eBay Inc (EBAY) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the eBay's first-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Tom Hudson, Vice President of Investor Relations.

Please go ahead.

Good afternoon.

Thank you for joining us and welcome to eBay earnings release conference call for the first quarter of 2014.

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

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

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

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

You can visit our investor relations 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'd like to remind you that during the course of today's conference call we will discuss some non-GAAP measures and talk about our Company's performance.

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

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

These statements include, but are not limited to, statements regarding expected financial results for the second quarter and full year 2014, the future growth and payments, marketplaces and eBay enterprise businesses and the Company's plans regarding its share repurchase program.

Our actual results may differ materially from those discussed in the call for a variety of reasons including, but not limited to, changes in political, business and economic conditions, foreign exchange rate fluctuations, our need to successfully react to the increasing importance of mobile payments and commerce, an increasing social aspect of commerce.

An increasingly competitive environment for our businesses, changes to our Company's capital allocation or management of operating cash, the complexity of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity.

Our need to manage the 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 reasonable cost while maintaining site stability and performance and adding new products and features.

Our ability to integrate, manage and grow businesses recently acquired or that may be acquired in the future.

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

You should not rely on any forward-looking statements.

All information in this presentation is as of April 29, 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 Q1 earnings call.

We had an eventful first quarter to say the least.

And I'm pleased that despite the potential distractions of our proxy fight, our team stayed focused and delivered strong results.

We enabled $58 billion of commerce volume in the first quarter, up 24%.

Mobile and cross-border trade continued to be major contributors to Enabled Commerce Volume, underscoring the strength of our commerce platforms and our mobile commerce capabilities.

Overall, revenue was up 14% Q1, and non-GAAP EPS was up 11%.

And eBay and PayPal both generated double-digit customer growth.

I want to take a moment to talk about our proxy fight and our strong commitment to creating sustainable value for all shareholders.

This process afforded us a great opportunity to engage with our largest shareholders and listen to what's important to them.

They told us four things.

First, they want us to execute on our plans, because they see significant value creation in those plans.

So do we.

Second, they applauded our announced $5 billion share buyback, and they encouraged us to execute aggressively.

Third, they affirmed that eBay and PayPal are better together and that full separation doesn't make sense at this point.

And they reinforced our commitment to continue to assess our strategic alternatives over time.

And fourth, they encouraged us to get this distraction behind us and focus on growing the business.

This is what we heard and this is exactly what we're doing.

First, our teams did in fact focus on execution during Q1 and delivered a strong start to the year.

Second, we executed $1.8 billion in share repurchases in the first quarter.

We also announced today that we're taking a noncash tax charge to facilitate the repatriation of approximately $6 billion net in foreign earnings.

This decision increases our available US cash and enhances our financial flexibility.

Bob will talk more about this in a couple minutes.

Third, we agree that our Company is better together for now.

EBay and PayPal are both great businesses, and they support and reinforce each other.

We will continue to aggressively drive synergies that enhance our overall growth and competitive position.

And our Board has continued -- is committed to continuing to evaluate all strategic options over time.

We will make the right long-term decisions for shareholders.

And finally, we have put this distraction behind us.

With our agreement with Carl Icahn, who now is a long-term investor in eBay, our full attention is focused on growth and execution.

And we're delighted to have Dave Dorman join our Board as a highly-qualified and experienced independent Director.

I know that we'll benefit from Dave's insight and expertise.

So with that, let me give you a little bit more detail on the first quarter.

At PayPal, Merchant Services TPV grew 32%, accelerating for the fourth consecutive quarter.

Revenue was up 20% on an FX neutral basis.

Increased consumer adoption, expanded Merchant coverage and Braintree volume helped drive strong growth.

At eBay Marketplaces, revenue was up 9% and global GMV grew 11%.

We continued to invest in marketing, trust and technology to enable merchants to compete more effectively and to create great experiences for consumers.

EBay's top rated sellers in the US, UK and Germany grew same-store sales 19%, sharply ahead of e-commerce growth.

At eBay Enterprise, gross merchandise sales were up 16% and revenue was up 8%.

In Q1, we began integrating Magento into eBay Enterprise, better utilizing this business to provide scalable commerce solutions to merchants of all sizes.

I'd like to take a minute to highlight our progress in the four competitive battle grounds, mobile, local, global and data.

