eBay Inc (EBAY) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to eBay's first-quarter 2013 earnings conference call.

At this time, all participants are in a listen-only mode.

Later, we'll conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded.

At this time, I would like to hand the conference over to Mr. Tom Hudson, Vice President, Investor Relations.

Sir, you may begin.

Good afternoon.

Thank you for joining us, and welcome to eBay's earnings release conference call for the first quarter of 2013.

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

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

All growth rates mentioned in John and Bob's prepared remarks represent year-over-year comparisons, unless they clarify otherwise.

This conference call is also being broadcast on the Internet, and both the presentation and call are available through our Investor Relations section of the eBay website at www.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 and talk about our Company's performance.

You can find the reconciliation of these measures to the nearest-comparable GAAP measure in the slide presentation accompanying the call.

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

These statements include, but are not limited to, statements regarding expected financial results for the second quarter and full year of 2013, and future growth in the payments, Marketplaces and GSI businesses.

Our actual results may differ materially from those discussed in the call for a variety of reasons, including but not limited to changes in political, business and economic conditions, foreign exchange rate fluctuations, our ability to integrate, manage and grow businesses recently acquired or that may be acquired in the future, our need to successfully react to increasing importance of mobile payments and commerce, and the increasingly social aspect of commerce, an increasingly competitive environment for our businesses, the complexity of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity, our need to manage regulatory, tax and litigation risks, including risks specific to PayPal and Bill Me Later, and our need to timely upgrade and develop our systems, infrastructure and customer service capabilities at a reasonable cost, while maintaining site stability and performance and adding new products and features.

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 our subsequent quarterly reports on our Form 10-Q, available at investor.

EbayInc.com.

You should not rely on any forward-looking statements.

All information in this presentation is as of April 17, 2013.

We do not intend and undertake no duty to update this information.

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

Thanks, Tom, and good afternoon, everyone, and welcome to our Q1 earnings call.

We had a strong start to the year.

Revenue and non-GAAP EPS were both up 14%, and our new user growth continued to accelerate for both eBay and PayPal.

But before getting into our first-quarter results, I want to briefly recap what we shared with you at our Analyst Day three weeks ago.

Simply put, we see accelerating change in the external market.

Led by mobile, a commerce revolution is under way.

Technology is creating a new retail interface, and a new consumer experience.

It's seamless, web-enabled, omni-channel and multi-screen.

It's less about location, and more about consumer engagement anytime, anywhere.

And eBay Inc.

is well positioned to capitalize and lead in this rapidly-changing environment.

Let me briefly recap three areas that capture the strengths and opportunities for our Company.

First, the $10 trillion commerce market represents a bigger addressable market for our Company.

In fact, as we shared at Analyst Day, by 2015, we expect eBay Inc.

to enable $300 billion in commerce volume.

That's up from $175 billion in 2012.

This is one of the ways we will measure our success.

And as a first step on our journey toward $300 billion, we enabled $49 billion of commerce volume in Q1.

Second, our three core businesses are strong.

Each has proven monetization models, and strong momentum.

And we've built a powerful set of technology and innovation capabilities.

And third, we're well-positioned to lead and compete in what we see as the four emerging battlegrounds of omni-channel commerce, mobile, global, local and data.

On the mobile front, we believe we're perfectly positioned to benefit from broad consumer adoption of mobile.

We're integrating mobile into every aspect of our business, and we have a proven ability to leverage mobile technology at scale across platforms, mobile operating systems, and devices, and our mobile innovation capacity is accelerating.

For example, in Q1, we added over 2.8 million new users to eBay and PayPal through mobile devices.

On the local front, the digitization of local commerce represents an enormous white space opportunity.

We're aggressively pursuing this opportunity, focused on solving real consumer and merchant pain points and enabling growth for merchants of all sizes in local commerce.

On the global front, our eBay and PayPal businesses are true global platforms today, with over half our users and volume coming from outside the US, but we're just scratching the surface.

In emerging growth markets such as Russia, Brazil, India and China, we see the opportunity for enormous growth.

