eBay Inc.

Ladies and gentlemen, thank you for standing by and welcome to the eBay Inc. 3rd Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Mr. Joe Belante, VP of Investor Relations. Thank you. Please go ahead, sir.

Thank you. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2019. Joining me today on the call are Scott Schenkel, our Interim Chief Executive Officer, and Andy Kring, our Interim Chief Financial Officer. We're providing a slide presentation to accompany Andy's commentary during the call. which is available through the investor relations section of the eBay website at investors.ebayinc.com. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. Additionally, all revenue and GMV growth rates mentioned in Scott and Andy's remarks represent FX-neutral year-over-year comparisons unless they indicate otherwise. In this conference call, management will make forward-looking statements including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties, and our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties, and other factors that could affect our operating results in our most recent periodic reports on Form 10-K and Form 10-Q, and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of October 23, 2019, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Scott. Thanks, Joe.

Good afternoon, everyone. I'm excited to have the opportunity to take our company forward during this period of transition. In times of change, it is important to step back and make clear-eyed assessment of where we are, confirm what does not change, and identify what needs to be different. Our value proposition remains clear. eBay is one of the world's largest global marketplaces where consumers can shop unique inventory at great value. Sellers of all sizes have low-cost access to over 180 million buyers with a partner that does not compete with them. Our near-term priorities are unchanged. We are delivering our 2019 commitments including our growth initiatives of advertising and payments, improving seller capabilities, and growing the buyer base. In addition, we have completed an operating review and are implementing plans to expand margins. Lastly, we are executing a portfolio review to best position the company for the long term. For 2020 and beyond, change is needed to improve the underlying health of the marketplace's business. We are reassessing how to best deliver for our buyers and sellers and ensuring we match investments to serve them in an authentically eBay way. We will discuss this further at the January earnings call. With regards to our Q3 performance, total GMV was down 2%. Organic revenue was up 3%, while our active buyer base grew 4%, up to $183 million. Underlying these results, GMV on our marketplace platform was down 2%, stub up volume was flat, and our classifieds platform grew revenue at 8%. We also returned $1.1 billion in capital to investors through share purchases and dividends. Andy will go into more detail on our financial results shortly. Our growth initiatives continue to make meaningful progress. Advertising sustained momentum in Q3, where promoted listings drove $103 million of revenue, up over 120% from a year ago. Over 1 million sellers promoted more than 300 million listings in the quarter. This increased adoption was partly due to our integrated mobile experience, where sellers can opt in, review recommendations, and manage promoted listing performance. In addition, we improved our ability to vary the number of ads that appear in search results while balancing relevance for our buyers and conversion for sellers. There is incremental opportunity to grow promoted listings through adoption and conversion gains, and we see more untapped growth in ad rates and product formats. All of these levers give us confidence in achieving our goal of $1 billion in total advertising revenue. Moving to payments. Adoption is accelerating in the US and was recently launched in Germany. Since we began intermediating payments on our site approximately a year ago, we have processed over $1.1 billion in payments for over 20,000 sellers. In September in the US, we processed more than 9% of volume on our payment rails, accelerating close to the limit of our operating agreement. Sellers continue to share positive feedback on the more simple experience that pays them directly into their bank account while saving them money. For buyers, we have enabled more payment choices, including Amex and SIPA direct debit, which is commonly used in Germany. More payment methods will be added over time as we expand globally. We are on track with our plan to realize $2 billion in revenue and a half a billion dollars of operating income at scale, and this initiative will be a meaningful contributor to revenue growth in the second half of 2020. In addition to ads and payments, we continue to deliver capabilities that are specific to eBay and drive customer success. Sellers on eBay have the unique ability to directly interact with individual buyers. For example, seller-initiated offers saw increased adoption as we added more ways for sellers to drive conversion by targeting potential customers who abandoned carts. We have also added protections for sellers in major markets against abusive buyer behavior and events outside of their control. In addition, we expanded our seller hub toolkit by integrating capabilities we acquired from Terry Peak. In major markets, sellers now have a suite of features that identify what and when to sell and how to price inventory. In Germany, we help sellers comply with new VAT requirements while avoiding significant disruption. One