Ladies and gentlemen, thank you for standing by, and welcome to the eBay Q1 2022 Earnings Call. [Operator Instructions]. I would now like to turn the conference over to your host, Joe Billante, VP of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the first quarter of 2022. 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 Jamie and Steve's commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. Additionally, all revenue and GMV growth rates mentioned in Jamie's and Steve'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 forecasts 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 in our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of May 4, 2022, and we do not intend and undertake no duty to update this information. With that, let me turn it over to Jamie.

Thanks, Joe. Good afternoon, everyone, and thank you for joining us. Before discussing our first quarter results, I want to acknowledge the terrible human tragedy that continues to unfold in Ukraine. This is a very difficult time for many, and I'm proud of how eBay employees and customers have mobilized to support those affected. At our core, eBay exists to help people and communities around the world. This role is fundamental to our purpose and motivates our workforce. In addition to direct and indirect support for refugees and citizens, we will continue policy actions to help customers in the region. These events have had a negative impact on consumer health, primarily in European markets. Despite this unexpected headwind, our global results for Q1 were strong. Let me highlight a few achievements from the quarter. Focused category innovation expanded, and these categories continue to grow faster than the rest of the marketplace. 18 million enthusiast buyers continue to shop regularly on eBay, purchasing items over 30 times per year. Sellers are seeing a simpler unified listing experience, and we made several improvements to eBay stores in the quarter. We announced a deal with climate to provide more popular payment methods to German buyers, and we started testing the new eBay wallet. Our advertising business grew faster than GMV due to increased optimization and adoption of new products. And finally, we made significant progress on our e-commerce, DE&I and sustainability goals. Sellers and buyers are turning to eBay, and this led to financial results at the high end of our expectations. We delivered over $19.4 billion in GMV and close to $2.5 billion in revenue. We continue to make the long-term investments laid out at Investor Day while achieving a 32% operating margin. And our non-GAAP EPS was $1.05, $0.02 ahead of…

Thank you, Jamie, and thank you all for joining us today. I'll begin our discussion with financial highlights on Slide 9 of our Q1 earnings presentation. Next, I'll provide a deeper look into key operating and financial metrics, including a discussion of our ongoing macroeconomic and geopolitical developments influencing our business. Finally, I'll share our forward outlook and some closing thoughts before we begin Q&A. Please note, my comments will reflect year-over-year comparisons at constant currency, unless I note otherwise. Overall, we delivered strong results in Q1 as GMV, revenue and EPS met or exceeded expectations and performed near the high end of our outlook ranges. Our Q1 results were driven by continued progress against the strategic objectives we outlined at Investor Day, including an expansion in coverage and capabilities of our focused categories and improved technology for our sellers and buyers. Our first quarter revenue was down 5% to $2.48 billion, outpacing volume growth by approximately 12 points. Non-GAAP operating margin was 32.4%, up roughly 80 basis points sequentially. We delivered non-GAAP earnings of $1.05 per share, down 2% as compared to a record quarterly EPS result last year. We generated $546 million of free cash flow and returned approximately $1.4 billion to shareholders through repurchases and dividends. We achieved these results despite some back-end softness, associated changing macro conditions and the tragic conflict in Ukraine. I'm extremely proud of our team's focus and execution amid these challenging circumstances. Let's take a closer look at our performance in Q1. Gross merchandise volume declined 17% as we lapped a 7 point sequential acceleration during 2021 and which was driven by global mobility restrictions and U.S. stimulus payments. As compared to our pre-COVID baseline in Q1 of 2019, GMV grew 7%. We were extremely pleased with the pace of growth, innovation…

[Operator Instructions]. Our first question comes from the line of Colin Sebastian from Baird.

Two questions for me. I guess the message here is the tech-led reimagination is on track. But you hit these macro headwinds that depressed volumes in the near term. So with that context, Jamie, I was hoping you could drill down a bit more on growth in enthusiast buyers. And in particular, how do you expand the size of this group, drive more engagement? And if this relies on converting less active buyers to enthusiasts, those that are already on the platform. And I have a follow-up.

