Ladies and gentlemen, thank you for standing by and welcome to the eBay Q2 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Joe Billante, Vice President, Communications and Investor Relations. Thank you. Please go ahead.

Thank you, good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the second quarter of 2020. Joining me today on the call are Jamie Iannone, our Chief Executive Officer and Andy Cring; our interim Chief Financial Officer. We're providing a slide presentation to accompany Andy's commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com. 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. Additionally, all revenue and GMV mentioned in Jamie's and Andy's remarks represent FX neutral year-over-year comparisons unless they indicate otherwise. In this conference call, management will make forward-looking statements including without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties and our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K and Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of July 28, 2020 and we do not intend and undertake no duty to update this information. With that, let me turn it over to Jamie.

Thanks Joe and good afternoon, everyone. Before I turn the call over to Andy to discuss our recent performance and near-term outlook, I'll take some time to share thought on my return to eBay, highlight a few observations from the quarter and share our vision for the company. I'm thrilled to be speaking with all of you today as CEO of eBay. I've long admired this unique company for its special culture and its enormous potential. I spent my first 100 days primarily focused on three areas, immersing myself in the business, connecting with our buyers and our sellers throughout the world and meeting different teams across the organization. Throughout these engagements, I've been fortunate to observe, firsthand, the significant opportunity we have ahead of us. Our purpose has always been to empower people and create economic opportunity for all, and there's never been a better time where this has mattered more than right now. We're a globally recognized brand with a strong heritage, incredible assets and a talented and dedicated team who serve our passionate and loyal customer community. As we look into the future, we have a clear vision to build on these strengths and through a technology led reimagination of eBay, we'll become the best global marketplace to buy and sell. Before I get into our vision for the future, I want to frame where we are in the context of today's market. Consumer behavior is rapidly evolving, and this dynamic has been accelerated by COVID-19, contributing to a significant volume acceleration and new customer acquisition. This led to a very strong quarter, coming in ahead of the recently increased expectations we shared in early June. Volume was strong across most major markets in the Marketplaces business, growing 29%, our highest quarterly growth rate in 15 years.…

Thanks Jamie and thank you all for joining today. The last 90 days have been an incredibly exciting time for eBay. First, we've begun the process of ramping managed payments, which will greatly improve the experience for both buyers and sellers, while delivering incremental revenue and operating profit of the business. Second, we're extremely pleased with our announced agreement to transfer our Classifieds business to Adevinta for $9.2 billion in cash and stock. And third, we had an outstanding quarter financially. Our Marketplaces business continue to see significantly higher growth levels for traffic, buyers, conversion, GMV, revenue and operating margin and our business is recovering faster than our previous outlook. On the basis of that strength, we are raising our full-year guidance for revenue, earnings and free cash flow. Marketplaces on platform GMV growth in both the US international markets was within the mid 30% range for the quarter with acceleration across all major verticals compared to Q1. We are well positioned to benefit from the offline to online shift that's occurring as we continue to deliver significant year-on-year volume growth. As Jamie said, while there is much to be proud of, we are certainly not satisfied. The current strength in demand is providing an opportunity for eBay to attract and retain new buyers and sellers and we're investing during this period to position the company for a higher long-term sustainable growth rate. Turning to slide four, in Q2 we delivered revenue of $2.9 billion up 22% on an organic FX neutral basis, above the high-end of our most recent guidance. Non-GAAP EPS was $1.08 up 63%. Non-GAAP margin was strong at 34.3% inclusive of our ongoing investments and managed payments. We generated $964 million of operating cash flow and $866 million of free cash flow. We returned to $112…

[Operator instructions] The first question comes from Ed Yruma of KeyBanc Capital Markets. Please go ahead. Your line is open.

Jamie, great to work with you again. I know you mentioned you're starting a lot of competitions with sellers. I know you’re trying to improve the selling process. I guess what complaints do you hear from the sellers and how quickly can you act on it? And then as a follow-up, obviously there’s some great momentum because of the current situation. I guess any specific plans to maintain those buyers and keep them active? Thanks.

