eBay Inc. (EBAY) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by and welcome to the eBay's Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded. It's now my pleasure to turn the floor over to Tom Hudson, Vice President of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us and welcome to eBay's Earnings Release Conference Call for the Fourth Quarter and Full Year 2012. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We're providing a slide presentation to accompany Bob's commentary during the call. All growth rates mentioned in John and Bob's prepared remarks represent year-over-year comparisons unless they clarify otherwise. This conference call is also being broadcast on the Internet, and both the presentation and call are available through our Investor Relations section of the eBay website at http://investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures in talking about our company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements relating to our future performance that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the first quarter and full year 2013 and the future growth in the Payments, Marketplaces and GSI businesses, mobile payments and mobile commerce. Our actual results may differ materially from those discussed in this call for a variety of reasons, including, but not limited to, changes in political, business and economic conditions; foreign exchange rate fluctuations; our ability to integrate, manage and grow businesses recently acquired or that may be acquired in the future; our need to successfully react to the increasing importance of mobile payments and commerce and the increasing social aspect of commerce; an increasingly competitive environment for our businesses, the complexity of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity; our need to manage regulatory, tax and litigation risks, including risks specific to PayPal and Bill Me Later; and our need to timely upgrade and develop our systems, infrastructure and customer service capabilities at a reasonable cost while maintaining site stability and performance and adding new products and features. You can find more information about the factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q available at http://investor.ebayinc.com. You should not rely on any forward-looking statements. All information in this presentation is as of January 16, 2013, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to John.

