Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the eBay Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to John Egbert, Vice President of Investor Relations. John, you may begin your conference.

Good afternoon. Thank you all for joining us for eBay's fourth quarter 2023 earnings conference call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. Before we begin, I'll remind you that during this conference call, we will discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect FX-neutral year-over-year comparisons and all earnings per share amounts reflect earnings per diluted share, unless indicated otherwise. As we fully lap the TCG Player acquisition at the end of October 2023, our organic and total FX-neutral growth rates for Q4 have largely converged. 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 in our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of February 27, 2024. 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 all for joining us today. I'm incredibly proud of the progress we made in 2023 against our vision of reinventing the future of e-commerce for enthusiasts and our goal of returning eBay to long-term sustainable growth. Let's go over a few highlights from the full year. First, despite significant macro pressure on discretionary spending across our major markets, we saw organic year-over-year GMV growth improved during each quarter of 2023, resulting in GMV growth down roughly 1% for the full year. Focus category GMV grew by nearly 4%, outpacing the remainder of our business by roughly 7 points, and we exited 2023 at approaching 30% penetration. We stabilized our active and enthusiast buyer count as acquisition, reactivation and retention improved year-over-year. Our revenue grew 3% organically to over $10 billion. driven by continued momentum in first-party advertising, expansion of our financial services offerings and the launch of eBay International Shipping. And we made significant investments in tech talent and marketing to support our strategic pillars, including making meaningful strides towards establishing eBay as a leader in generative AI for e-commerce. These results have demonstrated that we have the right strategy which has put us on a path to building a stronger, more resilient company. In service of that goal, last month, we announced significant organizational changes focused on removing layers and simplifying execution in order to better meet the needs of our customers. This involved the difficult but necessary decision to reduce our workforce by approximately 1,000 roles and begin to scale back our alternative workforce contracts. This restructuring better aligns our expenses with the growth of our business and I'm confident it will enable us to accelerate innovation while delivering long-term value for shareholders. Now turning to the fourth quarter. We…

Thank you, Jamie, and thank you all for joining us today. I'll begin with the financial highlights section of our earnings presentation. Next, I'll discuss our key financial and operating metrics in greater detail. Finally, I'll provide our outlook for the first quarter and the full year and some closing thoughts before we begin Q&A. My comments will reflect year-over-year comparisons on an FX-neutral basis, unless I note otherwise. I'm pleased that we met or exceeded expectations across our key financial metrics in Q4 despite observing a softer demand environment during the early part of the quarter. Gross merchandise volume was nearly flat at $18.6 billion. Revenue grew 3% to nearly $2.6 billion, outpacing volume by over 3 points. Non-GAAP operating margin was 26.7%. We delivered $1.07 of non-GAAP earnings per share, and we returned $379 million to shareholders through repurchases and dividends. Let's take a closer look at our financial performance during the fourth quarter. Gross merchandise volume of $18.6 billion was nearly flat year-over-year, while foreign exchange was a tailwind of up 2 points to reported GMV growth. As we discussed last quarter, we observed softer demand for discretionary goods during the beginning of Q4 as consumers dealt with elevated inflation from higher interest rates in our key markets. Shoppers were more discerning in their purchase behavior as we approach the holidays and the promotional environment adapted to meet their expectations. However, we started to see our business improve towards the end of November, particularly in the U.S., driven by consumers looking for value to stretch their limited holiday budgets. Additionally, we believe recent product improvements modestly benefited our participation in last minute holiday shopping. These included improved accuracy of our estimated delivery dates and product changes we made in Q4 to better highlight listings with faster shipping…

[Operator Instructions] Your first question comes from the line of Nikhil Devnani from Bernstein. Please go ahead.

Hi, thank you both for taking the question. I wanted to ask about GMV growth. Could you provide a bit more context on the potential for positive GMV growth in Q3 or Q4? Is that anchored on the timing of certain product initiatives that, should accelerate your growth? Anything on your visibility into the back half would be helpful. And then I had a follow-up on margins as well. Your Q1 outlook is quite strong, close to 30%, but it looks like for the full year you're anticipating 28 to 28.5. So just wondering if that delta is due to seasonality, or some discretionary investments that, you see coming down the line, anything there would be helpful? Thank you.

