eBay Inc (EBAY) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to eBay's Q3 2010 earnings call.

(Operator Instructions).

As a reminder, today's conference is being recorded.

Now it's my pleasure to announce your host, Tracey Ford, Director of Investor Relations.

Good afternoon.

Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2010.

Joining me today on the call are John Donahoe, our President and Chief Executive Officer, and Bob Swan, our Chief Financial Officer.

We are providing a slide presentation to accompany Bob's commentary during the call.

This conference call is also being webcast on the Internet, and both the presentation and the call are available through the investor relations section of the eBay website at investor.eBayInc.com.

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 in talking about our Company's performance.

You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call.

In addition, management may look forward-looking statements relating to our future performance that are based on current expectations, forecasts, and assumptions, and involve risks and uncertainties.

These statements include, but are not limited to, statements regarding expected financial results for the fourth quarter and full-year 2010, and focus on the future growth of the payments and marketplaces business.

Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to the continuing impact of the global economic downturn; changes in political, business, and economic conditions; foreign exchange rate fluctuations; the impact and integration of recent and future acquisitions; our increasing need to grow revenues from existing users in established markets; an increasingly competitive environment for our businesses; the complexity of managing increasingly large enterprise with broad range of businesses at different stages of maturity; our need to manage regulatory, tax, IP, and litigation risk, including risks specific to PayPal, Bill Me Later, and the financial industry; and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability.

You can find more information about factors that could affect our operating results in our most recent annual report on our Form 10-K and subsequent quarterly reports on Form 10-Q, available at investor.eBayInc.com.

You should not rely on any forward-looking statements, and we assume no obligation to update them.

All information in this presentation is as of October 20, 2010.

We do not intend or undertake no duty to update this presentation.

With that, let me turn the call over to John.

Thanks, Tracey, and good afternoon, everyone, and welcome to our Q3 earnings call.

Today, I will talk about our results for the quarter and how we are sharpening our focus on our strategic priorities and growth opportunities, and then Bob will give more operating details and provide guidance before we'll answer your questions.

Each quarter, I've consistently highlighted the three ways in which we are driving our growth.

First, we're focused on customers, measured by net promoter score, velocity, and market share, with a portion of our senior executive compensation tied to customer satisfaction.

Second, we are focused on technology to drive increased innovation as seen in areas such as mobile, platform, and our overall user experience.

And third, we're operating more efficiently, taking $2 billion out of our cost structure over three years to reinvest in growth.

Our focus on these priorities is paying off as we make progress each quarter against our goals, positioning PayPal to be the leader in global online payments and positioning eBay as a global leader in e-commerce and mobile commerce.

In Q3, both revenue and earnings exceeded our guidance.

Excluding Skype, revenue increased 10% and non-GAAP EPS was up 14% year over year.

PayPal drove strong growth in revenue, total payment volume, and active registered accounts.

EBay continued to improve key metrics such as net promoter scores for active users, which are up globally, and sold items, which were up almost 13%, excluding Gmarket.

Now let's take a look at the results from each business unit.

PayPal had a great quarter, expanding its leadership position in online payments and gaining share across global e-commerce.

For the fourth consecutive quarter, PayPal's total payment volume for merchant services grew at 40% or more year over year.

This consistently strong growth reflects what more and more merchants worldwide understand -- PayPal is good for their business.

PayPal helps drive incremental sales by providing merchants access to a global base of 90 million active accounts.

And for both merchants and buyers, PayPal's secure digital wallet provides a safe and convenient way to pay online and via mobile, enabling frictionless domestic and global trade.

PayPal's penetration on eBay continues to grow, reaching 70% in Q3, up more than four percentage points over last year.

We continue to see great synergy between eBay and PayPal.

And eBay is proving to be just as powerful a customer acquisition channel for Bill Me Later as it was for PayPal.

But more on that in a minute.

All in all, we're making significant progress against our long-term growth priorities and strategies, and I'd like to take a brief moment to touch on three examples to illustrate PayPal's momentum and opportunity.

First, Bill Me Later is beginning to demonstrate its potential.

BML had a strong quarter with TPV growth accelerating to 53% in Q3.

And we are seeing promising early results from BML's expansion on eBay.

With prominent positioning in eBay's checkout flow, BML acquired 60,000 new accounts in Q3 and doubled the TPV it generated on eBay versus the prior quarter.

And when buyers use BML on eBay, their purchases are two times larger than the average order size.

So, consumers are seeing the benefits of BML offers and we are very pleased with these results.

As growth accelerates, we believe BML is continuing to manage its credit portfolio well and is effectively controlling risk and credit exposure.

My second example highlights PayPal's continued expansion of its global leadership and the strengthening of its local competitive offerings in markets around the world.

I've talked before about Asia, where PayPal continues to sign large merchants like China Airlines, and PayPal is building alliances throughout the Asian region.

For example, PayPal launched with DBS, Singapore's largest bank, in Q3.

More than 4 million DBS consumers can now use their bank accounts to shop online with PayPal.

And PayPal launched its first co-branded prepaid card in Asia with Money Online, one of Malaysia's largest payments companies.