Yes, good to hear your voice Ed. So on the seller side, what we're really focused on is how do we make that initial process of coming on to the platform extremely easy. So simplifying the registration process, simplifying onboarding and simplifying getting up and running on the experience. And then as they progress and build their business on eBay, how do we give them more tools and capabilities to help them continue to grow that business on eBay. We talked about one, which is enhancing our stores product, bringing that into the native app. I'll be honest with you though, I think we have a lot more work to do in areas like that where we can make it even better and give them increased tools. And so that's going to be a huge focus for us on that second pillar of being the partner of choice for sellers. On the momentum, we feel great about the 8 million new buyers. It's been -- it's more than the last six quarters combined. And what we're really focused on is turning those buyers into enthusiasts and keeping them on the platform. So you saw us this quarter reinvest in areas like app downloads and convincing new buyers on the platform to get the app. That's where the majority of our transactions happen on the platform. And I talked about some of the innovations that we're doing there like the dark mode on the app which is exciting, but we're also working on revamping the whole onboarding process for buyers, so how they come in, their first 30 days. And we've just started that this quarter to really take advantage of the new buyers. But that's part of the vision that we've laid out is really just enhancing that ability to bring buyers along on the journey and increase their lifetime value with us. But we're excited by what we're seeing, excited by the early momentum of what we're witnessing from those buyers.

Your next question is from Brian Nowak of Morgan Stanley. Please go ahead. Your line is open.

Thanks for taking my questions. I have two, the first one the 2Q or sorry the 3Q GMV commentary. I think you talked to sort of teens growth inferred in the guidance, but it sounds like the US has been sort of steady. So the question is what are you seeing in the US that is steady? Is that still growing over 30? And what are the assumptions in sort of the deceleration in GMV throughout the quarter and the guidance. Why would that slow down? And then the second one, sort of bigger picture question. Maybe talk to us a little bit about the demographic of these new buyers you’ve brought on, are you cracking into new types of household, new income of households? Who are the new people and how are they different from the older eBay buyers? Thanks.

Yes, so I'll start and take the second one and then Andy maybe you can take the first one. So what I’d say on the demographics of the new buyers that we're bringing is it's really across the board and across all geographies. So all of our major market saw strong a buyer growth and it's really two fold. One, it's new buyers actually coming on to the platform and then it's also reactivating existing buyers or buyers that had a bit on the platform but hadn’t purchased for us for a while. And then obviously a huge amount of growth with also just our existing buyers buying more. But what we're working on and you probably saw this in some of the TV advertising that we're doing and some of the digital is really appealing to the fact that small businesses are bringing unique inventory on to eBay and attracting buyers across the board. A key focus for us over the next couple years will be our GEN-Y customers. That’s why we've made certain investments in our sneakers business and growing that and also why a feature like dark mode in mobile app also appears to younger demographic. So it will be a continued focus for us, Brian, over the next quarters and years. Andy, do you want to take the first one?

Hey Brian, on guidance, look, as I said in my prepared remarks, there is a lot of unknowns. I'll say that we know more today than we did in April and we see more trends. I don't want to get into specific country and monthly trends, but we've seen an increased correlation with mobility around the world. And as I indicated in my prepared remarks, particularly Germany, Italy and countries where the mobility is improving and approaching in some cases pre-pandemic levels, we've seen a moderation in growth rate. That growth rate is still about pre-COVID levels, but it's lower than it was at the peak. And then similarly in the US, yes the growth rate is stronger than -- its not stronger, it's sustained, but it's stronger than some of the other countries given the given some of the progress on the virus that we had in the US.

Your next question is Doug Anmuth of JPMorgan. Please go ahead. Your line is open.

I have two, first Jamie, you talked about the tech-led re-imagination of eBay. Can you just talk about the company's ability to retain and attract the right engineering and product talent to make this happen and how you shift eBay to be more positioned with this tech-driven approach? And then just second, can you also just talk about the decision to keep the 44% stake in Classifieds? Did you start there or how much was that influenced by the current environment and the recent pressure on the segment? Thanks.

