eBay Inc (EBAY) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to eBay's Q3 2015 earnings call.

(Operator Instructions)

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

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

Sir, please begin.

Good afternoon.

Thank you for joining us, and welcome to eBay's earnings release conference call for the third quarter of 2015.

Joining me today on the call are Devin Wenig, our President and Chief Executive Officer; and Scott Schenkel, our Chief Financial Officer.

We are providing a slide presentation to accompany both Devin's and Scott's commentary during the call.

We have updated the format of our presentation following the spin-off of PayPal, and in anticipation of the completion of the sale of our eBay Enterprise business.

All growth rates mentioned in Devin and Scott'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 sections of the eBay website at investors.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 would like to remind you that during the course of this conference call, we will discuss some non-GAAP measures relating to our performance.

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

In addition, Management will make forward-looking statements 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 the planned sale of our eBay Enterprise business, the future performance of eBay Inc.

and its consolidated subsidiaries on a stand-alone basis, and including expected financial results for the full-year 2015, the future growth in our business, and mobile commerce.

Our actual results may differ materially from those discussed in this call for a variety of reasons.

You can find more information about risks, uncertainties, and other factors that could effect our operating results in our most recent annual report on Form 10-K, in our subsequent quarterly reports on Form 10-Q, available at investors.eBayinc.com.

You should not rely on any forward-looking statements.

All information in this presentation is as of October 21, 2015, and we do not intend, and undertake no duty to update this information.

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

Selim, thank you, and good afternoon, everyone.

Welcome to our Q3 earnings call.

Overall, we had a solid quarter marked by FX-Neutral GMV and revenue growth of 6% and 5%, respectively, both consistent with last quarter.

Our performance, one quarter following our spin-off of PayPal is steady, and it's in line with our expectations.

I'm proud that the team was able to remain focused on executing our strategy, while managing a complex separation.

We still have a lot of work ahead of us, in order to reposition our business and to deliver the level of performance that we aspire to achieve.

But our Q3 results are a step in the right direction.

When we spoke to you in July, we outlined our strategy to improve eBay's competitive position, and drive stable and profitable long-term growth.

We said that we'd build a more robust commerce platform, enhance our engagement with the core buyers and sellers who create a vibrant marketplace, and create exceptional product and brand experiences.

We also indicated that our efforts would take time, as we traded off short-term growth, and focused more on long-term investments, while dealing with the impact of near-term headwinds.

And finally, we said that we'd be vigilant about our portfolio, and we'd be disciplined about allocating capital to drive value.

This quarter, we drove hard to make progress on that strategy.

Simply put, we are doing what we said we would do, and we have confidence in our plans going forward.

Now let me share some of the progress that we've made in this quarter.

First, as I discussed during the Q2 earnings call, our efforts to deliver a more robust commerce platform will be built on a solid foundation of structured data and while this is a longer-term effort, we are making progress.

I will spend a moment to share some more context on our structured data initiative, including a few slides that accompany my commentary.

There are three key efforts underway.

First, we are collecting product data from our sellers, as they list their inventory on our site.

On June 29, we started requiring product information from our sellers across 18 categories in the US, the UK, Germany, and Australia.

We have seen positive reception and adoption in line with our expectations, with limited disruption to the listing process.

The next phase will add coverage to more countries and categories, and our plan is to expand the requirement where relevant across all sites and categories by the end of 2016.

Second, we use machine learning to process that data, so that we can leverage it in our user experiences.

Getting a product identifier is most useful to us, after we associate that product information to similar products in our catalog, and bring in additional data related to the products, such as descriptions, pictures, and reviews.

In the roughly 12 weeks, since we launched this initiative, 27 million more listings have been successfully mapped to products, and 5 million new products have been identified, and added to our catalog.

And finally, we're leveraging that data to improve our product and marketing experiences.

We have already started using this data in several areas of the user experience, such as SCO, merchandising, deals, and our selling close.

We've provided a few examples of how we're using the data in the slides that accompany this call.

While this is an encouraging start, these efforts are in the early stages, and we will continue to share more on our progress along the way.

A robust commerce platform also means diversified sources of traffic and user acquisition.

Along these lines, we continue to expand our use of social channels, and traffic from these channels saw significant growth in Q3.

We are now consistently leveraging 10 unique social channels on a regular basis.

Our second key strategic priority is to create a vibrant marketplace.

In September, we celebrated our 20th anniversary, and we hosted a seller conference which included many eBay-only sellers in San Jose.

At that time, we announced a number of significant upcoming changes to our seller policies.

These changes, which include more objective standards are intended to help small- and medium-sized sellers be more successful on our platform, and better reward sellers who provide great service to eBay buyers.

We're also giving sellers the ability to customize how they manage returns based on their specific business needs, with as much or as little involvement from eBay as they choose.

Finally, we launched a new product called Seller Hub, which puts a seller's listing and marketing tools, along with [deep] data insights and selling recommendations into one central place.

It's a new destination for professional sellers to manage their end-to-end business on eBay.

I was extremely energized by the engagement from the sellers I met, and I have been encouraged by the industry response to the changes that we announced.

We're also investing in areas designed to drive more engagement from our consumer sellers.

For example, we are growing our intermediated selling service, eBay Valet, where we are seeing significant growth.

Of note, nearly one-third of Valet consignments come from repeat customers, and a majority of Valet customers progress to buying and selling on their own on eBay.

