eBay Inc (EBAY) 2013 Q2 法說會逐字稿

Good day ladies and gentlemen.

Thank you for standing by, and welcome to the eBay second quarter 2013 earnings call.

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

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

(Operator Instructions)

As a reminder, today's conference may be recorded.

It is now my pleasure to turn the floor over to Tom Hudson, Vice President, Investor Relations.

Please go ahead.

Good afternoon.

Thank you for joining us, and welcome to eBay's earnings release conference call for the second 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 are 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 the IR section of eBay's website at http.investor.eBayinc.com.

In addition, an archive of the webcast will be accessible for 90 days through that same link.

Before we begin, I would like to remind you that during the course of the 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 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 third quarter and full year 2013, and the future growth in the Payments, Marketplaces and eBay Enterprise 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 need to successfully react to the increasing importance of mobile payments and commerce and increasing social aspect of commerce; an increasingly competitive environment for our businesses; the complexities 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 the factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q available at http.investor.eBayinc.com.

You should not rely on any forward looking statements.

All information in this presentation is as of July 17, 2013, and we do not intend and undertake no duty to update it.

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

Thanks, Tom.

Good afternoon, everyone, and welcome to our Q2 earnings call.

We had a strong second quarter, enabling $51 billion of commerce volume, up 21%.

Revenue was up 14%, and non-GAAP EPS was up 12%.

Double-digit active user growth continued to accelerate for both eBay and PayPal.

Our second quarter and first half performance underscores our Company's strengths and opportunities.

Led by mobile, a commerce revolution is underway, and we are well positioned to capitalize on the accelerated changes happening globally.

We are a mobile commerce leader, adding more than 3 million new customers in Q2 through mobile.

EBay and PayPal each expect to do $20 billion of mobile commerce and payment volume this year.

Our global commerce platforms are a competitive advantage, enabling commerce to happen anytime, anywhere.

In Q2, we generated $11 billion of cross-border trade through our platforms, 22% of total enabled commerce volume for the quarter.

With our technology assets and capabilities, we are enabling new retail interfaces.

For example, our partnership in Q2 with Kate Spade Saturday reimagines a storefront window as a 7 by 24 shoppable screen.

We are also creating diverse new consumer experiences, from ordering online and picking up in store, to ordering via mobile and having the product delivered to you wherever you are, to ordering lunch ahead and skipping a long line.

Innovation is everywhere, and a seamless, web-enabled, omni-channel, multi-screen commerce environment is rapidly emerging.

We intend to be a leader in this new commerce world.

Before getting into our second quarter results, let me briefly recap three things we shared with you at our investor day earlier this year.

First, with technology accelerating change in how consumers shop, our Company has a bigger addressable market, the $10 trillion commerce market.

By 2015, we expect to enable $300 billion in commerce volume, up from $175 billion in 2012.

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

Second, our core businesses are strong.

We have proven monetization models, and we have built a powerful set of technology and innovation capabilities.

Third, we see four emerging battlegrounds of omni-channel commerce -- mobile, local, global and data.

In our global commerce platforms, technology assets and innovation capabilities leave us well positioned to lead and compete.

We have clear strengths, opportunities and capabilities in each area.

In this environment, both retailers and brands need a partner, and that is who we are -- a partner, not a competitor.

Our success is strongly tied to enabling others to win, whether an entrepreneur or a global brand.

Commerce is never a zero-sum game, and in this period of disruption and innovation, we believe technology should enable more opportunity for everyone.

Now let's take a look at the quarter, starting with PayPal.

In Q2, PayPal continued to expand its footprint, increasing merchant coverage and share of check out.

Finishing the quarter with 132 million active accounts globally, PayPal added almost 5 million new accounts during the period, the fifth consecutive quarter of accelerated growth.

Merchant services generated strong growth of 29% for the quarter, accelerating 3 points from Q1 and representing $30 billion of payment volume.

PayPal continues to be a global leader in mobile payments, generating strong growth and driving incremental sales for merchants.

Mobile is enabling seamless shopping experiences for consumers.

PayPal is focused on delivering great product experiences for merchants and consumers, anytime, anywhere.

