eBay Inc. (EBAY) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the eBay First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program is being recorded. I’d now like to introduce your host for today’s program, Selim Freiha, 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 first quarter of 2017. Joining me today on the call are Devin Wenig, our President and Chief Executive Officer; and Scott Schenkel, our Chief Financial Officer. We’re providing a slide presentation to accompany Scott’s commentary during the call. We’ve also included a structure data update in the appendix. All revenue and GMV growth rates mentioned in Devin and Scott’s remarks represent FX neutral 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 the Investor Relations section of the eBay Web site investors.ebayinc.com. You can visit our Investor Relations Web site for the latest Company news and updates. 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 related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements 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 the future performance of eBay Inc. and its consolidated subsidiaries, including expected financial results for the second quarter and full-year 2017 and the future growth in our business. Our actual results may differ materially from those discussed in this call 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 Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, copies of which may be obtained by visiting the Company’s Investor Relations Web site at investors.ebayinc.com or the SEC’s Web site at sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of April 19, 2017, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks, Selim, and good afternoon, everyone. Q1 was a strong start to the year for us. Heading into the year, we said our intension was to accelerate the business. And in Q1 we drove acceleration in active buyers revenue and core U.S GMV, which grew at the fastest of Q3 2014. Our user experience improvements and brand marketing are making more of an impact in driving a healthier ecosystem. We also saw a relatively robust consumer spending environment in Q1, providing a tailwind for our business. Still we have significantly more work ahead of us to deliver the business and the results that we aspire to for 2017 and beyond. Our plans are not without risk, but I believe we’re on the right path. Overall total GMV was up 5% year-on-year, revenue was up 7% and active buyers grew 4% to $169 million. GMV and revenue on our Marketplace platforms grew at 5% year-over-year. U.S Marketplace GMV grew at 4%, one point growth acceleration, while international GMV decelerated by a point to 6%. Our StubHub platforms grew volume at 6% and our Classified platforms grew revenue at 10%. Finally, we returned $350 million to our shareholders through our share repurchase program and recently announced a $500 million cash investment in Flipkart, the leading e-commerce business in India. We’ve been working on an ambitious replatforming of eBay to drive the best choice, the most relevance and a powerful selling platform. This includes a work we’re doing on our mobile platform, building product catalogs on structured data, launching new browse inspired shopping journeys, reinvigorating our C2C business and sharpening our brand. Our user experience changes started to become more visible in Q1. And I expect this pace of change to accelerate as we progress through 2017. This quarter we expanded the number of user experiences built on our foundation of structured data. Traffic to these experiences is now at 7%, and conversion gains are holding in SEO traffic, while conversion in our organic experiences is on par with broader organic traffic conversion. We started to land users directly on our new browse pages when they search for certain broad based keywords connecting structured data experiences to our core organic traffic. We are leveraging our 25 million now product reviews more extensively with the launch of a top rated module in our browse experience. And we’ve enabled users to upload pictures in product reviews, making them more impactful. Finally, we laid the foundation that will enable us to move our page search traffic to structured data pages by the end of the second quarter. We also began rolling out a new homepage in late March, powered by the replatforming work we’ve been doing. Using structured data and artificial intelligence we’re creating a shopping experience tailored to each eBay users interest, passions in shopping history. Users will see a homepage that is simpler, more personal and discovery based, helping them find their version of perfect, no matter what it is. With nearly 50% of our volume, now closing on a mobile device, our mobile platform continues to be a key area of focus for us. This quarter we released our latest core mobile app 5a [ph], which enabled us to begin rolling out a significantly simplified consumer selling experience that uses our growing structured data catalog coupled with a more efficient listing flow. We also announced our spring seller release, which included several upcoming changes to pricing and performance standards. As part of the changes we’re making, we’re enabling our sellers more direct access to market their inventory on eBay by removing all third-party ads on view item and search result pages, and increasing the number of promoted listing placements across the site. Finally, we announced two significant customer experience improvements that will launch later this year, initially in the U.S. A new authentication program will further increase consumer confidence when purchasing high-end merchandise on eBay, and build upon our leadership as a trusted Marketplace. We’re also introducing this summer guaranteed delivery in three days or less for 20 million items on eBay, millions of which will also ship for free. As we continue to evolve our customer experience, we’re also activating a sharper, more clearly differentiated and globally consistent brand. In Q1, we advertised the eBay brand across multiple channels, including TV, social, and outdoors. You'll see us step that effort up later this quarter by bringing our brand to life in a fresh modern way that authentically connects with people and with culture. People shop on eBay to find incredible value across our vast spectrum of inventory and our updated eBay brand campaign will address consumer misperceptions and bring to light the eBay that we’re building for the future. StubHub is well positioned to capitalize on its leadership position as a global event experience marketplace. We saw strong growth internationally in Q1 and looking at our genres a good Super Bowl drove NFL performance with strength also in college sports and theater. Most of this strong genre performance was offset by lapping significant growth from last year. We expect to see lower growth rates through the third quarter based on these tougher comps. Our classified platform continues to innovate the user experience and grew at double digits again this quarter. In the Netherlands, we launched a new personalized homepage experience powered by our data that's already driving better engagement. We also expanded the rollout of inventory integration with eBay and we're now beginning to generate meaningful synergy between our eBay and classified platforms, exiting Q1 with over $1 million per week of GMV just through this integration. As I mentioned earlier, we recently announced the terms of a deal to invest in and partner with Flipkart, the leading e-commerce player in India. I’m very excited about this new exclusive partnership, which enables us to increase our penetration in India by making eBay's global inventory accessible to a significantly larger set of Indian consumers. Additionally, eBay's millions of active buyers will have access to more unique Indian inventory provided by Flipkart. The team at Flipkart are strong executors, with deep knowledge of the local Indian market. And we’re committed to winning in India through this partnership. We continue to believe there are significant opportunities to expand our business inorganically through our M&A and partnership strategy, we’re continually evaluating opportunities to broaden our reach and our capabilities. We also constantly monitor our existing portfolio of assets, and we take action when we don't see a clear contribution to our strategy or a path to win. Finally I'm proud to say that we recently released our first diversity and inclusion report since spinning PayPal off in 2015. This reports a straightforward account of where we’re are and where we’re committed to going. It includes data and qualitative content that shares the approach we’re taking, which we believe is comprehensive global and human. Our culture is built on the idea of economic empowerment and connecting people through the power of a global marketplace. We will continue to advocate for principles and policies that support the needs of the global eBay community, such as inclusion, trade and the positive role that technology can play in people's lives around the world. In summary, we’re making steady progress in our journey of changing eBay. In the past year, we have improved both the foundation of the business and our operating results. This improvement has not always been linear and it may not be going forward, but Q1 was a good start to a year where we expect to make significant progress, redefining the eBay user experience and brand. Now let me turn it to Scott to provide more details on our quarterly financial results and our Q2 guidance.

