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spk00: there will be a question and answer session. If you would like to ask a question, and I would now like to turn the conference over to John Egbert, Vice President of Investor Relations. You may begin.
spk12: Good afternoon. Thank you all for joining us for eBay's second quarter 2024 earnings conference call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer, and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call, which is available through the investor relations section of the eBay website at investors.ebayinc.com. Before we begin, I'll remind you that during this conference call, we will discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect organic, FX-neutral, year-over-year comparisons. And all earnings per share amounts reflect earnings per diluted share, unless indicated otherwise. During this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties, and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q, and our earnings released from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of July 31, 2024. We do not intend and undertake no duty to update this information. With that, I'll turn the call over to Jamie.
spk10: Thanks, John. Good afternoon, everyone, and thank you all for joining us today. Our strong Q2 results marked a notable step toward our goal of achieving sustainable, profitable growth over the long term. Our gross merchandise volume grew 1% to $18.4 billion in Q2. Revenue increased 2% to $2.57 billion. Non-GAAP operating margin rose by 1 point to 27.9%. Our non-GAAP earnings per share rose by approximately 15%. to $1.18, and we returned over $1.1 billion to shareholders through repurchases and dividends during the quarter. I'm proud of our teams for delivering these results amid continued macroeconomic headwinds, ongoing geopolitical uncertainty, and an evolving regulatory landscape. Now let's walk through some of the key drivers of our Q2 results. Focus category GMV grew by over 4% in Q2. outpacing the remainder of our marketplace by approximately five points. After Motors Parts and Accessories, or P&A, which continued its trend of healthy growth, collectibles was the second largest contributor to GMB growth among focus categories in Q2. In mid-May, we closed a series of transactions with collectors, parent company of PSA, and a leading provider of authentication and grading services for collectibles. Since then, We've made significant progress toward integrating Golden, expanding our relationship with PSA, and elevating the eBay Collectibles experience. We supported the latest Golden 100 auction, helped drive awareness for the successful global premiere of King of Collectibles Season 2 on Netflix, and the Golden team began hosting events on eBay Live. During Q2, we completed the transfer of trading card assets to the PSA Vault ahead of schedule, And all PSA customers can now easily sell on eBay at the time of grading without having their cards shipped back to them. Since going live in late June, the PSA storefront has already sold tens of thousands of trading cards on eBay. And I'm excited for our companies to jointly drive innovation on behalf of hobbyists for years to come. eBay Refurbished was also a significant contributor to GMV growth. and was our fastest-growing focus category year over year, as our combination of trust, value, and quality continues to resonate with customers. Our selection of refurbished inventory continues to grow as we expand existing partnerships with OEMs like Dyson, onboard CBT sellers with access to unique items, and extend the program to new categories. During Q2, we expanded eBay refurbished to golf clubs. bringing warranties and hassle-free returns to thousands of previously owned golf clubs from the world's top brands. In June, we announced a sustainability collaboration with Seagate, a global leader in data storage solutions. We launched Seagate's official storefront on eBay for direct sales of factory recertified hard drives. Not only are these refurbished products a great value for consumers, but this partnership can also eliminate a significant amount of e-waste by extending the product life cycles of quality hard drives. Consumers' desire to shop sustainably has also benefited our luxury focus categories, which delivered positive year-over-year GMV growth for the sixth straight quarter. As we acquire more sellers with well-priced luxury inventory, we have observed a strong correlation with incremental GMV. For instance, we saw significant acceleration in cross-border demand after the opening of our Tokyo authentication center. which led to a meaningful expansion of our luxury handbag inventory. We've reached a major milestone for our authenticity guarantee program in Q2. We authenticated our 10th millionth item since the inception of the program in 2020, a pair of Air Jordan 1 Low Lucky Green sneakers authenticated in our Las Vegas facility. During Q2, we also introduced optional authentication for luxury handbags priced between $200 and $500 in the U.S. which enables even more buyers and sellers to enjoy the benefits of our authenticity guarantee program. As our value proposition continues to grow, it's been exciting to see how partnerships have enabled eBay to show up in so many culturally relevant moments recently. These opportunities help us to evolve perceptions of eBay by showcasing our modernized experiences and connect with more enthusiasts shopping in pursuit of their passion. Just in the last quarter, Lala Anthony and Madeline Klein showcased their pre-loved luxury accessories from eBay on the Met Gala red carpet. We saw eBay logos in the cockpits of Lando Norris and Oscar Piastri as the McLaren Formula One team took the checkered flag at the Miami Grand Prix. We partnered with Disney to create a customized destination for May the 4th, enabling us to engage with Star Wars enthusiasts around the world as they explored the more than 1 million Star Wars-related collectible products on eBay. And in June, eBay returned as the headline sponsor for Love Island in the UK, showcasing the power of pre-loved fashion to millions of households nationwide. Next, I'd like to update you on some of the geospecific investments we've been making. In March of 2023, we repurposed our strategic playbook for focus categories to better serve the needs of German consumers. This endeavor has reinvigorated our C2C business in Germany and helped us navigate challenging economic conditions in the region. In Q2, we sustained positive year-over-year growth in C2C volume in Germany as we lapped the full first quarter of this initiative. Healthier C2C trends have also supported our B2C business in the German market. The unique inventory listed by consumer sellers has led to a healthier customer acquisition funnel. When consumers begin selling, They also purchased twice as much on eBay as non-sellers on average with most of that incremental volume benefiting B2C sellers. The success of the German initiative