And last but not least, when it comes to leveraging data, few have what we have, massive amounts of closed loop data.

What other companies are struggling to create, we already know, each step of a consumer's commerce journey.

And we're beginning to capitalize on this to provide better experiences for our customers, and deeper engagement for our consumers and merchants.

And across these four competitive battle grounds, retailers and brands need a partner, and that's who we are, a partner, not a competitor.

Our success is strongly tied to enabling others to win.

We don't see commerce as a zero sum game.

We see technology enabling more opportunity for merchants and consumers.

Each quarter, we're focused on delivering against our strengths and competitive advantages, and our strong start in 2013 reflects our operating discipline, and our commitment to enabling the future of commerce.

Now let's take a look at the quarter.

Let me start with PayPal.

In Q1, PayPal continued to expand its footprint, increasing merchant coverage and share of check-out.

Finishing the quarter with 128 million active accounts globally, PayPal added 5 million new active accounts during the quarter, the fourth consecutive quarter of accelerating new user growth.

PayPal mobile continued its growth trajectory.

In fact, over the past 12 months, one out of every four PayPal account holders made at least one purchase through mobile.

Expanding its offline footprint, PayPal's in-store point of sale solution is now available in almost 20,000 retail locations across the US.

And our Discover partnership is on track to go live in Q2, with millions of US merchant locations to be activated by year-end.

PayPal is also expanding its presence globally.

For example, the Chip and PIN version of PayPal here was announced in Europe, and will soon be available in the UK.

And through our Company's joint venture with Softbank, PayPal here became available at more than 2,700 locations, retail locations in Japan in Q1.

We've also announced the integration of PayPal into LG Electronics Smart TV platform, creating an easy and secure way for consumers to shop through their Internet-connected TV.

It's now available in the US, Canada and the UK, with more markets to follow.

Now, let's turn to Marketplaces.

In Q1, eBay's core, or non-vehicles GMV grew 13% over the prior year.

In the US, core GMV was up 16%.

Active user growth increased 13%, making this the fifth consecutive quarter of accelerated growth.

Performance was driven by continued site improvements, such as streamlined registration and checkout, and the full launch of our new look and feel in the US.

Fixed price listings accounted for 68% of GMV globally, and half of all US transactions included free shipping in Q1.

Our top-rated sellers continued to deliver a great experience and outpace e-commerce growth, accounting for 42% of US GMV in Q1, and their same-store sales grew 17%.

In Q1, eBay announced a simplified pricing structure for US sellers, including free listings for consumers and for eBay store sellers.

With these changes, we believe that eBay is now the most competitively-priced e-commerce platform in the US.

Globally, eBay officially launched its localized website in Russia during Q1, and a full marketing campaign, including TV, is set to launch in Q2.

So we're very pleased with our momentum in the US and the global strength of eBay.

The core business is strong, and we're attracting new customers and delivering innovative new experiences for buyers and sellers.

Now let me briefly touch on GSI.

As we shared at our Analyst Day, leading retailers and brands like Kate Spade and Dick's Sporting Goods are innovating for their customers by leveraging GSI's core capabilities, omni-channel demand generation, consumer engagement and enterprise services at scale.

In Q1, GSI continued to enable its clients to grow faster than e-commerce.

Same-store sales grew 16%, and we feel very good about the continued integration of GSI and its ability to deliver innovative, omni-channel solutions that leverage eBay Inc.'s capabilities.

So in summary, we're excited about our three-year journey, and our strong first quarter.

Our results underscore our competitive advantage.

We have strong core businesses and robust scalable global commerce platforms.

Our mobile commerce capabilities and technology assets enable us to drive innovation in our core business, and for our retail and brand partners.

Technology is enabling an omni-channel commerce revolution, and we believe we're well positioned to lead in this $10 trillion commerce market.

Now, I'll turn it over to Bob, who will provide more details on Q1 and our outlook.

Thanks, John.

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

As John mentioned earlier, and we discussed at Analyst Day in March, we are expanding our addressable market.