Thanks, Devin. Let's begin with Q1 performance starting on Slide 4 of the earnings presentation. In Q1, we generated $2.2 billion of total revenue, $0.49 of non-GAAP EPS, $447 million in free cash flow, and we repurchased $350 million of our stock. Moving to Q1, active buyers on Slide 5. In the quarter, trailing 12-month growth was 4% year-over-year, a one point acceleration driven -- driving 2 million incremental active buyers. Underlying the over -- under overall trends we saw slightly lower churn rates, stable growth in reactivated buyers, and some early momentum on new buyer acquisition exiting the quarter, particularly in the U.S and Korea. On Slide 6, in Q1, we enabled $20.9 billion of GMV, up 5%. By geography, the U.S generated $8.8 billion of GMV, up 4%, while international delivered $12.1 billion of GMV, up 6% year-over-year. As we discuss our growth rates, keep in mind that growth was negatively impacted by a point as we lapped leap year, somewhat offset by the timing of Easter. Moving to revenue. We generated net revenues of $2.2 billion, up 7% on an FX neutral basis. A one point acceleration and up 6% organically stable versus the prior quarter. We delivered $1.7 billion of transaction revenue, up 6%, and $488 million of marketing services and other revenue, up 9%. Diving a bit deeper into our Marketplace platform on Slide 8. Q1 GMV grew 5% stable versus the prior quarter. U.S GMV accelerated one point quarter-over-quarter to 4% and international GMV grew 6%, one point deceleration versus the prior quarter. Underlying those trends, our B2C growth rate was 6% year-over-year and C2C growth was 3% versus prior year, both stable versus the prior quarter. Total Marketplace revenue was $1.8 billion, up 5% year-over-year, a one point acceleration versus the prior quarter. Transaction revenue grew 5% in line with GMV, while marketing services and other revenue grew 6% accelerating seven points versus Q4. MS&O performance was driven by strong growth of our co-branded credit card revenue agreement and expansion of our first-party inventory program in Korea where we supplement our third-party inventory with consumer staples to ensure consideration across a wide spectrum of shopping occasions. We continue to shift our advertising revenue away from third-party and towards first-party advertising, such as our promoted listings product which is recognized in transaction revenue. This will favor transaction revenue, but put pressure on MS&O revenue growth going forward. Moving to Slide 9. StubHub GMV grew 6% accelerating one point from Q4 driven by international strength with the integration of our TicketbiS acquisition. StubHub revenue grew 19%, down one point versus Q4. Excluding the impact of TicketbiS, GMV growth was stable at 3% and revenue decelerated three points to 13%. GMV and revenue growth dynamics resulted in a higher take rate this quarter versus the prior year. This was driven primarily by a reduction in our buyer incentives. While StubHub is facing tougher growth comps in a more challenging near-term event landscape relative to last year, our long-term outlook of high single to low double-digit growth for the platform has not changed. Moving to Slide 10. In Q1, classifieds grew revenue 10%, a three point deceleration versus Q4. We saw a strong growth in eBay Kleinanzeigen, offset by lapping price increases in our motors vertical last year, and continued ad monetization pressure from the ongoing shift to mobile. Looking forward, we continue to expect classifieds to grow in the low to mid teens. Turning to Slide 11 and major cost drivers. In Q1, we delivered non-GAAP operating margin of 30%, which is down 340 basis points versus last year driven by a 110 basis points each in product development and G&A. Additionally, the stronger U.S dollar negatively impacted margin by 95 basis points. The impact of foreign exchange was felt across all spend category, so I will focus my comments on the operational dynamics of our expenses. Cost of revenue increased year-over-year driven by expenses related to our TicketbiS operations and the previously mentioned expansion of our first-party inventory program in Korea, partially offset by good operating leverage. Q1 sales and marketing expense was relatively flat as a percentage of revenue, as productivity and reallocations across channels and platforms helped fund increased Marketplace brand advertising. This quarter, we ran a significant outdoor campaign across the U.S and an eBay Motors campaign with TV spots airing during major NASCAR events. Product development costs were up as we continue to invest in our product experiences across all of our platforms. Key areas of investment include ongoing expansion of structured data, new user experience development and efforts around AI and machine learning. G&A