Thanks, Tom. Good afternoon, everyone, and welcome to our Q4 Earnings Call. We had a great finish to an excellent year. Fourth quarter revenue was up 18%, and non-GAAP EPS was up 17%. Our fourth quarter results exceeded our expectations, and we're on pace to exceed our 3-year growth goals. Before getting into the results, I want to take a minute to provide some perspective on our growth opportunities and on our company today. In 2012, we enabled more than $175 billion of commerce volume. This means that our company is now enabling 19% of global ecommerce and almost 2% of total global retail. That's the power and potential of eBay, Inc., and we're just getting started. Four themes are fueling our momentum: First, mobile is rewriting the commerce playbook. At an extraordinary pace, consumers are embracing mobile as the everyday way to shop and pay. And mobile technology is accelerating Web-enabled multichannel retail innovation, and we are a leader in this mobile commerce revolution. Our mobile focus is delivering exceptional mobile volume growth, attracting millions of new consumers to our core businesses and enabling our retail and brand partners to engage their customers in new ways. Mobile is quickly becoming the new normal, and we're leading this new way consumers shop and pay. Second, commerce is changing globally, and our global reach is the competitive strength. Our commerce platforms and mobile capabilities enable us to connect buyers and sellers everywhere. We have significant global presence, and our strong core international businesses are thriving. We have substantial long-term growth opportunities, including enabling more cross-border trade and expanding into emerging markets, such as Brazil and Russia. Third, our brands are strong and we're investing to make them stronger. At eBay and PayPal, we continue to invest in marketing to further strengthen our brands and engage consumers on and offline. We're very pleased with the fourth quarter rollout of our new eBay logo and site enhancements. eBay has a fresh, clean look with a more contemporary and compelling user experience. And last, our portfolio gives us strong capabilities to drive commerce innovation. Every quarter, we're getting better at leveraging the synergies across our portfolio to grow our core businesses and to enable innovation for our retail partners. So in summary, we are enabling the future of commerce. We're connecting consumers anytime anywhere to the world's inventory through our global commerce platforms, and we are a partner, not a competitor, for retailers and brands of all sizes, helping them compete in this new commerce environment. Now let's take a look at the quarter, starting with PayPal. PayPal had another strong quarter, continuing to increase merchant coverage and share of checkout. With almost 700 million payments transactions handled, the fourth quarter was the busiest in PayPal's history. PayPal now has 123 million active accounts globally, with active account growth accelerating 1%. More than 5 million active accounts were added in the fourth quarter, PayPal's biggest gain in 8 years. And PayPal Mobile generated exceptional growth, ending 2012 with almost $14 billion in mobile payment volume. That's more than triple the volume over the prior year. Mobile payments now account for about 10% of PayPal's total payment volume in 2012. And PayPal continues to make great progress offline. For example, our Discover partnership, announced last August, is on track to launch in Q2 this year. Discover has 7 million merchant locations in the U.S. And further expanding our offline footprint, PayPal ended the year with 23 major retailers signed up for PayPal's in-store point-of-sale solution. PayPal is now live at more than 18,000 retail locations across the U.S., including Home Depot, Foot Locker and Jamba Juice. At a Jamba Juice location in Emeryville, California, we've just begun testing an order-ahead mobile feature. Consumers can now over their smoothie in advance, pay with PayPal and then skip the line at Jamba Juice. We expect to roll this out to more Jamba Juice locations soon. We've also just announced an important partnership with NCR, integrating PayPal mobile payment capabilities into NCR's mobile applications. This will significantly expand PayPal's availability, giving consumers safe, easy ways to pay in thousands of restaurants and retail locations served by NCR. With this integration, consumers can simply use PayPal to pay for their dinner from their smartphone without having to wait for the check. These are examples of how PayPal is focused on solving real pain points for consumers and creating value for merchants across diverse retail and services categories. We're building great product experiences, making sure PayPal is available everywhere and leveraging our ability to drive payment innovation globally. Now let's turn to the marketplaces. eBay generated a record $2 billion in revenue for the quarter, a strong finish to the year. Excluding vehicles, U.S. GMV growth accelerated 3 points to 19% in Q4. And active user growth accelerated 2 points to 12%, the fourth consecutive quarter of accelerating growth. Ongoing site improvements, such as streamlined registration and checkout, combined with more selection and our new look and feel helped accelerate U.S. growth during the holidays. For example, electronics was a popular category on eBay during the holidays. eBay is a significant player in the online consumer electronics market, providing broad selection and great deals. And our marketplace continues to evolve. Fixed-price listings now account for almost 70% of our GMV globally, and about half of all U.S. transactions had free shipping in Q4. Our top-rated sellers continue to deliver a great experience, accounting for more than 42% of U.S. GMV in the fourth quarter. And their same-store sales grew 20%. Mobile is bringing new users to eBay and delivering strong growth. For 2012, mobile attracted over 4.3 million new users to eBay and generated $13 billion in mobile commerce volume. That's well over twice our volume from the previous year and well ahead of our original $10 billion forecast for the year. eBay is also leveraging our platform and mobile assets to enable more local commerce for buyers and sellers. In Q4, we expanded eBay Now into New York City in addition to San Francisco. And we also began testing other ways to make local buying and selling easier, including drop-off locations at malls and a Selling Assistant van for consumer sellers. eBay is also expanding our global footprint, enabling greater access to emerging markets and driving more cross-border trade. We expanded efforts in Russia during Q4 and launched eBay style in China, giving U.S. fashion sellers access to Chinese consumers. So overall, Q4 was a great quarter for eBay Marketplaces. We're very pleased with the momentum in the U.S. and the global strength of eBay. The core business is strong, and we're delivering innovative new experiences for buyers and sellers. Now let me briefly share a couple of highlights from GSI. GSI had another solid quarter, driving 19% increase in same-store sales for its clients, once again outpacing ecommerce. This business continues to execute well, and we continue to make good progress, capturing synergies across our portfolio to help large retailers and brands succeed. So in summary, our company had a strong fourth quarter. We feel very good about our momentum and strengths. We're executing well against our near-term commitments while also investing in the future of commerce. Our core businesses are strong, and our technology assets uniquely position us to be a partner of choice for retailers and brands of all sizes. And we continue to lead in mobile. In fact, in 2013, we expect eBay Mobile and PayPal Mobile to each generate more than $20 billion in volume. Simply put, we believe we're well positioned to capitalize on the opportunities ahead. Now I'll turn it over to Bob, who will provide more details on Q4 and our outlook for 2013.

