eBay Inc (EBAY) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by and welcome to eBay's fourth-quarter 2013 earnings conference call.

(Operator Instructions)

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

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

Sir, the floor is yours.

Good afternoon.

Thank you for joining us and welcome to eBay's earnings release conference call for the fourth quarter and full year 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 the slide presentation to accompany Bob and John'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 presentation and call are available through our Investor Relations section of the eBay website at http://investor.ebayinc.com.

You can visit our Investor Relations website for 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 those measures to the nearest comparable GAAP measures in the slide presentation accompanying the conference call.

In addition, Management will make forward-looking things related 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 first quarter and full year 2014; the Company's financial outlook for 2015; the future growth in payments, marketplaces, and eBay Enterprise businesses; the Company's plans regarding its share repurchase programs; and the Company's plans for its payment business.

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 or economic conditions; foreign exchange rate fluctuations; our need to successfully react to the increasing importance of mobile payments and commerce, and increasingly social aspect of commerce; an increasingly competitive environment for our businesses, with 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, in addition to adding new products and features; our ability to integrate, manage and grow businesses recently acquired or that may be acquired in the future; the effect of the announcement on the shareholder proposal and nominations has on the Company's relationships with its shareholders; and the associated disruption of Management and employees' attention from the Company's ongoing business operations.

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

You should not rely on any forward-looking statements.

All information in this presentation is as of January 22, 2014, and we do not intend and undertake no duty to update this information.

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

Thanks, Tom.

Good afternoon, everyone, and welcome to our Q4 earnings call.

The fourth quarter was a tough competitive holiday season in retail.

It was also a holiday season that tipped toward the future of commerce.

Online, mobile, and other omnichannel commerce capabilities are clearly taken hold.

Consumers are changing how they shop and pay, and retailers and brands are having to adapt.

In this dynamic environment, we feel good about our performance for the quarter.

We focused on what we control, leveraging our global commerce platforms and mobile leadership and strengthening our operating discipline and execution.

It paid off with a strong finish to a challenging year.

Revenue was up 13% for the quarter and non-GAAP EPS was up 16%.

In eBay and PayPal, both generated double-digit user growth.

We enabled $61 billion of commerce volume in Q4, up 22%, well ahead of e-commerce and retail overall.

Our eBay Marketplace, PayPal, and eBay Enterprise platforms are clearly driving volume growth on behalf of our retailer, brand, and merchant partners.

Mobile exceeded our expectations, continuing to lead new consumer shopping behaviors.

For the full year, our total mobile-enabled commerce volume grew 88%, with eBay reaching $22 billion and PayPal hitting $27 billion of mobile payments volume.

And we added more than 14 million new customers through mobile in 2013, 40% of our total new users.

These results demonstrate why we believe strongly in the power of our portfolio to compete and lead in the new commerce environment, both in our core businesses and in the four competitive battlegrounds of mobile, local, global, and data.

I'd like to step back for a minute and comment on the year.

We drove 14% revenue growth and 15% earnings growth in 2013, and we feel good about that strong performance in a challenging environment.

However, we anticipated accelerating second half growth, which did not materialize, so we ended the year at the lower end of our guidance.

As we look forward to 2014 and beyond, the growth opportunities we spoke about last year are still very much there, as mobile continues to change commerce and blur the lines between online and off-line.

We have tremendous opportunities in the $10 trillion commerce market, a bigger addressable market for us.

We will continue to compete aggressively across all of our businesses.

And in 2014, we are stepping up our investments, particularly in PayPal.

We will take a very disciplined approach about how we make these investments, but we intend to capitalize on our strengths and seize the opportunities before us.

Now I'm going to turn it over to Bob who will provide more details on our fourth-quarter and full-year results and 2014 guidance.

Then we will take a slightly different approach today.

After Bob finishes, I will come back with some additional comments before we take questions.

Bob?

Thanks, John.

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

As a strategic partner of choice for merchants of all sizes, we enabled $61 billion of commerce volume at a take rate of 7.4% in the quarter.

Our take rate declined 55 basis points, driven by business mix as our fastest-growing business, PayPal, has a lower take rate.

In Q4, we generated net revenues of $4.5 billion, up 13%.

Organic revenue growth was also 13% in the quarter.

Transaction revenue grew 14% and marketing services revenue grew 12%.

Fourth-quarter non-GAAP EPS was $0.81, up 16%.