At the same time, we are ramping up our efforts to drive buyer velocity.

For example, in Germany we recently launched a pilot program called eBay Plus.

This offering enables German consumers, in exchange for a low annual fee to enjoy free expedited shipping, free returns, and it may include access to exclusive deals and promotions over time.

The intent of the program is to reach more consumers and increase loyalty in this key market, where consumers have long valued free shipping and returns, and the geography can support this type of program.

We will also promote within this subscription, the ability for consumers to sell without fees, hence driving not only buying velocity, but also the unique eBay sell to buy flywheel.

Our third key strategic pillar is to create exceptional product and brand experiences.

In September, we launched a new experience across all of our mobile channels.

The launch of our new mobile product marks a shift towards a discovery-based experience for buyers, that also enhances our simplified mobile selling experience, and it brings in key functionality from several of the vertical-based apps, which we decommissioned in Q3.

With this release, we have also unified the mobile experience across platforms, which enables a consistent user interface, and is already resulting in faster product iteration.

This is an important part of our long-term strategy.

We believe that moving in this direction with our product, will enable us to drive engagement, and cross-category purchasing.

It's also a better expression of our brand, which stands for discovery, and the thrill of finding unique items and incredible deals.

We believe this experience will ultimately help eBay become a more differentiated, and a more personal commerce destination.

With the knowledge that we are making a very substantial change to the ecosystem, and based on our experience when we launched the new iPad app last fall, we expected to see, and we did see some disruption following the launch.

To date, both the data and the reviews on our new mobile experience are following what we believe is a similar path to what we saw after the iPad launch, which was last fall, which was an initial dip, followed by a strong recovery.

You can expect us to launch a series of incremental releases in response to user feedback over the coming weeks and months.

Despite this, the percentage of GMV that closed on mobile still increased to 42% in the quarter, up 1% from last.

Now let me briefly touch on two of our adjacent platforms that are great complements to our core, Classifieds and StubHub.

Our Classifieds portfolio is a key part of our strategy, and it provides another way to capture the local C2C opportunity, which often represents the same customers who are selling items more suited to a local transaction.

Q3 was another strong quarter of growth for eBay Classifieds, with particular strength in the UK and in Germany.

And in the US, we are investing in our Classifieds mobile app, Close 5. And we are seeing significant growth, with nearly 3 million downloads of the app as of the end of the quarter, which is a 10 times increase from the end of last quarter.

StubHub, our tickets vertical had a particularly strong quarter, getting back to strong growth as the industry-leading secondary ticket market place.

This strong performance was driven by improvements to our product experience.

We continue to see strong overlap between the eBay and StubHub visitor bases, with three and four visitors to StubHub also visiting eBay.

Lastly, we continue to expand StubHub globally in key international markets, where we believe the market opportunity is just beginning to hit its stride.

In September, we launched StubHub in Germany, which is our second major international market along with the UK.

Finally, we continue to actively manage our investment portfolio.

In this quarter, we sold part of our stake in Snapdeal, while we organically invested in our fast-growing India platform, and we've divested our stake in the China Classifieds business, Baixing.

In summary, we delivered solid results in Q3, and we made meaningful progress against our strategy.

I look forward to updating you again our progress, and we'll share our perspective on 2016 in January.

Thank you.

And now, I'll turn it over to Scott, who will go into more detail around our financial performance.

Thanks, Devin.

During my discussion, I will reference our earnings presentation, beginning on slide 10.

Our business was stable in Q3, as we made progress against our key objectives.

We generated $2.1 billion of total revenue, $0.43 of non-GAAP EPS, and $462 million in free cash flow, and we repurchased $599 million of our stock.

On slide 11, let's start at the top of the funnel with Q3 active buyer growth.

In the quarter, we added 2 million new active buyers, increasing the total active buyer base to 159 million, representing 5% year-over-year growth.

Underlying this growth was a modest acceleration in our trailing three-month active buyers.

This was driven by the additional investment we made in our India platform, where we saw strong user acquisition in the quarter.

In addition, the action that we have taken to reduce friction in the password, reset, and sign-in process have reduced our existing buyer churn.

However, the SCO headwinds continue to impact our ability to acquire new buyers.

Turning to slide 12, we grew GMV 6% on an FX-Neutral basis, consistent with Q2.

In the US, GMV grew 3%, accelerating 1 point versus prior quarter.

This acceleration was driven by the improvements we made to our product experience in StubHub.

International GMV grew 7% on an FX-Neutral basis, decelerating 1 point quarter over quarter.

While we continue to focus on executing our strategy, this relatively stable growth across our platform continues to be dampened by the challenges of SCO, the strength of the US dollar impacting cross-border trade quarters, and the product changes we believe will benefit our users over the long-term.

Sold item growth grew 7% in Q3, representing a 3 point deceleration versus prior quarter.

This was driven by a decrease in low ASP purchases this quarter versus last, and the impact of fewer new buyers who generally purchased lower ASP items.

Moving to slide 13, we delivered net revenues of $2.1 billion, up [5]% on an FX-Neutral basis.

We continue to experience currency headwinds in translation, which negatively impacted total revenue growth in the quarter by approximately 7 points.

Transaction revenue grew 4% on an FX-Neutral basis, decelerating 1 point versus Q2.

The deceleration was driven by investments, and additional seller incentives such as eBay top-rated seller, and daily deals programs, which are treated as contra revenue.