influenced our decision to invest in an improved experience for pre-owned apparel in the UK last quarter. These changes including a new selling flow that makes it considerably easier to list on eBay with image guidance, simpler item aspect collection, and a streamlined shipping module with a focused set of couriers and parameters. For buyers, we introduced optimized vertical browsing pages for fashion and new generative AI-powered buying experiences like Shop the Look and Explore. Although we're only a few months in, we're seeing positive leading indicators in the strategically important category. For users of the new selling flow, we have observed a 20-point increase in CSAT, a material reduction in average listing time and an increase in listings and sold items per seller. A growing number of buyers have engaged with our new AI-powered fashion shopping features and are eagerly awaiting the enhanced personalization and filtering we plan to bring to shop the look and explore in the coming months. These shopping experiences are emblematic of the overall acceleration in the pace of innovation at eBay. Our investments in generative AI and machine learning are simplifying the selling and buying experiences. making our marketplace more efficient and helping us better serve customers at all phases of their shopping journey. To power these experiences, our core AI team is training and fine-tuning large language models using eBay's proprietary data to build even more magical innovations for customers. In Q2, we entered the high-performance computing realm by deploying our first supercomputer. which gave us the capacity to build and fine-tune even larger LLMs on trillions of tokens. Based on publicly available performance benchmarks, our supercomputer is on par with some of the top 50 supercomputers in the world in terms of petaflops of computing speed. Our growing AI capabilities are transforming the eBay experience for customers. For instance, our multi-phase magical listing initiative is helping us solve the long-standing trade-off between listing speed and quality. After fully rolling out generative AI descriptions, we are continuing to test and iterate on the next phase of our magical listing experience, which leverages user-uploaded product images to help sellers fill in the category, title, and other item aspects for a listing. A subset of sellers are testing this experience in beta, and we are leveraging their feedback and expertise to train our models and expand coverage to a broader range of categories. Seller CSAT for this beta experience remains extremely positive, and we plan to expand the beta to more sellers during Q3. We're also leveraging generative AI to help sellers improve the quality of their product imagery. In Q2, we rolled out generative AI-powered background enhancements to 100% of iOS and Android users in the US, UK, and Germany. This feature allows sellers to magically overlay their products on top of a variety of visually stunning backdrops. The customer response to this innovation has been outstanding. CSAP for this feature has reached 90%, and more than two-thirds of customers who have tried the feature have applied AI-generated backgrounds to their listings. Within seconds, sellers can easily stage their camping equipment against a beautiful forest backdrop, showcase their used skis atop a snow-capped mountain, or display their pre-loved sandals on a beach at sunset. It's exciting to see the creativity of our selling community as they embrace generative AI tools to make their listings more compelling. Turning next to advertising. During Q2, first-party advertising grew 12%, while total ad revenue approached 2.2% penetration of GMV. Approximately 3.1 million sellers adopted a single ad product during Q2, And we ended the quarter with roughly 1 billion live promoted listings out of our nearly 2.1 billion total listings. In early July, we launched a complete redesign of our eBay advertising platform, which fundamentally changed how sellers create and manage their ad campaigns and made it simpler than ever to activate our full range of advertising solutions. This new interface is now available to all sellers across our major markets. It includes a centralized dashboard enabling sellers to make data-driven decisions by leveraging near real-time performance metrics, including impressions, clicks, and return on ad spend. For the first time, sellers can also see a list of personalized campaign recommendations aimed at helping them to achieve their sales goals, such as adding new keywords to increase listing visibility or lowering bids for keywords that aren't driving performance. Additionally, we've enhanced suggested campaigns to highlight new ad strategies for sellers by identifying emerging marketplace trends relevant to their inventory with pre-built campaigns fully optimized by AI. As part of this redesign, we simplified our first party advertising portfolio into three distinct solutions that more clearly aligned with the seller's campaign objectives. We unified our standard, advanced, and express products into a single promoted listing solution, serving both fixed price and auction formats. When sellers launch a promoted listings campaign, they can pay on a cost-per-action basis for general placement or select cost-per-click pricing for priority placement. In addition, promoted offsite ads enable sellers to tap into a wider audience through off-EBA channels such as Google. Promoted offsite uses a dynamic CPC model and automated targeting, So users can set up campaigns in just a few clicks after setting a daily budget. And our newest format, Promoted Stores, enables sellers to increase their brand visibility when buyers are browsing or searching for contextually relevant items. Ultimately, we believe the redesigned experience will help more sellers grow their businesses on eBay by broadening the appeal of our full suite of advertising solutions and delivering actionable insights in a more intuitive interface. Our payments platform continues to be a strategic growth driver for our marketplace more than two years after the completion of our migration. In recent years, we have added a breadth of popular and locally relevant payment options to offer even more choice and flexibility during the checkout experience. We were thrilled to launch Venmo as a payment option in the US in Q2, enabling us to tap into its more than 90 million engaged users. Venmo's mobile-first checkout experiences and strong adoption among Gen Z and millennial audiences are particularly appealing as we continue to broaden our reach in younger demographics. The early results of this partnership are encouraging as a significant portion of our GMV from Venmo is coming from new or reactivated buyers. Our research has shown us that timely access to affordable financing is a key enabler for small businesses. which makes seller capital a pathway to unlocking more great inventory on eBay. In July, we expanded our seller capital offering with the launch