Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the eBay Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. It is now my pleasure to turn the call over to Mr. Joe Billante, Vice President of Investor Relations. Sir, please go ahead.

Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the third 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's 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 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 forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K and Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of November 2, 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. Q3 was a strong quarter for the company despite a challenging macro environment. Significant headwinds from inflation, higher energy costs and rising interest rates have impacted discretionary income, and consumer confidence is near record lows in several markets. Our focus on non-new-in-season categories has made the platform more resilient against these headwinds. In the quarter, we continued to execute the tech-led reimagination, and we delivered on our near-term commitments. Focus categories narrowed their gap to market growth rates through higher customer satisfaction, increased trust and more effective marketing. And once again, enthusiast buyers spent more on the platform. This playbook is having a positive impact on GMV in the U.S. and internationally. Site-wide technology investments created a more seamless customer experience, leading to improved conversion rates across the platform. Our advertising business accelerated due to increased seller adoption and the optimization of our ad products. And new payment capabilities remove transactional friction while adding incremental revenue. The execution of our strategy is strengthening our competitive position, which drove better-than-expected financial outcomes in the third quarter. We delivered over $17.7 billion in GMV and almost $2.4 billion in revenue. We invested in marketing and product while delivering close to 29% operating margin. And our non-GAAP EPS was $1 per share, up double digits versus last year. Before I get into more highlights from the quarter, I want to take a step back and look where we are in our long-term journey. As you may recall, heading into the pandemic, volume was declining. Since that time, we have invested in game-changing product experiences and adjusted our approach to marketing. And this has resulted in an improvement in GMV compared to pre-pandemic levels. Specifically, focus categories, excluding trading cards, are up over…

Thank you, Jamie, and thank you all for joining us today. I'll begin with highlights from the third quarter on Slide 9 of our earnings presentation. Next, I'll walk through our key operating and financial metrics in greater detail. Finally, I'll provide our outlook for the fourth quarter with some closing thoughts before we begin Q&A. As usual, my comments will reflect year-over-year comparisons on an FX-neutral basis, unless I announce otherwise. Overall, I'm pleased with our third quarter results as we made significant progress against our long-term objectives while efficiently navigating the challenging short-term macro environment. Our GMV revenue on non-GAAP EPS each came in above expectations and surpassed the high end of our guidance ranges. Gross merchandise volume declined 5%, improving nearly nine points sequentially. Revenue was down 2% to approximately $2.4 billion, outpacing volume by nearly four points, primarily due to continued momentum within our advertising business. Non-GAAP operating margin is 28.9%, up modestly quarter-over-quarter as we continue to invest in our strategic pillars. We delivered $1 of non-GAAP earnings per share of 11% over the prior year. And we generated $633 million of free cash flow, while returning $421 million to shareholders to repurchasing dividends. Our Q3 results highlight the strength of our scaled marketplace, durability of our financial model and impact of our tech-led reimagination on eBay's underlying growth trajectory. Let's take a closer look at the drivers of our financial performance during the third quarter. Gross merchandise volume was down 5% year-over-year, but accelerated nearly nine points sequentially as easier comps offset the tougher macro environment in Q3. The war in Ukraine, inflationary pressures and rising interest rates continue to wear on consumer confidence and demand for discretionary goods. In addition, recent currency volatility widened the FX headwind to our reported GMV growth to…

[Operator Instructions] Your first question comes from the line of Doug Anmuth with JPMorgan. Your line is open.

Thanks for taking the questions. I know you talked about doing more full funnel marketing in the focus categories. Just curious about some of the results that you're seeing there, and then how you've expanded those efforts more materially to some other categories as well. And if you could just comment on the buyback as well, a smaller number than what we've seen in recent quarters. If there's any commentary you can add there. Thank you.

Yes. Hi, Doug, I'll take the first one. So part of our strategy and the shift on our marketing was really to approach this full funnel marketing and move away from just kind of lower funnel optimization. And that's worked out really well for us. So if you look, for example, at P&A, we're seeing good strength in P&A. We're approaching market growth rates and what we're doing there. And importantly, we're driving consideration. And that whole strategy has really been around, not just going after buyers, but going after enthusiast buyers. It's why you see us in the parts shows, in the sponsoring like I talked about, the U.K. MTV reboot, it's really aimed at that. And so we started that playbook with sneakers and some of our luxury, and it worked well. We've been expanding it to P&A. And so we're continuing to look at it because what we're seeing is it changes initial consideration for those categories. And then we get the multiplier effect that I talked about at Investor Day, plus it makes the lower funnel work harder, work easier with the support of the upper funnel. Steve, do you want to take the one on buyback?

