eBay Inc (EBAY) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the eBay third-quarter 2016 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to hand the floor over to Selim Freiha, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the third quarter of 2016. 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 Scott's commentary during the call. We've also included a structured data update in the appendix. All revenue and GMV growth rates mentioned in Devon 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 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, including expected financial results for the fourth 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 sec.gov.

You should not rely on any forward-looking statements. All information in this presentation is as of October 19, 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. We delivered good top- and bottom-line financial results in Q3, led by consistent performance in our core eBay platform and strong growth from StubHub and classifieds. We made progress on our strategy, began activating our new brand marketing messages, and we readied our organization to execute in the upcoming holiday quarter.

Overall total GMV was up 5% for the quarter, while revenue was up 8%. GMV decelerated modestly, while revenue accelerated a point. GMV deceleration was driven primarily by StubHub lapping last year's product changes and in part by the shift of marketing spend to longer-cycle brand investments on our Marketplace platform. The revenue acceleration was driven primarily by lower contra-revenue spend and a VAT settlement.

Active buyer growth was 3%, and we added over 1 million additional buyers to our platforms in Q3. GMV on our Marketplace platform grew at 4%, while StubHub grew volume at 23%. And our classified platform grew revenue at 14%. Finally, we repurchased $0.5 billion of our stock, and we closed several key acquisitions that we announced over the last several months.

On our Marketplace platform, we continue to make steady progress against our strategy to drive the best choice, the most relevance, and the most powerful selling platform. In Q3, we signed several new strategic brand partners, including Mattel, Fender, Volcom, and Magic Chef, enhancing our efforts to drive more choice for our consumers. Using our data, we are also increasingly reaching out to our sellers to prompt them to source and list in-demand goods where we see gaps in supply.

And finally, in the past several months, we've launched several new curated vertical experiences in fashion and home and garden. Most recently, we announced eBay Collective in the US, a shopping destination which provides consumers with curated inventory for antique, modern, and contemporary furniture and fine art. This is similar to the approach we took earlier in the year with the launch of our curated wine category on eBay and it's an approach we'll seek to replicate going forward where we see the opportunity to do so.

I'm particularly excited about the improvements we are making to drive the most relevant shopping experience for our consumers. We continue to process more data from our structured data initiative, which enables us to have better insight into the inventory on our site and to build better user experiences.

In Q3, we increased the percentage of structured data listings processed to 48% of relevant live listings. The ongoing growth and penetration of structured data is enabling us to accelerate the pace of new browse and product page launches, and we ended Q3 with over 100 million pages built on structured data that showcase our inventory in ways that were not possible just a year ago.

We are further enhancing these pages by introducing new features, such as multiple top picks, product comparisons, and limited-time deals. And we continue to see significantly higher conversion.

While these early results give us continued confidence in our strategy, our new pages are currently being exposed to a very small fraction of our traffic. The majority of our business today comes through our organic on-eBay search funnel. Over time, we expect to start introducing these new experiences to our organic traffic.

Now while we are moving at an urgent pace, you can expect us to take an intelligent approach to this transition to ensure that we don't disrupt our customers along the way.

Another area I'm excited about is mobile. Since the launch of our redesigned eBay mobile apps in May, customer reviews have trended higher as we have significantly improved the speed and the usability of our apps. And our ability to rapidly iterate on user feedback has enabled us to keep this positive momentum going.

We recently released the fifth update to our new mobile experience in the past five months. And this cadence of improvements is translating into better growth, with Q3 being the second quarter in a row of mobile growth acceleration.

We are also beginning to leverage artificial intelligence to power unique commerce experiences for our users. Yesterday, we announced the beta launch of eBay ShopBot on Facebook Messenger, a personalized shopping assistant that enables people to find the best deals from eBay's 1 billion listings. Our vision is to make shopping with eBay as easy as talking to a friend, whether you're looking for something specific or you are browsing for inspiration.

EBay continues to be one of the leading consumer brands in the world, having recently been ranked number 32 by Interbrand in their 2016 Best Global Brands report. This is the same position that eBay achieved in 2015 and we view this as positive because the recent ranking reflects the first full-year post the PayPal spin.

With that said, we've also been doing considerable work to sharpen our brand. During Q3, we began to activate our new brand messages by running several marketing pilots externally.

We continue to shift more of our marketing resources towards top-of-the-funnel consideration and will further ramp our external efforts during the upcoming holiday season and into 2017. This includes plans to advertise on TV in the US and Europe during this holiday season, which we have not done since 2014.

Finally, we continue to execute on our plans to deliver the most powerful selling platform. In August, we launched Seller Hub to all US sellers and have recently begun the process of rolling that out to international markets.

Thus far, over 0.5 million sellers have used Seller Hub, and we're seeing early improvements in key listing metrics and strong adoption of marketing features such as our promotions tool. And we are steadily expanding our promoted listings product, enabling more and more sellers to bid their inventory for placement in search results.

