Good day, ladies and gentlemen, and thank you for your patience. You've joined the eBay Q3 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, this conference may be recorded. I would now like to turn the call over to your host, the VP of Investor Relations, Mr. Selim Freiha. Sir, you may begin.

Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third 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. All revenue and GMV growth rates mentioned in Devin and Scott's remarks represent FX-neutral year-over-year comparisons unless they indicate 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 website at investors.ebayinc.com. You can visit our investor relations website 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, forecast 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 fourth 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 more 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 website at investors.ebayinc.com or the SEC's website at www.sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of October 18, 2017 and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Selim, thank you. And good afternoon, everyone. In Q3, we drove acceleration across all three of our platforms in the US and internationally, delivering strong top and bottom line financial results. Our rapid product innovation cycle continues and our customers are responding to the changes we're making. As one of the world's top e-commerce destinations, we delivered nearly $22 billion of volume this quarter and our growth was the fastest it's been in over three years. Overall, total GMV was up 7% for the quarter, while revenue was up 8%. And active buyer growth was stable at 5% as we added nearly 2 million buyers to our platforms in the third quarter and over 6 million buyers so far this year. GMV on our marketplace platform grew 7%, a 1-point acceleration driven by strength across multiple geographies. Our Classified platform grew revenue 13% and StubHub volume was up 2%. Finally, we returned over $900 million to our shareholders in the form of stock repurchases. Now, let me take a moment to share some of our recent progress and where we are in our journey to transform eBay. We're pleased that the business is responding well to our efforts so far and that we've achieved a new level of growth. However, there's still a lot of work ahead of us and we recognize that making significant product changes can have a big impact on our ecosystem. We've been moving as fast as possible, while also ensuring we don't create disruption. We don't expect growth to always be linear as we continue to favor decisions to drive long-term success even when that pressure short-term results. We continue to focus on attracting and retaining sellers and brands that bring differentiated inventory to eBay, helping drive selection and value for our consumers. In Q3,…

Thanks, Devin. Let's begin with Q3 performance, starting on slide four of the earnings presentation. In Q3, we generated $2.4 billion of total revenue, $0.48 of non-GAAP EPS and $720 million of free cash flow, while repurchasing $907 million of our stock. Moving to active buyers, in the quarter, we increased our total active buyer base to 168 million, while trailing 12-month growth was stable at 5%, driven by modest marketplace buyer growth acceleration, offset by StubHub. As a reminder, with the close of our investment in Flipkart, we are no longer reporting approximately 4 million domestic active buyers in India. Underlying marketplace buyer growth, our retention rates improved year-over-year. And while we benefited from good trends in new buyer acquisition from SEO, we have not yet seen material improvements in our organic channel. New buyer acquisition continues to be a key area of focus for us as we roll out new product experiences and market the eBay brand. On slide six, in Q3, we enabled $21.7 billion of total GMV, up 7% year-over-year, accelerating two points versus the prior quarter. By geography, the US generated $8.8 billion of GMV, up 5%, while international delivered $12.9 billion of GMV, up 9% year-over-year. GMV outpaced sold item growth this quarter due to a mix of higher ASP products and strong C2C growth acceleration, which has a higher average ASP. Moving to revenue, we generated total net revenues of just over $2.4 billion, up 8% on an FX-neutral basis and up 7% organically. We delivered $1.9 billion of transaction revenue, up 7%, and $530 million of MS&O revenue, up 9%. Turning to slide eight, our marketplace platform GMV grew 7% in Q3, a 1-point acceleration versus the prior quarter. US GMV accelerated 1-point quarter-over-quarter to 6% and international GMV grew at 9%,…

Thank you, sir. [Operator Instructions]. Our first question comes from the line of Justin Post of Bank of America Merrill Lynch. Your line is open.

