Good afternoon, and welcome to eBay's First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to John Egbert, Vice President of Investor Relations. Thank you. Please go ahead.

Good afternoon. Thank you all for joining us for eBay's First Quarter 2024 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. 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 May 1, 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. We delivered strong results in Q1, even as we continue to navigate ongoing challenges in the global economy. Gross merchandise volume was roughly flat at $18.6 billion, while revenue grew more than 2% to $2.56 billion. Our non-GAAP operating margin was 30.3%, non-GAAP earnings per share rose 13% to $1.25, and we returned $638 million to shareholders through repurchases and dividends. I'm incredibly proud of our teams for delivering these results as they remain relentlessly focused on reinventing the future of e-commerce for enthusiasts. And I am pleased that we remain on track for GMV growth to turn positive by Q3 or Q4 of this year. Now let's walk through some of the key drivers of our quarterly results. Focus categories play an important part in delivering relevant experiences to customers on eBay and remained a significant driver of underlying growth on our marketplace during Q1. Overall, focus category GMV grew nearly 5% last quarter, outpacing the remainder of our marketplace by roughly 6 points. Motors parts and accessories, or P&A, was once again the largest contributor to growth among focus categories despite facing headwinds in January due to extreme weather patterns in the U.S. Our teams continue to innovate on the P&A shopping experience, growing awareness, enhancing trust and expanding the great inventory our marketplace has to offer. Fitment is a central component of trust within the P&A category, helping customers understand exactly which of our more than 600 million live listings in this category fit their vehicle. We continue to work closely with large P&A sellers to augment their inventory using the MyFitment tool kit. To date, we have enhanced eligible auto parts with approximately 5 billion pieces of incremental fitment data, and we've continued…

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 second quarter in context on the full year before we begin Q&A. My comments will reflect FX-neutral year-over-year comparisons, unless I note otherwise. We exceeded expectations across our key financial metrics in Q1 despite an uneven demand environment in our major markets to start the year. Gross merchandise volume was roughly flat at $18.6 billion. Revenue grew more than 2% to $2.56 billion, outpacing volume by over 2 points. Non-GAAP operating margin was 30.3%. We delivered $1.25 of non-GAAP earnings per share, up 13%. And we returned $638 million to shareholders through repurchases and dividends. Let's take a closer look at our financial performance during the first quarter. Gross merchandise volume of $18.6 billion was roughly flat year-over-year, while foreign exchange was a tailwind of nearly 1 point to reported GMV growth. Our teams did a tremendous job executing on our strategy across focus categories, country-specific investments and horizontal initiatives. Our Q1 volume also benefited from an extra day in the quarter due to the leap year. However, we continue to navigate through a tough environment to discretionary e-commerce, particularly in the U.K. and Germany, 2 of our largest markets. Focus categories GMV grew by nearly 5% in aggregate or roughly 6 points faster than the remainder of our marketplace during the quarter. This continued momentum was driven by positive volume growth in P&A, refurbished, collectibles and luxury goods, reflecting the breadth and resilience of our focus categories. Next, I'll walk through our results on a geographic basis. U.S. GMV was nearly flat in Q1. As Jamie mentioned, P&A…

[Operator Instructions] Our first question will come from Nathan Feather from Morgan Stanley.

So I want to dig in and touch on the margins. The 2Q non-GAAP operating margin is at about 300 basis points at the midpoint. On top of this normal marketing seasonality you see, can you provide some more color on the puts and takes which are driving that? And then with that in mind, how should we think about the cadence of operating margin through the remainder of the year?

Nathan, I'll take that. Steve here. Our Q2 guide implies margin expansion between 0 and 70 basis points year-over-year, depending on where we land in the range. That's really driven by underlying advertising growth efficiency gains, partly offset by some of the investments we've talked about and some FX headwinds that we're seeing. You're right, there's a bit of seasonality that we deal with as we go through the year. The second quarter does generally have sequential contraction. That's in line with the last few years because seasonally, Q1 is our strongest quarter for operating margin due to relatively higher GMV and low expenses. A few of the puts and takes that we're seeing, the first thing I would say is that we continue to lean in, in investment. We see a lot of opportunity for good ROI as we are continuing to be committed to growing GMV in either third or the fourth quarter of next year, and we're seeing benefits associated with that. Secondly, there's a couple of dynamics with regards to advertising. In Q2 of 2023, we saw changes in terms of the Halo attribution, which really sort of saw significant momentum in our first-party ads in the second quarter of 2023. And in addition, we saw some revenue recognition changes in the second quarter, about $9 million that was pulled forward. So we're sort of dealing with those 2 dynamics. But as you've seen from our prepared remarks, we continue to be confident in the outlook, and we continue to guide margin expansion through 2024 between 60 and 100 basis points as we look forward to going through the rest of the year.