Non-GAAP operating margin was 29.2%, up 70 basis points, due primarily to solid top-line growth and strong operating expense leverage.

We generated free cash flow of $1.4 billion in the quarter.

CapEx was 6% 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 $1.8 billion, up 20% on an FX-neutral basis.

Revenue was driven by accelerating Merchant Services growth and solid growth on eBay.

A few quick highlights on PayPal operational metrics.

Total active accounts growth was 16%, with more than 30% of active accounts coming from eBay.

TPV on an FX-neutral basis grew 25%.

PayPal increased penetration on eBay by 175 basis points.

Merchant Services FX-neutral TPV accelerated 1 point to 31% in the quarter, with particularly strong performance coming from large merchants.

As of year-end, 70% of the US Internet Retailer 100 and 63% of the EU Internet Retailer 100 had integrated PayPal.

We launched a series of iterations on eBay Inc Properties to leverage the synergies of the portfolio and improve the checkout process.

PayPal Mobile payment volume in the quarter was $8.8 billion, with 51% of mobile payments coming from eBay.

PayPal segment margin came in at 25.7% for the quarter, up 270 basis points, due primarily to OpEx leverage, partially offset by a lower take rate from large merchant mix, losses on foreign currency hedges, and lower cross-currency transaction growth.

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

Bill Me Later had a good quarter and is becoming an increasingly important component of our overall portfolio.

We are using the same playbook with Bill Me Later on eBay as we did with PayPal on eBay.

BML's penetration as a funding source in the PayPal Wallet was 4.8% share on eBay in the US and 2.5% on US Merchant Services.

As we drive greater adoption on eBay, we are able to accelerate usage off of eBay.

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

We continue to finance the BML loan receivable portfolio primarily using offshore cash, and BML risk-adjusted margin continued to be at the high end of the 14% to 16% targeted range, while charge-offs increased to 6.3%.

The 90-day delinquency rate improved 30 basis points from last quarter.

Overall, BML continues to perform well.

Now let's move to Marketplaces.

Marketplaces had a good quarter with net revenues of $2.3 billion, up 11% on an FX-neutral basis.

A few quick highlights.

Active users grew 14%.

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

US non-vehicles GMV grew 14% against tougher comps and international non-vehicles GMV grew 10%.

In the quarter, we completed the rollout of Cassini around the world; launched Collections, an inspirational experience for buyers; and rolled out in-store pick-up in the UK and the US.

Marketplaces segment margin was 41.1% in the quarter, at the upper end of our 38% to 42% guidance range we shared in March of last year.

Segment margin was down 40 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 generated $1.8 billion in merchandise sales for its clients and same-store sales grew 13% in the quarter.

Revenue was $392 million, down 2%, driven by client mix, channel mix, and a lower take rate.

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

We continue to scale our new technology platform and now have nine clients that are live.

We've continued to drive PayPal adoption on eBay Enterprise client sites, with 97% coverage and 17% share of checkout.

Segment margins came in at 15.8%, down 450 basis points.

Turning to operating expenses, in Q4, operating expenses were 40% of revenue, down 165 basis points.

Operating expenses were down due mainly to lower sales in 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 revenues.

We ended the quarter with cash, cash equivalents, and non-equity investments of $12.8 billion, including approximately $3.2 billion in the US.

We improved our financial flexibility, funding 68% of the BML loan receivables portfolio with offshore cash.

In the quarter, we repurchased 4.9 million shares of our common stock for approximately $254 million.

As a Company, we generated $1.4 billion in free cash flow, and reinvested $1.1 billion of that to drive PayPal growth with the expansion of Bill Me Later and the acquisition of Braintree.

So we are now one year into the three-year journey we shared with you last March.

We enabled $212 billion of commerce volume for merchants and consumers globally, up 21%.

Mobile commerce volume was $35 billion, up 88%, well ahead of our three-year plan.

Revenue grew 14%, non-GAAP EPS grew 15%, and we generated $3.7 billion in free cash flow.

Not bad results, but as John indicated, not in line with our expectations, as we delivered at the low-end of our full-year guidance.

We didn't generate the monetization we had planned exiting 2013, given us less momentum entering the new year, and making our 2015 aspirations more difficult to achieve.

With that, a little context on our business outlook.

We believe the opportunity in front of the Company is huge, and we have the right portfolio of assets and we will invest to win.

Competition is increasing and consumer expectations are rising, and we are making the investments to expand our served market, both globally and locally.

We are investing more across the business unit in three key areas.