Yes, thanks, Nikhil. I'll cover the GMV one and then I'll ask Steve to talk about margin. So, when we looked at the start of the year here, we talked about, January having some weather impact. You heard that from other folks as well and improvements kind of since then. You saw, January retail sales show the consumer is a bit stretched. But when we look at the overall plan that we have for the year, we feel really good about the strategy that we're executing on. When you look at focus categories, they continue to outperform the rest of the business. For FY '23, it was a 4% year-over-year growth, about seven points ahead of the business. We like what we saw in terms of the investments that we made in Germany and feel really good about the roadmap that we have in front of us, to drive growth in the business in Q3 or Q4, as Steve outlined. You know, I think importantly, when we look at the kind of underlying health of the business, right now we still have U.K. just in our technical recession, Germany commerce growth is still in negative territory. And so, we have those impacts from the market, but the underlying business and what's happening in the core, we feel really good about. And that's what makes us confident in being able to drive GMV growth as we outline there. Steve, do you want to talk about margin?

Yes, indeed. Good afternoon, Nikhil. You're correct. Seasonally, Q1 has been our strongest quarter for operating margin for a while, because of the dynamics of that seasonality. A reminder, we have been driving that through a number of cost savings that we've been driving based on recent actions. And also the accounting policy change that we saw that we discussed in the prepared remarks. I am really pleased with the amount of diligence that we've gone through. The teams are leaning into cost efficiencies in the short-term while we continue to invest for the long-term sustainable growth of eBay. And we're pleased to be in a position to, based on no change in the overall macroeconomic environment, to drive between 60 and 100 basis points of margin improvement, which is continuing to fuel the earnings growth that, we laid out earlier in the call.

Okay. Thank you.

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

Thanks and good afternoon. Good to see the start of performance at the end of Q4. A lot of changes in e-commerce over the past couple of years. Obviously customer acquisition costs are going up a lot, and there's more competition in the market from global players. So I was hoping, Jamie, you could talk about maybe the evolution of e-commerce as you see it and the impact of some of those changes on eBay, and if that leads you to any modifications in sort of the focus category strategy. And maybe related to that with Gen AI, across the platform and the magical innovations. Is there any way to quantify the impact of some of those tests, if not from a volume or revenue - so maybe from listings velocity, or engagement levels with sellers and buyers, testing the tools that might be helpful? Thank you.

Yes, so first let me talk about kind of the e-commerce piece. Specifically, we did customer acquisition costs. This is where eBay has a unique advantage. So first, the vast, vast majority of our traffic is organic. People coming to the eBay app or typing in ebay.com, which is a key benefit. The second is our ability to monetize users that we acquire across multiple categories, is a huge win for us. So, when you look at someone coming in into a single focus category, they end up shopping across categories on the site, usually more than they buy in other categories from that from that one initial acquisition. So our ability to kind of manage the CAC and the CLTV, is I think much different than others. And that's just based on the scale of what we have. I think our focus on non-new and seasoned, is very unique and our drive towards refurb, luxury, authentication, and the trust we put on the marketplace is a real differentiator for us. For example, we've seen the fourth straight quarter now of growth in our luxury business. Our refurbished business maintained double-digit growth all in a somewhat challenging macro environment. So that's unique. As we look at the generative AI, it's still early days. I can give you some of the early perspectives, but when I'm having a hard day, I go read the message boards about how consumers feel about these features that they're launching, because they just love it. They love the speed with, which it allows them to get more inventory on the site. And what we hear is, this is going to lock more of their things in their closet, and their garage, because we're speeding up the listing process. So today, it's already been used by…

Great, thank you.

Your next question comes from the line of Ken Gawrelski from Wells Fargo. Please go ahead. Ken, your line is on mute.

Sorry about that. Sorry, my fault. I was on mute. Sorry about that. Could you - I was hoping maybe you could talk a little bit about – you've talked about - some of the weakness you've seen and continue to see in the macro side, especially in Europe. Could you talk about if there are certain cluster segments, or even categories that you're seeing better trends, or improving trends relative to those that might be still under pressure?