Great, thank you for taking my question. I guess my biggest question is, as you look at the structured data impact and what you've seen so far, you mentioned earlier that you're starting to see a benefit on the organic traffic. And I just wonder if you can get into more detail on what you're seeing there and kind of your outlook for next year as you roll that out. And, I guess, second question is, it looks like it's potentially having a bigger impact internationally than the US. Maybe just talk about the geographic differences. Thank you.

Thanks. On the first part, I think what I mentioned in my remarks was conversion. We have mentioned for two consecutive quarters that we've seen significant gains in SEO, but hadn't yet seen gains in other channels. And what I mentioned is that, in our paid traffic channel, we're now starting to see gains as well. And as I said, this will be a process of iterating, so that eventually will get gains across all of our channels. As we look forward to 2018, I just think the surface area of what we are doing will expand and that's part – has always been part of our playbook that will keep iterating product experiences, expanding the footprint of structured data and, hopefully, continue to see conversion gains as we go deeper and deeper into our experiences. On the second part, on the international side, I think there are two things going on. The first is remember that we've now seen four sequential quarters of improvement in the US business. In the last two quarters, we hadn't seen international. And we said that we would begin rolling this out and we'd see some catch-up. So, we saw some catchup in international. But, equally, we saw some timing difference. So, 3 points is quite significant, but there was a timing difference in the Korean Thanksgiving, which slightly flattered Q3 and will suppress Q4 because it's not the same holiday. Korea declared a longer holiday this year than ever before. So, we've got quite a bit in Q4 to work our way out of, and that's factored into our guidance.

Hey, Justin. I would add to Devin's remarks and key off the structured data pieces that he said and also emphasize that, in Europe, I think we saw a larger increase in the C2C business that drove a lot of that. So, I would attribute – totally echo what Devin said and attribute a bit more of the improvements that we noted in C2C to the benefits that we saw, particularly in Europe.

Thank you.

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

Great, thanks. Devin, in the past, you've talked about getting conversion rates on the site up to the point that you felt like you could invest more in marketing to drive accelerated growth. We, obviously, saw the increase in marketing spend this quarter that you called out. Does that suggest that you've gotten the conversion rates that you're looking for to the fuel that and how much further do you think you can push that with additional marketing dollars?

Thanks, Heath. I think what I said is that we want to make sure the product was where we wanted. And, I guess, one way to look at that is conversion gains. Before we began brand marketing in particular – because what I didn't want to do is confuse people, bring them to an experience that hadn't changed or that was changing rapidly. We're not done by any means, but we're pretty pleased with where we've gotten to on the product. I think my anecdote a couple quarters ago was that, by this holiday, you'll be able to see it from space and you will. When you look at authentication and group listings, guaranteed delivery, image search, we've made a lot of product changes, many of them anchored in structured data. And keep in mind that, when we say the 12% of traffic, that, in many ways, is the strictest definition of the impact of structured data. Those are pages built right on top of it that it lands on. It wouldn't factor in to things like price recommendations for our sellers. So, we're really pretty pleased with where the offering is. We're seeing gains in conversion. It's one way of looking at that in a quantitative sense. And because of that, we've begun to ramp brand marketing and we'll do that again this holiday. You'll see brand marketing on in all of our major markets. And we want to bring more people – more new people now to our experience because we think we've got a very compelling offer of a differentiated product experience and differentiated inventory. So, I really think that we're in one of the strongest competitive positions that we've been in in a very long time. And because of that, we will keep marketing.

Great, thank you.

Thank you. Our next question comes from Dan Salmon of BMO Capital Markets. Your question please.

Good afternoon, everyone. Devin, could you speak a little bit more about promoted listings. Sounds like that was a nice contributor this quarter and it seems very early days still and opportunities to firstly to rollout to more countries, more sellers. I would be interested in any thoughts on that. And then second, on ad load, not just in certain total number of ad units available, but optimization. I think you've kept those type of listings a little further down in results to the fourth or fifth slot. Curious how you think about potentially moving them up over time. Thanks.

