Good afternoon. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the eBay Q2 2019 Earnings Conference Call. All lines have been placed on mute to prevent any back background noise. After the speakers' remarks, there will be question-and-answer session. [Operator Instructions]. Thank you. Joe Billante, Vice President, Investor Relations, you may begin your conference.

Good afternoon. Thank you for joining us. And welcome to eBay's earnings release conference call for the second quarter of 2019. Joining me today on the call are Devin Wenig, our President and Chief Executive Officer; and Scott Schenkel, our Chief Financial Officer. We're providing a slide presentation to accompany Scott's commentary during the call. All revenue and GMV growth rates mentioned in Devin and Scott's remarks represent FX-neutral year-over-year comparisons, unless they indicate otherwise. This conference call is also being broadcast on the internet, and both the presentation and call are available through the Investor Relations section of the eBay website at investors.ebayinc.com. You can visit our Investor Relations website for the latest Company news and updates. In addition, an archive of the webcast will be accessible for at least three months through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include but are not limited to statements regarding the future performance of eBay Inc. and its consolidated subsidiaries, including expected financial results for the third quarter and full-year 2019, and the future growth of our business. Our actual results may differ materially from those discussed in this call for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the Company's Investor Relations website at investors.ebayinc.com or the SEC's website at sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of July 17, 2019, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks, Joe, and good afternoon everyone. Our plan for this year is to deliver a great customer experience, grow our active buyer base, and scale our immediate growth initiatives, advertising and payments. As we build on our strengths of value and unique selection in our marketplace, we are increasingly intermediating and managing that marketplace, to better control both the consumer and the seller experience, while creating new growth opportunities. In Q2, we executed that plan. We made tangible customer experience improvements; we delivered good active buyer growth, and we continued to scale ads and payments. In addition, we drove efficiency to fund our investments while making progress on our portfolio overview. For the quarter, total GMV was flat, revenues was up 4%, while our active buyer base grew 4% to $182 million. Underlying these results, GMV in our Marketplace platform was down 1%, StubHub volume was up 6%, and our Classified platform grew revenue at 12%. We also returned $1.6 billion in capital to investors through share repurchases and dividends. Scott will go into more detail on our financial results shortly. First, let me provide some context on our core business. We've been reducing and redeploying low ROI marketing spend, resulting in less GMV in the short term, but stable sold item and active buyer growth. Although we've reduced certain types of incentives, we've maintained our focus on driving healthy customer growth while evolving our brand. We're seeing improvements in buyer acquisition, driven by higher conversion of new and lapsed customers, in part due to product enhancements, and also for a more targeted marketing and promotion. We have effective levers to acquire buyers and our expanding our effort to drive frequency and reduce churn. In Q2, we improved the buyer experience by increasing the number of ways buyers can discover…

Thanks, Devin. I'll begin with my prepared remarks with our Q2 financial highlights starting on slide four of the earnings presentation. In Q2, we generated $2.7 billion of total revenue, $0.68 of non-GAAP EPS, 2 points of non-GAAP operating margin accretion, $607 million of free cash flow, and we have returned $1.6 billion to shareholders through repurchases and dividends. Based on these results, we have increased confidence in our 2019 earnings outlook. We are reaffirming our organic FX-neutral revenue growth rates and raising GAAP and non-GAAP EPS guidance for the full year. Moving to active buyers on slide five. In the quarter, we increased our total active buyer base by 2 million to a total of 182 million, up 4%. Similar to Q1, we're maintaining stable buyer growth by increasing marketing spend that targets new and lapsed buyers, which is offsetting a modest increase in existing buyer churn. Turning to slide six. In Q2, we enabled $22.6 billion of GMV, flat year-on-year [technical difficulty] one point versus Q1. The U.S. generated $8.8 billion, down 5% while international delivered $13.8 billion of GMV, up 2%. Moving to revenue on slide seven. We generated net revenues of $2.7 billion, up 4% organically. We delivered $2.1 billion of transaction revenue and $557 million of marketing services and other revenue, up 4%. Turning to slide eight. Our marketplace platform GMV was minus 1% in Q2, flat versus the prior quarter. U.S. GMV was minus 6% on a year-on-your basis, driven by 5 points from the continued reduction in on platform marketing, and more than a point from internet sales tax. Specific to internet sales tax, in January, we highlighted that the landscape was fluid and rapidly evolving. At that time, a small number of states had active legislation requiring marketplaces to collect sales tax,…

