Good day, ladies and gentlemen, and welcome to the eBay Q1 2019 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 follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Joe Billante, Vice President of Investor Relations. Mr. Billante, you may begin.

Thank you. Good afternoon, and thank you for joining us. And welcome to eBay's earnings release conference call for the first quarter of 2019. 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 at least three months 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 2019, and the future growth of 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 website at investors.ebayinc.com or the SEC's website at sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of April 23, 2019, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks. And before I start, let me just publicly thank Selim Freiha, who has been our Head of the Investor Relations and done a great job over the last couple of years, and welcome Joe. We delivered a solid first quarter, driven by healthy buyer growth, strong advertising performance and disciplined cost control. GMV declined slightly year-over-year, which was in line with our short-term expectations, as we noted last quarter. We returned $1.6 billion in capital to investors through share buybacks and our first-ever dividend payment. In Q1, total GMV was down 1%, our revenue was up 4%, while our active buyer base grew 4% to 180 million. Underlying these results, GMV on our Marketplace platform was down 1%, StubHub volume was down 2% and are Classifieds platform grew revenue at 12%. Scott will go into more detail on our financial results shortly. To begin, let me provide some context on our business. As we mentioned last quarter, we entered the year with the intention to reduce low ROI marketing spend while maintaining the focus on driving positive buyer growth with new product experiences and targeted marketing. In Q1, that's exactly what we did. We removed a significant amount of promotional spend that tended to subsidize higher priced items at low ROI. The impact of this change was lower GMV, driven by lower average price but steady sold item growth. In addition, we saw an impact to our business from the adoption of internet sales tax in the U.S., as well as value-added tax in international markets. A number of jurisdictions have enacted legislation requiring marketplace collection of tax. Without a small business exemption, this trend will increasingly impact small domestic sellers, making it harder for them to compete in an increasingly global and large merchant dominated world. On our…

Thanks, Devin. I'll begin my prepared remarks with our Q1 financial highlights starting on slide four of the earnings presentation. In Q1, we generated $2.6 billion of total revenue, delivered $0.67 of non-GAAP EPS, 2 points of non-GAAP operating margin accretion, $368 million of free cash flow, and we have returned $1.6 billion to shareholders through buybacks in our first ever dividend. Based on these results, we have increased confidence in 2019 and are raising revenue and EPS guidance for the full-year. Moving to active buyers on slide five. In the quarter, we increased our total active buyer base by 1 million to a total of 180 million, up 4%. We have maintained stable buyer growth, driven by dynamics we've previously discussed while coming back on lower ROI incentives. Turning to slide six. In Q1, we enabled $22.6 billion of GMV, down 1%, a 3-point deceleration versus the prior quarter. The U.S. generated $8.9 billion of GMV, contracting 6%, while international delivered $13.7 billion of GMV up 3%. Sold items growth remained flat, despite this deceleration in GMV. Moving to revenue on slide seven. We generated net revenues of $2.6 billion, up 3% organically, decelerating 2 points from the prior quarter. We delivered $2.1 billion of transaction revenue, up 5%, and $535 million of marketing services and other revenue, up 1%. Turning to slide eight. Our marketplace platform GMV was 1% in Q1, a 4-point deceleration versus the prior quarter. U.S. GMV was down 7%, a 6-point deceleration versus Q4. 5 points of the deceleration resulted from significant reduction in marketing, including contra revenue, and the dynamics associated with volume and average item price that Devin mentioned. We also see approximately 1 point of pressure from internet sales tax as sellers and marketplaces changed in remit taxes in the states…

Thank you. [Operator Instructions] Our first question comes from Eric Sheridan with UBS.

Thanks for taking the question. Maybe two parts. On active buyers, you continue to see strong active buyer growth. Can you give us a little bit of color about how those buyers might be acting differently, both positively and negatively than the broader cohort on the platform? And then, the second part of the question would be, how should we think about that active buyer growth translating into GMV growth and revenue growth as the cohorts begin to age, as you look through 2019 and through 2020? Thanks, guys.

