eBay Inc.

Ladies and gentlemen, thank you for standing by and welcome to the eBay Q3 2020 earnings 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 questions during the session, you will need to press star then 1 on your telephone keypad. Please be advised that today's conference is being recorded. If you require further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Joe Belante, VP of Communications and Investor Relations. 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 2020. Joining me today on the call are Jamie Iannone, our chief executive officer, and Andy Crane, 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.ebainc.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 Jamie's 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 28, 2020, and and we do not intend and undertake no duty to update this information. With that, let me turn it over to Jamie.

Thanks, Joe, and good afternoon, everyone, and thank you for joining us. Today I'll walk you through some of the key highlights from the quarter and update you on our new tech-led reimagination of the company. Then I will turn the call over to Andy to discuss our recent performance and near-term outlook. Before I do that, I'd like to take a moment and reflect on a major milestone eBay passed last month. Twenty-five years ago, during Labor Day weekend, our founder, Pierre, launched eBay as a technology experiment. His aspiration was to create an open, fair, and trusted marketplace that empowered people and created economic opportunity for all. Since our inception, eBay pioneered online shopping and has become an iconic brand that has shaped the modern e-commerce landscapes. We are very proud of our accomplishments, and today we connect over 183 million buyers to nearly 19 million sellers around the world. in a broad and diverse set of categories. We are operating during historic times when our buyers and sellers need us most, while supporting our employees who are working hard to meet the needs of our customers and adjusting to their own reality. As we look ahead to the next 25 years, our vision is to become the best global marketplace to buy and sell goods through a tech-led reimagination of eBay. I will come back to this in a moment, but first let me talk about our most recent achievements. In the third quarter, we delivered strong results, Earlier this month, we updated how we report classifieds. But to be clear, on apples-to-apples basis, we performed better than expectations on both the top and bottom lines. Gross merchandise volume in marketplace was 21%. To put that in perspective, we added over $4 billion in volume in 2003 versus last year, more than many businesses do annually. Active buyers increased to over 183 million globally. Organic revenue grew faster than volume, up 26%, driven by payments and advertising. The managed payments migration made significant progress in Q3 and is delivering buyers and sellers a simplified end-to-end experience. Starting with five of our largest markets, we focused first on transitioning business sellers to the new payments platform. As a result, we exited the quarter with over 340,000 sellers migrated. During the quarter, eBay managed payments for over 20% of on-platform volume. Additionally, we informed sellers that we are expanding managed payments to France, Italy, and Spain in early 2021, and we will begin to migrate consumer sellers in Q4 in the U.S. We remain on track and expect to complete the vast majority of our transition by the end of next year. Seller feedback has been encouraging, as the NPS from sellers in managed payments has averaged more than 10 points higher than the NPS of sellers who have yet to migrate. Buyers love the flexibility, choice, and ease of use. We are seeing new and reactivated buyers choosing alternate forms of payment like credit and debit cards, Google Pay, and Apple Pay across the majority of their purchases. We remain confident that we are on pace to deliver $2 billion in revenue and $500 million in operating income on an annual basis by 2022. Advertising growth continues to be driven by promoted listings, which continue to outpace volume, a trend we expect will continue for the foreseeable future. In the third quarter, promoted listings delivered $186 million of revenue, up 77%. We are providing sellers with more data-driven recommendations to optimize their ad conversion, while we test and build more technology features to drive future growth and position eBay as the seller's platform of choice. Now turning to classifieds. We believe that the transfer of classifieds to Ad Aventa is on track to be completed in Q1 2021, subject to regulatory approvals. We've been excited to bring together two highly complementary businesses that can create tremendous value over time. The market agrees, as evidenced by the appreciation in Ad Aventa's share price, which increased the value of eBay from $9.2 billion to over $11 billion based on recent trading levels. As you may recall, Last quarter, I outlined a long-term vision for eBay. Through a tech-led reimagination, we can realize the enormous untapped potential of our marketplace and drive sustainable long-term growth. We have three strategic priorities to support this vision. First, to defend our core by building compelling next-gen experiences for our enthusiasts. Second, to become the partner of choice for sellers. And third, to cultivate lifelong trusted relationships with our buyers. We are in the first phase of a multi-year journey, but many tech-led improvements for buyers and sellers yet to come. But over the past quarter, we were able to take several steps towards realizing this vision. As I mentioned, our first priority is all about defending our core business. Our focus here is on non-new and seasoned products and simplifying consumer selling. We're taking a holistic view of customer needs, responding by launching features to address those needs, and rapidly replicating the approach, leveraging scalable technology across enthusiast categories. A great example of that is the series of changes we made to our luxury watch category. Recently, we launched Authenticity Guarantee on all watches above $2,000. This service increases confidence for both buyers and sellers. Buyers can count on meticulous verification by third-party experts, and sellers are protected from fraudulent returns. In addition, we announced an escrow service for high-dollar transactions, plus new app content for watch enthusiasts, and we also reduced fees for sellers. While this service is still in its early stages, we have already seen a modest increase in supply and higher average selling prices. We also turned our focus to the sneakers category, which attracts passionate enthusiasts, particularly Gen Z and millennials. In the USA, sneaker GMB has significantly improved from a year ago. These buyers and sellers bring tremendous value to our ecosystem. An average sneaker buyer purchases in 10 unique categories each year more than double the amount of other eBay buyers. Leveraging similar technology launched in watches, we expanded the authenticity guarantee to sneakers. We are requiring all collectible sneakers, both new and pre-owned, above $100 and to be verified by a team of independent third-party industry experts. The program kicked off with the authentication of our most popular brands and styles and will scale to all sneaker sales over $100 next year. A year ago, we were losing share in this important category, but now we are seeing over 50% GMV growth year-to-date, and that was before launching the Authenticity Guarantee. And just last week, We announced the launch of a new elevated experience for certified refurbished products. We see tens of billions of dollars in untapped potential in the global refurbished market. Through our new certified refurbished program, buyers can save up to 50% on like-new branded inventory with all the assurances of buying new, including a two-year warranty, eBay money-back guarantee, and hassle-free 30-day returns. We are launching this program in partnership with globally recognized brands, including DeLonghi, Dirt Devil, Hoover, Makita, and Philips, that will sell certified refurbished inventory exclusively on eBay. Not only does this program help with buyers' budgets leading into the holiday season, it also helps to eliminate unnecessary waste by keeping products in circulation for many years to come. We see a long runway to accelerate GMV growth given the $500 billion global total addressable market we are competing for, but it will take time. By leveraging scalable technology, we can uniquely address the needs of customers across a diverse mix of categories in electronics, fashion, collectibles, home and garden, parts and accessories, and more. Moving on to the second key part of our vision, becoming the platform of choice for sellers. Over the past three months, in addition to enhancements in managed payments and advertising, we continue to leverage the scale of eBay to benefit small businesses. We work closely with UPS to offer new shipping services for sellers on our platform. In addition to a direct integration with eBay labels, sellers now have access to discounted rates, saving them time and money. Sellers also have access to order details, customer information, label printing, and shipment tracking all in one place. And buyers benefit from lower shipping costs and integrated tracking. Additionally, we are supporting seller profitability during the upcoming holiday season by working with the carriers on our platform to eliminate peak season shipping surcharges on eBay. Recently, we rolled out an update.

