eBay Inc (EBAY) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the eBay, Inc.

fourth quarter 2015 earnings call.

(Operator Instructions)

Today's program is being recorded.

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

Please go ahead.

Thank you.

Good afternoon.

Thank you for joining us, and welcome to eBay's earnings release conference call for the fourth 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're providing a slide presentation to accompany both Devin's and Scott's commentary during the call.

All revenue and GMV growth rates mentioned in Devin's and Scott's prepared remarks represent FX-neutral 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 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 the 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 related 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 future performance of eBay, Inc.

and its consolidated subsidiaries included, expected financial results for the first quarter and full year 2016, and the future growth in our business.

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 affect our operating results in our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the Company's Investor Relations website at investors.ebayinc.com or the SEC's website at www.SEC.gov.

You should not rely on any forward-looking statements.

All information in this presentation is as of January 27, 2016, and we do not intend, and undertake no duty to update this information.

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

Thanks, Selim, and good afternoon, everyone.

Our business was stable in Q4, and we delivered solid results as we continue to reposition our business amidst the backdrop of a competitive holiday retail environment.

Overall, total GMV and revenue were both up 5% for the quarter, and we also grew active buyers 5% year over year to162 million.

GMV on our Marketplace platform grew at 4% year over year.

And underlying this growth, our B2C business, which is the best analogue for other retailers and marketplaces, grew at 8%.

We also saw particular strength in our StubHub and Classifieds platforms, which grew revenue at 34% and 15%, respectively.

Looking deeper at our Marketplace platform, we continue to see an impact on traffic and new user acquisition, along with continued near-term pressure from some of our strategic longer-term initiatives, which curtailed growth in the quarter.

Six months ago, we began a series of platform, inventory, and policy changes, which we believe are critical to make our business more competitive over the long-term.

While we're making steady progress on these strategic initiatives, we don't expect to see material benefit from them for some time to come.

With our structured data initiative, we increased the percentage of listings processed to 37% of relevant listings in Q4, up from 28% in the prior quarter, while adding 79 million unique products to our catalogue.

And we recently announced that the next phase of required product identifiers would go into effect at the end of February.

This phase will add more categories and countries to increase coverage to approximately 60% of relevant listings on our platform.

Historically, as a listings-based marketplace, providing users with features such as product reviews and pricing data was extremely challenging.

As we have begun converting more of the site to structured data, we are starting to leverage these features, and are seeing good results.

In Q4, our users created nearly 1 million product reviews, up twentyfold from the prior quarter.

Overtime, this is the type of user-generated content that will help us to improve discoverability and conversion.

We are also starting to use our data to enable price trending and comparisons, as well as better merchandising capabilities.

Early results show we are picking up conversion rate improvements, which is a clear signal that we are on the right track here.

You can see some of these examples in the slides accompanying my commentary.

Another key area of focus for us is mobile.

While reviews of the mobile experience we launched in September have significantly improved, it's not yet delivering results on par with the prior version.

We're aggressively iterating it to enhance the user experience, and to drive adoption and usage.

And our new platform is enabling us to get new releases in front of our users, more rapidly and efficiently than we have in the past.

Despite those challenges, we still grew mobile GMV 21% on a year-over-year basis.

Finally, we continue to make progress in other areas, such as social and promoted listings.

Our social traffic continues grows at strong double-digits, driven by our presence now across 14 key channels.

And with promoted listings, we opened the service to all store subscribers, and we expanded placements into many new categories in Q4.

As I have discussed previously, we believe StubHub and Classifieds are important complements to eBay, and we continue to see strong overlap across each user base.

Over the past six months, many of you have indicated that you would like to better understand the scale of these platforms, relative to our Marketplace platform.

In an effort to increase transparency and disclosure across our portfolio, we will disclose volume and revenue for StubHub, and revenue for Classifieds moving forward, which mirrors how we manage them internally.

Our StubHub platform continues to be a strong partner to sports leagues, teams, and artists.

We saw significant growth acceleration in the quarter, driven by the product changes we made in August, and aided by a strong sports landscape and high demand for concert tickets.

And our Classifieds platform saw particular strength on eBay Kleinanzeigen in Germany, along with Gumtree in the UK, resulting in accelerating year-over-year growth.

We also continue to grow our US Classifieds presence via our Close5 mobile app, where total downloads approached 6 million, more than doubling where we ended Q3.

Now I want to step back, and put Q4 in the context of our first six months, post-separation from PayPal.

Six months ago, we indicated that our key strategic priorities were to create a robust commerce platform, a vibrant marketplace, and enhanced product and brand experiences, and reposition our business to better compete over the long-term.

We also set expectations that executing on this strategy would take time, and that we prioritized repositioning our business over near-term growth opportunities.

Lastly, during this period of time, we said we would be disciplined with our investments, while returning capital to shareholders.

Over the past six months, we have made progress against our key priorities, while delivering on the higher end of the growth expectations that we indicated, and the investments we're making have been largely paid for by the restructuring we undertook in the first quarter of last year.

