eBay Inc.

Good day, ladies and gentlemen, and welcome to the eBay Q1 2019 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press start and zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Joe Galante, Vice President of Investor Relations. Mr. Valanci, you may begin.

Thank you. Good afternoon, and thank you for joining us. And welcome to eBay's earnings release conference call for the first quarter of 2019. Joining me today on the call are Devin Wendig, our President and Chief Executive Officer, and Scott Schenkel, our Chief Financial Officer. We're providing a slide presentation to accompany Scott's commentary during the call. All revenue and GMV growth rates mentioned in Devin and Scott's remarks represent FX-neutral year-over-year comparisons. unless they indicate otherwise. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the investor relations section of the eBay website at investors.ebayinc.com. You can visit our investor relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for at least three months through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of eBay, Inc. and its consolidated subsidiaries, including expected financial results for the second quarter and full year 2019 and the future growth of our business. Our actual results may differ materially from those discussed in this call for a variety of reasons. You can find more information about risks, uncertainties, and other factors that could affect our operating results in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company's investor relations website at investors.ebayinc.com or the SEC's website at sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of April 23, 2019, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks, and before I start, let me just publicly thank Salim Freha, who's been our head of investor relations and done a great job over the last couple of years, and welcome, Joe. Thank you. We delivered a solid first quarter driven by healthy buyer growth, strong advertising performance, and disciplined cost control. GMV declined slightly year over year, which was in line with our short-term expectations, as we noted last quarter. We returned $1.6 billion in capital to investors through share buybacks and our first-ever dividend payment. In Q1 total, GMV was down 1% and revenue was up 4%, while our active buyer base grew 4% to $180 million. Underlying these results, GMV on our marketplace platform was down 1%, StubHub volume was down 2%, and our classified platform grew revenue at 12%. Scott will go into more detail on our financial results shortly. To begin, let me provide some context on our business. As we mentioned last quarter, we entered the year with the intention to reduce low ROI marketing spend while maintaining the focus on driving positive buyer growth with new product experiences and targeted marketing. In Q1, that's exactly what we did. We removed a significant amount of promotional spend that tended to subsidize higher-priced items at low ROI. The impact of this change was lower GMV driven by lower average price, but steady sold item growth. In addition, we saw an impact to our business from the adoption of Internet sales tax in the U.S., as well as value-added tax in international markets. A number of jurisdictions have enacted legislation requiring marketplace collection of tax. Without a small business exemption, this trend will increasingly impact small domestic sellers, making it harder for them to compete in an increasingly global and large merchant-dominated world. On our platform in Q1, we saw approximately one point of impact on U.S. GMV and less than a point internationally. This will be a headwind until we lap a fully rolled-out Internet tax landscape. However, it's worth noting that the global tax environment remains fluid and it will evolve. In Q1, we continue to make the product experience simpler and easier for new users. We scaled a better guest experience and reduced friction for a guest to become a fully registered customer. We also launched an expedited registration process at multiple points across our experience. Sellers are being provided new guidance to improve their product aspect coverage. which is improving our structured database catalog, and this