Ladies and gentlemen, good afternoon, and thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the eBay Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to John Egbert, Vice President of Investor Relations. You may begin.

Good afternoon. Thank you all for joining us for eBay's second 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 organic 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 July 31, 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. Our strong Q2 results marked a notable step toward our goal of achieving sustainable, profitable growth over the long-term. Our gross merchandise volume grew 1% to $18.4 billion in Q2. Revenue increased 2% to $2.57 billion. Non-GAAP operating margin rose by 1.0% to 27.9%. Our non-GAAP earnings per share rose by approximately 15% to $1.18. And we've turned over $1.1 billion to shareholders through repurchases and dividends during the quarter. I'm proud of our teams for delivering these results amid continued macroeconomic headwinds, ongoing geopolitical uncertainty, and an evolving regulatory landscape. Now let's walk through some of the key drivers of our Q2 results. Focus category GMV grew by over 4% in Q2, outpacing the remainder of our marketplace by approximately 5 points. After Motors Parts & Accessories, or P&A, which continued its trend of healthy growth, collectibles was the second largest contributor to GMV growth among focus categories in Q2. In mid-May, we closed a series of transactions with Collectors, parent company of PSA, and a leading provider of authentication and grading services for collectibles. Since then, we've made significant progress toward integrating Goldin, expanding our relationship with PSA, and elevating the eBay collectibles experience. We support the latest Goldin 100 auction, help drive awareness for the successful global premiere of King of Collectibles Season 2 on Netflix, and the Goldin team began hosting events on eBay Live. During Q2, we completed the transfer of trading card assets to the PSA vault ahead of schedule, and all PSA customers can now easily sell on eBay at the time of grading without having their cards shipped back to them. Since going live in late June, the PSA storefront has already sold tens of thousands of trading cards…

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 third quarter and context on the full year before we begin Q&A. My comments will reflect year-over-year comparisons on an organic, FX-neutral basis, unless I note it otherwise. We exceeded expectations across our key financial metrics in Q2, driven by our execution against strategic initiatives, despite an uneven discretionary demand environment in our major markets. Gross merchandise volume returned to positive growth at 1% to $18.4 billion. Revenue grew 2% to $2.57 billion. Non-GAAP operating margin expanded by 1 point to 27.9%. We delivered $1.18 of non-GAAP earnings per share at nearly 15% and we returned over $1.1 billion to shareholders through repurchases and dividends. Let's take a closer look at our financial performance during the second quarter. On an organic FX neutral basis, gross merchandise volume grew 1% to $18.4 billion. GMV would still have grown nearly 1% when adjusting for the roughly 50 basis points of impact from favorable use of timing in 2024. Our acquisition of Goldin contributed nearly 20 basis points to total FX neutral GMV growth in Q2 after the deal closed on May 16. In addition, foreign exchange was a headwind of roughly 20 basis points to year-over-year GMV growth on a spot basis. Our teams continue to execute against our strategy, including focus category expansion, country-specific investments, and horizontal initiatives. The culmination of these efforts over recent quarters, combined with consumers looking for value, helped offset continued pressure on discretionary spending across our three largest markets. Focus category GMV grew over 4% in aggregate on nearly 5 points faster than the remainder…

[Operator Instructions] And your first question comes from the line of Nathan Feather with Morgan Stanley. Your line is open.

Hey everyone, thanks for taking the question. A few quick questions on the advertising side of business. So first off, I'm interested to hear if you're seeing any green shoots in campaign adoption within the unified ad platform and also smart targeting. And then how should we think about advertising growth in the back half, not because it's a more difficult comp in 2Q? Thank you.

Yes, overall, we feel great about the momentum we're seeing in advertising. The new features that we just talked about, Nathan, just rolled out, so it's really early in the experience for those. We did test them in Australia before rolling them out to all the other major markets. When you ask about campaign adoption and other things, what's exciting about this new overhaul is, first it gives you a great performance snapshot of all of your campaigns in a redesigned interface. But secondarily, we now have daily recommendations for advertisers about things they can do, add keywords, manage their business, changing a campaign to make it better. And we have new types of suggested campaigns as part of this as well. Things like trend based suggestions. So you're seeing a -- we're seeing on the site, something popping whether it's around Christmas time or some other kind of event happening, tied to listings that a seller would have. And we're now doing trend based suggested campaigns all driven by AI. So we're excited about what we're seeing from the early results, but it's really kind of early stages in this. In general though, every time we've made it easier and simpler to adopt our ad products, it's resonated with sellers and helped drive the penetration up to what we're seeing today. Steve, maybe you just want to comment on our overall ad business.