For example, RadioShack went live in Q2 with PayPal's point-of-sale options in the majority of their US locations.

PayPal is also driving innovation for small merchants.

The Cash for Registers program was announced in Q2 and went live earlier this month in the US.

PayPal's waiving transaction fees for up to $20,000 of transactions per month through January 2014 for the first 10,000 merchants who qualify.

With 132 million digital wallets in the cloud, availability in 193 countries and unmatched global risk management capabilities, PayPal has powerful competitive advantages.

PayPal's core business is strong and growing.

As merchants and consumers need better, more convenient and smarter payment options across every commerce channel, PayPal is committed to leading disruptive innovation.

Now let's turn to Marketplaces.

In Q2, eBay's core or non-vehicles GMV grew 13% over the prior year.

In the US, core GMV growth was up 16%.

Active user growth was also up, making this the fourth consecutive quarter of accelerating double-digit growth.

Performance was driven by continued site improvements and by eBay's focus on delivering consumers abundant selection at great value with personalized trusted shopping experiences.

Top-rated sellers continued to deliver a great experience and outpace eCommerce growth, accounting for 45% of US GMV in Q2.

Their same store sales grew 22%, fixed price listings accounted for 69% of GMV globally, and half of all US transactions included free shipping in Q2.

EBay continued to see strong growth in mobile.

EBay Mobile attracted 2 million new users in Q2 and drove an average of 5.6 million listings per week through eBay sellers.

The pace of innovation continues to accelerate at eBay.

For example, Cassini, eBay's new search engine, was fully rolled out to North America in Q2.

Shipping is another way where eBay is continuing to innovate.

EBay's global shipping program added eight countries in Q2, bringing the total to 36.

This program makes international shipping for sellers easier, and it creates a more trusted experience for buyers, with shipments now fully trackable.

These are examples of the range of product enhancements and initiatives being implemented by eBay to improve the buyer experience, create more consistent, retail-like standards and drive increased selection.

EBay is driving growth by pulling multiple levers which collectively deliver a great customer experience.

Now let me briefly touch on eBay Enterprise.

In Q2, we rebranded GSI Commerce to its new name, eBay Enterprise.

The new name best captures this business today, a commerce partner of choice for retailers and brands, and it captures its role in our company.

EBay Enterprise continued its success in Q2 by enabling its retail clients to grow faster than eCommerce.

Same store sales grew 19%.

We feel very good about eBay Enterprise's ability to deliver omni-channel solutions that leverage eBay Inc.

capabilities.

In summary, our Company had a strong second quarter and first half.

As we look ahead to the second half of the year, we expect continued macroeconomic headwinds in Europe and Korea.

Despite that, we still expect to deliver within the range of our guidance for the full year.

We have a strong core business, and we feel very good about our strengths and competitive advantages and global opportunities in the evolving $10 trillion commerce market.

We remain confident in our ability to deliver the goals we have set for ourselves.

Now I will turn it over to Bob, who will provide more details on Q2 and our outlook.

Thanks, John.

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

The first half was a strong start to the year, and Q2 was another deposit on our multi-year plan.

Total enabled commerce volume in the quarter grew 21% to $51 billion.

Revenue was $3.9 billion, up 14%, and non-GAAP EPS was $0.63, up 12%.

User growth accelerated 1 point for both PayPal and Marketplaces.

We are maintaining our full year guidance yet expect to be at the lower end of our range on both the top and bottom line.

I will provide more context on this later.

As we discussed at analyst day in March, we are expanding our addressable market, have a portfolio positioned to capitalize and lead, and are accelerating our mobile leadership position and the rate of innovation in our Company.

As a strategic partner of choice for merchants of all sizes, we enabled $51 billion of commerce volume at a take rate of 7.7%.

Our take rate has declined slightly as our faster growing business, PayPal, has a lower take rate.

We enabled $100 billion of commerce volume in the first half of the year with a growth rate in line with our three-year plan.

Now let's take a closer look at the results from the quarter.

In Q2, we generated net revenues of $3.9 billion, up 14%.