First, the core -- we are increasing investment in sales and marketing, product experience, and trust.

Secondly, omnichannel -- we are increasing investments in eBay Now, in-store pick-up, ship from store, and PayPal ubiquity.

And third, globally, we are increasing investments in emerging markets and to drive cross-border trade.

PayPal will have a disproportionate share of these investments in 2014.

For the full year 2014, we expect revenue of $18 billion to $18.5 billion, representing growth of 12% to 15%.

We anticipate non-GAAP EPS of $2.95 to $3, including an approximately $0.03 dilution from the Braintree acquisition, representing growth of 9% to 11%.

We expect free cash flow to be $3.7 billion to $4 billion, the non-GAAP effective tax rate to be 18.5% to 19.5%, and CapEx to be 7% to 9% of revenue.

We expect Marketplaces' margins will be within the three-year range we shared in March of 2013, but that PayPal margins will be lower, as we continue to invest heavily to protect and extend our leadership position.

For the first quarter 2014, we expect revenue of $4.15 billion to $4.25 billion and non-GAAP EPS of $0.65 to $0.67.

For the full-year of 2015, we expect ECV to be greater than $300 billion, with mobile ECV growth of 65%-plus, over the three-year period per year, but we expect monetization for our take rate to be lower and investments to be higher in PayPal.

From a business unit perspective versus the outlook we provided last March at Analyst Day, we expect Marketplaces to be below the range on revenue and in line with margin guidance.

We expect PayPal to be in line with revenue guidance but below the margin guidance, as we boost investments.

And we expect eBay Enterprise to be below revenue and margin guidance as we continue to transition our clients to our new platform.

For the full year 2015, we expect revenues of $20.5 billion to $21.5 billion, representing growth of 14% to 16%.

We expect non-GAAP EPS year-over-year growth of greater than 10%, and that free cash flow will be more than $11 billion from 2013 to 2015.

We feel confident about our future outlook and have received authorization for an additional $5 billion stock repurchase program.

Total repurchase authorization is now $5.6 billion and we plan to make opportunistic repurchases of our common stock to reduce the outstanding share count.

In summary, we saw the dramatic shifts in commerce, that blurrings of the line offline and online, the need for tighter linkage between commerce and payments, and strength of mobile.

Our portfolio has been constructed to position us for these trends to compete and win and we are going to lean into the opportunity.

We believe our unique set of capabilities work best together to enable our partners' success and therefore our own.

Our global footprint is expanding.

Our enabled commerce volume has accelerated, demonstrating that our commerce and payment platforms are growing in relevance to retailers of all sizes.

We are investing for the long-term, strengthening our core ecosystem and are focused on key battlegrounds of mobile local, global, and data.

And now, I'll turn the call back over to John.

Thanks, Bob.

Before we move to questions, I want to take a few minutes to speak about the proposals we received from Carl Icahn.

Mr. Icahn has proposed nominating two of his employees to our Board of Directors.

He is also submitting a non-binding proposal to spin off and separate PayPal.

Our Board and Management team welcome the perspectives of all shareholders and I spoke with Mr. Icahn briefly last week to hear his views.

We are committed to enhancing value for all shareholders and will continue to pursue strategies we believe will enable us to achieve this objective.

Our Board's Nominating and Governance Committee will consider Mr. Icahn's nomination of his employees in the ordinary course of business.

Let me remind you that we have an exceptionally strong Board, with a diverse group of highly-qualified directors.

In fact, we have a world-class Board.

Our directors have deep experience in the technology and financial services sectors, and a track record of value creation.

This is the standard by which all future candidates will be assessed.

Our Board and Management team also evaluate the Company's strategic direction on a regular basis.

So you won't be surprised to hear that this is not a new idea.

Rest assured that when we see a path that unlocks value, we pursue it.

For example, in 2009, we divested Skype because synergies did not exist.

This demonstrated our commitment to making rational decisions that are in the best long-term interests of the Company and our shareholders.

Based on what we see today, we continue to believe that the Company, our customers, and our shareholders are best served by keeping PayPal and eBay together.

In short, we believe this is the best way to maximize shareholder value.

Our Board is unified in its view on this.

Let me give you a little context as to why we believe this.

For more than 18 years, our Company has focused on enabling global commerce.

Connecting buyers and sellers anytime, anywhere is how we drive growth and create value.

Payments is an essential part of commerce.

Everyone loves to shop; no one loves to pay.