is beginning to lead to product experiences such as search and product pages that deliver better conversion. Visual search is improving, and we're making it more accessible. Our customers are now doing 150,000 visual searches a day, and eBay guaranteed delivery continues to expand as we exited T1 at 25% volume coverage in the U.S., At the same time, we provided a series of enhancements to our sellers to make it easier to manage listings and provide value to buyers. Sellers now see competitive pricing data side-by-side when listing or managing their inventory. We also improved recommendations on items which would benefit most from promoted listings and expanded seller eligibility in Q1 by more than 20%. Going forward, our focus will remain on empowering seller success, not on competing with them. while maintaining one of the most competitive take rates in our industry. While our GMV is down slightly year on year, our revenue is growing, and the gap between GMV and revenue will likely continue. This growth was partly driven by promoted listings, where more sellers are opting to invest to grow their business. In Q1, we had more than 800,000 active sellers promote over 200 million listings. This helped drive over 65 million of revenue this quarter, up nearly 110%. As we've mentioned previously, as this business scales, we're reducing third-party ads, which are not accretive to our ecosystem. We're very pleased with our progress and remain on track towards a billion-dollar advertising revenue opportunity. Looking at payments, we continue to ramp sellers and volume in our intermediated experience. We launched Google Pay in early April, and its adoption is in line with expectations. We also completed the integration of PayPal on our new platform, which has been live for a couple of weeks with a small set of customers and will continue scaling. Since the late Q3 launch last year until the end of Q1, we've now enabled 363 million of GMV with over 4,300 active sellers who've opted into the program. To date, we've saved those sellers $2.7 million in payment-related costs. As we've said before, We expect to begin a full rollout in 2020, building to a $2 billion revenue opportunity at scale. Lastly, on payments subject to regulatory approval, we're preparing to launch in our second major market, which will be Germany. As one of our largest international markets, Germany will provide a diverse testing ground for more payment methods as we expand globally. At StubHub, Q1 volume was impacted by landscape softness with a weak college football championship game and Super Bowl. This was partially offset by better growth in the NBA. As part of improving the customer experience, we refreshed our merchandising and launched a new homepage in Q1. We're also driving cross-selling by merchandising more eBay items in checkout, plus we continue to direct ticket demand on eBay to StubHub's tailored vertical experience. In our classified platform, We saw continued strength in our motors verticals. Our leading position in Germany helped drive another quarter of double-digit revenue growth, and our expanded offering in the UK contributed one point of acceleration versus Q4. We're repeating this playbook in Canada, where we recently launched a Kijiji Autos vertical. We also delivered synergy with our core eBay integrations. which drove over 80 million of GMV to eBay in Q1, while delivering nearly two points of ad revenue to classifieds. During the quarter, eBay ad yields to classifieds crossed an important threshold by beating the next best third-party alternative, allowing even more meaningful contribution to ECG's results going forward. Finally, with respect to the operational and portfolio reviews, which we announced in March, the process is underway. While we do not have material updates to share at this time, we remain on track with what we've communicated previously. Summary. We will continue to focus on growing our customer base, delivering on our ads and payment initiatives, and returning capital throughout the year. We feel strongly about our ability to deliver value now and in the future to our customers, employees, and shareholders. And with that, I will turn it over to Scott to provide more details on the quarterly.