As I've said before, I think this is a really significant opportunity for us and we are in the early phases of it. So, the growth is rapid, as I mentioned in my remarks, but it's still small. And let me just set the scene by reminding you that the reason it's not a dramatic contributor to our results at this point is that we are operating off a small base and we're taking a number of the third-party ads that we've had on our site off as we ramp our first-party advertising revenue, which we've said that we were going to do. We think that's much healthier for the ecosystem. So, you look at MS&O revenue, it's not moving an awful lot at this point, but that's because this is part of our plan, which is to ramp 1P ads as we take them 3P ads. And we'll keep doing that for a period of time. I do think that, when we look across where we go next, we've just begun with the surface area of promoted listings. That's both on the seller and the buyer side. So, we have 100,000 sellers using it, which is great, but we've got 20 million plus sellers. So, we actually think it's a product that is relevant to significantly more on the seller side and we'll open it up to new classes of sellers. It's not fully opened up to all sellers yet. So, we'll open it up to new classes of sellers as we roll this forward. To your question about the buyer side and the view side, look, I think the ultimate vision of this is not that there are fixed slots, but that AI is placing those ads wherever they should. In other words, wherever there's a conversion gain to be made, that might be all eight slots on the SRP, the search result page, or it might be none, depending on the user and the query. This is a scale problem for machines. This is a machine-learning problem at scale. And I think what you'll see in 2018 is that we'll move off this idea of fixed landing slots and we'll move to machines placing those first-party ads dynamically based on where they should, so that we're best monetizing every pixel on our mobile devices and our desktops.

Great, thank you.

Thank you. Our next question comes from Douglas Anmuth of JP Morgan. Your line is open.

Great. Thanks for taking the question. First, I just wanted to circle back on the 4Q outlook. I was hoping you could just explain a little bit more of what's happening just given the 8% FX-neutral revenue growth that you just did and the outlook for 4Q. I know pointed to Korea and StubHub. Is there anything else to bring up there? Devin, I think you made the comment that growth won't always be linear and you'll make some changes at times that could pressure short-term results. Is there something more that you're thinking about there in 4Q? thanks.

Dough, this is Scott. I would point to the conversation we just had around first-party listings. Clearly, those are things that, as we roll first-party listings and change our ad strategy, pressure near-term results. And to the best of our capabilities, we've factored those into your guidance as we look forward. Specific to your first question, the FX-neutral revenue guidance of 6% to 8%, I called out three things. I'll put a little bit more context than I did in my prepared remarks. The core business excluding Korea, so marketplaces, GMV excluding Korea, we expect, in Q4, to accelerate, right? However, with the extended vacation or holiday that was declared in Korea, that was nearly ten days in total of lapping quarter-over-quarter – year-over-year and quarter-over-quarter that we have to face into and that's going to provide some degree of headwind as we head into Q4 as well as the pressure from StubHub. All else equal, StubHub is below our expectations as we called out. And so, that will pressure growth as we head into Q4 as well. Those are the underlying dynamics. So, goodness in marketplaces, a little bit of pressure elsewhere. And I think, overall, in the story, well within the guidance that we gave at the beginning of the year.

Okay. Thanks, Scott.

Yep.

Thank you. Our next question comes from Mark May of Citi. Your line is open.

Thanks. There was a question earlier that kind of touched on your marketing strategy, especially as the product continues to improve. But I think actually, the last two quarters, you've shown some pretty nice leverage overall in sales and marketing. I guess, the question is, how sustainable is that going forward, not just in Q4, but maybe looking out into next year and how we should be thinking about that? And in this year, your marketplace take rate is up. I think part of that is the changes in the advertising. Can you talk about – as we start to hit up against more difficult comps there next year, how we should be thinking about it? I guess, the question would be around how early are we in the advertising cycle there and can we – should we continue to expect marketplace take rates, especially in the US, to continue to rise? Thanks.

