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 Fourth Quarter 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. John Egbert, Senior Director of Investor Relations. Sir, please go ahead.

Good afternoon. Thank you for joining us for eBay's fourth quarter 2022 earnings conference call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany 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 this conference call, we will discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect FX neutral year-over-year comparisons, unless indicated otherwise. During this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of February 22, 2023, and we do not intend and undertake no duty to update this information. With that, I'll turn the call over to Jamie.

Thanks, John. Good afternoon, everyone, and thank you for joining us today. 2022 was a year of consistent execution for eBay, as we made significant progress against our long-term objectives. Our focused categories drove underlying growth in our business, as we expanded global coverage for our 16 million Enthusiast Buyers. In motors, parts and accessories, or P&A, growth accelerated as we improved our fitting capabilities, increased supply of OEM parts and enhanced trust signals for buyers. We extended authentication to new categories like trading cards and fine jewelry and opened authentication centers in several new countries for handbags. We opened the Vault to store and usually transact valuable items and adoption has grown steadily week over week. We retired legacy technology, simplified the architecture of our core services and improved our tech velocity. Our advertising growth accelerated as we scaled our three newer Promoted Listings products, optimize performance and automated more elements of campaigns. We expanded our financial services portfolio by adding FX conversion, new forms of payments like Klarna and Afterpay, faster debit card payouts and a digital wallet. And we balanced our investments in innovation with prudent cost discipline to establish a strong foundation for sustainable profitable growth for many years to come. Now turning to the fourth quarter. We delivered solid results in Q4 as our key financial metrics came in ahead of expectations despite the ongoing macro uncertainty. We generated over $18 billion in GMV and more than $2.5 billion in revenue. We delivered an operating margin of close to 30%, while making critical investments in product and marketing to support our long-term growth strategy. Non-GAAP earnings per share for the quarter were $1.07, up 2% year-over-year. Our focused category strategy was a major component of our strong financial performance during the fourth quarter. Focus categories…

Thank you, Jamie, and thank you all for joining us today. I'll begin with highlights from the fourth quarter on Slide 9 of our earnings presentation. Next, I'll review our key operating and financial metrics in greater detail. Finally, I'll provide our outlook for the first quarter and some additional color on 2020 fit before we begin Q&A. As usual, my comments will reflect year-over-year comparisons on an FX-neutral basis, unless I note otherwise. We delivered solid results in Q4 as our key financial metrics exceeded expectations and landed near the high end or above our expected guidance at Aegis. Gross merchandise volume declined 6% to $18.2 billion, while FX was a 6-point headwind to reported growth. Revenue was down 1% to approximately $2.5 billion, which outpaced volume by 5 points, primarily due to FX and robust growth within our advertising business. Non-GAAP operating margin was 29.9%, down 1.8 points due to volume deleverage and continued investment at the marketing to support the strategic initiatives. We delivered $1.07 of non-GAAP earnings per share, up 2% year-over-year, and we generated $533 million of free cash flow, up 43% year-over-year, while returning $419 million to shareholders through repurchases and dividends. Our Q4 results demonstrate the continued resilience of our marketplace amid economic uncertainty. I'm extremely proud of our teams delivering on their quarterly financial commitments, maintaining prudent cost discipline and executing key deliverables in support of our long-term growth objectives. Let's take a closer look at our financial performance during the fourth quarter. Gross merchandise volume is down 6% year-over-year, decelerating roughly 1 point sequentially. Our business remains resilient despite headwinds from geopolitical uncertainty, inflationary pressures, low consumer confidence and rising interest rates. Additionally, FX was a headwind of approximately 6 points of GMV roughly 0.5 point greater than Q3. Momentum in…

[Operator Instructions] Your first question is from the line of Colin Sebastian with Baird. Your line is open.

Great. Thanks, and good afternoon, guys. A couple of questions for me. Maybe, Jamie, at a high level, first off, you seem generally satisfied with the strategic focus on enthusiast buyers and the non-new-in-season segment that you outlined a year ago. But I wonder, if you could talk about any ways in which you'd say this strategy has evolved through the year as you plan for the next couple of years? Some of that may be more nuanced, but curious on your views there. And then, Steve, I just wanted to drill down a little bit more on the 2023 outlook. I think we understand the GMV perspective and some of the margin impacts. On the take rate, should we assume that, that gap between GMV and revenue growth continues to grow, given the increasing contribution of advertising and payments through the year? Thank you.

