reactivated buyers was positive for the fourth straight quarter, our new buyer growth was positive for the second quarter and take a category like PNA, where we've been doing full funnel marketing really targeting at enthusiasm that we're seeing that that new and reactivated buyer growth being double digits faster than the rest of the platform. So we.
We feel really good that the investments that we're making are driving the right buyer outcomes. They are exactly where we expect it to be and where I've been talking that they would be and when you look at categories like what we're doing in sneakers. This quarter. We just launched authentication guarantee for street wear which is a great kind of Gen Z younger consumer.
Or a category we're in the middle of sponsoring fashion Island, Sorry, Love Island, and the U K, which is kind of currently on air right now sponsored by our ebay UK business also bringing in a different type of cohort. So we feel really good that the strategy is working we're bringing in the enthusiast buyers that we want and that we're seeing a great pay off out of the <unk>.
In our marketing approach.
Thank you.
Your next question is from the line of Ken <unk> with Wells Fargo. Your line is open.
Thank you so much I appreciate the questions.
A couple of more kind of macro and competitive questions. Please.
First could you just speak to.
Where we are in the evolution of the consumer preference for goods versus services.
Have you seen a normalization of that trend and has there been any benefit.
Net.
And results and then the second one could you just speak about the competitive environment, especially in the kind of the lower end of the market.
Maybe where we've seen in the market.
There had been some aggressive moves by China, China, China drop shippers.
Anything you could touch on there any impact you may be seeing.
Actions you might be taking to combat those efforts. Thank you.
Yeah. So look on the first one clearly inflation and rising and trace are impacting discretionary demand I think what makes our platform more resilient is that consumers can come here and find amazing values. So if you think about the refurbished category, which has been a focus category of ours that grew double digits year over year.
Was the second largest contributor towards our focus category outperformance in general and the platform, we're seeing used growing faster than new.
That's what's great about E Bay on the buy side on the sell side. It is also a place to make extra income and so we're really leaning into what we're doing on our CDC standpoint, including the new magical listing rollout because.
Tougher economic times are an opportunity for us to bring more sellers onto the marketplace.
When you think about the kind of a lower ASP market or the cross border trade is as you mentioned.
Noted that this quarter, we're actually seeing some strength in the cross border trade of bar business that has to do with supply chain easing up.
And there being an opportunity for those sellers to export items.
And so we're actually seeing good health and what we're doing from a from a cross border trade business, we've been doing a lot to enable that and make it easier I talked about ebay international shipping, but we've also been rolling out new capabilities in payments over the past couple of quarters with buyer and seller FX to make the payments process of that easy.
And we've been working on with some of our sellers to do for deploying of our inventory, which is just help kind of ease some of that supply chain pressure. So overall, we feel really good about the values that people are getting from the CBT and the initiatives that we're investing in to make it easier for our sellers to to export items throughout the globe.
Thank you.
Your next question is from the line of Deepak <unk> with Wolfe Research. Your line is open.
Great. Thanks for taking the questions two.
Two quick ones from US first can you add additional color on the factors driving strong trends in the first party ads business. Our sellers also seeing additional performance gains.
Is this primarily driven by expansion in AD load in some of the some of the areas of the areas of the website and then second on M&A.
Steve you alluded to are kind of being acquisition, how should we think about the appetite over the next few quarters. While are there any specific areas, where you think there are additional opportunities. Thank you so much.
Yeah. So our first party ads is really a success based on the execution of the team and what we're seeing in terms of return on AD spend. So this quarter, we grew 49% year on year. Some of that is due to some one time factors Steve talked about the accounting change that we've had we also talked about the Halo attribution that we wrote.
For sellers, but in general it's really based on the success of the products and the innovation that we're seeing so if you look at our promoted listing standard it continues to be the workhorse of our advertising portfolio, where we're driving more optimization.
And more relevance and secondarily when you look at our new products, they're once again grew 30% quarter over quarter.
And they are the key one being promoted listings in advance and the team continues to innovate to make it easier for sellers. So this quarter, we launched a feature called suggested campaigns, which makes it easier for.
Sellers to add promoted listing has advanced to the work that they're already doing in advertising and as we talked about you know we now have $2 one sellers using the product and 800 million realistic. So we feel great about the the growth that we're seeing there as Steve commented some of that gap will narrow because of some of these onetime factors, but we see revenue.
<unk> pays out GB <unk> because of the success of what we're doing and add Steve maybe you want to take the second one yeah. So we've been very thoughtful and considered as we've looked at M&A and it's really to structurally improve the core marketplace and so if you think about where we've lancing minus fitment is really helping fuel.
And support the growth in parts and accessories, our biggest focus category. We recently Langton with TCG player, which is supporting a trading card business and so it's a long ago, which is the most recent acquisition really supporting a fashion category. So we've been very very thoughtful about.
The entities that we lean into and partner with or we ultimately buy to really support the long term sustainable growth of the platform and we will continue to be thoughtful and and as a group we look at each potential acquisition on its merits and make the best decisions.