Additionally, we've shed non-strategic assets while returning over $1.1 billion in capital to shareholders through our share repurchase program.

In short, we're on plan, and we will continue to execute on this strategy as we head into 2016.

Looking forward, we believe we can create a customer experience and a brand message, that will sharpen the focus on what is unique about eBay.

This year I will be focused on stepping up our efforts to drive the best choice, the most relevance, and a powerful selling platform, in addition to further clarifying what our brand stands for.

Having made many foundational investments, we expect to deliver significantly improved experiences for buyers and sellers across multiple dimensions this year.

We'll do this by improving discoverability, both on and off our site.

We'll give buyers more choice, but also more data to facilitate better comparisons.

And we'll provide sellers with more effective tools, better service, and fairer policies to enhance their eBay businesses, incenting them to provide their best inventory, and competitive prices on our platform.

Finally, we intend to innovate and improve upon our C2C experience to re-accelerate our sell-to-buy Flywheel.

In summary, we entered the year on plan and executing on the strategy, and the financial framework we laid out six months ago.

We're looking forward to a year of significant progress.

Now let me turn it over to Scott to provide more details on our fourth quarter and full year results and 2016 guidance.

Thanks, Kevin.

During my discussion, I'll reference our earnings presentation, beginning on slide 12.

Our business was stable in Q4, as we made progress against our key objectives.

We generated $2.3 billion of total revenue, $0.50 of non-GAAP EPS, $1 billion in free cash flow, and we repurchased $550 million of our stock.

On slide 13, let's start at the top of the funnel, with Q4 active buyers.

In the quarter, we added 3 million new buyers, increasing the total active buyer base to 162 million.

Trailing 12 month growth rate was stable at 5% in Q4.

Turning to slide 14.

In Q4, we enabled $22 billion of GMV, growing 5% versus last year.

By geography, the US generated $9 billion of GMV, up 4%, while international delivered $13 billion of GMV, up 6%.

I'll discuss these results in more detail later.

Sold items grew 4% in Q4, a 3 point deceleration versus prior quarter.

Sold item growth continues to be influenced by our product, geographic, and seller mix.

In Q4, we saw an increase in the mix of higher [ASP] electronics sold during the holiday.

Moving to slide 15.

We delivered net revenues of $2.3 billion, up 5% versus last year, growing at the same rate as GMV.

We continue to experience currency headwinds in translation, negatively impacting growth by 5 points, and resulting in Q4 revenue which was flat year over year on an as-reported basis.

We generated $1.8 billion of transaction revenue, up 3% versus last year, and $500 million of marketing services revenue, up 12% versus last year.

On the next three slides, I will take you through a bit more detail on our Marketplace, StubHub and Classifieds platforms.

Let's start with the Marketplace platform on slide 16.

This platform is one of the world's largest online marketplaces, with extensive product inventory that combines unique and interesting items, with great deals on what shoppers want and love.

We build connections between buyers and sellers across the world, with product experiences that are fast, mobile secure, and backed by the eBay money back guarantee.

Our flagship brand, eBay.com has localized sites in Germany, UK, and Australia, amongst others.

We operate other brands as well, such as [IEC] and Gmarket in Korea and Gittigidiyor in Turkey.

Over the years, our Marketplace has shifted from used goods and auctions to new goods and fixed price.

In Q4, 80% of the sold items were new, and 85% of GMV was fixed price.

Additionally, 63% of orders shipped for free, and 60% of orders were delivered in three days or less.

Turning to Q4 results, marketplace GMV grew 4% year over year, decelerating 1 point versus Q3.

This performance reflects the ongoing challenges of SCO, the impact of the new mobile experience launched in Q3, and continued pressure on our C2C business.

Total revenue for the Marketplace platform grew 1%, 2 points lower than the prior quarter.

This deceleration was primarily driven by transaction revenue, which was flat year over year, and 2 points lower versus Q3.

Transaction revenue was impacted by volume, in addition to seller and category mix, which shows an overall lower take rate.

We also modestly increased contra revenue spend on coupons and seller incentives, shifting marketing spend away from operating expense.

Marketing services revenue grew 9%, accelerating 3 points over Q3.

This revenue stream is comprised of advertising, our vehicles vertical, and the PayPal operating agreement amongst others.

As a reminder, the PayPal operating agreement was in addition to the MS&O revenue starting in Q3, and it contributed to the Q4 acceleration in growth.

Moving to slide 17.

Our StubHub platform is the largest ticket marketplace in the US.

We enable fans to buy and sell tens of thousands of tickets daily for sports, concerts, performing arts, and other events.

Throughout the United States, Canada, the United Kingdom and Germany, StubHub provides a specialized tickets experience custom-built for fans.

StubHub is our tickets vertical experience, much like fashion or electronics that you can find on our Marketplace platform.

We continue to see strong overlap between the Marketplace and StubHub visitor bases.

We encourage all of our customers to use StubHub as their tickets marketplace to take advantage of the tailor-made experience for fans, and the security offered by StubHub's fan protect guarantee, assuring fans that they will make it to their event, or we will make it right.