Thanks, Devin. I will begin my prepared remarks with our Q1 financial highlights, starting on slide four of the earnings presentation. In Q1, we generated $2.6 billion of total revenue, delivered 67 cents of non-GAAP EPS, two points of non-GAAP operating margin accretion, $368 million of free cash flow, and we have returned $1.6 billion to shareholders through buybacks in our first-ever dividend. Based on these results, we have increased confidence in 2019 and are raising revenue and EPS guidance for the full year. Moving to active buyers on slide five. In the quarter, we increased our total active buyer base by 1 million to a total of 180 million, up 4%. We have maintained stable buyer growth driven by dynamics we've previously discussed while cutting back on lower ROI incentives. Turning to slide six. In Q1, we enabled $22.6 billion of GMV, down 1%, a three-point deceleration versus the prior quarter. The U.S. generated $8.9 billion of GMV, contracting 6%, while international delivered $13.7 billion of GMV, up 3%. Sold item growth remained flat despite this acceleration in GMV. Moving to revenue on slide 7. We generated net revenues of $2.6 billion, up 3% organically, decelerating two points from the prior quarter. We delivered $2.1 billion of transaction revenue, up 5%, and $535 million of marketing services and other revenue, up 1%. Turning to slide eight, our marketplace platform GMV was 1% in Q1, a four-point deceleration versus the prior quarter. US GMV was down 7%, a six-point deceleration versus Q4. Five points of the deceleration resulted from significant reduction in marketing, including contra revenue, and the dynamics associated with volume and average item price that Devin mentioned. We also see approximately one point of pressure from internet sales tax as sellers and marketplaces change and remit taxes in the states that have passed new laws. International GMV grew 3%, decelerating two points versus Q4, driven by increased competitive couponing in Korea and UK macroeconomic pressures, which continue to have a negative impact on consumer spending. Total marketplace revenue is $2.2 billion, up 4%, decelerating two points from the prior quarter. Transaction revenue grew 6%, a one-point deceleration, and seven points higher than GMV, highlighted by promoted listings growth of nearly 110%, which contributed almost two points. In addition, a higher take rate, driven by a reduction in lower ROI marketing investments and incentives, drove nearly two points, and our acquisition in Japan drove over one point. Marketing services and other revenue was down 8%, decelerating four points versus Q4. This was primarily the result of shifting our advertising efforts away from non-strategic third-party ad placements towards our first-party promoted listings product. In addition, MS&O revenue generated from our operating agreement with PayPal declined 20% year-on-year and will continue to be a headwind with the expiration in July of 2020. This decline will be more than offset by revenue from intermediated payments on the eBay rails, which is reflected in transaction revenue. As you can see on the slides eight, 10, and 11, we are now providing segment margins for Marketplace, StubHub, and Classifieds, driven by several events that occurred in 2019, including the recent reorganizations and our increased focus on margins. We believe this new structure will enable strategic alignment of global priorities across markets, streamline resource allocation, and ultimately increase speed of decision making and execution. Margin for each of the three segments will include costs associated with cost of revenue, including customer support, site operations, and payment processing. Marketing, brand, and other programs and people cost to support. Product and technology inclusive of data centers, developers, and support to deliver the product experience. Costs related to facilities, IT, human resources, finance, and legal that directly support the segments. And finally, the impact of foreign exchange across the segments and hedging activities specifically in marketplaces. Corporate and other costs consist of expenses not directly related to the segments, inclusive of corporate management costs like human resources, finance, and legal, and other non-allocated costs representing approximately 3% of revenue annually on a non-GAAP basis. Finally, consistent with prior reporting, items such as amortization of intangible assets, stock-based compensation, and restructuring charges are excluded from our overall non-GAAP operating income. In our GAAP reporting, these items are reflected in corporate and other costs. Please refer to our 10-Q for more details. All of our segments have seasonal cadences with higher margins in Q1 and 4 at the Inc. level. Keep in mind that one-time costs may have a bigger impact in our smaller segments. With that as context, marketplace margin is 36%, up three points versus Q1 2018, primarily due to reduced cost base and benefits from our currency hedging program, partially offset by the acquisition in Japan and investments in payments. Moving to slide nine, we continue to make good progress in our payments initiative, adding sellers and intermediating more GMV while our sellers continue to realize savings in payment-related costs. As a reminder, we are gated by the existing operating agreement of up to 5% of GMV between July 2018 and July 2019, and 10% between July 2018 and July 20 in two markets. Our Q1 run rate of annualized GMV is nearly $1 billion. Our buyers are presented with more and more choices on how they want to pay on eBay's payment rails. Options now include most major credit cards, Apple Pay, Google Pay, and PayPal as we progress towards our 2 billion annualized revenue and 500 million annualized operating income goals at scale. Turning to slide 10, StubHub GMV contracted two points, decelerating one point from Q4. A weaker college football championship game than Super Bowl were the primary drivers of the deceleration. reaffirming the event-driven nature of the tickets marketplace. StubHub revenue is flat, down two points versus Q4, driven by volume deceleration and event mix. MS&O revenue for Q1 is $7 million, most of which is first-party inventory. This is a nascent area of our business where we leverage our relationship with primary sellers to purchase tickets directly and provide more inventories for our buyers. While it typically operates at lower margins, we