eBay Inc (EBAY) 2013 Q3 法說會逐字稿

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

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now 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 third 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 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 Investor Relations section of the eBay website at investor.ebayinc.com.

You can visit our IR website for the latest Company news and updates.

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

Before we begin, I would 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 a reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying the call.

In addition, Management will make 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 2013, and the future growth in payments, marketplaces, and eBay Enterprises 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, including foreign exchange fluctuations; our need to successfully react to the increasing importance of mobile payments and commerce and the increasing social aspect of commerce; an increasingly competitive environment for our Business; 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; 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; our ability to integrate, manage, or grow businesses recently acquired or that may be acquired in the future.

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 investor.ebayinc.com.

You should not rely on any forward-looking statements.

All information in this presentation is as of October 16, 2013, and we do not intend nor undertake any duty to update this information.

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

Thanks, Tom.

Good afternoon, everyone, and welcome to our Q3 earnings call.

We had a strong third quarter, enabling $52 billion of commerce volume, up 21%.

Revenue was up 14% and non-GAAP EPS was up 17%.

Both PayPal and eBay marketplaces saw a double-digit growth in new users and we continue to lead in mobile with 36% of new customers in the quarter acquired via mobile.

Mobile continues to drive a commerce revolution.

Go to London or Moscow, Sydney or Seoul, San Francisco or New York, and mobile is transforming how commerce happens.

Consumer behaviors and expectations are rapidly changing around the world and the pace of commerce innovation is accelerating.

In this dynamic global environment, we have the scale and experience, the platforms and technology and capability to lead in this commerce revolution.

That's our focus.

Let me take a moment to reiterate our strengths and opportunities.

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

And as we shared at our analyst day, by 2015, we expect to enable $300 billion in commerce volume, up from $175 billion in 2012.

And we are well on our way, with our trailing 12-month commerce volume up 20% and now reaching $200 billion.

This is one way we will measure our success.

Second, our core businesses are strong.

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

And third, our global commerce platforms, technology assets, and innovation capabilities strongly position us to lead and compete in the four emerging commerce battlegrounds -- mobile, local, global, and data.

We are a mobile commerce leader both at PayPal and eBay.

We continue to expect that each will do $20 billion of mobile volume this year.

We're innovating in local with new experiences such as eBay Now, buy online pick up in store, and PayPal check-in and order ahead.

We are leveraging our cross-border trade advantages in new markets such as Russia and Brazil and enabling merchants in China to grow by reaching consumers worldwide.

And last but not least, we are harnessing our data to drive consumer engagement.

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

We don't believe that commerce is a zero-sum game; it is not winner take all.

Technology is changing the rules and pushing the boundaries of commerce enabling what we call connected commerce and we believe that creates more opportunity for us and for everyone.

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

In Q3, PayPal continued to expand its footprint, increasing merchant coverage and share of checkout.

Finishing the quarter with 137 million active accounts globally, PayPal added 5 million new active accounts during the period.

Merchant services generated strong TPV growth of 30% accelerating 1 point from Q2 and representing almost $31 billion payment volume.

Penetration on eBay increased to 78%, accelerating 100 basis points from the prior quarter.

PayPal rolled out significant enhancements to its mobile app in Q3.

With the updated app, consumers can now check in and pay with their PayPal digital wallet at thousands of retail locations in the US, Canada, UK, and Australia.

Consumers can also order ahead at participating restaurants or pay for their meals via mobile without having to wait for the check in the US and Australia.

In the US alone, PayPal mobile users can now order ahead at almost 9,000 restaurants.

We believe our pending acquisition of Braintree will help accelerate PayPal's global leadership in mobile payments.

Braintree is powering the next generation of leading online and mobile-first start-ups.

Braintree will also strengthen PayPal's commitment on supporting developers who are creating innovative solutions for the next generation of commerce start-ups.

PayPal also expanded its geographic reach in Q3, launching domestically in Russia.

In the first 2 weeks after launch, 2,000 Russian merchants applied for Russian PayPal merchant accounts.

And PayPal already has 1 million active accounts in Russia.

And PayPal continued to innovate at point-of-sale, announcing Beacon in Q3.

PayPal Beacon, which utilizes Bluetooth low-energy technology, is simple for merchants to use with existing point-of-sale systems.

Beacon will enable consumers to easily pay at their favorite stores hands-free without having to open their PayPal app or take out their smartphone.

It's another way PayPal is reinventing the shopping experience.

Now let's turn to marketplaces.

In Q3, eBay's core, or non-vehicles GMV, grew 12% over the prior year.

And in the US, core GMV was up 15%.

Active user growth was also up to almost 124 million.