Our next question comes from Colin Sebastian from Baird.

Jamie, I appreciate the review of all the product initiatives in the marketplace. And I guess in the context of the confidence you have in that acceleration in growth in the back half, I guess, which of these innovations are driving the most incremental activity or conversions on the platform? And is that part of that acceleration that you're anticipating?

Yes. I'd really say it's threefold, Colin. I'd say first is the focus category work that we're doing. You see us not only kind of expanding what we're doing there, but investing in categories that we've already launched before like what we announced in collectibles with the Collectors and Goldin this quarter, what we're seeing in terms of the growth of luxury, of P&A, refurbished at 5%. So that's probably the first thing I'd say. The second is just the geo work that we're doing in specific geographies. If you look at the work that we did in Germany on C2C, we continue to see healthy returns from that. We're more than a year from launching that. We launched that in Q1 of last year, and we're continuing to see positive C2C momentum in Germany and healthy metrics and encouraging numbers from our CSAT standpoint. So that's the second. And the third I would say is the efforts that we have against our horizontal innovations. So we've talked about things like magical listing, of simplifying the selling flow. We continue to invest in search, in CRM and a number of horizontal initiatives. I'd call out 2 that we talked about this quarter, which are explore and shop the look, new AI capabilities that we're launching first in fashion to really create a new browsing experience. So all 3 of those together is what gives us the confidence in moving forward and how we feel good about what we put out there.

Our next question comes from Eric Sheridan from Goldman Sachs.

Maybe 2-parter, if I could. In terms of cross-border commerce, what's the current state you're seeing in terms of cross-border and region-wide globally in terms of a driver of GMV dynamics into the business? And have you seen any impact from increased competition from cross-border, especially in areas of the world like Europe? And how would you characterize the state of competitive intensity?

Yes. Look, our cross-border is one of our great strengths as a business. 1 in 5 transactions or about 20% of GMV goes across borders on eBay, and it's very strategic for us in that for sellers, it opens up a very vast demand opportunity. We've talked for a couple of quarters about eBay International Shipping as an example of one of those things. We've talked about our payments team investing in buyer and seller FX to make that more easy and take the friction out for customers. So you take, for example, a look at parts and accessories, which continues to perform well at mid-single digits, one of the largest contributors to that growth is really healthy CBT business. You look at luxury being positive even in this macro environment. And it's in part because of the work we're doing where we launched an authentication center in Japan, and we have great inventory coming out of there. So it's one of the benefits that we have from a global marketplace. We think we're unique from that perspective in terms of what we offer, in terms of the capability for sellers, and we're pleased with what we're seeing in the growth of CBT overall.

Our next question comes from Tom Champion from Piper Sandler.

Jamie, I'm wondering if you could just talk about your view of the health of the consumer. There doesn't seem to be much consensus out there. And just curious, your view and how that may have changed over the last 90 days.

Yes. Tom, thanks for the question. Look, we continue to operate in a really dynamic environment given the macro challenges globally with inflationary pressures and interest rates. We talked about Q1 started off a bit softer because of some of the weather, but then we had a reasonably good tax period. I would say the backdrop remains weaker in Europe than it does in the U.S., where U.S. is in better shape. If you look at e-commerce growth rates in U.K. and Germany this quarter, they're negative, and that's overall, and obviously, we play more in discretionary than consumables. So I think this is where our model is really winning, right? Our model is working because we have global demand. We've really focused in on non-new-in-season over the last couple of years. And we can provide value in a marketplace like this. We can be a great avenue for selling in terms of consumer demand. And I think it's why we reached the milestone this year or this quarter of now 40% of our inventory is pre-loved or refurbished is because we're seeing strength from the value proposition that we've built, and it's resonating with the consumer.

Our next question comes from Doug Anmuth from JPMorgan.