of Business Cash Advance on eBay, a revenue-based financing solution provided by Liberus. This product connects eligible U.S. sellers with fast, flexible, and transparent financing for up to $1 million in working capital in as little as 24 hours. Sellers can tap into flexible payment schedules that scale with their sales cycle and easily track their payback progress within the seller hub. In just a few weeks since launch, we've already funded over 1,000 sellers and dispersed millions of dollars of working capital. Now I'd like to share some highlights around eBay's impact as a company. Last quarter, we published our 2023 impact report showcasing how the company is creating economic opportunities and promoting a sustainable future. We remain on track toward our sustainability goals, reducing our scope one and two carbon emissions by 59% compared to our 2019 baseline. We also published our 2024 e-commerce report, which analyzes the overall trends and sentiment around e-commerce at a global level. The report found that 86% of consumers surveyed have bought or sold pre-laid items, and 70% plan to purchase re-commerce items this year. Younger demographics are especially passionate about the circular economy, with more than 90% of millennial and Gen Z sellers saying they value eBay's ability to keep items out of landfills. And on the topic of re-commerce, one of the highlights of the second quarter was the Rocket Man resale event, a partnership with Elton John, who released a personal collection of pre-loved fashion items exclusively on eBay. The event kicked off with a pop-up shop in the West Village of New York City, where Elton shared stories about items from his legendary closet during an eBay Live event. Fans around the world were able to pick up pieces of fashion history, ranging from Gucci jackets and Versace robes to customized Prada loafers and vintage concert tees. All proceeds benefited the Elton John AIDS Foundation and its mission to be a powerful force in ending the AIDS epidemic. Our broader community also continues to support the causes most important to them. eBay for Charity raised more than $47 million last quarter, up 22% year over year. Additionally, the eBay Foundation granted nearly $7 million in Q2 to strategic nonprofits, which are addressing and removing barriers to entrepreneurship for historically excluded groups. I'm proud to share that eBay was recently recognized by Fortune as one of America's most innovative companies. We were also acknowledged by Forbes as one of the best employers for new grads, recognizing companies who offer the best early career opportunities. In closing, Q2 was another strong quarter for eBay and an important step toward our goal of sustainable long-term growth. Our GMV growth turned positive due to continued momentum in focus categories, investments in geospecific initiatives, and horizontal innovation driven by our growing capabilities in artificial intelligence. Our advertising business continues to deliver robust growth at scale, and we believe our redesigned ads platform will make it simpler to adopt our full range of ad solutions, helping more sellers grow their businesses on eBay. We continue to advance our payments capabilities by introducing new services, expanding our breadth of trusted payment methods, and reducing transactional fictions. And we delivered these results while layering disciplined investments for the future, generating double-digit earnings per share growth, and delivering compelling capital returns for shareholders. With that, I'll turn the call over to Steve to provide more details on our financial performance. Steve, over to you.
spk04: Thank you, Jamie. And thank you all for joining us today. I'll begin with the financial highlights section of our earnings presentation. Next, I'll discuss our key financial and operating metrics in greater detail. Finally, I'll provide our outlook for the third quarter and context on the full year before we begin Q&A. My comments will reflect year-over-year comparisons on an organic, FX-neutral basis, unless I know so otherwise. We exceeded expectations across our key financial metrics in Q2, driven by our execution against strategic initiatives despite an uneven discretionary demand environment in our major markets. Gross merchandise volume returned to positive growth at 1% to $18.4 billion. Revenue grew 2% to $2.57 billion. Non-GAAP operating margin expanded by one point to 27.9%. We delivered $1.18 of non-GAAP earnings per share at nearly 15%. and we returned over $1.1 billion to shareholders through repurchases and dividends. Let's take a closer look at our financial performance during the second quarter. On an organic FX neutral basis, gross merchandise volume grew 1% to $18.4 billion. GMV would still have grown nearly 1% when adjusting for the roughly 50 basis points of impact from favorable Easter timing in 2024. Our acquisition of Golden contributed nearly 20 basis points to total FX-neutral GMV growth in Q2 after the deal closed on May 16. In addition, foreign exchange was a headwind of roughly 20 basis points to year-over-year GMV growth on a spot basis. Our teams continue to execute against our strategy, including focus category expansion, country-specific investments, and horizontal initiatives. The culmination of these efforts over recent quarters, combined with consumers looking for value, helped offset continued pressure on discretionary spending across our three largest markets. Focus category GMV grew over 4% in aggregate, or nearly five points faster than the remainder of our marketplace, driven by broad-based momentum as P&A, collectibles, refurbished and luxury goods all contributed to growth. GMV for the rest of our marketplace was nearly flat in Q2, accelerating by more than one point from Q1, which reflects the continued progress of our horizontal innovation and geo-specific product initiatives. Next, I'll walk through our results on a geographic basis. US GMV grew by nearly one point in Q2. Both organic traffic and conversion improved in the US. which helped us narrow our gap to US e-commerce market growth. Collectibles was a key contributor to US growth, including trading cards, where organic trends have improved in recent quarters, aided by our strategic investments and partnerships. International GMV grew by over 1% on an FX neutral basis, while FX was a 30 basis point headwind to spot growth. In the UK, we noted some softness in C2C volumes to start the year, when the new UK digital sales reporting requirements came into effect. We are working to mitigate this pressure by educating sellers on these reporting laws and through initiatives to improve the selling and buying experience in pre-owned apparel, which Jamie touched on earlier. In Germany, our focus category in horizontal investments helped offset prevailing macro headwinds. In addition, Cross-border trade has been a key driver for international GMV growth in recent quarters. Greater China and Japan have powered this growth by providing