In mobile, PayPal and eBay continue to lead.

In the first quarter, we enabled $11 billion of mobile commerce volume, up 70%.

And we added 6.5 million new customers via mobile in Q1.

We also announced innovative mobile partnerships with industry leaders, Samsung and Deutsche Telekom.

PayPal is now the first global payments Company to enable fingerprint authentication for payments on the new Samsung Galaxy S5 smartphone.

And Deutsche Telekom's 144 million customers will soon be able to make purchases directly to their mobile phone account with PayPal.

On the local front, we're seeing great consumer engagement with our Argos click-and-collect partnership in the UK.

EBay customers can buy from more than 100 sellers and collect their purchases in more than 100 Argo stores across the UK.

We currently have more than 6 million listings enabled with click-and-collect.

And in the US, eBay is pursuing a similar buy online pick up in store local commerce strategy with select retail partners.

And both eBay and PayPal continue to test and learn from various local initiatives designed to offer consumers choice and flexibility and enable retail partners to compete effectively and drive consumer engagement.

On the global front, cross-border trade continues to be a competitive strength of our eBay and PayPal platforms.

Exports from China are strong, with eBay and PayPal connecting Chinese merchants to tens of millions of consumers worldwide.

And on eBay, we continue to make it easier for sellers to reach consumers all over the world with expansion of our global shipping program to 53 countries now at the end of Q1.

And last on the data front, our eBay and PayPal teams are working closely to leverage our closed transaction data, where appropriate.

For example, PayPal uses eBay data to improve risk algorithms and make better decisions, particularly for new mobile and international transactions.

In summary, we remain focused on capitalizing on our strengths, seizing opportunities in the global commerce market and executing our strategies with discipline every day.

We will continue to invest for the long term, strengthening our core commerce platforms and positioning our Company to win in the key competitive battle grounds.

Now I'll turn it over to Bob who will provide more details on the quarter and then we will take questions.

Thanks, John.

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

We've made some changes to our reported business metrics and financials to simplify reporting and to better align with the internal focus of the business units.

You can find a list of the changes in the appendix of the presentation.

As the strategic partner of choice for merchants of all sizes, the role we play in global commerce continues to grow.

We enabled $58 billion of commerce volume, up 24%, at a take rate of 7.3% in the quarter.

Our take rate declined 70 bps driven by business mix as our fastest growing business, PayPal, has a lower take rate.

Revenue increased 14% and non-GAAP EPS was $0.70, up 11%.

We generated $968 million of free cash flow.

And as John mentioned earlier, we executed $1.8 billion of our stock buyback program and have $3.8 billion left in our authorization for further repurchases.

In Q1, we generated net revenues of $4.3 billion, up 14%.

Organic revenue growth was 13% in the quarter.

The Braintree acquisition and currency each contributed about half a point of growth.

First quarter non-GAAP EPS was $0.70, up 11%.

Non-GAAP operating margin was 26.9%, down 50 basis points.

Our operating margin was driven by good operating expense leverage while we continue to grow our investments.

Operating expenses in the quarter were 42% of revenue, down 30 basis points.

Our operating cost leverage was offset by increased marketing spend and proxy-related costs.

We generated free cash flow of $968 million in the quarter, CapEx was 5% of revenue, lower than full-year expectations due to timing of investments.

And we continue to expect the full-year CapEx to be 7% to 9% of revenue.

We ended the quarter with cash, cash equivalents and nonequity investments of $11.9 billion, including approximately $2.2 billion in the US.

We improved our financial flexibility, funding 69% of the PayPal credit principal loan portfolio with offshore cash.

And in the quarter, we opportunistically repurchased 33.1 million shares of our common stock for approximately $1.8 billion.

We made two changes in the quarter, both of which will increase our US financial flexibility.

First, a discrete GAAP tax-related charge of $3 billion on $9 billion of foreign earnings, which will enable us to deploy approximately $6 billion net in foreign earnings in the US.

And second, our 2014 foreign tax election will allow us to return a greater portion of foreign earnings going forward.

Related to this foreign tax election change, we anticipate that our non-GAAP effective tax rate will increase by more than 1 point for 2014.

Our capital allocation philosophy has been to maintain our financial flexibility to capitalize on opportunities as they arise.

The reality is we're seeing growing opportunities in the US.

We announced the large stock buyback in the quarter, and we are executing aggressively.