of the most important ways we serve sellers is by growing the buyer base. In Q3, we group active buyers at 4% for the seventh quarter in a row. Acquisition of new and lapsed customers continues to be the main growth driver and is due to more focused marketing spend and new user improvements that we have launched over the past several months. In Q3, we expose new buyers to popular eBay features after their first purchase and are encouraging app downloads with more aggressive calls to action to migrate users to our best customer experience. Related to the long-term health of the marketplaces business, we are continuing on a path started a few years ago to organize one of the world's largest sets of unstructured inventory to power unique and compelling experiences. While progress has been made, we have changed our approach to make it easier for sellers to provide product details or aspects when they list items for sale. This is particularly relevant in categories like fashion and home, where product aspects are not specific to a catalog ID. With this rich data set, we will continue and re-energize our efforts to create engaging experiences showcasing the full spectrum of value. We'll update you further on our progress in January. Moving on from our initiatives, one hit at headwind continuing to impact the U.S. is internet sales tax. As laws have taken effect, government officials have chosen to tax small, out-of-state businesses with no local nexus and are requiring marketplaces to collect. Buyers are seeing higher prices at checkout and are purchasing less, particularly large dollar items. In Q3, the impact of US GMV was more than three points, and we expect that headwind to grow in Q4 as new laws in California, Texas, and nine other states take effect. While this impact is not unique to sellers on our platform, it is disproportionately affecting small businesses, many of whom sell on eBay. Looking at our international marketplaces, Overall performance was slightly down versus last quarter. In the UK, lower consumer confidence is driving a softer market, which we offset in Q3 with improved marketing efficiency. In Korea, we saw competitors significantly increase couponing, and rather than match their investment levels at low ROI, we chose to focus our investments on our loyalty program. We are on track to double the number of members in our Korean Smile Club loyalty program this year to almost 2 million. In Japan, we saw GMV acceleration due to successful marketing program in our acquired business, Q10. At StubHub, Q3 growth was pressured by landscape softness in concerts and theater, as fewer top artists and shows were active this summer. This headwind more than offset a solid start to the NFL season and strong double-digit performance in our international markets. In addition to these landscape dynamics, our first-party sales initiatives helped revenue growth outpace GMV, but more importantly, gave buyers more value and increased selection. Turning to classifieds, our portfolio continues to grow at healthy rates as we build on a leading position in many markets. Both our German and UK platforms, including our acquisitions of motors.co.uk, are performing well. Looking across our portfolio, our motors verticals, representing roughly half of our global revenue base, continue to grow at strong double-digit rates. Recently, we have seen headwinds from lower display advertising yields in some of our horizontal platforms, including Canada and Australia. Now let me update you on our operating and portfolio reviews. As previously communicated, we have been conducting an operating review of our cost structure, and we committed to provide an update in the fall. Today, I'd like to share that update. This extensive review has resulted in a plan aligned with our board and leadership team. We will deliver incremental margin over the next three years. The plans are robust and will impact all elements of our cost structure at different levels while enabling us to maintain and grow critical customer initiatives. We are both building on the two points gross, one point net margin rating gains delivered in 2019. and we intend to deliver another two points net of investments by 2022. Regarding the ongoing portfolio review, our leadership team and the board are evaluating the role of StubHub and Classified's businesses in our portfolio in a disciplined manner. We anticipate sharing an update on StubHub before our next earnings release. For the Classified's portfolio, we do not expect to have an update to share this year, but are considering long-term options. Rest assured we have made progress and the outcome will be determined by the actions the board believes will maximize long-term shareholder value. In summary, eBay exists to empower people and create economic opportunity. The shared purpose has driven our culture for 24 years and it motivates our 14,000 employees to deliver for our customers every day. In the near term, we will focus on delivering our 2019 commitments, scaling ads and payments, implementing our operating review plans, and optimizing our portfolio. In the long term, the opportunity remains substantial in the multi-trillion dollar market we play, and we will evolve our business in an authentically eBay way. Now let me turn it over to Andy to provide more details on our quarterly financial results. Before he begins, let me say that I'm thrilled he's agreed to step in as the interim CFO. We've worked together directly during his many years at eBay and prior to, and I appreciate his dedication and leadership during this critical time for the company.