Organic revenue growth was 15%, with the divestiture of Rent.com in the second quarter last year decreasing growth by approximately 0.5 point.

Second quarter non-GAAP EPS was $0.63, up 12%.

Non-GAAP operating margin was 26.3%, down 100 basis points, due primarily to a benefit from an indirect tax settlement in the second quarter last year as well as business mix.

We generated free cash flow of $658 million in the quarter.

CapEx was 9% of revenue, primarily due to investments in search, data and site operations.

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

PayPal had a strong quarter.

Revenue reached $1.6 billion, up 21% on an FX neutral basis.

A few quick highlights on PayPal operational metrics.

Total active accounts growth accelerated 1 point to 17%.

TPV on an FX neutral basis accelerated 3 points and grew 25%, driven primarily by continued expansion of PayPal on merchant sites around the world, an increase in share of checkout, and a 160 basis point increase in PayPal penetration on eBay.

Merchant services FX neutral TPV grew 29% in the quarter.

Transaction margin was 64.4% in Q2, down 190 basis points to due primarily to large merchant mix and smaller gains on our foreign currency hedges.

PayPal segment margin came in at 23% for the quarter, down 280 basis points, due primarily 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.

BML had strong standalone financials, with TPV of $934 million, up 34%.

BML's penetration as a funding source in the PayPal wallet was 4.1% share on eBay in the US and 1.8% on merchant services.

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

We continue to finance the BML 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 turn to Marketplaces.

Marketplaces had a strong quarter, with net revenues of $2 billion, up 10% on an FX neutral basis.

Revenue growth was negatively impacted by 2 points from lapping a one-time gain from an indirect tax settlement.

Growth was driven by FX neutral transaction revenue growth of 10% and marketing services revenue growth of 12% from our adjacent formats.

A few quick highlights on Marketplace's operational metrics.

Active user growth accelerated to 14%, driven by mobile, site enhancements and emerging markets.

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

Sold items increased 11%; the growth was pressured primarily by tougher comps in Korea from low ASP categories added last year and stricter seller standards in China.

Take rate excluding vehicle, StubHub and the one-time benefit from indirect taxes was down slightly from last year due to higher promotional activity in our international markets.

Marketplace's segment margin was 39.7% in Q2, up 10 basis points primarily due to productivity, partially offset by investments in the user experience and trust.

Now let's turn to eBay Enterprise.

EBay Enterprise continues to deliver on its goal to enable its clients to grow faster than eCommerce market, with 19% same store sales growth.

Revenue for Q2 was $246 million, up 11%, driven by strong volume growth, offset by a lower take rate and channel mix.

Segment margins came in at 4.4%, down 30 basis points due to take rate reductions, partially offset by productivity.

Turning to operating expenses, in the second quarter, our operating expenses were 43.5% of revenue, down 110 basis points.

Operating expense was down due mainly to lower sales and marketing from improved marketing efficiencies and a shift in spend to product and user experience, partially offset by provision for transaction loan losses resulting from higher loss experience in the quarter and investments in Marketplaces trust initiatives.

We ended the quarter with cash, cash equivalents and non-equity investments of $11.7 billion, including approximately $3 billion in the US.

We've improved our financial flexibility, funding 65% 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 $466 million.

With that, let me turn to guidance.

First, a little context on our business outlook.

First, the macro environment in Korea is weak, and Europe is slower than we expected, impacting both PayPal and Marketplaces.

Second, currency has continued to deteriorate through the first six months of the year, and we have greater headwinds as the US dollar strengthened versus the euro, pound, Australian dollar and Korean won.

Third, we expect tax rate to be approximately 19.5%, at the high end of our previous guidance, due to less contribution from our international businesses.

Notwithstanding these, we expect to be within our previous full year guidance, but anticipate being at the lower end of revenue and non-GAAP EPS of $16 billion to $16.5 billion and $2.70 to $2.75 per share.

We expect modest revenue acceleration from the first half of the year to the second half.

For the third quarter, we expect revenue of $3.85 billion to $3.95 billion, representing growth of 13% to 16%.

We anticipate non-GAAP EPS of $0.61 to $0.63, representing growth of 12% to 15%.