Top-rated sellers on eBay continued to deliver a great experience and outpace eCommerce growth, accounting for 46% of US GMV in Q3.

Their same-store sales grew 17%.

Fixed-price listings account for 71% of GMV globally and more than half of all US transactions shipped free in Q3.

eBay continued to see strong growth in mobile, with 2.4 million new users acquired through mobile in Q3.

eBay also continued to innovate in local, with expanded coverage of eBay Now in the San Francisco Bay area and in New York.

And in time for holiday, eBay Now plans to launch in Chicago and Dallas and will go global in 2014 with a planned launch in London.

Speaking of the UK, eBay announced a Click-and-Collect partnership with Argos.

The service will launch with 50 eBay merchants now able to offer consumers fast, free, and local pick up at 150 Argos stores across the UK.

eBay is also offering Click-and-Collect functionality for all large merchants who wish to participate and offer pick up in their physical store locations.

And in the US, eBay plans to partner with select retailers in Q4 to offer in-store pick-up for items purchased on eBay.

More brands and retailers are turning to eBay as a new way to reach consumers.

In Q3, 34 brands and retailers signed agreements to open stores on our platform.

We continue do feel very good about eBay's performance, ongoing site improvements, and new product experiences.

This team is executing well and innovating.

Now let me briefly touch on eBay Enterprise.

In Q3, eBay Enterprise grew same-store sales 13% for its retail customers.

And eBay Enterprise continued to evolve its omnichannel capabilities and solutions.

At its customer summit in September, eBay Enterprise announced a new suite of commerce technologies, including its recently-launched platform.

These technologies were deployed in Q3 to another four brands and Sony went live with its online store in North America last week.

eBay Enterprise has also partnered with PayPal to pilot a free, 2-day shipping program with nine retailers.

Launched earlier this month, initial results are strong, showing increased share of checkout and sharp uptakes in conversion.

Share of checkout is significantly greater than competing offers on sites where both exist.

This is a great example of how we can leverage our portfolio to deliver compelling offers and experiences to merchants and consumers.

In summary, our Company had a strong third quarter.

And as I outlined at the beginning of my remarks, I feel very good about our strengths and opportunities.

Our core businesses are strong and over the past 12 months, we've enabled over $200 billion in commerce volume for our merchant, brand, and retail partners.

That's more than a 20% increase in what has been a fairly lackluster macro environment.

But in this challenging environment, we are focused on what we can control -- strengthening our operating discipline and execution.

This means getting our product innovations to market faster, deploying new technology more effectively, and more aggressively driving consumer and merchant engagement.

We believe we are making the right investments to drive commerce innovation.

And we need to step up the pace on translating these investments into accelerated growth.

That's our priority.

Now I'll turn it over to Bob who will provide more details on Q3 and our outlook.

Thanks, John.

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

Q3 was a strong quarter for the Company and another deposit on our multi-year plan.

Total enabled commerce volume in the quarter grew 21% to $52 billion.

Revenue was $3.9 billion, up 14%, and non-GAAP EPS was $0.64, up 17%.

Free cash flow was $1 billion in the quarter.

User growth grew double-digits for both PayPal and marketplaces.

And we announced our agreement to acquire Braintree for approximately $800 million to help accelerate PayPal's leadership in mobile payments and to support developers who are creating innovative solutions for next-generation commerce start-ups.

Additionally, we have sold our equity stakes in ShopRunner and Rue La La and received repayment of the Kynetic note receivable for approximately $485 million.

The proceeds will partially finance the Braintree acquisition.

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

As John mentioned, and we highlighted at analyst day earlier this year, our goal is to enable commerce, connecting merchants and consumers from around the world to down the street to buy and pay.

We've continued to invest and improve capabilities in mobile, local, global, and data.

And as such, we are expanding our addressable market, have built and are building a portfolio positioned to capitalize and lead, and 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 $52 billion of commerce volume at a take rate of 7.6% in the quarter.

Our take rate declined 40 bps, driven by business mix, as our fastest-growing business, PayPal, has a lower take rate.

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

In Q3, we generated net revenues of $3.9 billion, up 14%.

Organic revenue growth was also 14% in the quarter, a slight deceleration from Q2, as eCommerce growth slowed in the US.

Third quarter non-GAAP EPS was $0.64, up 17%.

Non-GAAP operating margin was 26.8%, up 50 basis points, due primarily to solid top-line growth and operating expense leverage.

Our EPS was slightly higher than expected, as we began to realize planned operating leverage earlier in the quarter, which puts us in good shape for Q4.

We generated free cash flow of $1 billion 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.

Revenues reached $1.6 billion, up 20% on an FX-neutral basis.

A few quick operational metrics.

Total active accounts, growth was 17%.