In addition to Asia, I want to highlight the opportunities PayPal has in Latin America, where we are beginning to establish a strong and growing presence.

For example, PayPal has localized our presence in Brazil, the region's largest market, to grow our business and to better serve the over 2 million registered accounts we have in the Brazilian market.

We are beginning to offer payment capabilities tailored to the preferences of Brazilian consumers.

PayPal has great potential in Brazil and Latin America, and we intend to continue aggressively pursuing opportunities in that region.

The final example I'll touch on today is mobile payments, where PayPal is driving tremendous momentum and share growth.

This year, mobile TPV on PayPal will exceed $500 million, and PayPal continues to drive innovation in the mobile area.

For example, customers can now use their iPhone to take a photo of a check made out to them and upload it to PayPal to make payments.

Next week, PayPal is hosting more than 2,000 developers in San Francisco at our second annual Innovate developer conference.

We will introduce new technology, new partnerships, and new services that squarely position PayPal as the leader in innovation for mobile payments and digital goods.

I hope that we'll see many of you at the event.

Turning to eBay, our team continues to make progress in improving the customer experience and driving customer-focused innovation in areas such as mobile and fashion.

Revenue was up 3% over last year and core GMV growth was stable, both in the U.S.

and internationally.

With our U.S.

business stabilized, we are making the adjustments necessary to capitalize on the pricing and search changes made earlier this year and we are continuing to innovate around the user experience.

For example, eBay is delivering a better experience in key categories, such as fashion and electronics, where we've made it easier to shop in three popular categories -- MP3 players, GPS navigation systems, and DVDs.

We're also offering consumers incredible value with our Daily Deals and Fashion Vault sales.

And we're delivering more convenient ways to shop on eBay anytime, anywhere, and to get the best deals through our mobile innovation.

Mobile commerce is exploding, and eBay is leading the way globally across multiple platforms.

Our eBay iPhone app has been downloaded almost 13 million times around the world, and mobile shoppers can now find eBay on all four major smartphone platforms -- Apple, Android, BlackBerry, and Windows 7.

Compared to the 600 million in GMV we did last year, this year we expect mobile GMV to easily exceed our $1.5 billion goal.

As we enhance our product experience and drive innovation, overall buyer satisfaction is improving on eBay, based on net promoter scores related to trust, value, and selection.

And our top-rated sellers continue to thrive and grow on eBay.

In Q3, they generated about 35% of core GMV in the U.S.

and their same-store sales accelerated two points to 9% year over year.

With holiday shopping about to begin, we are reminding consumers of the eBay buyer protection program.

Expanded earlier this year, this program improves trust on eBay by covering the purchase and shipping price if consumers don't receive their merchandise or if the item is not as described.

EBay Bucks, our first-ever rewards program, is also gaining traction.

Over 3 million shoppers have enrolled in the cashback program since its launch in August, spending five times more than those not enrolled.

So as you can see, eBay is increasingly offering a better shopping experience than a year ago, and we'll keep on making it better.

We'll continue to work aggressively to drive product improvements, expand and leverage our global presence, deliver unique shopping experiences in key verticals, and drive innovation.

Turning briefly to the other parts of our business, StubHub is celebrating its 10th anniversary this week with another great quarter behind it.

Revenue was up 9% and ticket sales up 13% year over year, reinforcing its position as the ticket marketplace that offers the most choice and availability.

And in our adjacent e-commerce formats, Classifieds was up 15% in Q3 on FX-neutral basis versus the prior year, with strong growth in Canada and in our Mobile.de business.

So in summary, Q3 was a strong quarter with great performance at PayPal and stable results at eBay.

Our Company is strong.

We're leveraging our global portfolio to balance strengths, challenges, and opportunities.

We are investing in growth and delivering consistent performance.

Each quarter, we make progress and are driving improvements, and we're staying focused on our three priorities -- serving our customers, leveraging technology to create innovation, and driving operating efficiency.

Now, I'll turn it over to Bob for more details on the quarter and our financial outlook before we take your questions.

Bob?

Thanks, John.

During my discussion, I'll reference our earnings slide presentation that accompanies the webcast.

All growth rates mentioned in my prepared remarks represent year-over-year comparisons, unless I clarify otherwise.

Overall, we delivered strong third-quarter results.

We came in above our guidance on both the top and bottom line.

We continued to execute against our strategic priorities for both PayPal and marketplaces.

During the quarter, we generated free cash flow of $580 million and repurchased approximately $300 million worth of eBay shares.

Today, we announced that our Board of Directors has authorized an additional $2 billion stock repurchase program, which is intended to offset dilution from our equity compensation programs.

For the full year, we are raising both revenue and EPS guidance.

Let me provide some more color.

In the third quarter, our combined businesses generated net revenues of $2.2 billion, up 1%, or a 10% increase excluding Skype.

Organic revenue was up 12%.

Foreign exchange decreased growth by two points, and the inclusion of Skype in 2009 results decreased growth by nine points.