Thanks, John. During my discussion, I'll reference our earnings slide presentation that accompanies the webcast. Q4 was a great close to the year. Both the top and bottom line exceeded our expectations, and user growth accelerated for both PayPal and Marketplaces. On a full year basis, 2012 was an excellent year for our company. We grew revenue and non-GAAP earnings per share by 21% and 16%, respectively. We generated $2.6 billion in free cash flow, and we're on pace to exceed our 3-year plan for 2011 through 2013 that we laid out at our February 11 Analyst Day. Now let's take a closer look at the results from the quarter. In Q4, we generated net revenues of $4 billion, up 18%. Organic revenue growth was 19%. The divestiture of Rent.com decreased growth by roughly 1 point. Fourth quarter non-GAAP EPS was $0.70, up 17%, strong top line growth and good operating leverage drove our outperformance relative to guidance. Non-GAAP operating margin was 28.5%, down 20 basis points from the fourth quarter of 2011 primarily due to business mix. We generated free cash flow of $1.1 billion in the quarter. CapEx was 7% of revenues primarily due to investments in search, data and site operations. Now let's take a closer look at our segment results. PayPal had a strong quarter. Revenue reached $1.5 billion, and total payment volume increased to $41 billion, up 24% and 25% respectively on an FX-neutral basis. We continue to expand our global footprint with international TPV increasing 28%, comprising 48% of overall TPV in the quarter. A few quick highlights on PayPal operational metrics. Active accounts growth accelerated 1 point to 15%. On eBay TPV grew 18% on an FX-neutral basis, driven by a strong eBay non-vehicles GMV growth and a 220-basis-point increase in PayPal penetration. Merchant Services TPV grew 28% on an FX-neutral basis, accelerating 2 points from Q3. This growth was driven by the continued expansion of PayPal on merchant sites around the world and an increasing share of checkout. Transaction margin was 64.7% in the quarter, roughly flat compared to a year ago. And PayPal segment margin came in at 23% for the quarter, down 170 basis points mainly due to investments in consumer awareness, product initiatives and merchant ubiquity. Let me touch on a few quick highlights for Bill Me Later. Bill Me Later had a good quarter and is becoming an increasingly important component of our overall portfolio. First, BML had strong stand-alone financials and had its first quarter with TPV over $1 billion. Second, Bill Me Later continued to increase its penetration as a funding source in the PayPal wallet at 1.8% share on Merchant Services and 4.1% on eBay. This penetration improves PayPal's funding mix and helped to reduce overall funding cost. Third, we continue to finance the Bill Me Later loan receivables portfolio using offshore cash, which has enabled us to increase the return on this asset. Overall, BML continues to perform well. Now let's move to Marketplaces. Marketplaces had a very strong quarter with net revenues of $2 billion, up 16% on an FX-neutral basis. This was driven by FX-neutral transaction revenue growth of 16% and marketing services revenue growth of 16% from our adjacent formats. A few quick highlights on Marketplaces' operational metrics. Active user growth accelerated 2 points to 12%, driven by mobile, site enhancements and emerging markets. U.S. non-vehicles GMV accelerated 3 points to 19%. Volume growth was driven by improvements in the customer experience, increased mobile engagement and strong performance in the clothing and accessories and home and garden categories. International FX-neutral non-vehicles GMV decelerated 1 point to 14%. Strength in the U.K. was offset by slower growth in China, where we increased our seller standards, and continued sluggish growth in Germany. Take rate, excluding vehicles and StubHub, was flat versus last year. In Marketplaces, segment margin was 41.5% in the quarter, up 90 basis points, primarily due to operating leverage partially offset by investments in product and technology. Now let's turn to GSI. GSI had a solid quarter and continues to execute in line with our expectations. Global ecommerce merchandise sales, or GMS, grew 19% on a same-store sales basis. Revenue for the quarter was $398 million, up 10%, driven by strong volume growth partially offset by a lower take rate. Segment margin came in at 20.3%, down 110 basis points, due to a lower take rate and the increased cost of seasonal hiring. We're pleased that V11 has been certified, and we plan to begin deploying merchants on the platform in the first half of 2013. A few quick highlights on the progress related to the integration of GSI. We now have 17 client sites leveraging ebay.com as a distribution channel to expand their businesses domestically, and clients are also using eBay to expand their global footprint outside the U.S. PayPal is increasingly becoming the way to pay on GSI clients. PayPal coverage is now more than 90% of GSI client volume, and share of checkout is 16%. Additionally, 47 client sites are using PayPal Mobile, 41 offer Bill Me Later and 4 are adopting PayPal POS capabilities. Lastly, GSI is leveraging eBay Inc. technologies and innovations, including RedLaser, eBay Now, the Paypal Media Network and Magento to build solutions for their clients' needs. Turning to operating expenses. In the quarter, operating expenses were roughly flat at 41.7% of revenue. Gains in operating leverage were reinvested back into our brands and product innovations. We ended the quarter with cash, cash equivalents and non-equity investments of $11.5 billion, including approximately $3.8 billion in the U.S. We've improved our financial flexibility, funding 61% of the U.S. Bill Me Later loan receivables portfolio with offshore cash. And we repurchased 5 million shares of our common stock for approximately $256 million. We are now 2 years into the 3-year journey we shared with you in February of 2011. Our focus has simply been to enable commerce by capitalizing on the blurring lines between online and offline. We are positioning the company as a strategic partner of choice for merchants of all sizes, trying to compete and win in an increasingly Web-enabled world. In 2012, we enabled more than $175 billion of global commerce volume, up 18%. This represents approximately 19% of the global ecommerce market but only 2% of the $10 trillion global retail market. We are only just getting started. Our served market is expanding. We are confident we have the right set of capabilities, and we have a significant opportunity in front of us. With that, let me turn to guidance. We feel great about 2012, and we're carrying our momentum into 2013. First, a little context. From a macro perspective, we expect the macro economy to be relatively stable, with the U.S. economy improving moderately and no substantial change in Europe. And we expect currencies to remain roughly at current levels. Second, from an industry perspective, Web-enabled commerce and mobile penetration continued to expand, and ecommerce growth is expected to be in the low to mid-teens. Third, from an eBay Inc. perspective, we believe our addressable market has expanded and is now significantly larger. And we're increasing our investments to capture this future growth opportunity. So for the full year of 2013, we expect revenues of $16 billion to $16.5 billion, representing growth of 14% to 17%. We anticipate non-GAAP EPS of $2.70 to $2.75, representing growth of 14% to 16%. We expect free cash flow to be in the range of $3.1 billion to $3.4 billion, CapEx to be in the range of 8% to 10% of revenues, and the non-GAAP tax rate to be 18.5% to 19.5%. For the first quarter, we expect revenues of $3.65 billion to $3.75 billion, representing growth of 11% to 14%. Revenue growth in the quarter will be softer due to a 2012 leap year and Easter in Q1 of 2013. And we anticipate non-GAAP EPS of $0.60 to $0.62, representing growth of 8% to 12% as we continue to invest for growth. Let me put the eBay Inc. guidance in context versus the BU segment expectations we provided last January. PayPal revenues will be in line, nearly doubling in size over the 3-year journey. But the opportunity is bigger today, and we're investing more. And we expect margins to be flat in 2013 with full year 2012. Marketplaces' revenue is growing faster, and we are investing more behind the opportunity and expect margins to be in line with prior expectations. And GSI margins will be in line. Client same-store sales will grow faster than ecommerce, and higher productivity will fund a lower take rate, leading to revenue at the low end. In summary, we feel great about our performance and are excited about the opportunities that lie ahead. As PayPal continues its strong growth with increasing focus on growth opportunities, Marketplaces is thriving, with strength across all geographies, driven by improvements in buyer experience from our investments. And GSI is performing in line with our expectations and is bringing eBay Inc. commerce solutions to large retailers and brands. We are investing in our business for the long term, and we are focused on delivering the next generation of global commerce and payments capabilities. And now, we'd be happy to answer your questions. Operator?