Yes. Thanks for the question, Colin. Absolutely. So when you look at our enthusiast buyers, we have 18 million of them. They drive 70% of our GMV. That group is a very productive group for us. It's -- they shop more than 30 days. They spend over $3,000. And even though some of them are moved in and out of mid-value, when you look at our mid-value buyers that we outlined at Investor Day, they're actually of the cumulative lifetime value of most other platforms. So they're also very valuable customers as well. So the key things we're doing is, a, driving our focused category strategy. When we look at those enthusiast buyers, 94% of them shop in focus categories. So that's a big opportunity. 25% of them are selling on eBay, and that obviously drives the flywheel of performance. When we look at it versus 2019, it's not just about the numbers, but how do we get that group to buy more. So versus 2019, they're buying double digits more on the platform. And that has to do with getting them to go cross-category, getting them to be more sticky within their focus category or their initial category, and then all of the pieces that we know kind of drive retention. The last one I'll just pick up on is it's also tied into our seller strategy. So part of the things that we announced this year -- this quarter with sellers, things like new eBay storefronts, enhancements to the eBay coupons, improvements to SEO. It's all about how to -- it's just not eBay and the platform driving retention of those enthusiast buyers, but how do we put more tools in our sellers' hands so that they can drive the retention of the buyers as well. So feel really good that the strategy is working and the plans are intact.

That's helpful. And then secondly, maybe for Steve. It looks like guidance for the back half of the year implies somewhat normal sequential seasonality in volume for Q3 and Q4 off of that lower Q2. So I guess this suggests the outlook assumes no improvement or no worsening in the macro environment, if that's the right way to think about it.

Colin, good to speak. As you can imagine, we've been very deliberate in terms of how we've looked at the outlook for the remainder of 2022 based on this base of uncertain and challenged environment. I'd just like to -- you're correct in terms of your assumption as we go forward with regards to seasonality. So just as a reminder, as we talked about at our last earnings call, we do have a half 1 and half 2 underlying story for 2022 as we lap some of the significant tailwinds associated with COVID in 2021 in the first half as we go forward. But we -- despite the -- I suppose, at a macro level, we do see this overall softness driven by the macroeconomic environment, but we still expect the sort of seasonal shape of the GMV as we go forward.

For our next question, we have Eric Sheridan from Goldman Sachs.

Two if I can, just following up on Colin and following up on the macro issue. Are you seeing different behaviors in the macro environment between your high-value buyers and low-value buyers? And would that inform any decisions of maybe accelerating some of the investments you want to make in terms of improving the skew of your buyer base as we go through 2022? That would be a sort of question number one. And then secondarily, you pointed out the gap between GMV and ads, which was quite wide. How should we think about that gap between ads outperformance relative to GMV beyond just what you reported in Q1 given against your innovation curve run ads longer term?

Yes. Thanks, Eric. So look, when we think about the impact macro, it's really across the board. We can look at, obviously, our own traffic and traffic of our competitors. And specifically in Europe or more so in Europe, really coincidental with the war, we saw the impact overall to the business. So there's various movements. I would say last year with the pandemic, we moved some mid-value up into enthusiast buyers as we looked at the segments. But really, it's kind of across the board, everyone's energy prices are going up, more cost of fuel, inflation, et cetera. To your second question, we're really happy with the performance of ads being at 19% above GMV this quarter. And we talked about kind of the growth that we're seeing in the new products, although the large part of it is still our core product, which is the Promoted Listing standard. But continue to drive optimization, continue to drive adoption. We're still in kind of the early stages of the new products on advertising.

For our next question, we have Tom Champion from Piper Sandler.

Jamie, maybe you could talk about the focused category growth of 9%. I think it was 15% previously. Can you help us interpret that in terms of ongoing sustainability?