Yes. So first on the kind of where we are, we're pleased with the progress that we're seeing. So if you think about focused categories outgrowing the rest of the business by 7 points, the double-digit change that we've seen in customer satisfaction, we took on our largest focus category at the end of last year with parts and accessories, and we're seeing that return to market share growth, which is great. It's a very large business. We outlined that at Investor Day being over $10 billion. And the shift that we made to non-new-in-season, I think, is really helping us, especially in these challenging economic times. All the work we did and refurbished to build that as a strong category on eBay. Now we're seeing -- we had our largest week ever during Cyber Week. And during challenging economic times, people really turn to value. And I think we're leaning into where the consumer is headed. I'd point you to the re-commerce Report, which we put out yesterday, which said 90% of the respondents bought re-commerce in 2022 and Gen Z, 64% of them said it was because of the financial value that's provided. So, we think we're right in there. We're going to continue to enhance and build on that strategy. We're doing a lot of additional work in artificial intelligence and bringing that not only to our focused categories, but also to our horizontal businesses. I talk about the work that we did in search as one example of that, the work that we did in advertising with the merchandising there as a second one. And then you see us continuing to expand what we're doing on the horizontal side. I'd just end with eBay International Shipping. Cross-border trade is now one in five transactions on eBay. It's one of the unique value propositions that we have, especially for the individual consumer. And we're making that a whole lot easier with what we're doing with eBay International Shipping, and that's another kind of huge opportunity across the board on the horizontal side. So over the course of the year, I'll get into more and more details about it, but we feel really good about the vector that we're on. Steve, do you want to take the second part?

Yes. Hi, good afternoon, Colin. With regard to as payments, versus say is really pleased with the execution from the teams did a tremendous job and we're tracking well towards the direction that we gave at Investor Day in terms of our medium-term targets, in terms of payments and ads. We don't give any specific guidance on the call associated with that in payments for '23, but you should expect them to continue to outpace GMV, as they did in 2022. So, great execution from the teams and pleased with where we are.

Great. Thank you.

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

Hey good afternoon, guys. Steve, maybe a quick one for you. Could you please talk about the GMV growth you've seen internationally, it looks like international FX-neutral exceeded domestic for the second quarter in a row. And I'm just curious, if you're kind of surprised by that result. I think you referenced P&A and maybe luxury driving that. And then curious that the $100 million benefit, I believe, to GMV in the guidance. I think there was some reference to that in the guidance. Maybe, Jamie, just a quick one for you, if I could, can you just talk about authenticity and how you feel like you are executing and whether you've turned a corner there. I think most of the recent acquisitions have been centered around authenticity and removing fake goods. How do you feel about your progress there? And how much further do you need to go? Thank you.

Hi, Tom, I'll pick up the first one. Obviously, we're seeing different dynamics based on our international business and the U.S. business based on the macro environment - the dynamic macro environment that we've been operating in. And obviously, some of those challenges were more pronounced than the international business earlier than the U.S., and we called out some color with regards to that as we guided the fourth quarter actually in terms of some of the U.S. softness that we saw in October coming through that. The thing I would say is that, the execution our own focused categories, both in Europe and the U.S. is seeing underlying momentum P&A, for example, we're number one in a couple of the key markets in Europe, in the UK and Germany; and number two in the U.S. and things like P&A, luxury, refurb are seeing good momentum both internationally and in the U.S. Specifically, pertaining to the $100 million that we laid out in the prepared comments, this is a specific GMV benefit as a one-time item in Q1, which we do not expect to continue through the year. It's most notably around Chinese sellers, keeping their stores open through the Lunar New Year, which is not typical for this time of year. Jamie over to you?