[Operator Instructions] Our first question comes from the line of Ross Sandler with Deutsche Bank.

Just 2 quick questions. First, can you talk about your growth strategy in Latin America? Is there a scenario where you would try to get back into some of those markets with your Marketplace business or is it likely to remain PayPal only? And then the net charge-off at BML was up a little bit more than prior quarters. Can you just give us more color on what's driving that?

Yes, Ross. On Latin America, yes. Latin America is an important growth opportunity for us. As you mentioned, PayPal is -- always had a strong cross-border business. We now have domestic payments capability in Brazil for PayPal. The Brazilian growth is on fire. We have domestic payments capability in Mexico. So PayPal is aggressively penetrating Latin America in both cross-border and domestic markets. And then with eBay, eBay has a strong cross-border business in and out of Latin America today, and we're doing things to accentuate that. So for instance, we launched a mobile app in Brazil for a quarter that allowed Brazilian consumers to shop eBay's global inventory in a more convenient way. We also have Classifieds investments in Latin America. So it's an important market and one that we'll continue to focus on and one I think you'll see us continue to take action in.

And, Ross, on your second question relating to charge-offs, yes, I think Bill Me Later charge-offs, up a little bit. RAM or risk-adjusted margin down a little bit in line with our expectations. And in effect, as you know, with this business, what we've been able to demonstrate is by using Bill Me Later, we drive higher conversion at our client sites. So we feel great about kind of the growth prospects. Over the long-term horizon, we think the right kind of risk-adjusted margin for this business is in the 14% to 16% range. And frankly, we want to be able to take risk to help grow this business and adopt Bill Me Later more and more in the PayPal wallet because of the additional economic benefits we get by lower funding cost in the wallet. So we adjust our risk parameters to drive a growing loan portfolio, helping our clients convert more at risk-adjusted margins in the 14% to 16% range. That improves the overall ecosystem of the business. So that's how we think about it, and the quarter was basically in line with our expectations in how we drive the business.

Our next question comes from Sanjay Sakhrani with KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: I'll ask my 2 questions upfront. I was hoping to get a sense of the trajectory of Marketplaces in 2013 relative to the steps you took in 2012. Is the goal to grow market share and kind of improve in other verticals, just like you did in clothing and accessories and home and garden? I'm just trying to reconcile kind of the step-down in revenue growth in your expectations. And then second, if you could just talk about uses of capital?