Yes. What I would say is that, if you look at both U.K. and Germany, two of our largest markets, they're both experiencing a GDP decline. So U.K., which is our second largest market, entered a technical recession. If you look at the cost of living challenges that are happening over there, that's obviously been a challenge. And the German business has been in recession and is still experiencing negative e-commerce growth from that standpoint. But one of the unique values of eBay is that, we offer great values on the marketplace. So, I think the reason that our refurbished business, for example, is so strong, our luxury business is so strong, is that even in challenging times, people are looking for a value on the marketplace. And so, I would say I'd call out specific areas like that. Refurbished growing double-digits, I think, is a sign of the consumer looking for value. Also, the consumer was looking for a lot of value in December, and we really lean into that, across the globe. And that's been a big differentiator for us. And our parts and accessories business, continues to perform well. It grew mid-single digits for the fourth straight quarter, and consumers looking for a value in what we offer there. So, some puts and takes across categories, but those are the ones that, I think I would highlight, and what we see happening, especially over in Europe.

Thank you.

Your next question comes from the line of Justin Post from Bank of America. Please go ahead.

Great, thank you. I guess I asked about buyers. You talk about your GMV getting back to growth. What will we see with buyers, and what are you seeing within the metrics as far as churn, or new activations that give you encouragement right now? Thank you.

Yes, our buyers are exactly where we expected them to be. When you think about our enthusiast buyers, which is what we really track and go after. We said that, we would see a stabilization, coming off of the COVID time period, and that's what we're exactly seeing. It was roughly flat quarter-over-quarter at $16 million. We've been driving, healthy buyer acquisition and buyer retention, especially in our focus categories. Our enthusiast buyers are spending over $3,000, which is essentially like membership level spends, when you think about it. So, our acquisition is healthier year-over-year. Our reactivation is healthier year-over-year, and our churn is down year-over-year. So, we're pleased with what we're seeing on the buyer side, and we're continuing to lead in with new advancements and capabilities for buyers. What I called out on the call is things like, we have over 100 million vehicles stored in my garage, and we're using now predictive maintenance, to say it's time to change, this element for your car. Here's the parts on eBay that fit it exactly. They're backed by guaranteed fit. So, we continue to build new tools for buyers, to activate them onto the site and drive retention, and that's been working very well.

Great. Thank you.

Thanks, Justin.

Your next question comes from the line of Doug Anmuth from JPMorgan. Please go ahead.

Thanks for taking the questions. Jamie, I just wanted to follow-up on generative AI. Your comments were pretty interesting on, how your large language models from scratch are working better. I was hoping you could talk a little bit more about that, some of the advantages that you're seeing. And then, as you're doubling GPUs through '24, maybe, Steve, can you talk a little bit about the impact there, just on the product development bucket and how we should think about that in context of the deleverage that we saw last year on that line? Thanks.

Yes, Doug. One of the things I'm excited by is that, we've had this model of building in a hybrid environment, and having extremely large private cloud, which has allowed us to manage our cost infrastructure, even as we've grown to, now close to 2 billion listings on the marketplace. But more importantly, the benefit of being able to take our 30 years of really rich data of e-commerce and combine that in a hybrid sense, in some cases with open source LLMs. In some cases LLMs that we built, in another case with commercial LLMs, makes us able to do those, in a really efficient manner, without really massively impacting our cost structure, in any meaningful way. Also, having good latency in terms of getting it back, and also being able to fine tune the quality of the data of what's coming back from an inference has been important for us. So, we've used across the board all different models. We started, in some cases, with some commercial models and then moved those to open source, or internal models and as we've refined them and gotten better. And that's been working out really well for us. Like I said earlier to the question about magical listing, when we look at the scale and volume of the millions of listings that we get each day and what consumers are hitting us with. Making sure that we have, an incredible amount of quality in terms of what's happening with the AI and ease of use. And thus far, really positive feedback from it. The models are working well. And what's great is that the team iterates every single week, to make them better. Steve, maybe you just want to cover how we're managing the cost.