We have a portfolio well-positioned to capitalize on these, and we are accelerating our mobile leadership position and the rate of innovation in our Company.

Q1 was a strong start to the year, and our first deposit on our multi-year plan.

As a strategic partner of choice for merchants of all sizes, we enabled $49 billion of commerce volume in the quarter, up 19%.

The eBay Inc.

take rate was 7.7%.

Revenue in the quarter was $3.7 billion, up 14%, and non-GAAP EPS was $0.63, up 14%.

User growth accelerated 1 point for both PayPal and Marketplaces.

We are maintaining our full-year guidance.

Let's now take a closer look at the results from the quarter.

In Q1, we generated net revenues of $3.7 billion, up 14%.

Revenue was negatively impacted by 1.5 points from leap year and the timing of Easter.

Organic revenue growth was 15%, with foreign currency movements and the divestiture of Rent.com, each decreasing growth by approximately 0.5 point.

First quarter non-GAAP EPS was $0.63, up 14%.

Non-GAAP operating margin was 27.4%, up 50 basis points from the first quarter of 2012, and in line with our expectations.

We generated free cash flow of $638 million in the quarter.

CapEx was 8% of revenue, primarily due to investments in search, data, and site operations.

Now, a closer look at our segment results.

PayPal had a strong quarter.

Revenue reached $1.5 billion, up 20% on an FX neutral basis.

A few quick highlights on PayPal's operational metrics.

Total active accounts growth accelerated 1 point to 16%.

TPV grew 22% on an FX-neutral basis driven by continued expansion of PayPal on merchant sites around the world, an increase in share of checkout, and 130 basis point increase in PayPal penetration on eBay.

Merchant Services' FX-neutral TPV grew 26% in the quarter.

Transaction margin was 64.4% in Q1, down 120 basis points, due primarily to a lower take rate from smaller gains on our foreign currency hedges, as well as large merchant mix.

PayPal's segment margin came in at 24.1% for the quarter, down 230 basis points, and in line with our full-year guidance.

This was mainly due to lower transaction margin and investments in consumer awareness, product initiatives and merchant ubiquity.

Let me touch on a few quick highlights for Bill Me Later.

BML had a good quarter, and is becoming an increasingly important component of our overall portfolio.

First, BML had strong standalone financials.

TPV was $849 million, up 31%.

Second, Bill Me Later's penetration as a funding source in the PayPal wallet was 3.8% share on eBay, and 1.6% on Merchant Services.

This penetration improved PayPal's funding mix, and helped to reduce overall funding costs.

And third, we continued to finance BML's loan receivable portfolio, using offshore cash, which has enabled us to increase the return on this asset.

Overall, BML continues to perform well.

Now let's move to Marketplaces.

Marketplaces had a strong quarter, with net revenues of $2 billion, up 13% on an FX-neutral basis.

This was driven by FX-neutral transaction revenue growth of 13%, and marketing services revenue growth of 16% from our adjacent formats.

A few quick highlights on Marketplace's operational metrics.

Active user growth accelerated to 13%, driven by mobile, site enhancements and emerging markets.

FX-neutral non-vehicles GMV grew 13%, driven by improvements in the customer experience, increased mobile engagement, and strong performance in the clothing and accessories, and home and garden categories.

The 3-point deceleration from last quarter was a result of a strong holiday sales, tougher comps, and softness in Europe.

Sold items increased 12%.

The 6-point deceleration from last quarter, relative to the 3-point deceleration in GMV was primarily a result of Asia, which had tougher comps in Korea from low ASP categories added last year, and improved seller standards in China.

Take rate, excluding vehicles and StubHub, was flat versus last year.

Marketplace's segment margin was 42.1% in the quarter, up 340 basis points, primarily due to more efficient marketing spend, though we begin to ramp investments in growth initiatives, going into Q2.

We continue to be confident in the 38% to 42% segment margin guidance provided in March.

Now, let's turn to GSI.