[Operator instructions] The first question comes from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.

Great. Thanks. When we look at GMS growth, I was wondering if you could kind of help disaggregate for us some of the drivers behind that, particularly as it relates to the efficiencies that you’re seeing in marketing. How should we separate sort of the impact of those marketing efficiencies versus the ongoing technology improvement and sort of the efforts that you're making around structured data, which I know we’ve talked about for a while but also the new product pages. Just wondering we see the net effect, just hoping you can kind of give us a little bit more of the pluses and minuses behind that.

Yes. Heath, maybe I’ll just comment on numbers and then Devin can elaborate maybe a bit on the product side. Generally speaking, overall, if we focus on the U.S., we accelerated points, so more or less the same. But if you really tease out the underlying, some of our export quarters out of the U.S. did a little bit better, and that was partially offset by the internet sales tax dynamics that I laid out. If you look year-over-year -- that was versus Q1, but if you look at year-over-year, the deceleration really is driven by and large by the reduction in marketing spend as we redeploy and reallocate and also cut marketing costs. And then, a little bit, as I called out in my prepared remarks year-over-year, a little bit more than a point from internet sales tax. Underneath that, we did make a series of product changes that in aggregate haven't yet moved the bigger picture number in the U.S., but are I think making a difference to the ecosystem and we feel good about the future.

Yes. I mean, I'd just add that this year is playing out exactly as we had said it would. And I guess, our confidence is that we have line of sight to the reason GMV is suppressed right now. It's marketing, which is in our control, it's internet sales tax, which will roll out, and it will roll out of it at some point next year. So, we know those things, they are explainable and to some extent controllable. Underlying that the marketplace is healthy. We've never had more buyers. We've never had more inventory. The product is improving. And we are hitting another good stride right now in our product development process. So I have a lot of confidence in the core health and strength of the marketplace, because I can understand why there is a short-term suppression in GMV, and that's what we said would happen early in the year. It's exactly playing out as we had said.

Yes. The other thing I'd add Heath is internationally as I called out, there is some pressure. We are down a point quarter-to-quarter. That's really driven by mix, a little bit of downside from the UK, partially offset by a little bit of benefit from Korea. And so, those dynamics continue to play out. And as we go forward, there is a lot of dynamics that play, including internet sales tax that are implied in our guidance, and we'll continue to work through those. And hopefully the product changes that we made will continue to amplify, as we get into the second half of the year.

Your next question comes from Ross Sandler of Barclays. Please go ahead. Your line is open.

Great. Guys, just a question on the marketplace segment margin. So, it's been improving 200 bps, it's still in the low 30s. I guess, where do you see that going kind of medium to long term,. how much more upside in terms of expense efficiency, and just kind of the natural lift in that margin do you see? And then, second question on the portfolio review, just curious to hear your thoughts on the idea that's out there about selling classifieds potentially in separate pieces, kind of country-by-country versus doing like a spin or a sale for the whole entity. Just any thoughts on that? Thank you.