We also today announced the launch of an entirely new set of APIs, making it simpler for our developers and sellers to rapidly integrate with eBay and onboard all their inventory using retail and industry standard practice.

On the consumer selling side, we continue to simplify selling on eBay. We recently began rolling out our simplified listing flow to a portion of first-time consumer sellers. While still early, we are seeing better completion rates and improved listing quality.

We are also seeing strong demand for our assisted selling service eBay Valet. We now have drop-off sites live in 1,700 FedEx locations, and we've made several improvements to enable a better user experience, including upfront value estimation and item eligibility. And in September, we launched Quick Sale, which enables consumers to trade in their mobile phone with transparent pricing, taking advantage of mobile phone industry upgrade cycles.

StubHub continues to innovate and execute against the large and increasingly global market opportunity. The team continues to drive innovative user experiences, expanding our virtual reality technology to 55 total venues, which represent over one-third of ticket sales on our native app platform. We also recently launched our blended primary and secondary ticket experience for the Philadelphia 76ers, and launched the ability for users to receive support through a Skype chat bot.

Growth began to slow in the quarter as we started to lap the product changes we made last September and our comps will get more difficult from here. However, we believe our strategy of expanding internationally and selectively tapping into the primary market will serve us well over the long term.

Our classified platform continues its good growth, driven by strong vibrancy metrics across our major markets, increased engagement with our native mobile apps, and continued strength in the motors and the real estate verticals across our key markets. And we are working to leverage all three of our platforms to drive great consumer experiences.

The eBay and Gumtree inventory integration effort that we launched in Australia in Q2 show good results, and we'll now roll out the integration of core inventory into our classified sites in several other markets. We also began testing ticketing inventory integration between Kijiji Canada and StubHub. We envision tying our strong eBay assets closer together over time to enable a more unified experience for all of our consumers.

In summary, we are making meaningful progress on our strategy while delivering good financial results. Re-platforming a business of our size and scale takes time.

However, our pace of innovation is accelerating. We are increasingly using structured data and artificial intelligence to transform shopping on eBay, delivering more personalization capabilities, continuing to iterate our mobile experience, and bringing more unique inventory and categories to our customers. We've got more work to do, but I'm confident we are on the right path.

Now let me turn it over to Scott and he will provide more details on our Q3 results.

Thanks, Devin. In Q3, business performance was stable and we delivered good financial results while executing on our strategic priorities. StubHub and classifieds continued growing double digits and the marketplace improvements we saw last quarter are still evident in mobile, C2C, and SEO.

As we reflect on the last nine months, we remain confident in our strategy and we continue to make progress. During my discussion, I'll reference our earnings presentation, beginning on slide 4.

In Q3, we generated $2.2 billion of total revenue, $0.45 of non-GAAP EPS, $617 million in free cash flow, and we repurchased $500 million of our stock. In addition, we are raising the full-year guidance on revenue and expect to be in the middle of the previously communicated non-GAAP EPS range.

Let's start with Q3 active buyers on slide 5. In the quarter, trailing 12-month growth was down 1 point to 3% year over year. The quarter-over-quarter deceleration was driven by lapping last year's increased marketing spend in India.

On slide 6, we enabled $20.1 billion of GMV in Q3, up 5% versus last year, decelerating 1 point versus prior quarter, driven by StubHub and the US Marketplace platform. By geography, the US generated $8.4 billion of GMV, up 3%, while the international delivered $11.7 billion of GMV, up 7% year over year.

Moving to revenue, we generated net revenues of $2.2 billion, up 8% versus last year, accelerating 1 point versus Q2. We delivered $1.7 billion of transaction revenue, up 8%, and $470 million of marketing services and other revenue, up 10%.

Transitioning to our Marketplaces platform on slide 8, Q3 grew 4% year over year, rounding down a point versus Q2. US GMV decelerated as we shifted marketing spend to more brand awareness, which tends to have a longer payback as we start to influence consideration. International GMV improved slightly quarter over quarter, rounding up a point.

Total Marketplace revenue was $1.8 billion, up 5% year over year, a 2-point acceleration versus prior quarter. Transaction revenue grew 5%, up 3 points quarter over quarter. This acceleration is attributed to reduced marketing incentives that show up in contra-revenue along with the VAT settlement. Marketing services and other revenue grew 5%, decelerating 6 points versus Q2, driven by tougher comps from the PayPal operating agreement.

Moving to slide 9. StubHub had another strong quarter, delivering 23% GMV growth and 32% revenue growth, driven by strength in concerts, theater, and major league baseball. In the quarter, we closed both the Ticketbis and Ticket Utils acquisitions, adding to our international presence and improving seller tools.

Moving to slide 10. In Q3, classifieds revenue grew 14% year over year, a 1 point deceleration from last quarter. The automotive and real estate verticals in our key markets remain strong, while ad revenue growth modestly decelerated.

Our key engagement metrics, like visits, replies, and listings, remain healthy. And we will continue to innovate across our mobile apps, which are increasingly more important as traffic continues to shift to mobile.