Yes, of course, hi Doug. Yes, we continue to demonstrate our commitment to returning excess cash to shareholders. We've been doing this extensively over the last number of years, and we'll continue to do so. I wouldn't be looking at this on a quarter-to-quarter basis. In fact, if you look year-to-date, we're tracking well ahead of the targets we laid out at our Investor Day, while we're committed to return 125% of the free cash flow. Year-to-date, we've returned $3.2 billion or 200% of our free cash flow. So buybacks and dividends will continue to be a core component of value creation for our shareholders and completed with where we are.

Thanks Jamie and Steve.

Your next question is from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks for taking the questions. Maybe two, if I can. First, curious what is embedded in the guidance in terms of the macro environment changing Q4 versus Q3? Are you willing to give us some sense of the bottom end of the range versus the top of the range, and maybe some elements of how macroeconomic volatility might push you in one direction or another as you look out over the next couple of months? And then looking beyond just one quarter forward, if the macroeconomic activity did become more volatile, how should we be thinking about those investments that you want to make next year, whether it's enthusiast buyer growth or focus categories that are most investments where you're willing to make them irrespective of the margin impact in a downward economic activity environment versus elements of where you can pull on levers to sort of manage margin outcomes if the overall volumes were to slow? Thanks so much.

Hi, Eric, good afternoon. It's Steve, I'll pick this up. So as you would imagine, we've taken a very balanced and thoughtful approach to our Q4 guide. It's an incredibly dynamic macro environment that we're navigating through. So there's a number of factors that I'd highlight. The first one would be the underlying consumer environment. That obviously continues to be pressured. We've seen that for several quarters in Europe. And in October, in line with the prepared comments, we began to see U.S. consumer demand start to weaken. Secondly, we do expect further energy challenges as we enter the winter. And we're also facing labor challenges in Europe, particularly the Royal Mail, who are -- got a series of strikes in the U.K. And then thirdly, we are seeing the impact of currency. The U.S. is obviously particularly strong against the Euro and Sterling, which is impacting both our forecast and our reported results. So what I would say in terms of the fourth quarter, given the uncertainty of this environment, we have purposely given a wider range of potential outcomes. But really the -- where we ultimately land in the quarter will be a function of the macro environment and how that goes forward. Specifically, as we think going forward in terms of investment, I think that's the beauty of the eBay architecture and the durability of our financial model. We've continued to lean in, in the short term to drive operational effectiveness as we think about our business. And that sort of manifests itself in cost savings as we go through. Secondly, the business continues to be fueled by the ad strength that we saw in the third quarter and the momentum that we're seeing and the investments that we're making in payments. As we think about going forward, we will continue to invest in the core business, and we will protect that as we navigate the forthcoming quarters to continue to drive for the strategy and protect the long-term growth of the enterprise. That's what we've done for the last few quarters, and it's what we'll continue to do, and our financial architecture enables us to do that.

Appreciate the color. Thank you.

Your next question is from Colin Sebastian with Baird. Your line is open.

Thanks and good afternoon. I guess, first off, I want to go back to the comment, I think, Jamie, you made it around cross-category shopping from focus over to non-focus categories. I was hoping you could dig into that a little bit more with respect to how large an impact that's having, and if that's something that will pick up speed in coming quarters. And then maybe regarding the October trends in the U.S., does that suggest that some of the resiliency of the platform in non-new-in-season that you mentioned in Europe that maybe that's not as applicable in the U.S. market? Or is it just a matter of timing with respect to when these geographies are weakening? Thanks.

Yes, so first thing I'd say is that we are seeing strength in our refurbished and used. It's about a third of our GMV, and that's up double-digits versus 2019. So in terms of the consumer reacting to the challenging economic times. In terms of the cross category that we laid out in March, we continue to see that. And the metrics are very helpful as we think about the caps we can afford to pay and how we leverage our focus categories across the business. So if I take the example of a sneakers buyer, an average buyer who buys a $100 pair of sneakers, they'll spend about [indiscernible] on sneakers, but $1,900 outside of sneakers and other categories. If I look at that number for handbags, we just expanded what we're doing in handbag authentication, a buyer who buys over $500, they'll spend $2,500 in handbags, but $5,000 in the other categories. So that is really key for us when you think about our strategy that we laid out at Investor Day with really driving focus categories. Part of the propping up of non-focus, in addition to the horizontal work that we're doing, is the impact of the cross-category shopping when we bring a buyer into focus categories. So we're doing more and more programs to help make that available to buyers and accelerate that, but we feel really good about the stats of what we're seeing there.