In Q3, this investment reflects a shift of marketing spend from operating expense to contra revenue.

Marketing services grew 9% on an FX-Neutral basis, accelerating 3 points versus the prior quarter, with our Classifieds format contributing to strong results.

The PayPal operating agreement was in addition to our MS&O revenue stream this quarter, adding 4 points of growth quarter over quarter, and approximately 1 point to total revenue growth.

Turning to expenses on page 14.

The cost of revenue increased 160 basis points year-over-year, driven by the impact of foreign exchange, and the payment processing costs, which now include the effects of our agreements with PayPal.

Additionally, we made investments in our structured data and security efforts which were paid by -- paid for by disciplined [partization] in other areas.

Operating expenses were 48.1% of revenue in the quarter, down 67 basis points versus last year.

Each cost component benefited from the restructuring we completed earlier this year, but let me provide a bit more context on each.

Sales and marketing expense is down 230 basis points year-over-year.

This is primarily driven by the decreased brand spend, and the shift from sales and marketing expense to contra revenue that I mentioned earlier.

Product development is relatively flat year-over-year, although we continue to refocus our investments into areas like our new mobile experience and structured data.

G&A increased 120 basis points year-over-year, with operating leverage offset by the dis-synergies due to separation and a stronger US dollar.

Moving to slide 15, in Q3 we delivered $0.43 in non-GAAP EPS, down 6% year-over-year as revenue growth, good operating leverage, and the impact of share repurchases were more than offset by the impact of the stronger US dollar.

Our resulting operating margin was 31.9%, a 90 basis point decline versus prior year, driven by the impact of foreign exchange and dis-synergy costs due to separation.

Turning to free cash flow.

We generated free cash flow of $462 million in the quarter.

CapEx was 12% of revenue, which is higher than our historical trends due to separation-related activities that we discussed last quarter.

We expect free cash flow to accelerate in Q4, driven by our seasonal volume peak, lower separation-related CapEx spend, and improved working capital performance.

Moving to slide 17.

As a reminder on our Q2 earnings call, I described our disciplined approach to capital allocation.

[To] reiterate our policy has several key tenets, including -- focusing on long-term value creation, while making sure we have the resources to execute our strategy, driving growth, while balancing profitability, supplementing organic growth plans with disciplined acquisitions and investments, while maximizing the capital deployed in those assets, and managing the capital structure in a way that optimizes our financial flexibility, access to debt and our cost of capital, while both offsetting dilution and reducing share count via opportunistic share repurchases at attractive prices.

Turning to our balance sheet, and the implementation of this policy.

We ended the quarter with cash, cash equivalents, and non-equity investment of $8 billion, including approximately $1.5 billion in the US.

We have repurchased 21.9 million shares at an average price of $27.36 per share.

We have $2.4 billion of the existing share repurchase authorization remaining.

Shortly after the Q2 earnings call, we received an average investment grade rating from the credit agencies of BBB+.

In Q3, we had a $250 million -- we had $250 million of debt mature, and in mid October we had a $600 million tranche mature, both of which we have repaid.

We may seek outside financing to replace 2015 maturities, and to provide additional flexibility to manage our capital structure.

We continue to be disciplined in how we manage our investments.

As Devin mentioned, in Q3 we sold a portion of our equity stake in Snapdeal, and sold the entirety of our stake in Baixing, a Shanghai-based Classifieds business.

Consistent with prior practice, the gains from the sale of these two investments are excluded from our non-GAAP earnings, but are reflected in our GAAP results.

We also made two strategic acquisitions to bring in additional tech and talent to eBay, and enhance our Classifieds vertical presence.

Finally, let me share our guidance on slide 18.

For Q4, we are projecting revenue between $2.275 billion and $2.325 billion, representing 3% to 5% revenue growth on an FX-Neutral basis, and non-GAAP EPS of $0.47 to $0.49 per share.

For the full-year, we are maintaining our revenue guidance of 3% to 5% growth on an FX-Neutral basis, and raising our non-GAAP EPS projection to $1.80 to $1.82 a share, reflecting our Q2 earnings performance, the impact of shares repurchased, and a more favorable tax rate.

In summary, we remain focused on our strategy and executing our key initiatives to reposition eBay for success, while delivering on our financial commitments, buying back nearly $600 million of stock, and continuing to demonstrate our disciplined approach to capital allocation.

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

Operator?

(Operator Instructions)

Brian Nowak with Morgan Stanley.

Thanks for taking my questions, and I have two.

You talked about StubHub performing pretty strongly, and driving some of the acceleration in the US.

Could you just talk about the growth trajectory of the core US business in 2Q and 3Q, ex StubHub, how big of a benefit was that?

And then the second question, I guess, you talked a little bit about raising debt, and potentially going into the markets.

How do you think about potentially going into a net debt position, as opposed to staying in net cash?

Thanks.

Sure.

Why don't I take that, Brian.

The -- first off, just to clarify -- so US growth, segment growth was 3%, which was up 1 point Q on Q. That 1 extra point was driven by StubHub's acceleration, and thus the underlying core business in the US was stable.

To your question on net debt.

Our current BBB+ rating allows us at a 3 to 3.5 times EBITDA multiple to be slightly in a net debt position, and we have no issues with being at that level.

And right now, our plan is to continue to assess how we think about our -- repurchasing our stock price and all of the underlying tenets of the capital allocation aspects that I laid out.