Our third-quarter revenue was approximately $94 million above the midpoint of our guidance, due to topline growth from both marketplaces and PayPal, as well as the weaker dollar.

Third-quarter non-GAAP EPS was $0.40, a 4% increase, or 14% excluding Skype.

Non-GAAP operating margin was 28.7%, up 30 basis points from Q3 last year.

The year-over-year increase in EPS was primarily due to strong topline growth and solid productivity, partially offset by lower take rates and the impact from FX movements.

Our third-quarter EPS was $0.04 above the midpoint of our guidance range, primarily driven by stronger topline growth.

Now let's take a closer look at our segment results.

Starting with our payments business, PayPal posted another great quarter.

Total payments revenue was $838 million, representing growth of 22%.

Total payment volume increased to $22.4 billion, or up 26%.

We continue to expand our global footprint with 41% of our TPV from outside the U.S.

for the quarter, compared to 39% in the same quarter last year.

Merchant services TPV grew 40% in the quarter and accounted for 62% of PayPal's total TPV in Q3.

On eBay, PayPal's TPV growth rate was 8%.

Penetration of addressable GMV increased 410 basis points.

PayPal transaction margin was also strong, increasing to 62.2% in the quarter.

The global trends of decreasing take-rate and modestly increasing transaction expenses continued, but were offset by a significant improvement in transaction losses.

The transaction loss improvement was primarily a function of better fraud detection and prevention, along with a shift of much of the cost of our buyer protection program from PayPal to marketplaces.

These improvements were partially offset by an expansion of our PayPal merchant services buyer protection program.

PayPal's segment margin came in at 19.3% in the quarter, up 450 basis points year over year.

The increase from last year was primarily the result of operating leverage, higher transaction margins, and continued improvement at Bill Me Later.

Let me touch on a few key operating metrics for Bill Me Later, which continued to make solid progress in the quarter.

Bill Me Later's gross receivable balance at quarter-end was $767 million, up 37%.

The quality of the portfolio continues to improve, and the charge-off rate has continued to decline, down to 7.3% from 8.6% in the second quarter.

Risk-adjusted margin declined 120 basis points sequentially to 11.6%, as we saw an impact from moving from a 90-day financing program to a six-month financing program to comply with the Card Act.

Now let's move to our marketplaces business.

Overall, marketplaces achieved net revenues of $1.4 billion, a 3% increase.

Marketplaces' FX-neutral revenue was up 6%, transaction revenue was up 3%, and marketing services and other revenue was up 6%.

Marketplaces generated 57% of its revenue internationally this quarter.

Beyond transaction revenue, we connect buyers and sellers through alternative formats, which are becoming increasingly important to marketplaces.

We expect these businesses to contribute approximately $900 million in annual revenue in 2010.

In the third quarter, marketing services and other represented 16% of marketplaces' revenue and had FX-neutral growth of 11%.

A couple specifics, our classifieds business has a number of -- has the number one or two market position in eight different countries.

This business had FX-neutral growth of 15% in Q3, driven by strong results from Canada and Mobile.de.

The classifieds format continues to accelerate growth in the number of visits to our properties around the globe, with an increase of 21% in the quarter.

Global advertising increased by 15% on FX-neutral basis, driven by strength in international display advertising.

A few quick highlights on marketplaces' operational metrics.

Active users increased to 93 million, up 4% year over year.

Sold items grew 13% ex-Gmarket, a two-point acceleration from the second quarter, driven by accelerations in the U.S.

of two points and the UK of three points.

U.S.

core GMV growth was 2% in the quarter, flat with Q2 2010.

While sold items increased two points, GMV was negatively impacted by lower ASPs due to a broader selection of well-priced inventory.

International core GMV grew 4%, or 8% on FX-neutral basis.

The growth in Europe, particularly the UK and Germany, continued to be strong, despite tougher comps from a year ago.

China's cross-border trade remains one of our fastest growing markets, but was negatively impacted by the year-over-year weakening of the euro and the British pound.

Our Korean business continued to exhibit solid growth, but GMV slowed as we continued to be less dependent on coupons that don't generate buyer loyalty.

Marketplaces' segment margin was 40% in Q3, down 230 bps from a year ago.

The main drivers of the change include increased buyer protection programs and FX, which were partially offset by savings from operational excellence initiatives.

Our global take rate was 8.04% in the quarter, up 16 bps from last year, or flat, excluding vehicles and StubHub.

Turning to operating expenses.

In the third quarter, our operating expenses were 44% of revenue, essentially flat on a year-over-year and sequential basis.

We've invested more in product development, while achieving productivity gains in our G&A infrastructure.

We expect this trend to continue.

From a cash perspective, we generated free cash flow of $580 million during the quarter.

Cash, cash equivalents, and non-equity investments totaled $6.1 billion at quarter-end.

During the quarter, we repurchased 13.1 million shares of stock at an average price of $22.89 per share for an aggregate price of $300 million.

While we had a strong balance sheet, we only had $915 million in the U.S.

at the end of the third quarter.

As such, we've announced a series of steps that we believe will enable us to leverage our strong offshore cash position more effectively and maintain the flexibility to capitalize on M&A opportunities in both the U.S.

and abroad, while redistributing excess cash to shareholders.