Additionally, we're an acquisitive Company and we need to ensure we have the resources available to capitalize on targets that become available both domestically and abroad.

Just to be clear, we are not announcing any large US-based acquisition, nor are we committing to finance our share buyback with offshore cash.

What we are doing is ensuring we have the capital available for US needs.

And in light of the sequence of events in the quarter and the opportunities in front of us, we now have greater financial flexibility to capitalize on them.

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

A few quick highlights on PayPal operating metrics.

Total active accounts growth was 16%.

TPV on an FX neutral basis grew 26%, driven primarily by the addition of Braintree, continued expansion of PayPal on merchant sites around the world and a 200 basis point increase in PayPal penetration on eBay.

Merchant Services FX neutral TPV accelerated 1 point to 32% in the quarter.

Transaction margin increased 20 bps, resulting from lower transaction expense and loss rate, partially offset by a lower take rate from large merchant mix, losses on our foreign currency hedges and lower cross-currency transaction growth.

PayPal segment margin came in at 25.7% for the quarter, up 160 basis points.

The increase was due primarily to a slightly higher transaction margin and significant operating leverage, while we continue to invest in the business.

We expect investments to continue to ramp during the year.

Let me touch on a few quick highlights for our PayPal credit offerings.

Credit is still a relatively new flywheel and in its early stages of growth.

It allows eBay to increase its volume growth by providing financing choice to consumers and opportunities to merchants.

In addition, it improves the Company's ability to manage its transaction expense.

BML TPV growth accelerated 2 points in the quarter.

And Bill Me Later as a funding source was a 4.4% share of US addressable GMV, and 2.1% share of Merchant Services US TPV.

Now let's move to Marketplaces.

Marketplaces delivered net revenues of $2.2 billion, up 9% on an FX neutral basis.

Transaction revenue grew 10% and Marketing Services revenue grew 4% on an FX neutral basis.

A few quick highlights on Marketplace operational metrics.

Active buyers grew 14% to 145 million.

FX neutral GMV was 11%, which decelerated 1 point from Q4 as international strength was partially offset by a deceleration in the US.

Let me provide a little more color on the US performance.

Fixed price, which represents 76% of our business, grew 19%.

But auction volume declined 9 points due to changes in consumer preference and slower consumer selling.

In addition, there was a material deceleration at StubHub due to competitive dynamics and a change we made to all-in pricing.

The combination of slower US growth, a significant deceleration at StubHub, which is our highest take rate business, and StubHub fee changes, resulted in US transaction revenue growth decline of 7 points.

We expect to see -- we expect the fee changes at StubHub to impact US transaction revenue for the remainder of the year.

Marketplace's segment margin was 39.7% in Q1, down 240 basis points from last year primarily due to investments in trust and marketing.

Now let's turn to eBay Enterprise.

EBay Enterprise generated $936 million in gross merchandise sales for its clients.

GMS grew 16%, driven by the addition of new logos and same-store sales growth of 11%.

Revenue was $269 million, up 8% driven by increased volume growth.

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

Segment margin came in at 4.7%, up 520 basis points.

Now let me turn to guidance.

We feel good about the start of the year, and we are maintaining our full-year non-GAAP guidance.

Let me provide you a little more context.

First, we had a solid start to the year with some of the benefit from delayed spending at PayPal.

Second, we were opportunistic buying back shares of our stock in the quarter.

And this will be offset by the increased tax rate from the change in our foreign tax election.

Third, we have and will continue to protect our franchise and make fee changes as appropriate to compete and win, much like the changes we are making at StubHub for the year.

And finally, favorable currency tailwinds will be offset by our higher proxy-related cost.

So 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 a share representing growth of 9% to 11%.

And we now expect our full-year 2014 non-GAAP tax rate to be in the range of 20% to 21%.

For the second quarter 2014, we expect revenue of $4.325 billion to $4.425 billion, representing growth of 12% to 14%.

And we anticipate non-GAAP EPS of $0.67 to $0.69, representing growth of 7% to 10%.

So in summary, the role we play in global commerce continues to grow as measured by our Enabled Commerce Volume growth.

Our portfolio has been constructed to position us for these trends and to compete and win.

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

Given our increased US opportunities we have changed our tax election, which has increased our available US cash and enhanced our financial flexibility.

We continue investing for the long term, strengthening our core commerce ecosystem focused on key battle grounds of mobile, local, global and data.