great inventory for buyers across our major markets. In fact, our focus category coverage within CBT is even higher than our marketplace overall. And Japan in particular has seen its volume growth accelerate since we opened our authentication center there last year. Looking forward, we see more opportunities to onboard quality sellers in these regions and make it easier for them to bring attractive inventory to our marketplace. Moving on to buyers, trading 12-month active buyers and enthusiast buyers are once again stable sequentially at approximately 132 million and 16 million respectively at the end of Q2. On a year-over-year basis, total active buyer growth was fractionally positive for the first time since early 2021 as new and reactivated buyers remained positive and buyer retention continued to gradually improve. Spend per active buyer was stable, while spend per enthusiast buyer grew slightly year over year to just over $3,100. Turning to revenue, we generated revenue of $2.57 billion during the second quarter, up 2% as revenue outpaced volume by roughly one point. foreign exchange was a one-point headwind to spot revenue growth. Our take rate in Q2 was approximately 14%, at more than 20 basis points quarter over quarter, primarily driven by first-party advertising. On a year-over-year basis, our take rate was roughly flat, as tailwinds from first-party ads, eBay international shipping, and payments were offset by C2C initiatives and an FX headwind of approximately 10 basis points. Total advertising revenue grew 8% to $398 million in Q2 and represented nearly 2.2% penetration of GMV. First party ads grew over 12% to $384 million in line with our expectations. As a reminder, we faced lapping dynamics this quarter due to extraordinary growth in first party ads in Q2 of last year when we released CPC ads deferred revenue as a result of the rollout of Halo attribution. In addition, we continue to deprecate our legacy third-party display ads in Q2, with revenue declining roughly 49% to nearly $14 million. Shifting to profitability, non-GAAP gross margin declined roughly 30 basis points year-over-year in Q2 due to tax-related matters, including Canadian digital sales tax expenses recognized retroactively in 2022. Traffic acquisition costs associated with ramping off-site ads and foreign exchange headwinds. These headwinds were partly offset by operational efficiencies, including lower costs of payments and lower depreciation expenses. Non-GAAP operating margin was 27.9% in the quarter, improving one point year over year as operational efficiencies, including our structured cost program, more than offset the higher cost of revenue, a foreign exchange headwind of approximately 40 basis points, and reinvestments in our full-frontal marketing initiatives. As a result, non-GAAP operating income grew 5% year-over-year in Q2, and non-GAAP earnings per share grew by nearly 15% to $1.18. On a GAAP basis, we reported earnings per share of $0.45 in the quarter. Next, I'll discuss our balance sheets and capital allocation. Our free cash flow in the second quarter was $278 million down year over year due to the timing of cash tax payments. Last year, the majority of our tax payments were delayed from Q2 to Q4 due to California's disaster tax relief program. We ended the second quarter with cash and non-equity investments of $6.3 billion and gross debt of $7.7 billion. As you will see in our 10Q filing, on August 1st, we will repay $750 million of principal for our senior fixed-rate notes coming due. We plan to issue up to $450 million of commercial paper to refinance a portion of those notes over the coming weeks. During Q2, we repurchased $1 billion of eBay shares at an average price of approximately $52 and had roughly $1.9 billion remaining under our buyback authorization at the end of the period. In addition, we paid a quarterly cash dividend of $135 million in June, or 27 cents per share. Since the beginning of 2022, we have returned $7.3 billion to shareholders through repurchases and dividends, nearly 150% of cumulative free cash flow over this period. Turning to our investment portfolio, equity investments and warrants were valued at $2.8 billion at the end of the second quarter. The consortium led by Premier and Blackstone completed their acquisition of Adaventa on May the 29th. We sold approximately 227 million shares and received roughly $2.4 billion in gross proceeds. We incurred over $450 million in cash taxes related to this transaction, which we plan to pay next year. Following the deal, we hold approximately 177 million shares or 18% ownership of the outstanding equity valued at roughly $1.9 billion as of the closing date. The consortium has the option through November 29th to purchase from eBay roughly 10% ownership of the private entity for just over $1 billion. In addition, our investment portfolio includes add-in warrants valued at nearly $340 million at the end of Q2. Our add-in warrant value is calculated based on several assumptions, including add-in share price and the probability of vesting. Our G market investment was valued at roughly $300 million at the end of the quarter. Moving to our outlook. We expect to generate GMV between $17.8 and $18.2 billion in the third quarter, representing FX neutral growth between negative 1 and positive 1% year over year. Total organic FXN growth would be similar, as we expect golden to contribute over 30 basis points to GMV growth in Q3. At current rates, foreign currency would represent a 10 basis point headwind to GMV growth. This outlook balances our strong execution year-to-date against an uncertain economic and regulatory environment. We forecast revenue between $2.5 and $2.56 billion in the third quarter, representing FX mutual growth of 1% to 3%. We estimate FX would represent more than half a point of headwind to spot revenue growth. We forecast Q3 non-gap operating margin between 26.8% and 27.5%, representing year-over-year expansion between 40 and 110 basis points. This represents a sequential step down in operating margin due to normal seasonality, incremental organic investments, and a full quarter of M&A-related expenses, including integration costs. We expect to generate non-GAAP earnings per share between $1.15 and $1.20 in Q3. representing year-over-year growth between 12% and 17%. Now shifting to our expectations for the remainder of the year. Assuming no fundamental change in the macro environment, we expect FX-neutral GMV growth between flat and at 2% year-over-year in Q4, driven by continued execution in focus categories, geo-specific investments, and horizontal product delivery. At current rates, FX would represent a tailwind of more than one point to spot GMV growth year over year in Q4. We forecast Q4 revenue to grow modestly faster than GMV on an FX neutral basis, implying a narrow growth delta versus Q3. Although we expect similar growth in first party advertising during Q4, we anticipate modest pressure on core take rates from continued investments in