In summary, we feel good about our performance.

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

PayPal continues its strong growth, with 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 eBay Enterprise is performing in line with our expectations as we continue 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.

Now we would be happy to answer your questions.

Operator?

(Operator Instructions)

Colin Sebastian, Robert Baird.

Obviously PayPal generated very solid growth in transaction volume, but one follow up on the segment margin and the sequential decline from Q1, is this reflective of the off-line payment service kicking in?

And I am wondering how you are tracking towards the year-end goals in terms of adding merchants acquires and retail locations for this initiative?

Thanks, Colin.

The PayPal segment margins are consistent with our historical trends, where first quarter and fourth quarter tend to be the higher segment margin rates, and Q2 and Q3 tend to be lower.

It is more a function of the investments that we are making around ubiquity in the online and omni-channel world on investments we're making in the consumer product more than anything.

The second thing is, as you see on a year on year basis, transaction margins were down, and that is more a function of a higher take rate last year versus this year as our off-eBay growth accelerated, our large merchant expansion is improving.

And then as you know, Colin, the impact of hedges flow through the PayPal revenue line in our gains this year, this quarter, were a little less than last year.

On point-of-sale progress, it's marching along pretty much as we outlined in March, with PayPal here at the smallest merchant end continuing to grow.

And now with Chip and PIN being released in the UK and soon to be other countries, our Discover partnership is now live, and I think we have roughly 250,000 locations, and we continue to sign direct point-of-sale merchants, as I mentioned earlier, RadioShack being the latest.

We are going to continue to march our way out to build -- over the next two and a half years, build out ubiquity.

Douglas Anmuth, JPMorgan.

I just wanted to ask if you think that anything fundamental has changed in your business since the investor day four months ago, and how do you get comfortable with the international softness in Korea and Europe, in particular, being macro rather than competitive or something more fundamental?

Doug, we don't really see anything fundamental in the last 90 days other than what both Bob and I commented on, which is the external environment is a little bit softer in a couple of geographies versus what we anticipated at the beginning of the year.

We came into the year feeling like the US economy and e-commerce market was going to be solid, and I would say it is performing probably at or maybe even a little bit better than we would have guessed.

We came into the year thinking Europe was going to be, while it was kind of weak, it was going to be kind of stable.

And what has happened in the first six months of the year, you read the same things we do, that the euro zone may actually contract this year; retail is down in both Germany and the UK.

And what is a little different this year than the past couple of years is e-commerce growth rates are also coming down in the UK and in Germany.

Last year e-commerce held up even in spite of a challenging market, so it is not massive, but it is -- on the margin, it's softer than we thought.

And then Korea, the e-commerce growth rates have dropped by more than 50% year-over-year.

They were almost 9%, 10% a year ago; they're at 4% now.

As you know, we are reasonably weighted towards Europe, Germany and UK, and Korea, so those things are impacting our businesses in the area.

But we are executing on all the initiatives and all the plans we discussed at our investor day, and as we said earlier, in spite of those headwinds, we still feel good about how we are executing and performing and expect to come in within our full annual guidance range.

Doug, the only thing that I would add which is a fundamental change, not in our business per se but in the environment in which we are operating, obviously we are a very global business, and international currencies relative to the dollar from the beginning of the year are weaker by a little over 4%.

And from the March/April timeframe, we grew by a little over 3%.

Obviously that is not a fundamental dynamic of the business that we operate.

It is a dynamic that being a global business exposed to global currencies, and that clearly has an impact on us.

Heath Terry, Goldman Sachs.

John, just curious, we have now seen over five quarters of accelerating growth in users, particularly Marketplaces, and historically that has had a pretty direct impact on other metrics within the business, whether revenue growth or GMV.

Is there anything you are seeing that is different about these incremental users that are coming in now?

Are they activating at a lower rate, are they spending less either for geographic reasons, or is there any other context you can provide around when you expect to see that accelerating user growth translate into the rest of the business?

Heath, as you said, in actually both marketplace and in PayPal, we have now got I think four and five straight quarters of accelerating double digit active user growth, and I feel thrilled about that.

You recall a couple years ago, people were asking -- when are you going to start marketing to new users?