I think the most important thing as we look forward is that, that 3 to 3.5 times gives us the capacity that we think is necessary to provide the flexibility to do all the elements of long-term value creation that we talked about, drive the growth of the underlying business, and give us the flexibility to acquire businesses in a disciplined way that we've talked about in the past.

Great.

Thanks.

Carlos Kirjner with Bernstein.

Thank you.

I have two questions.

For several quarters, we have seen fixed-price GMV growing robustly, but auctions shrinking.

Can you helps us understand the extent to which fixed price growth is cannibalistic of auctions, and how we think about fixed-price growth without the effect?

And secondly, with respect to the 35% of relevant listings for which you are already collecting structured data information mentioned on, I think on page 5 of your presentation, to what percentage of GMV do they correspond?

Thank you.

Let me take those, and let me take the two of those.

So starting first with fixed price versus auction.

I think there is a couple things going on.

First of all, historically auctions tended to correlate better with the consumer sold business on eBay.

And for several years that business has grown more slowly than the B2C business.

But I think there is something also going on that is more significant than that, which is we have affirmatively moved through our policies and through our format guidance, a portion even of the consumer sold business to fixed-price.

So we think that certain categories, we just see better conversion when we moved them from an auction to a fixed price listing.

An example, might be consumer electronics.

So we have made it more favorable from a pricing perspective, and our guidance suggests to consumers that they list the cell phone at a price that we know it will sell at, rather than necessarily engaging in an auction, just to give you one example.

So part of it is, we have moved it affirmatively.

Part of it is, our C2C business is something that over the last few years, as we talked about last quarter, we were very focused on big retail.

And now we are coming back, to looking at the opportunity in C2C.

And I think there's a real opportunity over time to reinvigorate that business, and we might see some tailwinds based on that over time.

So those are the two components that drive the decline in auctions, versus the strength in the fixed-price format.

On GMV, I think that roughly the coverage is in the accompanying slides, Carlos.

We basically have said that there are three parts to what we're doing.

Part of it is identifying, the product identifiers.

We look at the relevant universe as manufactured items, and manufactured items is roughly 700 million items out of our inventory.

And I think if you look at the slides, you will see that we have covered a portion of that already with the mandate.

And the plan is to roll that out very aggressively over the next, let's call it 15 months.

So the slide ought to provide more color on the coverage of -- by listings in GMV.

Okay.

Thank you.

Thank you.

Colin Sebastian with Robert W. Baird.

Great, thanks.

I also have a couple of questions.

First Devin, during the analyst meeting and the last call, you talked about needing, I think 18 months to make the investments and transformation in the business, especially around some of the underlying technology.

And I wonder if that is still the right time frame to think about?

And then secondly, on the updated seller policies you rolled out at the anniversary event, there seem to be some renewed enthusiasm I think from that group, particularly amongst smaller sellers.

And maybe just as a clarification on your comment, Devin, from the last question, I wonder if that small mid-sized seller base is really where you are focused, or are you still engaging also with the larger merchants?

Thanks.

Yes, thanks, Colin, for the question.

On the first part, I think the 18 months that I referred to was, there were questions on this structured data initiative, when will it start to make a dent in things like SCO, and when will we be able to see it in traffic and in SCO?

And as I've said, it isn't -- it doesn't all come at once.

It comes as you progress.

But I said I thought you would be able to start to see it, in around 18 months, and I still think that is the case.

We are making good progress.

But the external impact of that, meaning our benefits from SCR, our benefits from traffic from those channels is still relatively limited.

And that is why, both in my remarks and in the slides, we wanted to clarify, that there are a number of steps we need to take.

And that is why there is a bit of a gap between asking sellers for the information, processing that data, applying machine learning, putting that in products and marketing channels, and then ultimately seeing the results.

So I still think that's a fair time frame for us to begin to see benefits in the channels that we mentioned.

On the seller policies, it is worth clarifying that when we talk about small and medium sellers, that is really the core of the eBay seller.

It doesn't necessarily mean a mom-and-pop, we are very focused on that.

But it also means multi-million dollar businesses, but compared to large retailers that's a smaller or medium-sized business.

That is clearly our area of focus.

I think our policies and the products that we have launched, even in the first 90 days are squarely attuned to that segment of our marketplace.

What we see is that, there is really great energy around there.

I am really pleased with the progress we have made in a relatively short period of time.

And I think that the opportunity for us to acquire new sellers, new inventory, differentiated inventory, and differentiated sellers is real.

I think the eBay brand is unique.

I think the eBay -- we don't want to be like anyone else, and we don't think that our brand is like anyone else's.

And because of that, the ability to acquire unique inventory through unique sellers, both consumers and small and medium-sized businesses is square in the center of where we are focused.

And you will see us do even more down the balance of this year, and certainly into 2016.

Thank you.

Scott Devitt with Stifel.

Hi, thank you.

I had a couple questions.

First on US versus international growth.

I was wondering, Devin, if you could just go through some of the puts and takes, in terms of this ongoing delta between the two?

There's the impacts of search and security as kind of bad guys I think that are leveraged more to the US business, but the US business has had more of the development in structured content, and then you also have the currency effect of US buyers, buying European goods versus the opposite, before the strength in the dollar.

So could you talk through that first?

And then secondly, on slide 14 of the deck, in your cost of revenue where you referenced the agreements with PayPal driving higher costs.