We continue to be optimistic about the medium- and long-term growth of the Bill Me Later receivables portfolio.

During the third quarter, we implemented a strategy to finance the BML's new customer portfolio growth with cash available through PayPal's Lux bank.

This will enable us to leverage our strong offshore cash position to fund our domestic loan portfolio.

Also, the Board approved the establishment of an up to $1 billion commercial paper program to fund a portion of Bill Me Later's receivables.

To capitalize on historically low U.S.

interest rates and maintain financial flexibility, our Board approved the issuance of up to $1.5 billion in term debt financing under our existing shelf registration statement.

We may seek to execute these transactions in the near term, subject to market conditions.

Our Board of Directors has also approved an additional $2 billion stock repurchase program with the purpose of offsetting earnings per share dilution from our equity compensation programs.

Now, let me turn to guidance.

We have outperformed our expectations through the first three quarters of the year and enter the holiday season with confidence in our payments business, and are also seeing strength in the marketplaces business relative to our prior expectations.

We are increasing our full-year guidance we provided in July by $200 million on the top line and approximately $0.06 on the bottom line.

First, we expect PayPal will continue its strong performance and will expand merchant coverage and share of checkout.

Second, we expect marketplaces will have a strong performance in Europe and a stable performance in the U.S..

And third, the weaker U.S.

dollar should increase revenue by approximately $80 million and add $0.01 to EPS.

For the full year, we now anticipate revenue of $9.05 billion to $9.15 billion.

This represents growth of 12% to 13%, excluding Skype.

We anticipate non-GAAP EPS of $1.67 to $1.70, which represents growth of 14% to 16%, excluding Skype.

In summary, we had a strong first three quarters with double-digit top- and bottom-line growth.

From a business standpoint, our global footprint is expanding, innovation is accelerating, and ops excellence has freed up capacity to invest in the business and strengthen our competitive position.

We've repurchased $300 million in eBay shares during the quarter and we increased our authorization under our share repurchase program by an additional $2 billion.

We've increased our financial flexibility through an offshore funding vehicle for Bill Me Later growth, and the Board approved a potential commercial paper program of up to $1 billion and a potential term debt financing of up to $1.5 billion.

And last, we've raised our full-year guidance for both revenue and earnings per share.

And with that, operator, we'd be happy to answer any questions.

(Operator Instructions).

Youssef Squali, Jefferies & Company.

Hello, John and Bob.

Congratulations on a strong quarter.

Two quick questions.

First, on BML, you seem to be putting, I guess, some more muscle behind it, now that -- with risk and [credit] exposure seems to be coming down.

Can you help us gauge just how big that opportunity is, relative to PayPal?

I think you've talked about it in the past.

If you could maybe just help us gauge again how big that business could become over the next, say, couple of years.

And the second, John, at the analyst day, you talked a little bit about growing marketplace revenues in line with e-commerce, and -- for this year and faster than e-commerce next year.

Considering the numbers you just put out this quarter, do you feel that that's still on track, particularly the faster than e-commerce grew at for 2011.

Thanks.

Youssef, thanks for the question.

Let me handle Bill Me Later.

First, at the time of the acquisition, back in late 2008, we were very bullish about what Bill Me Later on a stand-alone business was, obviously what PayPal on a stand-alone business was, but most importantly what the combination of those two companies could be.

Our enthusiasm about the opportunity has not waned at all.

Over the last 18 months, we've been focused on more the credit decisioning quality in a very opaque economic environment, and secondly, integrating the product both in the PayPal wallet and in the eBay view item flow.

So now, we're in a position where we've gotten good traction during the course of the year.

We feel better about credit decisioning.

We feel better about our ability to use data to supplement Bill Me Later's decision engine.

But most importantly, we now have a product that is launched on the eBay platform.

And as a result of that, we're pretty bullish about where we are today, the prospects for the future, and relative to how big the opportunity can be, we'll let that play itself out as we continue to focus on getting more presence on all merchants, including eBay.

And Youssef, on your second question regarding our marketplace revenue growth rate, I think we will grow revenues roughly in line with global e-commerce this year.

Recall that 60% of our business is outside the U.S., and when we look at kind of the weighted average growth rates of the markets, we think we're more or less on track for that.

Now obviously underneath the surface, we have a whole portfolio of different markets, so in the UK, for example, we are growing faster than the market.

And Germany, we're going roughly in line with the market.

The market growth rates seem to be jumping around in Germany a little bit, and obviously in the U.S., we're growing more slowly than the market.

And if I look into 2011, I don't think we'll get the U.S.

up to market growth rate, although I intend and believe we will close that gap significantly.

And our ambition is still to grow the global portfolio faster than the weighted average of e-commerce revenue growth rates.

But frankly, I am going to worry about that four months from now when we talk about 2011.

What we are real focused on at the moment is having a real strong Q4.

(Operator Instructions).

Scott Devitt, Morgan Stanley.

Congratulations on the quarter and the integration of BML.