Yes, Tom. So on authenticity, we're feeling great about what we're seeing in terms of the impact that it's having on customer satisfaction and the execution of it. If you think about it for those focused categories like luxury handbag, sneakers, watches, authenticity is what provides the game-changing level of trust. That's different in other categories. So in refurbish, for example, it's the two-year warranties and the 30-day hassle-free returns. And then something like P&A, we just launched this week Guaranteed Fit, which is really the game-changing level of trust, which is guaranteeing that, that part is going to fit your product, which is really key. The acquisition that we did recently with 3PM Shield, it's really a state-of-the-art market compliance capability that they've built using really advanced AI technologies to help keep prohibited items off the platform. And that's really just continuing the theme of building trust on the marketplace, and eBay as a trusted place to shop, which has paid massive dividends, giving us a great ROI from the investments that we've made to-date, and we feel really good about the progress and where we are.

Got it. Thank you.

Your next question is from the line of Nikhil Devnani with Bernstein. Your line is open.

Hey, guys. Thank you for taking the question. I had a couple on GMV growth, please. Steve, you mentioned that U.S. softness that you called out in October, did that persist, or did you see any kind of changes in trends there better or worse? And then in terms of the 2023 growth framework, thanks for that, but is ‘22 the right year to use for seasonality given Omicron and just post-COVID dynamics it feels like you started the year well. Just wondering why GMV would step down in Q2, Q3, especially as you invest in the marketplace as well to make it better? Thanks a lot.

Hi, Nikhil, thank you for the questions. First of all, with regards to the fourth quarter and coming in, as we said in our prepared comments, really pleased to see some of the execution particularly in a couple of key focus categories like P&A and refurb continue to sort of be highlights for the fourth quarter as we came through it. As we've mentioned, came through towards the top end of the guide. And really, we did have less headwind as we'd expected on an exchange rate basis, with the US dollars we went through. But some core strength in a couple of the focus categories as we come through the fourth quarter. With regards to the sequencing, we're dealing with an incredibly dynamic macro environment and we wanted to give some color for the investor community as we start to think about 2023. And obviously, the macro dynamic has been challenged during 2022. And so in that directional color, we've given a comprehensive guide for the first quarter. We continue to execute in the underlying business. But based on the uncertainty that we are facing at the moment and the continuation of that macro challenge we felt it was most prudent just to sort of lay out that sequencing relating to 2023.

Got it. Thanks a lot.

Your next question is from the line of Ross Sandler with Barclays. Your line is open.

Hey, guys. Just a quick follow-up to that GMV sequencing answer on that last one. So it doesn't sound like you really ascribe to the theory that consumers may shift some wallet share away from services and back to goods in 2023, which is kind of the opposite of what happened in 2022. So any comment on that? And then I guess, just what would it take to get back to that GMV framework that you laid out at Analyst Day. Is there anything else in your control that you can see to get those GMV growth rates up to the mid-singles? And then the second question is just we're seeing a lot of inflation around the world, different rates in different countries. You guys have a lot of cross-border corridor. So how is lower inflation in the US potentially than places like the UK and Germany impacting your business as far as the cross-border? Thanks a lot.

Hi, Ross, I'll take those. So with regard to the GMV sequencing, we haven't guided the full year. We're just trying to give some directional alignment. We're just trying to plan our business effectively around the dynamic macro environment that we're seeing. Again, put a very comprehensive guide up for the first quarter, really pleased with the execution of the strategy, which is working well and leaning into the focus categories that we're still to execute. We mentioned the fact that we do see as many commentators say, a very, very challenged and certain first half of the year. Again, we're just given some direction on alignment about how we think about things as we navigate through 2023. So just providing some color accordingly. With regards to the Investor Day GMV framework, we're leaning in exactly where we said we would, whether it's luxury, whether it's P&A, Jamie talked extensively about the benefits of authentication impacting the business. And so we are seeing underlying positive growth in our business as we execute the strategy, continue to be fueled by the momentum that we're seeing with payments and ads. In terms of the timing of the GMV framework that we laid out at Investor Day, that's really a function of the potential severity and duration of the macro environment that we're operating in, which will obviously have an indication in terms of the timing of when we get to those longer-term targets. And then finally, with regards to inflation, as you imagine, inflation is impacting a number of our businesses across the US and in Europe. Europe has been more pronounced over recent quarters because of -- particularly because of the energy challenges as we go forward. And in addition, you've got some labor pressure being impacted in Europe as well that's impacting the business. Specifically, around eBay, we do have a resilient business, but however, general inflation does have a, I suppose, a mixed impact on our business because we lead into non-new-in-season items, that really just helped impact where consumers are looking for value, and we have a lot of pre-loved and refurbished items on our platform and that performance in Q4 was a great reflection of that. However, because of the macro challenges, we're not immune to the inflationary pressures on the discretionary consumer spending. So, hopefully, that gives you a little bit of color in terms of how we think about the business.