C2C initiatives mixed shift towards higher ASP products and seasonal category mix. In addition, we estimate FX will be a year-over-year benefit of roughly 30 basis points to spot revenue growth in the quarter due to hedging dynamics. We're maintaining our full year outlook for non-GAAP operating margin expansion of between 60 to 100 basis points. As we have noted throughout the year, Where we land in this range is not solely tied to volume outcomes. Our strategic investments in 2024 have been crucial to our return to positive GMV growth. Given our execution to date, we are exploring opportunities for incremental investments to drive durable, long-term growth. Additionally, we have absorbed one-time offsets to operating margin in 2024, notably about 20 basis points of headwind from M&A expenses, including integration costs. Our forecast for capital expenditure remains unchanged at between 4% to 5% of revenue for the full year, in line with our historical average. We expect our non-GAAP tax rate to remain stable at 16.5%. We continue to expect free cash flow of just under $2 billion for the full year. Given our robust balance sheet position, We are raising our share repurchase target this year to at least $2.5 billion. In addition, our board declared a quarterly dividend of $0.27 per share for the third quarter to be paid in September. Given our strong business performance to date, our outlook for the second half and updated capital allocation plans, we are increasing our forecast for non-GAAP earnings per share growth to between 12% and 14% year-over-year for 2024. In closing, Q2 was another strong quarter for eBay, despite the uneven macro backdrop. We achieved positive year-over-year GMV growth earlier than expected and maintained double-digit non-gap earnings per share growth. In addition, we monetized a significant portion of our adder-enter stake at an attractive price and increased our full-year stock repurchase target. It is a testament to our strong financial model that we are able to deliver healthy, balanced growth while continuing to invest in our business for the long run across focus categories, specific geographies, and horizontal initiatives. With that, Jamie and I will now take your questions.
spk00: And thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star one a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, It is star one if you would like to join the queue. And your first question comes from the line of Nathan Feather with Morgan Stanley. Your line is open.
spk09: Hey, everyone. Thanks for taking the question. A few quick questions on the advertising side of business. So first off, I'm interested to hear if you're seeing any green shoots in campaign adoption within the unified ad platform and also smart targeting. And then how should we think about advertising growth in the back half now that you're seeing the more difficult competition? Thank you.
spk10: Yeah, overall, we feel great about the momentum we're seeing in advertising. The new features that we just talked about, Nathan, just rolled out. So it's really early in the experience for those. We did test them in Australia before rolling them out to all the other major markets. You know, when you ask about campaign adoption and other things, what's exciting about this new overhaul is First, it gives you a great performance snapshot of all of your campaigns in a redesigned interface. But secondarily, we now have daily recommendations for advertisers about things they can do, add keywords, manage their business, changing a campaign to make it better. And we have new types of suggested campaigns as part of this as well, things like trend-based suggestions. So you're seeing a We're seeing on the site, you know, something popping with us, you know, around Christmas time or some other kind of event happening, tied the listings that a seller would have. And we're now doing trend-based suggested campaigns, all driven by AI. So we're excited about what we're seeing from the early results, but it's really kind of early stages in this. In general, though, every time we've made it easier and simpler to adopt our ad products, it's resonated with sellers and helped drive the penetration up to what we're seeing today. Steve, maybe you just want to comment on our overall ad business? Yeah. Hi, Nathan.
spk04: Despite some of the lapping, we do expect some modest take rate expansion in the second half driven by our 1P ads business, where, again, we see some modest acceleration as we go forward. Really, you know, continuing to drive momentum in the existing products, but also ramp up our promoted off-site products as well. So pleased with the momentum we're seeing and not sure that continue to drive momentum in the back half of the year.
spk09: Okay, great. Thanks. And then one more quick one. Now that you have first supercomputer fully online, have made a lot of improvements from the seller side of things, you know, interested to think, you know, over the next 12, 24 months, What are the key friction points do you think are really immediately addressable with the help of some of the GenAI features? Thank you.
spk10: Yeah, look, on the selling side, Nathan, the key is we have this vision of making it easier to list than to throw out. So, you know, making it really seamless to onboard a new listing, any item in your closet, your garage, your home, et cetera, for a C2C listing. And so, you know, with the computing capability we have now with 2.1 billion listings with 28 years of history of data, we're able to build these really sophisticated models that do a better job at predicting what an item is, filling in all the item attributes associated with it, creating the title, obviously writing the description since we do that, and to be able to do this at scale and very cost effectively because we're using a lot of tools that we've built on an internal LLMs or open source LLMs that we have, which makes us able to train on these massive data sets that we have and on this proprietary data. Similarly, things like enhanced background images, now live to 100% of customers, make items look better on the platform, make them stand out, and you can take it on your bedspread or your desk, your rug, and then put it on this beautiful background. It really helps kind of merchandise items from that perspective. Finally, I'd say we're launching new features on the buy side. I've talked about Shop the Look, which we continue to scale up, which gives the ability in the fashion category to see outfits together and And we're testing in the UK market a feature called Explore, which, based on your sizes, your styles, things you care about, things that we know you've bought, will actually feed you information about interesting pre-loved products that are available on eBay. So we're excited by what we've seen to date, but I'm really excited that these new capabilities, the scale of what we have in terms of the infrastructure, will help us to continue to accelerate and drive more innovation.