expense was up year-over-year as operating leverage was more than offset by lapping a one-time insurance recovery last year and TicketbiS operating expenses. Turning to EPS on Slide 12. In Q1, we delivered $0.49 of non-GAAP EPS, up 4% versus prior year with FX negatively impacting EPS growth by four points. EPS growth was driven by revenue growth and the net benefits of share repurchases, partially offset by the cost dynamics explained earlier. GAAP EPS for the quarter was $0.94, up $0.53 versus last year. The primary driver of the year-over-year increase in GAAP EPS was a non-cash GAAP income tax benefit of $695 million, which we recorded to recognize a deferred tax asset related to our classifieds entities. This is part of the ongoing realignment of our legal structure and the non-cash impact of this realignment is reflected in our GAAP tax rate and GAAP EPS, but has no impact on our free cash flow non-GAAP tax rate or non-GAAP EPS. As always you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. On Slide 13. In Q1, we generated $447 million of free cash flow, which was down 7% on a year-over-year basis primarily driven by lower net income and differences in the timing of cash tax payment. CapEx was 6% of revenue in Q1. Turning to Slide 14. We ended the quarter with cash, cash equivalents and non-equity investments of $11.2 billion, with $2.6 billion in the U.S. We continue to be disciplined capital allocators and align our actions against our capital allocation tenets [ph]. In Q1, we repurchased 10.4 million shares at an average price of $33.65 per share amounting to $350 million in total. This amount is in line with our capital return commitment of a minimum about 50% of free cash flow for the full-year. We ended the quarter with $986 million of share repurchase authorization remaining. We're excited about the recent announcement of our partnership with Flipkart, and we believe our $500 million investment along with the contribution of our eBay India business, significantly improves our competitive position in a strategically important market. We expect this deal to close early in the second half of 2017, and upon deal close we will no longer report active buyer GMV and related financials for eBay India. We do not expect the GMV or financial impact to be material to our overall 2017 results. However, we do expect to remove approximately 4 million buyers from our active buyer reporting. Turning to Q2 guidance on Slide 15. We're projecting revenue between $2.28 billion and $2.32 billion representing organic FX neutral growth of 5% to 7% year-over-year. This growth range takes into account Marketplace volume and revenue growth acceleration offset by StubHub and PayPal operating agreement comparisons. We expect non-GAAP EPS of $0.43 to $0.45 per share representing year-over-year growth of 0% to 5% on an as reported basis. EPS growth will be driven by revenue growth and the net benefit of our share repurchase program offset by our increased investment to drive improved user experiences and to market our brand. Additionally, we expect foreign exchange to impact us by approximately five points of growth on a year-over-year basis. For Q2, we expect GAAP EPS in the range of $0.20 to $0.40. Our full-year non-GAAP guidance remains unchanged from January as we continue to execute on our strategy to deliver the best choice, the most relevance and a powerful selling platform. Our focus through the remainder of the year will be growing our base of active buyers and delivering a significant number of new user experiences to increase traffic and conversion, while facing into tougher lapping with StubHub and our PayPal operating agreement. As a reminder, for the year, we expect revenue in the range of $9.3 billion to $9.5 billion, operating margin of 29% to 31%, a non-GAAP effective tax rate between 20% and 21% and non-GAAP EPS of $1.98 to $2.03 per share. Additionally, we continue to expect CapEx of 7% to 9% of revenue and free cash flow of $2.2 billion to $2.4 billion. We are increasing our full-year GAAP EPS guidance to $1.80 to $2.20 per share, reflecting the impact of the previously mentioned deferred tax asset recorded this quarter. The difference between our non-GAAP and GAAP EPS primarily consists of amortization of intangible stock-based compensation and tax impacts from our ongoing legal structure realignment. In summary, we're making progress on our plans for the year launching a significant number of new user experiences that are starting to impact our results and drive a healthier ecosystem. While growth may not only be perfectly linear, we expect to deliver acceleration in our Marketplaces platform and exit the year having made significant progress in redefining the eBay user experience and brand. Now we'd be happy to answer your questions. Operator?