Yes. Hi, Nathan. Despite some of the lapping, we do expect some modest take rate expansion in the second half driven by our 1P ads business, where again we see some modest acceleration as we go forward. Really continuing to drive momentum in the existing products, but also ramp up our promoted offsite products as well. So, pleased with the momentum we're seeing, and that should continue to drive momentum in the back half of the year.

Okay, great. Thanks. And then one more quick one. Now that you have for a supercomputer fully online, have made a lot of improvement from the seller side of things, interesting to think, over the next 12, 24 months, what are the key friction points do you think are really immediately addressable with the help of some of the Gen AI features? Thank you.

Yes, look, on the selling side, Nathan, the key is, I have this -- we have this vision of making it easier to list than to throw out. So, making it really seamless to onboard a new listing, any item in your closet, your garage, your home, et cetera for a C2C listing. And so, with the computing capability we have now with 2.1 billion listings, with 28 years of history of data, we're able to build these really sophisticated models that do a better job at predicting what an item is, filling in all the item attributes associated with it, creating the title, obviously writing the description since we do that, and to be able to do this at scale and very cost effectively. Because we're using a lot of tools that we've built on an internal LLMs or open source LLMs that we have, which makes us able to train on these massive data sets that we have and on this proprietary data. Similarly, things like enhanced background images, now live to 100% of customers, make items look better on the platform, make them stand out, and you can take it on your bed spreader, your desk, your rug, and then put it on this beautiful background and really helps kind of merchandise items from that perspective. Finally, I'd say we're launching new features on the buy side. I've talked about Shop the Look, which we continue to scale up, which gives the ability in the fashion category to see outfits together. And we're testing in the U.K market a feature called Explore, which based on your sizes, your style, things you care about, things that we know you've bought, will actually feed you information about interesting pre-loved products that are available on eBay. So we're excited by what we've seen to date, but I'm really excited that these new capabilities, the scale of what we have in terms of the infrastructure will help us to continue to accelerate and drive more innovation.

Great, I appreciate it.

And your next question comes from the line of Colin Sebastian with Baird. Your line is open.

Thanks, and good afternoon. Maybe first a follow-up to one of the previous questions, specifically kind of updating your thoughts around the growth of advertising longer term. Are you still thinking that that the attach rate or take rate can expand another couple of other basis points? Or could even be higher than that as you roll out more capabilities and as Gen AI tools are sort of incremental to what you were probably thinking about a few years ago. And then maybe, Steve, just a clarification on the capital allocation. I guess outside of the incremental buybacks, are you keeping dry powder for additional M&A? And if so, what are some of the areas of interest or focus? Thank you.

Yes, Colin, overall, we see a long runway for ads growth. That's both from adoption, from listings penetration, from ad rate optimization, and scaling some of the new products that we have, like promoted offsite and promoted source. So we continue to see a lot of opportunity. We are at 2.2% penetration. We said at Investor Day we see a line of sight to 3%, which we obviously are seeing nice progress to quarter after quarter. And when you look at the redesign that we just did, it's really about how do we make our advertising products more easier to access and easier for recommendations, et cetera, for existing sellers, but also easier for new sellers to bring in. So 3% is not a ceiling for us, it's just a line of sight that we put out there at Investor Day, and we continue to see a long runway of opportunity. Steve, do you want to take the second one?

Yes, of course. Colin, good to speak to you. As we always said, we focus on a balanced approach to capital allocation, and our first priority continues to be investing in the long-term growth of the business through the Build Buy Partner framework, and you've seen from the execution, you've seen from the momentum, you've seen from the growth that we saw in the second quarter that we're putting the money to good work. I think what's tremendous about our competitive advantage is the balance sheet that eBay has that affords us the ability not only to invest in the business, but to continue to give very healthy capital returns to shareholders. In fact, we've just increased our target for 2024 to at least $2.5 billion in share repurchases, in addition to the 8% increase in quarterly dividend that we've done for the last three quarters. And over the last couple of years, we've continued to demonstrate that continued commitment to returning excess cash to shareholders, and there's no change in our philosophy in doing that. So I'm pleased with where we are, pleased with the balance, and I think, as I said, our balance sheet is a distinct advantage for us here at eBay.