So we focus on taking the friction out of paying.

We strive to make it easy, safe, and secure.

And we are innovating to make payments a way to drive engagement and create more value for consumers and merchants.

This is what we do.

And we have been successful exactly because PayPal and eBay are together.

It is why we believe we are so well-positioned to lead in the blended worlds of online and offline commerce.

No other payments competitor has achieved PayPal's success, because no other competitor has a commerce platform like eBay.

In fact, today, we are seeing more and more commerce and payments competitors trying to replicate the eBay and PayPal model.

We are seeing a convergence of commerce and payments businesses, not a separation.

PayPal and eBay make sense together for many reasons.

Let me highlight three that we believe are among the most important.

First, eBay accelerates PayPal's success.

Second, eBay data makes PayPal smarter.

And third, eBay funds PayPal's growth.

Let me provide a little more perspective on each.

eBay accelerates PayPal success.

From the beginning PayPal has benefited from signing up eBay customers with virtually zero acquisition costs.

Over the past decade, tens of millions of customers PayPal acquired on eBay have helped fuel its growth off of eBay.

Simply put, eBay and PayPal together create mutually reinforcing network effects.

Mobile is the most recent example of this reinforcing network effect.

Mobile is the single most important platform shift in the past decade and PayPal's success in mobile payments started on eBay.

eBay's customers were an important source of PayPal's early mobile payments volume, helping PayPal gain traction quickly and become a mobile payments leader.

Let me put some numbers to illustrate this.

In 2010, PayPal generated approximately $600 million of mobile payments volume, 80% of which came from eBay mobile apps.

In 2013, three short years later, PayPal's mobile payment volume grew to $27 billion, both on and off eBay.

That is massive growth, a 45 times increase in a three-year period and a leadership position in mobile payments.

Success on eBay enables PayPal success off eBay.

Second, eBay data makes PayPal smarter.

Risk is PayPal's secret sauce.

PayPal's risk management capabilities are a source of competitive advantage and anyone who understands risk knows that more data makes you smarter.

By providing closed loop global transaction data, eBay enhances PayPal's world-class risk capabilities in its ability to [underrate] both sides of a transaction.

This is evidenced by PayPal's loss rate of only 31 bps on $180 billion of total payment volume.

Why, in an era of big data, would we dramatically reduce the amount of data available to PayPal?

And last but not least, eBay funds PayPal's growth.

eBay is a major contributor to PayPal's profitability and expansion.

For example, eBay represents approximately one-third of PayPal's revenue and well over half of its profits.

eBay continues to generate over 30% of PayPal's new users at zero acquisition cost.

And in 2013, eBay was a significant contributor to PayPal's profit growth.

eBay is also a significant source of low-cost capital for PayPal, fueling areas such as credit, and acquisitions such as Braintree.

The economic foundation provided by eBay gives PayPal the latitude to be more aggressive as it pursues opportunities off of eBay.

Before I close, I want to comment about the risk of distraction.

Separation may seem like a compelling concept at first blush, but when you separate two highly intertwined and highly performing businesses, it creates significant distraction and dyssynergies.

At a time when competition is increasing and innovation is accelerating, we cannot afford distraction.

So we believe that an unwavering focus on executing our strategies is the best way we will drive growth and create shareholder value.

To sum up, strong synergies have always existed between eBay and PayPal and new synergies are driving new growth in areas such as mobile.

If and when these and future synergies run their course, we are committed to doing what is best for the Company and for shareholders over the long-term.

You can count on us.

Today, we strongly believe that PayPal is a more competitive, more agile, and ultimately more successful when combined with eBay.

PayPal and eBay are best together.

That is what we and our Board believe.

And it is why we believe our current approach is the best way to maximize shareholder value.

Thanks and now we will take your questions.

Operator?

Thank you, Sir.

(Operator Instructions)

Colin Sebastian, Robert Baird.

First off, regarding the higher investment spending, wonder if you got a little bit of color around some of those initiatives, for example, how much is related to lower take rates balanced against things like headcount and brand marketing investments?

And then as a follow-up, I wonder how you would characterize the offline ramp to-date, both in terms of local inventory integration with the Marketplace, as well as point-of-sale at PayPal?

Thank you.

I'll [deal with the] first.

Colin, thanks for the question.

First, higher investments in our core -- when we consider our core, I would characterize as really two fundamental things.

One, higher sales and marketing, we've made a lot of improvements to both the PayPal user experience and the on eBay shopping experience, so bringing more traffic and converting more traffic will be a source of higher investments.