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

Merchant services FX neutral TPV accelerated 1 point to 30% in the quarter.

PayPal segment margin came in at 22.7% for the quarter, up 10 basis points, due primarily to OpEx leverage, partially offset by a lower take rate from large merchant mix, smaller gains on foreign currency hedges, and lower cross-currency transaction growth.

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 stand-alone financials with TPV of $1 billion, up 30%.

BML's penetration as a funding source in the PayPal wallet was 4.3% on eBay in the US, and 2% on merchant services.

BML gives consumers another funding choice and increased penetration helps lower PayPal's transaction expense.

We continued to finance the BML loan receivable portfolio primarily using offshore cash, which has enabled us to increase the return on this asset.

And additionally, we launched an SMB lending pilot in the quarter to enable merchants to grow their businesses while leveraging our data and risk management capabilities.

Overall, BML continues to perform well.

Now let's move to marketplaces.

Marketplaces had a strong quarter, with net revenues of $2 billion, up 12% on an FX-neutral basis.

Revenue growth was driven by 12% growth on an FX-neutral basis for both transactions and marketing services and other.

A few quick highlights on marketplace's operational metrics.

Active users grew 14%.

FX-neutral non-vehicles GMV grew 12%, driven primarily by improvements in mobile and the customer experience.

Geographically, we saw the EU and Korea stabilize in the quarter, but experienced deterioration in the US eCommerce market.

Transaction take rate, excluding vehicle vehicles and StubHub was roughly flat with last year.

And marketplace's segment margin was 38.9% in the quarter, down 10 bps from last year, primarily due to investments in trust and technology, partially offset by OpEx leverage.

Now let's turn to eBay Enterprise.

eBay Enterprise client same-store sales grew 13% in the quarter.

Revenue was $238 million, up 5%, driven by solid volume growth, offset by a lower take rate, client mix, and channel mix.

Marketing services and other revenue growth was impacted by the replatforming and branding efforts to consolidate nine companies into one.

Segment margin came in at 5%, down 110 basis points, due to take rate reduction and business mix.

Turning to operating expenses.

In Q3, operating expenses were 42.5% of revenue, down 212 basis points.

Operating expenses were down due mainly to lower sales and marketing from improved marketing efficiencies and a shift in spend to product and user experience.

This was partially offset by an increase in provision for transaction loan losses resulting from investment in marketplace's trust initiatives and TPV growing faster than total Company revenue.

We ended the quarter with cash, cash equivalents, and non-equity investments of $13 billion, including approximately $3.9 billion in the US.

We've improved our financial flexibility, funding 67% of the BML loans receivable portfolio with offshore cash in the quarter.

We repurchased 2.8 million shares of our common stock for approximately $146 million and we received approximately $485 million from the divestitures of our remaining equity interest in Rue La La and ShopRunner and the settlement of the Kynetic note.

With that, let me turn to guidance.

A little context on our business outlook.

First, from a macro standpoint, Europe and APAC, which created a bit of anxiety for us in the first half of the year, has stabilized through Q3.

But a the same time, the US eCommerce softened considerably and we have a cautious outlook for the holiday season.

Second, currency.

The US dollar weakened since July, which positively impacted the top line, but there is no impact to our bottom line since we are fully hedged.

Third, investments and operating leverage.

We expect $0.01 dilution from the anticipated late Q4 close of Braintree.

We expect to increase spend with our eBay Enterprise and PayPal free shipping pilot to drive higher conversion for merchants and increase share of checkout for PayPal.

And we had strong operating leverage in the third quarter that will carry momentum into the fourth quarter.

As a result, we expect to be at the low-end of the full-year 2013 guidance range on both the top and bottom line.

For the fourth quarter, we expect revenues of $4.5 billion to $4.6 billion, representing growth of 13% to 15%.

And we anticipate non-GAAP EPS of $0.79 to $0.81, 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 omnichannel.

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

Marketplaces is stable in a deteriorating US environment, driven by investments in buyer and seller experiences.

And eBay Enterprise continues to position its assets for growth, invest in technology, and grow its 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 would be happy to answer your questions.

Operator?

(Operator Instructions)

Ron Josey, JMP Securities.

Just real quick, Bob.

If you can go back and talk about the stabilization you saw on EU and Korea and the impact on marketplaces -- I'm just wondering if that is just better macro or the result of the marketing investments you made during the quarter?

And then also domestically, any additional color as to why you think holiday might be a little bit weaker this year would be helpful?

Thanks, Ron.

Yes, in terms of Europe and Korea, as you may remember back in July, we had a bit of anxiety just about the signs that we were seeing in both of those markets and how it was impacting our Business.