And we waited until we felt like our user experience deserved that.

Really, ever since Devin came on board, he has made this a real focus in the marketplace business.

What is driving the acceleration of new users is really three things.

One, it is just plain and simple improved user experience and the word-of-mouth that goes along with that.

Two, mobile.

Almost 30% of our new users in second quarter came from mobile, so that is a way where we are relevant to someone on the spot when they want to trade.

Third, emerging -- BRIC and emerging markets, and frankly, much of the brick and emerging markets is also registering on mobile.

These new users, they are in segments we really like; they tend to be mobile users, tend to be younger, so we like that.

They may have less disposable income, but they are younger, and we love the lifetime value.

The BRIC and emerging markets new users are people that we are just coming into the global commerce environment, and again, they tend to skew a little bit younger and a little bit -- they tend to start with a little bit lower ASP.

We are very glad to be rolling into these segments, and now we are working on increasing both frequency and our ASP with each of the segments to convert them into long-term users.

It is still too early to tell -- we had something we call class curves, which are the maturity curves of each new cohort of new users.

It's still too early to tell if there's any fundamental difference of the slope of those class curves of a mobile user or a BRIC/emerging market user.

What we like is they are in segments that we think are fundamentally important and strong segments for our business over the medium to longer term.

I view it as very positive development.

Youssef Squali, Cantor Fitzgerald.

Bob, could you go back and maybe help explain what drove the decline in growth in FX neutral Marketplace revenue to that 10% you talked about earlier?

This is the lowest we have seen in about five or six quarters.

I think you spoke to some tax settlement, I think 200 basis points related to tax, so maybe you could talk about that.

Then, can you also make -- I guess as you talk about eBay or as you comment on the eBay Now, can you make that business breakeven on the current $5 offering, or how should we be thinking about it?

Is it just more of a transaction accelerant over time?

First, Marketplace revenue deceleration Q1 to Q2 was 13% to 10%.

The biggest driver of that was -- you may remember last year, Youssef, we had an indirect tax settlement in one of our international businesses that was VAT-oriented, therefore went through the revenue line.

That item itself contributes to 1.5 points of the deceleration.

The second thing is what I would characterize as promotional activities, and they came in two ways; one, in our Korean market more directed coupon orientation, which is more of a contra revenue, and the second was -- the second aspect of promotional activities was things we were doing in some of our European markets to stimulate the supply side of economics that were getting more selection on the site, if you will.

Those are the two primary drivers -- 13% goes to 10%, primarily driven by indirect tax settlement from a year ago that we talked about, and things we do to stimulate promotion in both Korea and European markets.

Then Youssef, on eBay Now, what this is really proving, and I think it has been ahead of what I would have expected, it's proving that consumers like choice, they like to have the option of when they want to have something delivered to them, same day, that they like that.

Interestingly, we have been doing it within an hour time window pretty consistently in the three cities that we have been doing it, and they like that, but they also would like the ability to schedule at some point in the afternoon, so we will be driving toward that.

Retailers like it because it is leveraging their stores as fulfillment centers, and our focus to date has been building a great consumer experience so that -- and I think that is one of the things that is extinguishing our pilots from other pilots right now is if you talk about consumers that have used it, it works and they like it.

Now as we think about rolling it out, and we've announced we will be going in addition to the three cities, to Chicago and to Dallas, we will begin experimenting on two things.

One is driving more scale.

One of the things that we have inside the eBay marketplace is we have a fair amount of local transactions where a buyer and seller happen to be in the same city.

So now we will be exposing those, so we can begin to build more density within those cities.

We think both -- we are probably the only people around that with the eBay marketplace volume and the retailer volume, we can aggregate in a given city to have the most compelling economics on behalf of pulling multiple retailers together.

Then we'll experiment with other delivery approaches, including taking more of a marketplace approach to delivery.

Where we have vetted delivery drivers and use what I might call an Uber-like approach to the delivery side.

We think this can be an effective way to offer consumers choice and allow merchants to use their stores as fulfillment centers.

Sanjay Sakhrani, KBW.

I guess I have two questions.