And the second thing, which is not new but we expect to continue, within PayPal specifically, is the take rate to come down and that is simply a function of higher growth off of eBay and higher growth on larger merchants.

So those two dynamics have been the trends that is bringing PayPal's take rate down and we expect that to continue.

But at the same time, in our transaction margins or the fundamental health of the PayPal business, we still expect to be above 62%.

So those are the two, maybe, chunks of investment in the core.

The other things that John highlighted are the themes of expanding our global footprint, having a stronger presence in emerging markets.

We've started some of those investments in 2013.

We expect those to continue.

Secondly, expanding our served market locally.

Those are investments that we're making across all three businesses to expand our served market from $1 trillion of e-commerce to $10 trillion of commerce.

And then third, we will continue to make investments in data, leveraging data more effectively to drive deeper engagement.

So I am increasing investments to protect and extend our core and continuing to invest to expand our served markets.

And Colin, on offline, clearly consumer behavior is moving towards online, mobile, and omnichannel, and we saw that happening in the fourth quarter.

In the Marketplace business, you saw large retailers, including retailers like Best Buy, using on eBay Marketplace when you could buy online, pick up in store.

So we integrated large retailers and beginning to allow online pick up in stores right off the core eBay Marketplace.

We will continue to add large retailers and others to the eBay Marketplace, both here and around the world.

And with PayPal, we continue to build out the city markets, where we are trying to take neighborhoods where PayPal is accepted frequently or with abundance in the neighborhood, and then experiment with consumer behavior.

We saw good progress in our select neighborhoods in the fourth quarter.

In general, I would say, that offline is taking longer to become digitized than we initially thought.

Frankly, it is happening with us and with everyone else in the digital world.

But we are staying with the investment and the adjustments we are making, I would characterize as focusing more in some smaller areas to prove out the model and get viral effects and then we will expand.

So whether that is eBay now in a couple of cities, then moving to a couple more cities, and then so on and so forth; the same thing with PayPal we are going to focus on the neighborhood, prove things out, and then expand out from there.

So, more to come, but we are continuing our very steady investment in offline and we think over time, it is going to represent a significant opportunity.

Thanks for the color.

Gil Luria, Wedbush Securities.

Thank you.

On your last conference call, you predicted the holiday season would be a slower one for e-commerce, and indeed, the industry numbers are that e-commerce growth slowed from 13% to 10%, and you had the benefit of a couple of weeks in October to do that.

Now that we're three weeks into January, and coming off what was a short holiday season, which was probably part of the problem, how does that look in terms of the US and the European consumer and the other big markets that you have in terms of the trends that they are showing right now?

Thanks, Gil.

First, I would say, things have been -- we try to provide guidance with the context of all the latest and greatest information we have, so in the first quarter we have 11% to 13% of growth.

I would say the trends in the quarter so far support us to be in that 11% to 13% range.

Geographically, I would say, our anxiety back in October was primarily centered around the trends we were seeing in North America at the time.

In Europe, Europe primarily remains relatively stagnant.

I would say right now, on the margin, Europe might be a tad bit better and North America might be a tad bit worse and that is the context for which we look at the Q1 growth rates.

But by and large we are getting out of the predicting quarterly growth rates business.

Got it, thank you.

Heath Terry, Goldman Sachs.

John, what kind of early learnings are you getting out of the eBay Now and other alternative channels you've been experimenting with?

How important is success in those kind of channels going to be in terms of meeting the goal of growing with e-commerce?

Well, Heath, I would -- the principle behind eBay Now and behind what we are trying to do, and frankly, [both] across our portfolio is that, we believe in the future, consumers are going to want to have choice.

They're [going] to have the choice of, in some situations by online, have it shipped at home; in other situations, buy online or from a mobile device and pick it up in the store.

And there is going to be some shopping occasions where a consumer is going to want to buy it online or in a mobile device and have it delivered to them that day or even the next.

So we are trying to build out offerings that give that consumer choice.

And eBay Now is just simply a way where we can use our industry scale of putting multiple retailers on to deliver same-day delivery at economic costs.

And we've taken, as I said earlier, I would say, a very targeted approach in that.

We picked two cities and we tried to prove the model out and get it to work for consumers.