Yes, so on the first one Doug, on the technology side, you're absolutely right. A huge focus for us. So first off, we have a really great world-class technology team in a lot of different geographies in the business. But we are focusing on augmenting that with even new capabilities. So we're building up our capabilities in AI and data science and computer vision. You may have seen features like easy image enhancing for our sellers. All that's coming out of kind of a next gen technology group that we've been building up. But it's a key focus for us because in that tech-led re-imagination, this company has been and always will be about how to create those game-changing technologies. To be candid though, there is also areas where we've got to get off of old legacy technologies. So part of it is just moving off of some of the older technology stack and modernizing that. The good news is that's in progress, but we're accelerating even that work. On the Classifieds deal, what I'd say is that we're really excited by the combination of the assets that our Classifieds business combined with Adevinta. When you look at the two of them together, it creates 20 leading markets in the classifieds business and creates the world's largest online classifieds business. So we're excited because it not only gives value to shareholders in the short term, but it allow us to participate in the long-term potential of this exciting new venture. And then the third thing that was important for us is now that we've divested StubHub and with his transfer of assets on Classifieds, it allows the whole management team, all of our technologists, the whole organization to focus on the Marketplace business. And then as you stated, in my remarks, I see a lot of untapped potential in that business. But there’s also areas where we haven't kept pace. And so I think that focus will also be good for the whole organization.

Your next question is from Stephen Ju of Credit Suisse. Please go ahead. Your line is open.

Okay. Thank you. So Jamie welcome aboard by the way. So it sounds like you want to consolidate a lot more of the out-of-season and as well as a more unique inventory, both new and used. So theoretically, you'll see a greater variety of merchandise and hopefully a spike in listings. But given the company's history with data and figuring out what people are buying and selling, what can you do to make sure that you maintain or even improve the buying experience? And secondarily, interested in following up with what you brought up earlier in terms of generating liquidity for consumers as they sell things on eBay. After they sold what they wanted to sell, they have the money which they can go spend anywhere. So what can you do to make sure that the money that they generated on eBay stays on eBay? Thanks.

Yes, so great question. I'll start with the liquidity one. One of the benefits of the managed payments that we're launching and scaling here, we added several new countries and now we're able to really grow and ramp that with the changes a week ago with the expiration of the PayPal agreement. It is the exact ability to do what you're saying. So to make it easier for sellers and buyers to have their whole wallet and payments contained on the platform, it gives us more flexibility of things that we can do to really make that easy for them and so obviously transference is a huge benefit. The other thing I would say is that just getting buyers to sell, so just getting them to try it out, bring some inventory on, makes them a better buyer and it's because they've played on both sides of the marketplace. They've experienced the power of eBay. And so what we've seen is there a more than doubling of benefit to their buying behavior just like getting them to try selling. So we're really happy with that flywheel effect, it's something we're going to continue to lean into. As I've talked about the first pillar of consumer selling, that's the key piece of it. To your question on the inventory, we feel really beneficial because of the open and level playing field that we have. We can bring on that new consumer selling inventory, which is really valuable to have on the platform because it attracts a lot of buyers along with the SMB inventory that's there. And when I say we're focusing and getting back to non-new in-season it's not saying that you're not going to be able to buy a ton of new product, in-season product on eBay. We'll have that and always have that. But in terms of our focus, we think there is this massive opportunity, $500 billion in what eBay is fantastic and unique at. And we can build great fertile experiences. We can attract that supply. And that's where I believe there is just an enormous amount of untapped potential in going after it. And so really making sure that we nail everything about the buying experience end-to-end, having extreme customer focus will allows us to capture the potential.

Your next question is from Thomas Forte of D.A. Davidson. Please go ahead. Your line is open.

I have two high-level questions. So Jamie I wanted to know what success looks like from a sales standpoint? Do you aspire to have sustainable double-digit FX-neutral topline growth? And then second, I wanted to know what your preference was on capital allocation, M&A versus buyback versus dividend? Thank you.

Yes, so look, what we're really focused on is how do we improve the overall experience between buyers and sellers and create a really healthy business in the long term. So I think the things that we've laid out lead us to a long-term healthy growth of the core Marketplace business. We’re not going to quantify the long term what those numbers are, but I think the steps that we're going to take there will get us to a point where we're driving healthy growth. In terms of the capital allocation, we're going to stick really to the capital tenets that we've been talking about all along. And Andy, do you just want to reiterate what those are?

Look, I think if you look at the history of what we've done since separation, I think it's close to $20 billion or maybe a little over $20 billion of return to shareholders either through dividends or share buyback. And it's important to step back at that and then look at what we've done recently with StubHub. And our view is the most value we create for shareholders is going to be getting the Marketplace business back to growth. So we're going to continue to balance margin, growth rate, M&A, buyback in all of those different levers with the purpose of improving the performance of marketplace business and increasing shareholder value.