All right. Thank you very much.

And your next question comes from the line of Ygal Arounian with Citigroup. Your line is open.

Hey, good afternoon, guys. Thanks for taking the question. Maybe just one on international, you called out the headwinds in U.K and some of the continuing, I guess, trends from Germany last quarter. What are you seeing broadly internationally and kind of what is the opportunity there? And then just to expand on the AI features so far, and understood there is a lot coming here and a lot of focus there, any way to quantify or think about what the impacts have been so far if you're seeing a tick up in GMV or any other way to quantify some of the successes you've seen there so far? Thanks.

Hey, I'll pick up the first one. Steve here, good to speak to you. Just in terms of the international dynamics, just as a reminder, the GMV is reflected in the geography where the seller is domiciled. So specifically talking about the sort of international dynamics that we're seeing, undoubtedly, we continue to see a very uneven and dynamic environment, particularly in Europe, as discussion spend is pressured based on some of the discussions we've had over various quarters. With the investments we're making, particularly in C2C, around the German initiative and more recently in U.K pre-loved fashion, that's helping to offset some of those headwinds that we've seen. But the other element in terms of international, where we continue to see momentum, is in our cross border trade, particularly out of Greater China and Japan. We've seen a really healthy level of inventory. There's good focus category penetration coming out of those markets. We've continued to invest and so we talked about last quarter the authentication center that we have built and partnered with in Japan, which has continued to drive a great level of luxury inventory to our U.S and European customers. And so for the second quarter, we did see some sequential improvement in international GMV that grew over 1% on a year-over-year FXN basis, really is a reflection of the momentum and the investments that we're driving forward. Jamie, over to you on your second question.

Yes, on AI, we are seeing really good engagement metrics from our customers that are using them. And when you look at like for example, the CSAT that we're seeing from them, it's 90% and above for some of our new products. And that correlates always with GMV. As we drive CSAT, we're able to drive GMV. We've made it easier to list C2C in some of our markets in Europe and Germany, and we're seeing that translate into CSAT, a 20% point increase in CSAT in the German market, for example. So we're pleased about what we're seeing. What's great about the AI developments is that they're learning algorithms, so they get smarter every single day, week and month that we learn with them, whether that's Explore, Shop the Look, or Magical Listings. And what we're seeing is increased engagement with them, and it's changing the experience for buying and sellers across so many vectors. It's changing it across search, across advertising, across the recommendations that we're providing on the site. It's giving us new tools like Explore. And so we'll continue to drive it. We continue to see really nice metrics come out of it, and those CSAT changes do lead to much healthier GMV growth.

Thank you.

And your next question comes from the line of Shweta Khajuria with Wolfe Research. Your line is open. And please check your mute button. Okay. Hearing no response, we will move on to the next question. [Operator Instructions] We will take the next question from Lee Horowitz with Deutsche Bank. Your line is open.

Great. Thanks for the question. Steve, by the end of this year, you guys will have put a lot of work into product and to expand the eBay platform and improve things and brought margins sort of below your typical range. When we think about the path forward, we'll appreciate that you still have many gross investments that you want to get behind. Your product and debt expense will be up pretty meaningfully relative to 2022. So as we look beyond this year, do you think that the investment cycle that we're sort of in has substantially laid the tracks to drive future growth from beyond 2024, 2025, and thus the need for incremental investment is thus much more subdued going forward?

Hi, Lee. Thank you for the question. I'm not going to get in my skis [ph] with regards to 2025, I'd just like to reflect on where we are for 2024. And we're exactly where we expect it to be. I think it's a testament to the company when we've continued to guide the 6,200 basis points of margin expansion this year. At the same time, continuing to invest in our business and support the focus category momentum, support the geospecific initiatives and the horizontal investments that Jamie has talked about. As we've been saying all year, we'll continue to invest where we see opportunities to drive long-term sustainable growth and we continue to lean in and we'll continue to do that in the second half. I think what I'd say is our financial architecture continues to provide us with that opportunity and I really am encouraged with the momentum that we're seeing as we have during 2024. And I think it's setting us up well, not only for the second half of this year, but for a longer term sustainable growth in the future.