Yes. So a couple of things. One is really pleased to see that 9 points faster growth in terms of the focus categories. We are lapping some stimulus from last year in our numbers. So that's certainly a factor. And then over time, Tom, the math would say as we increase our coverage of focus categories, obviously, the delta will decrease just because of the math of more of the numerator being, the denominator as well. But as we look at this as a multiyear, the strategy that we laid out at Investor Day is right -- is consistent, getting them to grow at or above market growth rates. What I'd say I'm really happy about this quarter is that we're seeing the same type of deviation between focused categories in international that we saw in the U.S. in terms of their outperformance of the rest of the site. So we've been talking for a couple of quarters now about how international was more nascent, and we're starting to see that traction in the focus categories. And we talked about some of the new launches that we're seeing internationally.

For our next question, we have Deepak Mathivanan from Wolfe.

Great. Just sticking with the macro discussion. The 5 points lower revision on full year GMV guide, maybe can you elaborate a little bit on what signals you're seeing now to arrive at the 500 basis point reduction? I mean a lot of uncertainty is still kind of ahead of us. So does this revised guide reflect what you're seeing now? Or does this also factor in potential unfavorable trends in the second half? And then how should we think about your expectations for 2023 and 2024 based on the revised 2022 targets?

Deepak, I'll pick those up. As I mentioned on the previous question, we've been very thoughtful and deliberate about the '22 guide as we look out for the remainder of the year and really reflecting what we see as ongoing macroeconomic challenges in the overall environment. I think I would pull it down to sort of 3 specific areas as you think and contemplate the guide that we put out. First, the continued negative economic impact of the terrible atrocities associated with the war in Ukraine, and our expectation that those negative impacts will continue through 2022. The other is, overall, the continued headwinds from the broader macro environment. You think about things like interest rates, fuel prices, energy costs that's putting an additional pressure on the consumer and their discretionary spend. And we're particularly seeing this in Europe, in a couple of our key markets in the U.K. and Germany, where we're seeing consumer confidence at historic lows. And then we are also assuming as a third item, the expected continuation of the supply chain disruptions that we've seen for a number of quarters here that continues to put a drag on our international business. So when I think about those 3 areas, that's what we've contemplated when we look in the macro environment, and we went forward to that 2022 guide. Beyond 2022, as you recall, we talked to the investor community back in March at our investor event, and we remain confident in our long-term guide. We see these issues as transitory. Our long-term guide contemplated mid-single-digit GMV growth. We remain confident in that. We continue to make the investments for the long-term future. You heard Jamie talk about the momentum that we're seeing in our prepared comments. And so we certainly see that as a longer-term perspective as we now get these choppy waters in the near term.

For our next question, we have Stephen Ju from Credit Suisse.

Okay. So Jamie, your commentary about expanding the authenticated brands and bags is interesting. Sounds like you're not quite done going deeper into the category. And also kind of along with that, can you talk about how parts and accessories rollout proceed? I mean is it going to be a gradual rollout of a category-by-category, a model-by-model basis? And is there a similar opportunity to go deeper into watches as well? And I think also to follow up on Eric's question earlier, I think throughout 2021, you've more than doubled the number of Promoted Listing sellers, but that's still a minority percentage of the total sellers. I get that this is probably not appropriate for everybody, but what can you do to drive greater seller adoption? Is it just a matter of awareness? Or is there -- does the product set needs to be expanded?