Thanks for the questions. On the first part, we've been very careful to measure that and we don't see material differences between buyers that we've acquired recently, let's say in the last year than we have historically. There's a little bit of difference when we acquire a user as a guest versus a fully registered member on their customer lifetime value, but we're very focused. That's why we’re, as I said in my remarks, very focused on converting those guests to members. But, absent that, if you look just at time longitudinally, there's no real difference, and that's been really important that we focus on healthy buyers, not just any buyers. I have said before that it can dislocate quarter-to-quarter, even for several quarters at a time. But in the long run, buyers is a very excellent metric for where GMV wants to go. We said a year ago when GMV was above buyers that we were trying to get the buyer number up, and ultimately GMV came down to meet that buyer number. Now GMV is below that buyer number. But, if we keep growing the buyer number, we have confidence that the ecosystem is healthy and the financial metrics do follow that. So, that's the reason ultimately that we keep growing the customer base is that we think almost the best correlate to where ultimately GMV and then revenue and the other metrics that flow from that want to be is the buyer number over time. It doesn't have to be quarter-to-quarter. But that’s why we are focused on continuing to grow that customer base.

Thank you. Our next question comes from Stephen Ju with Credit Suisse.

So, Devin, I want to probe a little bit on the payment platform and how that's growing. You’ve announced $220 million in payments facilitated. And this is not a criticism per se but that dollar number is still a very small percentage of the overall GMV and pretty far under the limits of your agreement with PayPal. So, are you just being extraordinarily careful in the rollout in the transition or are you encountering issues with the internal buyer -- seller buy in? And any perspective on when you can theoretically onboard some of the other online payment platforms that otherwise were not available with PayPal, so you can maybe think about expanding your buyer base? Thanks.

Well, we are delighted with our progress on payments, and we're really -- we are gated by the operating agreement, and we're not that far from it. Now, on a run rate basis, I think the number we gave you, puts us close to 4% of U.S. GMV and we'll go right up to the limit as we come close. There is no reason to go any faster than that. I will say, we've had an outstanding Q of sellers. Remember, this is an optional program, nobody needs to be part of it. And we have grown the number of sellers and the pipeline is huge. And frankly, we couldn’t even onboard all of them right now. So, we’ve just been very gated. And remember, this has been done without PayPal until the very, very end. The entire trial that we’ve done so far has been done without PayPal. What we found is that it has not been an important gating factor to the on-boarding of sellers and we found that they're getting great performance. And we have a tremendous amount of influence over the means of buyer check payment at checkout. Those are the things we’ve learned in the last couple of quarters. Remember, we’ve added a bunch of new payment mechanisms already that were never part of our ecosystem, most notably Apple Pay and Google Pay, and there are many more coming in Germany. One of the reasons we chose German is that there are many, many forms of payment, direct bank transfer, direct debit, it’s a complicated market which is the reason we chose to do it. But, I would say, we are exactly on track. We are very pleased with our performance on payments. We’ll go right to the 5% line this quarter and then we’ll start scaling the 10%. And we are on track to begin a very rapid expansion of this program in one year and three months, but who’s counting?

Thank you. Our next question comes from Heath Terry with Goldman Sachs.

Great. Thanks. Couple of things I just wanted to try and clarify. One, with sales and marketing coming down as much as it did on a year-over-year basis, I know that was a priority for you as we -- as you look to get more efficiencies there. Curious about what you've seen in that trade-off. Whether it was in line with your expectations in terms of what level of spend you are able to cut versus the impact it had on GMS or even profit growth if you want to think about it at that level. And then, more just of clarification the strength that we saw in take rate, can we -- what's the right way to think about the components of that? I know hedging was part of it and certainly promoted listing’s helped, but if you could just give us a sense of sort of how we should either rank order or break those pieces down?

Yes. I think couple of things, first on take rate. Yes, a chunk of that was Promoted Listings, chunk of it was foreign exchange, but you also have the dynamic of the contra revenue coming down pretty significantly. And so, those were the primary drivers of take rate. If you look at -- if you relate it back to your first question, kind of an ROI, it was more or less in line with what we expected. We kind of thought it would cost us about 4 points of GMV growth, if I think about it for North America where the majority of the reductions occurred, and that was -- that's about what we saw. And as we think about the benefits that we saw in revenue, I think we will continue to look at the active buyer cohorts that we've got this quarter and see how that turns on the CLV basis going forward. But, I think at this point it was kind of right in line with what we expected and kind of felt good as it relates to the rest of the year for our plans for 2019.

Thank you. Our next question comes from Ross Sandler with Barclays.