Certainly. [Operator Instructions] Our first question comes from the line of Ross Sandler from Barclays. Your question please.

Great. Thanks. I had one for Devin and one for Scott. So, Devin, on the macro picture, given how challenging life is becoming for brick-and-mortar retailers right now? How are the conversations with that group or large brands like CPG brands or OEM is changing and is eBay becoming anymore central in 2017 than maybe in years in the past for those constituents? And then, the second question is you called out a momentum in new buyer acquisition. Can you just give us a little color about what's driving that in the U.S and Korea? And is it still the right leading indicator to look at -- to seek evidence of the replatforming kicking in this year? Thank you.

Yes, Ross, thanks for the question. I will take the first and I will let Scott do the new buyer dynamics. On the overall environment, I guess what I would say is there's no change to our conversation with retailers and there's definite change to our conversations with brands. So vis-à-vis retailers, it hasn't since the new leadership team took over it hasn’t been a core part of our focus. There are some retailers that sell successfully on eBay. We’re pleased about those relationships, but we're not looking to expand those relationships aggressively and we’re more focused on bringing outstanding inventory and where we can direct from the source. I think that the conversation with brands has definitely changed. They’re now looking at a platform that is doing $20 billion a quarter, it has $169 million active buyers and we are -- I expect that will accelerate the pace of brand acquisitions through this year, meaning there will be more brands that sell directly or through resellers on eBay directly. And those conversations I think have gone very, very well. It's a little bit -- it depends on the category, but I'm really pleased and I think that for brands what they see in eBay is a cost-effective channel to and a very progressive technology partner, which is what they need to navigate the world that’s coming. And on active buyer, Scott.

Hey Ross, on active buyers, as we called out we grew active buyers at 4% this quarter, which was a one point acceleration versus last quarter's growth rate. I would call out three primary drivers of that strength. The first is we feel like our new experiences that are being expanded to a larger portion of our buyers are beginning to help. Its showing up in the form of lower churn rates and/or retain buyer base. Second, our structured data pages on SCO are starting to contribute to new buyer growth, and while not at a material scale yet we are seeing early positive signs. And as we step up our brand investments, we see a halo effect across most of our marketing base of traffic. And so, look, the improvements in our buyer funnel have not been linear. I do think that as we look towards the future it might not be linear, but we believe that active buyer growth is one of the metrics to your question that we look at closely and should portend an acceleration in GMV. Next question.

Thank you. Our next question comes from the line of Heath Terry from Goldman Sachs. Your question please.

Great. Just a couple of questions. I guess, first, Devin as you guys look deeper into how you want to optimize around advertising, you’ve talked in the past about getting to a point where the ROIs on the page or conversion rates within the page generate the kind of positive ROIs that you need to more heavily invest in advertising. Can you kind of give us a sense of where you are on that spectrum to the extent that’s what’s driving the decision to invest more in advertising or marketing? And then, just on StubHub, as we continue to see this gap between GMV and revenue as the transaction rate or take rate improves, can you give us a sense whether or not we should be expecting at some point in the near, medium-term that GMV and revenue growth converge or is there -- do you expect to continue to be able to take rate up over time?