StubHub ended the year on a high note, delivering a Q4 GMV growth of 30%, up 20 points versus Q3.

Q4 revenue grew 34%, accelerating 17 points versus Q3.

StubHub's standout performance was driven by a full quarter of product improvements launched in August, including pricing display changes, and our updated mobile app, plus strength in both sports and concerts in Q4.

Q4 capped off a strong finish to 2015.

For the full year, StubHub generated $3.6 billion of GMV, and $725 million in revenue, up 15% versus prior year.

Now turning to Classifieds on slide 18.

We operate 12 brands in our Classifieds portfolio, with a presence in 17 countries.

eBay is the Classifieds leader in 10 markets, and attracts approximately 250 million unique monthly visitors.

Some of our well-known brands include Gumtree, Kijiji, and eBay Classifieds, to name a few.

Classifieds provides eBay another way to serve the online C2C market, which often represents the same customer, with items better suited to a local transaction.

We intend to continue investing in our growth markets, mobile-only experience, and strong local presence.

Turning to Q4 results.

Classifieds delivered another strong quarter of growth, up 15% year over year, accelerating 1 point versus Q3.

The strong performance in Q4 was driven by our developed markets, most notably eBay Kleinanzeigen in Germany, and Gumtree in the UK.

Q4 contributed to a strong performance by Classifieds in 2015, generating over $700 million in revenue for the full year, growing 15% versus prior year.

Now moving to expenses on slide 19.

I'd like to take a moment to touch on the impact of foreign exchange on our expense lines.

While nearly 60% of our revenue is international, our cost base is weighted to the US dollar.

As a result, when the US dollar strengthens, we experience some loss of leverage on a percent of revenue basis, costing us 80 points -- basis points in Q4.

We will continue to feel the impact of the stronger US dollar for some time to come.

And with this in mind, I will focus the rest of my expense commentary on operational drivers.

Cost of revenue increased 220 basis points year over year, with the primary driver being the addition of PayPal processing costs.

In Q4, we also increased investment in structured data and security efforts.

In looking at operating expense, as we have mentioned in the prior two quarters, we undertook a reduction in work force in Q1, which continues to drive year-over-year leverage across each expense line item.

Outside of that, let me touch on some additional operating expense drivers.

Q4 sales and marketing expense is down 120 basis points year over year.

This is primarily driven by the shift from marketing expense to contra revenue that I mentioned earlier, in addition to lapping last year's significant [brand step].

Product development is relatively flat year over year on a percent of revenue basis, as we reinvest operational leverage into initiatives such as structured data.

G&A increased 110 basis points year over year, with stand-up costs more than offsetting the benefit from the reduction in the work farce.

We will see a similar year-over-year impact of stand-up costs in G&A during the first half of 2016.

Moving to slide 20.

In Q4, we delivered $0.50 in non-GAAP EPS, down 10% year over year as revenue growth, operating leverage, and the impact of share repurchases were more than offset by the impact of the stronger US dollar, a higher tax rate and stand-up costs.

The impact of the strong US dollar alone cost us 7 points of EPS growth.

Turning to free cash flow.

Our ability to generate strong cash flow based on our low capital intensity and profitable business model continues.

In Q4, we generated free cash flow of $1 billion, bringing the full year to $2.2 billion.

In Q4, CapEx was 6% of revenue, 6 points lower than prior quarter, as separation-related spending ramped down, and the timing of some of our planned spend pushed into 2016.

For the full year, CapEx was 8% of revenue.

Moving to slide 22.

We ended the quarter with cash, cash equivalents, and non-equity investment of $8.5 billion, including $1.5 billion in the US.

As a reminder, our capital allocation policy is designed to manage the capital structure in a way that optimizes our financial flexibility, access to debt, and our cost of capital to drive long-term shareholder value.

In Q4, we repurchased 19.9 million shares at an average price of $27.62 a share.

This brings our total repurchases in the second half of 2015 to over $1.1 billion, or just under 42 million shares.

We ended the quarter with $1.8 billion of share repurchase authorization remaining.

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

And in Q4, we closed the divestiture of eBay Enterprise, and received cash proceeds of $925 million.

In 2015, we repaid $850 million of debt that matured.

As a reminder, we have an average investment grade rating of BBB+, which allows a gross debt-to-EBITDA ratio of up to approximately 3.5 times, providing us the capacity to take an additional $3 billion to $4 billion of debt.

As we look at our capital structure in 2016, we may seek additional outside financing to replace 2016 maturities, and to provide additional financial flexibility.

I would like to take a moment to share how we are thinking about capital allocation for 2016.

Subject to market conditions, we expect to continue buying our own shares throughout 2016 at, or above the rate of our second half 2015 repurchases.

This would be in addition to offsetting dilution.

To this end, we have incorporated share repurchases into our 2016 guidance, which I will cover shortly.

And consistent with what we said before, we will continue to be an acquisitive company, disciplined in our approach, and seeking the best opportunities to create long-term value.

Moving to full-year guidance on slide 23.