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Hi, at the risk of repeating myself, I'm going to go back a little bit just to make sure, because I understand the line got fuzzy, which we apologize about the technical difficulties. So we also turned our focus to the sneakers category, which attracts passionate enthusiasts, particularly Gen Z and millennials. In the U.S., sneaker GMV has significantly improved from a year ago. These buyers and sellers bring tremendous value to our ecosystem. An average sneaker buyer purchases in 10 unique categories each year more than double the amount of other eBay buyers. Leveraging similar technology launched in watches, we expanded the authenticity guarantee to sneakers. We are requiring all collectible sneakers, both new and pre-owned, above $100 to be verified by a team of independent third-party industry experts. The program kicked off with the authentication of our most popular brands and styles and will scale to all sneaker sales over $100 next year. A year ago, we were losing share in this important category, but now we're seeing over 50% GMV growth year-to-date, and that was before launching the Authenticity Guarantee. And just last week, we announced the launch of new elevated experience for certified refurbished products. We see tens of billions of dollars in untapped potential in the global refurbished market. Through our new certified refurbished program, buyers can save up to 50% on like-new branded inventory with all the assurances of buying new, including a two-year warranty, eBay money-back guarantee, and hassle-free 30-day returns. We are launching this program in partnership with globally recognized brands, including De'Longhi, Dirt Devil, Hoover, Makita, and Phillips, that will sell certified refurbished inventory exclusively on eBay. Not only does this program help with buyers' budgets leading into the holiday season, it also helps to eliminate unnecessary waste by keeping products in circulation for many years to come. We see a long runway to accelerate GMB growth given the $500 billion global TAM we are competing for, but it will take time. By leveraging scalable technology, we can uniquely address the needs of customers across a diverse mix of categories in electronics, fashion, collectibles, home and garden, parts and accessories, and more. Moving on to the second key priority of our vision, becoming the platform of choice for sellers. Over the past three months, in addition to enhancements in managed payments and advertising, we continue to leverage the scale of eBay to benefit small businesses. We worked closely with UPS to offer new shipping services for sellers on our platform. In addition to a direct integration with eBay labels, sellers now have access to discounted rates, saving them time and money. Sellers also have access to order details, customer information, label printing, and shipment tracking all in one place. And buyers benefit from lower shipping costs and integrated tracking. Additionally, we are supporting seller profitability during the upcoming holiday season by working with the carriers on our platform to eliminate peak season shipping surcharges on eBay. Recently, we rolled out an upgraded communication system that allows buyers and sellers to connect securely on our platform. Also, we have provided small businesses a new marketing tool to drive traffic back to their eBay stores through our affiliate platform. And just in time for the holidays, last month we expanded the time away functionality, making it easier for sellers to update their listings and protect their on-time delivery record while providing buyers more accurate shipping estimates. Looking forward, we are embarking on a multi-quarter journey to improve selling flows that leverage more AI capabilities to dramatically simplify selling and drive more growth for small businesses. The third key priority of our strategy is to cultivate lifelong trusted relationships with buyers. To achieve this, we are leveraging technology to remove friction throughout the buying journey. In Q3, we improved search results, which led to material increases in conversion. By including more behavioral data, we were able to optimize machine learning algorithms at the top of the funnel that led to improved buyer engagement and ultimately led to increased purchases. These technology advances generate significant impact as every incremental point of conversion creates almost one billion more GMV annually. More importantly, buyers are discovering the items they are searching for in faster and simpler ways. Another way we are building trusted relationships with buyers is by improving our shipping tracking. In the UK and Australia, we developed a unique new capability to implement virtual tracking for Royal Mail and Australia Post, leading to significant increases in tracking coverage. Sellers do not have to explicitly provide information, and buyers can track orders with confidence. We will continue to invest in the buyer experience and marketing technology capabilities as we work to foster lifelong trusted relationships with buyers. Finally, an area that I and the team are extremely passionate about is doing good for our communities around the world. We focus initiatives on the sustainability issues material to the long-term strength of our business and where we can be most impactful to our stakeholders. We have measurable and transparent goals to evaluate our progress and to hold ourselves accountable to these important milestones, such as driving more circular commerce, getting to 100% renewable energy by 2025, and raising significant amounts for charitable causes. We began eBay for Charity in 2003 to make it easier for customers to support their favorite charities. Since then, we've raised over $1 billion for charities around the world, and we're working hard on our goal of another $600 million raised by 2025. In Q3, eBay for Charity began working alongside international artists through a campaign called Artists Band Together. We're helping to raise funds for organizations that work to increase voter turnout for the upcoming U.S. elections. Additionally, eBay Foundation reached its $1 million Kiva lending goal to support global untapped entrepreneurs through an employee microlending initiative. At eBay, everything we do ties back to our purpose of creating economic opportunity for all, and I'm very proud of our team for keeping this at the forefront, especially during these remarkable times. So in summary, we have a clear vision to realize the enormous untapped potential of eBay. While we have made meaningful progress in Q3, we still have a long way to go. We are investing in technology and focused on delivering the best marketplace in the world for buyers and sellers. And I want to thank all of our employees who have been working diligently to support our customers by bringing our tech-led reimagination to life. With that, I'll turn the call over to Andy to provide more details on our financial performance. Andy?