Great. And then maybe one follow up sort of on the second half [indiscernible] and all of the products that you guys are bringing to bear for the platform. You guys obviously have a lot of irons in the fire in terms of improving the platform, but is there any way to size sort of the incrementality in terms of GMV that you expect from some of these horizontal investments, some of these new focus categories that you expect to see in the second half? And if not a number, which amongst the broad array of products that you have do you think holds the most promise in terms of driving meaningful incremental dollars of GMV in the second half and beyond. Thanks so much.

Yes, Lee, when you think about the horizontal investments that we've been making, they've been really across the board. Think about the work that we're doing in search and recommendations and trust. We've done some geospecific investments in our C2C business in Germany as well. And so if you look at it for this quarter, we're nearly flat in our core categories, which is really nice growth quarter-on-quarter in our business over the past couple of quarters. So all of those combined are helping support not only our core categories, when I say core, I mean categories other than our focus categories, but they also help support our focus categories given that work. So I think about those as complimentary. When I look at our focus categories, they continue to work really well broadly across the board. Luxury was positive for the sixth straight quarter. We saw a really nice momentum in our parts and accessories business. Our collectibles business is trending well. We've normalized it more than twice the runway that we had coming into the pandemic. And we continue to innovate there. We were at the National, which is the big convention last week, talking about adding bulk magical listings for sellers in our trading card business, which got a great response. We introduced the partnership with PSA this quarter, allowing you to much more simply grade a card and then have it sold immediately right there afterwards without having to have it shipped back to you and ship there. So across the board, you see our focus categories growing at 4% even in this macro environment, which we feel good about. So we see the two of those working together. We see them complementary between the focus categories and the horizontal work. And the combination of those two is leading to the sequential improvement that we're seeing quarter-after-quarter.

Awesome. Thanks so much.

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

Hi, thank you for taking the question. I wanted to ask about active buyers. This metric has been flattish for a while now, but if eBay is to sustain low to mid-single-digit GMV growth as you look forward, then active buyers, at least enthusiast buyers, probably have to start growing again at some point. So how do you feel about your ability to improve this metric in the quarters to come? And is there anything investors can look at to get comfortable with your audience growth? Maybe some incremental color or detail you could provide on how these metrics might be trending within focus categories as a proxy for what's to come going forward. Thank you.

Yes, we're exactly where I thought we would be and where we intended to be. Our active buyer count of 132 million was fractionally positive on a year-on-year basis for the first time since early 2021, and we've seen consistent improvements in our year-over-year trends over the last couple of years, and that's been driven by growth in new or reactivated buyers and an improvement in our retention year-on-year. So, I've been saying for a while, and I want to note, active buyers are not the core metric we're focused on, but we're pleased that the changes we've made to our buyer acquisition strategy are improving our ability to attract and retain active buyers, because that does help us drive what we really are driving, which is our enthusiast buyer strategy, which is those people that are shopping on the site that drive 70% of our GMV. And our enthusiast number has been consistent at 16 million for several quarters. They're buying more and remain healthy with an average annual spend of approximately $3,100 a year. And if you look at some of the stuff that I talked about in the script, whether it's the Met Gala work and fashion that we're doing or sponsoring Love Island or what we're doing in parts and accessories with McLaren, it's really about going out there, targeting and bringing enthusiast buyers onto the platform and then leveraging the cross-category shopping behavior we get from those buyers, which is really unique to eBay. So feel great about the traction of where we are, about the progress that we're making and the improvements in the underlying metrics that we're seeing.

If I could just ask a follow-up to that, would you say that the trends for the enthusiast buyers are a bit more pronounced, at least within the focus categories? Is that a fair statement?

When you look at our enthusiast buyers, 90% of them shop in focus categories. So there's an overlap and a benefit from the focus category work that we're doing. But what we see is that when we acquire an enthusiast buyer in a focus category, it supports our core categories as well. So if a watch buyer comes in, they're going to buy $5,000 in watches on average, but then they're going to spend $5,000 in other categories that cross those focus categories and non-focus categories. Similarly, a handbag buyer will come in, if they purchase a $500 plus handbag, they'll spend $2,500 in handbags, but $5,000 in other categories. So part of why we focused on the enthusiast buyer is not just that 70% number, but it's because of the flywheel effect that it creates for the overall marketplace for focus categories and for our core categories.

Thank you.

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

Hi guys. Good afternoon. Jamie, it seems like there are a lot of conflicting economic signals out there. I'm just curious, broad strokes, what you think of the consumer health both in the U.S. and Western Europe. Just curious, your core take. And then, Steve, maybe for you, can you just take one more cut at the 3Q GMV guide and the growth outlook at flat at the midpoint. Looking at the trend over the last six quarters, there's been clear progress, 1% FX neutral result in 2Q. Why would there be a step back in the third quarter? Thanks guys.