Yes. So, first off on margin. Let me comment in the short term. So, we had nice margin expansion this quarter in marketplaces. I think, you can expect continued margin expansion driven by marketing that we've talked about over the course of the year, but in the second half of the year, as you might remember I called out last quarter, there is a dynamic first half versus second half from foreign exchange, and we've been calling those differences out, roughly 0.5 point this quarter. That normalizes in the second half of the year. So, there won't be as much margin leverage in the second half of the year and that will -- some of that will show up in marketplaces. But, we expect to continue to be rationalizing and reallocating the marketing and focusing it in ways that we've spoken about. So, I would expect some marketing benefits going forward as well as just ongoing continued cost control. So, in the longer to -- medium and longer term, we'll talk about at least 2020 in October at the earnings call then and I'll give you a bit more definitive of an answer on that front.

And Ross on the portfolio review, we're just not going to say anything about it. We'll let people know when there is something to say, but until then, we're just not going to say a word about the process or what's going on.

Your next question comes from Mark May of Citi. Please go ahead. Your line is open.

Thank you. On the internet sales tax, you've talked about a 1% or I guess now greater than 1% impact. But there have been very few states that have had it implemented with the pretty significant ramp that's starting up in the back half of the year. How are you guys thinking about the impact, what are you assuming in your guide? And then, I believe in May-June timeframe, Google made some search algo changes. Some data out there suggests that eBay may have been negatively impacted by that. Obviously over the years in the past, this has happened. And just curious what if anything you've seen so far. Thanks.

Go ahead.

I was just going to say, on internet sales tax implied in our guidance is that more states will roll out and that the impact will get worse before it gets better. That is implicit in our guidance is that as you're going to reach sort of the peak of states rolling out probably in Q4 and that's implied in what we're seeing, I think some of it, we're not a 100% sure how it plays out, because there are replacement. There is a replacement inventory and as this gets more penetration in the marketplace or other dynamics that may end up substituting. But right now, what we're assuming, is that the impact on the U.S. business will continue to grow, and then we'll start lapping out of it and then it will shrink and basically fade into the background, but it is certainly -- we're certainly not through it. And I'll just take the opportunity to say for a second, as a policy matter, this is exactly what we said, which would happen, which is small U.S. businesses are being disfavored, the impact is disproportionate around strong -- on small U.S. businesses. It's favoring larger businesses and retailers and it's also favoring international businesses. So, we again will call for a federal legislation on internet sales tax and a small business exemption. And I'll say that you'll continue to hear me say that because what we're seeing is exactly what we had feared and what we had said. On the algo change, we haven't seen a material change in search in the May-June timeframe from Google.

Your next question comes from Stephen Ju of Credit Suisse. Please go ahead. Your line is open.

Devin or Scott, I guess, we got the sense the last time we talked to you guys that you are being extraordinarily careful with the payments rollout and moving sellers into the program almost one by one as opposed to chunk set of times, and I think that's broken on the way. So, you have added what looks like 1,700 sellers versus about 800 last quarter. So, should we take this to assume that the process to transfer the incremental seller is getting progressively easier? And once you start doing this more formally in Germany, do you expect the transfer to be more easier, more difficult? And separately, not that you're in a position to offer us 2020 guidance, but some of the GMV deceleration this year is self-inflicted due to marketing and additionally, as you said from the sales tax friction. So, should we be thinking or even hoping for in line with retail type of a GMV growth for the U.S. next year and further for your marketplaces revenue, the GMV growth is no longer disconnect like it did this year? Thanks.

On payments, a couple of dynamics that I think are interesting. So, first of all, today is the one-year anniversary of -- a year from today will be five years and that's where the restriction on the rollout will fade away. So, you can expect us to pick up the pace. I think, some of it has been the product build, some of it has been there is no need to go faster because we're capped under the OA anyway. As we start to roll up here to 12 months from today, you will see us begin to pick up the pace. And I'm particularly pleased with seller experience. Sellers are seeing really good conversion, buyers are seeing choice, sellers are seeing unified accounts and they’re saving money, everything that we would have hoped. So, I'm very pleased with the payments execution. And on the buyer side, it's very interesting. You heard in Scott's remarks that now with PayPal rolled out, buyers are showing that they want choice. We're seeing after PayPal has been rolled out, penetration of PayPal of approximately 35% roughly. And that's compared to almost double that on the rest of the marketplace. So, buyers are voting with their wallets and they are choosing for choice. So, you will expect us to pick up the pace. In terms of GMV, obviously, we're not giving you ‘20 guidance. We’ll just say what we say all the time, which is we think the long-term sustainable growth rate of the business is probably somewhere above retail and below ecommerce. And at these margins, we think that's a great business and a sustainable growth rate. But what -- where we’ll be next year, we'll obviously talk about that in October.