Thanks, Jamie, and thank you all for joining today. Before I walk you through the results for the quarter, I'm going to take a few minutes to provide some additional context on the financial reporting impact of moving our classifieds business to discontinued operations. With that designation, our reported results reflect only the performance of our marketplace business. The Q3 results for classifieds are reflected in GAAP EPS from discontinued operations. You can find a presentation of historical financial statements recast to the current presentation in the form 8K we published on October 1st. When we last provided guidance in July, classifieds was included in both our Q3 and full year 2020 guidance assumptions. On slide four, you will see a refreshed look at what our July guidance would have been if we had excluded classifieds. This will help create an apples-to-apples comparison versus our Q3 results reported today. Let me quickly walk you through the numbers. Adjusting for the classifieds impact to our July guidance, the implied Q3 guide for marketplaces was between $2.38 and $2.45 billion of revenue, growing 16% to 19%. on an organic FX-neutral basis and non-GAAP EPS between 68 and 74 cents per share, representing 31 to 42 percent growth. On slide five, we've made a similar adjustment for our full-year guide. Adjusting for classifieds, the implied full-year 2020 guide for marketplaces revenue was between $9.59 and $9.78 billion, growing 14 to 16 percent on an organic FX-neutral basis. operating margin in the range of 30 to 31 percent, non-GAAP EPS between $3.04 and $3.16 per share, and GAAP EPS between $2.51 and $2.66 per share. And finally, free cash flow adjusts to the range of $2.2 to $2.35 billion. With that, I will move on to our current quarter results. Turning to our Q3 highlights on slide six, in Q3, we delivered revenue of $2.6 billion, up 26 percent on an organic FX-neutral basis. Non-GAAP EPS was 85 cents, up 64 percent. Both were significantly above our expectations. Non-GAAP margin came in strong at 30.7 percent, inclusive of our ongoing investment in managed payments. We generated $584 million of free cash flow. We executed $700 million of share repurchases and delivered $111 million in cash dividends in the quarter. Our Q3 overperformance was driven by a number of factors, including our migration to manage payments, strong execution in advertising, and volume growth ahead of our expectations. Based on our Q3 results and an improved top line outlook for the fourth quarter, We are raising our full-year guidance, which I will cover in more detail in the guidance section. Moving to active buyers on slide seven. We ended the third quarter with 183 million active buyers, representing 5 percent year-on-year growth, consistent with the second quarter. New and reactivated buyers continue to drive year-on-year growth. We continue to see strength in GMB per active buyer across all cohorts in Q3. While we initially saw stronger activity levels from buyers acquired in Q1 and Q2, those buyers are now trending towards behavior more consistent with historical cohorts. Moving to slide eight, in Q3, we enabled $25 billion of marketplace GMV, up 21 percent year-on-year, accelerating eight points versus the prior quarter as global mobility continued to improve, particularly in our international on-platform markets. In the U.S., we generated $9.8 billion of GMV, up 33% year on year, decelerating two points from the second quarter. Growth was at its peak in July and then moderated through August and September, driven in part by the wind down of government stimulus payments, even as residential mobility remained relatively constant. International GMV was up 14% year on year, a 12-point deceleration versus the second quarter, driven by moderation in Germany and the UK. We saw strong ongoing correlation between mobility restrictions and GMV growth across our international markets, where the most pronounced growth deceleration occurred in markets with the biggest increases in mobility. In our off-platform Korean business, growth was 4%, decelerating one point from the second quarter. Looking closer at volume, we continue to assess the impact of COVID to better understand the overall performance of our business. We have seen modestly improved underlying performance versus our pre-COVID 2020 plans, driven by increased velocity in product experience improvements and ongoing tailwind from the recent increases in our active buyer base. In addition, we've seen temporary COVID-related growth acceleration in GMV that we expect will continue to moderate as mobility increases over time. And with this component being the biggest wildcard in terms of magnitude and timing, it remains difficult to predict results beyond the near term. Turning to revenue on slide nine, our net revenue was $2.6 billion, up 26 percent organically, decelerating two points. We delivered $2.4 billion of transaction revenue, up 28 percent, down five points from the second quarter, with strength in payments and advertising, partially offsetting the deceleration in GMB. Looking closer at managed payments, the increased seller adoption and high customer satisfaction that Jamie mentioned led to five points of incremental revenue growth versus 2019 on a continuing operations basis, approximately one point better than anticipated. Transaction take rate was 9.4% for the quarter, accelerating nearly 40 basis points from Q2 primarily from the ramp of managed payments, and the continued strength in promoted listings. We expect take rate to continue to increase further as managed payments and promoted listings continue to scale. We delivered $251 million of marketing services and other revenue, down 1%, accelerating 15 points from the second quarter, mostly from a lower headwind from lapping the sale of Brands for Friends in the middle of Q3 2019, and our first-party growth in Korea. Turning to slide 10 and major cost drivers as a percentage of revenue. In Q3, we delivered non-GAAP operating margin of 30.7 percent. This is approximately four points higher year on year, driven by volume leverage, partially offset by continuing investments in managed payments and strategic reinvestments. Cost of revenue is down nearly 20 basis points year on year, as volume leverage is partially offset by managed payments and our expanding first-party inventory program in Korea. Sales and marketing expense was down over two points versus the prior year, as volume leverage was partially offset by strategic reinvestments in online marketing, brand, and our vertical strategy. Product development costs were down approximately 10 basis points, driven by volume leverage, partially offset by incremental investments in the product experience, including managed payments. G&A was down nearly 40 basis points, primarily from leverage and cost control. Transaction losses were down one point, as bad debt rates have performed better than expected. Turning to EPS on slide 11. In Q3, we delivered 85 cents of non-GAAP EPS, up 64 percent versus the prior year. Non-GAAP EPS