believe it to be positive for our customers. Looking at StubHub segment margin, there are a few dynamics to keep in mind. First, seasonality is more pronounced than the other segments. Second, the Major League Baseball agreement adds pressure to margins during the season. Finally, international expansion will continue to be modestly dilutive. With that as context, margin in Q1 is 11%, down two points versus Q1 2018, driven by an increase in marketing spend, largely search engine marketing. Moving to slide 11, classifieds revenue grew 12%, accelerating one point, supported by our acquisition of motors.co.uk. Organically, Germany continues to be the leading driver of our growth. Looking at classifieds margin, there are a few dynamics to keep in mind. First, we run a diverse portfolio comprised of mature platforms that run higher margins and strategic bets at lower margins. Underneath, We work to get scale through a common technology infrastructure and by adding capabilities that enable our vertical motors playbook. Segment margin for classifieds is 36%, up one point compared to Q1 2018, driven by volume leverage from our larger platforms. Turning to slide 12 and major cost drivers. In Q1, we delivered non-GAAP operating margin of 29.8%. This is up 190 basis points versus last year, primarily due to a reduced cost base in line with previously communicated plans to grow margins in 2019. Additionally, approximately one point of favorable impact from foreign exchange offsets the acquisition in Japan and investment in payments. Cost of revenue is up over one point year over year as a percentage of revenue driven by investments in site operations and payment processing. Q1 sales and marketing expense was down over one point versus the prior year, driven by one point reduction in the cost base, one point favorability from a stronger U.S. dollar, partially offset by one point from our acquisition in Japan. Keep in mind that most of the low ROI program reductions are reflected in contra revenue. Product development costs were down nearly two points as a result of our increased productivity, even as we continue to invest significant resources into strategic opportunities such as payments and ads. G&A was slightly down our sixth consecutive quarter of productivity, Our disciplined execution continues to drive leverage and more than offset our investments in payments, data, and security within G&A. Moving to EPS on slide 13. We delivered 67 cents of non-GAAP EPS, up 26% versus prior year, our fourth consecutive quarter of double-digit EPS expansion. EPS growth was driven by the net benefit of share repurchase, margin expansion, and a lower tax rate. partially offset by our investments and payments. GAAP EPS for the quarter is $0.57, up 45% versus last year. The increase in GAAP EPS includes a $113 million gain recognized due to the change in a fair value of a warrant agreement. As always, you can find the detailed reconciliation of GAAP and non-GAAP financial measures in our press release and earnings presentation. On slide 14 in Q1, we generated $368 million of free cash flow, up 9%, driven by strong operational growth, partially offset by a one-time restructuring payment. Turning to slide 15, last quarter we talked in detail about our capital allocation strategy and our key tenants, and targets have not changed. We've executed our first dividend payment of $125 million, while continuing to aggressively buy back shares, demonstrating our commitment to return capital to shareholders in a disciplined and diversified manner. In Q1, we repurchased 42 million shares at an average price of $35.90 a share, amounting to $1.5 billion, and $12.8 billion total since separation. We ended the quarter with $5.7 billion of share repurchase authorization remaining. For the quarter, we ended with cash and investments of $7.3 billion, debt of $9.3 billion for a combined net debt position of $2 billion. We expect to pay down $1.6 billion of debt in Q3 and continue our capital return program as we target 1.5 times net debt fee but die in the midterm. Turning to Q2 guidance on slide 16. For the quarter, we are projecting revenue between $2.64 and $2.69 billion, growing 2% to 4% on an organic FX neutral basis. We expect non-GAAP EPS of 61 to 63 cents per share, representing 15% to 19% growth. EPS growth is driven primarily by the net benefit of our share repurchase program and operational growth, including margin expansion. This is partially offset by lapping a lower tax rate in Q2 of 2018, and our investment in payments intermediation. We are expecting GAAP EPS in the range of 41 to 45 cents per share in Q2. For the full year, we're raising revenue to the range of 10.83 to 10.93 billion dollars, representing organic FX central growth of two to three percent. This raise reflects a combination of Q1 performance, increased confidence in our first party advertising plan, and increased clarity on overall monetization, partially offset by the strength of the US dollar. In addition, while online sales tax are contemplated in our outlook, it is important to keep in mind that the global landscape is dynamic and rapidly evolving. Operating margin expansion continues at 28 to 29%, and non-GAAP effective tax rate remains at 16 to 18%. We are increasing our full year non-GAAP EPS guidance to $2.64 to $2.70 per share, reflecting Q1 operational performance. Cash flow remains at $2.1 to $2.3 billion, as does CapEx at 5% to 7% of revenue. Finally, we are increasing full-year GAAP EPS to $1.94 to $2.04 per share, driven by the increase in the fair market valuation of a warrant and the increase in non-GAAP guidance partially offset by Q1 restructuring charge. In summary, we entered 2019 focused on delivering shareholder value through modest revenue growth, expanding margins, strong double-digit EPS growth, and more capital return through share purchases and a dividend. One quarter in, we're executing against that plan with 3% organic revenue growth, inclusive of planned marketing reductions, 26% EPS growth, and over $1.6 billion total capital return to shareholders. Based on this result, we have increased confidence in 2019 and are raising revenue in EPS guidance. Advertising and payments on eBay are significant opportunities that continue to demonstrate progress, and we're executing on a marketing and product roadmap positioning eBay for healthy, long-term growth. And now we'd be happy to answer your questions. Operator?