I was of the understanding, that other the only incremental costs were tied to minimum volume thresholds.

So could you just explain what the incremental cost was tied to?

Thank you.

Thanks, Scott.

I'm going to let Scott take the question.

Hey, Scott.

A couple of things.

First off, backing up on the US growth.

So the US, as we talked about in the past, has a significantly impacted aspect of it, from the strength of the US dollar, which is its heavily weighted on its export basis, on the export out of the US.

And as you think about the US dollar strength, that's pushed down the GMV associated with the -- with that product going outside of the US.

If you look at the GMV, which I highlighted last time, it's actually relatively stable.

It's at 6% growth, and the core US business versus 6% last quarter.

And so, the -- to your question, the nearer-term aspects of the things that we are working on, are actually relatively muted in those.

As we have talked about, it's going to take a fair amount of time for that -- for those -- for the impact of things like structured data and other things to impact the growth.

And so, in the near-term, what the US is facing is, the pressure from the SCO search issues, the associated active buyer growth impact, and the FX that we've talked about.

Internationally, growth is roughly stable.

It's at the levels that they are.

And I would say, a couple of things to highlight there.

First off, China export continues to be pretty strong, and consistent quarter over quarter.

We've got a great business in India that continues to grow very nicely, and our Korea business continues to do very well, and kind of in line with prior quarter growth.

In Europe, the impact of SCO, the impact of some of the product changes have had a little bit, a muted impact on our growth, particularly at the latter part of the quarter.

But still, still in the reasonably close to the range that they were in the prior quarter.

And again, they are impacted a bit by foreign exchange, and a bit by the aspects of the SCO aspects that we have talked about.

In terms of your second question, the cost of revenue, the incremental costs from the operating agreements tied to minimum volume threshold.

There is two aspects that I'd call out.

First off, in the revenue line, there is -- we actually have the cost -- the benefit of the contracts with PayPal.

And those are the things that relate to the penetration rate, the credit, the credit bounty and the user acquisition.

And then, the actual costs, in the cost of revenue now show up in our non-GAAP results, are actually payment processing related.

Thank you.

Yes.

Mark May with Citigroup.

Thanks.

I think a lot of mine have been addressed.

But I guess, last year, Devin, you talked about some broader reach marketing plans heading into the holiday season.

Just, I know in the quarter, you called out how some of the leverage in sales and marketing came from reduced brand spend.

But just thinking about heading into the holiday season in your guidance, what you are thinking about more on the brand marketing side?

And then, in terms of the share repurchases during the quarter, given the timing of the PayPal spend, just wondering is the amount of shares that you bought back in this quarter, is that a pretty fair look at how you will be opportunistic going forward?

Or were there some restrictions that you had during the quarter that maybe held you back a bit in Q3?

Thanks.

Mark, thanks for the question.

I will take the first part.

Scott will take the capital allocation question.

On marketing, let me just start by giving a slight helicopter view of the way we view marketing.

Historically, we have been very focused on digital channels and we have been very ROI driven.

And what that is tended to do, is drive our marketing spend down the funnel.

In other words, we tend to market heavily when we make sales, and that is why we've heavily skewed towards things like paid search, and other digital channels.

I do think that as some of the market shifts, and as more channels are available to us, we need to pivot some of our marketing to the mid funnel and to upper funnel.

And upper funnel, is what we would call brand spend.

It is more about eBay, than about buying any particular item.

We have been working really hard, because we don't like to waste money around here, and we are very metrics-focused.

And as you move from the bottom of the funnel to the top, it gets harder.

And frankly, the time frames extend, and frankly it gets harder to measure whether a dollar was well spent in brand, and it's easier to measure that, if a dollar was well-spent, if you sold something or not.

But I still believe that it is necessary.

So we are already, particularly in the social channels that I mentioned in my remarks, beginning to move from selling individual items, to selling eBay as a brand.

And I think that you will see more of that.

Not only through the holiday, but through 2016.

I think it's very important for us, to say to the world who we are.

Some of that is closing some of the misconceptions about our business.

I think the brand is ubiquitous, but not everyone knows what we do.

But some of that is really, the emotional connection of the brand, which is not a commodity.

It is not a utility.

And it's about consumers finding unique items and incredible deals, and that is really where we think north is for our brand.

More specifically for this holiday, we'll be very active.

Last holiday, we did a bit of TV, not in every DMA, but we did some TV in the US, and some in Europe.

We're not going to do a significant amount of TV this holiday, but we are -- we won't spend less.

We are going to be very active in digital channels, and we're operationally ready for this holiday, and we'll certainly be active marketing, both through promotions and marketing channels for the holiday.

So I hope that answered the first part.

And I will turn it to Scott on the capital question.

Yes, Mark.

I think, if you go back to our underlying -- one of our underlying tenets of how we'll deploy capital as it relates to share buyback, we'll continue to be prescriptive in our acquisitions of our shares, as it relates to the dilution-related activities.

And then, we'll be -- we'll be opportunistic in terms of how and when we buy back shares.

In this quarter, I don't think that is any different than how we think about it going forward.

This quarter we bought back 21.9 million shares at $27.36, roughly 1.8% of the Company of the outstanding shares.

Now that all said, I think we all have -- we have talked about this in the past with everyone.

There is a bit of a governor over the course of the first two years, where we can not have plans, nor we'd be buying back more than 20% of the shares of the Company.