This is Deepak on for Ross. The new segment margin is very helpful, thanks for that. It seems like the Classifieds segment margin is healthy at around 40%, EBITDA margin is probably a few points higher. Do you feel the pace of margin expansion that you saw over the past 2 to 3 quarters at Classifieds is sustainable? And then second question, on the core marketplace business, it sounds like Promoted Listings was up triple digits, what inning are we in currently with respect to promoter listings adoption. Is there a way perhaps to quantify it, either as ad load or maybe as a seller penetration at this time?

Yes. First, on the segment margins. We published the six quarters on the charts that you saw. When I say, the Classifieds business is driven by the mix, the margin rates are driven by the nix of businesses that you've got, and whether they are larger at scale platforms or whether they are subscale and growing in growth markets where you tend to have to invested a bit more. Alessandro and the Classifieds team have done an excellent job of balancing that over the course of the last several years. I don't look at their margin rates and go from here there to skyrocket. I think, what we look at it as where can we invest in the next incremental market or the next incremental vertical, like we did with the Motors.co.uk acquisition, that gives us a lot more bandwidth from a vertical expansion, and kind of serving the market and monetizing the market perspective, which is great. But, as you go to your course of growing a business, you're going to have some pressures on margins and the team has done an excellent job of balancing those and trading them off.

In terms of Promoted Listings, it's still very early. If you look at analogs to eBay, other marketplaces consistent rolled out products that are similar, our penetration and monetization rate are still in the early stage of scaling. And we know that because, as great as it is that we've had 800,000 sellers promote listings, that means that there are tens of millions that have not yet. And we also are just in the phase of fully integrating from the buyer side, where Promoted Listings show up in a unified search ranking. And there's a whole bunch of other plans to expand both the seller side and the buyer side. So, we think there's a lot of runway, and that's why we said last quarter that we think it's $1 billion opportunity. Remember, we're being very selective about removing third-party advertising as it scales. But, one of the things that I'm happiest about is that the seller NPS on this, if you will, their happiness with this product is extremely high. It's been one of the most successful new products we've rolled out from a seller perspective ever. And they're adopting it. And remember, it's completely optional. Nobody has to use it. And they are flocking to it. And to me, it's a way that you can, if you want, trade off some margin for some velocity. And there are many sellers that want to do that. So, we're really happy with it. It's early, and it'll be a key contributor to the $1 billion revenue advertising opportunity.

I mean, I think to Devin’s point, in Q1, we started to iterate on the capability to have merchandising promoted listing placements, and that gives another way and place for sellers to advertise in a way that I think is highly functional from a buyer perspective to give you new ideas or adjacent ideas as you go through the selection your item process and check out.

Thank you. Our next question comes from Colin Sebastian with Baird.

Great. Thanks and congrats on the quarter. I guess, bigger picture question first, going back to the take rate. I know there are a lot of moving parts. But I'm wondering, what you have in mind perhaps as more of a normalized take rate in the core marketplace segment, assuming of course that Promoted Listings and payments continue to ramp? And then, secondly, any progress on reengaging the older buyer cohorts? I know you've mentioned previously that being a goal as well, in addition to the new buyer growth. Thanks.

So, on the marketplaces take rate, it's kind of hard, as you think about the dynamics. If you look at the underlying Marketplaces take rate, it was 8.7%. It was up year-on-year with the favorability, the commentary I gave earlier on foreign exchange, Promoted Listings and a reduction in lower ROI marketing investments. But, that is context. Promoted – first-party Promoted Listings ends up showing up in transaction revenue. So, that inflates take rate. To Devin's point, that's completely up to a seller and it's selective as they choose to do that or not, we're certainly not forcing them to do that. We're just trying to provide a great experience that provides more velocity. And then, over time, you're going to -- and already what you're starting to see now is the take rate’s going to start to be favored by the payments monetization as well. And how that gets shown in each of the individual markets will be determined, but largely speaking, it's going to be shown likely in transaction revenue. So, that's also going to favor Marketplaces take rate. So, it's really hard to say. I think, the way I think about it is the underlying take rate of the core Marketplaces business, as you think about transaction revenue, probably is going to be stable with the normal fluctuations that we’ve talked about over the years. And the payments take rate is going to get added to that. And it's up to sellers whether they want to chose Promoted Listings or not.