Then, we modeled out the economics, and believe that Shutl -- we acquired Shutl and Shutl by using excess capacity, if you will, or sharing economy, vetted drivers that, in essence, bit on the ability to deliver, can provide both great consumer experiences and more economic deliveries, so we've got that going in Chicago and in Dallas.

And then as we build scale and learn on those, we will most likely expand that out to other cities across the US and into the UK.

So I would say we are taking a very measured approach on it, and we think it is one piece of giving consumers choice.

With respect to our short-term growth, it certainly doesn't -- we are not counting on this to have any material impact on our short-term growth or even a material growth over the next two years, but it is signaling our willingness and commitment and desire to give consumers choice and to partner with retailers to help them compete in this omnichannel world.

Great, thank you, and just one quick question for Bob.

Bob, with the $5 billion buyback, presumably that is all coming out of your US cash holdings.

How do you think about the right level of cash on the balance sheet, particularly given the balance between international and US holdings?

Heath, philosophically, our bias hasn't really changed at all and that is to ensure we have the financial flexibility to make investments along the way, whether they be organic, whether they be acquisitively, or whether they be through a return to shareholders through a buyback -- having the financial flexibility to be able to do all three of those things essentially at all times.

In terms of our current cash position, as I indicated, we have a little over $3 billion in the US, and we have significant cash flow offshore and we have access to commercial paper lines.

We'll look at all three of those as funding sources and vehicles to execute the opportunistic buyback program that we announced today.

Thanks, Bob.

Stephen Ju, Credit Suisse.

John, are there any details you can share around your plans around Cassini from a more granular product perspective?

It is globally deployed now and I recall what you articulated previously was that it should be viewed as a platform as a basis for you -- enable you to more rapidly roll out iterations.

So is it go time now to start pushing new products through or are we still a few quarters away from seeing more discernible changes?

And Bob, if I'm doing my math correctly, your greater than $11 billion in free cash flow objective for 2013 through 2015 seems to suggest a decline in 2015 in terms of the total dollars you expect to generate versus what you are guiding toward for 2014.

So will you give us some additional color into what is baked in here?

Thanks.

I will take the first.

On Cassini, Cassini is one of many buyer experience initiatives that help drive consumer acquisition and conversion over time.

And I've said this before, I'll say it again, there are no silver bullets in our Marketplace business.

If anything, it is been proven over the last five, six years, is no single platform initiative or product thing, in and of itself, created viral improvements.

Cassini is live in all countries except Korea, and it is now live across all devices.

And, in essence, as you highlighted, what it enables us to do is that it's a new platform, it just enables us to test and learn and implement search changes more quickly than our previous one.

And so our search team and our product experience team will be continuing to iterate just like they have in the last couple years or last several years to find ways to improve the eBay user experience.

I'm also thrilled to say that we've got, as you probably saw in the fourth quarter, RJ Pittman joined us to head up product and design at eBay.

RJ came from Apple.

We think he is a world-class product leader.

He inherits the eBay business as it today, the eBay user expense, and he will be driving a lot of the new user experience and product changes, both mobile and online, going forward.

So we are thrilled to have RJ on board and look forward to really good leadership from him over the coming months and years.

Stephen, in terms of free cash flow, we said greater than $11 billion back in March of last year, and the update to that is we -- while revenue and earnings are lower, we still expect to generate greater than $11 billion over the three-year time frame.

So $3.7 billion last year, $3.7 billion to $4 billion this year, and then at least that kind of level going forward, because we don't really expect the capital intensity of the Business to change dramatically.

So we are in good shape to exceed the $11 billion cumulative free cash flow through next year.

Thank you.

Sanjay Sakhrani, KBW.

On PayPal, as it relates to the Icahn proposal, when thinking about some of the constraining factors to PayPal from being a part of the entire Enterprise, it would seem to be that the investments that are being made in offline and omnichannel might be areas that may not be made if it wasn't a part of the total Enterprise.

So is that a fair statement, and perhaps, maybe you could just talk about what the pay back period is for those investments that are being made at PayPal?

And then just secondly, Bob, within your guidance, how much of the share authorization do you expect to exhaust?

Thanks.

Sanjay, I completely agree with your characterization, which is, as we approach offline, the fact that we have the portfolio of assets we do, eBay Marketplace, Paypal, and eBay Enterprise, is a strength.

And where -- what drove this to start with was customers.

When we sit down with merchants, they are looking for how they can have a partner to help them compete in this, call it, omnichannel online/offline world.