growth was driven primarily by higher revenue growth and our share repurchase program, partially offset by our investment in managed payments and FX. GAAP EPS for the quarter was 88 cents, up 250% versus last year. The increase in GAAP EPS is mostly driven by the change in fair value of the Audien warrant and the same factors as non-GAAP performance, in addition to lapping the divestiture of Brands for Friends. The value of the Audient Warrant stands at $777 million at the end of Q3, an increase of $573 million year over year. This is an additional value driver stemming from our payments initiative, incremental to the $2 billion of transaction revenue and $500 million of operating profit that is expected in 2022. You can find more information on the Audient Warrant and our 10Q And as always, you can find the detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. Moving to slide 12, we generated $584 million of free cash flow in Q3, down 18 percent driven by the timing of cash taxes, partially offset by higher earnings. Year-to-date through the third quarter, our free cash flow is $1.9 billion, up nearly 30 percent year-on-year. Moving to slide 13, we ended the quarter with $4.1 billion in cash and investments and debt of $7.8 billion. In Q3, we paid down over $900 million in debt, bringing our total debt back to the 2019 year-end balance of $7.8 billion. This completes actions taken in 2020 to strengthen our balance sheet by leveraging the favorable market conditions to improve rates on our outstanding debt. Additionally, we paid over $700 million in income taxes from the divestiture of StubHub, which is presented in operating cash flow from discontinued operations, leaving approximately $250 million to pay in Q4. We returned $111 million to shareholders in dividends in the quarter. We executed $700 million in share buybacks in Q3, bringing our total share buyback to $4.7 billion so far this year. We entered Q4 with $2.5 billion in share repurchase authorization remaining. Our capital allocation strategy and key tenants and targets have not changed. We remain committed to maintaining our BBB Plus credit rating, midterm leverage of approximately one and a half times net debt and gross debt below three times EBITDA. and a target cash balance of approximately $3.5 billion. We also remain committed to our dividend. Moving to slide 14, I'd like to provide an update on the pending classifieds transaction. We remain excited about this deal as it allows us to realize near-term value while enabling us to participate in the future upside potential of the world's largest online classifieds company. We are on track to close the deal in Q1, subject to regulatory approvals. When we announced the deal on July 20th, the valuation was $9.2 billion, based on a mix of cash and out-of-venta shares. The share price is appreciated by over 30 percent, which increases the value of the classifieds business to over $11 billion, based on recent trading levels. Finally, we expect that the cash portion of the deal will provide approximately $2 billion net of tax, and we currently expect any potential future sale of shares would be a taxable event at the prevailing statutory rate. Turning to slide 15 in guidance, we continue to operate in an environment with low visibility, which proves to be very difficult when trying to provide guidance. Each month, sometimes each week, reveals new external drivers that can have a material impact on consumer behavior. The dynamics we faced in Q3 were different from what we faced in Q2, and it's clear that Q4 will be different than what we experienced in Q3. The shape and speed of pandemic recovery, the strength of the holiday season, and the size and timing of potential government stimulus programs are among the many variables that could have a significant impact on our outlook. For Q4, we are projecting revenue between $2.64 and $2.71 billion, growing 19 to 22 percent on an organic FX neutral basis. This assumes marketplace volume growth at low double-digit rates with gradual moderation through the quarter. We expect managed payments to continue to deliver revenue acceleration, contributing approximately eight points to Q4 revenue at the midpoint of our guide, driven by continued seller migration. We expect non-GAAP EPS of 78 to 84 cents per share, representing 18 to 27 percent growth. Non-GAAP EPS growth is driven primarily by volume and lower share count, partially offset by continuing investments in technology and marketing. We are expecting GAAP EPS from continuing operations in the range of 58 to 64 cents per share in Q4. After adjusting for classifieds moved to discontinued operation, This Q4 guide represents a material improvement on volume, revenue, and non-GAAP EPS versus our expectations back in July. For the full year, our revenue guidance is $10.04 to $10.11 billion, representing an organic FX neutral growth rate of 19 to 20 percent, driven by an improved GMV outlook and continued scaling of managed payments and advertising. We expect operating margin to be in the range of 31 to 31.5 percent, with a non-GAAP effective tax rate of 15 to 16 percent. With the above dynamics, we expect non-GAAP EPS in the range of $3.34 to $3.40 per share, driven by Q3 overperformance and an improved top-line outlook for the fourth quarter. We now expect free cash flow of $2.5 to $2.6 billion, capex in the range of 4 to 5 percent of revenue, and we're increasing our outlook on share repurchases to approximately $5 billion for the full year. Finally, we expect GAAP EPS from continuing operations in the range of $3 to $3.06 per share. In closing, we are excited about the progress we've made this quarter. Externally, the macro environment is helping to drive strong business performance. Internally, with the leadership team now solely focused on the marketplace's business, we're making progress with our new strategy. We're pleased by the increase in speed of execution, demonstrated by our launching authenticity guarantee across multiple categories, rolling out our certified refurbished program, expanding shipping services and tracking, and helping buyers find items in faster and simpler ways. We're doing all of this while delivering on our revenue growth initiatives of managed payments and advertising, which are both becoming critical material pieces of our financial architecture. Our margin commitments remain in place and we're on track to deliver at least two points of operating margin growth by 2022 as compared with 2019. As we've said in the past, we will continue to balance top line growth and margin expansion as we find new opportunities we will capitalize on them to drive growth. We remain focused on improving the underlying health of the marketplace's business. And as we've mentioned, this is going to be a multi-year journey. Although it's early, the results tell us we're on the right track, furthering our conviction to compete and win in the half a trillion dollar total addressable market we're focused on. And now, Jamie and I would be happy to answer your questions. Operator?