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

Thank you. So, Jamie, I think we spent quite a bit of time talking through the re-commerce opportunity on this call. Now, given eBay's history with cataloging, I have to think that having increased parameters on how gently or not gently used the same item may be and how that's described from seller-to-seller, that's probably creating a unique sorting problem. So, can you talk about how you are tapping the opportunity and ultimately, sort of the correct results to the user?

Yes, Stephen, I basically would just point you, for example, the parts and accessories, right? What we're doing there is using our knowledge around fitments and all the investments that we've made over the last couple of quarters and being able to say, if you're looking on the site in parts and accessories, you're going to see these big green check marks, let's say, Fits Your Vehicle. And now with what we've released just last week, we're actually going to say it's guaranteed to fit. Think about that as like authenticity guarantee for vehicles. So, we're continuing to category-by-category, find the best way to improve that search experience. And something like refurbished it's certifying the quality of that refurbishment and saying we're going to stand behind that with a 30-day hassle-free return eBay Money-Back Guarantees. So, the combination of the great work that our search team does with AI to really drive more relevance on the platform drive better recall in our search results, et cetera, combined with the category-specific work that we're doing to really optimize that experience on a category-by-category basis, is really the intersection of those two. It's what's working out, I think, so well for us and why we're seeing strong numbers in the strategy and in the focused categories that we've rolled out.

Thank you.

Your next question is from the line of Doug Anmuth with JPMorgan. Your line is open.

Great. Thanks so much. I just want to shift gears and ask about expenses, Steve, and the 2% growth in non-GAAP expenses and in 2023. If you could just talk about some of the key investments here and puts and takes? And I guess, in particular, how we should be thinking about sales and marketing, assuming that you'll continue to do full funnel margin on the focus categories? Thanks.

Good afternoon, Doug. I think at a macro level, I would say that we will continue, as we always have been to lean into the short-term to drive operational efficiencies through the likes of the structured cost program where we're going very deep on the organization, while at the same time continue to invest for the future for the long-term trajectory and growth of the business. In terms of the investments we'll be making in 2023 is continue the strategic playbook. It's continuing to invest in product that customers want to continue to invest in trust on the platform and then continue to invest in full funnel marketing in terms of making sure that we get the communication matters out to our customers. The 2% increase in year-over-year non-GAAP expense growth includes the 120 basis points of margin headwinds that we talked about associated with M&A and the eBay International Shipping program, and it's net of $100 million of the structural cost program that we've laid out. So if I stand back, we've got a couple of headwinds with those two items I've talked about. We're leaning in to drive cost efficiencies, and we're continuing to invest for the future long-term sustainability of the business.

Great. Thank you, Steve.

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

Hey guys, thanks for taking the question. So first, can you give us some color on the growth in focus categories where you've had the user experience enhancements for a while now, specifically, sneakers and luxury watches and some of those categories. I understand that macro is volatile, but are you seeing sustained share gains in these categories now? Any additional color on recent growth there would be great. And then, Steve, can you unpack the 2023 EPS guide for us for a little bit? Clearly, we recognize that there's a lot of uncertainties. But how should we think about the magnitude and cadence of buybacks for this year? And maybe is it fair to use 2022 seasonality also as a proxy for quarterly cadence on EPS as well?