Just one question.

On the -- John, on the e-commerce growth, if you look at sold items growth in the countries that you're actually operating in from a marketplace standpoint, it actually looks like you're growing at around the rate of e-commerce from a sold items standpoint today, but the delta is really partially eBay Bucks in the U.S.

and other mechanisms that you've used to improve the experience for sellers.

So I was just wondering if you could talk through where we are in that process, how aggressive you are going to be with eBay Bucks in the future, and where we are on the pricing grid for sellers going forward.

Thanks.

Thanks, Scott.

As I said, I look at three metrics -- net promoter score; velocity, which is sold items, which is really my proxy for buyer frequency, how frequently the buyers are using our product; and then, market share measured by revenue growth versus the market growth rates.

And as you mentioned, as you know, a year ago we said we were really focusing on sold item growth because it was an uncertain economic time.

We wanted to increase the frequency with which our buyers are using our product.

And as you mentioned, the good news is global sold item growth, when you take out the effect of Gmarket, which is a little distorting, was 13%.

In fact, in the U.S., sold items was up 2% to 7%, and frankly in the U.S., bought items which -- was up 5% to 13%.

So, consumers are using eBay with more frequency, and that's a good thing.

But as you also mentioned, the ASPs have come down, and while sold items are up five points, we lost -- or up seven points in the U.S., we lost five points to ASP declines, and so, GMV is at 2%.

So we look at the whole funnel and look at the health of each element.

As I look into 2011, we're going to keep focusing on trying to get buyers to use our product more frequently.

I hope we're through a cycle of lower ASPs that has come from a lapping issue and also the change we made in North America earlier this year.

So I hope ASPs stabilize a little bit, and that over time, sold item growth and GMV growth and revenue growth are more or less in line with one another.

But we'll continue to do things on the marketing front that drive growth.

We don't really care if it's a contra revenue issue or a marketing expenditure; we treat them as one and the same.

And the real goal is to keep the positive momentum that we are seeing among our buying community and among our -- with our competitive position.

Scott, the only thing I would add maybe specifically as it relates to eBay Bucks is, as John indicated, we've launched this operational excellence program, which is nothing more complicated than identifying efficiencies to do things smarter, which we can in turn reinvest in growth.

EBay Bucks is an example of historically marketing spend, which as you know is our largest line item in the P&L that brought traffic, where we're migrating more to the traffic that comes building loyalty, so they'll come back again and tell their friends.

EBay Bucks is a component of that.

We've, whatever, three quarters into the program now and we feel pretty good about the role that that plays in driving frequency and loyalty from our consumer base.

But the last thing, just on pricing, we've made a series of pricing changes over the last couple of years -- lower insertion fee, more backend loaded where our interest and our sellers' interests are jointly aligned, and lots of other changes around the edges, and we feel today that we have a pricing with our sellers for a take rate that is as competitive or more competitive essentially across all geographies and all verticals.

So, that's one that we'll continue to be competitive, but right now in light of all the changes we've made, we feel pretty good about where we are and how our interests are aligned with our community of sellers.

Spencer Wang, Credit Suisse.

Just a two-part question, on marketplaces.

First, I guess for John or Bob, your take rate was up year over year and flat to slightly up sequentially.

Could you just talk about some of the factors that drove that higher?

Was it just a mix of product that you mentioned, Bob, I think vehicles and StubHub, or was there something else?

And then just on marketplaces' margins, I think year to date, marketplaces' margins are running down about 100 basis points, so we're just wondering if that's a reasonable expectation for the full year or will you get closer to the flat level you talked about earlier.

Thanks.

Spencer, thanks.

First, on the take rate, essentially we're flat once you adjust for mix dynamics of vehicles and StubHub.

So the core take rate is essentially flat year over year.

Secondly, as it relates to marketplace margins, a couple of things.

We were -- the normal cyclicality during the course of the year is we're highest in Q1 and Q4; we're lowest in Q2 and Q3.

Our expectations is that is how it will play out during the course of 2010.

We were clearly lower in the second and third quarter, higher in the first, and our expectation implied in our guidance is that topline will grow Q-on-Q and margins will expand a bit.

In terms of what that means for full-year margins, I think we are still in the low 40s for 2010.

Sandeep Aggarwal, Caris & Company.

Thanks for taking my questions.

It's two questions.

One is, John, can you please highlight the changes you're seeing in buyer behavior or merchant behavior as -- in your fashion and consumer electronic categories, where you have made [per up] changes to provide more category level experience?

And then, on the mobile side, can you give us some information to compare and contrast user behavior in terms of the average order size or the number -- or total number of orders per visit?

Someone coming to eBay.com through mobile versus through a PC interface.

Sure, Sandeep.

Let me just take an example, a couple of examples on each of your questions.

On -- let's just take the fashion experience in terms of merchant behavior.

Probably the biggest shift you've seen in the last six to 12 months is we now have a growing number of recognizable brands and retailers that have opened up outlet shops on eBay.

So if you were to go to the eBay UK home page and just click on outlet shops, you will see that Savile Row has an outlet shop, so the luxury suit maker.