At this time, if you would like to ask a question over the phone lines, please press star then 1 on your telephone keypad. We will pause for a moment while we compile the Q&A roster. Your first question comes from the line of Scott Devitt of Stifel. Your line is open.

Hi, and thank you. In Q3, items sold decelerated a bit more than GMV and was wondering what caused that, whether some changes in ASP driven by category mix or was there some other factor at play there. And then secondly, this was partly answered, but in 4Q, I think you fully comp the sales tax collection implementation. It was a 600 basis point headwind in 4Q19. You did just a 22% in Q3, and I think that also had a 3% headwind in it. It does seem like we're going to have limited mobility again this quarter, certainly in the U.S., and there were some announcements today in certain countries in Europe In 4Q, you guided to low double-digit GMV growth. I'm just wondering, is there anything that you're seeing in the business that is leading to that? Or is that just more, as you discussed a bit on the call, staying consistent with this conservative approach of guidance given the uncertain business conditions? This seems to have been the case on the 1Q and 2Q guide as well. Thank you.

I'll start with the question on guide. Scott, to your point, there's new information coming out on a daily basis, which makes this tough. I think the way that we've looked at it, clearly there's multiple factors moving that can influence our volume outlook for the quarter. It's really hard to predict how any of them will play out and certainly to try to itemize which pieces we've included for which amounts. you know, we can't do at this point. What we have tried to do with our guide is, you know, compile what we've learned through the third quarter and what we've seen. And it implies a continued growth moderation in the fourth quarter following what we saw in the third and what we're seeing in the beginning of the fourth, you know, with regards to consumer behavior and mobility. what we provided, I wouldn't call it conservative. I think it's our best outlook based on a combination of these factors. And certainly, you know, any one of those could change and could impact our results. On the, I think you called it right on the sold items, there's GMV and category mix and similar to what you see on buyers and what you see on GMV, there's just a magnitude of of things changing on a quarter-over-quarter basis, given the breadth of categories that we have and the different price tranches, I think you called it right. Thank you.