Yes. And remember, Steve, the other dynamic for next year and the year after will be that scaling of payments revenue into our business. And so, while we'll get into what GMV looks like later in the year from a guidance perspective, you can expect that the revenue will be in a reasonably higher than that in addition to the first-party ads dynamics that we've talked about in the past. So, I think we feel pretty good about the revenue and we've got a lot of work to do between now and the end of the year when we start talking on October about 2020.

Your next question comes from Dan Salmon of BMO Capital Markets. Please go ahead. Your line is open.

I'll go to the other driver and advertising and Promoted Listings. I think, Devin, you mentioned that you've expanded now to 940,000 sellers from I think 800,000 last quarter. But, I think it was in May you announced sort of a broader rollout to all sellers in good standing. Just curious if you can help us understand the impact of that announcement and where we expect that seller, and should we expect the number of sellers using Promoted Listings to start to accelerate as well as a result of that? And then, just on the flip side, just any color you can add on the continued wind-down of the third-party ads? Is there -- maybe be not a specific guidance to when we might to see that trough out but a timeline could help us feel that out a little bit better. Any color you can add would be helpful.

Yes. On the first part, yes, it's a good call-out. I think we said last quarter that growing first party ads business is both sides of the funnel. It's supply and demand. For supply, we've opened it up to more sellers, we're giving them more tools, we're giving them better data so that they can understand and calculate an ROI on their ad spend on eBay, which we think is actually very strong. We think we have a very compelling value proposition. I mean, sellers advertise on eBay and they have -- they look at that as a choice, just like they could advertise on other ad platforms. And actually what we see is that we have a really good value proposition for them, and that's playing out in the growth that we're seeing in the sellers and the density of ads, in the way that they are using it. I should also point out that next week, we have a very large seller event called eBay Open and we have thousands of our customers coming to that. And we'll have more to say about the future of ads and we'll have more to say about that and other things. It should be an exciting week for us next week. And on the buyer side, obviously, there is the exposure of those ads in both search and in browse and merchandising. And that also, as we get confident that we're not cannibalizing organic results, if you will, we can expand the results there. So, the growth this quarter which was really outstanding as a result of both the sell side and the buy side expansion.

Yes. To your second question in terms of the timeline, I’d just point to is that third-party wind down is highly correlated with first-party acceleration. First-party acceleration in terms of where ads are going to be in place, what the efficiency of those ads and conversions of those ads are and how we change the user experience. You can do the math, but we've had some acceleration in the third-party wind-down over the last couple of quarters. I would expect that to continue as we head forward. And we will continue to break these growth rates out for you, so you understand the underlying dynamics.

Your next question comes from Colin Sebastian of Baird. Please go ahead. Your line is open.

Devin, you called out some opportunities to address higher buyer churn. And I guess, just given the efforts to control marketing spend at the same time, is that something that you still kind of address over the near term or is that more of a longer term effort? And then, hoping for any updates on what you're seeing from some of the pilot initiatives with fulfillment and shipping, and in particular if you're going to plan any expansion of those efforts, ahead of the holidays? Thanks.