Yes, Tom, look, as we've said over the past few quarters, we've seen some shifts in consumer spend driven by the macro environment as cost conscious consumers are increasingly searching for value. So we're a little bit more resilient from that standpoint. I announced last quarter that we've now hit 40% percent of our products are used or refurbished, and those goods have consistently outpaced the sales of brand-new goods since the pandemic. So as you can imagine, some categories are performing better than others in this macro environment. As I mentioned, our luxury category is still positive and has been for six straight quarters. So, I think there's more pressure on the less affluent customers in the consumer market. But our improved customer experience, combined with our real focus on non-new and season and providing great values in use, great values in refurbish, making C2C easier so that when macros challenge, consumers can come on and use the platform to sell products, is really helping us compete effectively in this macro environment. Steve, do you want to take the second one?

Yes, of course. Hey, Tom, how are you? Well, I've been pleased to see the momentum that we've been seeing quarter-after-quarter going forward. And obviously, the positive growth we saw in the second quarter, particularly in this macro environment. It has continued to be a reflection of the investments that we've been making over the last 18 months or so and the returns that we're seeing on the business. Obviously in the Easter we saw some benefits in the second quarter with a 50 basis point tailwind associated with Easter timing, but even having said that we were approaching about a point of positive GMV growth. The environment we're in continues to be very uneven and dynamic and we are sort of seeing some specific one-off impacts as we sort of think about this quarter with elevated year-over-year demand for summer travel, some one-off global sports events which are making their month-to-month trends a little bit uneven. And so as we contemplate the third quarter guide, we continue to take that uncertainty into effect. And the guide that we've put out there balances that perspective. But overall, I feel like we've had strong execution to date in this continued uncertain economic and regulatory environment. And I'm really remain encouraged with the momentum we're seeing. And we're confident we're on the path towards long-term sustainable growth.

Operator, can we do one last question, please?

Yes, and your final question comes from the line of Ross Sandler with Barclays. Your line is open.

Hey guys, this is Alex Hughes on for Ross. So looking at collectibles, news came out earlier this week that one of your trading card power sellers is moving to fanatics in the next few months. Can you just give a little more color as to that situation and if the Goldin deal played a factor? And then stepping back, collectibles is driving a lot of growth in focus categories, but can you just talk a little bit more about how you're thinking about the opportunity more broadly? Thanks.

Yes, I [technical difficulty] talk about any one seller, we have millions of sellers on the platform. What I say about collectors -- collectibles is that we feel really great about the innovation that we're driving in that business. Goldin coming on brings the world's most desirable inventory in collectibles onto the marketplace and new capabilities. The reception to Goldin last week at the National was really amazing to see people chanting. We had over 50 eBay Live events that we held there. And the consumer and the hobbyist is really resonating with the steps that we're taking, including bringing in Ken Goldin and his team into the business. They had a leading show with King of Collectibles Season 2, hitting great records on Netflix streaming. We supported the Goldin 100 auction, so all great there. We're also excited by the partnership with collectors and PSA. It really helps solve something that collectors have been asking for quite some time, which is simplify the process of grading and selling items. So now if you're selling -- sending an item to grade, usually that's going to massively increase the value and you're looking to potentially put that in a marketplace. We've really simplified that through this partnership with PSA and why we're seeing customers really adopt it is we're just making that whole process really friction free. So, we've been a leading secondary marketplace for over two decades. Every quarter we innovate and drive kind of new capabilities. The last one I would just talk about here is our work in eBay Live. In Q2, our eBay Live events grew 50% quarter-over-quarter. We started doing case breaks on eBay and our sellers are adopting them and finding it really great to see new capabilities we've built. We launched new features like Buy Spot directly on the Live Hub, which is a really kind of great feature for case breaks. And I participate in some of those, and they're just a lot of fun. And we launched eBay Live in the U.K in Q2 as well. So we're continuing to see good momentum on that component, which is really also help accelerating these new partnerships and all the work we've done with collections and price guides and new shipping methods over the past quarters and years to really accelerate our collectibles business and I'm encouraging by the stats of what we're seeing.

And ladies and gentlemen, this concludes today's conference call, and we thank you for your participation. You may now disconnect.