On the buyer question, Colin, we’re very focused. I think the question was reengaging existing buyers. One of the ways that I'd say I categorize our effort is, there is a high focus in the Company now on frequency and engagement. And part of that is to reduce churn rates. There are still too many buyers who only shop let’s say one category on eBay. Let's say they buy camera equipment on eBay. But, we're really great if you look at our inventory and pricing across more categories, so the opportunity to get shoppers across -- to buy across categories is very high. And you can expect in the balance of the year a number of product and marketing initiatives to begin to target existing buyers with frequency and cross category shopping. We’ve got some really exciting plans, some of which we’re not ready to announce yet, but we think it’s a tremendous opportunity to engage existing buyers and to get them to shop and think of eBay more broadly than we do. And that also over time we think will have the impact of reducing the churn rate, which should help the buyer number. So, that's kind of been a big push here internally, and you’ll hear more about it as the year progresses.

Thank you. Our next question comes from Dan Salmon with BMO Capital Markets.

Devin, just a couple of questions. First, any updates on rolling out potentially cost per click or CPC pricing for Promoted Listings? I think you mentioned last call that that was probably coming this year, just be interested to hear an update on that. And then second, both you and Scott have reiterated a couple of times here those big long-term goals of $2 billion in revenue and $500 million in OI for payments. Wondering if you could help us elaborate a little bit on how you’re thinking about the timeline to that. You said a moment ago I think that once that year and three months is up, you are ready for a rapid expansion. Are we headed to those sort of numbers, fairly quickly? Does it take several years to get to that type of level? Would love to hear little bit more on that. Thanks.

Yes. On CPC, we said we’re definitely looking at it. I don't have anything in terms of a product announcement to make today, but we are definitely looking at solid demand for a CPC product, and we'll update you when we are ready to announce something on that. On payments, similarly, keep in mind, July of next year, we’ll not have constraints on the operating agreement. We believe that we’ll have much of the product functionality built but also we’ll be entering -- it's not that long after July that you start to enter a holiday period where you got to be careful of changes. We're not yet ready to give a full detailed rollout plan. But, I think you should assume that everything we're doing now, the significant investments we're making and we've been talking about this for a year, let me just reiterate. Number one, we're delighted with where we are. This has been a very successful, albeit gated, program. And if you told me a year ago, I could be here today, I'd be -- I take that anytime. So, that doesn't mean that we don't have a lot more work to do, but it does mean our first year we've been -- we've done exactly what we would have hoped we would have done and we are delighted with the seller reception and the buyer reception of more payment choices. You can expect, given the investments we're making and the trade tracks we’re laying down that we won't be shy come July of 2020 in the rollout. And we'll update more on the overall rollout plan probably later in the year or the beginning of next year. We're not going to do that yet, but I want -- it's important that you know that we are going to be aggressive.

Maybe just one quick one for Scott, just I might have missed a footnote or a comment here. But, the segment margins disclosed, are they GAAP figures, non-GAAP, EBITDA, what's all in those numbers, precisely?

Non-GAAP margin with the -- all the reconciliations are in both the press release and ultimately in Q. Yes.

Thank you. Our next question comes from Mark May with Citi.

Thank you very much. Just a couple of quick ones, please. The average take rate in international markets did not increase sequentially, certainly it had been prior to that. But, in the U.S., we saw quite a nice increase. Why the difference there -- maybe it's related to the adoption of Promoted Listings and kind of the lag effect there, but just wanting to get a little bit more color on the difference there. And how should we be thinking about international take rate kind of relative to the U.S., and just in general going forward? And I had one follow-up, if I could.

Sure. The majority of the -- in sales incentives that show up in the form of contra revenue, were reduced in the U.S. So, that favored the take rate in the U.S. And that was the difference, if you will, between the international and the U.S. take rate. What was your follow-up?

Got it. That makes sense.

Just a quick follow-up on that. Promoted Listings have seen broad adoption internationally. There is not a material difference in the uptake of Promoted Listings in the U.S. or in our international markets. It's been broadly adopted.

Thank you. Our next question…

I think there was a follow-up.

Mr. May, your line is still open. Okay. Our next question is from Edward Yruma with KeyBanc Capital Markets.

Last year, you made a lot of changes to the consumer experience, product improvements. And I know that there was a divergence between habituated users and non-habituated users. As you rolled some of them back and tweak some of the other changes, I guess, what changes are you find that are there still positive and so contributing versus what kind of have you rolled back in and do not intend to implement?