That said, this represents a fairly, I think, clear step of how we think about buybacks for us going forward.

Next question, operator?

Heath Terry with Goldman Sachs.

Great.

Thanks, Devin.

I know you touched on this little bit, but when you look at the impact of the product categorization work that you have done, is there a tangible impact that you see, or expect to see to traffic conversion rate, or some other metric that you can discuss?

And then on the quarter, as we look at the take rate, can you break down for us the impact that you are still seeing in take rate from the changes at StubHub?

Any of the contra revenue investments that you have been making, or anything else that is having an impact on those numbers that is worth calling out?

Thanks, Steve, I'll take the first part, and Scott will take the second.

Let me give you a qualitative, rather than a quantitative view.

I am not going to componentize the qualitative side of structured data.

But let me just describe it to you, and why I think it ultimately has a positive impact on both traffic and on conversion.

If you step back at what we are trying to do, what we are trying to do is really understand and associate the products that are on our shelves.

We are trying to be able to group products.

We are trying to be able to sell products in ways that are not dependent on search alone.

We're trying to create better discoverability of products, both on the marketplace and off.

If you come back to what we have been saying repeatedly, there might be a faster path to SCO recovery.

But this cycle of spin it up, and then spin it down is not sustainable.

So we're building it on a much more sustainable foundation, because ultimately both SCO and frankly, discoverability on eBay are crying for persistence.

They are crying for us to understand that, just because a listing comes and goes, we are still selling thousands of iPhones, or sweaters, or shovels, or whatever we are selling.

So that at the end of the day, is why having a persistent view of the products we sell, I believe is a traffic driver.

And it's a conversion driver, because ultimately, we have 800 million items for sale.

This is the world's biggest store.

It can be overwhelming, and we are asking too much of search.

Search is very important, but for search to be the only lever to pick through 800 million items is becoming not sustainable, and ultimately, it causes a reduction in conversion.

The ability for us to group items, to merge items, to understand what is the best item out of a lot, to create trade-offs say, between the very unique eBay categories like used, manufactured, refurbished, and new, and allow consumers to understand the value-based trade-offs of all of those choices, is to me, endemic to what we are doing in the structured data initiative.

So I can't give you a number.

But I know that what we are driving at is better traffic.

And I know that we are driving at better conversion, and that is why it is worth the investment, and it's why it is worth this significant shift in what we are doing.

Scott, will take the second part on take rate.

Hi, Heath.

A couple -- the way I think about this is first off, the take rate was relatively stable quarter to quarter.

And if you look at -- it is up, I think 10 basis points.

We'll get a little bit of uplift from the mix of StubHub in that number.

But I think the more material shift quarter on quarter was what I called out, with the contra revenue.

And as we look at our overall expense base for marketing, we as you know, are very disciplined in how we approach the deployment ad- marketing spend.

And occasionally, we'll move the investment between different buckets within that expense base.

And in some cases, shift it from expense to contra revenue broadly speaking.

But things like seller incentive, daily deal incentives, even to an extent buyer couponing, and it is really dependent on how we see the capabilities of those different marketing channels to be effective, and get the best return for us.

In this quarter, that did depress revenue growth a little bit, helping some of the underlying aspects of the business, and the best way we thought to spend marketing on a go-forward basis.

And that's really why you see the differential between the GMV growth rate of about 6%, and the transaction revenue growth rate of 4%.

Got you.

Thanks, Scott.

Thanks, Devin.

Eric Sheridan with UBS.

Thanks for taking the questions.

Maybe just two.

One on the cost [pied] side.

Thanks for all the information intra-quarter, and especially some of the color on the call.

But curious, how you were approaching the portfolio of assets you have inside the classifieds business, where there might be places to allocate more capital against market-leading positions, versus maybe the need to either invest or divest of assets longer-term in markets where you maybe don't have a leading position?

And then, the second question on general health of the consumer, there's been a lot of mixed data points.

What was your view of how you saw the consumer act, as we moved through back-to-school, through Q3, and how the consumer is set up in some of your key geographies for Q4?

Thanks.

Yes, I will take those.

On classifieds, I think what you said is exactly the way we look at it.

Classified markets tend to be local.

They tend to be national.

And at least historically, for horizontal classified players, they tend to be winner-take-all.

Now that winner may not be clear right away, and there are certainly competitive battlegrounds in certain markets.

But the markets that we operate in, we have leading and winning positions in nearly all of them, other than where we have seeds planted, where we believe we can win.

If we are not in the market -- if we're in a market where we believe that we are not going to win, or there is not a clear path to winning, then we'll exit that market, and relocate that investment to an area that we can.

Our classifieds portfolio, we have a great playbook, a team that really knows what they are doing.

We have shown that we can grow and build this business.

At times, we use the balance sheet.

There was a small classifieds acquisition in this quarter, and it's been a great business for us, that we'll continue to move into.

An example, that I mentioned of a competitive battleground is the US.

Obviously, it's an enormous potential market.

But what we see is that the classified space in the US has been thrown up for grabs.

And it's a very big market opportunity, and we think we've got a winning proposition with Close 5. It is growing very, very rapidly, and we'll continue to allocate resource from markets where we are not going to win, into markets where we have a plausible chance of winning.

We won't win in every market, but that's the way we look at the portfolio.

On the consumer, we see the same data that you do.

We know there are been a number of consumer companies that have been cautious about the fourth quarter.