Yes of course, Jamie. Hi Doug, good to speak to you. As Jamie said, we're really excited about the opportunity, to drive further efficiencies and improve productivity, across eBay through the AI technology. We're doubling our GPU capacity in the first quarter, which is going to give us a lot, of expanded capabilities, specifically regarding to costs. The costs associated with Gen AI, including our GPU racks, are contemplated in our full year CapEx guidance range, which we laid out. And it's pretty much in line with historical averages. All the OpEx costs are contemplated on our guide. I think it's fair to say, our size and scale at eBay, is a distinct advantage, when it comes to this sort of additional infrastructure investment.

The last thing I'd say is that, that refers a lot to how we're using it with our consumers. I would say internally across the organization, we're also pushing very aggressively, to drive productivity in the organization. So whether that be all of our engineers now using copilot tools as they do development in our customer support centers, we've been using AI to really change the level of engagement we have with customers and the productivity. I call it the success of our employees there, where we summarize contacts from customers to make it easier, summarize initial responses, all the things that we can do, when you think about our scale of, over a million self-service queries a week, in a customer service perspective, AI is incredibly helpful there. So those are just two examples of how we're using it across the board, to drive productivity in the organization.

Thank you both. Very helpful.

Your next question comes from the line of Lee Horowitz from Deutsche Bank. Please go ahead.

Great. Thanks for the question. So your U.S. business is stabilized at this point and is presumably set to return to growth sooner than the total. This is obviously happening in the face of U.S. e-commerce competition that has grown increasingly intense, with the introduction of low price Chinese competitors. Can you spend some time talking about, how your strategy of leading into enthusiasts and enthusiasts categories perhaps shields you, from this incremental competition. And any update holistically on maybe some of the vertical players, and some of your key focus categories, and how competition has evolved over the last year?

Yes, specifically on the low price, and if you're referring to like the [T-Move] machine, we really haven't seen a significant impact from them on our business. We really have a differentiated strategy, with what we're doing with our focus categories and going after non-new in season, for the business. And years ago, we really moved away from the low ASP, low quality items on our marketplace. And that hasn't been a focus for us for many years now. So I think, that's the first key differentiation I'd call out. The second is that, obviously some of the competition is spending a lot of money from a marketing standpoint in the marketplace. But one of the great benefits of eBay, is just the vast amount of organic traffic we have. The vast, vast part of our traffic either comes directly to the app or types in eBay.com. So, we're less reliant on paid from that perspective. The last thing I'd say comes back to kind of the CAC, CLTV question, which is, we can have one of the most healthiest CACs out there in the marketplace, because of our ability to drive CLTV, really driving by the moves we've made to not be focused on active buyers, but really on acquiring enthusiast buyers, or quickly moving new buyers up to, become enthusiast buyers. And because of the cross category shopping nature of the business allows us to drive that CLTV higher for us. And then finally, the opportunity to turn them into sellers, or to have buyers who sell on the marketplace also helps with that overall equation. And those are really key differentiators for us at business and why we feel really well positioned on a go forward basis in the e-commerce landscape.

Your next question comes from the line of Tom Champion from Piper Sandler. Please go ahead.

Hi good afternoon. Jamie, I'm wondering, if you could a little bit more about the C2C initiative in Germany, and maybe what's one or two key features that allowed you to, crack the code therein in that geography. I know it's been for a while. And then where do take this next, I mean presumably does it port to the U.K. How do you think about it, extending in other geographies? Thank you.

Yes, when you think about our focus category strategy of really kind of leaning in on this specific area, driving the CSAT to a whole double-digit level, we essentially apply that to a certain segment of our business in Germany to our C2C segment. And that's exactly what we're seeing, Tom is, greater than 20 point improvement in NPS in that business, which is really great for us. It's an important business. And what we really focused on was designing around the needs of the buyer. So that's searching SEO improvements, specifically around language needs in that market. The second was, really a focus on local and things like map based browsing in that market. Given the geography of it, we have more of that type of business in Germany than we do, for example, in our U.S. business and leaning into it. And the third is doing pricing adjustments for our C2C business there, really leaning in to being able to drive buyers, who sell and bring more C2C inventory on the marketplace. And that's been working well for us. We've seen double-digit increases in buyers who sell on the platform and a really kind of healthy business there in terms of first gen listings, that type of thing. So, with everything that we do, we look at, what's successful, what do we take to other markets, and we'll continue to do that and look at that on a go forward basis. But overall, we feel really good about the metrics that we're seeing in Germany, and the health of the business and the strong numbers we're putting up despite negative e-commerce growth in that marketplace.