Thanks. I will take the first again and I will let Scott second. On advertising marketing generally, we are now in a rapid period of user experience improvements. I’m pretty pleased by that. There is never a perfect time to start stepping up your advertising and marketing, but we feel like this is the right time. And we will take the next step this quarter Q2 and for the brand spend you need some time to really measure that properly. It's too soon to know we’ve made a dramatic impact, but as you heard from Scott, as we stepped up the brand we’ve seen traffic at a bit better and new buyers get a bit better. So we like that. And we think it is important as I’ve said in previous calls to correct any misperceptions about eBay's business today and to set that in the context of a phenomenal e-commerce experience for consumers across segments. So we’re going to take the next step this quarter and on the other more traditional advertising channels that we've always done things like paid search and social, we’re now on 18 different social channels and messaging platforms. We’re seeing better ROIs. I think we've been doing this for quite a while. We've been pretty good at it and we’re optimizing those channels very well. So across the piece we are going to lean into this to try to drive traffic and buyers to what we think is now rapidly improving experience. And it's exactly what we said we would do and so far we like the results we see. It's one point I want to stay cautious and as you heard from Scott, it may not just be up from here. But there were a few consecutive quarters of user growth decline and now we’ve bent that curve and that's what we were hoping and expecting this quarter, so I’m pleased with that. On StubHub, Scott.

Yes, Heath. On the StubHub take rate and just to what we said, it was 22.3%, an increase of 190 basis points year-over-year, but down 20 basis points quarter-over-quarter with the decrease being -- it is really driven by the decrease in buyer incentives as I called out. I don't really view that as a long-term structural change one way or the other. Really as we look towards the future, we removed our fan rewards program last year and are currently in the process of revamping to a different type of program. And so, I don't expect the take rate to continue to go up nor do I expect that a significant change downwards on our underlying core StubHub U.S platform take rate.

So will those numbers can -- will those growth rates converge over time given that?

I think naturally yes, Heath, they will. Just like we had a period of time in Marketplaces where our GMV and revenue were disconnected you get weird year-over-year comparisons that can drive that, but I don't view that as a long-term thing.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Justin Post from Bank of America Merrill Lynch. Your question please.

Great. I would like to talk about Marketplace take rates. Looks like you had some fee changes, maybe give us the outlook on that? And then the advertising business, how big of an impact can that be and I know you said that MS&O revenues might fall offsetting that benefit, but how do you see the long-term benefit of some of the new ad initiatives that you've taken at this quarter? Thanks.

Again, we will share it. Let me was first talk about these generally. We’re always evaluating our fee structures and we take any change to fees quite seriously. In our Spring Seller release, which was about a month ago, we did make some fee changes. There will be some -- for some sellers an increase in take rate and a bit of a decrease in discounting for certain sellers. The reason we did that are really two reasons. One, this is a year of significant investment in tools that we’re going to give sellers to optimize their velocity and their margin on the eBay Marketplace. So there will be significant investments and products rolling out around seller hub and also significantly what we're including with our fees going forward for quite a few sellers is promoted listings as part of that package. Now this is important because we’re seeing rapid growth in our promoted listings business as we take third-party ads of the site in certain areas, particularly our third-party PLA's. That's important for eBay, because it drive to help your ecosystem. It keeps people inside our ecosystem and our Marketplace to transact. It's important for sellers, because it drives additional velocity, and for promoted listings it gives them the ability to promote inventory inside eBay and get additional velocity for some trade-off of margin, but that's now packaged inside the fee. So, basically it's a marginal fee increase in return for what we think are significant seller benefits that they will be getting this year in 2017.

Yes, I think you covered it.

And then on the ad business long-term, are you optimistic switching the types of ads on the site?

I'm very optimistic in our advertising business. I think that it's really worth the very beginning we’re seeing really nice growth in our first-party advertising business. We just really gotten ramping on that. And when you think about a business of our size and our velocity and a business that’s doing hundreds of millions of searches a day and a business that has 169 million active buyers, we really do believe that that the advertising business is a great opportunity over time. And we’ve said that on the previous calls and in this quarter confirms it. We’re really pleased with the trajectory of our advertising business.

Yes, maybe a bit more color, Justin. We had 20% more sellers this quarter using our promoted listing product than last quarter. And if you look at the overall -- while the overall contribution revenue isn't that great, again just to call out that that promoted listings will be showing up in take rate not in MS&O revenue. But as we make that shift from third-party ads and removing them and that will reduce MS&O, but certainly our overall broadly termed ad business, I think, I completely agree with that Devin said.