Jigsaw, which is a major UK company, has an outlet shop on eBay.

Ed Hardy has an outlet shop on eBay.

And what these large merchants and brands are doing is they're finding eBay is a good place to sell their liquidation stock and sell their excess in ways that doesn't cannibalize their core businesses, and so it's a good incremental channel.

Buyers are responding to that.

Buyers, while they love the new fashion experience, and it's engaging, what they really love is getting great products at great prices, and so, the feedback we're getting from buyers around the fashion experience is that they love getting the kind of inventory they can get on eBay, they can't get anywhere else, in terms of front-name brand-new items at significant discounts.

In consumer electronics, if you look at what we've done recently, we're collapsing -- in DVDs, GPS navigation systems, and iPods and MP3 players, we're collapsing from a listings-based approach to more of a product-based approach.

This builds on the catalog work that you've heard Mark Hargis talk about.

That really went in -- only went in across the site two or three weeks ago.

So, it's still too early to tell any major reaction, but we know from our testing that consumers first want to find the product, then they want to evaluate which seller and what price and what condition they buy the product in.

So, we're excited about that.

On mobile versus desktop, I can just tell you this, mobile users are four times as active as a non-mobile user.

The key thing to remember there is mobile users don't only use mobile.

They engage with more frequency across their desktop, their laptop, and their mobile device, and so we're going to continue to push mobile aggressively.

It increases buyer engagement, increases buyer frequency.

James Mitchell, Goldman Sachs.

Thank you very much for taking the question.

Digging a little bit into your comments about fourth-quarter marketplace in the U.S.

seeing stable growth trends, do you think that the U.S.

marketplace is already enjoying the benefits of the fee changes in March or do those benefits still lie ahead of us?

And also, do you see any impact on fourth-quarter GMV from the removal of duplicate listings?

Thank you.

James, those two questions are related.

So, the short answer is no, I do not think we've seen the full benefits of the changes we made in -- at the end of March.

I think U2 was a little rocky.

I think Q3, we stabilized things, as evidenced in the sold item growth, and as you mentioned, we're now getting to the next set of adjustments, which are primarily reducing duplicate listings in some of the hard goods categories, so we announced that to sellers two weeks ago.

That goes into effect this week, I believe, so I guess it was three weeks ago.

And I think that will improve the buyer experience.

And then, second, we are increasing exposure for higher ASP items because we think those have got a little bit pushed down with all the SIF inventory coming on.

So, we are looking forward to the benefit of those actions, as well as the other changes we're making in Q4 and Q1 into next year.

And, so, that's it.

Duplicate listings is absolutely part of the adjustment process.

Steve Weinstein, Pacific Crest Securities.

I was hoping you could provide a little more explanation about the change in ASP and the GMV trends.

I'm trying to understand, is the lower pricing a function of mix or is there kind of deflation within categories or how is that shaking out?

And then, I was also hoping you could provide a little bit more explanation about what's happening in Korea and your strategy there, just given how much the market you actually -- goes with your platform there.

What are you trying to do now?

You mentioned eliminating certain types of coupons, but what is the new strategy there, I guess?

I'll grab [crea].

So, Steve, on ASPs, really three things.

One is the healthy thing and the healthiest thing is that shoppers are searching for greater deals.

And, so, we see even within a category where someone may have bought the latest BlackBerry Storm a year ago, this year or two years ago, last year.

This year, they are buying a brand-new one, but maybe it was last season's model or a refurbished model.

So we are seeing people trade down in what they are buying.

Second, related to that, we've seen an increase in cross-border, and in particular an increase in Chinese -- imports from Asia.

That's had a significant impact on U.S.

ASPs, and we think that's fundamentally a good thing.

If someone is finding an import cross-border item to help stretch their dollar a little further, that's a good thing, but that's providing some downward pressure.

Then the third thing that I think is a little more temporary is when we made the change at the end of March, bringing SIF inventory into core search, there was a lot of lower-priced inventory that was sitting in SIF.

It's now in core search, and it was part of what was driving the spike in successful items, which is a good thing, but I think in the process probably pushing down higher ASP items in search results, and that's one of the adjustments we'll make now as we tune things.

My hope and our goal is to see ASPs stabilize over the next couple of quarters.

On Korea, we're about 12 -- 15 months now, I guess, into the combination of IAC and Gmarket, and we feel great about where that combined business is, the synergies we're generating, and how we are positioned to win in that market.

As we think about kind of the best practice sharing that goes on between Gmarket and IAC, one of the things that Gmarket has done historically is they were a much higher coupon -- use of coupons to generate traffic, and as we dissected the two different approaches, we've migrated to a model that's more -- similar to here in the U.S., more loyalty-based versus coupon-based, and as a result, GMV and sold items growth slowed in the quarter, revenues accelerated because coupons are a contra revenue, and we made more money.

So, we're still integrating these two platforms.

We're trying to take the best of both, put them together, adjust and adapt, and continue to take steps to improve our competitive position, and we feel pretty good about where we are.

The other thing that's fun about that acquisition is we've taken the Gmarket founder, Mr.