Thanks for the question, Colin. On buyers, we are very focused now on buyer frequency, on reducing buyer churn. We're seeing outstanding new customer acquisition, really strong, brand new customers coming to eBay, which is encouraging. Many of those are millennial; we're seeing a better skew towards women who are shopping with us. Some of those cohorts have lower spend than our existing cohorts, but they're all on the right side of positive CLV. So, we're happy with what we see. And the hope is that we can drive frequency and we're very focused on that, that's both product and marketing. Right now, we're very dialed into driving frequency and my hope is that, that isn't a long-term plan, that's something that we can do soon. And some of that is implicit in our steady buyer growth that we've seen over the last several quarters. On fulfillment, nothing to say right now. I think it's worthwhile to stay tuned.

What I'd say Colin on our fulfillment just specific to the question, we constantly leverage our size and scale on a global basis to provide services to our sellers that are cheaper. And we've talked about that with respect to helping sellers position inventory in country with coordinated and essentially negotiated lower fees from fulfillment. And as we look at this fulfillment trio in the U.S. because most of what we've been talking about is international, different international markets, 70% of what's sold on the site are ready comes with free shipping in the U.S. And in the U.S., nearly two-thirds of items arrive in three days or less. So, I think the intent of the program is to further enhance via guaranteed delivery program, those types of metrics to further improve the user experience.

Your next question comes from Mark Mahaney of RBC. Please go ahead. Your line is open.

Thanks. You have put up two quarters of nice leverage in sales and marketing on a year-over-year basis, and you've talked about finding efficiencies, I think, in your marketing spend removing some of your lower ROI channels. How long of a transition is this in marketing? I realized it's constantly being optimized, but is there a greater level or attention to optimization this year that then kind of normalizes going into next year? And any color at all on what those lower ROI marketing channels are that you have been reducing? Thank you.

Yes. The simple answer on lower ROI channels markets, last year, we pushed the curve quite aggressively on things like promotions, saw a lot of kind of sitewide sales and coupons and things like that. And as we started to measure those cohorts, we would have kept it going if we're happy with the value of the customers we're bringing in and their spend profile. The fact is, we've always been disciplined marketing allocators. And it was worth trying and pushing that limit. But as we saw the returns coming back, particularly the cohort of buyers we were acquiring through that activity, it wasn't worth it, quite honestly. So, a lot of this is a reduction from us really pushing the marketing curve last year. And there may be more, we're always trying to push efficiency in our channels, but we're also trying new channels, some of them may have lower ROI early on and we grow it over time. In particular, we're diversifying from Google and search channels into social channels, we're diversifying into affiliate channels, we're diversifying -- and always trying to bring direct traffic. One of the best attributes of our business is it's very strong mix of direct traffic compared to paid traffic. So, we'll keep advertising the brand, keep working the other channels. And for the rest of the year we'll keep removing and somewhat lapping the low ROI spend from last year, and that's in the dynamic we've been talking about since February or March.

Hey, Mark. Let me just call out a couple of things that came out in my prepared remarks, but just to pull them together based on your question. First off, both StubHub and classifieds spent more in marketing this quarter, we call those out in the prepared remarks and in the margin dynamics. And so, that's going to, at the company level, mute the reduction that you would have seen. That's one dynamic. The second dynamic is within the marketplaces business. Korea and Japan actually spend more in contra which then further mutes the fact that contra and other marketing expenses further down in call it core on eBay marketplaces businesses. And so, it's a bit muted at the Company level and a lot of the dynamics we're talking about are core on platform ex-StubHub, ex-classifieds and ex-Japan and Korea. So just to try and navigate through from what you see in the prepared remarks and in the presentation and ultimately in the queue.

Thank you.

Your next question comes from Thomas Forte of DA Davidson. Please go ahead. Your line is open.

So, during the quarter you announced that you were going to potentially participate in Facebook Libra. I wanted to know what you thought eBay's opportunity could be there, because I think that's quite an interesting initiative by Facebook and how that can fit into kind of eBay 2.0 payment options in the future? Thank you.