We are projecting 2016 revenue between $8.5 billion and $8.8 billion, growing 2% to 5% versus last year.

Our projected growth is in line with what we discussed previously and relatively stable with 2015, as we continue to execute our long-term strategic initiatives in the face of near-term headwinds.

On an as-reported basis, growth ranges from a 1% decline to a 2% increase, as foreign exchange negatively impacts growth by 3 points.

We expect operating margin of 31% to 33% for the year.

As compared to 2015, we are losing roughly 1 point of margin due to the impact of foreign exchange, and 50 basis points due to a full year of separation cost.

Despite these factors, our margin is in line with expectations set last June, and we are utilizing leverage and cost savings to fund our investments.

We are projecting non-GAAP EPS of $1.82 to $1.87 per share, down 1% year over year at the low end of the range, and up 2% at the high end.

The impact of the stronger US dollar costs us roughly 5 points of the EPS growth.

Finally, we expect non-GAAP effective tax rate of 19.5% to 20.5%, CapEx of 7% to 9% of revenue, and free cash flow of $2.2 billion to $2.4 billion.

Moving to Q1 guidance on slide 24.

For Q1, we are projecting revenue between $2.05 billion to $2.1 billion, growing 3% to 5% versus last year.

We expect non-GAAP EPS of $0.43 to $0.45 a share, representing a decline of 6% to 10%.

The decline is due to the stronger US dollar, and impact of dissynergies, which cost us 10 points of EPS year over year.

This impact will be more pronounced in the first half of 2016.

In closing, we end the year with financial commitments on plan, a year -- a clear and disciplined approach to capital allocation, and executing on our strategy.

In the upcoming year, we will increase our efforts to drive the best choice, the most relevant, and a powerful selling platform, while driving increased clarity on what our brand stands for.

And we will remain focused on positioning eBay for long-term success.

And now, we would be happy to answer your questions.

Operator?

Certainly.

(Operator Instructions)

Our first question comes from the line of Richard Kramer from Arete Research.

Your question, please?

Thank you very much.

Very quickly, do you -- can you give us any sense of the profitability of StubHub and Classifieds, now that you have broken it out, something that you will be able to speak to?

And then, I guess, a successive question.

Can you talk about your international guidance in the context not just of FX, but whether you're seeing impacts from the macro situation that we have, we have all been hearing about?

How much have you factored into your guidance with respect to that, and are you seeing an impact currently on the business?

Thanks.

Scott is going to take the first part -- he'll talk about StubHub and Classifieds.

Then let me take the second part of your question.

This was on margin on StubHub and Classifieds.

Yes, so what we've done this quarter is essentially double-click on Classifieds, Marketplace, and StubHub, and the way we run them, which is for both StubHub and marketplace on a GMV basis, and for all three on a revenue basis.

That's how we run the Company.

And the underlying expenses, we run as a portfolio.

And we deploy capital in that way, between business units to optimize across our portfolio.

And so, we won't be at this time giving a double-click on margin now or going forward.

Let me take your question -- (multiple speakers) let me take your question just on international, in the context of the macroeconomic environment.

I would say that there are two things to note.

The first is that the strong dollar as Scott pointed out, obviously has a translation effect, but it equally has an operating effect.

We have a strong cross-border business.

The continuing strengthening of the US dollar has really impacted the exports of US goods, which was one of our biggest export corridors.

So the strong dollar is both a translation impact, and it is certainly underlying on an operating impact.

And our trade flows are not purely balanced.

So it's helped our China business somewhat paradoxically, in some of our import corridors, making those goods seem cheap.

But it doesn't net out to zero.

In fact, it's been quite a significant headwind, starting last year when the dollar started to strengthen.

Vis-a-vis just the overall macroeconomic situation, I guess, what I would say is -- right now, we don't -- we're watching it very carefully.

It's hard not to watch it, given what we have seen out of both earnings and out of the market.

I would say that in the fourth quarter, we were very happy with the holiday.

We had a very strong Cyber Five, and we started to see some small signs of softening in December.

We are not assuming any significant change in the macroeconomic environment.

But it's obviously -- we and every company is watching it very, very carefully.

So I'd say right now, FX is a much bigger operating impact, than overall market softening.

We don't have very much of a domestic China business for instance, but we are certainly watching that carefully, as I think every company is right now.

Yes, and Richard, maybe for the benefit of everyone on the phone, it'd probably be a follow-up question anyway.

Roughly speaking, as you know 60% of our business is international, with most of our exposure in euro, pound, Aussie dollar, and Korean yuan.

As we look at 2016 versus today's rates, on an average that would be about a 6% decrease across that basket of currencies for 2016, which would have about a 3% impact on our top line.

So that's how the top line anyway is architected and impacted, given our foreign exchange translation exposure.

And then, maybe just to go one more step further, as it relates to our hedging strategy.

As I have discussed previously, we are unable to hedge revenue in the [new eBay], and as such, our top line is heavily exposed to currency fluctuations.

But as I explained back in Q2 and a bit in Q3, we do utilize now different hedging instruments to economically protect net income.