Turning to slide 11 and major cost drivers. In Q3, we delivered non-GAAP operating margin of 29.9%, which is down 200 basis points versus last year. The impact of a strong US dollar pressured margins 200 basis points. The foreign exchange impact was felt across all spend categories, so I will focus my comments on the operational dynamics of our expenses.

Roughly half the increase in cost of revenue was driven by the mix of our faster-growth platforms like StubHub, which have an inherently lower gross margin. Q3 sales and marketing expense increased slightly as we shifted spend away from seller incentives that show up in contra-revenue and redeployed to top-of-the-funnel channels like brands. Product development is an area where we have been investing more heavily and half of the year-over-year increase is from our work on the Marketplace product experience. G&A expense was down roughly 80 basis points year over year from strong operating leverage.

Moving to slide 12, in Q3, we delivered $0.45 in non-GAAP EPS, up $0.02 versus prior year, driven by revenue growth in the net benefit of share repurchases, partially offset by the impact of a stronger US dollar. In Q3, GAAP EPS was $0.36, down $0.09 versus last year.

The drop in GAAP EPS is driven by last year's investment gains in Snapdeal in [Beijing]. As always, you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation.

On slide 13, in Q3, we generated free cash flow of $617 million, up 34%, largely due to lapping separation-related costs incurred last year. We remain on track to deliver our full-year guidance of $2.2 billion to $2.4 billion. CapEx was 8% of revenue in Q3 and our full-year guidance remains 7% to 9%.

Moving to slide 14, we ended the quarter with cash, cash equivalents, and non-equity investments of $10.4 billion, of which $2.7 billion is in the US. In Q3, we repurchased 16.5 million shares at an average price of $30.29 per share, amounting to $500 million in repurchases. We have completed share repurchases of $2 billion this year or roughly 115% of our year-to-date free cash flow.

We ended the quarter with $2.3 billion of share repurchase authorization remaining. And we are on track with our full-year plans for share repurchases, which will represent $500 million for Q4.

Let me remind you about our strategy and overall philosophy on investments. We regularly review and actively manage our investment portfolio to ensure that our investments support the Company's strategic direction and complement our disciplined approach to value creation, profitability, and capital allocation.

With this in mind, we recently sold most of our stake in MercadoLibre. We remain committed to our customers in Latin America, and we have signed a strategic agreement with MercadoLibre that is designed to advance cross-border opportunities for our sellers who are targeting buyers in Latin America.

The sale has enabled us to realize roughly $1.2 billion of gross proceeds. We are currently working through the exact US and international tax implications, including the timing of cash payments, which could have an impact on our free cash flow. We intend to use the net proceeds in a manner consistent with our capital allocation policy.

Now moving to guidance on slide 15. For Q4, we are projecting revenue between $2.36 billion and $2.41 billion, growing 4% to 6% year over year. We expect non-GAAP EPS of $0.52 to $0.54 per share, representing 4% to 8% as reported year-over-year growth. The EPS growth is driven by revenue growth and the net benefit of our share repurchase program, partially offset by the impact of a stronger dollar.

Based on Q3 performance, we are raising revenue guidance for the full year. Revenue is now projected to be $8.95 billion to $9 billion, growing 6% to 7% year over year. Our non-GAAP margin guidance range of 31% to 33% is unchanged. However, we continue to expect to be at the low end of this range.

We are raising our full-year non-GAAP tax rate slightly to 19.5% to 20.5%. And now we expect our non-GAAP EPS to be in the middle of our previously disclosed guidance range of $1.85 to $1.90 per share. Due to the sale of our stake in MercadoLibre, we are raising our full-year GAAP EPS guidance to $2.22 to $2.32 per share.

As we enter Q4, I'd like to take a moment to reflect on 2016. We started the year expecting to grow revenue in the 2% to 5% range. Year to date, we have executed on and aligned our investments behind our strategic initiatives while increasing our revenue growth outlook to 6% to 7%.

The Marketplace platform began seeing green shoots from our replatforming. And while the efforts are positive, they have not yet materially impacted the trajectory of the overall business.

StubHub enjoyed strong performance over the past three quarters and has now started lapping the product changes from last September, which will carry into next year. Classifieds continued its double-digit growth while investing in mobile innovation. And we started lapping the PayPal operating agreement revenue in July, which puts pressure on our marketing services revenue growth.

While accelerating our revenue growth this year, we increased investment in productment and brand to invest in future growth. That, combined with our recent acquisitions and integrations, has been paid for with operating leverage in G&A and redeployment within marketing. And while we are relatively well protected on net income due to our hedging program, the stronger US dollar has driven roughly 150 basis points of ongoing margin compression year over year.

Throughout 2016, we continue executing on our disciplined capital allocation strategy. And we have been acquisitive in the areas of geographic expansion and tech and talent while returning $2 billion worth of capital to shareholders in the form of share repurchases. Since the separation with PayPal last July, we have repurchased $3.2 billion worth of our shares or roughly 11% of gross shares outstanding.