The fact that we have the kind of mobile experiences we do across our portfolio and the mobile capabilities we do; the fact that we have an eBay Marketplace that has 130 million active consumers, and by the way 50 million, 60 million active consumers outside the US where many retailers want to expand without putting assets on the ground; the fact that we've got PayPal's capabilities; the fact that we've got through eBay Enterprise ship-from-store and buy online, pick up in store capabilities, is a strength.

We did an interesting experiment in the fourth quarter, a free shipping initiative where we offered free shipping to a small set of PayPal users on eBay Enterprise merchants.

It helped drive up conversion and PayPal share of checkout, while helping drive incremental volume for those merchants.

So we are always looking for ways to leverage our full portfolio to help partner with merchants offline.

Now the time horizon, I'll just repeat what I said earlier.

I would say, in general, offline is taking longer to materialize for the whole industry -- the whole digital industry, at least, those of us that are coming from the online world and mobile worlds, and so we are responding by still investing behind it but trying to target and focus our investments to prove out successes in smaller pockets and then expand from there.

And so we will continue to operate that way.

Sanjay, in terms of our guidance and the share buyback, in essence for 2014 and 2015, the guidance assumes that we will offset dilution from our comp-based programs.

That is a given.

How much more aggressive we are with the buyback, the timing of when we do it, and the price at which we are more opportunistic will obviously influence earnings, but right now, our guidance primarily is offsetting dilution from comp-based.

Thank you.

Mark May, Citi.

Two questions.

One is a follow-up to some earlier questions -- just trying to dig into a little bit of what changed since the analyst day earlier last year.

Specifically on PayPal take rate, you've mentioned the mix of larger merchants.

Is there anything specifically that changed from when you set expectations earlier in the year until the end of the year that maybe actually had an influence on creating a larger mix of -- a greater mix of larger merchants than you had expected at the end of the year -- or at the beginning of the year?

And then secondly, on the proposal by Carl Icahn, is there any common ground that it's possible that the Board has reviewed in terms of still being able to take advantage of the inherent benefits of these two businesses working together, but still enabling investors to invest separately in these two businesses?

John, I'll go the first one.

Mark, first off, on the decline in PayPal take rate during the course of this year, is really driven by three factors.

One, the mix of the business, which I mentioned before and you highlighted.

Secondly, our currency hedges that flow through the top line.

And third, our fees on cross-border transactions were lower.

Those three things have been happening throughout the year, and we flagged the large merchant growth and cross-border transactions as things that we expected to happen that would weigh on the take rate going forward.

So those two there's no dramatic change from the beginning of the year.

Obviously hedges, yes, we layer in hedges during the course of the year and how currencies move is going to have an impact, but that was not really anticipated at the time, but contributed to -- protected the earnings of the Company, but contributed to the take rate decline.

The second thing I would just highlight from earlier in the year, we indicated that we did expect the take rate to come down for a variety of factors, but the largest being success in traction with large merchants.

But at the same time, we highlighted the other two components of transaction margins; the Wallet in the funding sources, and how effectively we would manage risk.

And that our belief was, those three dynamics of take rate movements, consumer choice on low-cost funding, and effective risk management techniques would enable us to deliver 62% plus transaction margins in the online world during the three-year timeframe.

I would say those dynamics [all] played out during the course of 2013.

And Mark, on your second question about common ground with Carl, I would say we -- our common ground that Board, Management, and Carl have is we all want to drive long-term shareholder value.

That is why we exist.

We have a very -- a Management team and a Board that is very focused on that and I know that is what Carl focused on, driving long-term shareholder value.

Where we disagree is how to best get there.

As I mentioned earlier, we and our Board believe the best way to drive long-term shareholder value is to keep eBay and PayPal together, to capitalize on the opportunities, and that distraction and dyssynergies of separation would be happening at exactly the wrong time.

We are in this window of opportunity of commerce, so we believe that is the best way to drive shareholder value.

Where we probably also agree is that we are undervalued, and our Board, by approving a $5 billion share authorization repurchase authorization, gives us the flexibility that, if over time, we opportunistically think we are undervalued, we will act accordingly.

So I don't see there a reason to be fundamental disagreements here, but we are all driving to build the most successful Company and drive long-term shareholder value.

Thanks.

Mark Mahaney, RBC Capital.

Two questions please.

International GMV growth ex-vehicles at 10% year over year is the lowest it's maybe ever been or in a substantial period of time.

Could you just talk about some steps you've got that could cause that to recover little bit?