First I was wondering if you could talk about where the ongoing risks might be to your current guidance and perhaps where you might feel you're conservative in your outlook?

Second, I was wondering if you could talk about some of the leaked proposals in the FT last night for Europe and how that might impact PayPal.

Specifically I was wondering whether you guys have seen any competitive pressure on your cross-border fees as a result of those rates going down for Visa and MasterCard.

Sanjay, on the first part of your question, right now, I characterize our second half outlook and our outlook for the full year as fairly well balanced.

I think what it incorporates is the three things we know today.

The US -- we'd characterize the US macroeconomic environment and our business to be performing well.

Europe's macroeconomic environment to be not so good, but we feel like the actions we're taken are okay; and international, and Korea in particular, is a high risk, but we think we have factored that into our second half outlook.

In terms of conservatives, look, if the European market accelerates, we will all feel great, but we are not counting on it.

And currencies, yes, I think we have in essence captured spot into our guidance both on the top and bottom line, with the bottom line fairly well hedged.

Top line obviously will be impacted.

It incorporates our best view about what has transpired through the first six months of the year and how we see the second half playing out.

Sanjay, on your second question, I make a general policy not to comment on leaked draft plans.

That said, anytime something like this comes out, we look at it.

And as it develops further along, we will assess it, but there is nothing official as yet.

Ron Josey, JMP Securities.

I want to ask on Cassini, which I believe rolled out in North America in June at some point.

Wanted to see if you're seeing any benefits.

I know it's relatively early, but seeing any benefits or lessons learned since the rollout, and specifically what you're expecting from Cassini, maybe an increased conversion rate that may be in the back half of the year.

Ron, Cassini represents two things for us; one is the next search platform which we can continue to innovate on.

Actually the current user functionality, which I will describe in a minute, is great, but what is probably as important is it gives us the foundation for the next couple of years to continue a series of iterative search improvements.

The search improvement that is coming in its first rollout it is simply that it is indexing the entire listing instead of just the title, which does two things; one, it improves the quality of the search results, and it reduces our null searches or zero result searches.

We are seeing both of that.

As with any search change when an ecosystem is large as ours, that when you initially do it, it tests negative, and then you work hard to get it back to positive or neutral.

And then you hope to get some positive benefit out of it.

And we now think it is in the modestly positive category.

I've said this before; I will say it again.

Cassini itself is not going to create any discontinuous positive benefit any more than any other search change we've made in the last few years.

It is really the combination of Cassini, of other search or user experience changes, of trust changes, of pricing changes -- that it's a combination of those things that we think will drive the positive growth.

While I am very proud of it, I do not want people to overly isolate it or focus on it, because that is just not how our ecosystem has worked over the last five to six years, and it's not going to be how it works in the future.

I wish there were silver bullets, but there seem to be none in our business.

A lot of hard work and pulling lots of levers.

But I will say that I do think we have more levers than we have ever had to pull going forward.

Ben Schachter, Macquarie.

Couple of questions.

One, could you talk about the key milestones that we should look for in PayPal off-line?

How from the outside can we track the progress there?

The second part -- loan losses seem to be going up a little bit more than we would expect.

What do the trends look like here?

How should we think about how high that can go?

What does it look like a year from now, et cetera?

Ben, on PayPal off-line, here's the way we look at this, which is mobile is blurring this boundary between what used to be online and what used to be off-line.

We are looking at this as a significant opportunity to increase our addressable market over the medium to long term, and our investment horizon is over the medium to long term.

As I look at it, we continue to leverage our strength on the web, and we are the leader there.

And our [MSTPB] numbers reflect that.

We are continuing to leverage our strength in mobile, and in some cases, mobile is adding what you might call a digital shopping experience.

In other cases, mobile even in our current results is something you could have said what used to be an off-line experience.

So take something like eBay Now -- when you use eBay Now, you are paying with PayPal, that is in essence for a quote-unquote off-line transaction, it's just not happening in a store.

The same thing is happening now in Australia and in the UK, where we are out using PayPal as a way to pay in over 2000 cafés and restaurants in Australia, and now in some cinemas and taxis and places that might've been characterized as off-line, but now via a mobile device, consumers can use PayPal to pay.