Yes. Great question. So first, the way I think about the focused category is it's not like we invest in the category and that we're done. If you look at it, we're still investing in sneakers, which we launched quite some time ago. So we continue to make innovations even in categories that we've launched. The category that you first brought up handbags, we expanded what we're doing in authentication to the U.K. in a beta this quarter. We also expanded in the U.S. to men's bags this quarter. So now currently authenticating in the U.S., U.K. and Australia. So that will be a continued playbook. I would say the same thing about parts and accessories is in addition to all the things we're doing around consideration, we're continuing to drive quarter-after-quarter new features, new capabilities for those categories. You mentioned watches at the end. That's another category. Even though we launched authentication a couple of quarters back for watches, this quarter, we built a new capability, which is actually allowing buyers to pay for authentication if they want it for watches between $1,000 and $2,000. So it will be a continued evolution of focused categories as we launch new ones and continue to enhance them. I'd say a couple of things about the collectibles category. I'm really excited by this quarter. A, our Vault is on track that we talked about at Investor Day and a lot of potential there to save, reauthenticating, shipping the products. On Monday, we announced a partnership with PSA. PSA is the most popular grader for trading cards, and now you can have your cards authenticated by PSA, over $2,000. And so like I said before, everything is kind of a continued evolution of enhancements to drive customer satisfaction. On your question on advertising, yes, we feel great. The thing that makes us feel great about the opportunity for more penetration is the ROAs that we continue to see. We have strong ROAS for our sellers. And so it's obviously easiest to get the largest sellers to start using the product and drive that penetration first. But we're, for example, launching a new unified listing experience, which has a great advertising inclusion. This quarter, we announced some optimization tools for our product listing advanced. And look, it took us 5 years to get the -- to get the standard product to where it is today. So these things do take time to drive adoption, to drive optimization, but we feel like the suite of products that we launched is the right one.

For our next question, we have Ross Sandler from Barclays.

I just had two questions. First, can you remind us what cross-border GMV peaked at prepandemic compared to the 20% today? And you mentioned the new payment partnerships and this new wallet potentially getting that going in the future. So how material could that be? And I guess other than like some of the log jam clearing up in China outbound, what else can you do to crank up cross-border? And the second question is you normally have a downtick in 2Q operating margin seasonally. This one is a little bit more pronounced than normal. So just any color on those investment levels? Or is that just from some of the GMV weakness you were talking about previously?

Ross, I'll pick up the first item on cross-border. We've pretty steadily been -- about 20% of our business has been from a cross-border standpoint as we've gone forward. We haven't sort of seen any major change in that. Obviously, as we've gone through the supply chain challenges that we've been seeing over numerous quarters that we've talked about extensively, that has continued to put some additional pressure on that. Maybe I can just kick off on a few items on payments and then allow Jamie to sort of continue to address other items associated with that. I have to say I've been really taken by the exceptional execution the team has gone through over the last 18 to 24 months with the integration of the whole payments platform, and it gives us a great opportunity to continue to drive value for our shareholders as we go through that, whether that's through faster payouts, buyer/seller FX, higher ASP items that we talked a lot about on our investor event that generates the $300 million as we go forward. The wallet, we're really excited about, and that's something we also talked about at the Investor Day. Jamie, do you want to just elaborate a little bit more from your perspective?

Yes, Ross, I'm happy with our pace of innovation. So the Klarna deal that we announced, which we'll be launching this quarter, actually allows us to accept forms of payments, which are very popular in Germany, which we've not been able to accept, primarily pay upon invoice and financing. And so that's one component. Steve talked about the digital wallet, which is in beta now, which obviously helps us with the flywheel, also helps sellers because they can store a balance for their selling costs like shipping, et cetera. And then to your question on cross-border trade, we are doing things to help. They're having somewhat of an impact, being able to forward deploy inventory through a partnership that we've done. But our cross-border trade elements, as Steve said, have been roughly steady.

And then just to pick up with your question around sort of Q2 margins, there's naturally an underlying seasonal impact that we sort of go through. But as we talked about on our last earnings call, we did expect Q2 would be our lowest margin for the year based on the phasing of our investments. As you can imagine, we are leaning in based on the macro environment to sort of shorter-term costs, but we are continuing to invest in product, full funnel marketing and making sure that the longer-term strategy stays on track. And so these are some of the dynamics at play with regard to our second quarter margin profile that you've heard about today.

Our next question, we have Dan Salmon from BMO Capital Markets.