Yeah. So -- hi, Deepak, let me take the first one. So yeah, we're really pleased with what we're seeing with focused categories. It's growing seven points faster than the rest of the platform. The way to think about that is plus 2% if you look at it on a quarter-over-quarter basis. When you look at our coverage, we're at about 25% across the whole business. If you look at our big three markets where we've been focusing, it's about 28% coverage, so making nice progress there. But it's not just about investing in new coverage. It's also about investing in existing categories that are driving the underlying growth in our business and balancing reinvestment there. And we're really pleased. We continue to invest in sneakers, we launched two years ago, but we're continuing to invest with manage shipping, which we launched in 2022. We talked on the call about luxury goods having roughly double-digit growth rates over the past couple of years. So we are seeing that market share -- return to market share growth for those businesses, which is really healthy. And I'd say the largest one of which is P&A, and we're really excited by the progress that we're seeing in P&A. On the product side, the work we're doing in fitment and Guaranteed Fit and making the catalog available via the apps. The new acquisition with myFitment, further increasing our ability to do there, combined with the marketing that we're doing in the US, we're doing the actual personalities from car talk in the UK were associated with Pimp My Ride. So we're really going after that enthusiast buyer, and it's really working. So I'm really pleased with the performance on focus categories. Steve, maybe you want to take the second part?

Yes. So Deepak, we've obviously gotten a very comprehensive Q1 guide. And as I mentioned earlier, because of the uncertainty still the dynamic macro environment, we've not given a full year guide at this point. With regard to the seasonality question that you had, that pertains to directional color associated with GMV. And so that's how I would sort of locate that. Specifically thinking about capital returns that we've laid out, just sort of taking a step back, in 2022, we returned $3.6 billion to shareholders through dividends and buybacks, which is 170% of free cash flow. As you're thinking about capital returns, we remain committed to the 125% of free cash flow target that we laid out at the investor event between 2022 and 2024. So we're sort of tracking above that. And as I think about 2023, our priority really to start with is going to be to be committed to offsetting dilution in terms of the such share count, while continuing to balance the capital needs of the business. We have lent in and done a 14% increase in the dividend from $0.22 to $0.25. But for me, our fortress balance sheet continues to be a key competitive advantage in this environment to enable us to continue to invest in the business. So I hope that gives you a little bit of color about how we're thinking about 2023.

Operator, can we do one last question, please?

Your final question comes from Mark Mahaney with Evercore. Your line is open.

Thanks. Two questions, please. This advertising continued ramp penetration now to 1.8% of GMV. As you've looked at third-party data points and maybe as you've looked at that penetration within verticals, do you have a better sense of how high that penetration can rise overall? And then secondly, just talk a little bit about you had the step up in focused category marketing spend and just your confidence level that you're getting a good return on that. There's a clear deleverage in the model, but there's a lot of noise in there. So just how do you look at that and the proof that that's actually working out for you? Thank you.

Yes. Thanks, Mark. So on the ad side, like we said at Investor Day, we have line of sight to 3%, which we still feel great about. If you look at the performance, Promoted Listing Standard continues to be the workhorse of the product, and we're continuing to drive additional penetration there, hitting 2 million sellers and 700 million listings. But we're also excited by our new products. They once again grew 20% quarter-over-quarter and we're making it easier for sellers. I talked about Quick Setup, which makes it much easier to come into the program and use the program. And then we're working on things like multi-user access, which we just launched which enables more flexibility to actually bring in an ad agency to help you manage your ad campaigns. So I feel great about the potential there, growing 30-plus percent over volume and what we're seeing. On the focused category side, been really happy with the performance of the marketing spend. If you think about it, we've shifted our model from being really kind of lower funnel optimization to doing more full funnel. And that's driving more enthusiast buyers into the platform, and it's allowing the overall spend to work a little bit harder. But at the same time, it's really allowing us to bring buyers in and then leverage them across multiple categories. So if you think about like a sneaker buyer, they will come in and buy $450 in sneakers, but then they'll buy $1,900 in other products in other categories. A handbag buyer will buy $2,500, but then spend $5,000 elsewhere. So when you look at the return on marketing spend, usually full funnel has a longer return on it, but we think it's the absolute right spend. We're seeing the right change in consideration and we're really driving, I think, the unique value proposition that we have to offer at eBay. So, you're going to continue to see, just like we've done in parts, really specific marketing tailored to those enthusiasts with the right full funnel approach, because we like the performance of what we're seeing.

Thank you, Jamie.

Thanks.

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