GSI continues to deliver on its goal to enable its clients to grow faster than the e-commerce market, with 16% same-store sales growth.

Revenue for the quarter was $236 million, flat with last year, driven by strong volume growth, offset by a lower take rate and channel mix.

Segment margin came in at 2.8%, down 670 basis points, due to take rate reduction, partially offset by productivity.

A few quick highlights on the progress related to the integration of GSI.

We continued to add new clients to leverage eBay.com as a distribution channel to expand their businesses, with the goal of reaching 30 by the end of the year.

PayPal is increasingly becoming the way to pay on GSI clients, with PayPal coverage now more than 90% of GSI client volume, and share of checkout was 14% in the quarter.

Lastly, GSI is leveraging eBay Inc.

technologies and innovation, including RedLaser, eBay Now, the PayPal Media Network, and Magento, to build solutions for its clients' needs.

Turning to operating expenses.

In Q1, operating expenses were 42.7% of revenue, down 140 basis points.

We ended the quarter with cash, cash equivalents and non-equity investments of $11.5 billion, including approximately $3.2 billion in the US.

We've improved our financial flexibility, funding 62% of the BML loan receivables portfolio with offshore cash in the quarter, and we repurchased 8.5 million shares of our common stock for approximately $476 million.

With that, let me turn to guidance.

We feel good about the portfolio, and our ability to help merchants in a web-enabled world.

A little context on our business outlook.

First, what has changed?

From a macro perspective, we expect a weaker Europe and British pound versus the full-year guidance we gave you in January.

Second, we continue to believe from an industry perspective that web-enabled commerce and mobile penetration will continue to expand, and e-commerce growth is expected to be in the low- to mid-teens.

And third, from an eBay, Inc.

perspective, we believe our addressable market has expanded and is now significantly larger, and we are increasing our investment to capture this growth opportunity.

We are maintaining our full-year guidance and expect revenue of $16 billion to $16.5 billion, representing growth of 14% to 17%, and we anticipate non-GAAP EPS of $2.70 to $2.75, representing growth of 14% to 16%.

For the second quarter of 2013, we expect revenues of $3.8 billion to $3.9 billion, representing growth of 12% to 15%, and we anticipate non-GAAP EPS of $0.61 to $0.63, representing growth of 9% to 13%.

In summary, we feel good about our performance.

Our core businesses had a strong quarter and we continued to test and learn in our adjacencies and [exceeds], such as local, global and omni-channel.

PayPal continues its strong growth, with an increasing focus on simplifying and improving the customer experience.

Marketplaces is strong, particularly in the US, driven by investments in buyer and seller experiences, and GSI is performing in line with our expectations, as we continued to invest in technology and growing the client portfolio.

We are investing in our business for the long term, and we are focused on delivering the next generation of global commerce and payments capabilities.

And now we'd be happy to answer your questions.

Operator?

(Operator Instructions)

Our first question comes from Gil Luria.

So your guidance, your first-quarter results, guidance for the second quarter puts you at the lower end of your longer-term growth guidance, as well as this year's full-year growth guidance.

Where do you expect the acceleration to come from for the balance of the year for the second half of the year, and for the balance of your longer-term guidance?

Yes, thanks, Gil.

So as you indicated, in the first quarter, I'll just start with ECV in terms of commerce volume.

We grew by 19% in the quarter.

As you know, with the tougher comps of Easter and leap year on a year-over-year basis, that weighed down on growth a little bit.

So I have it a little bit higher than the 19% we reported.

In our implied guidance for the first half of the year, roughly speaking, we're at 14% to 15% top line growth.

And consistent with what we told you back in January, we have the second half growing a bit faster than the first half.

So in effect, no real change from where we were a couple of months ago.

As we think about going into 2014 and 2015, the plans that we highlighted for you across all three of the businesses in terms of protecting our existing core businesses and expanding our served market, whether it's mobile, whether it's global, whether it's local, or whether it's more engagement with consumers across all of our platforms, we expect that to be contributors to growth going forward.