I think that I've been following crypto and blockchain for quite some time. And without going on a tangent, the short answer is, the opportunity for the blockchain to reduce settlement costs, improve security and improve transparency is definite. I'm a believer that a public distributed database can reduce settlement costs. People still pay a lot for interchange, they pay a lot for settlement and clearing and that are in systems that at times are not secure and at times don't serve the needs of the particularly small businesses. So, we're advocates about the possibility. One of the things that's prevented crypto from really having any penetration with retail is the volatility. And nobody is going to pay with the currency that moves up and down 15% a day. So, the opportunity with Libra is for buyers because it's pegged to -- a basket of fee our currency, to build currency that’s stable. The opportunity for sellers is to lower their costs even further. We're going to lower their costs with payment intermediation, the potential that this is ever got up and running because we could lower their costs even further. So, I think Libra is speculative, I think Libra may or may not work. I understand that the regulatory scrutiny. It is led by Facebook, we'll let them lead that. But we're participants as advocates on behalf of our customers.

Your next question comes from Justin Post of Merrill Lynch. Please go ahead. Your line is open.

Thank you. Scott, I wondered if you could revisit the advertising opportunity. I think, you reiterated $1 billion. Where are you on total ad dollars today? And then when you think about $1 billion being a little bit over 1% of GMV, Amazon is a lot higher. Do you think $1 billion is conservative, is there a room to go higher? Thank you.

Well, look, let's say get to $1 billion first. I guess, the way I'd frame it, I think, Devin in his prepared remarks said $700 million. We’ll continue to expand above that with the mix of first-party which is, I'll remind everyone. I think you know, it shows up in transaction revenue. And as the third-party ads unwind that will lower our overall MS&O and ads reported number. And that's why we keep talking about it in aggregate, but $700 million continuing to grow, we'll get to a billion here in the next year or two and continue to expand our capabilities. And I think the balance is making sure there is a good user experience. So, we'll get to a $1 billion when we’ll get to a $1 billion, that will be as soon as we possibly can. We're pushing on that on all fronts, with the balance being, let's make sure the product experience doesn't get destroyed in that and that people can find what they're looking for, and that the searches that they do and the ads that we serve them are extremely relevant and continue to convert and are worth having our sellers invest in.

Hey, operator, we'll take one more question, please.

Your last question will be from Ygal Arounian of Wedbush Securities. Please go ahead. Your line is open.

Hey, guys. Thanks for taking the question. So, in the press release, you noted that you launched new pages that transformed from unstructured listings to structured, and product listing pages. So, I wanted to hear maybe there was more color around that. Is that different than the ongoing strategy you guys have had to roll out more pages on to product listings. And then, just one quick follow-up on the existing buyer churn. I know, you said it was modest, but was there anything specific driving that, was it the lower marketing spend or was it something else? Thanks.

On the first part, I think we continue to evolve our catalog and structured data approach, and it's really both top down and bottom up and I'm very excited about the bottom up. The top down has been what we've been progressing and still are, it's really about attachment to products, and that's really important. What's also important are the attributes of those products. The aspects, the bottom up, like the characteristics of a phone, here is the memory, here is the color. And what we see is that as our product listings have more richness in those descriptions and in those attributes, they convert better, in part that's because they attach to buyer searches better. So, we are encouraging and in some cases mandating, sellers add more to those products listings. And then, we are incorporating that in the search and that's driving better conversion. And you'll see us continue to make it easier for sellers to contribute. And having our search engine on the buyer side, pick up those attributes more and more aggressively over time. And again, we will have more to say about that next week at our big seller event. But we're really pleased and excited about the way forward on our catalog and structured data. Oh, sorry. And on existing buyer churn, part of what that is reflecting is, a year ago we had some experiments in Mainland, China. We're lapping out of some of those buyers in Mainland, China. So, some of that increased churn reflects that. But it doesn't -- it's not a material difference in any of our core on platform markets.

I will now turn the call over to the presenters for closing remarks.

I think we're all set on our side. So, I think we can close the call. Thank you very much.

This concludes today's conference call. You may now disconnect.