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

Operator?

(Operator Instructions)

Glenn Fodor, Autonomous Research.

Bob, you alluded just now to making fee changes as necessary.

Could you just provide a little more color here, like across which segment, marketplaces or payments?

And I'd imagine there's some type of catalyst you're seeing out there that is driving this.

Can you shed a little more color there?

Thanks.

Yes, Glenn, let me provide generic and then specific.

Generic, as we've always said, is that we think we have a wonderful franchise and along the way, we will take the competitive actions necessary to protect and extend that franchise.

And you've seen that along the way, whether it was changing upfront fees to backend fees, or lowering fees in Marketplace.

Or along the way, we have continued to competitively invest in a lower take rate to drive more ubiquity of PayPal with large merchants.

So I think generically stated, we continue to make investments with fees that are competitive relative to the value proposition that we provide.

More specifically, this year, we have made changes to StubHub's fee structure.

The fact is, we are going to lower fees and that lowering of fees this year will have a reasonable impact on our overall revenue for the year.

And we're doing it because we've built a great franchise.

And we're going to invest to protect and extend that franchise to be the leader in secondary tickets going forward.

But it will have an impact both on revenue and earnings for the year.

And despite that, despite those actions to protect our position, we'll maintain our full-year guidance on top and bottom line.

Okay and just one more.

You've made it very clear, you're investing heavily into PayPal, and while there's always been the threat of new wallet competition, and forget about Google and Isis for a moment, but more importantly we have a meaningful live one out there now with JPMorgan's ChaseNet and you have the Merchant's MCX initiative which may or may not be online.

But is the success of these efforts contemplated in your investment budgeting or if Chase puts up some notable numbers next quarter on new customer adds if they disclose that, is there a risk of upside to your spending plans?

Thank you.

Maybe I'll take that.

First of all, on wallets, we don't see it to be a zero sum game, so there are going to be multiple people who are trying different wallets and that will play out as it does.

We feel very good about PayPal's position in the competitive payments industry.

And we are partnering with banks, the associations and others, not necessarily competing against them.

And so PayPal brings 100, almost 150 million active consumers now, globally, a global payments platform that is neutral to whichever funding source you want to use, and we are driving our technology such that our wallet and other platforms can use PayPal as their underlying payments platform.

So we don't -- or let's just say competition is fully incorporated into our numbers.

Thanks so much, appreciate it.

Stephen Ju, Credit Suisse.

So John, I wanted to dig in a bit on the last part of the mobile local global data piece there.

So from a strategic point of view, I guess mobile, local and global are fairly straightforward to understand, but where do you feel that the consumer data that you have gathered over the years will be unique versus other sources of data that are out there?

And how do you think eBay will be compensated either in the form of changes to your own business or for making this data available to either your retail partners or others?

But also any thoughts on launching some sort of rewards program for PayPal users to sweeten the offering and drive further usage?

Thanks.

Sure, Stephen.

On data, we use data in three or four different ways.

And as I said, we've got almost $215 billion of closed transaction data, which is highly valuable.

The first way we use it every day is in risk decisioning.

What has enabled eBay and PayPal to allow transactions on the web and now on mobile seamlessly, quickly, often cross-border stranger to stranger is the data, and our ability to leverage that data to provide superior risk decisioning.

And it's what enables PayPal to underwrite transactions no one else could.

And it's what enables eBay to offer a money back guarantee through the eBay buyer protection.

Second area we're leveraging our data is credit.

In particular, PayPal has been combining BML's traditional credit scoring mechanisms with the PayPal data.

And that's fueling BML's ability to grow in transactional credit with superior loss performance.

And so again, we're using it to extend BML's reach.

We're also using both eBay and PayPal merchant data together to begin experimenting extending small merchant credit with PayPal.

So again, it is an example where we have more data about a given merchant, especially if it happens to be an eBay seller so we can more easily extend credit, confidently, seamlessly and conveniently.

Third area is marketing.

And here, I would say we're just beginning to scratch the surface, as we do simple things like cross-selling, when we know a PayPal user that hasn't recently transacted on eBay or we know someone is buying in certain categories and we can use the category level detail we have on eBay to help promote a cross-category transaction on PayPal.

So in this era of big data, where we're leveraging our consumer data more and more as we go.

And then the last area where we use the data is in our customer support.