Your next question comes from the line of Richard Kramer of Orat Research. Your line is open.

Thank you very much. Jamie, I've got two questions. The first is I'd like to get some more detail on your tech lead reimagination. especially given that you've seen declining R&D and relatively low CapEx. So specifically, can you talk a little bit about how eBay might be developing infrastructure for social commerce, be it with more modern messaging, video, or some material revamp of what's been a very consistent user experience and look and feel? And then maybe second question, since you mentioned eBay as being a global marketplace, when we last got the geographical detail, you had roughly 80% of your business in four countries and a very wide range of markets covering the other fifth. So what's your approach going to be to reaching scale in other countries and how important is that global footprint to you and what sort of investment requirements do you see in 21 and beyond to make eBay go beyond 80% coming just from those four markets? Thanks.

Yeah, so on the first one, on the tech-led reimagination, it's why you see us making the investments that we're making is that we believe that there's some big horizontal things that really move the business, like payments and advertising, where we're obviously putting a lot of technology focus. And then you saw this quarter some specific vertical experiences of focus for us in both watches and sneakers and also in certified refurbish. And so, you know, we actually think this is the start of really leveraging our technology at where horizontal plus a vertical focus brings together just a much different experience on eBay. You think about the level of trust that we just put in place in those three categories, it's really game-changing versus where we were before. You asked specifically about marketing. There's a lot of things that we're doing specifically in paid social and using new channels that we haven't used before. That's a key part of it for us. If you think about the sneaker category as an example, we're bringing on a lot of, you know, Gen Z and millennials. So we're going out, reaching them where they are, because when we inquire them in a sneaker category, as we said, you know, they end up buying in 10 unique categories across the site. The second thing I'd say on our footprint is, look, we've got some very strong growth in some of our smaller markets. There's a lot of advantage to the scale of our cross-border trade business. where we're bringing products from very different countries to our smaller countries or exporting out of our smaller countries and obviously play a role in that. So we continue to believe that those are important, good growth opportunities, not only for the domestic business, but also for the cross-border trade that they bring.

Okay, thanks. Your next question comes from line of Colin Sebastian of Baird. Your line is open.

Great, thanks. Good quarter. I guess given some of the concerns around carrier capacity during the holiday period, I'm wondering if the long tail of sellers, you know, if they're more impacted by that or are your contracts with the shippers largely protecting them from those bottlenecks? And then looking at active buyer growth, what's the potential to accelerate that growth over the near term, certainly given the secular shift we're seeing? Or are you more focused in terms of the marketing efforts and driving engagement with the existing buyers and the recent cohort ads? Thank you.

Yeah, so on carrier capacity, part of why we did the UPS deal this year was to open up more flexibility and more options for our sellers. So not only are they going to save a bunch on the rate that they're going to have on there, but the integration is going to make it really easy for sellers and provide all that tracking for buyers. So now you have multiple options, even as a small consumer seller, between USPS, UPS, and FedEx. One of the things we have worked on is deals that actually protect them from peak shipping charges or surcharges over the holidays. So we think the combination of that flexibility of choices plus the negotiating on behalf of our community will work out well for them on the shipping side. On the active buyer growth, as we talked about, our real third priority is turning buyers into lifelong enthusiasts. So really focusing on how do we, when we bring in a new buyer, expand them into multiple categories because we know that drives their LTV. So I used the sneakers example earlier, coming in via sneakers and ending up buying in 10 categories. It's also a big reason for our push to consumer selling. This quarter, our actually C2C GMV growth grew faster than our B2C growth. And that push is really because once we get a buyer to sell, they become more than twice as valuable as a buyer. So that's really our focus is on accelerating those things and driving that long-term potential of the people that we're bringing to the site.

Okay, thanks.

Your next question comes from line of Tom Champion of Piper Sandler. Your line is open.

Hi, good afternoon. On GMV trends, it looks like the growth between the U.S. and international is really starting to to diverge with international decelerating more. I'm just curious what you think might account for that or whether it's all explained by mobility. And then on managed pay, it sounds like you added about 300,000 sellers into the program this quarter and at 5% of revenue. That seems like it's about $130 million in revenue. Is this approximately the right magnitude? Thank you.