During the course of the third quarter, in essence, we looked at stable growth, 11% Q2, 11% Q3, and things stabilized in what, at the time, had caused us the greatest anxiety.

I think there are some things that are working well in terms of what we are doing and some things that aren't but in the aggregate we got nice fundamental strong businesses with good stable growth.

That is first.

Secondly, holiday weaker, the reality is, the thing that has caused us the most angst is a dramatically decelerating -- what we believe is a dramatically decelerating US eCommerce growth rate from the second quarter of 15.5% to 16% per comScore to the third quarter of closer to 13%.

So when we came into the third quarter, we looked at a stable US market, and lo and behold, in a relatively short period of time, we have seen a pretty rapid deceleration in the market.

For us, that deceleration happened throughout the course of the quarter and then, as always, we take all the information we have at our disposal, which right now is roughly 15 days in, and we haven't really seen any more positive signs in October than what we experienced through the latter part of the third quarter in the US.

So all of that and all the anxiety we see when we pick up the newspaper every day makes us fairly cautious about how we look at the holiday season and its impact on our outlook for the fourth quarter.

I hope I'm too conservative, but right now all the signs point to a bit of caution.

Great, thank you.

Colin Sebastian, R.W. Baird.

Great, thanks, maybe just one quick follow-up there on the deceleration in the US.

Bob, I wonder what your level of confidence is on the Q4 outlook if there is no improvement in the US into the holiday period, given overall stable growth rate expectations?

But my other question would be on the new users coming from mobile.

I think you've articulated in the past that they don't monetize quite as well as other users.

And I wonder though if you are seeing a trend emerging among this cohort as their tenure on eBay and PayPal starts to lengthen, if the monetization is improving?

I'll do the first, John, and maybe you'll handle the second.

In terms of the decel that we're seeing in the quarter and level of confidence, we always try to, at the risk of repeating myself, we always try to give you our best look based on everything that we are seeing.

It's hard to be really confident when lots of the fundamentals that we are reading about are not all that positive.

That being said, we are not expecting a -- really any improvement in the fourth quarter from what we've experienced for the last 8 to 10 weeks.

So we are not expecting improvement, we are just assuming that things are going to stabilize where they are, eCommerce growth rates will not accelerate but they will be stable, and we think we are well-positioned to deal with an environment that doesn't get any worse than it is right now.

And Colin, on the new user growth and the mobile user monetization over time, as we said, we had continued double-digit user growth across both businesses and, in the quarter, it was up -- almost 36% of our new users came via mobile.

So what is clear is a lot of new users are coming to us via mobile.

And I really like the demographics.

They are demographics of the future because they tend to be younger and they tend to come from -- not tend to -- but there is a significant portion that come from BRIC and emerging markets, markets of the future.

And so it is just fact that younger people have less disposable income.

And the people in the BRIC and emerging markets, because they are buying cross-border and don't really have domestic eBay markets to buy from, don't buy quite as frequently.

So what we're doing is we're obviously monitoring the number of transaction for those users as they mature and the total GMV.

And the good news is they are getting better.

So that they're -- what do I say -- use eBay more, they tend to grow their number of transactions and grow their GMV over time but the slopes of those cohort curves are simply lower than that the slope of a more developed market or our higher disposable income demographic.

So what we're doing about it is making sure that we have the best inventory available for international, BRIC, and emerging markets sellers.

So something like the Russian site really increases the richness of selection that Russian consumers have, for instance, and how easy it is for them to get that inventory.

And we are trying to grow our inventory that appeals to younger demographics.

And the last thing we're doing is to increasing engagement.

One of the things that is a good thing about a mobile user is they tend to engage more frequently, even than if they don't always buy, and some of the stuff we're doing with eBay [fee] and our mobile apps are driving growth -- or growing engagement with those customers.

So, we still don't have enough data to have what I would call highly predictive cohorts but we like the demographic, we like the trends, and we are working on making sure that we grow those users into valuable long-term customers.

Thanks very much.

Gil Luria, Wedbush Securities.

I wanted to revisit the Braintree acquisition.

You talked about some of this during your release, but could you elaborate a little bit on what the economics are for them?

How many of their transactions were acquired versus just gateway?

What that translates into the revenue they are going to contribute next year?

And what are some of the opportunities for you to build on their economics -- introducing PayPal as a payment option, maybe becoming the acquirer for some of those transaction?

What is the potential there?

How would you rank the most important contributions that you are going to get from Braintree?

Yes, Gil.

Why don't I just quickly revisit the rationale of why we acquired Braintree and then, Bob, maybe you can talk about some of the specific questions Gil was asking.

We have been watching Braintree for the last 12 to 18 months and really like the progress they are making in two very important markets.