It's Bryan Smilek on for Doug. Could you just talk about the velocity of investments across generative AI and any affiliated CapEx needs and then, I guess, on that same line of questioning too, just timing of when you could see revenue uplift from these investments over time?

Yes. Look, we're really excited by the advancements that we're making in AI. I feel somewhat of a privilege to be able to lead this company because when you think of the breadth of categories, the data that we have for over 20 years, the scale of the size of business, being able to put AI against those is really compelling. So on the consumer-facing side, we continue to see amazing traction with magical listing. It's now -- writes description for 100% of users across native, desktop, mWeb, and we're working on Phase 2 there. We've got that rolled out to a percentage of sellers, which is great. When you look at explore and shop the look, those are 2 features that, starting with fashion, are really bringing a whole new browse experience to eBay. If you think about it, our fashion category on eBay is over $10 billion, and we have amazing inventory and incredible values. But if you wanted to put an outfit together on eBay, the buyer had to do all that work for the last 20 years. And most of them did, and we built a really healthy business. Now we can use AI to basically do all of that hard work for the consumer. And depending on their style, which they tell us or we infer based on their sizing, we can put the right products in front of them directly. So we're really excited by the potential of what we're seeing, by the acceptance that we have. When you look at magical listing, 90% of customers that use and accept what we put together, which is fantastic, and also just the interest from our consumers. Steve, maybe you want to talk a little bit about financially?

Yes, of course. So Bryan, I think there's a couple of things I'd say. First of all, our size, our scale and our financial architecture with eBay with the strength of the balance sheet we have is a distinct advantage for us, particularly as we look to exploit generative AI and the benefits that come from that. With regards to how we're thinking about it from a CapEx and an OpEx standpoint, all of the investment that we've talked about in 2024 from a CapEx standpoint is embedded in the 4% to 5% of revenue, which we've guided for the full year. In terms of the OpEx investments associated with generative AI and everything that comes from that, that is contemplated in both our earnings and margin architecture that we've laid out. And in terms of revenue contribution, that's sort of embedded in the work that we've done and is enabling us to put the margin accretion up on the board between 60 and 100 basis points for 2024. And it will also give us benefits, as Jamie has talked about, for years to come as we improve trust and momentum on the overall platform.

Our next question comes from John Blackledge from TD Cowen.

On the trading card business, you guys mentioned that trading card volume is up over the last few quarters. Just curious, what's driving the uptick in volume? And would you expect volumes to kind of remain elevated as we get through the year?

Yes. Look, we're excited by what we're seeing in trading cards. What we saw is that there was obviously a lot of activity during the pandemic, and we were able to hold on to a lot of customers that we acquired and frankly, a lot of customers that got reactivated or reinterested into the hobby. When you look at collectibles, we've been investing in it over quite some time. We've launched a number of features, whether it's price guides, making it easier, [ My Collections ] on the marketplace, we've launched new shipping forms, we've introduced authentication in that product, et cetera, and really built the suite of what collectors were asking us to do. And then this quarter, as you saw a few weeks ago, the 3-part agreement that we've developed with Collectors really takes that to the next level. And frankly, this is something that collectors have been asking us to do, which is, hey, we create real value in getting our cards graded. We love selling them on eBay. How could we make that whole process easier? And when you look at the 3 separate deals that we put together, that's exactly what we intended to do with trading cards. So we're bringing in the Goldin platform, excited to bring Ken and his team in. This is going to bring really unique inventory, frankly, the world's most desirable inventory into the platform. Like they sold a Honus Wagner card for $7 million. It was the third most expensive trading card ever sold. Michael Jordan sneakers that sold for $1.4 million. There's this great book of the [ Goldin 100 ]. And we're just excited to have this new high-touch, white-glove experience available to sellers and to bring a global reach now for Goldin sellers on the marketplace. And then when you look at the commercial agreements, making it easier to buy, sell, trade and grade on the platform through an integrated experience is a great opportunity because clearly, a lot of collectors buy ungraded cards on eBay that they want to get graded or they've just graded a card or they realize the value based on the grade they have that they want to sell it. And so our ability to do this really helps grow the industry. It helps grow the hobby, and it's really what collectors have been asking us to do. So I'm really excited about what it means for the collecting and the future here at eBay.

Our next question comes from Richard Kramer from Arete Research.