Ku, who is a great entrepreneur and disruptive player, and unleashed him on Japan, and so he is starting a Gmarket-like business in Japan where he is a significant owner, we are a significant co-owner, and we will see what happens.

We're not counting on a lot in our numbers, but I think it's another asset we got with that acquisition.

If I could just follow up on the ASPs, so would you think by sometime next year, currency-neutral GMV growth would be in line with item growth?

You know, it's hard -- the reality is -- the way I've learned to look at this, Steve, over the years is I look at successful items, GMV, and revenue, and they are never perfectly in balance, especially when you look at the global portfolio.

So I look at all three to gauge the health of the business and I would just encourage you to do the same.

And that's why we report all three, so that you can see it and you can see transparently what's going on.

Stephen Ju, RBC Capital Markets.

John, you brought up PayPal's prospects in Asia, so I thought I'd follow along that line of thought, but how do you intend to navigate the requirement by the Peoples Bank of China that would look to have 100% local ownership of third-party payment processors?

Thanks.

I actually think that's not what they're requiring.

But what's going on in China -- there's two parts to -- when you think about China.

The first part is, and I'll remind you, is we have a booming cross-border business out of China.

In fact, this year between eBay and PayPal, over $2 billion will trade over eBay and PayPal of outbound volume from China using eBay and PayPal.

So we are enabling Chinese sellers.

Now when I say Chinese sellers here, greater China.

I'm including Taiwan and Hong Kong.

Greater Chinese sellers are selling roughly $1 billion in eBay and roughly $1 billion on PayPal off of eBay.

So, the -- there is a very strong business at eBay and PayPal are enabling out of China today.

Secondly, you've heard us talk about our partnership with China UnionPay, and that's a way to link PayPal's capabilities to an enormous card base, if you will, of Chinese consumers, so that they can buy things from outside of China using PayPal.

And we are in some early test phases, but China UnionPay has got over 2 billion cardholders in China.

And then, third, the domestic business, the state of play there is, you are correct, today that a non-Chinese entity cannot manage or run a domestic payment system.

However, the government will, any month now, issue some licensing guidelines where they'll begin taking applications from non-Chinese financial institutions or payments companies like PayPal to participate in Chinese domestic payments.

And so, we fully intend to apply under those guidelines.

Those guidelines may require us to partner with someone locally, but we certainly -- that's on our radar screen, and I believe that they've given themselves a year after they announced it, the guidelines, roughly, to before they adjudicate.

And so in the interim, we're going to keep pushing our cross-border, keep pushing at our China UnionPay partnership, and be in a position, hopefully, a year to two years down the road to have PayPal be an important competitor in Chinese domestic payments.

And I'm sure during that time, the process and clarity around what is and isn't required will become -- will just become much clearer as we go, and we'll adjust and adapt along the way.

Brian Pitz, UBS.

Just a quick mobile follow-on.

Would you comment on any specific top shopping categories that you're seeing?

And on a separate note, any comments on the competitive independent private-sale sites.

Are any of these businesses of potential interest to you or will you really just continue to work directly with vendors to add inventory to eBay directly?

Thanks.

Brian, on mobile, you know what's fascinating is -- it's across the board.

I would say two things are different than what I would've expected with mobile.

One is we're as prone to sell a Maserati as we are to sell an iPod on the mobile devices.

And so -- which ties to the second area that I think is interesting when you look at it.

It's turning out mobile is not a separate shopping experience.

Mobile is simply another screen or another device in a consumer shopping experience.

So what you see is, you see people starting some of their shopping on their laptop and finishing it on mobile, or starting on the mobile device and finishing on their laptop.

And so, the power of mobile is partly the application, but partly it brings eBay's listings and PayPal's payments capability to consumers everywhere, no matter where they are.

And that's part of the reason we bought Red Laser, frankly, because it's bringing eBay and PayPal offline in the sense that a consumer can access eBay's inventory and PayPal's payments capability when they are standing in a store looking at an off-line item.

So, I think mobile will be an enormous trend, and we are seeing good traction across the board.

On private sale sites, you know we're always keeping our eyes out.

We felt a year ago these sites tended to be very richly valued, and many of the sites are having a little more challenge having year-over-year comps, given their growth.

And we now have Daily Deals and we now -- you know, private sales we didn't see as a defensible segment, per se, and so between Daily Deals and our outlet shops and things we're doing, we're providing private sale-like capabilities, and over time, we certainly wouldn't shy away from partnering or buying a private sales entity if we saw an opportunity that would accelerate our progress.

I'd go back to the comments John made about a year ago, Brian, on our focus is on buyers and sellers and the format of their choice.

And as formats change and evolve, and there's demand for merchants to reach consumers and consumers to reach particular inventory, we'll adjust and adapt accordingly.

And John gave a few examples of those, and I'm sure that we'll continue to look for those opportunities to connect buyers and sellers in a variety of different formats.

Douglas Anmuth, Barclays Capital.

Thanks for taking the question.

Two things.