When people have a problem, they have a concern, we can take a holistic view of the customer when they contact one of our CS teammates around the world.

So the data has been an important part traditionally I would say in risk decisioning and it's growing in its importance in credit, marketing and the customer experience.

With respect to the rewards program, we've taken the philosophy that we want to enable others awards programs, so that if a -- someone's got a credit card rewards program or a debit card or increasingly merchant rewards and loyalty programs, would be able to be integrated into the PayPal wallet.

And so rather than creating confusion with our own rewards program, what we're doing is taking that same money we could invest in a rewards program and investing it in technology and investing it in lower take rates to enable others to provide rewards.

And we think that is the better way to get PayPal's ubiquitous extension across the web, mobile and over time offline.

Thank you.

Colin Sebastian, Robert Baird & Company.

I have a couple of questions.

First off, just in the last couple of weeks I think we've seen the launch of PayPal here 2.0, a new eBay app and a new eBay home page and I was wondering if you could put these into context for us in terms of whether these are potential spring boards for increasing usage and engagement, at least into the back half of the year, or are these really more just incremental in nature?

And then secondly, just regarding the BRIC country market opportunities, wondering if there's been any change in perspective there?

It seems like there's been a more of an aggressive move into India and perhaps Brazil as of late and wondering if the issues in Russia might affect the pace of growth there?

Thank you.

Maybe I'll take the first, Bob you take the second?

Sure.

Colin, I'm glad to see that you're paying attention to the new products and David and Devin are sitting across the table from me both smiling.

Here's what I think.

So no one of those individual products I would say are material needle movers but what they reflect is ongoing innovation, ongoing innovation.

And I think across both businesses, our product and technology teams are now hitting a rhythm of continuous innovation.

And you've seen the eBay user experience really improve over the last few years, and now there's new incremental things, the curation, some of the collections, the home page for a non-cookied user is the best I've seen, the mobile is getting a lot of attention this year, and the marketplace team.

And then on PayPal, we've -- David and team have really worked on revamping many of our major flows, so new onboarding flows, the checkout experience, both on mobile and on web, updating PayPal here.

You'll begin to see us do some things and experimentation in the local front around check in and Beacon.

So I view this as a process of continuous innovation and I think our capacity and our ability to innovate and then roll out and execute is just getting better each year.

And over time, what drives growth is the aggregation of a lot of little things, more than any one big thing.

And Colin, on your second question just on emerging markets, as you know, we have a very global footprint, but we also believe that we have significant opportunity in the four BRIC markets.

And we are positioning ourselves to capitalize on those.

We start with our strength, which is cross-border trade.

And over the years, we've built cross-border trade where we get a growing user base within each country and then we migrate to how do we build a domestic offering.

And I think that path has evolved a little bit differently, market by market.

India has always been a good market for us.

We made an acquisition there a decade ago, and more recently, we made an investment in Snapdeal, who has a very complementary offering to what it is that we provide in the local market.

So there we -- that approach has been a cross-border business but also a strong domestic business, coupled with a complementary partner where we took an equity interest in.

And we're obviously excited about the potential long-term growth of India.

Russia and Latin America, Brazil, in particular, have been growth opportunities for us.

I would say in both case, despite what I characterize as some relatively good traction over the course of the last 12 months, either because it's the state of affairs in Russia or some of the higher cross-border barriers that have been put in place in Latin America, while those have been good sources of growth, they're still relatively small and they're not growing as much in the last 60 days as they were in the second half of last year.

But still, these are emerging markets.

They're big opportunities for us to relatively high beta, and we'll be disciplined in terms of how we approach those markets over time.

All right, thank you very much.

Gil Luria, Wedbush Securities.

In terms of repatriating the cash, will the only tax consequence be the higher rate or will there also be a consequence for the repatriation of the cash that's already domiciled internationally?

And then will this change or limit your ability to use that cash for -- to fund Bill Me Later?

So first, if and when we repatriate the cash, we will have a cash obligation to the IRS.

So we've provided the noncash charge in terms of the earnings implications.

But when that -- when we bring that money back, we'll have to actually write a check.

So that's one consideration.

The second consideration that I highlighted, Gil, in the call is our tax rate this year will go up because on an ongoing basis, we will be providing higher taxes for the foreign earnings that we generate.