And that program is designed to protect as much net income as we can.

And in the intent is to have minimal variation, versus guidance for EPS due to foreign exchange.

But that doesn't eliminate the effect of FX on a year-over-year basis, particularly for revenue as I called out.

And as rates change, we will feel the effect of FX, when comparing year-over-year.

Okay.

That's super helpful with respect to the guidance.

I guess, one quick follow-up.

Could you talk about the development of the advertising business?

It's certainly -- at the end of last year, you had launched quite a few native advertising products.

Can you talk about how that might scale over the course of 2016, and how much of a priority that might be, to sort of revive that business with eBay?

Yes.

It's important to us.

I -- we're very optimistic about things that we've done, such as promoted listings.

We are in a very, very early stage.

And in fact, we just really opened up the thresholds on that, based on the performance at the end of the last quarter, and it will grow over time.

It's not yet a material lever in our results, but I'm certainly optimistic about advertising.

We still have an enormous traffic and customer flywheel,162 million active customers.

And we do think there are other ways to monetize that.

And this is -- in keeping with what we said, which is we could throw a lot of money at short-term growth.

We are not doing that, because we are being disciplined about our investments, and we're investing in the platform, and in new business opportunities that we think will be important for eBay two, three years from now.

And this is one of those areas, for sure.

And you will see a lot of activity in 2016.

Okay.

Thank you.

Thank you.

Our next question comes from the line of Mark May from Citi.

Your question, please?

Thank you.

In terms of your revenue guidance for this year excluding the impact of currencies, just wondered if you could shed a little more light on kind of what you expect to be some of the key underlying drivers there, maybe the B2C versus B2B?

Maybe what your exceptions are for growth in Classifieds and StubHub?

Just trying to get a little bit more perspective on what your expectations are for the various segments of the business?

And then on listings restructuring, for the portion of listings that you have processed and enriched, if you will, I wonder if you could provide any updates or insights on the impact that's had on SCO and conversion rates and things like that?

Thank you.

Yes, on the first part, we are not going to break guidance out by segment.

We are going to keep it at the top level.

But I guess what I'd say is, I would expect -- our business is heavily skewed towards transaction revenue.

Obviously, it's the core business, and its take rate on transactions.

And that's implicit in this guidance.

I think we'll see growth in marketing services, but it's a relatively small part of the portfolio, compared to transaction revenue.

And I would expect to continue to see reasonable growth from the components.

But it's not -- there is no major mix shift going on in 2016.

I think you should assume that it will follow the path, in terms of the components that have followed in 2015, roughly.

Second part of the question?

Sorry.

Oh, listings restructuring.

Yes, sorry, Mark.

Look, I -- this is a major effort, and we're a data-driven business.

So we don't do anything without measuring it, and ensuring that we are on the right path.

And this is consistent with what we've been saying which is, where we are organizing data, adding content to it.

Where we are exposing it in a new way.

We are seeing better traffic.

We are seeing better conversion.

It's just very small today in our ecosystem, and it will take time.

But I -- we all believe we're on the right path.

And I think, we measure, just to be clear, in data from the top of the funnel to the bottom.

We measure incoming users, new and existing.

We measure their conversion through the mid points of the funnel, and we measure ultimately their conversion to a transaction.

And all of that, we watch literally on a daily basis.

So if you think about the scale of what we have done, it's still very foundational.

We have made a lot of progress on the foundation.

But its manifestation through the pages that you are seeing, in the accompanying slides is really small.

But where we've done that, we're seeing better results.

And that's why we really believe that as this scales and moves out, we're going to drive leverage across the business.

Yes, Mark, I would also point to Devin's slides at the beginning of the presentation that we've posted.

We've gone from the amounts that we showed, going towards the 60% collection target here relatively shortly.

And we've increased the amount of that information that we've already received and processed that, and we've raised that from 28% to 37%, as Devin referenced.

And from that, the few pages that's come behind those, kind of give you a sense for how we are creating product experiences, and adding value through the customer reviews that have come online in a very significant way, through some of the buying guides, and some of the easier browsing and capabilities to highlight our spectrum of value.

And so, I think, while it's obviously not across our entire portfolio or listings base, increasingly, you're seeing those experiences when you search on eBay.

Thank you.

Our next question comes from the line of Heath Terry from Goldman Sachs.

Your question, please?

Great.

Thanks.

Just wanted to try to get a sense of -- as you are seeing these higher conversion rates, can you give us a bit of color behind what is -- where that's being driven?

Is it conversion of visitors to eBay into purchasers?

Is it an increase in the average basket size for your existing purchasers?

Are you primarily seeing reactivation among customers that had maybe fallen off of eBay during the issues from last year?

Just really trying to get sort of a better understanding, as to the details behind these conversions -- or these improvements in conversion rate and activity that you're seeing -- that you're seeing in the underlying business?

I'd say the one we're most focused on is improving traffic, and converting traffic to active buyers.

And I'll give you a really practical example of where that's happening.

Historically, we would send people to a search results page.

And that search results page, depending on the hundreds of millions we have, was of mixed quality, and we'd get some conversion of that.