So far, one quarter into our 12-quarter journey, we're pretty much at the high end of what the expectations are that we laid out in January and on track for the full year and feel great about the next three-year journey we shared with you a few weeks ago.

Great, and then just a quick follow-up.

Your user growth is accelerated for both PayPal and Marketplace.

Is it that you're adding more customers that take time to ramp up their spending?

Is it that you're getting more customers in emerging markets, where they don't spend as much per customer?

Is that part of the factor there?

Yes, it's been -- Gil, as you know, this has been the experience with accelerating user growth across both platforms.

The newer users have a tendency to be less engaged at the early stages of their life cycle.

Our challenge, obviously, is once we get them on board and back to either starting to use again or being new to eBay and PayPal is to engage with them in new and different ways to increase their engagement over time.

So that's the more active user growth, in the early stages, results in less engagement, but our intentions are to increase that over time.

In terms of where they're coming from, it's a little bit the same themes we've been sharing with you in the past.

John highlighted this, as well.

New users coming from mobile, new users being reengaged, and new users coming from emerging markets.

Those have been the three buckets of increased active user growth that we've been experiencing really for five quarters now.

One of the things that I don't think we fully understand yet is, we know that mobile users are more engaged than non-mobile users.

And as you saw at our Analyst Day, multiscreen users buy twice as much as non-multiscreen.

We know mobile is significantly increasing consumer engagement, and we're getting a greater number of new users from mobile.

Marketplace has had over 4 million new mobile users last year or new users to the Marketplace platform via mobile device, and in the first quarter alone, we had a little under 3 million Company-wide.

So as those consumers go through that ramp-up that Bob talked about, of their first year to two years on our platforms, we'll see if they ramp up engagement more quickly than has been historical fact.

I think it's a positive trend one way or another, as our mobile strength continues to be a source of advantage.

Great.

Thank you.

Thank you.

Our next question comes from Heath Terry from Goldman Sachs.

John, I was wondering if you could give us an idea about what drove the marketing leverage in the quarter.

To what extent is that due to more direct customer relationships that you're gaining through mobile, and particularly seeing that kind of leverage at the same time that you're seeing the kind of growth that you are in users.

What does being able to drive that user growth with less marketing mean longer term for the margin opportunity in the business?

Yes, Heath, I'll take a stab.

I think what we're experiencing is a couple things.

As you know, we're always trying to optimize sales and marketing in terms of the different levers that we invest behind to drive traffic to our respective sites, given it's our largest component of overall cost.

So we're constantly tweaking around the edges to optimize.

I think, as John highlighted, new users coming through mobile devices have more of a tendency to come direct.

So as we learn more about the new active users coming from mobile and how they engage, that influences how we're spending money.

At the same time, in our quest to optimize, I would also highlight that I do expect us to spend more as we go into the second quarter of the year, as we continue to tweak and optimize.

So while we had really good leverage in the quarter, I don't expect it to be as good as we go into the second quarter of the year.

Thanks, Bob.

Thank you.

Our next question comes from Mark Mahaney from RBC Capital Markets.

Two questions, please.

When would you like to be able to, or when would you hope to be able to disclose the total payment volume offline?

When do you think that could be material enough to do that?

If I could just follow-up on Heath's question on the marketing leverage, Bob you answered it, but any more color?

Was it just, I don't think it was a shift of marketing spend programs from Q1 to Q2, but that's pretty significant leverage year-over-year.

Maybe you don't want to talk about it for competitive reasons, but do you feel like you found new channels of marketing that you hadn't been able to utilize as well in the past?

Any more color there would be great.

Thank you.

I'll try again.

John will correct me.

On TPV offline, as it becomes meaningful and material, as we talked about our three-year plans for PayPal in an omni-channel world, our primary focus in the short to medium term was on merchant ubiquity and test and learning with consumers, and as we get adoption and it becomes material, we'll begin to share more with you about our progress.

In terms of marketing leverage, I mean, this is the biggest component of our costs.

We're constantly trying to optimize the most efficient and effective sources of traffic, and we tweak, adjust and adapt and learn and particularly with the users coming from mobile, that informs our thinking on how we spend money going forward.