The implication of both of those things is, as a result, we have significant more flexibility globally, i.e., $6 billion, to be able to redeploy here in the US as the opportunities arise.

That being said, we still have a strong balance sheet outside the US.

We have significant cash flows outside the US.

And we would anticipate that our international cash, particularly through the Luxembourg Bank, will be used as the primary sourcing vehicle for our growing credit business here in the US.

So that cash and cash flows will be used to fund Bill Me Later going forward.

Got it.

And then Braintree, now that you've owned them for a full quarter, can you talk about how the growth rates are looking there, and if it is growing as you expected and contributing as much as you expected?

I think you gave a sense of what the magnitude is, but in terms of the growth rates.

And also, if you're including it in TPV, isn't the nature of that business to have much lower take rates than you're used to at PayPal?

Isn't that a headwind on the take rate right now?

Gil, let me just, before Bob answers that specific question, just step in and say how thrilled we are to have Braintree in our portfolio.

As you recall, we saw a real opportunity.

This is where the first wave of offline digital payments is happening.

And where there's just enormous growth.

And Braintree, by cultivating great relationships with third-party developers, by being the fundamental way to pay on the rapidly growing mobile apps in the sharing economy, is right front and center to where the action is in stage one of taking PayPal or taking payments offline.

And then Venmo, you add Venmo on top of that, the Venmo peer to peer as well as Venmo Touch.

So Braintree's growth rates are very significant, and it's been -- it certainly met or exceeded our expectations in terms of its growth.

And the reason for that it has 100% share of checkout on the leading mobile apps, apps like Goober, or apps like Airbnb.

And we're also excited about some of the products that we're now developing by combining PayPal and Braintree together.

We think we can provide experiences on the mobile phone that just make payments seamless.

So before you answer the specifics, Bob, I just want to say how thrilled we are to have Braintree as part of our Company.

So just in terms of the size and the numbers, large volume business, as John indicated, with 100% share of checkout.

However, a significant portion of the business today is what we'd characterize as low risk ISO, and therefore, doesn't qualify for externally reported TPV.

So it's still a relatively small number, but we expect it to grow dramatically over time.

Because the lion's share of the business is lower risk ISO, the take rate today is relatively small versus our overall take rate.

So as it grows, it does impact the take rate of the business.

And that's through the first quarter, that's reflected in our current take rate.

But we'll continue to expand the relationship that Braintree plays with merchants, where it becomes, over time, more of a full risk ISO playing a broader role and responsibility.

And with that, being able to command a marginal -- a larger take rate over time.

Got it.

Thank you very much.

(Operator Instructions)

Heath Terry, Goldman Sachs.

Bob, wondering -- or John, wondering if you could give us a sense, we've now seen five quarters in a row of just incredibly steady growth in PayPal, both on revenue and TPV, almost locked in at this 19% and 20% level.

Is that a number that you are managing towards, and is that I guess to some degree why we've seen some of the profitability upside in this quarter?

And to the extent that we're going to see the ramp in investments, that you talked about on the Payments business, to what degree should we expect that to be marketing versus technology.

And what kind of cadence should we look for on that over the course of the year?

Well, Heath, I'm glad you've seen and recognized the consistent performance of PayPal, and we're thrilled about that.

What you also are seeing is accelerating growth in our volume.

And that gets to what I was talking about a minute ago with Braintree and with some of the mobile payments initiatives, where we're trying to get PayPal out to where the action is and spread it, because we think we have this window of opportunity where PayPal can extend its lead as the leading digital payments platform.

With respect to investments, it's a balance.

We're continuing to invest in mobile.

If you look at technology, mobile investment is a big priority.

Whether that's PayPal mobile, whether that's the investment in Braintree, whether that's growing Venmo's peer to peer business which doesn't have any revenue but extends PayPal and Braintree and Venmo's reach.

So we'll continue to invest in mobile, continue to invest in the technology platform and the replatforming of that, PayPal technology platform.

And then in marketing, we've never really invested much in PayPal marketing.

As we said earlier this year, we're going to increase our level of investment in marketing in PayPal.

We didn't really do much in Q1, but we'll be launching our and announcing our new brand campaign, and you'll begin to see us over the coming quarters increase our level of investment in PayPal marketing.

And you'll hear more very soon about some of the specifics of it.

We're going to do it in the same thoughtful way we have before.

Not big splashy, big bang.