Your next question is from Colin Sebastian of Baird. Please go ahead. Your line is open.

Jamie, welcome back and thanks the vision for the Marketplace longer-term. And I'd like to start there, specifically going back to the technology reinvestments. We have seen some of that over the last four or five years with structured data. And so I hope you can provide a little bit more context on the scale of that investment. Is this more tactical things? I mean there's been investment in data science and AI already. Or is this with the re-platforming away from the older stack, is this a larger scale technology investment phase? And then secondly on managed payments, so congrats on that finally formally progressing. Was curious how that's not only the pace of managed payments transferring over, but also what the roadmap looks like in things like seller financing, buy now pay later, things that sellers and buyers had with PayPal that I assume are part of the eBay managed payments over time as well. Thank you.

Yes, so on the first question, it's two parts, it's one about where we're focusing our technology investments. And a key part of that is that I think for quite some time we were chasing a little bit the new in-season and not really focused on what's the core experience and how do we leverage technology in those key core verticals where eBay has an amazing stronghold and in the inventory in a non-new in-season where there is a over $500 billion opportunity. And so to be candid, I feel like there are certain areas we let niche competitors take business away from eBay that should be done on eBay and shows you the potential that we have on eBay, if we really focus our technology effort in those areas that we know are features, tools, capability and new experiences that help buyers and sellers connect. A small example of that is, while we don't have a huge pickup business and there's a lot of categories where people do meet in person to exchange goods. And we just made it more seamless through these QR codes for the buyer and the seller. It's kind of a magical experience, the money flows and that's the benefit of doing managed payments and technology together as we can create those experiences for buyers and sellers. On the managed payments side, what we're really focused on right now is scaling that business. So we've got a lot of work left to do in kind of opening up all of the remaining geographies, bringing more sellers on, etc. But once we do hit that point, yes, like we're talking about earlier, there's opportunities to do more and help connect, and make it more streamlined for sellers on the payments. We do have a buy now, pay later option, our monthly pay option. That's in partnership with PayPal. PayPal continues to be an option for how to pay on the platform and a key partner for us. But to answer your question, yes, we'll be continually looking at ways that we'll make buying and selling via payments easier, and managed payments gives us that flexibility.

Hey, Colin, maybe one more thing on margin rate. I just want to reiterate from my script the -- we remain committed to the margin commitments from last year, at least 2 points of margin by the time we get to 2022. And -- but through that time, we're going to -- you'll see us invest with balance and we're going to pace incremental revenue -- incremental investments with growth rate and earnings along the way. So no change to the long-term margin structure.

Your next question is from Ygal Arounian of Wedbush Securities. Please go ahead. Your line is open.

Hey, guys, thanks for taking the questions. So the [indiscernible] macro GMV level, just -- you noted in some of the international geographies that where mobility is getting back to normal, the growth rates go higher than pre-pandemic but coming down from the peak. Is there any way to quantify that a little bit more? Is it slightly above where it was before? Meaningfully above? And any way in the US to quantify it, think about what the contributions from stimulus has been? And is the pace of the pandemic, really the biggest piece of why the US GMV was so much stronger than internationally? And then one -- real brief one on payments, just thinking about where you have intermediated and managed payments has rolled out for those merchants, any positive signals you're seeing in terms of better conversion, anything else that's really giving you kind of good feel or good outlook of why and how managed payments can drive better opportunities for stronger GMV growth going forward? Thanks.

I'll start I think with the second one on US contributions. I think it's really hard to point to any one thing, particularly stimulus is having a major -- being a major driver. I'm sure there is some impact at some level. I going to point back to the best thing we've seen globally in terms of an indicator is mobility. So -- and I think it is fair to say the US is significantly stronger than international regions, just given the impact of the virus in the US. In terms of -- on the macro question on international levels of GMV, pre-pandemic versus post, I think I'd point you probably to the Q3 guide relative to Q2 actuals. If you have the US -- similar to Q2 levels and the company with moderation of -- from a 29% growth rate to a high teens, you'll start to see -- you can back into maybe a little bit of the pressure in international. In addition to the fact that internationally, keep in mind, Korea with relatively stable growth rates quarter-over-quarter and significantly lower with much less impact from COVID in Q2 and into Q3. So again, moderating growth rates but still sufficiently higher than pre-COVID.