So we'll continue to do the same to get the best, most efficient traffic for our merchants.

Mark, the way I'd elaborate on it, just a little bit, I don't think we see any structural shift in our cost structure per se, yet, or at this time.

But as we are always doing and inside that marketing spend, we are aggressively exploring and testing new marketing channels, whether that's mobile, obviously the way consumers behave on mobile, and the role of traffic generation on mobile is different than it is on the web.

Social channels, we're being very aggressive and exploring and seeing if there are opportunities.

We're doing -- testing some little things with loyalty.

So you can assume we're always looking for new ways to drive healthy new user growth and healthy traffic to our site, and we're seeing some early signs of success.

So that's a continuous process and we're really ramping up our focus on that this year.

Thanks, John.

Thank you.

Our next question comes from Ron Josey from JMP Securities.

Just real quickly, I wanted to dive a little deeper about what you're saying on what's leading the Company to believe Europe to be slightly worse, and potentially maybe break it out by geography if possible, thank you.

Ron, when we started the year back in January and talked about the general macroeconomic assumptions as we came into the year, we highlighted, our belief was that the US would get slightly better during the course of the year, and that Europe, after a somewhat -- in terms of the overall market, a somewhat lackluster year in 2012, we didn't expect Europe to get much better this year.

So here we are three months in, and on the margin, I would say in the US we feel the same, maybe even modestly better.

And Europe was a little bit slower than last year, than we expected coming into the year.

In the aggregate, modestly slower.

It impacted us within Europe.

UK was a bit slower than what we expected.

I think it was the combination of not just slower traffic, but also a weaker currency and as you know, Ron, currencies affect kind of cross-border trade dynamics for us as well.

All in all, we expect a fairly stable, and on the margin a little bit weaker for the first three months.

Got it.

Thank you very much.

Thank you.

Our next question comes from Sanjay Sakhrani from KBW.

I was wondering if you could just talk about the take rate in the payments segment, and just looking at that kind of year-over-year degradation, I know you cited some of the impacts.

I'm just wondering if we could consider that kind of degradation throughout the rest of the year?

The offline merchant roll-out that you have and the discussion you had at the Analyst Day about the roll-out over the next three years, I was just wondering if there was a specific method as to how you're going to roll that out in terms of categories?

Thank you.

Yes, on the take rate, the modest degradation we highlighted really two things.

One is large merchant growth, all else equal, tendency to have lower take rates.

That was a modest impact.

The bigger impact in the quarter, and I would expect it to continue a little bit as we go through the next couple quarters, is from our hedges.

And we hedge transaction exposures through the top line in PayPal, and given how the currencies, particularly European currencies of the UK weakened during the course of the first quarter, it negatively impacted our PayPal revenues and our take rate, and last year it was the opposite.

It worked in our favor.

So the combination of those two had a degradation on PayPal's take rate in the quarter and I would expect that to be modest impact going forward this year as well, given where the pound is.

But I would say more hedges rather than any fundamental real difference in terms of overall take rate with our merchants.

Sanjay, with respect to your second question on offline merchant roll-out, we're trying to stage it to maximize our learning, would be the simplest way to say it.

So if you look at who were the large retailers that we directly integrated with first, it's a real mix.

And we were pretty conscious about that, trying different retailers and different verticals, so that we could maximize sort of the breadth of our learning.

And if you look at who else will make up the roughly 2 million offline merchants we'll be live in by the end of the year, PayPal here, if you have large merchants on one hand, you have PayPal here on the other hand, that will be distributed across a pretty wide spectrum of verticals and sub-verticals where they have smaller merchants, and then Discover is more in the middle.

So I don't think you'll see us do merchant roll-out vertical by vertical.

But I do think you'll see us, as David and [Hill] talked about at the Analyst Day, looking for solving pain points in a little bit more of a vertical by vertical location.