But using digital marketing channels and selective TV, and seeing what -- how the business responds.

So we think that's raising PayPal's unaided awareness as something that marketing can help facilitate.

Great.

And just specifically on Venmo, what kind of traction are you seeing there?

Just anecdotally seems like the platform is seeing either strong growth or even accelerating growth.

Is there a point where you can see that part of the platform becoming big enough or either impacting PayPal's numbers enough to actually move the overall financial needle?

Well, what we like about Venmo, there's really two parts of Venmo, there's the peer to peer business, which has got just explosive growth on college campuses.

And that's just another way of extending PayPal's extended platform.

PayPal is a peer to peer business Venmo does and over time I think you will see us evolve those two together.

So we think it's a great thing when college students, who are consumers of the future, are using Venmo or using our products every day to send money.

And it demonstrates the power of mobile payments.

And then the other part of Venmo is this Venmo Touch, which allows you to authorize payment on your phone, in essence tokenize your phone on one app and have that same experience extend to the other apps to make payments even easier on your phone.

And we're working to combine Venmo Touch with PayPal Touch, and I'll have some I think exciting new products coming out later in the year.

In terms of materiality to our results, I would characterize these things as extending our reach.

Our focus at this stage is extend the reach.

And if we extend the reach over time, we'll have plenty of opportunity to monetize.

Great, thanks, John.

Mark Mahaney, RBC Capital Markets.

Just want to ask about the international GMV trends, it stayed very consistent for quite some time.

And you've seen I think over the past -- course of the past 1.5 years, maybe last 2 years a little bit of a recovery in US GMV but not so much in international GMV.

Any particular steps you feel like you need to take there to get that growth rate maybe back into the mid teens?

Thank you.

There's so much in that international.

The beauty of the EBIT business, is it almost 60% of the TP -- or GMV rather is offshore and outside the US.

So if you look at Europe, European economies, a little more stable.

A lot of focus for us in Germany about leveraging eBay and PayPal together to provide eBay buyer protection on eBay in Germany, and we think that's going to be a key step to continue to enhance.

We've got a leadership position in Germany that we want to get our growth rates up to market rates of growth.

In Asia, we continue to have a strong business in Korea, strong business in Australia.

And our cross-border business is very strong out of Greater China.

And then depending on FX, it reverses trade flows to other areas.

So Mark, it's a little bit the same as it's been the last several years is a lot of little things.

And Devin and team are on top of a lot of little things extending our play book here, over to the markets around the world.

Thanks, John.

Sanjay Sakhrani, KBW.

I guess I got a couple.

One, if you could give us an update on how the offline rollout at PayPal is progressing.

Are you guys happy with the uptake among retailers?

And then I guess secondly, on the repatriation, I just wanted to make sure I understood it properly.

Could you just talk about the decision to maybe not necessarily repatriate the cash but rather use debt in terms of your flexibility versus just taking that hit upfront to repatriate the explicit cash?

Thank you.

I'll take the first part if you take the second.

So Sanjay, on offline and PayPal, what we're doing is we're positioning ourselves for what will be I think an enormous opportunity over time.

And first and foremost, doing that through merchant coverage.

So we're continuing to extend out our merchant coverage into physical store locations in the US and frankly increasingly around the globe.

Because ultimately, we think that will be important.

But we're also focusing on where the action is.

And as I said earlier, the first place where you're seeing mobile technologies used in the physical world are around the sharing economy, where it's providing a real consumer benefit and around restaurant and other areas that have lines.

If you look at what we prioritized in the PayPal digital wallet last year, it was order ahead and skip the line.

It was order from table which were consumer experiences that were significant improvements from simply swiping a card.

And so as we roll PayPal out there's a lot of focus with David and team on the consumer experience and how we provide consumer experiences that enhance value for consumers while also giving merchants or retailers a real relationship with their consumers.

So an example would be Beacon.

Beacon is a nascent technology but we're using it in select locations to allow a better consumer experience and have retailers be able to experiment having a direct connection when their consumer walks into their environment.

So we will continue that test and learn.

We still are very optimistic about the opportunity and we're going to just sequence where we get the most consumer engagement, that's where you'll see us invest the most upfront energy.

And over time we think that'll extend out into the physical source.

And Sanjay, in terms of the capital allocation, first what I would say is historically we've assumed that the significant majority of our international earnings would be permanently redeployed internationally.