Yes, Sanjay. Well, Marketplaces, we feel just terrific about how the Marketplaces ended the year and also about the whole year 2012. And as you highlighted, those results have really been driven by a number of factors, the factors we've been working on over last several years, but they're all coming together right now: improved trust, a better user experience. Mobile is no doubt driving growth in this business. And the vertical experience as you described, consumers are finding our vertical experience is very attractive, and new user growth continues to accelerate. So we expect to continue that momentum into 2013. And Devin and his team are very focused on [Audio Gap] Going after new sets of opportunities, including the BRIC and emerging markets, including adding large retailer inventory on to eBay, including making it easier for consumer sellers to list on eBay and provide a great buyer experience. And so those are the things. And we feel very good about the business, and we think the strong momentum will continue. And absolutely, our aspiration goal is to grow faster than the market.

I would -- just -- another point of context for the fine point on John's comment. In -- 24 months ago, we said the business would be $7 billion to $8 billion in size. 12 months ago, we said it would be $7.5 billion to $8 billion. And today, we're saying it's going to be north of $8 billion, indicative of the progress and the momentum we have. So we feel very good about our position. On your second question, uses of capital. Frankly, more of the same. We think about investing organically first and foremost. And particularly for us, that means leveraging our offshore cash to fund the growth of Bill Me Later. Secondly, we look at strategic acquisitions to accelerate the competitive position of the company and our individual business units that will continue to be something where we will make acquisitions that we think will make us stronger. And then third is continuing returning capital to shareholders. And we do that in effect by offsetting dilution from our comp-based programs. So continuing that three-pronged approach for how we effectively use our capital organically, inquisitively and return it to shareholders.

Our next question comes from Stephen Ju of Crédit Suisse. Stephen Ju - Crédit Suisse AG, Research Division: So your item sold growth decelerated a bit against what's probably tougher comps, but your FX-neutral GMV accelerated. And also for PayPal, you're seeing TPV accelerate while the number of payments decelerated. So I'm guessing these 2 factors taken together suggest average order value expansion. Is there anything you can share as to what's driving that and whether you expect this effect will continue? It seems like also on the Marketplaces side, the take rate expanded to what looks like the highest level in some time here. So is there any color you can share in terms of how the mix shift may be impacting you on a non-vehicle GMV?

I think I got it all. But I think first, yes, to your first point in terms of across both platforms, transaction volume and the implications on AOB [ph]. I think one nuance, transaction volume for PayPal in terms of engagement, frequency, as the active user growth accelerates. So now we've seen 3 points of active user growth acceleration over the course of the last 3 quarters. It's bringing back newer users whose frequency in early stages is lower. So we see active user growth accelerate in transactions per is down a little bit because we're re-engaging new users. And now, we need to increase their frequency... Stephen Ju - Crédit Suisse AG, Research Division: And that's -- you meant -- you said PayPal. You mean Marketplace on that?

No, that's the -- that is what is happening in PayPal in the quarter that's a little different than Marketplaces. Again, 3 points of active user growth over the last 3 quarters, first timers coming back into the funnel. So the average transaction per is a little bit lower. That is good. We like that. And now, we got to drive that user base to be more frequent over time. In terms of take rate, in essence, it's flat. Once you take out -- we always try [indiscernible] to take out vehicles and the effects of StubHub. And you net those out, take rate is essentially flat year-on-year, no change. And we don't expect any dramatic changes in that in the near term.

And one other thing I'd just throw in, Steven, to build on Bob's point is one of the things we see in the Marketplace business and frankly in PayPal is improved trust in the Marketplace is making people more comfortable buying more expensive items. And I also think the growing use of mobile, people are more comfortable buying more expensive items online, whether on the Web or on a mobile device. So I think that portends well to -- for both platforms over time.

Our next question comes from the line of Heath Terry with Goldman Sachs.

John, with the addition of the 3 customers on the point-of-sale rollout, can you share with us some of the insights into what you're seeing in consumer adoption with the existing partners? Especially if there are any use cases at retail that PayPal's seeing particular success with. And then, Bob, you've highlighted in the presentation that you exceeded your 3-year guidance. With the Analyst Day coming up in March, what are your thoughts about putting out another 3-year goal then?