spk09: Great. I appreciate it.
spk00: And your next question comes from the line of Colin Sebastian with Baird. Your line is open.
spk07: Thanks, and good afternoon. Maybe first a follow-up to one of the previous questions, specifically kind of updating your thoughts around the growth of advertising longer term. Are you still thinking that the attach rate or take rate can expand another couple hundred basis points, or could it even be higher than that as you roll out more capabilities and as Jenny, I tools are sort of incremental to what you were probably thinking about a few years ago. And then maybe Steve, just a clarification on the capital allocation. I guess outside of the incremental buybacks, are you keeping dry powder for additional M&A? And if so, what are some of the areas of interest or focus? Thank you.
spk10: Yeah, Colin. Overall, we see a long runway for ads growth. That's both from adoption, from listings penetration, from ad rate optimization and scaling some of the new products that we have, like promoted off-site and promoted source. So we continue to see a lot of opportunity. We are at 2.2% penetration. We said at investor day we see a line of sight to 3%, which we obviously are seeing nice progress to quarter after quarter. And when you look at the redesign that we just did, It's really about how do we make our advertising products more easier to access and easier for recommendations, et cetera, for existing sellers, but also easier for new sellers to bring in. So 3% is not a ceiling for us. It's just a line of sight that we put out there at Investor Day, and we continue to see a long runway of opportunity. Steve, do you want to take the second one?
spk04: Yeah, of course. Colin, good to speak to you. As we always said, we focus on a balanced approach to capital allocation, and our first priority continues to be investing in the long-term growth of the business through the build by partner framework. And you've seen from the execution, you've seen from the momentum, you've seen from the growth that we saw in the second quarter that we're putting the money to good work. I think what's tremendous about our competitive advantage is the balance sheet that eBay has that affords us the ability not only to invest in the business, but to continue to give very healthy capital returns to shareholders. In fact, we've just increased our target for 2024 to at least $2.5 billion in share repurchases, in addition to the 8% increase in quarterly dividend that we've done for the last three quarters. And over the last couple of years, we've continued to demonstrate that continued commitment to returning excess cash to shareholders, and there's no change in our philosophy in doing that. So I'm pleased with where we are, pleased with the balance, and I think, as I said, our balance sheet is a distinct advantage for us here at eBay.
spk07: All right. Thank you very much.
spk00: And your next question comes from the line of Egal Arunian with Citigroup. Your line is open.
spk08: Hey, good afternoon, guys. Thanks for taking the question. Maybe just one on international. You called out some of the headwinds in UK and some of the continuing, I guess, trends from Germany last quarter. What are you seeing broadly internationally and kind of what What's the opportunity there? And then just to expand on the AI features so far and understood there's a lot coming here and a lot of focus there. Any way to quantify or think about what the impacts have been so far if you're seeing a tick up in GMV or any other way to quantify some of the successes you've seen there so far?
spk04: Thanks. I'll pick up the first one. Steve here. Good to speak to you. Just in terms of the international dynamics, just as a reminder, the GMV is reflected in the geography where the seller is domiciled. So specifically talking about the sort of international dynamics that we're seeing, undoubtedly we continue to see a very uneven and dynamic environment, particularly in Europe, as discussion spend is pressured based on some of the discussions we've had over various quarters. With the investments we're making, Particularly in C2C around the German initiative and more recently in UK pre-loft fashion. That's helping to offset some of those headwinds that we've seen. But the other element in terms of international where we continue to see momentum is in our cross-border trade. Particularly out of Greater China and Japan, we've seen a really healthy level of inventory. There's good focus category penetration coming out of those markets. We've continued to invest and so We talked about last quarter the authentication center that we have built and partnered with in Japan, which has continued to drive a great level of luxury inventory to our US and European customers. And so for the second quarter, we did see some sequential improvement in international GMV that grew over 1% on a year-over-year FXM basis. It really is a reflection of the momentum and the investments that we're driving forward. Jamie, over to you on your second question.
spk10: Yeah, on AI, we are seeing really good engagement metrics from our customers that are using them. And when you look at, for example, the CSAT that we're seeing from them, it's 90% and above for some of our new products. And that correlates always with GMV. As we drive CSAT, we're able to drive GMV. We've made it easier to list C2C in some of our markets in Europe and Germany. We're seeing that translate into CSAT, a 20% point increase in CSAT in the German market, for example. So we're pleased about what we're seeing. What's great about the AI developments is that they're learning algorithms, so they get smarter every single day, week, and month that we learn with them, whether that's Explore, Shop the Look, or Magical Listings. And what we're seeing is increased engagement with them. And it's changing the experience for buying and sellers across so many vectors. It's changing it across search, across advertising, across the recommendations that we're providing on the site. It's giving us new tools like Explore. And so we'll continue to drive it. We continue to see really nice metrics come out of it. And those CSAT changes do lead to much healthier GMB growth.
spk02: Thank you.
spk00: And your next question comes from the line of Shweta Khajuria with Wolf Research. Your line is open.