Yeah. First, on the marketing sustainability, I think we've been pretty clear that, over time, we expect that the brand that we'll invest into the marketplaces platform will likely add to the marketing line item, right? So, we expect that to, over time, to modestly increase. What we've been able to do this year, as you point out, is actually offset that with some productivity between marketing that we're spending on our other platforms as well as marketing reallocation within the marketplaces business. I'd go back to the marketing point that Devin made earlier, we're actually at this point at 85% of search engine marketing, SEM marketing, being powered by our structured data initiatives and we're nice conversion as a basis of that on those pages. And so, as those get better, we're able to reallocate those costs or that spend into the brand campaign. And, net-net, for the company, still shows some modest leverage. But what we've called out, though, is we're going to spend into the marketing line item and try and pay for that with productivity in other line items as we go forward. On the take rates, I'll just call out. If we look at marketplaces transaction take rate, it's relatively flat this quarter with some underlying dynamics changing in there. First off, as you called out, the price increase did put upward pressure on that, but we also have a fair amount of C2C incentivization that we did that I called out in my prepared remarks. A fair amount of that was in Europe that helped drive that growth. And that's what we're really looking at, not only in the marketing expense, but the take rate to be able to invest to drive growth on a profitable basis as we go forward.

Thank you. Our next question comes from Paul Bieber of Credit Suisse line. Your line is open.

Hi. Thank you for taking my question. One of your larger competitors is becoming more competitive in the fashion and auto parts categories, which have historically been very strong categories for eBay. I was hoping you could characterize the health of those categories and just some of the initiatives that you're doing in those specific categories to cement your competitive mode.

I'd say a couple of things. So, first of all, if I just look at competition overall, we get the competition question about a thousand times, as you'd imagine. And I just open the aperture a little and look at the last year, 18 months and say it hasn't gotten less competitive, yet we've steadily improved the performance of this business. Our growth rate keeps marching up as we get a thousand questions about competition. That doesn't mean we take it lightly, but it does mean we're building a differentiated eBay that is accelerating growth in the face of a very competitive market. With respect to your specific question on categories, we normally don't dive into categories, but what I would say is we've had aggressive plans on for quite a while in both parts and fashion, including what I mentioned our Spring partnership, but so many other things to bring on new brands in parts and in fashion. And if I look back on Q3, we saw acceleration in both parts and in fashion, in both categories. So, I don't take competition for granted one bit. But the things that we're doing are about building our own company our own way, differentiated and having a meaningful share of global total retail and we're doing that.

Okay, thank you.

Thank you. Our next question comes from Eric Sheridan of UBS. Your line is open.

Thanks so much. Maybe two if I can. One, on users, I wanted to know, as we look back over the user group you've been compounding over the last four to six quarters, maybe a little bit of color on the geolocation of the users, how they're spending, what categories are key for those users to onboard on to the platform. So, a little color of who the users are and what's driving the growth. And then second, on StubHub, would you call it the headwinds on StubHub, is that a specific category such as the NFL or is there any color you can give us on whether the headwinds are GMV related or take rate related. Thanks so much.

Yeah, I'll take the active buyer one. If you look at active buyers, first off, as we called out, the 5% growth was stable, but it's – underlying that, the dynamics are really – the marketplace business modestly accelerated in the quarter. And, remember, this is a 12-month metric, a rolling 12-month metric. And underlying that, what we see is some improved retention rates versus last year as our new experiences roll into the ecosystem on a larger and larger basis. Devin talked about that. Also, when we talk about rolling out our SEO product based experiences as well as those impacting SEM, we're starting to see some new buyer acquisition. As people first search on search engines, we're able to attract them in a more meaningful way. And then, offsetting those is the deceleration we had in StubHub. But as we look at the improvements that we've been talking about, I think they're making some modest progress for marketplaces and we'll keep updating as we go forward. Devin, you want to talk about StubHub.