Yes. Heath, on point of sale, we're -- as you mentioned, we've now signed 23 large retailers to go along with. The real focus in 2012 has been getting merchant coverage. And so the 23 large retailers, the Discover partnership, the NCR partnership, developing PayPal Here. And to be honest, we haven't focused a lot on consumer adoption to date because we felt like if a consumer can only use PayPal once in every 10 miles, it's not going to create a lot of frequency. And so what we're doing is trying to build more density of acceptance, so that a consumer can now use PayPal multiple times in a week, not just once in a while in the offline world. So really, the first significant experiment we're doing around consumer adoption, I highlighted in the script, right? The Jamba Juice, because our focus on the consumer adoption side is solving real consumer pain points. That's the only way we're going to get healthy consumer adoption. The same way PayPal has solved pain points online, it was safer and easier. On mobile, it's safer and easier. In the offline world, we're looking for situations like standing in line. Standing in line is a pain point. Consumers don't like it. Retailers don't like it. So this Jamba Juice solution is an example of how we're trying to use our capabilities to enable consumers not to have to stand in line. Another example that [indiscernible] work with NCR on is it's kind of a hassle when you want to -- when you're sitting in a restaurant and you have to wait for the check to come. Or you have to wait -- you give someone your credit card, you got to wait for the server to come back with it. Now, with this NCR solution, consumers will be able to pay right from their table when they want, add a tip and pay. And so what you'll see us doing in 2013 is it's really -- if 2012 was test and learn on the merchants side, 2013 is test and learn on the consumer side. And we'll do a variety of experiments in different retail verticals and areas to try to get consumer engagement at small retailers and large. So a lot to be learned in this coming year on the consumer front.

And, Heath, on the second question, yes. The short answer, yes. And 2011 -- sorry, in 2009 and 2011. And again, you can expect in March of this year, we'll lay out kind of how we see the industry playing out over the course of the next 3 years: our strategies, our tactics, how we're going to invest behind them and what you can expect from us as a team in 2015. So yes, we look forward to seeing them [ph].

Our next question comes from Ben Schachter with Macquarie.

Can you guys talk a bit about mobile in terms of how would you understand the margin differences between mobile and nonmobile, particularly on Marketplace revenue? And what I'm getting at here is if people are coming to you directly through an app, is that better for you [ph]? Do you not have to buy as many keywords from Google and others if that happens? And then related to that, can you also just talk about how you're actually marketing the app to consumers? Is that mostly through paid distribution or through free distribution?

Yes. Well, you hit at one of the major, major advantages I think we have versus some other Internet companies. We monetize mobile the same way we monetize the Web. And so we are all in on mobile. We want to give consumers choices. If they want to pay on the Web, they can. If they want to pay on mobile, they can. And so across both of our core businesses, there is absolutely no doubt or uncertainty around the value and benefit of mobile. And so our monetization, our take rate, the same. Now as you highlighted, mobile engagement actually creates higher value in a couple of ways. Probably the most important way is our mobile consumers are more engaged than nonmobile. They simply come back to both eBay and PayPal more frequently because they are accessing it 7 days a week, 24 hours a day versus just when they're in front of their laptop or desktop. And so we see clear engagement, consumer engagement benefits of when people start engaging with our mobile apps. And that's largely -- or that's partly what's driving that mobile growth. In terms of giving people access to our apps, we do some marketing of them. But frankly, word of mouth is out. eBay is a great mobile experience. And eBay is one of the top 10 on your iPhone or Android deck apps, and that's a great position to have. In fact, we have 2 of the top 10, eBay and PayPal. People are putting that in their top 10, and word of mouth gets out. And so that's fueling that growth. There's now up to 120 million downloads across our eBay Mobile apps.

So as John said, the economics for us are not dramatically different from a desktop or mobile device. I think the additional consideration is just in terms of sources of traffic. As you know, the majority of our traffic is -- comes direct to ebay.com. And that as a percentage of our total traffic is growing. And one of the reasons it's growing is because traffic on a mobile device tends to come direct. So net net, it'll be -- the most efficient traffic we get is that it comes direct. And mobile is helping accelerate us -- direct as a source of our overall traffic.

The last thing I referenced earlier just while we're on the other -- some of the ways we're using mobile is mobile is actually an effective way to penetrate some new geographies. So I mentioned Brazil earlier. We had Portuguese mobile apps and Russia. You'll see us to be doing things in other markets where before we enter with a big Web experience, we can enter -- and it's a mobile experience that's in the local language, that's compelling, that's actually reaching a lot of the new Internet users who are reaching the Internet for the first time through their smartphone. So you also see us use mobile in the coming years -- coming months and years to really penetrate some geographic markets that otherwise would have been lower on our priority list.

Our next question comes from the line of Justin Post with Bank of America Merrill Lynch.

We saw U.S. GMV clearly outpacing international, but international ecommerce might be growing a little faster. Can you talk about how the site redesign helped you maybe in the fourth quarter in the U.S.? And why you think U.S. is outpacing? And do you think there's a catch-up internationally if the economies improve?