spk02: And please check your mute button.
spk00: Okay, hearing no response, we will move on to the next question. If you can hear me, please press star one again to rejoin the queue. We will take the next question from Lee Horowitz with Deutsche Bank. Your line is open.
spk06: Great. Thanks for the question. Steve, by the end of this year, you guys will have put a lot of work into products to, you know, expand the eBay platform and improve things and brought margins sort of below your typical range. When we think about the path forward, we'll appreciate that you still have many growth investments that you want to get behind. Your product and debt expense will be up pretty meaningfully relative to 22. So as we look beyond this year, do you think that the investment cycle that we're sort of in has substantially laid the tracks to drive future growth from beyond 2024, 2025, and thus the need for incremental investments is thus much more subdued going forward?
spk04: Hey Lee, thank you for the question. I'm not going to get muskies with regards to 2025. I'd just like to reflect on where we are for 2024 and we're exactly where we expected to be. I think it's a testament to the company when we've continued to guide the 6200 basis points of margin expansion this year. At the same time, continue to invest in our business and support the focus category momentum, support the geo specific initiatives and the horizontal investments that Jamie has talked about. As you've been saying all year, we'll continue to invest where we see opportunities to drive long-term sustainable growth and we continue to lean in and we'll continue to do that in the second half. I think what I'd say is our financial architecture continues to provide us with that opportunity and I really am encouraged with the momentum that we're seeing as we have during sort of 2024 and I think it's setting us up well not only for the second half of this year, but for sort of longer-term sustainable growth in the future.
spk06: Great. And then maybe one follow-up sort of, you know, on the second half growth, Algo, and all of the products that you guys are bringing to bear for the platform. You guys obviously have a lot of irons in the fire in terms of improving the platform, but is there any way to size sort of the incrementality in terms of GMV that you expect from some of these horizontal investments, some of these new focus categories that you expect to see in the second half? And if not a number, you know, which amongst the broad array of products that you have do you think holds the most promise in terms of driving, you know, meaningful incremental dollars of GMV in the second half and beyond? Thanks so much.
spk10: Yeah, Lee, when you think about, you know, the horizontal investments that we've been making, they've been really across the board. Think about the work that we're doing in search and recommendations and trust. We've done some geospecific investments in our C2C business in Germany as well. And so if you look at it for this quarter, we're nearly flat in our core categories, which is really nice growth quarter on quarter in our business over the past couple of quarters. So, you know, all of those combined are helping support not only our core categories. but they also help support our focus categories given that work. So, you know, I think about those as complimentary. You know, when I look at our focus categories, they continue to work really well broadly across the board. Luxury was positive for the sixth straight quarter. We saw a really nice momentum in our parts and accessories business. Our collectibles business is trending well. We've kind of normalized it, you know, more than twice the runway that we had coming into the pandemic. And we continue to innovate there. You know, we were at the National, which is the big convention last week, talking about adding bulk magical listings for sellers in our trading card business, which got a great response. We introduced the partnership with PSA this quarter, allowing you to much more simply grade a card and then have it sold immediately right there afterwards without having to have it shipped back to you and shipped there. So across the board, you know, you see our focus categories growing at 4%, even in this macro environment, which we feel good about. So we see the two of those working together. We see them complementary between the focus categories and the horizontal work. And the combination of those two is leading to the sequential improvement that we're seeing quarter after quarter. Awesome. Thanks so much.
spk00: And your next question comes from the line of Nikhil Devnani with Bernstein. Your line is open.
spk05: Hi, thank you for taking the question. I wanted to ask about active buyers. This metric has been flattish for a while now, but if eBay is to sustain low to mid single digit GMV growth as you look forward, then active buyers, at least enthusiast buyers, probably have to start growing again at some point. So how do you feel about your ability to improve this metric in the quarters to come? And is there anything investors can look at to get comfortable with your audience growth? Maybe some incremental color or detail you could provide on how these metrics might be trending within focus categories as a proxy for what's to come going forward. Thank you.
spk10: Yeah, we're exactly where I thought we would be and where we intended to be. Our active buyer count of 132 million was fractionally positive on a year-on-year basis for the first time since early 2021. And we've seen consistent improvements in our year-over-year trends over the last couple of years. And that's been driven by growth in new or reactivated buyers and an improvement in our retention year-on-year. So I've been saying for a while, and I want to note, active buyers are not the core metric we're focused on, but we're pleased that the changes we've made to our buyer acquisition strategy are improving our ability to attract and retain active buyers because that does help us drive what we really are driving, which is our enthusiast buyer strategy. which is those people that are shopping on the site that drive 70% of our GMV. And our enthusiast number has been consistent at $16 million for several quarters. They're buying more and remain healthy with an average annual spend of approximately $3,100 a year. And if you look at some of the stuff that I talked about in the script, whether it's the Met Gala work and fashion that we're doing or sponsoring Love Island or what we're doing in parts and accessories with McLaren, It's really about going out there, targeting, and bringing enthusiast buyers onto the platform, and then leveraging the cross-category shopping behavior we get from those buyers, which is really unique to eBay. So I feel great about the traction of where we are, about the progress that we're making, and the improvements in the underlying metrics that we're seeing.
spk05: If I could just ask a follow-up to that, would you say that the trends for the enthusiast buyers are a bit more pronounced, at least within the focus categories? Is that a fair statement?