Our strong ongoing cash flow, along with the cash from the sale of our stake in MercadoLibre, allows us to continue our disciplined capital allocation strategy, including return of capital to shareholders through share repurchase. In closing, we are focusing on the holiday season in Q4 and continuing to lay the foundation for 2017 and beyond.

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

(Operator Instructions) Ross Sandler, Deutsche Bank.

First a high-level question, then a follow-up on the buyer growth. The high-level one is I think most investors understand that these replatforming exercises take a number of years, as we've seen with other companies who have gone through the same thing. And you guys have said that the aspirational goal at the end of the days to get back to kind of double-digit e-commerce-like growth rates.

First a high-level question, then a follow-up on the buyer growth. The high-level one is I think most investors understand that these replatforming exercises take a number of years, as we've seen with other companies who have gone through the same thing. And you guys have said that the aspirational goal at the end of the days to get back to kind of double-digit e-commerce-like growth rates.

So as we look over the next year and you start cutting more traffic over to these higher-converting pages, when do you think we'll start to see the GMV growth start to pick up? Any color there would be helpful.

And then on the active buyer side, what are you seeing right now in the current quarter in terms of churn and new buyers coming in to get to that 1 million that you added in the quarter? Thank you.

Ross, I'll start and then I'll turn it over to Scott. As we've said I think consistently for the last year, this is a large effort to replatform our business. We have an amazing flywheel, but the replatforming is necessary to simplify eBay and to make it more relevant for our consumers and our sellers globally.

We feel very confident we are on the right track. Where we've been able to add structured data, where we've been able to build new experiences on it, now 100 million pages, we are very happy with those results. In fact, they are in line with exactly what we had hoped when we engaged in this initiative.

We've also said that it's not a light switch that you turn on or off. Because we have such a strong core business and so much of our traffic is organic through the core search funnel, it's a careful exercise.

And it isn't a switch that you just throw on. We've got to introduce these new experiences carefully because we have a high-converting high-traffic channel, which is the organic eBay funnel and the organic search channel. So we think we are on track.

And vis-a-vis GMV, one of the things I just note is that our business -- it's always been very difficult or impossible to look at GMV without revenue. We spend and subsidize at times. We do deals and promotions. We'll do that through the holiday.

As we said here, the US deceleration here was driven by a very conscious effort to begin to move our marketing spend into top of the funnel. As we start to introduce these new experiences and we think our customers like it -- and that's evidenced in higher conversion -- we think it makes more sense to spend up the funnel.

That does lengthen the timeline. That does mean you may move it from, say, a subsidized deal, which would've been GMV in the quarter, to a brand campaign, which doesn't tend to work that quickly.

But that's okay. We said we're doing this for the long term. We're building a moat around eBay's business and we are going to do this in a considered way so that the business is more competitive and relevant than it's ever been. And I'm really pleased with that. I think that's right where we want to be.

I'll turn it over to Scott and maybe he can comment on the second part of your question, which is the buyer question.

Ross, on active buyers, as you saw, we have 165 million active buyers. That's 5 million more than last year this time and 1 million more than last quarter. And that's 3% of trailing 12-month growth, a little less than a point of deceleration.

Specific to the deceleration, it is really driven by lapping a campaign we did last year in India to push the efficient frontier around CLV in that business. And the underlying cohorts of our major markets remain stable. New buyer acquisition is stable.

To Devin's point, it's not yet really seeing the acceleration from our structured data and SEO effort and what we are doing around the new platforming, but it's stable. And the retained and reactivated and GMV per buyer and those buckets and the retention curves also remain stable.

Thank you.

Carlos Kirjner, Bernstein.

I have one question. You guys mentioned in your comments that you intend to ramp up marketing in the fourth Q and forward on one hand. On the other hand, you also said that the number of visits or page views or users that are seeing the new browse pages based on structured data is still very small.

So why ramp up marketing if you are not -- if the new experience is going to be available just to a small portion of the traffic? I know -- are we right to -- could we conclude that this will change as you ramp up marketing? Or there is some other explanation? Thank you.

It's a good question, Carlos. I'd say two things. The first is that top-of-the-funnel brand marketing creates a halo around everything we do.

So whether or not you end up on that experience through the core eBay funnel or whether or not you end up on it through, say, Google's natural search results, we think it takes longer. But ultimately changing consideration of the eBay brand will yield benefits across all of our channels.

So that's a reason to start because now with 100 million pages out there, even if we did nothing to increase the exposure of that to the core channel, it would still yield benefits. Because there are a lot of people that end up on our site through, say, external search results.

But we are also beginning to open up more of the aperture of this holiday. In particular, through our category pages, through our landing pages, where a number of our holiday campaigns will drive people, we are certainly going to carefully but increase the exposure of the new pages to more and more of our traffic over time. That's the goal.

So I think that the brand benefit for us is really clear. We wish it yielded a 90-day payback, but brand doesn't tend to work that way.