Yeah, I'll take the, on the third quarter volume, U.S. international. Look, there are differences we see globally. We indicated on the call in July that we were seeing continued strength, you know, through the month of July in the U.S. Post-July, we did see some increased moderation in August and September. And we think, you know, at least in part driven by the expiration of the U.S. stimulus. So that, in part, I think is a little bit of the strength you're seeing in the U.S. In addition to, if you look at mobility and the progress of COVID internationally, there was a little more mobility sooner, particularly in Germany and the U.K., than we had in the U.S. So I don't think there's a you know, a drastic business shift between any of those regions other than some of the dynamics associated with the reopening. I think another important, you know, just generally on volume, we have, there's a few things we do see that consumer behavior patterns are, you know, are definitely impacted by mobility. That is different depending on location and country. you know, and sometimes state. And I think the other key thing is that the customer and consumer behavior patterns aren't the same. So as, you know, mobility and lockdown happened in April and May, with more time and less scarcity, you know, some of that behavior is not as drastic as we saw early on in the pandemic. And then on the second part of the question was managed payments. Yeah, your logic is about right on that. Great. Thanks a lot.

Your next question comes from line of Stephen Zhu of Credit Suisse. Your line is open.

All right. Thank you. So, Jamie, for some of these categories that you're leaning into, like watches and sneakers, it seems like there's a a greater requirement to work with external parties to either authenticate or refurbish things. So to some degree, you are putting the eBay brand at risk here with your buyers. So what incremental things are you doing to vet the seller so that you minimize bad behavior? And second, on the C2C activity ramp, It seems that consumers are not always going to be as savvy as some of the more professional sellers about providing the correct descriptions for what they're selling. And you're also going to get merchandise in all kinds of different conditions, which seems like a pretty complicated structured data problem for your engineers to solve. So can you talk about what you're doing to make sure that stuff people are putting up for sale are correctly surfaced in search results? Thanks.

Yeah. So on the first one, thank you for the question. We work with really industry-leading experts to do the authentication specific for that category and a very intense multi-point inspection to make sure the product is truly authentic. And so it really kind of not only you'll have the trusted kind of seller piece in there, but every single product, every single sneaker over $100 by the start of next year will actually go through a third-party authenticator. And so really takes the risk away of a potential issue by the time it gets to the buyer. Even, you know, sometimes there could be a mistake. It was missing a piece of documentation. So the beauty is we're catching all of those things. The same thing in the return. So making sure that the seller is getting back the product that they actually shipped the buyer because the authentication works in both directions. So, look, it's a really high level of trust. When you look at the community feedback that we've gotten, both from sellers and buyers, they're incredibly enthusiastic. They know it'll bring a lot of new buyers to the platform, and for sellers, that's what they want. Like we said on the call, the business was growing 50% in sneakers even before we launched this authentication guarantee, so we're excited by it. On the C2C ramp, it's a huge focus for us is using artificial intelligence and technologies to make it easier for the casual lister to come on and list. So a lot of our listers will use things like sell similar, whether they sell a similar product or they sell based off of a specific catalog description. And what you'll see from us over the coming quarters is continuing to make that process easier to bring more to C2C sellers on. It's our number one priority is defending the core, and a huge part of that is consumer selling. You know, I should say that they also bring unique inventory to the platforms. You know, there's a lot of things that are not being sold by a business seller. You know, one of my friends was looking for a guitar We Hero, and that's only, you know, no one's selling that B2C anymore. You're only going to get that from a C2C seller. So we like to think about the unique inventory that it brings to the platform is also really important to us.

Thank you. Your next question comes from the line of Yusef Squally of Truist Securities. Your line is open.

Great, thank you very much. A couple questions here. So just on the authenticity guarantee that you've done for sneakers and watches so far, can you maybe just speak to, and I think you also canceled some selling fees on sneakers of $100 or more, can you maybe just speak to, and maybe it's too early, but just any uplift you've seen in sales for these two particular areas and whether there are any other big categories which kind of lend themselves to the same thing. And on management payment, how was that? I think you guys talked about it tracking to your own expectations, but just considering the fact that it seems that you guys have a fair amount of control over that, is there a chance of seeing you migrate maybe the majority of all sellers globally earlier than expected? And if not, what are the gating factors there? Thank you.

Yeah, so the change in selling fees on sneakers we had done a while ago, and what I would say is that it's very early in that. We just launched that a few weeks ago. But the encouraging signs are the feedback that we're getting from the community of really leaning in and being excited by what this can do to unlock the category. Watches has been live a little bit longer, and while early, what we're seeing is an increase in supply on the platform and an increase in average selling price. And if you think about it, that's really what we want to see is that higher level of trust is making buyers really more comfortable, which obviously works out for sellers as well. You know, what I'm really proud of for the team is that when we talk about a tech led reimagination, while it took us a couple of months to launch that technology for watches, we actually rolled it out a few weeks later for sneakers. And so we're building capabilities that allow us to compete better in specific verticals, but a lot of those capabilities can be leveraged across multiple categories, and that excites us. You know, on the managed payments migration, it's important to know that there's still features that we continue to build out to be able to migrate more of the sellers. So we're right on track, but as an example, if I'm a seller that ships cross-border to a country that we haven't launched managed payments in, we're not going to convert that seller over to the new managed payments platform until we unlock that country because we don't want them split between the old platform and the new platform. So there's still capabilities that we're continuing to build out to ramp, and we basically are on track for our plan to be complete by the end of 2021. Thanks, Jamie.

Your next question comes from the line of Edward Urama of KeyBank Capital Markets. Your line is open.