Decisions to drive long term sustainable growth and shareholder value and I just add if you look at sort of logo. As an example, it's a perfect acquisition for ebay they have great relationships with brands. They are driving this ability to have these unique QR codes to make sure that problems are authentic and it's leaning into a trend that we're seeing frankly two trends one is the <unk>.
Gen Z consumer carrying more about sustainability and pre logged in what happens with garments, and frankly governments and regulators, especially in Europe, making sure that products don't go into landfill, but they get a second and third and fourth life, which drives consistently right into the strategy that we've been talking about as the pioneers of e-commerce and driving the circular economy and driving the benefit.
For the for the overall planet.
Yeah.
Your next question is from the line of Tom Champion with Piper Sandler Your line is open.
Good afternoon, we were positively surprised by international GMB growth. This quarter, while domestic was was maybe a little bit lower just curious any context or one timers to consider here and Jamie I'm curious with the marketplace essentially.
Flat year over year for the first half would it be reasonable to expect <unk> to return to positive growth in 'twenty four.
Maybe for Steve.
Reserved year for buybacks.
Any reason why you wouldn't monetize the out of Interstate to bridge the gap between the current period and maybe a return to <unk> growth and any comments on those would be really helpful.
Hi, Tom I'll pick up the first one and let Jeremy comment in a second so the first one with regards to international versus Jan.
<unk> dynamics Theres, a couple of items that are worth reflecting on as a reminder, fuel. The JMP is reflected on the geography, where the seller is domiciled eyewear sale takes place.
First its associated lapping dynamics, if you'll recall.
Europe in particular got hit harder as we sort of went through the awful events as the war in Ukraine, and the economic fallout associated with that and then I got had earlier and we started to lap through that versus the U S. In the first half of 2022 secondly.
We saw the supply chain challenges that were also lapping an easing of those supply chains, particularly for our cross border business that Jamie talked about earlier is helping drive our international geography momentum as we have an increase in cross border trade, obviously fueled by some of the benefit.
Ebay International shipping the one thing I would say, although I will say I'm very basis I continue to be very enthused by the overall level of momentum.
Because we're leaning nihilist focus catching in the U S. But also internationally and those investments are bearing fruit across all of our geographies. So having joined US just touch on the other question before I talk about capital with yes look I think the momentum. We're seeing is a reflection of the strategy that we have laid out and seeing it working so if you think about focus categories, which was our long.
Just one that we take we took on P&I, which was our largest one that we've taken on to date, having that grow mid single digits and category over $10 billion MBA market rates of growth speaks to the fact that we know how to rollout this playbook and make it successful and frankly, we're continuing to invest back into categories that we've already launched because of the return that we're seeing.
We feel good about things like what we're seeing in reefer with a double digit growth et cetera. The success that we're seeing in ads and payments. So we're really happy with the momentum that we have there as Steve talked about well kind of deal through the macro pieces, but we're continuing to invest behind the strategy because we feel like it's working and the investments are really paying off for the <unk>.
And for shareholders.
Specific to tie in to your question on capital returns, we remain committed to the return of 125% free cash flow as we talked about to shareholders through stock buybacks and dividends between 2020 four as I look at the last 18 months.
<unk> four $4 billion to shareholders, which is 130% of free cash flow spin.
Specifically around <unk>.
The assets that we hold I'm not going to share any specific details with any of our specific investment stakes, but it will continue to be our priority has always been to drive a disciplined approach and to maximize shareholder value through the investment portfolio.
Operator can we do one final question. Please.
Your final question comes from the line of Doug Anmuth with Jpmorgan. Your line is open.
Hey, Thanks for taking the question it's worth on for Doug Just a quick question on P&A.
Our performance has been solid, but just kind of curious what you're seeing on the supply side, there or if you feel like you are constrained done on any fronts on P&I.
Yes, no west we're seeing good supply from our sellers in that category. If you look over on the business supply is in great shape, we did 191.
Listings on the platform, we have over $500 million in P&A. The key for US has really been.
Helping sellers make sense of helping buyers make sense of all of that inventory and as we rollout the new fitment changes as we've rolled out guaranteed fitment. We're finding that the experience is just so much easier for all of our segments are key buyers.
Now using the my garage feature on the site. We just launched them to these two new AI features which enable us to make the buying experience. So much better you know once we know your car. We can tell you here's the key upgrades to do we can help you with things like your engine codes and.
And look this is the second quarter of mid single digit growth, which we believe is at market rates of growth and so we're feeling great about that as I said, our buyers in P&A are growing double digits faster than the rest of the markets. When you look at our new and reactivated buyers. So we're pleased with what we're saying, we're continuing to invest and rollout.
New features and new capabilities, we're seeing particular strength in CVT right now, but overall really pleased with what we're seeing in our motors P&A and frankly across our focus category portfolio.
Okay Super helpful. Thank you.
Okay.
Ladies and gentlemen, thank you for your participation today. This concludes today's conference call you may now disconnect.
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Okay.
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