Just to reiterate, what I love about our sharper brand positioning is there's been a lot of commentary about the functional gaps we need to close, i.e., we sell a lot of new goods. We sell a lot of in-season goods. 60% of all of our inventory arrives within 3 business days.

All of that is true, but that isn't enough. And I think what is really unique about eBay -- and remember, eBay is trying to be more unique, not more same -- is that everybody finds their version of perfect. And whether that means we have extraordinary millions of items of inventory that you can only find on eBay or whether it's we have the greatest deals and pricing power in some of our core more head inventory items, that's what's uniquely eBay.

It is in a more emotional shopping experience. It's a more resonant shopping experience. It's a unique inventory, and great, amazing deals experience. And too many consumers don't know that. So it's worth moving the marketing money, even if it has a short-term impact in not subsidizing deals. And that's the balance that we are drawing.

The balance we are drawing is delivering consistent and good financial results and beginning to pivot our marketing spend to build more of a moat around the very strong eBay brand. That's exactly what goes through our head when we consider how much to spend and where to spend in marketing and at what pace do we introduce these new structured data pages.

Thank you.

Eric Sheridan, UBS.

Thanks for taking the questions. Maybe one -- the first one following on what we were talking about based on Ross and Carlos's question.

When you look at the impact of structured data, even though it's still continuing to build, we've talked about the auto category before on the last two earnings calls. Is there any other sense you can give us about how other product categories are sort of acting?

Are there some where there's more benefit, some where there is less benefit, so we could understand a little bit about maybe some of the product category response to structured data across the broader platform?

And then second question on StubHub, would love to get your sense of the competitive landscape on StubHub. Seeing improved take right now for the second quarter in a row, want to understand what's driving that improved take rate and tie it back to competition. Thanks, guys.

Thanks. I'll take both of those. On the first part, now with 42% of live listings processed, we are covered across quite a few categories. And with 48% of experiences built on it, it's not -- we are not bound in specific verticals. We are across the board.

Remember: we are still out in largely external exogenous search, not in a core search funnel. But there are two metrics that matter, to make this super simple: traffic and conversion.

You know, when I look at the page versus the page it replaced, I can see that it's simpler, it's better organized, it shows off what's unique about eBay. But put aside what I can see, I look at data. And the data for us, as we said in my remarks, shows a significant increase in conversion.

So we took this page down; we put this page up. The conversion is significant. It's not you need a microscope to see it. It's meaningful.

Now I do suspect that as we get closer to better converting channels like core search, we won't maintain those conversion gains because we're basically competing against a better converting channel. But these are good experiences and the data shows that our customers like them and our customers are converting on these pages.

So it's across category. It's actually fairly uniform. I wish I could say it's really working in this, but not that. It's actually so far pretty uniform. It may prove not to be as we get more aggressive about introducing these experiences. But so far it's fairly uniform and the pickup in the data is fairly significant.

StubHub. So I think we feel great about StubHub's business. I think that they've made significant improvements to their brand, to their product, to things like ticket recommendations, to the revised StubHub brand campaign, to their select entry into the primary market, to some of the deals that they've done with leading franchises and teams.

You know, StubHub, we made some significant product changes last September, and the growth rate took off like a rocket ship. And we are facing that wall right now. That's the reality of the math. It doesn't change at all how we feel about their competitive position.

And remember, we also now have through the acquisition of Ticketbis have entered the international market. And we think that internationally, we are in the first inning of the secondary ticket market.

So competitively, we think we are doing great. We think that this is the leading secondary market and increasingly primary market ticket franchise. We think their competitive position has never been stronger than it is right now.

And the market opportunity -- we're going to face the math for another several quarters of the huge acceleration we had a year ago. But that doesn't change our view that this is a great long-term business that benefits from being part of eBay and we're going to grow it.

Heath Terry, Goldman Sachs.

Great, thanks. Just wondering -- not to harp on this whole take rate question. But to the extent that we did see a very small increase in the overall take rate in the Marketplaces business, and you've also sort of touched on the shift towards more brand advertising in the quarter, can you give us a sense of whether those two things are related, largely, if there is less utilization of some of the contra-revenue promotions to drive GMV growth that's implied by those two things?

Heath, a couple of points. First off, I mean, I think as we've talked about in the past, we always expect some degree of mix shift between geo, category, seller, type, country, etc. And quarter to quarter, I think we were up 10 basis points on transaction take rate for the Marketplaces business. So not a radical departure from the past or even year on year. I think it's relatively flat.

You know, when I look at the dynamics on contra, we've changed a -- we've been pushing the frontier of what we spend on, whether it's buyer coupons, seller incentives, inventory incentives quarter to quarter. And as we've talked about in the past, we kind of think about those as a bucket, whether they show up in -- of marketing spend -- whether they show up in revenue as negative revenue or positive revenue or in marketing expense.

And what we are really looking for is where we can drive growth, CLV, buyer acquisition, and those types of metrics. This quarter, we happened to shift away from the degree of buyer couponing and seller incentives and inventory incentives that we did last quarter. And certainly versus year over year, which had a positive impact on the overall revenue rate.