Thank you.

Thank you. Our next question comes from the line of Colin Sebastian from Robert W. Baird. Your question please.

Thanks and Devin good quarter. I guess, first off a bit of a follow-up, but it seems like a number good things are happening in Q2 in terms of the new homepage, faster buyer growth, the more aggressive ad campaign, but I'm not sure if we can really see that reflected in the quarterly guidance at least. So, I wonder if you can expand on why there might be a little bit of hesitation in terms of seeing those benefits near-term? And then on a related note, are you still expecting the 200 basis points acceleration in Marketplace this year?

Sure. Why don’t I take that Colin. I think a couple of things. First off, for Q2, I think it's important to remember that we’re expecting to see Marketplaces GMV and revenue acceleration within our guidance of the 5% to 7% on organic revenue, which is again similar to this quarter going to be offset by the PayPal operating agreement and the top lapping that StubHub has. And so, as we look at the quarter, I think it's -- the Q2 guidance is right in line with what we expected and I think we feel good based on some of the things that we saw on Q1 heading into Q2. And as we look at the second half of the year, there's really no change in what we told you in January. We still expect a 2 points of Marketplaces volume acceleration for the year to occur based on the changes that we’re making to our user experience as well as the increased investment levels that we’re making in brand.

Is there a target percent in terms of the traffic exposed to structured data we should think about for the end of the year, or a step function sometimes during the year? Anything that we could use as a benchmark?

We haven't said a number and in part that number will be depending on testing and learning. But as I think I said last quarter, you won't be able to miss it by this holiday and the number will be a lot higher than 7%. There's almost no chance that it won't be. And we are going to rapidly start to -- we are rapidly going to start to expose more traffic and more experiences to these new experiences that we think are performing quite well. So, there isn't a number, but it'll be a lot higher. And keep in mind also we’re just ramping brand. We’re just beginning that spend. That will be -- people will see that meaningfully early this summer when we take the next step. So, there are a lot of irons in the fire like you said, but as Scott also said, we've got some very tough lapping quarters. Remember, a year-ago StubHub was growing mid 30s plus. So the StubHub lapping is super tough for the next couple of quarters. The business is in great shape. I think the business is healthy, but the growth rates are going to get substantially suppressed over the next few quarters. But that doesn't change what’s happening in the core Marketplace business which we feel good about.

Okay. Thank you.

Thank you. Our next question comes from the line of Eric Sheridan from UBS. Your question please.

Thank you so much. Maybe two questions. One for Devin and one for Scott. Devin, in terms of the new users you are seeing come onto the platform, wanted to know if there is anything new you’re seeing from them as a cohort analysis in terms of the way they shop, their propensity to shop, the amount of money they spend, anything you want to call out for folks there in terms of how people are coming to eBay now versus a couple of years ago? And then, Scott, on the cost side of the equation, Q2 guide implies another sort of step up on the investments. We’ve talked a little bit about that on the call so far. I wanted to know if you could sort of isolate some of the buckets of investments, sort of would be the transition, the advertising business, advertising for user growth and brand, just for people to understand a little bit that the cadence of those numbers in the next couple of quarters? Thanks.

On -- it’s a good question. On the new users, I guess what I would say is it's too soon to ascertain shopping patterns, because remember the cohort is 30 days older, 60 days older, at best 90 days old. So it’s a little early. But we do think that in terms of who they are demographic segmentation, they’re skewing a little younger and a little more female, which is interesting, And you'll see us market that way in the summer. We certainly think that's an untapped potential. We -- our intention is to improve consideration of the eBay brand among millennials, among women. We have large fire bases there, but we’re underrepresented relatively to our other segments. So it's encouraging to see more new users come from those segments and we think that's just the beginning of that. But in terms of their shopping behavior, a little early to tell. I think we need a little more longitude to be able to know that.

Yes, Eric, on Q2 margin, specifically, I don't think there's really any change with maybe just two highlights to the underlying cost structure as we head into this quarter. First is the product development investments that we’ve made and we will continue to make to move on the product experiences and activate the things that we've been talking about. And the second part is brand. There will be a ramp, particularly in offline brand advertising throughout the year as we’ve called out. To date, we’ve paid for that with efficiencies and productivity within the marketing buckets by and large, and we will continue to do some of that. But some of that will end up bleeding through into the margin line over the course of the next few quarters.

Thank you. Our next question comes from the line of Douglas Anmuth from JPMorgan. Your question please.