I'll take a portion of that and have John take another. First, yes, I mean we continue to make innovations across all of the sites around the globe, particularly more innovations here in the U.S. in the fourth quarter as we rolled out some of the new feature set. But I would say Europe, which has been relatively strong for us, the overall -- to risk of stating the obvious, the overall economic climate is not as strong as it is here in the U.S. So we still think, see things, while good, to be relatively sluggish. And as I indicated, a little more sluggish in Germany, our second biggest market outside the U.S. versus the U.K. So yes, I would say the slower growth in international is a little more indicative of maybe the economic environment as opposed to the U.S. economic environment.

And I'd -- Justin, I'd build on that and say that I think 2.0, that eBay 2.0, which for those who don't know, is the really updated user experience. I think that was a contributor in the U.S. Consumers like it. But I don't think it was a major difference between the U.S. and international. As Bob said, the macroeconomic factors I think are more impacting that. But we will roll eBay 2.0 out across Europe in the first quarter.

Our next question comes from Youssef Squali with Cantor Fitzgerald. Youssef H. Squali - Cantor Fitzgerald & Co., Research Division: John, if I can go back to the topic of PayPal point of sale. What is the time line as you see it for when you actually start aggressively working on consumer adoption? When will that density be big enough -- the density that you mentioned earlier, when will it be kind of large enough for you to start pushing it? Is it later maybe second half of 2013? Is it early 2014? And then Bob, maybe going back to PayPal margins, came in a little bit on the lighter side for us. Can you just expand what's going on there and where you see that in fiscal 2013?

Let me just take -- I'll take the first part of the question. And in terms of density, again, just to sort of paint the picture going forward, we'll continue to sign and integrate large merchants. And that adds a number of retail locations. We're in 18,000 retail locations in the U.S. We'll continue to add -- sign in and add large retail locations both in the U.S. and across Europe. Our Discovery deal will add 7 million new locations in the U.S. That starts -- that goes live toward the end of the second quarter. Some of our partnerships with NCR and other point-of-sale providers gives us the access to others. And then PayPal Here obviously, which we really again haven't started marketing aggressively, you'll see us starting to market PayPal Here more aggressively, and that provides coverage with the smaller micro merchants and smaller merchants. So we'll continue to build that merchant ubiquity, merchant coverage out over the next 12 months. But we're not going to wait for that to be fully done before we start testing and learning around consumer engagement. So we'll be doing some different experiments and tests in different geographic locations and different vertical segments to start the flywheel of consumer learning in 2013. And as I said, I think this will be a test-and-learn year for consumer engagement. One of the things we feel great about is that accelerating consumer growth rate, new user growth rate in PayPal, we think that as we start engaging consumers in the offline world, that will also help in our signing up of new users to PayPal. So I characterize this year as a test-and-learn year on the consumer-acquisition, consumer-engagement side.

And, Youssef, on your question about PayPal margins, yes, they did come down in the fourth quarter. The transaction margins remained relatively stable, and we invested more. And the investments were kind of along the lines of what John said. One was continuing to drive consumer awareness to increase the active user base; second, continue to develop product that will address consumer pain points; and third, merchant ubiquity on and offline. So those are the 3 things that we've invested more behind. Active users grew, merchant ubiquity, good progress online and offline. So we feel pretty good about how those investments are working for us. In terms of 2013, more of the same. We think the opportunity is even bigger. We think we have the unique capabilities to invest behind to accelerate our position on and offline. And it will be consumer awareness and acquisition and engagement, it will be merchant ubiquity and it will be products that address consumer pain points and drive more frequency of use.

Next question comes from Jordan Rohan with Stifel, Nicolaus. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: I have a couple of questions. The first is on cross-border activity, particularly in Europe. There have been some pretty decent currency swings in the last quarter, mostly to the positive for the euro against the dollar. Has that helped your cross-border business? I don't necessarily see that in the commentary that you've given on Germany, but if you could just give us that on a broader Eurozone level. And the second is, I keep coming back to this one, consumer proposition for PayPal at the point of sale. In other words, even in the Jamba Juice example, if I didn't want to stand in line and Jamba Juice had its own app whereby I could preorder, I could do that and pay with whatever type of payment, PayPal or any credit card I wanted, I would think. So the question is, is the idea to create custom partnerships where PayPal produces these preorder apps for their retail partners or is there something else about PayPal other than a brand, that I agree is very, very strong among consumers, that you think will drive payment activity that other payment providers couldn't facilitate?

So I'll do the cross-border trade. I think for the most part, cross-border trades for both eBay and PayPal was generally in line with overall GMV and Merchant Services TPV growth. So a little bit marginally slower, so cross-border as a percent of total didn't really change in the quarter. So it stabilized, which we feel pretty good about. The acceleration of cross-border trade, honestly, Jordan, I don't anticipate that happening until our biggest cross-border-trade quarter, Europe, economic environment gets a little bit better. So things have stabilized. We've assumed they will kind of stabilize. And if there's more buying going on in Europe, we expect that'll improve.