And then as Devin commented, the combination of that plus redeployment of lower marketing channel spends to upper really is starting the transition for us as we start the process of activating our brand.

And so to the extent that you are -- this GMV number that you're reporting now and the GMV growth number that you are reporting now is less reliant on that kind of contra-revenue promotion, I mean, is it fair or overly optimistic to characterize the GMV and GMV growth that you are seeing now as healthier than what you've seen in the last couple of years?

I think that's fair. We could go channel by channel, but I think as we think about CLV, it's not to say that we wouldn't spend contra in the future and certainly we continue to pulse it. But I think in terms of the GMV at baseline as you described it, I'd agree.

Just a quick wrapper on that. Everything we are focused on, it's not -- you've heard me say it before: it's not hard to generate GMV with a balance sheet. Subsidizing goods isn't hard. We're pretty disciplined about it. We only do it as a means to acquire customers and to grow the flywheel.

We are totally focused on things that create sustainability and differentiation in the business. The brand does that, the product does that. That's how eBay gets healthy over time and that's where we are spending all of our time and effort.

And if we can move away from lower-value subsidies to cycle that into things that have legs over time and really sharply differentiate who we are and what we do, we'll do that every time. And we won't be shy about doing it, even if it has a short-term impact.

Yes, and Heath, to put the GMV in context, the US was down a point really catching a round, and international was up a point. So in total, while we are down quarter over quarter a point, it's relative around the edges on the underlying GMV being stable.

Great. Thanks, guys. I appreciate the context.

Justin Post, Merrill Lynch.

I've got a couple questions. Devin, just thinking about structured data, just the timing. I think people -- I want to be patient, but want to think about when the Board or when shareholders could really think about when we really should see the biggest impact or when you will be in the sweet spot for that.

And then are there other initiatives in the pipeline beyond that if structured data doesn't turn out to have a material impact on GMV? Other things that you think are really important to point out as you look out the next couple years?

And then maybe if you can help at all, I'm just wondering about StubHub and classified margins versus the core. If you can give us any help with that. Thank you.

I'll take the first one and Scott can comment on the second. Keep in mind, structured data is an input, not an output. The way we've categorized our strategy is relevance, choice, and the best shopping experience. Structured data is an enabler of that.

So no, I don't think -- I think it's a sound bite to say we are hinging everything on structured data. Our strategy is to have a brand that's differentiated, to have inventory that's differentiated, and to have a simpler, more compelling shopping experience. That's a really simple way to describe it.

And all of those things are happening in earnest right now. So I think structured data is like a foundation of some of that. It's the scaffolding that we need to build on top of.

But it's not the sort of one thing -- one bullet that we've shot. And if that one bullet doesn't hit its mark, then our business is not going to be where we want it to be. I think we have a multipronged strategy. Structured data is an important foundational element, but it's an input, not an output.

Vis-a-vis timing, we'll say what we've always said, which is this will take time. The results are not a light switch. It's not going to be one quarter. We said that last quarter. It's not going to be one quarter where all of a sudden we just pop out the top. Because we're replacing high-converting pages, it will be a march. It will be a slower and steady march.

And we'll continue to deliver good results while we are doing that. We will continue to be disciplined about capital allocation while we are doing that. We'll continue to generate leverage for our shareholders while we're doing that. So I think it's been a consistent story since we started this.

Scott, you can talk about the margins.

Just a couple other things. We've pointed at mobile along the way. In Devin's prepared comments, you heard him talk about the continued acceleration. At this point, we are at 47% share. The feedback continues to improve on 5.0 and the growth is accelerating as well.

And then C2C, we've done a series of things that Devin laid out, many of them, in his prepared remarks. And while we are still shrinking, it's shrinking less so. And so those are just a couple of extra points around our strategy and initiatives that we are laying to drive future growth.

As it relates to the margin, you know what I would point to is -- what I talked about for cost of revenue is kind of the gross margin dynamics of StubHub having a bit heavier not only higher take rate, but heavier cost dynamics. But the underlying -- we don't really have segment margins, if you will, for the different platforms. So can't really comment on that.

Colin Sebastian, Robert Baird.

Thanks, guys. First is a follow-up. I wonder, Devin, if it's possible to put a finer point on the time frame when you expect to begin giving exposure of the new product pages to the on-site search traffic or at least describe the remaining hurdles in the way.

And then secondly, outside of the shift to more brand advertising, I think you both have suggested that there's been more engagement with social media channels. If you could talk about what feedback you might have from some of those initiatives. Thanks.

Thanks for the question. Vis-a-vis a more aggressive introduction of new experiences, it's already starting. It will certainly continue this quarter even through the holiday.

If you think about it, the least disruptive is exogenous through search channels. Then category and browse pages, which we're sort of introducing right now and you'll see us drive a number of holiday campaigns directly to those experiences for the first time. And then the final one, which is the biggest channel but the one that we have to be the most careful about, is the organic search channel.