Obviously, our guidance implies stability.

But we're -- I guess, we are a bit cautious about it too, only because we see some of the data points on GDP, on jobs, and on what other companies have said.

So we're watching it carefully, but overall, we see net stability.

And that is implied in our guidance for the holiday season.

Thanks.

Justin Post with Merrill Lynch.

Great.

I would like to follow-up on the last thing.

Just was the quarter stable?

Like every month kind of consistent for you, no surprises month over month?

And then secondly, just wondering about the SCO challenges you highlighted.

Obviously, you had big issues last year.

Have there been continuing changes this year that have impacted you at all on that?

And then lastly, any quantification you can give us on the size of StubHub, and the changes you recently made, why you did those?

Thank you.

I'm going to take the first few here, Justin.

First one, the quarter's stable.

In total, for the core business, or in the overall business it was actually relatively stable.

I know there were some anxiety around some September data that was out there, and I think that depends by geography.

Certainly StubHub had a very strong September.

The US had a slightly weaker, as did parts of Europe, a slightly weaker September, and Asia had a strong September.

And so, I would -- I look at the overall portfolio and go, not radically different month to month to month.

SCO challenges, there has been no real new SCO challenges for the year.

I know there has been a couple of changes around mobile and other things that have been out there.

But broadly speaking, we haven't really seen an incremental new impact to our business, versus what we have been talking about.

I don't know if you want to talk about StubHub, Devin.

I think, overall, we don't give StubHub numbers, but do you want to talk a bit about the changes?

I can talk about the changes.

We have new leadership at StubHub, and it's a great business.

It's the leading, obviously, secondary tickets marketplace, and we made a whole series of changes rapidly, and saw a very nice rebound in the business.

So some of that was around the product.

There is a brand-new StubHub mobile experience.

Some of that was around the way we display pricing changes.

Some of that was around a brand campaign, which is now gone bright, and you may see it on -- during the baseball playoffs or on football games.

All of those had an impact.

And it was a fairly rapid turnaround of StubHub's performance back to growth, which is great to see.

So I think they all contributed.

Thank you.

Mark Mahaney with RBC Capital Markets.

Thanks.

Two questions.

One, could you -- any particular international markets you would want to call out?

I think I heard you talk about India earlier on.

But any other key markets, Germany, the UK, or South Korea, either as skewing better than the overall international trends, or skewing weaker?

And then secondly, just following up on that StubHub question.

Now, I think the issue with StubHub a year ago, year-and-a-half ago, was real changes in the pricing of some of the major competitors in the market.

Have you seen any changes in that pricing environment, or is the improvement that you are seeing at StubHub purely due to your own execution, and some of the own -- the things you have done at StubHub per se, rather than ameliorating or better pricing conditions across the industry?

Thank you.

Yes, hi, Mark, it's Scott.

Internationally, I called a few of these out earlier, but just to clarify.

Germany and the UK, slightly less than the overall international growth.

The Korea platform continues to grow very nicely, I think at or above e-commerce rates of growth in Korea.

And then, I would highlight our China business.

Our China export business is still -- continues to do very well, exporting around the world into many of our major markets.

And those -- look, those are a big part of the drivers around the world, and I think doing -- mixed results across the board, as I said earlier.

Do you want to talk about StubHub?

Yes, I will, and let me just add on markets, I will just call India out.

India, there's so much been written about it, and there's no doubt that there is some hype, and there has been a lot of investment.

But the fact is, that the market is growing.

I don't think it is going to be winner-take-all, and what we feel like is, we are growing responsibly.

We feel like we are investing appropriate amounts to grow the eBay brand.

The buyer acquisition has been strong.

The GMV growth has been strong, and we are going to keep watching it, and keep investing in it to grow our organic eBay platform.

So I think you've got to separate out the hype from the reality.

There is plenty of hype, but there's also a good deal of reality in India, and it is a growing market.

It is exciting, and there will be multiple winners, and we'll be one of them.

Back to StubHub.

I think that, just given what we have seen, a large part of what is happened with StubHub was our own execution.

It just happened so rapidly after the series of changes that we made, that it's hard to believe the market was shifting at the same time.

I think the market is adapting.

But this is a great business with a strong brand, and I think that having now gotten back in a sweet spot of its product, its pricing, and its brand position, it's in a good market, and market share position.

Thank you, Devin.

Thank you, Scott.

Matt Nemer with Wells Fargo Securities.

Good afternoon.

I've got two questions.

The first is, when should we expect a disruption related to the mobile app launch start to normalize?

And is that enough to, on a monthly basis, take the US GMV negative?

And then secondly, is there any early evidence that the structured data related to the 35% of inventory that you have converted, is already starting to help SCO?

You made it clear on that a consolidated data basis, it's going to take some time.

And I'm just wondering on that subset, if you are seeing some benefit?

Thanks.

Thank you.

On the first question, on mobile, let me just reiterate that we are running the Company for the long run.

And some of the things we're doing are really fundamental, and it tends to be that in marketplace ecosystems like this, fundamental things may not be growth-friendly in the short run, but they are important in the mid to long run.

And mobile is one of those.

I don't have an exact time frame, but you are already seeing the beginning of recovery, and we watch carefully -- the ratings are sort of a public face of it.

I, frankly, I care more what millions of people do, than what a few people say.

But they are both important, and the data reflects what people are doing.