Colin, and I'll pick up the other one. Specifically, your question about the U.S. as we get into the fourth quarter and the holiday season. It's pretty broad-based. I continue to be pleased to see the delta between our focus category penetration and momentum versus non-focus categories based on the investments that we're making. But as we look forward, as we look into October, it's pretty broad-based across all the categories that we have on the platform. One of the things I would say on an international basis, we are seeing some non-focus category momentum in Germany, in particular, as the German community continue to be concerned about energy availability as we get into the winter, and we're seeing pockets of non-focus category inventory get some momentum on the platform. But overall, I think all this is a reflection of the broader macroeconomic climate that we're operating within.

Great, thanks guys.

Your next question is from the line of Stephen Ju with Credit Suisse. Your line is open.

Okay, thanks guys. So can you talk about generally cross-border activity, I guess, on the back of the stronger U.S. dollar versus almost all other global currencies? And I know there's a natural hedge there, but are there certain larger corridors or categories which might be giving you an outsized headwind or a tailwind? Thanks.

Yes, so a couple of things I'd say. One is there's been some easing of the supply chain as demand has come down, which has certainly helped from that perspective of our sellers. Obviously, currency differences make an impact in terms of certain corridors are stronger depending on the strength of any given currency. But we're leaning into the opportunities in cross-border trade. And I'd highlight two specific things. One is that we've actually with the rollout of buyer effects, made it easier in terms of currency choice for the buyer to buy in their local currency or in their -- in the currency of the seller. And we've seen a 70% adoption of that, and it's been performing well. We expanded that now into 38 currencies. The other thing that we're doing is making it easier starting with our U.S. business to do exports and execute exports on the business. So we've had a global shipping program for quite some time to make it easier. But the new enhancements that we're making or attempting to make it as easier to ship from Northern California to Southern California as shipping an international product off to Central America and really taking the friction out of that for our sellers. So those are the things that I would highlight in terms of the focus of what we're doing on a cross-border business.

Thank you.

Your next question is from the line of Deepak Mathivanan with Wolfe Research. Your line is open.

Great. Thanks for taking the questions. And apologies if this was asked before. Sorry, I was jumping around a few calls. I know you called out the outperformance of focus categories versus the rest. That's encouraging to see trends in the right direction. But can you give additional color on what the growth is on some of the larger focus categories inside that generic term? With some of them now kind of a few months under the new experience, how do you feel about these efforts helping with sustainable long-term growth in them? And then maybe a second question. Can you also provide some additional color on how currency weighs on your margins? Is there a sort of a framework to think about how some of the key currencies like Euro maybe on a sensitivity basis could weigh on percentage of margin points? Thank you so much.

Yes, so first on focus categories, we're pretty pleased with the performance that we're seeing across the board. I'd highlight a couple of things. First of all, our trading cards business continues to be at twice the volume it was coming into the pandemic. When I look at parts and accessories, the work that we're doing around fitment and specifically around driving initial consideration is helping us move towards market rates of growth there. And as we highlighted at our Investor Day, it's a huge category over $10 billion of GMV. The other thing that I would highlight is that as we've expanded the playbook from the U.S. to international, we're seeing the same type of impact that we saw in the international markets as we saw in U.S., so if I look at our luxury categories, this is sneakers, watches and handbags, we're seeing double-digit year-over-year growth in those categories internationally and higher customer satisfaction, similar to what we saw in our U.S. market. So we're continuing to lean in. You saw our recent announcement of jewelry and authenticating jewelry over $500. That's led to customer satisfaction over 90%. And we're going to continue to push forward and roll out additional categories and continue to improve in the focus categories that we've already launched. Steve, do you want to take the currency?

Yes, hi Deepak. And good afternoon. First on the highlights on the short-term. We have a great track record here at eBay of managing FX volatility. The teams do a really nice job. And that obviously, GMV is an operational metric that is not -- that continues to be exposed and is not insulated from changes in exchange. But quarter-to-quarter, we continue to hedge ROI, revenue and EPS. And so the quarter-to-quarter impacts are rather de minimis. What we've called out today is about the longer term. So if the U.S. dollar remains in a strong position it is today, and that continues through 2023, there is a natural challenge that you would incur as you get into '23 because it's much further out from a hedging standpoint. And we would expect that headwind to be approximately three points on GMV and between five and six points to EPS, which obviously, from that perspective, because product is going to be revenue would have an implication on margins. And really, that's a reflection of if the U.S. dollar remained at its current state versus the Euro and Sterling.