A quick question for both of you. Jamie, when you talk about the guidance of take rate expansion, can you talk through how you might mitigate risk of seeing seller defections to other platforms that are doing cheap promotions and also whether you'd anticipate the promotion like you're doing now in the U.K. on used apparel being something that's permanent and that people can get used to? And then, Steve, could you maybe quickly just size the cost savings from the headcount reductions you made at the start of the year and whether that's going to get reinvested? Or is that something that's supporting the margin expansion you mentioned?

Yes. Look, the reason that we have such good seller metrics and sellers are so loyal, Richard, is because we let them build a brand on eBay. They build an eBay store, they have a presence, and we bring them a lot of really unique value propositions. We bring them the scale and breadth of global buyers on the marketplace. We bring them all of the capabilities to market and advertise their products really easily. We just -- we've been working the last couple of quarters on this product I talked about with Offsite Ads, which helps them bring traffic back. And so it's really -- those are really, I think, important to sellers. And what we see is really good feedback from doing those. And what we're doing in the U.K., U.K. is a unique market for us. We have very strong awareness and we're a leading player in recommerce. But we view the pre-loved fashion category as really a gateway to recommerce. Pre-owned apparel shoppers are really valuable to our business. And what we see is that 30% of our C2C sellers actually sell in pre-owned apparel. So given the strategic nature, we not only looked at what we could do to drive that velocity with the fee structure that we outlined, but we built about 10 different discrete features in that launch, from a streamlined listing flow where there's much simpler shipping options, for example, we simplified item aspects to just the relevant fields, we now offer photo guidance in a really compelling way, including better image removal and background swap, changed the default. So did a lot of things to make the selling process easier while launching explore and shop the look on the buying side to really take advantage of a much more modern experience for shopping for fashion on eBay.

Thanks, Jamie. Obviously, we made a difficult decision at the start of the year to go through the reduction in force. From the magnitude of the headcount and the restructuring charges, it's obviously a significant event for us. It was not just about sort of driving cost savings and creating capacity. It was also about sort of driving greater agility, speed in decision-making across the organization, so we can continue to deliver for our customers. As it pertains to the value of that, that, along with other savings that we continue to drive through operational efficiencies, through our structural cost program that we've been running through for a few years, it is creating the capacity for us to invest back into the business to stimulate sort of customer stickiness and also to drive long-term sustainable growth. It is contemplated in the 60 to 100 basis points of margin expansion that we've laid out for the full year and obviously, a critical part of the earnings momentum that we're expecting to see with double-digit earnings growth at the midpoint of our guide.

Our next question comes from Michael Morton from MoffettNathanson.

Just wanted to maybe talk a little bit about what we discussed last quarter as well, and it's the impressive strength you've seen from cross-border, I think with your ability to lower the friction around it and then also places like China opening back up. I'd love to learn a little bit more about the composition of the goods coming cross-border, if it's very representative of the entire focus category platform or eBay more broadly and then the ability to see continued strength from some of the reasons -- regions like China.

Yes. So look, it's been an important strategic area for us. One of the reasons we launched eBay International Shipping was the whole concept that we wanted you to be able to ship a product from LA to Norway, and it would be as easy as shipping it from LA to Chicago. And we built that product, and eBay takes care of all of the hard work and the background of customs, duties, et cetera. And we're seeing really great feedback in terms of the CSAT and the performance that we're getting from our sellers from that perspective. We built a lot of features like buyer and seller FX, so that the buyer can transact in their currency of choice to make that really easy for the -- for both the buyer and for the seller. When you look at the categories and what we have, it's really across the board. And it's really aligned with our focus category strategy that we have. So whether that's parts and accessories and being able to generate great parts and accessories in different parts of the world and ship them around the world, even to unique parts that may be manufactured in one country that there may be global demand from that perspective. We talked about handbags being another example in luxury where there's inventory coming out of, for example, Japan. It's a great market for handbags. By putting authentication center there, that now opens up global demand for the great inventory that sits there. And really, when you think about it, there's great inventory in a lot of our categories all across the world. And what we really focus on is how to open that up. When you think about the scale of a $73 billion platform where 1 in 5 transactions is going across borders, the scale of that means that it's broad, it's very diverse from that perspective. And we have 2 billion live listings on the platform. So really just about every category on the platform benefits from the work we've done in cross-border and making that simpler and easier for our customers.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.