First, with developers, they have built a really simple product that developers find very attractive to integrate into their new products and new businesses.

And, as you know, we've been developing our developer product as well, but when we finally looked at it side-by-side we decided that we were best off taking Braintree's and then merging ours into it.

So the developer community, we think is a real growth opportunity for eBay going forward or PayPal going forward, and we will use Braintree.

Second, Braintree has done a great job of getting -- becoming the payments provider for many of the new economy or sharing economy companies that are growing and growing quite rapidly and their payment solution really works well for those.

So what we really like about it is it positions PayPal into these two high-growth markets.

And then the last thing they have is they've acquired a little company called Venmo, which has a user experience on mobile payments that is pretty compelling.

And so it allows you to, basically, with one-click payment, pay across different apps that Braintree powers across someone's mobile device.

So, we thought this company was a nice fit with PayPal.

It helps us build almost a payments OS.

And we will run it separately.

Bill Ready will report to David.

But we will do everything we can to leverage PayPal's strengths to help Braintree expand internationally and to ensure that we are developing the most competitive products for the developer community and also working with that Venmo Touch to see if we link that to PayPal's user base and PayPal accounts.

And then John, Gil, I would follow on, in terms of the business model and the economics, its ease-of-integration and its relationship with developer communities has enabled it to get dramatic organic growth.

And as we indicated at the time of the announcement, $12 billion of TPV volume, where the service they provide is primarily a no-risk PSP/gateway.

And the implications of that are really three things for us.

One is significant volume, but we don't record gateway type TPV in our external metrics.

So for the most part, it's not going to be a dramatic change on TPV.

Secondly, because of the nature of the service they provide, they get insight into all transactions that get processed, however, their take rate is very low relative to ours.

So the revenue impact is relatively small.

And then third, the opportunities, and John touched on these, is how do you leverage their relationship with developers, mobile users, sharing economy merchants, coupled with PayPal integration so over time Braintree gets get visibility to all transactions and PayPal as a source or funding way to pay can get enhanced economics as it gets share of checkout on Braintree merchants.

So that is the strategic and then the financial implications for the business for us.

Got it.

Thank you.

Douglas Anmuth, JPMorgan.

Just two things related to payments.

First, if you could just talk about what you think was most impactful in terms of driving the acceleration in merchant services TPV?

And then, secondly, if you could help us break down the impacts in terms of the lower take rate that we saw -- I know you mentioned three things there -- if you could help us put percentages around that and how we should think about those going forward?

Thanks.

First, modest acceleration in MS TPV -- so 29% up to 30%.

We feel good about; we don't feel great; we would love to see more acceleration in the business.

It is primarily merchant ubiquity in the online world has given us the modest growth when you cut through it all.

In terms of the lower take rate, it's really, Doug, the -- some consistency in this metric that you seen over time.

First, the more we grow our merchant services business relative to eBay, and the more in that merchant services we have a large merchant mix, which are both extremely important to us and all good stuff, the lower the take rate.

And think about that as maybe a little more than the one-third of the decline in the take rate year-on-year.

The second thing is our FX hedges.

We hedge our international exposures in PayPal through the revenue line in the quarter.

The impact from our hedges were not as favorable as they were a year ago.

It had less than a third impact and that is one that will not -- well, may or may not continue, it's more how we hedge and what the impact is.

The third one has to deal with the cross-border trade and I think about this is not quite a third but in that magnitude.

And what it is, is we grow our cross-border trade and help merchants reach consumers in new markets.

How we monetize that can change over time.

So if a UK merchant is selling into Germany, we can help them grow their business by setting up local accounts.

They get better growth, they eliminate some of the friction locally for the consumer, and all else equal, our take rate is down a little bit.

For us, we think that is a great thing for merchants.

We think it is a great thing for the health of the Business.

The negative impact is it has an impact on our take rate.

That one will continue as well and that is not a new phenomena.

So, if you want to use roughly a third, a third, a third, two of those are things that are fundamentally good decisions that we make over time to grow our merchant relationship.

The impact is a lower take rate and in terms -- and likewise, we believe higher volumes for the Business and our merchants.

Okay.

Thanks, Bob.

Sanjay Sakhrani, KBW.

Couple of questions.

One was at the beginning of the year, I think you guys talked about making investments specifically around holiday season.

I was wondering if you could just talk about some of those during the holiday season and what you are anticipating in terms of returns on those investments?

And then secondly, just specific to PayPal, I was just wondering if you could talk about your discussions with the retailers to date?

I know you guys have an offline strategy and you've talked about your penetration rates and expected penetration rates, but maybe you could just talk about how those discussions have progressed and maybe how close you are to getting some of the other merchant acquirers that have been hold outs to sign on?