Thank you.

Your next question comes from the line of Michael Morton from MoffettNathanson. Please go ahead.

Hi. Thank you for the question. Two, if I could. Just following up on the opportunities around AI, there's a view in the market that it allows you to run more sophisticated campaigns when you have large SKU offerings for big e-commerce platforms. So wondering, if you're seeing a benefit of that now, or if it's something that's always been a part of your business. And then we haven't seen the filing yet, but for the prior quarters, a lot of strength appears coming from China-based sellers. So just wondering about moving parts there, and the sustainability of that in 2024? Thank you.

Yes, look, the expansiveness of our marketplace, is what allows us to really go after launching compelling Gen AI features. So specifically in parts and accessories, for example, we use AI to expand the fitment capabilities of finding what vehicles a part will fit. But now we're using it for things like predictive maintenance and things like that. The vast majority of categories are really relevant for these horizontal innovations, things like magical listings, things like backgrounds, enhancers, et cetera. So search uses AI, advertising uses AI. So across the board, we're using it in very compelling places. We use it in our marketing to do much more personalized marketing, things like subject lines that can be really tailored based on what's happening on the business. When I think about our CBT business, it remains very strong on the marketplace. So, we've built more and more features to make CBT easier for both buyers and sellers. I'd call out the work that we did in payments on buyer and seller FX, really making that seamless. We've talked over the last two quarters about eBay international shipping with the concept of really opening up the 190 different geographies that we have around the world, to our sellers from that perspective. And so, it will continue to be a focus, will continue to make it easier and easier for buyers and sellers, to interact across borders and drive that strategy forward.

Your next question comes from the line of Alexandra Steiger from Goldman Sachs. Please go ahead.

Great, thank you for squeezing me in. I do want to follow-up on some of your macro comments. So how should we think about GMV, or revenue per buyer in that context? To what extent do you see customers trading down in certain markets? Or is it more of a function of buyers making less purchases over a given period of time? And if that's the case, what are kind of like the key initiatives you're working on, to drive purchase frequency on the platform? Thank you.

Yes, so, when you look at it overall, when you talk about something like the U.K. or Germany, where the consumer is more stretched in cost of living challenges, et cetera. We tend to lean into the deals and values on the marketplace. So refurbished, used. And so it's not really impacting as much their overall business with us, more so in terms of the categories and where they're buying. So, I'd probably say like refurbished is a good example. Refurbished growth is up double-digits. We've talked in the past that, macro has pressured the, spend and move some of the enthusiast buyers, to mid-value buyers. That's a little bit why, we see the enthusiast number flat quarter-on-quarter. But we're pleased with that stability in this environment, because it means, the eBay value proposition is really resonating for those customers. In terms of driving frequency, it's one way where we're looking at things like all the programs that we have, whether that's safe seller, or stores, or the marketing that we put out to our customers. We're now able to use generative AI, to make that experience so much richer. The combination of our internal LLMs, and the data that we have about what's been happening over the 30 plus years. Combined with the ability to really build compelling marketing, to those customers, is coming to a whole new level. And Alexandra, I think we're just at the early stages of what's possible there. And what's exciting at eBay is the canvas that, we have to work with. When you think about, the number of consumers that have transacted with a given seller on the platform and have saved that seller. When you think about 100 million vehicles being in my garage, when you think about, the sizing data that we have for people for apparel, it gives us the unique ability to drive a lot of frequency on the platform.

Operator, can we do one last question, please?

We have no further questions in our queue at this time. And with that, that does conclude today's conference call. Thank you for your participation and you may now disconnect.