EBAY
#Thanks, <UNK>
Let’s begin with Q2 performance, starting on Slide 4 of the earnings presentation
In Q2, we generated $2.3 billion of total revenue, $0.45 of non-GAAP EPS and $517 million of free cash flow
We repurchased $507 million of our stock and this week our Board of Directors approved an additional $3 billion share repurchase authorization
Moving to active buyers
In the quarter, we increased our total active buyer base to 171 million while trailing 12-month growth was stable at 4%
Underlying the overall trends, we saw stable retention and continued positive momentum in new user acquisition with particular strength coming from the U.S
and Korea
On Slide 6, in Q2, we enabled $21.5 billion of total GMV, up 5%
By geography, the U.S
generated $8.8 billion of GMV, up 30%, while international delivered $12.7 billion of GMV, up 7% year-over-year
Moving to revenue, we generated total net revenues of $2.3 billion up 7% on an FX neutral basis and up 6% organically, both stable versus the prior quarter
We delivered $1.8 billion of transaction revenue, up 6%, and $511 million of marketing services and other revenue, up 9%
Turning to Slide 8. Our <UNK>etplace platform grew GMV by 6% in Q2, one point acceleration versus the prior quarter
GMV accelerated one point quarter over quarter to 5% and international GMV grew at 6%, stable versus the prior quarter
Underlying those trends, our B2C growth rate was 6% year-over-year and C2C growth was 3%, both slightly improving versus the prior quarter
Total <UNK>etplace revenue was $1.9 billion up 7% year-over-year, two point acceleration versus the prior quarter
Transaction revenue also grew 7% and accelerated two points versus Q1, one point faster than GMV as the pricing changes we announced in Q1, which are enabling increased investments to drive velocity for our sellers went into effect
<UNK>eting services and other revenue grew 4%, a deceleration of two points versus the prior quarter
The deceleration was driven by the elimination of certain third party ads on our site in addition to lapping significant Q1 growth from our co-branded credit card revenue, which is recognized annually in the first quarter
As we continue to shift our advertising strategy away from third party and towards first party advertising, this will favor transaction revenue putting ongoing pressure on MS&O revenue growth
Moving to Slide 9. StubHub GMV declined 5% year-over-year decelerating 11 points from Q1 while revenue grew 5%, a deceleration of 14 points versus the prior quarter
This quarter we lapped the strongest growth rates from all of last year in addition to facing into a weaker events landscape as <UNK> discussed earlier
While we will continue to face comps tough comps through most of Q3, we believe Q2 will be the low point of growth for this year
Moving to Slide 10. In Q2, Classifieds grew revenue 11%, one point acceleration versus Q1. We’re seeing strong growth across our key markets driven by improved user traffic and engagement, partially offset by ongoing monetization headwinds as traffic shifts to our mobile app platforms
Turning to Slide 11 and major cost drivers
In Q2, we delivered non-GAAP operating margin of 27.3%, which is down 180 basis points versus last year, 80 basis points of which was driven by a stronger U.S
dollar impacting all spend categories
I will focus my remaining comments on the operational dynamics of our expenses
Cost of revenue increased year-over-year driven by our Ticketbis acquisition, our first party inventory program in Korea and incremental investments in eBay customer support
Q2 sales and marketing expenses decreased as a percentage of revenue as productivity and marketing channels and reallocations across platforms more than offset increased <UNK>etplace brand advertising
In June, we launched a new multichannel brand campaign in the U.S
which will rollout across our key international markets throughout the remainder of the year
Product development costs were relatively flat as a percentage of revenue as we are now lapping increased product investments from the second quarter of last year
We continue to drive operating leverage to fund ongoing investments in key areas such as the expansion of structured data and the product experience enhancements across our platforms
G&A expenses were up year-over-year driven by the addition of Ticketbis operating expenses and investments in data, security and employee benefits and services
Turning to EPS on Slide 12. In Q2, we delivered $0.45 of non-GAAP EPS, up 5% versus prior year with FX negatively impacting EPS growth by five points
EPS growth was driven by revenue growth and the net benefit of share repurchases partially offset by the cost dynamics described earlier
GAAP EPS for the quarter was $0.02 down $0.36 versus last year
Our GAAP results were negatively impacted this quarter by a non-cash income tax charge of $311 million caused by the foreign exchange remeasurement of a deferred tax asset related to the ongoing realignment of our legal structure
As always you can find the detail of reconciliation of GAAP to non-GAAP financial measures on our press release and earnings presentation
On Slide 13 in Q2 we generated $517 million of free cash flow, which was down 16% on a year-over-year basis primarily driven by timing differences of cash tax payments
CapEx was 8% of revenue in Q2 and we continue to expect to be in the range of 7% to 9% of revenue for the year
Turning to Slide 14. We ended the quarter with cash, cash equivalents and non-equity investments of $13.6 billion of which $4.9 billion is in the U.S
Our capital allocation strategy is designed to manage the capital structure in a way that optimizes our financial flexibility, access to debt and our cost of capital to enable capital return and drive long-term shareholder value
In Q2, we raised $2.5 billion of debt, which we plan to use for general corporate purposes, repayment of our near-term debt obligations, share repurchases and M&A activity
Additionally, we repurchased 15 million shares at an average price of $33.79 per share amounting to $507 million in total
We ended the quarter with $479 million of share repurchase authorization remaining and as I previously mentioned our Board of Directors approved an additional $3 billion authorization this week