Jamie, you welcomed back Eddie Garcia in your prepared remarks, and that's a change that's happened since we last saw you all at the Investor Day. Could you elaborate maybe a little on the transition from Peter Thomson to him? And is there any new particular direction or the initiatives that you expect Eddie to lead as he takes over responsibility for your product, put a stamp on so to speak?

Yes. With the departure of Pete in that transition, I went out and tried to find the absolute best product person in the world that I can find. Eddie has a really unique ability. He combines product UX and technology like no other executive that I've met. And importantly, too, he has a decade of background with eBay, which is extremely valuable to come in and really hit the ground running. And he's already started. I think he's on day 8 today, and is doing a great job. So really excited to have him here. I would say no, nothing changes in terms of the product road map. He's got a great team of leaders underneath him. We have a strong organization, and the road map is very solid for the year. I mean if I just look at payments as an example, this quarter, they announced a deal with Klarna at Investor Day. They're about to launch it. They launched a new capability to do buyer FX, so the buyers could pay in their local currency. They've made enhancements and ramped up stored value, all of that within a single quarter. So I'm happy with our pace of innovation across the board. I'm just thrilled that Eddie could be part of the leadership team and help us push forward on the tech-led reimagination.

Our next question comes from the line of Richard Kramer from Arete Research.

Jamie, you've -- sorry, there's a big echo here. Jamie, you mentioned quite a bit about the focused strategy and laying that out, but still seems to leave eBay vulnerable to vertical sites in specific categories, which have some social or community hosting to engage users. How far might you see stores evolving to allow them to have their own maybe brands or IDs and try to engage users in more ways than simply buying? And Steve, I guess, the other question, if you look at the guidance for 6 to 7 points of upside from payments and ads, is that simply lapping the payment saturation or completions? Or do you imply some sort of slowing of ads growth over the course of the year despite all these new formats you mentioned?

Yes, Richard, great question. I'll take the first one, and Steve should take the second. So absolutely, one of the benefits that eBay has versus any vertical-specific marketplace is our scale, the fact that we can get buyers to buy cross-category, that we can acquire them at a lower cost. And if you look at, let's say, a parts and accessories buyer, they're going to come in and buy $1,200 in parts and accessories but then $1,500 elsewhere on the site. But we are leaning into the areas that you're talking about. How do we make it easier for buyers and sellers to transact on the marketplace? How do we build retention between them? So I'd point to a couple of things that we've launched in the last few quarters. The first is our new member-to-member messaging system. It's very simple and easy to use. It's chat-like interface, very familiar for a Gen Z customer to interact between a buyer and seller. And that's a huge improvement over the legacy products that we've had out there for a long time. We've been opening up the ability for couponing and reaching back out to interested buyers on the platform that have transacted with you. And really, the -- as you talk about, stores is really the opportunity to let sellers build a brand and communicate with buyers. So this quarter, we launched the new storefront on -- for our eBay store sellers. We actually improved the ability for them to drive more SEO via their stores in the platform. We've added video into the stores platform. So now you can tell your story about an eBay seller, and that's very appealing. And we'll continue to build more of those features to improve the interactions between buyers and sellers because it's one of the very unique capabilities of eBay, is that vast army of sellers that we have, helping drive retention in buyers and helping drive engagement there. So great question. Steve, do you want to take the second part?

Yes. Richard, I think you're talking about the 6 point delta between the FX-neutral GMV and FX-neutral revenue. I'd say there's 3 dynamics at play. Number one, you're right, we're sort of lapping through the completion of managed payments as we've transitioned from '21 to '22. So we see less of a tailwind associated with that. But on the flip side, the other 2 items is the continued momentum with regards to the investments we were making in both payments with some of the items that Jamie talked about earlier in terms of the execution from the team and what's being driven associated with that, and then the continued success in the ads platform. As we mentioned in the first quarter, ads was growing at 19 points faster than GMV. So it's really the combination of those 3 factors that I've talked about that gets the implied guide going forward.