Thank you.

John, maybe -- you want me to take the first and you'll take the second?

Sure.

So on holiday season, Sanjay, our -- coming into the year, it was more about maybe for the full-year we are going to accelerate the level of investments across the Company in several key vectors, whether it was expand globally, whether it was expand through omnichannel locally, or whether it was to expand with data in engagement.

As a Company, we said we were going to make more investments during the course of 2013 and, in the fourth quarter, what we would see from those higher investments during the course of the year is more leverage on higher growth.

So that is generically where we were and what we've been doing in terms of investments during the year.

If you isolate the fourth quarter, it may be more marketplace or eBay specifically.

Our expectation is that we will be making more investments, as we always do.

And usually the more challenging the economic times, the more we believe that we have to lean in on behalf of our merchants to spend more on sales and marketing-related activities that drive higher growth.

So in that specific area, we always spend more Q3 to Q4.

And reflected in our guidance is we will in fact be leaning in and spending more on sales and marketing.

And then, Sanjay, I think your question was around the merchant conversations and as we go offline, and the impact on our acquirer.

We are in essence continuing to move ahead on what we said earlier this year and have been saying for the last really 12 to 18 months, which is we want to build out as close to ubiquitous acceptance as possible over a period of multiple years.

And so that involves direct conversations with the very largest merchants and those continue -- that involves at the other end of the spectrum, growing out PayPal here for the very, very smallest.

And then for the largest segment, which is that middle segment, working with the existing people in the ecosystem.

We are not trying to go around the payments ecosystem, we are trying to work with the merchant acquirers, we are trying to work with the existing point-of-sale providers, to integrate PayPal into the existing hardware and software, really infrastructure, in the payments offline world.

And we are continuing to make progress in doing that.

It is one step at a time and merchants continue -- the good news is merchants continue to very much want to get PayPal as a point-of-sale because they want to be able to offer their consumers easier enhanced ways to pay and also have a direct relationship with those consumers when they are in the stores.

One of the things that has perhaps been the biggest progress in Q3 or the newest progress is actually less on the merchant side, it is more on getting our mobile app, the PayPal mobile app, relaunched and for iOS and for Android.

And you see now, you can usually discover what merchants around you accept PayPal, so that makes it easier for consumers.

And then we've been focused on a couple consumer use cases where we are trying to take a consumer pain point and in some very targeted geographies either -- really even neighborhoods -- we are working on order ahead, which is a use case that consumers say they want and we've had some early indications that is the case.

The ability to pay at table without having to wait for your check.

And offering merchants the opportunity to throw out a closed-loop offer to a consumer in their store.

So all of this is trying to increase the value that PayPal would bring to a merchant and, which I think in time, will increase everyone in -- the pressure, if you will, or the incentive for everyone in the payments ecosystem to help support these solutions.

Heath Terry, Goldman Sachs.

Of the 34 merchants that you added to the platform or to -- that opened up shops on the eBay platform this quarter, is there a sense that you can give us of any commonality?

Are those coming to you from a similar-sized merchant group?

Are they more concentrated in some verticals versus others?

And to what extent are they taking all or largely all of the various offerings that you've got within the eCommerce stack?

How broadly are they utilizing eBay as a platform now?

Yes, Heath, so I know that you are a big eBay shopper so I'm sure you know the answer already because you're always on our site.

What you have is a mix in terms of both retailer and brand, but I would say for brands, it is a bit easier.

Secondly, characteristics-wise, the verticals with higher gross margins who can spend more to drive demand through alternative distribution channels, like eBay.

And then the way the relationship builds is they start out trying with a relatively narrow selection, text and learn, expand the selection about what moves, and then evolves into multiple different formats.

A daily deal to try something where they have deep SKU inventory and/or fashion type experiences, where we use what historically we called fashion vault as a category to display their inventory in new and different ways.

So it's retailer, it's brand, verticals, higher gross margin tendencies, start with a store, and then expand into other formats is how the relationships have been building.

And we are very upfront.

We are still working to find ways to allow these brands and retailers to fully leverage eBay marketplace.

And so it is an ongoing -- I don't what to call it -- learning journey, if you will, and -- but more and more of them I think are trying to leverage the platform and leverage the traffic.

Also, eBay Now is -- some of them want to tie some things in with eBay Now and they are looking really to leverage the eBay Inc.

full set of assets.

When we sit down with retailers, it's -- in fact we were having dinner with one last week, Bob and I were, and he said, what I really want access to the eBay Inc.

set of assets and all the innovation you are doing around mobile, around local, and so they are open to exploring ways to take full advantage of that.

And we're still learning how to most effectively deliver and leverage that.