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then 1 key on your touchtone telephone. We ask that you please limit yourself to one question and one follow-up question. You may then return to the queue. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Eric Sheridan with UBS.

Thanks for taking the question. Maybe two parts. On active buyers, you continue to see strong active buyer growth. Can you give us a little bit of color about how those buyers might be acting differently, both positively and negatively, than the broader cohort? on the platform and then the second part of the question would be, how should we think about that active buyer growth translating into GMV growth and revenue growth as the cohorts begin to age as you look through 2019 and through 2020? Thanks guys. Thanks for the question.

On the first part, we've been very careful to measure that and we don't see material differences between buyers that we've acquired recently, let's say in the last year than we have historically. There's a little bit of difference when we acquire a user as a guest versus a fully registered member on their customer lifetime value, but we're very focused. That's why, as I said in my remarks, very focused on converting those guests to members. But absent that, if you look just at time longitudinally, there's no real difference, and that's been really important that we focus on healthy buyers, not just any buyers. You know, I've said before that it can dislocate quarter to quarter, even for several quarters at a time. But in the long run, buyers is a very excellent metric for where GMV wants to go. You know, we said a year ago when GMV was above buyers that we were trying to get the buyer number up, and ultimately GMV came down to meet that buyer number. Now GMV is below that buyer number. But if we keep growing the buyer number, we have confidence that the ecosystem is healthy and the financial metrics do follow that. So that's the reason, ultimately, that we keep growing the customer base is that we think almost the best correlate to where ultimately GMB and then, you know, revenue and the other metrics that flow from that want to be is the buyer number over time. It doesn't have to be quarter to quarter. But that's why we are focused on continuing to grow that customer base. Great. Thanks.

Thank you. Our next question comes from Stephen Ju with Credit Suisse.

Okay. Thanks. So, Devin, I want to probe a little bit on the payment platform and how that's going. You've announced $220 million in payments facilitated. And, you know, this is not a criticism per se, but that dollar number is still a very small percentage of the overall GMV. and pretty far under the limits of your agreement with PayPal. So are you just being extraordinarily careful in the rollout, in the transition, or are you encountering issues with the incremental buyer, seller buy-in? And any perspective on when you can theoretically onboard some of the other online payment platforms that otherwise were not available with PayPal so you can maybe think about expanding your buyer base? Thanks.

Well, we are delighted with our progress on payments, and we're gated by the operating agreement, and we're not that far from it now. On a run rate basis, I think the number we gave you puts us close to 4% of US GMV, and we'll go right up to the limit as we come close. There was no reason to go any faster than that. I will say we've had an outstanding queue of sellers. Remember, this is an optional program. Nobody needs to be part of it, and we have grown the number of sellers, and the pipeline is huge. And frankly, we couldn't even onboard all of them right now, so we've just been very gated. And remember, this has been done without PayPal until the very, very end. The entire trial that we've done so far has been done without PayPal. What we found is that it has not been an important gating factor to the onboarding of sellers. and we found that they're getting great performance, and we have a tremendous amount of influence over the means of buyer payment at checkout. Those are the things we've learned in the last couple of quarters. Remember, we've added a bunch of new payment mechanisms already that were never part of our ecosystem, most notably Apple Pay and Google Pay, and there are many more coming. In Germany, one of the reasons we chose Germany is that there are many, many forms of payment, direct bank transfer, direct debit. It's a complicated market, which is the reason we chose to do it. But I would say we are exactly on track. We are very pleased with our performance on payments. We'll go right to the 5% line this quarter, and then we'll start scaling the 10%. And we are on track to begin a very rapid expansion of this program in one year and three months, but who's counting? Thank you.

Thank you. Our next question comes from Heath Terry with Goldman Sachs.

Great. Thanks. A couple of things I just wanted to try and clarify. One, with sales and marketing coming down as much as it did on a year-over-year basis, I know that was a – a priority for you as you look to get more efficiencies there. Curious about what you've seen in that tradeoff, whether it was in line with your expectations in terms of what level of spend you were able to cut versus the impact that it had on GMS or even profit growth, if you want to think about it at that level. Um, and then more just a clarification, uh, the strength that we saw in take rate, uh, can we, what's the right way to think about the components of that? Um, I know hedging was part of it and certainly promoted listings helped, but if you could just give us a sense of sort of how we should, um, either, either rank order or break those pieces down.

Yeah, a couple of things. First on take rate, um, you got a chunk of it was promoted listings. Chunk of it was foreign exchange, but, um, you also have the dynamic or the contra revenue coming down pretty significantly. And so those were the primary drivers of take rate. If you look at – if you relate it back to your first question, kind of an ROI, it was more or less in line with what we expected. You know, we kind of thought it would cost us about four points of GMV growth, you know, if I think about it for North America where the majority of the reductions occurred. And that's about what we saw. And as we think about the benefits that we saw in revenue, I think we will continue to look at the active buyer cohorts that we got this quarter and see how that turns on a CLV basis going forward. But I think at this point it was kind of right in line with what we expected and kind of felt good as it relates to the rest of the year. for our plans for 2019. Thank you.

Our next question comes from Ross Sandler with Berkeley.