And we are beginning to see a recovery, and it is mirroring what we saw with the iPad launch.

That was also a fairly large change.

Metrics went down, then they came back up, and, of course, they ended stronger than where we started.

So that is the hope with what we are doing here, and we'll watch it carefully, and we'll adjust as we go.

We are constantly looking at that data, and listening to customers, and we'll respond to it rapidly.

Is it a slight drag on growth?

Yes, it is, globally.

As is frankly, adding the requirement on structured data and a few other things.

These are all things that are not necessarily growth-friendly in the short run, but important for us to do in the long run.

So there is no doubt, there is some impact in there.

On the second question, the answer is yes.

Again, we watch the data carefully.

If you look at things like our slides, where you see us deploying structured data, where you see -- and it is very small right now, you are seeing improvement in our rankings.

You are seeing some traffic flowing, and you're seeing some conversion benefits being picked up.

So that gives us comfort that we are on the right track, but I would caution that this is going to take time, as I have said consistently for months now.

So.

Great.

Thank you so much.

Douglas Anmuth with JPMorgan.

Thanks for taking the question.

I just wanted to drill down a little more on active buyers.

You talked about an acceleration in trailing three months, and also India being strong.

Can you just help us understand how to think about the value of those new buyers in India, relative to the average overall, and how long it takes them to ramp up spend?

And then also, what are the actions that you highlighted, in terms of you reducing sign-up friction on the platform?

Thanks.

Yes.

So I'm going to take the first one.

So Doug, the active buyer growth of 5% is down [1] point Q on Q on a trailing 12 month basis.

And what I have highlighted for the last couple of quarters is, the trailing three months is really, purposely to help highlight how the more recent trends have developed, based on the actions that we have taken.

And the trailing three month, we have seen some modest acceleration as I called out, based on the investments in India, which obviously on a GMV per user basis, is going to be lower than the rest of the world on average.

And then, the actions that we've taken to reduce friction on sign-in.

And those include things like -- over the last several months of providing security -- a much more robust set of security questions, allowing for text messaging to allow quick retrieval of a sign-in code.

And then, having users be able to remain signed in for a period of time.

There is a number of other smaller things, but what that has had the impact of doing, is actually reducing the churn of our existing user base.

And we continue to work on going after those customers that have come back, and not been able to sign in.

And that's one of the ways that we think about using contra, to go after them in the form of couponing, as well as direct marketing on e-mails, et cetera.

I will call out, as I did in my comments, that there are -- there continue to be headwinds, even in the underlying trailing three month results on active buyers that we see where, even though we are making some progress in our cataloging penetration if you will, as well as the changes to the user experience, and what you're seeing in the Google search, it is not sufficient as of yet to stem the tide of the active buyers, or the new active buyers that aren't coming to the experience yet.

And that is really our primary focus here.

Let me -- just a quick add on, on reduction of friction.

The tension, obviously is security, and security is an incredibly important priority for us, particularly given the events of last year.

So we constantly are trying to push the efficient frontier of removing friction, but not reducing our customers' security.

And I think that there are been advancements -- you are starting to see some of the big web companies do some interesting things with phone numbers, mobile phone numbers, even using -- basically piggybacking on things like biometric off of the IOS device.

You should expect to see us do that.

We'll continue to push to reduce sign-in and password reset friction, as long as we feel like it doesn't compromise our customers security.

Operator, we have time for one more call, question, excuse me.

Ross Sandler with Deutsche Bank.

Great.

Thanks for squeezing me in, guys.

Just one follow-up from that last question, and then a bigger picture question.

So if we look at the buyer cohorts, in Western markets like the US and the UK, how long do you think it will take for some of these new buyers that you are bringing in, to get up to the levels of the top cohorts, and replace some of the drop-off that you saw from those top cohorts after the password breach last year?

Is that a one-year phenomenon, is it a multi-year phenomenon?

Just a little bit of help there, would be great.

And then, somewhat related to that, just big picture, are you comfortable with the low double-digit fixed price GMV growth that you are currently seeing?

It seems pretty stable.

Or once all the re-cataloging work is done, could we see some more aggressive marketing, and potentially drive that number or that growth rate higher?

How should we think about that longer-term?

Thanks.

Hi, Ross.

The way I would answer your question on the cohorts, is that as we get new buyer growth to reaccelerate in the core major markets, what I would expect is that those new buyers actually have a cohort profile similar to the ones that we have today.

Underlying the trailing 12 month active buyer growth, and the existing trailing three month is a relatively stable set of cohorts, that aside from the new buyers, remain relatively stable in terms of how much they buy.

And so, I don't anticipate that once we reactivate, and get that new buyer growth going again, that it would be materially different.

Although I don't necessarily have data to prove that at this point.

Yes, and Ross on the second question, I think the question was, are we comfortable?

I would point back to the question that I answered around C2C, which is I take the two together in part, because it is not separate businesses anymore.

And no, we are not comfortable with a 6% growth rate.

We are proud of the work we're doing.

We are running the company for the long run, but we are not settling comfortably into a 5% or 6% growth rate.

We want -- we are not satisfied with that.

We want to push this harder.

But we want to do it the right way, and run the business over the long run.

So this will take time, but our aspiration is certainly to grow the business faster.

So I hope that answers the question.

Great.

Thank you.

Thank you everybody for joining us on the call today.

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

This concludes the program, and you may now disconnect.

Everyone, have a great day.