For our next question, we have John Blackledge from Cowen.

Great. Two questions. First, could you expand a bit on how the trading card segment performed in the first quarter? And how does the launch of the Vault trading card and overall collection business? And then second, which e-commerce verticals were the biggest headwinds in GMV, perhaps the toughest comps in 1Q and 2Q?

Yes. So I'd say on trading cards, what we said in there is that we're obviously lapping kind of the massive stimulus that we saw last year. We're settling out at twice the level of GMV that we were beforehand. And we're really kind of leaning in to fuel the growth in trading cards. So to your question on Vault, the beauty of the Vault is a lot of -- for a lot of collectors, it's not something that they need to have around their house. They want to be able to trade. And you could see trades happening in the middle of the game where the rookie all of a sudden is on fire, and people want to start trading that. That trade becomes really seamless when it sits inside the Vault. It's authenticated on the way in. It doesn't have to be shipped anywhere, validated, et cetera. And so you could see these billions of dollars of inventory, we could start to drive turns on that on a much more rapid basis. So we're excited by that. We're also excited by the grading partnership that we announced on Monday, which complements what we've been doing for ungraded cards over $750 because it builds more authenticity and trust into what we're doing from a trading cards perspective. So that builds on top of last year's launches that we had like the improved shipping labels, the computer vision that we're working on in that category, et cetera. So really excited by that. When I look at the rest of the categories, watches continues to be strong. We sustained double-digit growth on top of last year's strong growth rate. We've been able to remonetize sneakers and keep the momentum in that category. Strong growth in handbags as well. And we talked about some of those announcements in the business. So across the board, I think we are -- the strategy that we have is working. We're seeing the change in customer satisfaction and the change of the business and the deviation that these categories are able to create. And then we're starting to see that expand internationally.

Operator, we've got time for one more.

And for our last question, we will have Justin Post from Bank of America.

Just a couple of questions. There's been a lot of write-downs in the group. And obviously, the e-commerce group is under pressure. You have the advantage of really strong cash flow. How are you thinking about the asset opportunities, bringing things into eBay? And then second, just on the U.S. GMV. It was down quarter-over-quarter, which has happened in the past. Did you see a slowdown there related to Ukraine as well and -- or gas price is a factor?

Yes. So on the first one, we continue to look at build, buy and partner in those opportunities. We talked about Sneaker Con at the Investor Day and why we did that and how it made sense to accelerate our focus and what we were doing in that category. And we continue to look at opportunities that we think will help push that further in terms of new features, new functionality or new audience. But we do look at it as a build, buy and partner. So a great example is what we announced on Monday, which is a partnership with the most popular grading to really build an opportunity to tie that closely into the best marketplace that exists for trading cards on eBay. So we'll continue to be opportunistic across all of those different elements as we go forward as long as they align with the strategy and we think create value for shareholders. On the international versus GMV, I'll start off. And then, Steve, you can jump in. Clearly, a more profound effect in our international business. When I talk to our eBayers in the U.K., they're getting their April energy bills and they are multiple of what they were before. So definitely more of an impact, but definitely an impact across the whole world, including our U.S. business. Do you want to expand?

Yes, I'll just give a little bit of extra color. I think when we bifurcate what we've seen between international and the U.S. in terms of consumer sentiment, U.S. and U.K. consumer sentiment is at pretty much historic based on what we've seen. But as you can imagine, some of this is percolated over to the U.S. in terms of inflation going up, higher prices and also the inflation that's going forward. So the U.S. is not immune to this. It's more -- we saw in the first quarter some deeper penetration challenges in the European business. But I think it's a fair comment just in that there has been some slowdown. And as we go further forward during 2022, at a macro level, you can sort of see that implied in our guidance and go forward.

And ladies and gentlemen, this concludes today's conference call. Thank you all for participating. You may now disconnect.