And maybe you have already done it with the full rollout of Cassini, but -- in the fourth quarter -- but anything else?

And then, John, I think you just answered the question -- I wanted to ask the simple question of why the $5 billion share buyback now.

You've always done share buybacks but it's always the opposite dilution.

You are obviously doing something more.

So any other commentary on why now for that $5 billion authorization announcement?

Thank you very much.

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

On the buyback?

Mark, In international GMV, yes, this was below what -- we were hoping to get second half acceleration and we didn't.

Part of that, we are fairly Europe-exposed and so the European economy has been uncertain and it is really hard to ascertain what is market and what is not.

So, I'm not going to hide behind that.

Germany is an area where we continue to work on proving our growth rate.

It is our second largest market.

It is a market where we are growing slower than the market.

We have an enormous market share, we have [between] 25% market share roughly, but we are growing more slowly than the market.

Ironically, the biggest driver of that is a trust gap in the eyes of consumers and the biggest driver of that is that PayPal penetration is lower in Germany.

This is a case where, again, PayPal and eBay together, and so -- because Germans tend to pay in different ways.

So over the last couple of years, we've been focusing on driving PayPal penetration up in Germany, and this year we are going to significantly increase that emphasis so that German buyers can buy with trust.

The reason it is related is, our ability to offer the buyer protection, the money back guarantee, is directly tied to our ability to accept PayPal.

So the higher up we drive the PayPal penetration in a market like Germany, the more we can offer the money back guarantee to consumers, which gives them confidence.

And then throughout the rest of the international footprint, we are -- we have country by country little issues, and so we are continuing to address them.

Whether it is Korea, a fairly volatile e-commerce market, some of the exchange rates moved cross-border flows in some funky ways in the second half, so there is no single thing, but you can rest assured that we are focused on our international growth, both, frankly, in the Marketplace and across PayPal.

And Mark, on your second question, as you know, historically, while the last few years, we've simply been offsetting dilution from comp-based programs, historically we have been opportunistic when we can maintain our financial flexibility to invest and grow, but also take advantage of opportunistic repurchases of shares.

So it is not a dramatic change from philosophically where we've been before.

There are a couple changes.

One is our balance sheet is much stronger; our cash balances are much bigger; we are funding an increasing portion of our BML growth with offshore cash; and we feel great about our future.

So there are some things that are very consistent philosophically to where we've been in the past; at the same time, we've got a stronger balance sheet and more financial flexibility, and again, feel good about how we see the next couple of years.

Thanks, Bob.

Thanks, John.

Operator, we have time for one more question.

Justin Post, Bank of America Merrill Lynch.

Thanks, most of my questions have been answered, but maybe you could help us think about PayPal's revenue growth.

You see about a 20% growth rate and maybe you could break that down for us between growth of your existing clients, new client wins, both offline and online, and how you see that revenue growth breaking down, going forward?

Thank you.

Sheesh, Justin.

Look--

Bob, you going to pull your model out?

Yes, during the course of the year, there's three components of growth.

We expect to continue to grow On eBay and get a significant source of users from eBay and continue to make improvements in the On eBay experience to drive higher penetrations.

So the On eBay growth, we expect to be above the marketplace rates of growth.

Secondly, Merchant Services will continue to be the biggest source of growth.

That is going to come from same-store sales growth for existing merchants, getting coverage on more and more merchants, and third, getting consumers -- giving consumers more and more reasons to use us, i.e., share of checkout in both existing and new clients.

And then the third is Bill Me Later has been a 30% grower for a while.

We're high 20% as we exit and we continue to expect that to be not only a source of the growth for revenue, but also a vehicle to reduce our transaction cost over time.

So, I would say in the offline world, as John said, that will be a source of future growth, but not really a contributor in any meaningful way in the next 24 months.

And Justin, one of the things -- Bob mentioned the focus on share of checkout -- one of the things that David and the PayPal team has done is they have built -- they are updating many of our product, many of our key products.

You saw that with the mobile product this year; you will see that with some products that most of you don't probably see -- onboarding flows, merchant dashboards, and also even our core web checkout product will be updated over the course of 2014, and we think that will help drive healthy core growth.

So more to come on that.

Thank you.

All right.

Thanks everyone.

We will talk to you in 90 days.

Thank you.

Thank you.

Thank you, presenters, and again, thank you, ladies and gentlemen.

This does conclude today's call.

Thank you for your participation and have a wonderful day.

Attendees, you may now all disconnect.