spk10: You know, when you look at our enthusiast buyers, 90% of them shop in focus categories. So there's an overlap and a benefit from the focus category work that we're doing. But what we see is that when we acquire an enthusiast buyer in a focus category, it supports our core categories as well. So if a watch buyer comes in, they're going to buy $5,000 in watches on average, but then they're going to spend $5,000 in other categories that crosses focus categories and non-focus categories. Similarly, a handbag buyer will come in, if they've purchased a $500 plus handbag, they'll spend $2,500 in handbags, but $5,000 in other categories. So part of why we focused on the enthusiast buyer is not just that 70% number, but it's because of the flywheel effect that it creates for the overall marketplace for focus categories and for our core categories.
spk05: Thank you.
spk00: And your next question comes from the line of Tom Champion with Piper Sandler. Your line is open.
spk11: Hi, guys. Good afternoon. Jamie, it seems like there are a lot of conflicting economic signals out there. I'm just curious, broad strokes, what you think of the consumer health both in the U.S. and Western Europe. Just curious your core take. And then, Steve, maybe for you, can you just take – One more cut at the 3Q GMV guide and the growth outlook at flat at the midpoint. Looking at the trend over the last six quarters, there's been clear progress, 1% FX neutral result in 2Q. Why would there be a step back in the third quarter? Thanks, guys.
spk10: Yeah, Tom, look, as we've said over the past few quarters, we've seen some shifts in consumer spend. driven by the macro environment as cost-conscious consumers are increasingly searching for value. So, you know, we're a little bit more resilient from that standpoint. I announced last quarter that we've now hit 40% of our products are used or refurbished. And those goods have consistently outpaced the sales of brand new goods since the pandemic. So as you can imagine, you know, some categories are performing better than others in this macro environment. As I mentioned, you know, our luxury category is still positive and has been for six straight quarters. So I think there's more pressure on the less affluent customers in the consumer market. But our improved customer experience, combined with our real focus on non-new in season and providing great values in used, great values in refurbished, making C2C easier so that when macros challenge, consumers can come on and use the platform to sell products, is really helping us compete effectively in this macro environment. Steve, do you want to take the second one?
spk04: Yeah, of course. Hey, Tom. How are you? Well, I've been pleased to see the momentum that we've been seeing quarter after quarter as we've gone forward, and obviously the positive growth you saw in the second quarter, particularly in this macro environment. It has continued to be a reflection of the investments that we've been making over the last 18 months or so and the returns that we're seeing on the business. Obviously, we saw some benefits in the second quarter with a 50 basis point tailwind associated with Easter timing. But even having said that, we were approaching about a point of positive GMV growth. The environment we're in continues to be very uneven and dynamic. And we are seeing some specific one-off impacts as we think about this quarter with elevated year-over-year demand for summer travel. some one-off sort of global sports events, which are making the month-to-month trends a little bit uneven. And so as we contemplated the third quarter guide, we've continued to take that uncertainty into effect. And the guide that we've put out there balances that perspective. But overall, I feel like we've had strong execution to date in this continued and certain economic and regulatory environment. And I really remain encouraged with the momentum we're seeing, and we're confident we're on the path towards long-term sustainable growth.
spk12: Operator, can we do one last question, please?
spk00: Yes. And your final question comes from the line of Ross Sandler with Barclays. Your line is open.
spk01: Hey, guys. This is Alex Hughes on for Ross. So looking at collectibles, News came out earlier this week that one of your trading card power sellers was moving to Fanatics in the next few months. Can you just give a little more color as to that situation and if the Golden Deal played a factor? And then stepping back, collectibles is driving a lot of growth in focus categories, but can you just talk a little bit more about how you're thinking about the opportunity more broadly? Thanks.
spk10: Yeah, I'm not going to talk about any one seller. We have millions of sellers on the platform. What I say about collectibles is that we feel really great about the innovation that we're driving in that business. Golden coming on brings the world's most desirable inventory and collectibles onto the marketplace and new capabilities. The reception to Golden last week at the National was really amazing to see people chanting. We had over 50 eBay live events that we held there. And the consumer and the hobbyist is really resonating with the steps that we're taking, including bringing in Ken Golden and his team into the business. They had a leading show with King of Collectibles Season 2, hitting great records on Netflix streaming. We supported the Golden 100 auction, so all great there. We're also excited by the partnership with collectors and PSA. It really helps solve something that collectors have been asking for for quite some time, which is simplify the process of grading and selling items. So now if you're sending an item to grade, usually that's going to massively increase the value and you're looking to potentially put that in a marketplace. We've really simplified that through this partnership with PSA and why we're seeing customers really adopt it is we're just making that whole process really friction-free. So we've been a leading secondary marketplace for over two decades. Every quarter we innovate and drive kind of new capabilities. The last one I would just talk about here is our work in eBay Live. In Q2, our eBay Live events grew 50% quarter over quarter. We started doing case breaks on eBay and our sellers are adopting them and finding it really great to see new capabilities we've built. We launched new features like Buy Spot, directly on the Live Hub, which is a really kind of great feature for case breaks. And I participated in some of those, and they're just a lot of fun. And we launched eBay Live in the UK in Q2 as well. So we're continuing to see good momentum on that component, which is really also helping accelerating these new partnerships and all the work we've done with collections and price guides and new shipping methods over the past quarters and years to really accelerate our collectibles business. And I'm encouraging by the stats of what we're seeing.
spk00: And ladies and gentlemen, this concludes today's conference call and we thank you for your participation. You may now disconnect.
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