And as a result, we didn't provide US taxes -- provide for US taxes for those earnings.

I think what's changed is the opportunities in the US.

While we have a strong balance sheet and our cash balance continues to grow, the opportunities in the US are even bigger.

Obviously, the $5 billion buyback that we announced and we will continue to be acquisitive here in the US.

So when you look at our philosophy around capital allocation and where we see the majority of the cash being used, our historical election was no longer valid, so that resulted in the accounting change.

Related but separate is on a go-forward basis, how are we going to finance the opportunities in the US that arise?

And what this allows us to do is we have the flexibility to finance things in the US either with our US cash or with our international cash or with debt capacity that we still have as a Company.

So those decisions about how we'll finance are still ones that we'll make on a go-forward basis relative to a variety of options.

Our capital, the opportunities, our desired credit rating.

And I would say this change, in light of the events that happened in the quarter, give us significant financial flexibility and horsepower where we have more options at our disposal.

Okay.

If I can just ask one more follow up, and so when we think about acquisition opportunities in the US, and I understand you're not foreshadowing any, but where exactly do they lie, within which segment?

Thanks.

We have a very I'd say consistent approach to how we assess acquisitions, which is we look for acquisitions that could strengthen our core business.

Those primarily tend to be outside the US, things like our acquisition of GittiGidiyor in Turkey or Gmarket in Korea.

Second, we look for ways to extend our business platforms, our business models.

So the acquisition of StubHub would be an example.

The acquisition of Bill Me Later would be an example.

The acquisition of Braintree.

And if you look at what's happening in the world of commerce and payments, there's a lot of action and a lot of activity.

And so we continuously assess opportunities to where we think it will be strategically and financially valuable to extend our platforms, our eBay and PayPal and eBay Enterprise platforms.

And then the third area is more capability acquisitions, where we're buying a technology, buying a management team, buying capabilities that are new to us.

And so the acquisition of Zong would have been a case of that.

Or the acquisition of Shutl in the UK, where we're buying a technology wouldn't otherwise have but combined with our current technologies or our current platforms, it can generate growth.

So we have nothing specific we're signaling other than there's a lot of activity and we want to have the financial flexibility and freedom we need while also doing the share buyback.

So we just think this positions us to be on our toes as we look forward over the coming years.

All right, great.

Thank you.

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

Youssef Squali, Cantor Fitzgerald.

This is actually Naved Khan for Youssef Squali.

Can you give an update on Cassini, where are you in the rollout of that and what you have planned for the remainder of the year?

And then I have a follow-up.

Cassini is basically rolled out across the network.

And it's -- and now we're extending it into the Korea platform as well.

And what that's really enabling is continuous search improvements.

As we tried to broadcast all the way along, it is not a silver bullet.

It's rather a platform that allows us to now index listings more effectively and provide better search results, and it's one of many innovations that -- and improvements we're making in the eBay user experience.

Okay, thanks.

And then just on the slowdown on the US Marketplaces, if I X out the weakness in StubHub, which you called out, can you talk about the remainder of the Marketplaces business and how you feel about it going forward?

Sure.

Let me again just comment, Bob mentioned StubHub earlier.

With StubHub, we have a great leadership position and we're going to compete to defend and extend that leadership position in secondary tickets and provide a -- continue to provide a great consumer experience, the best fan experience out there.

And so we will compete to extend our leadership position in that business.

And then in the core eBay business in the US, as Bob mentioned earlier, strong fixed price growth, grew -- continued to grow at 19%, and we saw auctions come in less than we had hoped.

Auctions were down 9% for the quarter.

And that's -- there are little things that have impacted that.

We made some pricing changes with C2C last year, we've made a little bit of search changes.

And so we are making adjustments to make sure that we allow consumers, buyers and sellers, to choose the format they want, because we truly are indifferent because we monetize the same way.

But also to ensure that we're having the best balance in our marketplace.

And so the US team is on top of that.

And again, top-rated sellers are growing faster than e-commerce.

Fixed price is growing faster than e-commerce.

And we're putting a little more focus on the C2C and auctions business to make sure it's getting closer back to zero growth rates.

Thank you.

All right, that's it.

Thanks very much, everyone, and we'll talk to you next quarter, if not sooner.

Thank you.

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

This does conclude the program and you may all disconnect.

Everyone, have a good day.