Just first, as you're further along here in the marketplaces' turnaround, can you just talk about how you're thinking about the key differences between the international and the U.S.

business now, and in particular, just sort of what the additional learnings and takeaways are that you can transfer over to the U.S.

to get that growth rate to match where you are on the international side?

And then, second, in terms of your 4Q guidance, how much is factored in there in terms of the impact of cross-border now that you're obviously seeing stronger euro and pound?

Thank you.

All right, Doug.

Let me take the first and, Bob, why don't you take the second?

You know, on -- international versus domestic, it's not a whole lot different than what I've been saying all the way along.

80% of the changes we've been making, we've been making in U.S., UK, and Germany, our quote-unquote big three markets, relatively.

We customize them a little bit.

The change where there is the most difference is the fundamental pricing and search change we made when we bought SIF inventory into core, and lowered insertion fees to align that of our sellers.

We knew that was a much bigger ecosystem change in the U.S., and as I said, it took us sort of three to four quarters in Europe to make tuning and adjustments, and I think the same thing is true here.

The second area where the UK is a little bit ahead, that I think the U.S.

is rapidly catching up, is just in getting more and more brands, and our business development and effort working with the brands to get them to put their inventory onto eBay.

So, those would be the two areas I'd probably highlight the most.

Just -- on the cross-border, this has been and will continue to be a bigger and bigger chunk of both of the eBay and the PayPal platform.

And during the second and the third quarter, in light of the dramatic move in currencies, we still -- particularly in greater China to rest of world, we still benefited quite a bit from cross-border trade.

It's just the deceleration of the growth because of currencies had slowed things down a bit.

Excuse me, so I would expect the market is pretty adaptive to changes in currency and I would expect, given where rates are, clearly relative to where they were back in the June timeframe, we would expect and have incorporated into our thinking about the fourth quarter is higher cross-border trade in both businesses.

Here's the -- I might just make one additional comment that's really, I think, interesting about cross-border trade and speaks to the power of our platform.

One is just the volume of cross-border transactions that happen on our platform, and one of the stunning things to see is how quickly and linearly it moves with exchange rates.

It is -- there's nothing we do other than have this global platform where close to 20% is cross-border, and we have had a lot of movement in exchange rates, both -- on all directions in the last year, and it's stunning how fast the trade flows move and change.

So, the volume of cross-border, I think, is a real strength of our platform, that it can -- that can happen so fast.

And then, how it converts into U.S.

dollar accounting, which is really what we're talking about in our guidance.

That's almost a separate matter and that's why we always break out FX neutral.

But I believe one of our core competitive strengths is our cross-border platform and I believe that will grow in importance, not decline, as the world becomes more of a global market.

Operator, we have time for one more question.

Imran Khan, JPMorgan Chase & Co..

Thank you so much for taking my questions.

Two questions regarding PayPal and the payment business.

One, obviously there's a lot of discussions ongoing on Durbin amendment.

I was wondering if you have any more new update how that may help your -- and how that impacts your business.

And secondly, now that Visa owns CyberSource, have you seen any impact from that in your business?

I'll -- on the Durbin, I think we're all collectively trying to still translate the written word to the actual application across the industry.

So, I don't think -- we don't have any more clarity, frankly, than the rest of the world.

Regardless of which way it goes, the one thing that we're clear on is that we will make the necessary adjustments to ensure that our value proposition of driving volumes for merchants at relatively low cost will continue to be the way PayPal operates.

We'll stand behind our merchants and the propositions that we offer.

And then, going into the competitive landscape, look, I would say that there's a lot of activity going on in the payments space, and our challenge is to stay out in front, continue to innovate in our core business, and innovate around the edges to strengthen our proposition for merchants and consumers.

And the opportunity for us, if we focus on merchants' needs, consumers' needs, and leverage our global platform and the inherent characteristics, that there is a significant opportunity for us to continue to distance ourselves vis-a-vis other emerging players in the space.

And that's what we're focused on.

I think, as usual, Bob understates.

I'll say, Imran, just in closing, when I look at PayPal's competitive position, this is -- payments is an enormous space and there are going to be lots of people entering it.

But this is not an easy thing to do, and when we look at PayPal's assets, whether it's the 90 million active users, 190 countries, 24 or 25 currencies, the risk management, and unique capabilities, the ability to connect into 15,000 banks, comply with any money laundering rules and regulations, and know your customer regulations, banking licenses where necessary, we think PayPal is a significant step ahead.

And then, the recent decision we've made to double down on the innovation front by opening up the platform, what we're beginning to see is an awful lot of the new, innovative start-ups in the payments space are building on top of PayPal.

If you were to come to our Innovate developers conference next week, you will see mobile applications, digital applications, social networking applications that are now being built in partnership and on top of PayPal, as more and more people conclude that's the way to scale your global payments capability.

So, we are always paranoid about competition, but we are absolutely stepping on the gas on PayPal.

And with this, we'll wrap it up for the quarter.

Great.

Thank you, John.

(Multiple Speakers) look forward to talking to you in three months.

Ladies and gentlemen, this does conclude your conference.

You may now disconnect.

Have a great day.