The more future oriented area, with --- it's more Greenfield.

It is using PayPal to pay inside a physical, a classic physical retail store.

That is -- what we are doing there is doing just what we talked about in our investor day, which is building out ubiquity over the next two, three, four years, and then trying to serve or develop and solve customer pain points.

PayPal has never been about replacing current payment mechanisms by trying to do the same thing; it tries to solve customer pain points, so we are -- standing in line is a customer pain point, so we are trying to solve that.

Waiting for a check in a restaurant is a customer pain point; we're trying to solve that.

Merchants are looking to strengthen their connections with their customers by allowing easy access to loyalty programs.

or offering coupons or offers while they are in the store, or enabling private label cards.

We are driving our product roadmap to enable those kinds of experiences, and then we will begin experimenting with those in different retailers and different geographies around the world.

That last category I would characterize as more Greenfield, and that is why in our three year numbers, we put some of the things that are more certain in the numbers.

And a lot of the less certain things, we said are -- we cannot estimate exactly when we will get consumer velocity traction, so did not put them in our three year numbers.

Ben, on your second question, just first I'd say, as you know, we use Bill Me Later as a product and vehicle to drive more engagement on our -- for merchants on and off eBay.

We do that in effect ends up lowering our processing cost and using our offshore cash to generate higher returns.

That is how we use the product offering.

In terms of how we leverage our risk management capabilities to make credit decisions, what we are trying to do is generate portfolio economics that generate a 14% to 15% return on that asset deployed.

And in essence what that means -- and that is kind of where we have been for a long time.

Sometimes we take a little more calculated risk, which will drive up net charge offs; at the same time, it usually results in higher revenue.

Net charge offs have gone up a little bit.

We are at the high end of our 14% to 16% risk adjusted margin range, and we feel pretty good about where we are.

If I were to project forward, I think we will stay within the 14% to 16% range in the foreseeable future, and I expect net charge offs to levelize, stabilize a little bit in the next 6 to 12 months.

Gil Luria, Wedbush Securities.

In terms of how you are rolling out the improvements to Marketplace, I think when you started with the first set of improvements, three, four, five years ago, you wrote some of those international in and brought them to the US, and that's when you saw the big impact.

Are you doing the opposite now?

Are more of the changes happening now in the US to be rolled out later internationally, and if so, what is the timeline for that?

Gil, frankly, what is really happening now -- back then we were putting them in the market, we thought it was most specific, and then that happened to be the UK in many cases.

We rolled back to the US.

Now, frankly, we have got many in the US; we have got some other things internationally.

Something like Cassini, we have rolled first in the US, and now we will roll it out more internationally.

There are some other trusts and other innovations we might try in a country and roll back.

The short answer to your question is -- and it may be an unsatisfying one, but it is the truth -- is all of those things are contained in the growth rates we put into what Devin talked about at analyst day.

And I don't see anything that is discontinuous, where there is something that is significantly proven in region one and when we roll it out in region two, it will do a significant bump.

We do have a number of things that will roll out in Europe and in the international markets in the second half and really into the first half of next year, and we have a few things on the trust front that are happening in other countries to roll back into the US.

I again, I'd message a fair amount of steadiness as those things roll out.

And we're getting better, I think, at the rolling out, because we don't like discontinuous things up or down, and we try to avoid them.

A quick follow up.

You talked about the fact that your assumptions about Europe and Korea have gotten worse from three months ago.

Have your assumptions in the US gotten better from three months ago?

And are you assuming further improvement for the second half of the year for the US consumer, or the same behavior that we are seeing now?

I would say no change in the US from where we were three months ago, but at the same time, we told you back in April that from where we were in January, that US was a little bit better and Europe was a little bit weaker.

And I think no real change from those dynamics from April as it relates to the US.

Mark Mahaney, RBC Capital.

Two quick questions -- at the investor day earlier this year, you did a deep dive into the Russia market; any quick update there?

Secondly, any updated thoughts on uses of cash for share buybacks, and just remind us how much of your current cash is domiciled in the US.