Guys, this is Deepak on for Ross. The new segment margin is very helpful. Thanks for that. It seems like the classified segment margin is healthy at around 40%, even though margin is probably a few points higher. Do you feel the pace of margin expansion that you saw over the past two to three quarters as classified is sustainable? And then second question, on the core marketplace business, it sounds like promoted listings was up triple digits. What inning are we in currently with respect to promoted listings adoption? Is there a way perhaps to quantify it either as ad load or maybe as a seller penetration at this time? Thank you so much.

Yeah, first on segment margins, you know, we published the six quarters on the charts that you saw. You know, what I'd say is the classifieds business is driven by the mix. The margin rates are driven by the mix of businesses that you've got and whether they're, you know, larger at scale platforms or whether they're subscale and growing, you know, in growth markets where you tend to have to invest a bit more. You know, Alessandro and the classifieds team has done an excellent job of balancing that over the course of the last several years. I don't look at their margin rates and go from here there to skyrocket. I think what we look at it as where can we invest in the next incremental market or the next incremental vertical like we did with the motors.co.uk acquisition. That gives us a lot more bandwidth from a vertical expansion to and kind of serving the market and monetizing the market perspective, which is great. But, you know, as you go through a course of growing a business, you're going to have some pressures on margins, and the team has done an excellent job of balancing those and trading them off.

In terms of promoted listings, it's still very early. If you look at analogs to eBay, other marketplaces that have rolled out products that are similar, our penetration – and monetization rate are still in the early stage of scaling, and we know that because as great as it is that we've had 800,000 sellers promote listings, that means that there are tens of millions that have not yet. And we also are just in the phase of fully integrating from the buyer's side where promoted listings show up in a unified search ranking, and there's a whole bunch of other plans to expand both the seller's side and the buyer's side. So we think there's a lot of runway, and that's why we said last quarter that we think it's a billion-dollar opportunity. Remember, we're being very selective about removing third-party advertising as this scales. But one of the things that I'm happiest about is that the seller NPS on this, if you will, their happiness with this product is extremely high. It's been one of the most successful new products we've rolled out from a seller perspective ever. and they're adopting it. And remember, it's completely optional. Nobody has to use it, and they're flocking to it. And to me, it's a way that you can, if you want, trade off some margin for some velocity. And there are many sellers that want to do that. So we're really happy with it. It's early, and it'll be a key contributor to the billion-dollar advertising opportunity.

And I'm Bill. I mean, I think to Devin's point, in Q1, we started to iterate on the capability to have merchandising promoted listing placements. And that gives another way and place for sellers to advertise in a way that I think is highly functional from a buyer perspective to give you new ideas or adjacent ideas as you go through the selection of your item process and checkout.

Thank you. Our next question comes from Colin Sebastian with Baird.

Great, thanks, and congrats on the quarter. I guess for your picture question first, going back to the take rate, I know there are a lot of moving parts, but I'm wondering what you have in mind perhaps is more of a normalized take rate in the core marketplace segment, assuming, of course, that promoted listings and payments continue to ramp. And then secondly, any progress on reengaging the older buyer cohorts? I know you've mentioned previously that being a goal as well in addition to the new buyer growth. Thanks. Thanks.

So on the marketplace's take rate, it's kind of hard as you think about the dynamics. If you look at the underlying marketplace's take rate, it was 8.7%. It was up year on year with the favorability of the commentary I gave earlier on foreign exchange, promoted listings, and a reduction in lower ROI marketing investments. But that is context-based. promoted, you know, first-party promoted listings ends up showing up in transaction revenues, so that inflates take rate. To Devin's point, that's completely up to a seller, and it's selective if they choose to do that or not. We're certainly not forcing them to do that. We're just trying to provide a great experience that provides more velocity. And then over time, you're going to, and already what you're starting to see now is the take rate's going to start to be favored by the payment monetization as well. and how that gets shown in each of the individual markets will be determined. But largely speaking, it's going to be shown likely in transaction revenue. So that's also going to favor marketplaces' take rate. So it's really hard to say. I think, you know, the way I think about it is the underlying take rate of the core marketplaces' business, as you think about transaction revenue, probably is going to be stable with the normal fluctuations that we've talked about over the years. And the – The payments take rate is going to get added to that, and it's up to sellers whether they want to choose promoted listings or not.