It's more of consumer engagement, the kind of consumer use cases that make sense in a fast food restaurant, or in a place where there are lines, you saw the Jamba Juice example, how do you avoid getting around lines.

That will be more focused in fast food and restaurant verticals.

Or the ordering from table and paying from table, again in restaurants.

Or the PayPal check-in, one of the areas that I think you're going to see some particular take-up over time is the enabling a merchant to give personalized service, and enabling a consumer to receive personalized service by checking in.

And I think our -- we think that's going to be a really interesting and potentially exciting consumer enhancement.

And again, whether that happens in one vertical or another, I don't know, but you are going to be testing that in different locations during 2013.

So we'll learn a lot this year, and I would imagine as we roll things out in 2014 and 2015, we will have some slightly vertically different solutions.

Great.

Thank you.

Thank you.

Our next question comes from Scott Devitt from Morgan Stanley.

(Operator Instructions)

Our next question comes from Douglas Anmuth from JPMorgan.

Just wanted to ask two things.

First, Bob, you talked about the growth accelerating in the back half, and I just wanted to get some more color on what you see constant that overall growth will actually accelerate in the back half.

And then second, just in terms of the weaker Europe that you're seeing and the impact on FX, is there any way that you could quantify that for us as it relates to your 2013 guidance?

Thanks.

Doug, on the back half of the year, a combination of things.

First, investments that we're making throughout the course of the year to drive more active users and more engagement throughout the year.

So that's kind of the macro theme across all three businesses.

And then just relative to year-over-year comps, we expect PayPal's growth rate will accelerate in the second half of the year.

The comps will be a little bit easier.

Marketplaces will be a little bit tougher.

The in-process metric that's obviously really important for us is that active user growth number.

So what gives us the confidence is the ability to bring on those more active users from the variety of different sources that we talked about during earlier today, but also a few weeks ago at the Analyst Day.

In terms of currency, from an earnings standpoint, we're relatively hedged now for most of the year.

So we feel pretty good that we've kind of protected earnings based on where rates are today.

Where we're exposed is more from the revenue hedges we have in place.

If they are out of the money, and I would say that the pound hedges are out of the money hedges today, that will impact the PayPal take rate.

So that's where you see that.

That will have a marginal impact on the as-reported PayPal revenues throughout the course of the year.

Okay.

Great.

Thanks, Bob.

Thank you.

Our next question comes from Scott Devitt from Morgan Stanley.

Sorry about that.

Bad cell phone.

Bob, you mentioned earlier Korea, China and Europe, I guess as headwinds, related to the international business today.

Just wondering if you could talk more about bringing improvements from the US to international markets, and also the BRIC opportunity and when you expect either of those to show more prominently in international results?

And then the second question is around GSI, and what it is that drove the take rate down, and how v11 is progressing?

Thanks.

First, on the first one, just to clarify, my commentary on headwinds for Korea and China had more to do with sold item growth versus GMV growth.

So year on year -- sorry, first quarter of 2012, we had a real nice acceleration of sold items growth, particularly in Korea, as we expanded into new lower ASP verticals.

So a year later, you saw pretty decent deceleration in sold items growth, greater than GMV deceleration.

And that was primarily driven by Korea and higher standards for sellers coming out of greater China.

So that's more a sold items commentary.

In terms of GMV commentary, I just said a modest headwind for Europe relative to what we expected earlier, back in January.

Separately, just on how do we deploy new features, functionalities, policies, processes for Marketplaces, I think, as you know, we kind of deploy things in a market, test and learn, and then deploy throughout the rest of our geographies.

That's been a consistent theme for how we deploy new features for a long time now.

Sometimes that means we try stuff in the UK, and then bring them to Germany and bring them to the US.

Other times that means we try stuff in the US, and bring them to markets outside the US.

So the changes, whether it was the ETRS or eBay 2.0 or refreshed brand, those things, for the most part, while they take different flavors, market by market, we have deployed them throughout most of the markets in which we operate in.

Third, GSI, good same store sales growth, 1 point deceleration Q4 going to Q1.

We feel pretty good about that.