Yeah. Then what I'd say on the managed payment side is a couple of encouraging things. One is the feedback that we're getting from sellers, generally very positive. The vast majority of them will see lower fees and have a simpler fee structure with the result of rolling it out. And a lot of them have signed up, pre-registered, so waiting for when we can open up the platform which we did two weeks ago. And I would say the same thing on the buyer side, especially for a new buyer, creates a lot less friction. And so we are excited and optimistic for what that means for the overall experience. And when I talk about a tech-led re-imagination, payments is the perfect example. It just makes the whole experience easier and better. We committed to it and put a lot of resources behind making it a great experience. And so far that's the feedback that we've been getting by both buyers and sellers.

Your next question is from Justin Post of Bank of America. Please go ahead. Your line is open.

Great. Thanks. Jamie, welcome back to eBay. A couple of questions, I guess, big picture thinking about how the management team is now compensated, is it relative growth to the e-commerce industry, is it overall growth, is it certain margin targets? Could you talk a little bit about the incentive team for the management team -- incentive structure? And then the company has gone through a pretty big period here of divestiture and cash returns. How do you think about if that could change, do you see adjacent M&A opportunities? Do you see a real chance here post-COVID to really accelerate growth? Just talk about kind of is there kind of a big change going on at eBay at this point or more of the same, but hopefully some innovation on the edges? Thank you.

Yeah. So our incentive structure really hasn't changed over the years and it's based on a combination of top and bottom line. On the M&A opportunities and the acceleration, the focus, what I'd say has changed is the whole organization is now really focused on the vision that I have outlined. Now that without StubHub and now with Classifieds transferred to Adevinta, you've got the whole organization thinking about this overall tech-led reimagination from technology, marketing, product and these three kind of key focus areas. And so, yeah, we will look at opportunistic M&A where we think we can really help accelerate that focus on the core business. But like I said before, we see a huge amount of untapped potential just in going after these key experiences in key verticals of getting back to that kind of core C2C selling. And moving this idea I think for some years, we were acquiring buyers at all costs and really focusing on how do we turn buyers into lifelong trusted relationships and putting all of our efforts across product, marketing, technology, etc., around that focus. And I think it's that focus and that lean-in on the technology side in a big way, that's going to allow us to capture it.

Operator, I think we've got time for one more.

Your last question is from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.

Great. Thanks. We obviously, talked about a lot of investments in technology, so I won't go down that path. But when you think about maybe the marketing side of things and sort of how you want to think about customer acquisition from here, particularly as the tailwind from the current environment that we're in potentially starts to dissipate, how should we think about the level of investment that you want to see? And to the extent that there is a path, there sort of an optimal channel mix that you see is sort of working better for eBay in the future than maybe what we've seen in the past? Given your background obviously, would really appreciate sort of how you're seeing that side of the opportunity.

Yeah. So look this quarter, on the marketing side -- Heath, a great question. On the marketing side, we were able to lean in pretty well to the new buyers that we are acquiring. So both with kind of brand advertising talking about the small businesses, but also in a less competitive environment on the performance side of the business. When I talk about marketing, it's not just the spend, but it's also just our CRM programs, how we communicate, how we leverage things like email notifications, etc. And I think that we've built some good capabilities over the years, but I think we have a massive opportunity there to help buyers get up the lifecycle in an even better way. So that will also be an opportunity that we're really focused on. On the channel mix, we have the benefit of obviously, having lots of different channels for driving it. I would say the newest ones that we're really focused on are acquiring the Gen Y customers and looking at new opportunities in paid social and going after and making sure that customer is attracted. I talked to kind of really understanding the categories that attract that demographic on the platform. And so, I think you'll see slight shifts in terms of the marketing mix that we're looking at. But overall, we tend to leverage all the channels that we have to maximize the ROI that we can get off of that spend. And as I talked about, we're really focused on how do we get not just a new buyer onto the platform, but how we turn that new buyer into an enthusiast. And that's where I think the real unlock and the power of the model lies.

Great. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.