Now we are sending people where we have the pages, to a structured browse page like the ones that are in the accompanying slides.

And we know we're getting better conversion of traffic to active buyers in those pages.

Equally, we're watching very carefully things like SCO.

I mean, we have a limited number of pages still, but we're watching, where are those pages ranking?

What kind of traffic are those pages generating?

And ultimately, does that traffic convert to active buyers?

And we like what we see so far.

We believe we are on the right path, and it's intuitive.

It's not a hard reach to look at the page and say, there is great inventory.

It's a great customer experience.

For a while people have asked me, why is eBay complicated, and why is it hard to navigate, and why aren't there things like product reviews?

Well, increasingly now, they are.

It's not hard to navigate.

These pages are really elegant.

They are converting better, and we're beginning to get really quality content on them, because we now understand products, and not just listings.

So I just gave you two pragmatic examples.

There are others.

But those two alone are important.

They are major levers on our business.

Great.

Thank you.

Thank you.

Our next question comes from the line of Carlos Kirjner from AllianceBernstein.

Your question, please?

Thank you.

I have two related questions.

If you look at your user and GMV growth trajectory, there is a clear break in the trajectory in May 2014, which one could plausibly attribute to the password reset issue -- it seems to be behind the Company.

And the SCO issue, which seems to be still an issue.

The first question is whether there has been any other aspects of the business that deteriorated, and have contributed to the deterioration of FX-Neutral GMV revenues?

Or whether these two are -- or whether the SCO issue is the main issue?

And secondly unrelated, forgive me if I am a bit deaf, but I hear you saying, you are making progress, and believe that this structured data initiative will work, based on your early experience.

I see a slide saying that structured data will covers 60% of available listings by end of February.

But yet you say, that we shouldn't expect impact of the strategic initiatives to -- in the foreseeable future.

Will we see any benefit from structured data on traffic acquisition in 2016?

And is that in your guidance?

Thank you.

Thanks for the question.

I would say, we don't talk about May of 2014 any more, because we're -- however many months on, and the world has moved on.

I would say nothing fundamentally has changed, but our strategy is different.

Our investments are different.

We are making a major transition of the business.

So we don't point the finger at any one event.

I would just come back to, this is exactly what we -- what's happening with our business is remarkably like what we said over the summer and six months ago, which was we're going to focus our strategy.

We are going to move away from commodity, towards what's unique about eBay.

We are going to make catch-up investments that probably historically should have been made but were not, in order to compete over the long run.

We are going to hold -- try to hold our growth to low to mid single-digits, while keeping our margin and cash flow high, and returning capital to shareholders.

All three things -- three of those things are still true.

And the reality is that, as we've said, many of these investments are not quick hit investments.

We are re-platforming eBay.

60% of coverage of listings is the first part of the equation, not the end of the equation.

That's the raw material and the foundation to allow us to build product experiences.

And it's those product experiences which change traffic and conversion.

So I would say that right now -- and we watch it carefully.

I don't assume that the world will continue exactly the way it is.

We watch everything very carefully.

But right now, the plan that we laid out really clearly, I think six months ago, we believe it's working, and we believe we are on that plan.

And we believe that over time, eBay will get more competitive, and that will manifest itself in better growth and better competitiveness.

Thank you.

Thank you.

Our next question comes from the line of Brian Nowak from Morgan Stanley.

Your question, please?

Thank you for taking my question.

I had two.

The first one is to go on the 2016 operating margin guidance.

I think, and maybe my notes are wrong.

I guess, I thought in June, the margin guidance was 31% to 35%.

Now you are saying 31% to 33%.

I guess, I would just be curious about what kind of changed, to kind of change the top end of there?

Is that FX?

Or is -- are you having to spend more on something else than you expected to in June?

And then the second one, on the international piece, I'm curious -- I know last quarter, you mentioned Germany and the UK had been growing slower than the overall average.

Can you talk about how fast Germany and the UK grew in the fourth quarter, relative to overall international?

Thanks.

Yes.

So let me take the first one on margin rate.

We did say 31% to 35%, and we did go 31% to 33% today for our 2016, with the midpoint being around 33%.

We had, from earlier this year -- or middle of last year, I should say, the major difference is about 1 point of foreign exchange movement between then and now.

And so, really apples-to-apples, we'd be at about the same center point of margin rate, but 1 point of degradation from foreign exchange.

What I would highlight is that underlying that, there has been significant movement.

And we continue to try to drive productivity to be able to fund our investments in the things that we've been talking about.

And with regard to the UK and Germany, they were -- they did not -- they performed in line with the portfolio.

There was no outlier in performance.

In fact, they picked up a little bit this quarter versus last.

Great.

Thanks.

Thank you.

Our next question comes from the line of Douglas Anmuth from JPMorgan.

Your question, please?

Hi.

This is actually [Dave] in for Doug Anmuth.

So our question is based on -- is on the sales and marketing spend.

So in 2016, do you guys have any plans to step up the spend?

And related to that, is the product where you guys wanted it to be, to market it more?