On the buyer question, Colin, we're very focused. I think the question was reengaging existing buyers. One of the ways that I'd say I categorize our effort is there is a high focus in the company now on frequency and engagement. And part of that is to reduce churn rates. There are still too many buyers who only shop, let's say, one category on eBay. Let's say they buy camera equipment on eBay. But we're really great if you look at our inventory and pricing across more categories. So the opportunity to get shoppers to buy across categories is very high. And you can expect in the balance of the year, a number of product and marketing initiatives to begin to target existing buyers with frequency and cross-category shopping. We've got some really exciting plans, some of which we're not ready to announce yet, but we think it's a tremendous opportunity to engage existing buyers and to get them to shop and think of eBay more broadly than we do. And that also, over time, we think will have the impact of reducing the churn rate, which should help the buyer number. So that's kind of been a big push here internally, and you'll hear more about it as the year progresses. Thank you.

Thank you. Our next question comes from Dan Salmon with BMO Capital Market.

Good afternoon, everyone. Devin, just a couple questions. First, any update on rolling out potentially cost per click or CPC pricing for promoted listings? I think you mentioned last call that that was probably coming this year. just be interested to hear an update on that. And then second, you know, both you and Scott have reiterated a couple times here those big long-term goals of $2 million in revenue and $500 million in OI for payment. I'm wondering if you could help elaborate a little bit on how you're thinking about the timeline to that. You know, you said a moment ago, I think, that once that year and three months is up, you're ready for a rapid expansion. Are we headed to those sort of numbers fairly quickly? Does it take several years to get to that type of level? Would love to hear a little bit more on that. Thanks.

Yeah, on CPC, we said we're definitely looking at it. I don't have anything in terms of a product announcement to make today, but we are definitely looking at seller demand for a CPC product, and we'll update you when we're ready to announce something on that. On payments, you know, similarly, You know, keep in mind, July of next year, we will not have constraints on the operating agreement. We believe that we'll have much of the product functionality built, but also we'll be entering, you know, it's not that long after July that you start to enter a holiday period where you've got to be careful of changes. We're not yet ready to give a full detailed rollout plan, but I think you should assume that everything we're doing now, the significant investments we're making, and we've been talking about this for a year, let me just reiterate, number one, we're delighted with where we are. This has been a very successful, albeit gated, program. And if you had told me a year ago I could be here today, I'd take that any time. So that doesn't mean that we don't have a lot more work to do, but it does mean our first year we've done exactly what we would have hoped we would have done, and we are delighted with the seller reception and the buyer reception of more payment choices. You can expect, given the investments we're making and the train tracks we're laying down, that we won't be shy come July of 2020. in the rollout. And, you know, we'll update more on the overall rollout plan probably later in the year or the beginning of next year. We're not going to do that yet. But I want – it's important that you know that we are going to be aggressive.

Great. Thanks. Maybe just one quick one for Scott. I might have missed a footnote or a comment here, but the segment margins discloses Are they gap figures, non-gap, EBITDA? What's all in those numbers precisely?

Non-gap margin with the reconciliation. All the reconciliations are in both the press release and ultimately will be in the queue, yeah.

Got it. Found it.

Thank you.

Thank you. Our next question comes from Mark May with Citi.

Can you hear me?

Yeah, we got you.

Thank you very much. Just a couple of quick ones, please. The average take rate in international markets did not increase sequentially. Certainly, it had been prior to that. But in the U.S., we saw quite a nice increase. Why the difference there? Maybe it's related to the adoption of promoter listings and kind of you know, the lag effect there, but just wanted to get a little bit more color on the difference there and how should we be thinking about international take rate kind of relative to the U.S. and just in general going forward. And I had one follow-up if I could.

Sure. The majority of the and sales incentives that show up in the form of contra revenue were reduced in the U.S. So that favored the take rate in the U.S. And that was the difference, if you will, between the international and the U.S. take rate. What was your follow-up?

Got it. That makes sense.

Just a quick follow-up on that. Promoted listings have seen broad adoption internationally. There's not a material difference in the uptake of promoted listings in the U.S. or in our international markets. It's been broadly adopted internationally.

Thank you.

I think there was a follow-up.

Mr. May, your line is still open. Okay. Our next question is from Edward Yermo with KeyBank Capital Market.

Hey, thanks for taking the question. Last year you made a lot of changes to the consumer experience, product improvements, and I know that there was a divergence between habituated users and non-habituated users. As you've rolled some of them back and tweaked some of the other changes, I guess what changes are you finding that are still positive and still contributing versus what kind of have you rolled back and do not intend to implement? Thank you.