Yeah. On StubHub, look, I think there are two things going on. One, we've mentioned before, which is we've got a very tough events-lapping landscape. StubHub is totally dependent on things that are out of its control, which are the lineup of concerts, teams, events. And Q3 last year was – actually, the second half last year was historically good and it's not quite breaking that way this year. So, that's just a factor of – it is what it is given the event landscape. However, I also want to point out that the ticket landscape is changing and we need to position StubHub for an evolving ticket landscape. One thing I'd mention is, in certain areas, we have competitors that are looking to restrict markets, restrict ticket access to supply, and we think that's terrible for fans. We've always been an advocate of open markets. We'll keep fighting for open markets. There will be more to say about that in due course. But it's, in part, the event landscape lapping and, in part, us positioning StubHub to be a winner and it's an amazing business and we still believe it's an amazing business in an evolving ticket landscape.

Thank you. Our next question comes from Ross Sandler of Barclays. Your line is open.

Great. I've got two questions. The first, a follow up on the active buyer comment and then one on operating margins. So, can you just talk about the current quarter active buyer growth and how that compares to the last couple of quarters? And maybe any color around – is the SEO and SEM channel growing the same, faster than prior quarters? And then, on operating margins, you came in pretty flattish in 3Q year-over-year. You've guided to fairly consistent, flattish for 4Q. normalized the accounting changes for next year, do you feel like we're at a stable operating margin looking forward to that actually be some improvement as you lap the Korea COGs impact that started earlier this year? Thanks.

Yeah. A couple of things. On the trailing three, I think I would just say that the underlying dynamics that I laid out aren't that different or that significantly different, which is retention getting modestly better, SEO is getting better on the back of structured data and StubHub pressurizing. I don't really see a massive shift in the underlying trailing three that I would call out. On the margin profile, as you rightly called out, the margin was sort of flat year-over-year. There was some foreign-exchange pressure, roughly 50 basis points, that we offset with productivity to hold margin flat. And so, we feel good about that. And as you called out, Q4 is kind of more the same. As we look to next year, certainly, the margin dynamics, it's a bit too early to call out. Specific to the accounting changes, ASC 606, as I mentioned, I don't – the dynamics of moving some number – 2016 was $330 million – into revenue, into expenses is going to change the operating margin calculation, although the underlying operating income and underlying economics don't change. And as we finalize the other accounting changes that may change over the course of this quarter, we'll update you on that in 2018 and then give you an outlook for the margin rates as we go forward.

Thank you. Our next question comes from Ken Sena of Wells Fargo Securities. Your question please.

Thank you. Can you maybe just talk a little bit more about the drivers in terms of the gap up in your C2C versus the B2C in terms of the growth rate there. Maybe any pockets of strength that you're noticing as you look at GMV growth geographically? And then, just maybe one final, if you would, the Korea, 1P program, based on your learnings there, can you say anything about appetite to maybe expand a program similar to other categories or other geographies? Thank you.

So, Ken, I'll take – let me take B2C and C2C. First off, as we called out, C2C at 9% is a nice acceleration, six points quarter-over-quarter. There's a couple of things – a few things actually that changed. First off, we've launched a simplified listing flow that leverages our catalog, particularly in mobile. And we're starting to roll that to a large amount of users across multiple markets. I talked about the incentives as it relates to take rates, but, obviously, incentives work for consumers and we did that particularly in Europe. And we continue to expand our price guarantee, our recommendations, which allows the sellers to update their item price with one click. And the results on those have been positive. And so, we feel like there's been some very specific product and pricing changes that we've done that has influenced the C2C business upwards. GMV strength, I think we've called out. And I would call out the UK and Korea internationally, and particularly Europe on a quarter-over-quarter. And in terms of Korea first party, Korea, we talked about this a little bit last quarter. But Korea is a little bit of a different animal. It's almost primarily new in season. It's all B2C to speak of. And we've been experimenting, expanding the program where we offer select consumables that drive activity with our buyer base and it also is able to new recruit new active buyers in Korea that we've continued to call out. And so, as that continues, we don't have any plans currently to roll that out anywhere else, but that doesn't mean that we wouldn't. And so, right now, we're in the process of making Korea work as well as we can. And it's growing pretty well.