And a second follow-up question is, are you guys going to be moving towards the contra, as you guys have been doing in the past?

And that's my question.

So let me take -- that's all three good questions.

Let me take them in turn.

So first of all, on the product.

As I said in my remarks, I'm really excited about this year, because I do believe that with some of these foundational investments in place, you're going to see the product evolve relatively quickly, for buyers and sellers.

So the product is never -- it's never static.

It's always evolving, but I think this will be a year of particular innovation for us.

We have a very exciting pipeline, based on all the things that we have been talking about.

Based on our ability to now understand products and persistence, we believe we can generate a really differentiated experience, that shows our customers what is unique about eBay -- doesn't talk about it, but shows them.

So I do think this will be a year of rapid innovation in the product experience.

Second, is sales and marketing.

There is no -- a couple things.

First is, we are going to start almost immediately, pivoting some of our spend up the funnel, to what we would call more traditional brand spend.

That doesn't mean television.

It just means, instead of selling you an iPhone or a sweater, we're going to talk more about eBay and the brand.

Whether or not we ultimately spend more in that, will depend on what we learn from doing that.

We do believe that brand is more important, that we have to more sharply define our brand, in an increasingly crowded environment.

And you will see us start to do that.

There are no plans to significantly change our spend, but how we spend will begin to change.

In fact, it is already is changing.

Final comment is on contra.

There is no -- we are very disciplined about contra revenue.

I would say that we spent a bit more on that, versus a little less on marketing in the fourth quarter, because holidays become very deals driven.

And this holiday we participated in deals aggressively across electronics, fashion, home and garden, and we got good results.

But that does cost some mix shift in spending more in contra.

I would expect those numbers to go back to historical averages.

There is no break from trend, other than we plus up in the fourth quarter, because that's the way shoppers are shopping.

Thank you.

Thank you.

Our next question comes from the line of Eric Sheridan from UBS.

Your question, please?

Thanks for taking the question.

I guess, two.

One, when you start thinking about the cadence of investments you are making in the business -- I guess, this one will be for Scott, how do you think about the cadence of investments, as we move through the year first half versus second half, and whether we might see more leverage against investments in the second half of the year?

Or really should we be prepared for a full year impact on the leverage side from investments?

And I guess for Devin, one on marketing efficiency long-term.

You've talked a lot tonight about traffic sources, and improved channels, even referenced social.

Have you learned anything, as you continue to evolve the platform about how marketing efficiency might evolve for eBay long-term?

Thank you.

(Multiple Speakers) Okay.

So I'll -- real quick on the cadence.

I would say, the one cadence aspect I would call out, maybe a couple.

First off, within our G&A cost bucket, we're going to have two more quarters of essentially no year-on-year comps in the baseline for stand-up costs.

And so, there is going to be, before we see productivity in G&A, we are going to have a relatively difficult comps as we stood up to the company, without any baseline comparisons.

I think what you could expect in product development is a continued pace of investment in line, with the percentages of revenue that we've shown over the last, let's call it 12 to 18 months, but certainly the last 6. And sales and marketing, I would call out the pacing, and refer back to the earlier response around contra.

In some quarters, we may decide based on the returns that we think we can get, for the strategies that we're deploying on marketing, that some more marketing ends up in -- out of the expense line, and into contra.

In other quarters, it may be the opposite.

But I think within the ranges that we talked about last year, I would expect that to be -- not larger to Devin's point, than what we have seen so far.

And I'll take the second part.

And just to close out on contra, just note, I have said this before, but I think it's important.

We have a playbook on contra, and we try not to deviate from it.

Which is we spend on acquiring customers, when it makes sense to spend on acquiring customers.

I am not sure all companies in this environment play that same playbook.

But we could have bought another point or two of growth.

We just don't do that, because we don't think it creates value over the long-term.

So for us, contra is one of the weapons we deploy, but we do it carefully.

Because it's easy to show growth, but it's not easy to create value.

And those are two different things.

On marketing efficiency, there is a couple of puts and takes.

So every year, we try to pick up marketing efficiency.

I target my marketing teams with significant basis point improvement in efficiency, of the way we spend our significant marketing expenditure.

Our most efficient marketing spend on an ROI basis is paid search.

But that we don't believe over the long run, we can be tied only to paid search.

So we are spending into less efficient channels to build new channels in the future.

And I point to social as a great example.

We are on 14 channels.

None of them today is as efficient as paid search, but it's diversifying our traffic mix, and we're working on making them more efficient over time.

We think it's the right thing to do, even though it's making us less efficient in the short-term, has a mix effect.

The other thing I'd say is, we watch the competitive landscape really carefully.

It's really important that we maintain eBay's share of voice.

And in the last couple of years, it hasn't got less competitive.

It's gotten more.

So while we pick up some gains in efficiency, I don't see a lot of leverage coming from marketing.

I suspect we will want to spend more over time, as our product experience improves, and we want to bring more and more people to a better eBay experience.

So those are some of the puts and takes.

The net being, I don't expect in 2016 to see a lot of leverage on the marketing line.