Got it, thanks so much.

Your next question is from the line of Curtis Nagle with Bank of America. Your line is open.

Good afternoon, thanks very much for taking the question. So I wanted to dig a little more into the strong advertising numbers in the quarter. And I guess just what drove the incremental improvement from 2Q, right? So you guys have rolled out a number of initiatives with the Promoted Listing Advanced and a few other things. Did that pick up more? Or was it perhaps sellers maybe trying to get a little bit more visibility through your platform in a retail backdrop that's just a little more competitive and a little bit more promotional. What's driven that improvement?

Yes. So look, we're really pleased with the performance of the ads revenue up 27% year-on-year on an FX-neutral basis. I'd say the reaccelerated growth is really driven by two factors. One is just the optimization of our Promoted Listing Standard that improved search algorithm performance, and we created more accurate ad rate recommendations that helped us increase conversion. And the second is just the ongoing contribution from our new ad products. Our three new products contributed double-digits quarter-on-quarter. So certainly, in Q3, it had some onetime step-ups from the product optimization and from that portfolio expansion of three new products, the external, advanced and our other products. But when I think about it, the thing that makes me bullish on our product is when I think about the ROAS, we're still having a really healthy ROAS. And so the benefit of -- to our sellers is -- continues to be healthy. So we're on track to meet our stated goals of doubling our ads business by 2025.

Okay, thanks. It's really helpful. Appreciate it.

Your next question is from the line of Youssef Squali with Truist. Your line is open.

Hi, thank you very much. Two questions for me, please. One, at Analyst Day, you guys presented some targets. I think it was mid-single-digit GMV growth in 2023, 2024, and total margin expansion of about 100 bps 2022 to 2024. I know a lot happened since then already. Just wanted to get a sense from you guys, sitting where you sit right now on the back of this performance, if you think those targets are still achievable? And second, on the M&A, I was wondering, Jamie, maybe if you guys have any interest in expanding further into the use of luxury apparel maybe through M&A, just given some depressed valuations for some of the players that we've seen out there. I think through the acquisition of TCG, you guys now have some fulfillment -- order fulfillment capabilities. Wondering if doing the same thing in luxury apparel could be attractive to you? Thank you.

Hi, Youssef, I'll pick up the first one. We remain confident in the long-term goals that we laid out at our Investor event back in March. The strategy is clearly working. We're coming out of the pandemic in a much stronger position than we went into it. GMV is continued to be fueled in our focus categories by the investments we continue to make. The payments entity within our enterprise has continued to deliver. And we're well on track for the $300 million that we laid out back in March. And as you've heard from our prepared remarks, our advertising business is moving very strongly. So I'm very encouraged by the investments we're making in the long-term strategy and how that's getting executed. The timing of the delivery of the goals that we laid out is really going to be a function of the macro environment in which we're operating in. It's very, very clear in terms of the severity of the headwinds that are going through, it's likely to continue to impact us in 2023. As we've talked about, we expect that to sort of go into the next year. But really, it's around that severity and duration, that will imply the timing of when we get to those long-term targets that we continue to be confident in.

And let me just take the M&A one. Yes, M&A has been and will continue to be a key part of our strategy. I've talked about the Build By Partner framework that we have. And as you noted, TCG Player was really about helping us in a core category of collectibles and specifically in collectible trading cards, giving us new capabilities and tools and access to local hobby shops. I'd also point to My Fitment, which I've talked for two quarters now about the importance of Fitment, building trust in the parts and accessories category, and so excited by that one. So you should expect us to continue to look at key areas such as vertical expansion or boosting our core strategy, tech and talent and then opportunities to expand our overall capabilities. Always doing it in the framework that I've outlined to Build By Partner that we think has the best return for shareholders.

Great, thank you both.

Your next question comes from the line of John Blackledge with Cowen. Your line is open.

Great, thanks. Two questions. First, how are the enthusiast buyers holding up in the current macro environment? Have you noticed any changes sequentially, call it, 3Q versus 2Q or versus 1Q? And then second question, kind of a follow-up on the advertising business. Should we think that the ads will grow through these challenging macro headwinds in 4Q and into '23, similar to the strength that we saw in the third quarter? Thank you.