We remain committed to capital return at a minimum of 50% of free cash flow for the full year and we will continue to be in the market opportunistically at levels above that
Before discussing our Q3 guidance, I’d like to remind you that we will start to utilize hedge accounting to better protect revenue from currency movements in the second half of 2017. As I mentioned on our January earnings call, we implemented a new hedging program that is intended to reduce volatility of our top-line from foreign exchange
Going forward are hedging results will be recorded in our net revenue line and not our interest and other line
With that let’s turn to our Q3 guidance on Slide 15. We are projecting revenue between $2.35 billion and $2.39 billion representing organic FX neutral growth of 6% to 8% year-over-year
Our guidance assumes continued improvement in marketplace volume and revenue growth
We expect non-GAAP EPS of $0.46 to $0.48 per share representing year-over-year growth of 3% to 7% on an as reported basis
EPS growth will be driven by revenue growth and the net benefit of our share repurchase program offset by continued investments to drive improved user experience and to market our brand
Additionally, we expect FX to impact us by approximately five points of growth on a year-over-year basis
For Q3, we expect GAAP EPS in the range of $0.30 to $0.32. For the full year, we continue to expect revenue in the range of $9.3 billion to $9.5 billion, organic FX and revenue growth of 6% to 8%, non-GAAP operating margin in the range of 29% to 31%, non-GAAP EPS in the range of $1.98 to $2.03 per share and free cash flow of $2.2 billion to $2.4 billion
Assuming foreign exchange rates remain where they are today, we would expect revenue dollars to be slightly above the high-end of our guidance range
We are updating our full-year GAAP EPS guidance to $1.65 to $1.75 per share reflecting the impact of the previously mentioned non-cash income tax charge recorded in Q2. As our legal structure realignment process continues throughout this year, it may result in further non-cash adjustments that are not currently factored into our GAAP guidance
In summary, we are seeing positive momentum and we expect to launch an increasing number of product enhancements throughout the remainder of this year in addition to increasing our brand advertising to drive improved consideration in traffic
As we significantly changed the eBay user experience, the improvement in our results may not always be linear
However, we believe we are investing in the right initiatives to meet our commitment to accelerate growth
We are on the right track and execution will be key for the second half of this year as we continue to set the business up for longer term success
Now, we’d be happy to answer your questions
Operator? Question-and-Answer Session
No, you covered it
Yeah, let me work backwards real quick, first off on active buyers
As <UNK> called out excluding India we grew active buyers by 5%, which accelerated nearly a point quarter-over-quarter with particular strength in the U.S
and we’d call that also augmented by Korea
Three dynamics under there, some of which we’ve talked about, some of which I’ll just expand upon
First is retention
We continue to see that stable as we exposed more users to our new experiences
New buyers, we see new buyers coming particularly from our new SEO landing pages based on the structured data pages that that underlie that
And we’re starting to activate the brand much more at scale than we have and we expect that to supplement new buyer growth with increased consideration
This is in early phases, but we’re happy with the early start
If I go back to your first couple questions, first maybe start with guidance
You know as I called out the Q3 organic revenue as well as the total year organic revenue of between 6% and 8% is really going to be based on the acceleration that we expect to see in marketplaces GMV and revenue
The pricing change that we made will continue to favor transaction revenue and much of that as I call that my remarks will be reinvested to try and accelerate the pace that we see in our growth
What was the other one? Active buyers…
Yeah, let me double click real quick on <UNK>etplaces GMV
If you back up here, we’ve accelerated <UNK>etplaces GMV from 4-ish to 5% to 6% over the course of the last year, and this has been driven by the U.S
, which has accelerated roughly one point per quarter over that same time period, while international has been relatively stable
So we’ve made the most improvement, as <UNK> called out, to our foundation and as well as changes to the <UNK>etplaces ecosystem in the U.S
and we’re in the – and we’re further along in the brand activation, as <UNK> called out, in the U.S
And those improvements, the changes in the ecosystem, the brand are in the process of rolling out across our platform and our properties internationally
And so in a global ecosystem, it’s highly dependent on many factors
But as I said, things won’t always be linear, but we believe we’re making the right investments and we’re making balanced trade-offs to drive that growth, and our outlook and guidance assumes that
Yeah, I mean, we talk about Classifieds and eBay as two different platforms because they’re two different sites
But the fact of the matter is we go after the same segment, consumer segment, as <UNK> talked about
And so increasingly, what you’re seeing in each of the – in some of the major markets is a blending of that inventory to try and make sure that we’re addressing customer needs across to do different sites and platforms
And I think it’s been very successful and it’s always been a go-to-market strategy together in their respective markets
And if you go back to some of the conversations we’ve had in the last few quarters, we’ve invested a lot in structured data and we’ve invested a lot in new experiences
And I think you’re seeing that pay off in our parts and accessories experience, which is also where we’re seeing nice growth in very differentiated based on the experiences that we’ve developed
As I mentioned in my prepared remarks, if FX rates remain where they are today, then all I was calling out was that the revenue dollars that we report at the end of the year would be at or above, really above the high end of the range
That said the organic FX neutral growth rate of 6% to 8% remains and that’s driven by the dynamics we just talked about