So we're not going to do that through this holiday. We will do more category and landing pages. We'll do more holiday campaigns to take you to those experiences, but we're not going to mess around with our core search funnel as we get ready for holiday. You could expect us to start to do that next year.

On social [account], we are very aggressive about that. And by the way, top of the funnel, when we talk about brand marketing, I think it sometimes gets conflated with TV. TV is not the largest part of it. It's brand across all channels, including social.

So this quarter, we added an 18th social channel. We are working aggressively with multiple social channels, including what I mentioned in my remarks, launching a bot on Facebook Messenger. But we are advertising, and you'll see eBay brand messages in addition to the bottom-of-the-funnel call-to-action messages increasingly across major social and messaging platforms.

Okay. Thanks, Devin.

Douglas Anmuth, JPMorgan.

Thanks for taking the question. I have two I wanted to ask. First, Scott, just on the 4Q outlook, can you just talk about the revenue guide, the FX neutral 4% to 6%, and just some of the drivers there in terms of that being down from the 8% in 3Q. Obviously, a tougher comp on StubHub, but just hoping you can expand there.

And then second, I think last quarter you talked about having 10% higher conversion from SEO to product pages. Can you update that number at all for 3Q? Thanks.

Sure. You know, real quick, the 10% conversion holds. We continue to feel pretty good about that. So no real update on that.

Specific to Q4, the guidance as you called out was 4% to 6% FX neutral revenue growth, with EPS $0.52 to $0.54, up 4% to 8%. Specific to the revenue, this really implies underlying continued stability with a couple of dynamics worth noting.

First off, you called out one of them: the StubHub lapping. We'll have three months of lapping versus just a month of lapping in Q4, which will decelerate -- have an impact of decelerating our overall total revenue. And we have about a point of some nonrepeating VAT settlements in Q3 that I called out in my prepared remarks.

So those two will have an impact on the overall revenue growth that we called out. I would characterize the underlying revenue growth at 4% to 6% as relatively stable quarter to quarter.

And then we expect the initiatives to continue on the positive trajectory that we've called out, but not yet having this massive inflection point or a date that everyone is looking for. We continue to see progress. We'll continue to elevate the experience via structured data and the user experience. We expect to continue to see some benefits in mobile and C2C.

But -- and on really continue to focus on our strategic initiatives plus really lean in on our Q4 holiday plans. And then we'll talk more about 2017 in January.

Okay, thanks for the color.

Robert Peck, SunTrust.

This is Kunal for Robert. Question on MercadoLibre and the rationale for divesting that stake. You already have $2.7 billion of cash in the US. You are buying back about $500 million of shares every quarter. Could that indicate that maybe the Board or management is thinking in terms of maybe issuing a one-time dividend?

Yes, no. As I indicated in my prepared remarks, we've sold the majority of our stake in MercadoLibre. And if the [green shoe] is exercised, we'll have sold all of our stake in MercadoLibre.

And really, this is driven by the fact that we regularly review and actively manage our investments as part of our disciplined capital allocation strategy. The sale is going to enable us to recognize a significant gain. It will be about $1.2 billion of gross proceeds and about $700 million to $800 million of net gain. If the shoe exercises, that will be in addition to that.

This is a Q4 event and we are working through the US and international tax implications of this. The timing of the cash payments, which may impact free cash flow, but this does not change our capital allocation strategy, nor our relationship with MELI. We have a great relationship with them and we've actually signed an agreement with them to expand our relationship to help connect our sellers to Latin America buyers.

Thank you.

Mark May, Citi.

I think most of mine have been answered by now. But just going back to the Q4 outlook, just given all the focus on the Marketplace numbers and given sort of the changes that are going on in the quarter with StubHub, the decel, maybe if you could shed a little bit more light on kind of what your guidance assumes in terms of Marketplace, GMV, and/or revenue growth. Or maybe the inverse, giving us a sense of exactly -- or more of a sense of how much you expect StubHub revenue to decelerate.

And then a question on M&A. I think, Devin, you've talked about this in the past. My impression is that to the extent that you are looking at the acquisitions, they've been relatively small and kind of tuck-ins strategic. Has your view changed recently on that? Thanks.

First on your first question, the underlying growth assumptions, 4% to 6% for the total Company. About a point -- we expect about a point of StubHub deceleration and about a point of VAT deceleration -- lapping that we'll have to factor in.

We don't give guidance by platform per se, but realistically speaking, the way I would think about it is we are roughly stable quarter to quarter in our implied guidance.

Devin, I don't know if you want to take the --?

Yes. On the part of your question vis-a-vis M&A, nothing changes. We have a business that generates high free cash flow. We have a strong balance sheet.

We have been able to returning a meaningful amount of capital to shareholders. As you heard in Scott's remarks, we're going to likely continue to do that. And that still provides us the flexibility to do acquisitions where we see we can create value. And we won't hesitate to do that.

I don't think we've said a lot about big versus small. It's more about being disciplined about what we do. We wouldn't hesitate to do something larger if we thought that we could create sustainable long-term value in doing it.