Yes . Thank you. We said a couple of quarters ago that what we would do is effectively bifurcate the experience of that new users who are getting more of the structured data product based experience and existing users were being landed more on the historical experience. That's what we've done. And one of the reasons we've been able to maintain healthy buyer growth is with this significant reduction of marketing that we are seeing great conversion gains for new customers that gives us a lot of confidence for the future. In the core, we're also seeing the impact now that the evolution of structured data is making; this year will be very focused on aspect coverage, meaning knowing the product is important but knowing the attributes of the product in many ways is even more important and will be encouraging sellers to contribute a great degree of richness to their listings because we know that that richness improves our catalog and drives buyer conversion. So I kind of hinted at that in my remarks, but you will see a significant expansion of the coverage and quality of our catalog this year and the early signs are very positive on convergence, so that's where we're going to focus. But for new users, we've been even more aggressive about product-based experiences and that continues and we're real happy with the results there.

Got it. Just as a quick follow-up, I know that there was an issue of those habituated users on the new product experience, are you -- have you able to bend the curve with them or get them to adopt some of the functionality that maybe the new customers are responding to strongly to?

Yes. What we're seeing is that what matters to our existing customers is less a fully product-based experience but more of the richness of listings that the catalog and structured data bring. So to me a product experience is you fully collapse listings into the product. There are definitely cohorts of buyers who love that. But many existing customers did not as we said several quarters ago, but what they do want is better listings and more inventory to surface through search, when they are richer attributes, so that's what we're focused on for the existing base and you'll hear a lot more about that through the course of this year.

Thank you. Our next question comes from Justin Post with Bank of America Merrill Lynch.

Hey. This is Mike on for Justin. We just want to ask if you could discuss the marketing strategy going forward and if you could provide any color on how you see the balance between efficiency and potentially constraining GMV growth in the longer term? Thanks.

We historically have been disciplined marketers. We're very focused on ROI, we're very focused on not wasting money in the way we market. And we did say last year over several quarters, we were pushing the efficient frontier to learn how far we could go without -- with getting a healthy return. There were some things we did that we liked and there were some things we did that over time just did not provide a decent return. What we found is that we were subsidizing some existing buyers at higher ASPs we weren't getting a return on that and that's what we withdrew. But going forward, our marketing strategy is to continue to market the brand. We've been a brand every month this year, we will continue to. We will market across channels, social search, obviously, our owned channels like CRM and we will be focused on acquiring new customers at healthy CAAs and driving healthy customer CLVs. That's kind of what we've always done and that's what we're going to do.

Operator, we'll take one more question, please?

Thank you. And our final question comes from Ygal Arounian with Wedbush Securities.

Hi, guys. Thanks for squeezing me in. So, just dig in a little bit more on the frequency -- the sold items being flat as well as your users active buyers grown 4%. So you talked about the active buyers being a good indicator even if it is okay at some point of future GMV growth. Just wanted to kind of ask what gives you the confidence that the dynamics and e-commerce and marketplaces haven't changed over the past two, three or four quarters and that kind of thing that you've seen in the past gives you a good indication to what you'll see in the future?

I mean, look, things are changing all the time, but I think what was in Scott's remarks is the best indicator, which is, we took direct action, we saw exactly what we had expected to see. So that doesn't mean that there isn't a change to the external landscape, there always is, but keep in mind we're changing as well. I think the eBay experiences the best it's ever been. But we've reduced a lot of subsidy, we've got the GMV result we expected and the ecosystem keeps growing, number of business sellers keeps growing, the amount of inventory keeps growing, number of buyers keeps growing. Those are positive signs. I mean, I guess in some theoretical world, it's possible that we won't grow if those metrics grow, but it's really hard to get your head around how that wouldn't happen. So that gives us the confidence to -- it gave us the confidence to give an updated forecast and we'll go from there.

Great, thank you. And maybe just one real quick follow-up, on the product-based listings and the existing users versus new users. So it sounds like what you're saying is you will continue at least for the time being to run kind of a side by side experience around the product-based listening, am I thinking about that correctly?

We've been doing it and we'll continue to do it, but that doesn't mean the existing experience isn't changing, it's just changing in a different direction with much more aspect coverage less full product based, doesn't mean it will never happen, but it's not what we're focused on right now.

Ladies and gentlemen, thank you for participating in today's question-and-answer session, as well as today's conference. This concludes the program. You may all disconnect and have a wonderful day.