Yes, so on enthusiast buyers. In Q3, we had 17 million enthusiast buyers, which was relatively flat to Q2. And so the way you think about that is we're no longer facing the tough lapping from our comps related to the COVID dynamics. But we do expect some pressure on that count in the coming quarters as a result of the current macro environment. But when we look at it, the vast majority of enthusiasts remain active buyers. It's just a movement between mid-value and enthusiast buyers. And for us, enthusiast buyers is a very healthy spend. If you think about the average spend of that being $3,000 a year, that's up to like membership level spend. So over the next few years, we expect enthusiast buyers to continue to grow and spend more as we continue to execute on our strategy. As I talked about, their spend is up double-digits versus '19, so really healthy. So the other thing I'd say on the ad business is we don't expect it to be linear quarter-to-quarter. But we've been enhancing and adding new products. I talked about the quarter-over-quarter growth that we're seeing in our new products. So we're on track to $2 billion. As I said, there were some onetime step-up things that we saw in Q3. But overall, our ROAS is healthy. I mentioned the statistics on the call that we now have two million sellers who have purchased at least one ad product in their listing, which is healthy. So we feel right on track with the goals that we outlined back in Investor Day.

Thank you.

Your next question is from the line of Richard Kramer with Arete Research. Your line is open. Richard Kramer, your line is open.

Sorry, I was on mute. Jamie, in your recent FT interview, you basically raised the white flag about talking about in-season, new in-season goods and not competing with some of the bigger players. Can you give us a sense of what proportion of GMV these still represents as you're transitioning the business to the enthusiast-focus category as you mentioned? And then also, just to dig in a little bit on the algo changes you made and that led to the acceleration in advertising. Can you quantify or track what sort of GMV resulted from the incremental $40 million your sellers would have invested in ads this quarter? Are you able to directly see that, that advertising investment that gets made is lifting GMV in some material way? Thanks.

Yes, so on the first question, when we think about the non-new in season, it represents about 90% of what we sell on the platform. So that's both used and refurbished and think N minus 1 last year's fashion, white label goods, all of those types of things. So the majority of what we sell is actually in the non-new-in-season business that we have on the platform. The stat that I talked about earlier is that one-third of our business is -- about one-third of our GMV is used and refurbished, and that's actually accelerating faster given the ties that we see. In terms of the advertising money that our sellers are spending, the majority of what we collect is via our CPA-based program, which is Promoted Listing Standard, which is a direct attribution program. So as we're able to drive incremental sales for them, we monetize that. So we've added the new products, like the CPC-based products in Promoted Listings Advanced. But what we're doing from a CPA standpoint has a direct tie to GMV. I would say the same is true for our seller program, which is partnering with our sellers to drive external traffic to their listings on eBay, which as I said before, sellers are seeing a really good ROAS on our platform, especially relative to other places that they can market their products.

Okay, thanks.

Thank you.

Operator, we have time for one more.

Your final question comes from the line of Sean Dunlop with Morningstar. Your line is open.

Great, thanks for squeezing me in. So a lot of my questions have been asked, but just trying to think a little bit about GMV sensitivity and potential consumer trade down. So for the 3P marketplaces, it can sometimes be a little bit tougher for us to see. But I'm wondering if you could indicate how much pricing sellers have taken on the eBay platform even if that's just truly ASP? And if that potentially improves the eBay value proposition on a relative basis? And then my second question would be about 32% of GMV from used and refurb goods that you talked about, Jamie. I'm just curious how that held up in the last big downturn maybe in 2007 to 2009? I appreciate it.

Yes. So I'd say in general, we're not immune to the macro impact. And so Steve talked earlier in his remarks about we think there'll be likely meaningful headwinds into '23. But we do have a more resilient business model because of the shift in focus of moving towards non-new-in-season and refurbished. And so that 32% is growing faster than the rest of the site. And I would just say, in general, value is a key tent-pole for our buyers on the site, and we're continuing to push it. From some perspective, I think this is a double win for us because we've been pushing e-commerce, we love, et cetera, as part of our massive ESG efforts that we have on the platform and really being the pioneers of re-commerce and saving products from the landfill, et cetera. And now where consumers want to value, we're seeing a real willingness to purchase there. The last thing I'd say is that Gen Z is much more inclined to buy pre-owned and pre-loved goods, and so we're leaning into that trend. So it's great to see that from the value standpoint. It's also great in terms of the ESG impact that it has in the business. I'd like to say that ESG is so core to eBay that we should be in every ESG fund because of the importance of it and the role we play in re-commerce. But that's how I would kind of characterize where we are today, and I think what we'll see into the coming quarters.

Great, thanks. Very helpful.

Thanks, Sean.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.