Okay.

Great.

Thank you.

Scott Devitt, Morgan Stanley.

I was wondering just the last 6 months, since the analyst day, given some of the things that you faced in 2013, Bob, how you think about the ranges that you gave at the analyst day, the earnings growth range and then the profit margin ranges for the marketplaces and the PayPal businesses?

I know that you are not necessarily interested in updating that but I think there's a lot of debate in the investment community around your ability to get to those numbers given the way that this year has played out so it would be interesting to get your updated thoughts there.

And then secondly, just a follow-up on Braintree, I know with Bill Me Later, it may be more complicated to get deep integration to PayPal because there's a credit decision that is made, but with Braintree, that may not be the case.

So I was wondering on the front end, to the extent that there is opportunity to basically synchronize accounts so that PayPal customers have access to Braintree account without having to separately sign up for account?

And on the back end of that, does Braintree compete directly with mobile Express Checkout or are they separate product offerings?

Thanks.

Yes, Scott, first just a quick reminder of our multi-year outlook, enable eCommerce volume of $175 billion growing to $300 billion or roughly 19% growth rate.

Two, that mobile is going to be a significant contributor and our intention was to lead, and while overall growth is at 19% to 20%, mobile would be more in the 65% growth rate over that 3-year time frame.

And then third, we said our take rate or the role that we play in all the Inc.

technologies that merchants consume over that 3-year timeframe would go from roughly 8% to 7.5%.

So that is a macro things about strategically what it is we are trying to do and how we are going after it.

Year 1, or, as we characterize it, 3 deposits into the 12-deposit journey, eCommerce volume is up roughly 21%.

Mobile volume is up roughly 80% over the first three quarters.

And our take rate is right around 7.6%, so at the lower end of the range.

So, in that context, in terms of strategically what we are trying to do and the momentum at the Enterprise, we feel relatively good.

At the same time, obviously, in year 1 of our 3-year journey, we are at the lower end of 2013's revenue and earnings range.

And we've characterized macroeconomic being a little worse than we expected, currency being a little worse than we expected, but we continue to invest in the things that John highlighted so we can be accelerating growth over the 3-year timeframe.

So that is backdrop on what we said and where we are 270 days through.

And then the last thing I would say is you are right.

Selfishly, I'm not thinking about 2014 or 2015 right now.

We are thinking about delivering for our merchants in the fourth quarter this year and as we get through year 1 of the journey, we will provide more context for how we think about 2014 in January.

Let me just build -- Scott, let me just provide a little color -- Bob talked about the numbers, let me tell you where my focus is.

So we've also had a year where there have been a lot of macro things going on -- headwinds in Europe and Korea and now the US and uncertainty about the government.

And those are uncertainties, frankly, that we cannot control.

What I'm focused on and what David and Devin and Bob and our Leadership is focused on is what we can control.

And while I feel good about our portfolio and I feel good that we're investing in the right areas, I do feel we need to accelerate the pace with which we are rolling out products, identifying what is working and what is not, scaling what is working.

And so, we've developed a lot of new products this year and that is good.

The product pipeline is stronger than it has been but we need to get them to market more quickly.

Iterate, learn, iterate, learn, and then scale what is working.

And so rest assured that when you are sitting inside our meetings with David and Devin and Bob, we are focused on how do we accelerate our pace, how do we accelerate execution and ensure that the good products and innovations that we are investing in and that we are developing translate into incremental growth.

And we are going to be very focused on that in Q4 and very focused on that into 2014.

So, we are not -- we are far from satisfied in terms of what we think we can achieve.

It is an enormous market, we are well-positioned, we are making the right investments, we've had good momentum, but we want to take it to the next level and that's certainly the hunger and motivation I feel and I know we all feel.

Let's see, your other -- Braintree.

Yes, Braintree -- does it compete with the Express Checkout, no, because Braintree captures 100% of its customers' payments, and that is the beauty of it.

It covers 100% of their payments across all channels, whether it's mobile or apps or web.

And so -- as where PayPal Express Checkout only covers the PayPal portion.

So PayPal will be one of the alternatives in the full suite of Braintree's solutions but they don't really compete.

As merchants get larger and some of Braintree's largest merchants are looking to add PayPal Express Checkout button on, as one of the ways you would pay.

And then we are finding nice ways to leverage Braintree and PayPal.

As you've said, I think we will have the ability to have seamless account creation for consumers and so that if you are a registered as a PayPal user that you will be able to use any Braintree-enabled app or customer's site.

Thank you.

Glenn Fodor, Autonomous Research.

You talked in the past about the retooling effort of the PayPal platform and how difficult that would be to speed up earlier than, I think it was, a 3-year time frame.