And right now, we've built capabilities, particularly in areas like AI and a little bit of geo expansion, through small tuck-ins. And it's likely to continue.

But if we saw the opportunity to do something more meaningful, we wouldn't hesitate to do it. But we'll be disciplined about it. We don't swing wildly at things.

Mark Mahaney, RBC.

Thanks. The acceleration in international FX-neutral GMV growth, is there anything you'd call out from there? Any particular countries that may have contributed to that. Or do you view that really as more consistent with what you've seen the last couple of quarters?

And then secondly, the switch to the longer-cycle marketing campaign. Is there a time you want to put out to test whether that shift in marketing works? Is that something you are going to try for a year and then assess at that point? I guess the underlying question there is really how long will it take in order to figure out whether that shift in marketing strategy is working? Thank you.

On the first half of the question, international was really just rounding up a point. I wouldn't characterize it to be any different than the prior quarter. So to answer your question, no, I wouldn't flag anything.

Devin, on the markets?

Yes, Mark. Vis-a-vis marketing, we are a very measurement-oriented company, as you know. And the reason that historically we've been somewhat averse to moving our marketing up the funnel is because it gets harder to measure value. It's easy to measure value when you are marketing down the funnel and it gets harder as you move up. But that doesn't mean there is no value.

So we have a way -- we are going to do -- as we increase the amount of up-the-funnel brand marketing, we are going to do our best at measuring value. It certainly needs a longer time frame. I think it is at least a year in which it needs to be in the market to really resonate and start to shift the perception and consideration of the eBay brand.

And we're going to watch it. That's not the kind of thing you watch every day like you do down-the-funnel marketing, but we are certainly going to watch it carefully. We've got a measurement framework for it. We'll hold it ultimately to the same standard that we hold any investment we make.

But it is a little bit longer cycle than what we are used to. And it will take -- we will need to leave it on and have the discipline to leave it on over a longer time frame to know if it works.

Thank you.

Scott Devitt, Stifel.

Devin, just to beat a dead horse (technical difficulty), as you get on the back of the structured data transition, which does allow you to offer better experiences for consumers, you noted earlier that it won't show up in a single quarter, but over time.

And I'm just wondering if you think the outcome is going to be a GMV growth that's going to be sustained around current levels with these new experiences in place? Or do you have conviction that growth will improve, you just don't have a defined time horizon of getting there?

And then secondly, for Scott, have you put further thought -- has the Board discussed any further instituting a quarterly dividend? Thanks.

Look, I mean, obviously, we believe that the sum of the activity that we are doing can drive higher revenue -- GMV growth. We do believe that.

The time frame will be what it is in some respect and we'll be as aggressive as we can. And it will be a kind of slower burn in the sense that it isn't a one-quarter wire on. It will roll in as we roll these experiences in, which will be a build over quarters. But I don't -- we have certainly not changed our original philosophy that we believe that there can be higher growth in this business, given what we're doing.

Yes, Scott, we are not changing our capital allocation strategy based on the sale of the MELI asset. The reality is we have a pretty well clearly defined 2016 buyback that we'll continue to execute.

And then I would expect to some level that will continue in the future. But it's not going to -- it's not changing how we are thinking about capital allocation and our strategy around that.

Brian Fitzgerald, Jefferies.

Maybe two quick ones. On the Corrigon acquisition, how quickly does that type of tech get integrated? And then any updates on integration efforts with Ticket Utils and sales predict.

And then finally, on StubHub, what percentage of venues are you live in with the VR tech? And how should we look at rolling that out to further venues? Thanks.

Thanks for the question. On Corrigon, we have been working with Corrigon previously. And the answer is it's already wired on. If you look at Collective experience that we launched this week, it's actually using Corrigon to do background image improvement.

It's a great experience. If you haven't seen it, please go look at it. Just type Collective into eBay Search and go take a look at that vertical experience. That is using the Corrigon technology to in essence take seller images and improve them and remove the backgrounds and make them look just about museum quality. So the answer is we're already using it and will expand the use of that over time.

Vis-a-vis the other acquisitions like SalesPredict and Expertmaker, we are already starting to use that in the more backend part of the structured data initiative to create catalogs and taxonomies, which is happening with pace.

So all of these things -- almost all -- I believe all three of them we had been working with prior to buying them. And they are wired on now and they are -- they will come online with even more spectrum over time.

Vis-a-vis the VR rollout of StubHub, I think I had said that it's now 55 venues, which -- and we'll just keep marching down that path because customers are actually using it. I think we've got one of the best use cases for VR actually driving commerce.

And it makes sense. It's an immersive experience. It's a high ASP sale. And we're learning from that about how we might bring VR into more core eBay activities where immersion matters, where high ASP drives careful consideration of the visual image before purchase. So we like VR and augmented reality. And we think they're going to be meaningful in commerce and we want to be a leader there.

Great. Thanks, guys.

Thank you. Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and you may now log off and disconnect. Everyone have a great evening.