Hey, good afternoon. Thanks for taking the question. I guess just to drill down on some of these new categories a little bit more, I know you're using third-party authentication, but can you kind of help us understand the cost profile around that, whether they have the ability to scale as the business grows? And then I guess just stepping back, you know, these three big announcements, the refurbished watches and sneakers, I guess what are the three do you think would be most significant or impactful in the medium term? Thank you.

Yeah, so when we look at the authentication costs We look at it in some ways it's like a marketing cost when we think about how do we bring new buyers into the platform. So if you look at what we would have collected in final value fees, for example, on that product versus our cost of acquisition of bringing in a new buyer who's going to end up buying in 10 unique categories across the site, we're balancing that all out and we think it's important. We think there's a lot of potential and we think it's a big difference for eBay to have that level of trust in the category. You know, we haven't talked much about certified refurbished on the call yet, but I'm really excited by that. I mean, sneakers clearly has a lot of potential, as does watches. But, you know, there's tens of billions of dollars in certified refurbished. It's a real sweet spot for eBay. And, you know, this brings a whole new level of trust, of feeling like you're buying a like new product because you have the, you know, not only all those guarantees, but you have a two-year warranty. You have a 30-day hassle-free return. along with the eBay money-back guarantee. So we just think it's an important category. We're also seeing brands lean in, like we talked about on the call, and big brands, and we're just getting started. So we think there's a lot of runway and a huge market opportunity for us to go after that.

Thank you. Your next question comes from the line of Robert Terbel of Guggenheim Securities. Your line is open.

Hi, good evening. I just got a couple of questions, you know, mainly on on M&A, you know, in terms of like you have some, you know, the cash on the balance sheet, you talked a little bit about that. But I just wonder, as you as you sort of look at especially the sneaker category, would you, you know, would you consider, you know, acquisitions around that category to really accelerate your positioning and improve it? Maybe if you could just elaborate a little bit on that type of strategy, that would be helpful. Thanks.

Yeah, we're not going to speculate on specific categories in M&A. What I'd say is we're looking opportunistically at M&A like we always have, at opportunities where we think we could accelerate the vision that we laid out on prior earnings calls, and always doing things in an asset-light way, unlike we tend to do here at eBay in a way that we think enhances shareholder value. So we're going to continue to be opportunistic about it.

Great. And if I could just follow up on a different topic, but In terms of the ability to sort of grow the buyers and sellers, can you just talk a little more about the fourth quarter marketing plans and advertising in terms of the focus on continuing to bring new buyers and sellers in and the level, the rate at which you're thinking about that?

We're using some new tools and technology over the holiday, really going after some new channels like paid social, like I talked about before, in addition to the other kind of brand and performance work that we normally do in the holidays. But really, you're also going to see more targeted marketing from us, and you're seeing it already, where we're focusing on specific campaigns. Like we had a viral campaign on TikTok for sneakers that went incredibly viral. And you'll see other specific really vertical marketing that we're doing to attract the right types of buyers in these categories that we're leaning in on. So lots of things that we've experimented with that we're learning from that we're rolling out in the quarter.

Great. Thank you very much.

Your next question comes from the line of Brian Nowick of Morgan Stanley. Your line is open.

Great. Thanks for taking my questions. I have two. Just the first one, I think in the second quarter you added, I think it's about 8 million net buyers sequentially. I know a lot of focus is sort of turning them into broader shoppers and sellers. Talk to us about what you saw in the retention of those buyers that you added in the second quarter, and are you seeing that expansion into new categories out of them already? And then, Jamie, now that you've had a few more months in the seat, maybe just talk to us about how you're categorizing low-hanging fruit areas of improvement that could really change the business trajectory in 21 as opposed to sort of your longer-term areas of focus.

Sure. So let me start with the latter, and then we'll come back on the buyer one. So, you know, if you look at the types of things that we rolled out this quarter, it's indicative of where our focus areas are. So when you think about defend the core, it's really around how do we go after the non-new in season and help grow that business. We see a big kind of $500 billion TAM there. And like I talked about last quarter, these are not big bang releases. I think about our payments business as a two-year build for a release. Here, I think what we're working on is you know, a lot of releases throughout the year of different capabilities and hopefully continue like I talked about before of launching something and then being able to roll it out to other categories, other countries, et cetera, on a pretty frequent basis. And that's how we're thinking about it is a multi-year journey with a lot of wins along the way. Andy, you want to take the buyer one?

Yeah. Yeah, Brian, we saw in the second quarter clearly a significant disruption in you know, in a lot of areas and scarcity in certain areas in the supply chain and distribution. That drove a lot of people shopping online. And we did see some incremental activity from that cohort acquired, you know, at the end of the first and then the beginning of the second. What we've seen in the third is it's reverting to a more normalized buyer acquisition trend and more normalized – repurchase frequency for those cohorts. So not performing above old cohorts and certainly not performing any worse than buyers in the past. What we have seen consistent across both quarters is just the volume of GMB and the amount of GMB per buyer, both for existing buyers and new buyers at higher levels than we've seen in the past.

Got it. Okay. Thank you both.

Ladies and gentlemen, there is no more time for questions. This concludes today's conference. Thank you for attending. You may now disconnect.