Yeah, thank you. We said a couple of quarters ago that what we would do is effectively bifurcate the experience so that new users were getting more of the structured data product-based experience and existing users were being landed more on the historical experience. That's what we've done. And one of the reasons we've been able to maintain healthy buyer growth is with this significant reduction of marketing is that we're seeing great conversion gains for new customers. That gives us a lot of confidence for the future. In the core, we're also seeing the impact now that the evolution of structured data is making. This year will be very focused on aspect coverage, meaning Knowing the product is important, but knowing the attributes of the product in many ways is even more important. And we'll be encouraging sellers to contribute a great degree of richness to their listings because we know that that richness improves our catalog and drives buyer conversion. So I kind of hinted at that in my remarks, but you'll see a significant expansion of the coverage and quality of our catalog this year. and the early signs are very positive on conversion, so that's where we're going to focus. But for new users, we've been even more aggressive about product-based experiences, and that continues, and we're real happy with the results there.

Got it. Just as a quick follow-up, you know, I know that there was an issue of those habituated users on the new product experience. Have you been able to bend the curve with them or get them to adopt some of the functionality that maybe the new customers have responded so strongly to?

Yeah, well, what we're seeing is that what matters to our existing customers is less a fully product-based experience, but more the richness of listings that the catalog and structured data bring. So to me, a product experience is you fully collapse listings into the product. There are definitely cohorts of buyers who love that. But many existing customers did not, as we said several quarters ago. But what they do want is better listings and more inventory to surface through search when there are richer attributes. So that's what we're focused on for the existing base. And you'll hear a lot more about that through the course of this year. Great. Thanks so much.

Thank you. Our next question comes from Justin Post with Bank of America, Merrill Lynch.

Hey, this is Mike on for Justin. We just want to ask if you could discuss the marketing strategy going forward and if you could provide any color on how you see the balance between efficiency and potentially constraining GMV growth in the longer term. Thanks.

You know, we historically have been disciplined marketers. We're very focused on ROI. We're very focused on not – on not wasting money in the way we market. And we did say last year, over several quarters, we were pushing the efficient frontier to learn how far we could go with getting a healthy return. There were some things we did that we liked and there were some things we did that over time just did not provide a decent return. What we found is that we were subsidizing some existing buyers at high ASPs. We weren't getting a return on that, and that's what we withdrew. But going forward, our marketing strategy is to continue to market the brand. We've been in brand every month this year. We'll continue to. We'll market across channels, social, search, obviously our own owned channels like CRM, and we will be focused on acquiring new customers at healthy CAAs and driving healthy customer CLVs. That's kind of what we've always done, and that's what we're going to do.

We'll take one more question, please.

Thank you. And our final question comes from Igo Arunian with Redbush Securities.

Hey, guys. Thanks for squeezing me in. So just to dig in a little bit more on the frequency – the sold items being flat, as well as your users, the active buyers growing 4%. So you talked about the active buyers being a good indicator, even if it dislocates at some point, of future GMV growth. I just wanted to kind of ask, what gives you the confidence that the dynamics in e-commerce and marketplaces haven't changed over the past two, three, or four quarters? And that kind of thing that you've seen in the past gives you a good indication to what you'll see in the future.

I mean, look, things are changing all the time, but I think what was in Scott's remarks is the best indicator, which is we took direct action and we saw exactly what we had expected to see. So that doesn't mean that there isn't a change to the external landscape. There always is, but keep in mind we're changing as well. I think the eBay experience is the best it's ever been. But we reduced a lot of subsidy. We got the GMV result we expected. And, you know, the ecosystem keeps growing. Number of business sellers keeps growing. The amount of inventory keeps growing. Number of buyers keeps growing. Those are positive signs. I mean, I guess in some theoretical world it's possible that we won't grow if those metrics grow, but it's really hard to get your head around how that wouldn't happen. So that gives us the confidence to give an updated forecast, and we'll go from there.

Great. Thank you. And maybe just one real quick follow-up on the product-based listings and the existing users versus new users. So it sounds like what you're saying is you'll continue, at least for the time being, to run kind of a side-by-side experience around the product-based listings. Am I thinking about that correctly? Absolutely.

We've been doing it and we'll continue to do it, but that doesn't mean the existing experience isn't changing. It's just changing in a different direction with much more aspect coverage, less full product base. It doesn't mean it will never happen, but it's not what we're focused on right now.

Okay, great. Thank you.

Well, ladies and gentlemen, thank you for participating in today's question and answer session as well as today's conference. This concludes the program. You may all disconnect and have a wonderful day.