And, Jordan, in terms of consumer use, here is how we're thinking about it. Consumers have habituated to use PayPal online, right? We're the leader in online payments, the preferred choice. Consumers prefer paying with PayPal on their mobile device, and the mobile payments volume is strong. What we know is that consumers are concerned about entering their credit card information to the mobile device. That's the reason when retailers integrate Mobile Express Checkout, PayPal Mobile Express Checkout, they see conversion go up. Our share of checkout is double on mobile than it is online. And so as we go into the offline world, what we're doing is a couple of things. One, this year, we'll look for some specific use cases, the check-in capability you can get with PayPal Here, where you can check in, in advance but allows the retailer to provide personalized service and makes payments completely friction free. The pre-ordering I talked about, the paying from the table. So yes, these are a variety of narrow use cases, if you will, that can -- that solve consumer pain points. And our approach to it will be that you could do it through the PayPal app or you can do it through the retailers app and pay with PayPal. It doesn't -- we'll give consumers choice and flexibility on that. We think ultimately, consumers aren't going to have 5,000 apps on their phones. And so that an app like PayPal, which allows you to check in at multiple retailers, multiple restaurants, allows you to preorder at multiple restaurants, will be of value. And PayPal will be the only option out there that allows you to have your full wallet there, where you can pay with any financial instrument you want. You can put your loyalty cards, your coupons. And so much like you have one physical wallet, we think PayPal, our intent is to drive it to be the digital wallet. But that's going to play its way out over the next 6, 12, 18 months as we drive forward. We think our starting point is strong. And I'll just remind you, I've said it before, if we get 1% of offline retail, it doubles the size of PayPal. So we like our leadership position. We think it's an enormous white space, and we'll go after it aggressively.

Our final question will come from Scott Devitt with Morgan Stanley.

John, you mentioned the acceleration in user growth and your aspiration to continue on this path. And I think Bob mentioned that the faster user growth negatively impacts frequency in the near term. And I was wondering now that you've had 3 to 4 quarters of being able to track this new customer usage since the user reacceleration, if you can share any trends in that data on purchase frequency among this customer group. And then secondly on GSI, could you talk a bit about the progress that you've made with the replatforming, and when you think GSI is going to more proactively pursue new platform customers?

Yes, Scott. On the -- we don't have any cohort data that I'll necessarily go through here. What I'll tell you is this, is the new users are coming from developed markets, 1/4 of them are coming from mobile, and they're coming from BRIC and emerging markets, and those 3 categories to have slightly different characteristics. The ones that are coming from developed markets on the Web often are people that have tried eBay sometime in the past and they've been inactive. And they're coming back to the new eBay. They like what they see. And we're seeing them activate again, and they buy the first time. And then we're seeing I think attractive purchase patterns and growth. And we're both qualitatively and quantitatively monitoring them. The mobile users are really interesting. The people that are registering on mobile tend to be younger. They tend to buy in slightly different categories. And what we see is they will start buying on mobile and continue buying in mobile, and then they'll bridge over to the Web as well at some point. But what we like about that group is it's a different demographic. And often, they're people that have never tried eBay before. And so they're trying eBay for the first time. And then the BRIC and emerging markets, which we think is just an enormous opportunity, I mean there's 2 billion Internet users today. That's growing to 4 billion over the next 3 to 5 years by most forecasts. A large part of that will be in the BRIC and emerging markets. A large number of those consumers will access the Web for the first time in their life through a smartphone or a mobile device. And so our growth in the BRIC and emerging markets, our new user growth, is very significant. I got Devin nodding right in front of me because he's been showing me the data about the eBay and PayPal new user growth in Russia, in Brazil, in India, in China. And our 2013 and '14 plans really are stepping on the gas of leveraging our global platforms in those BRIC and emerging markets for new users initially. And obviously, we expect the patterns of their frequency to build in their own pattern. But we think it's a huge opportunity that we're very excited about.

And, Scott, in terms of the GSI technology platform, a few things. One, we continue to invest in the current platform, the V9, what we call V9, V10 platform, to enhance its multichannel capabilities. So that's number one. Number two, kind of the new launch, the new platform, we just certified through testing in -- right at the end of the year. Our expectation is to roll that out with the launched line here in the first half. And then third, and we already started to get some new logos in the second half of last year, and our pipeline is building. And I think what our intentions are to deliver on the technology platform to demonstrate its capabilities, not just in the lab but with the client and aggressively take its capabilities to begin to add more and more new logos as we go through the course of 2013.

All right. That's it, everyone. Thank you. We'll see you at our Analyst Day at the end of March.

Thank you, presenters. Again, ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.