Great.

Thank you.

Thank you.

Our next question comes from the line of Robert Peck from SunTrust.

Your question, please?

Hi.

This is [Kunal] for Bob.

Thanks for taking the question.

A couple of questions actually.

One is the structured data, and at 38% coverage, currently going up to 60%, how much of the GMV does that typically represent?

Do you know the answer to that, Scott?

If we go to 60%, that's of listings, I don't know, if we know offhand --

Yes.

The way I would think about it is, we are talking a percentage of relevant listings.

But there is probably 10%-ish that aren't relevant But that aside, I think you can kind of use this as a guidepost of GMV.

Yes.

I don't think -- I don't think -- we could check that number, but I don't think it's that different.

I think when we talk about relevant listings, the GMV roughly follows the relevant listings.

Yes, Kunal, and maybe to go back to one of the earlier questions, I'd point back to -- that really is an input metric.

So then us processing that information, and turning out then a different product experience that ends up on search engines in a way that brings the traffic, which would drive active buyer increase, and it brings the GMV.

And so, we're not tied to 60% to -- yes, 60% of our GMV is going to be covered.

60% of the listings roughly speaking GMV, is covered with a catalog, at the end of this process, halfway through the year.

And then a portion, would then have been processed.

And now, if you will, in the wild, and out there being indexed in Google or other search engines for users to find and access.

Okay.

Great.

And quick question on the share repurchases.

Based on the run rate in the second half of 2015, to change -- you are probably guiding broadly to about $2.3 billion of buybacks this year, again based on market conditions.

What is the limitation on the number of shares you can actually buy back in the first two years post the split?

Yes, a couple of points.

Our guidance includes the fact that we expect to be buying back about at the same rate, as the last two quarters each quarter, and we expect to also be buying back the dilution offset.

And so, it's maybe in a range of what you are talking about.

We have a $1.8 billion remaining in our existing authorization.

There is nothing precluding us from asking for more.

Look, we have a limitation in the first two years of -- to protect the tax-free nature of the spin of about 20%, a little bit less than 20%, in that range.

And that would be our guardrail for the first two years.

Okay.

Great.

Thank you so much.

Thank you.

Our next question comes from the line of Mark Mahaney from RBC capital.

Your question, please?

Hi, guys.

This is Jim Shaughnessy stepping in for Mark.

One quick question from us around StubHub revenue.

I am just obviously seeing a nice pickup here.

Wondering your thoughts on the sustainability of that growth rate, and how we should think about that going forward?

Thanks.

Again, we are not going to guide on the segment -- on the components of it.

But I would just say, StubHub is a great business.

It's a leader in its category.

It has opportunities to expand internationally.

It is increasingly partnering with leagues and teams to move from secondary opportunistically into primary, and it's a great business.

So I would not expect that -- I mean, these are, obviously, very, very strong growth rates this quarter.

There were, as we said, some unique things.

There was the pickup on the back of the product changes.

It was a very strong World Series.

It was a strong concert landscape.

StubHub also bounces around quarter to quarter, based on the events.

It's much more choppy than eBay, just because it sort of depends what the match-up is in the Super Bowl, and what the events landscape is.

And it was a very strong events landscape.

So I would expect StubHub to keep growing.

I am not sure I would expect it to grow at this rate.

But it's a good business, and we really -- we're proud of the fact that we have been able to grow StubHub, using some of the eBay traffic flywheel over the last several years.

And it's a real good business, just like Classifieds is.

Operator, we will take one more question.

Certainly.

Our final question comes from the line of Brian Pitz from Jefferies.

Your question, please.

Hi.

Thanks for taking my question.

This is Stan Velikov here for Brian.

Active buyers growth for (inaudible) in Q4, it's about 5%, while sold items growth, accelerated [3] points sequentially to 4%.

What were the puts and takes here, and how should we look at these metrics going forward?

And also, what part did India play in the active buyers [trend stabilization]?

Yes.

So [in active] buyers.

India plays a big role in our overall active buyer base.

But on a Q over Q basis and in the growth perspective, it didn't have a material impact this quarter.

Last quarter we called out, it helped a bit.

This quarter, it didn't necessarily accelerate further.

The way I think about active buyer growth is, it's been massively impacted by two things over the last two years.

One was password reset, and I think that's largely behind us.

And I think the other is SCO.

SCO has been explained in many different forums, has an over-indexing impact on acquiring new users.

And thus, has depressed the top of our funnel, and reduced our overall active buyer growth over the last couple of years.

And that's why the structured data and SCO initiative is so important, because it will work our way back up on that metric.

On sold items.

Sold items, the change this quarter was just driven primarily by a higher mix of electronics sold during the holiday.

This tends to go up and down, depending on everything from country and seller mix, to hot items.

So it's relatively difficult to predict and correlate.

And just to explain it for Q4, it was higher degree of electronic items.

Thank you.

Thank you.

Thank you.

This does conclude today's program.

Thank you, ladies and gentlemen, for your participation in today's program.

You may now disconnect.

Good day.