So just wondering, when you think about the acquisition of Braintree, and how that can impact this effort.

Will it increase the scope, costs, and time frame of that project or could it potentially speed it up and actually lower overall costs?

How should we think about this?

Well, it's Tom,, thanks for the question.

Let me just comment first on the replatforming effort of PayPal, Glenn, which is quite important.

David is sitting across from me and he has more gray hair at the end of the year than he did at the beginning because redoing this platform is essential for us to accelerate the pace of innovation and allow us to roll out some of the new products.

We are actually holding some of our new products to roll them out on the new stack to do it more efficiently.

And so our replatforming efforts are on track.

It is a year-end to 3 years.

Some of the newest experiences are built on the new stack, if you will, and that will continue.

Braintree doesn't really slow it down, what it does is allows us to run, what I will call, the unbranded payments platform parallel to the core PayPal platform.

And what Braintree really does is it's the unbranded payments and gateway platform and so that will continue to keep those separate.

We will over time be merging the PayPal unbranded volume into the Braintree platform.

So it allows us -- you could say it accelerates things in that it allows us to go side-by-side.

It won't make the PayPal piece itself go any faster, but it just means it's one less thing we have to replatform on the PayPal side.

I just have one more, if you don't mind.

To the extent you can answer it, I think it would cure some of the issues out there among investors.

But a lot of discussion about one-click checkout solutions -- we're getting a lot of questions about checkout by Amazon but there is probably a portion of your TPV that is protected because it comes from retailers that compete with Amazon and probably would never use their solution.

So to help ameliorate some of the concerns, can you roughly segment for us the percent of TPV that comes from merchants that, given their demographic and footprint, probably wouldn't work with Amazon?

Is it 50%/50%, 60%/40% --rough order of magnitude?

78.4678% -- (laughter) Glenn, I don't know, my reaction is they should all worry.

So, I don't know if we have that -- I'm sure we don't have that hard data.

But here is what we are doing, which is ensuring that the PayPal checkout experience is as good as it possibly can be.

So any of you that -- and I'm sure many of you do use eBay mobile apps, whether it is your smartphone or a tablet, it is one-click checkout.

It is fast, it's simple, it's easy.

Increasingly, the new checkout experience that the PayPal teams built for web, as the new stack rolls out, as the new platform rolls out, you will see it [tee].

It is a significantly enhanced and improved checkout experience.

Some of the checkout experiences that we are developing for the offline world, things like Beacon, actually are no click if you really look at it.

So our focus is ensuring that PayPal's user experience makes significant progress over the coming months and years.

We've got products built, they are in the pipeline, we will be rolling them out, just like we rolled them out on to the eBay web and mobile apps.

Operator, we have time for one last question.

Brian Pitz, Jefferies.

Two questions.

One, you simplified your listing fees in the second quarter, about the same time Amazon implemented some fee changes as well.

Have you seen any impact on GMV or the net number of sellers joining your platform over that time period?

And then secondly, any update on StubHub?

Are you seeing any impact to growth from their very aggressive push, along with Ticketmaster, and with professional sports leagues such as the NFL taking tickets and putting it on their ticket exchange?

We've been hearing some pretty negative things in terms of how aggressive they are being?

Thanks.

Any color there would be great?

Yes, I would say on listing fee simplification, the primary impact that you see is a dramatic expansion in selection.

So right before we did it, we were around 450 million items and, through a variety of things, whether it is listing fee simplification, expanding relationship with large merchants, we are over 0.5 billion listings today.

And in terms of -- obviously the broader selection we have, the more we serve up the right inventory, that impacts the growth of the Business.

StubHub, the thing I would just say, Brian, is what all of our -- so StubHub continues very strong growth.

And I think it is strong growth that is going to attract competition over time, but what we're doing with StubHub is we are investing heavily in providing the absolute best consumer experience out there.

And if you look at the consumer experience, the consumer Net Promoter Scores, the way we absolutely guarantee fans have the best possible experience on StubHub, that is the best way to address any competition now or down the road.

And that also will drive the most traffic to StubHub, which drives the highest price realization.

And so I would say StubHub is some of the absolute best consumer experiences in our portfolio and has a rabid commitment to delivering great experiences.

If you ever have a problem with StubHub, they make it right.

And so that is the most powerful way to compete, which is having the absolute best consumer experience.

That is reflected in our traffic, which is reflected in the growth rates.

So we will continue to make that kind of investment in the StubHub business and we think that is the best way to continue to compete and win over time.

So, I guess that's it Tom?

Yes, so, thanks everyone and we will talk to you at the end of the holiday season.

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

This concludes our program.

You may all disconnect and have a wonderful day.