The revenue was flat year-on-year.

And that was primarily due to decisions we've made along the way to lower take rate with some clients, to get more of our efforts and energies focused on driving growth.

So we did that throughout the course of the last year, including in the fourth quarter, our take rate on average is lower, because of those changes we've made.

And then in particular in Q1, because some of the client mix, the differentiated growth rates from clients that we have at GSI.

We expect that gap between same-store sales and revenue to stay wide throughout the course of this year.

And then last, on the new commerce platform at GSI or v11, we certified that back in December, late December, and our expectations are to roll that new, exciting platform out to our launch client here in the second quarter.

So we're excited to get that big milestone behind us, and begin to roll it out for other GSI clients during the course of the year.

Thanks.

Just real quick, two other small things I'd add to Bob's answers, Scott.

One on v11.

One of the I think positive byproducts of some of the slippage in v11 over the last 12 to 18 months has been that we've taken significant parts of v11 functionality and put them in v9 and v10.

So whether it's ship from store, pick up from store, those are now in v9 and v10.

It takes the urgency for existing clients to migrate, and reduces it.

I think we have significantly derisked the migration challenge.

In fact, we have some clients that are finding that the enhancements on v9, v10 are meeting their needs currently.

So that's one.

Second, I forget if you commented on this, Bob.

Scott, you asked when will our success in BRICs begin showing up in international GMV?

And the short answer is, in the short-term it might not.

You remember a lot of the early focus is on import in the BRICs, and to the extent that import's coming out of the US, it will show up in US GMV.

Over time, it will show up in international GMV, but it will be directly a function in the early days on where the Russian consumers are buying from, whether it's dot-com in the US, or dot-UK or dot-AU or even dot-Germany.

I wouldn't equate a one-to-one connection there.

Thank you.

Operator, I think we have time for one more question.

Thank you.

And our next question comes from Stephen Ju from Credit Suisse.

John, I wanted to dig a little bit deeper into BRIC, and in particular the Russian market.

Seems like it's still very much a cash-centric economy and presumably the operating conditions are a bit more difficult, because you have more transactional friction.

Are there any comparisons you can draw for us versus what the environment was like when eBay was still very young, and PayPal was still not widely used?

And how you view the development curve for this market over the next, say, three to five years, and do you feel like the curve will be steeper or less steep versus what you have seen in other emerging markets?

Well, what we find intriguing is a couple things.

One is, without a whole lot of explicit focus that we're the largest B-to-C eCommerce provider today in Russia, frankly with no Russian language site, and that's just a function of early adopter Russian consumers using eBay sites around the world, and using PayPal to import.

One of the things that is intriguing about the market is, there's two major sources of friction in Russia that are somewhat distinct from elsewhere.

One is, as you said, payments, and the other is shipping or delivery.

And so we view those as both opportunities, market development opportunities.

And so on payments, we've worked to get our local approval for our local capabilities, which we have, and we're talking with various stakeholders in Russia about how we can use technology, which is what PayPal is, to reduce friction in payments throughout the country, so we're talking with banks and some of the providers, and people that take cash in and convert it to a digital currency.

So we think there's great opportunity to innovate to reduce friction there, and we're doing the same thing on the shipping side, on the inbound customs clearance and on shipping.

So over time, I can't say we know long-term what that trajectory's going to be but we feel like any market that's got friction which is a problem to be solved, and we're technology and our platforms can help solve it, it's an attraction for us, and that's why we're excited about the market.

I will say the first couple weeks since our Russian site launch, we've had strong acceleration of new users, and those new users are beginning to buy.

So still early days.

It only launched a couple weeks ago.

But it's a market that we like a lot, and I'm sure we'll learn a lot, and a market that I think will benefit from the kind of technology innovation that we can bring to reduce friction for consumers.

Thanks, John.

Okay.

Operator, thank you very much and we look forward to seeing you between now and 90 days from now, or talking to you at the end of the second quarter.

Thanks a lot.

Thanks, everybody.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes our program.

You may all disconnect and have a wonderful day.