Thank you very much.

Thank you. Our next question comes from Ron Josey of JMP Securities. Your line is open.

Great. Thanks for taking the question. I just wanted to follow-up real quickly on Doug's question earlier in 4Q. And, Devin, your comments said growth won't always be linear. Last year, I think the rollout of some product changes in structured data was delayed to minimize the disruption to the holiday season. Given the amount of product changes you're putting out really and about to launch, fair to think that's not the reason for your comments around being linear, meaning structured data and everything else is launching as planned? And as a second part of that question, just on marketing, guaranteed delivery, new homepage relatively, image search, group listings, price match, can you just talk about how you plan to get the word out that eBay has changed so much? I knew the marketing plan, but specifically the products around the marketing plan. Thank you.

The first part of the question, look, I think Scott directly mentioned Q4 dynamics. We do expect continued improvement, but there are one-time and other factors that are impacting that, but the underlying trend continues. And as we've always said, there's not going to a hockey stick moment. This has been about continued steady improvement and we think it will continue that way. So, I think that's the Q4 dynamic. On the product side, it's marketing, right? I think we're seeing a good response. We're really happy with where we are. That doesn't mean we're done, but we're really happy with the pace of product innovation now built on the foundation that keeps coming into place around structured data. And, ultimately, it's about – really, for the first time, we're invoking a sustained brand campaign. I'll just remind you how early this is. We started in June in the US and other markets are on as late as a week ago. So, we're really in the first inning of marketing the eBay brand. And brands are a long cycle. They take time. But that's what we're going to do. We're going to keep making the product better. Ultimately, look, I think my own philosophy is the brand matters and that's why we're marketing it, but the most important thing is the customer experience. It's a great experience for buyers and sellers. If that works, people find out about it, and they'll joins us. So, that to me – the number one priority is nail the customer experience, keep making it great, keep evolving it. And then, second is, use our marketing leverage to bring new people to the site and we're doing both of those. And you'll see more of that in Q4.

Operator, we'll take one more question.

Yes, sir. Final question comes from Lloyd Walmsley of Deutsche Bank. Your line is open.

Thanks for the question. You guys talked a bit about partnering with new brands to help them kind of adapt to the changing retail environment and the Spring deal, in particular. Wondering if you can give us a sense of whether we should expect more partnerships in different categories, what might make sense there. And then, if you can also give us some color on how deals like this may make more sense on top of the structured data platform, any kind of intersection that should benefit from that?

Thanks. The short answer is they may. And we'll be opportunistic depending on the category. We're very focused on bringing differentiated inventory to the marketplace. So, if a partnership can help us with that, we'll certainly look at it. I look at Spring, but there've been others over the last year, 18 months. We did in art partnership with Sotheby's. We've done others where – that's inventory not finding its way to the marketplace and then it does through a partnership. But I'd also point out that most of our activity is a direct outreach to brands. I think that the dialogue with brands has changed a lot over the last even 12 months. Brands themselves are looking at a rapidly evolving retail landscape. They don't have confidence yet in their physical channels. And when they look at the deconstruction of retail, they have to think about where we're going to be in three years and who is going to sell for us. And I think they're looking at – there's going to be a couple of big digital or omni-channel portals in the world and we'd be one of them. So, frankly, brands that – we had a very tough time approaching and having a conversation about selling on eBay a year ago. It's now a very different conversation. And I think that's great. I think that we should be a very cost-effective channel for brands to reach 170 million or so customers around the world. And I'd just say also stay tuned on that. There will be more to say about our approach with brands in short order.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.