Thanks for taking the question. Devin and Scott, I just wanted to follow-up on the Structured Data implementation and improvements. I think you talked about exposing it to 7% of traffic at this point. If you could just elaborate a little bit more in terms of what you're seeing and also on the SEO conversion, which I think you said was holding. And then how do you expect the categories to rollout going forward? How are you prioritizing as you go? Thanks.

So we’re pretty pleased with what we’ve been seeing on this. In terms of SEO structured data is now 16% of SEO share, which is up and obviously 7% of total traffic which is up for 4%, which we exited last quarter. And I think that as I said to Colin before, that number will go up quite a bit. Conversion, bounce rates all the things we spoken about in previous calls look good as on SEO as we’ve grown our share, we have not diminished our conversion which is still double digits out in the SEO ecosystem which is great. On organic, we're at par and we're just starting to iterate that. So that's pretty good and gives us the license to go faster, which will do. So I think where we want to be vis-à-vis categories, we're focusing very much on the categories that you would imagine have the highest impact of catalog. Those are hard good categories, those are electronics, they’re certain home and garden categories. You know, it’s across the spectrum. I mean, we’ve issued -- we’re rolling structured data out across the business, but as we said previously most of our focus is at the head and in hard good type categories where a catalog makes the biggest impact. As you move down the tail, it’s a unique one-off items type of things that sell uniquely on eBay. I’m not saying catalog is irrelevant, but it's not as impactful in areas like that. So we're focused on head categories and hard good categories initially where we're seeing the biggest impact.

Great. Thank you, Devin.

Thank you. Our next question comes from the line of Scott Devitt from Stifel. Your question please.

Thanks. I wanted to ask about the shipping initiative that you’re implementing later this year for guarantee [ph]. Just wondering if you can talk about maybe things like the percentage of orders already that are delivered in three days or less, how sellers qualify for the program? What happens to the search results for those that are going to be approved in the program? And maybe the portion of GMV that you anticipate to flow-through something like this over time? Thank you.

It's a great question. Keep in mind as we said previously, about two thirds of all items in the U.S today are delivered in three days or less. And we think that that's not well understood, particularly by -- that factors into the consideration of the eBay brand issue. So without a subscription, without charging people extra, we’re today delivering millions of items in three days or less. So there are really two things that we think are directly implicated by the program that we announce, Scott. One is we are going to expand that inventory, because we’re asking sellers to opt in. We are getting really good uptake from our sellers, many want to and can, and that will expand the addressable inventory that is deliverable within three days. The second is the user experience, and there will be a change in the user experience where our customers can sort and filter by three days or two days, or even one day. And sometimes they will pay for that, but many times it will be free. As we said, out of those 20 million items, millions of them will be shipped for free. So we do think that there will be -- we’ve iterated with this in the past with something like fast and free, this is a much more aggressive step to say you'll be able to shop eBay on millions of items and we think in millions of those items will have the best price delivered in three days and delivered in three days for free. We just think this is a way to stick our competitive advantage right out there and have no questions about why people shop on eBay and why they should. So both the product change vis-à-vis the ability to sort filter and shop by three days or less and an inventory change vis-à-vis the request that sellers opt in to get that increased exposure. And so far we’re getting a really nice uptake of sellers. I wouldn't want to yet say what percent of GMV will be covered. I suspect that will change over time anyway, but I hope that we can come out of the gate with a meaningful number, a meaningful portion of GMV covered so that it's an impactful program.

And if I could just follow-up, I assume, correct me if I’m wrong, but it will be by product within the merchant versus merchants getting approved for all products. Can you just talk about that a little bit in terms of how merchant approval works for the system?

It will be merchants opt in a set of inventory. So they may not be able to opt all their inventory, but they will be able to opt in what inventory they’re committing to ship within three days or less.

Thank you.

Thank you. Our next question comes from the line of Mark May from Citi. Your question please.

Thanks. I had a couple, if I could please. I believe you said that you’re going to start pointing most of your paid search traffic to new pages shortly. If I heard that right what impact do you think that will have on your return on ad spend? And how does it change your thinking about paid search spending in general? Secondly, in terms of promoted listings. I know you’re still relatively early, but the thinking of longer-term there, what are some of the industry benchmarks that we should be thinking about in terms of the percent of GMV that could eventually be spent by sellers on promoted listings? And then if I could just sneak in a housekeeping one. In terms of the …