Mark, on Russia, I would say nice progress on the first half of this year, and that really -- I guess it was the December, first half of this year where we got our PayPal, our in essence domestic payment license.

And then second, we've launched our Russian language site.

I think it was end of the first quarter, beginning of second quarter.

And we actually ran some TV advertising in Russia which turned out to be fairly economic during the second quarter, and we're seeing nice growth rates in our Russian business.

Obviously it's all import business.

We are continuing to work on how you really make it easier to ship into Russia, but we are seeing very nice growth rates in our Russian business, and we believe we continue to be the largest B to C seller in Russia.

The number one player and growing.

(laughter) Mark, on your second question, just out of $11.7 billion in cash in total, about $3 billion of that $11.7 billion is here in the US.

Philosophically, in terms of deployment, no real change.

Organic investment number one priority, Bill Me Later loan portfolio growth, the biggest consumption.

We will continue to be inquisitive as a company.

And then on share repurchase, we basically have for a while now the philosophy to offset dilution from our comp based programs, and we expect that to continue in the second quarter.

What that meant was we bought back just about 8.5 million shares at $466 million.

Ross Sandler, Deutsche Bank.

Just two quick questions.

John, you guys talked about the clock speed initiative for marketplaces, where you can now ship new product I think once or twice a week versus once every six months, a few years ago.

I'm just curious -- what is the equivalent clock speed initiative looking like on the PayPal side?

How quickly are you guys able to ship new innovations, either on the merchant or the consumer side, for PayPal?

Bob, you guys just did the small Belgian classifieds acquisition; any revenue or expense included from that in the second half guidance?

Ross, on clock speed, what enabled that was the hard work that Mark Hargis led over the last, really, 3 to 5 years to replatform the marketplace's core technology platform.

Initially it was a search platform, and frankly Cassini's rev 2.0 of that, and then it was other elements of the Marketplace technology platform that then enables more iterative, rapid innovation.

I would say PayPal's three years behind where Marketplace was, so we really just began what I call fundamental replatforming effort in PayPal last year, and we are sort of a year into it.

Some of the new features we're shipping are on the new stack, and that new stack is more robust.

It allows more iterative and faster approach, but it is going to be a three-year slog to work our way through the PayPal replatforming.

I wish I could make it go faster, but we can't, and more resource does not make it go faster.

The good news is the PayPal team is on the same path that the Marketplace team was, and you will begin to see some benefits, I think, next year in PayPal's clock speed in certain areas with those features and things that are on the new part of the stack will increase the clock speed, but it is over the next three years that I think you will see the significant acceleration in clock speed in PayPal that we have now seeing and enjoying in Marketplace.

Ross, on the Belgian acquisition, yes, we just announced and closed it a week or two ago.

Rest assured every bit of the revenue is reflected in our guidance, and it is not material.

Operator, we have time for one last question.

Stephen Ju, Credit Suisse.

Bob, just to build on your earlier commentary on the decrease in the Marketplaces take rate, I guess as you take on more promotional activities, and this seemed to be arriving in conjunction with the DPs in your overall marketing spend as a percentage of revenue.

So should we view this as a more deliberate shift in your marketing mix and has to your take rate, or is this just a purely ROI-driven temporary shift?

I think the general theme of us continuing to pull a variety of different levers to stimulate user growth and engagement on the sites is something that you have seen for a while and I think you should continue to -- you will continue to see.

I think more specifically for the quarter, what that has meant for the last couple of quarters is, while we have increased our sales and marketing spend overall, as a percent of revenue, it has come down, i.e.

we have gotten more efficient in it and higher returns.

But we are investing in more products, innovation R&D.

We are investing more in buyer protection that flows through the eBay guarantees.

And we continue to pull levers on contra related spend and take rate related dynamics that stimulate the supply side of the ecosystem.

I think you're going to continue to see us a play with the different levers in different markets to stimulate engagement and demand.

Okay, I think that is it.

Thanks, everyone.

We will see you next quarter.

Thank you presenters, and thank you ladies and gentlemen.

Again, that does conclude your eBay second quarter 2013 earnings conference call.

You may now all disconnect and have a wonderful day.