Mark, you’re just limited to two -- we’re just going to limit it to two for now. We got others in the queue. Okay. On paid search, we are -- our plan is to move paid search to structured data pages this quarter, Q2, probably more towards the end of the quarter. So I don't think it will have a big Q2 impact, but our hope is that we will see improved conversion which will result in improved ROI and we operate our paid search business to an ROI curve. So my hope is that's another reason to lean into that. And as Scott said, why are we advertising more, because we think we're getting an impact. We wouldn't advertise, we wouldn't be spending in any channel if we weren't getting an marketing impact. If we can move the ROI curve on paid search further out, that’s great. We will put more money into that, we will drive more growth. On promoted listings, you know I wouldn't want to say what percent mark of GMV can move under that. I guess, I just say we are moving from -- we started with a limited number of sellers. We started with multi-SKU inventory only. We will now be expanding to single SKU items. In other words, unique items that will be able to be promoted. They will focus on business sellers, but eventually we don't see any reason why a consumer seller shouldn't be able to promote their item as well. And we’re really focused on making the product so easy to use that anybody who is on eBay the first time could make the choice to promote that item and happily pay a little bit of their take rate more to get visibility and exposure and hopefully more velocity. So I think it's going to be important and I think it will cover a meaningful portion of our business, but I’m not going to predict the number at this point.

Thank you. Our next question comes from the line of Lloyd Walmsley from Deutsche Bank. Your question please.

Thanks. Two if I can. First, following up on the new buyer growth, you guys called out strength in the U.S and Korea, specifically. Wondering if this is primarily just driven by more advertising in these markets or if there's anything else you could call out driving this strength in those markets? And then, second one if I can, looking at the improvements you’re making to user experience and increased adoption of the mobile app, are you seeing any increases in customer frequency or buying across more categories or any other kind of indications of the benefit of the product improvements beyond conversion, any color you could share there would be great?

I’d call out a few things and real quickly the new experiences as we parse out our underlying user base. What we see is those new user experiences appear to be helping. It lower our churn rates in our routine buyer base. And the second is the structured data pages that we’re rolling out in SCO in a small way is starting to attract new buyers to the ecosystem and the step up in the brands impacting, it appears to be impacting across multiple channels. And so, those would be the call out in the active buyers. Obviously in the U.S., we’ve rolled the most changes to in the last three to six months. And so it's going to index higher on those in that geography versus the others. Specific to your last question, I’d say it's too early. To what Devin said earlier, 30, 60, 90 days and with the new set of buyer cohorts, in three or six months will have a much better point of view of whether -- we’re bringing in buyers that are buying in multiple categories are at a higher level.

One more question operator, and then we will wrap up.

Certainly. Our final question for the day comes from the line of Ron Josey from JMP Securities. Your question please.

Great. Thanks for taking the question. I just want to go back, I think Devin you mentioned investments around the Seller Hub to now launch globally, it help sellers manage demand and supply along with insight on pricing. Can you just talk about how Seller Hub has helped grow sellers better manage their business, help eBay better understand their inventory, all of which sort of ties into the better experience and structured data. So just more information on Seller Hub would be helpful. Thanks.

Ron, thanks. A lot of this goes back to the decisions that we made a year-ago. Structured data helps this and the decision to invest in a platform, a unified platform that sellers could use is now manifesting itself in a product that we're proud of. It -- as we said last quarter, we’re growing the number of business sellers on eBay. And part of the reason for that is we think it's a very cost-effective channel with great velocity, but also they’re getting better and better tools, and that's just starting. We are going to do a lot more this year. Using once you have structured data, once you’ve inventory level visibility, we can then tell sellers here is your velocity in a certain category or your pricing is too high. You’re not moving inventory, because you're not price competitive or if you make these changes then we think you'll get this type of return. So, a lot of -- Seller Hub is a management tool, but it's also a data platform. And what I am most excited about is the ability to give our sellers actionable data to allow them to make better decisions to drive either margin or velocity, their choice, to drive their business and make eBay an incredibly effective channel for them to run their commerce business. I'd also say, keep in mind, that we’re also giving better tools to C2C sellers. So C2C has been a problem for a while. It's very encouraging to me to now see two consecutive quarters of 3% growth after years of decline. One of the things that we’re doing, that we talked about is giving consumer sellers the ability to list simply and to manage their listings much, much more elegantly and not churn them because of the complexity of eBay. And we’re really -- we made progress on that, but I’d say we’re also just at the beginning of that, I expect 2017 to be a year where we give our consumer sellers significant additional tools and listing tools to minimize complexity. So all of this is big investments in our sellers to give them the ability to join eBay and then be successful on our platform. Let's go and wrap up operator. Thank you.

Certainly. Thank you. This does conclude the question-and-answer session as well as today's program. Thank you for your participation and you may now disconnect. Good day.