eBay Inc (EBAY) 2016 Q4 法說會逐字稿

Welcome to the eBay fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As reminder, this conference call may be recorded.

I would now like to turn the conference over to Selim Freiha, Vice President, Investor Relations.

You may begin.

Thank you, operator.

Good afternoon.

Thank you for joining us and welcome to eBay's earnings release conference call for the fourth 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 have also included a structured data update in the appendix.

All revenue in GMV growth rates mentioned in Devon and Scott's remarks represent FX neutral year-over-year comparisons unless they clarify otherwise.

This conference call is also being broadcast on the Internet.

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'd 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 first quarter and full year 2017 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 10K 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 January 25, 2017.

We do not intend and undertake no duty to update this information.

With that let me turn the call over to Devin.

Thanks, Selim.

Good afternoon, everyone.

Quarter four was a record quarter for us, highlighted by solid performance in our eBay business, which benefited from a strong market over the holiday season.

Overall total GMV was up 5% year-on-year.

Revenue was up 6%.

Active buyers grew to 167 million.

GMV on our marketplace platform grew at 5% year-on-year, a 1 point growth acceleration, while revenue grew at 4%.

Our StubHub platform grew revenue -- volume at 5%.

Our classified platform grew revenue at 13%, another quarter of double-digit growth.

Finally, we repurchased $1 billion of our shares, taking advantage of a share price that we do not believe reflects the long-term value of our Company.

In our marketplace platform, volume growth accelerated by 2 points in the US, while international growth was stable.

This holiday eBay was one of the top shopping destinations for consumers around the world and was the second most visited e-commerce site in the US.

We enabled over $5 billion of GMV in the US and over $14 billion globally in this period alone.

Performance this quarter was driven by a strong external market and initiatives that enabled us to extend the holiday shopping season later than in past years.

Looking at our key verticals, we saw particular strength in fashion, home and garden and collectibles and stable growth in electronics and auto parts.

We continue to see benefits from some of our key strategic priorities including mobile, C2C and our brand.

Let me touch on these areas in a bit more detail and give you an update on our structured data initiative.

Our mobile platform growth continues to reaccelerate driven by ongoing improvements we are making to the customer experience.

With the launch of our 55 update in October, our app reviews are the highest they've ever been.

Customers are responding positively to these improvements, leading to 3 points of marketplace mobile growth acceleration in Q4.

Our C2C business is recovering and Q4 was the first quarter of positive C2C growth in nearly three years.

Our efforts around simplifying the experience and tailoring pricing in markets like Germany helped drive positive results.

We also began expanding our early integration of marketplace inventory into our classified's platforms in several new markets.

From a brand perspective, we advertised on TV this quarter for the first time in two years, building on the work we did earlier this year to clarify our brand messaging.

While it's very early in our mission to sharpen and amplify the eBay brand, we saw good traffic growth from new eBay users in our key markets, which is a positive early sign.

Finally, in our structured data initiative, we grew listings processed to 55% in Q4, up from 48% in the prior quarter.

This progress has enabled us to add nearly 60 million unique products to our catalog this quarter.

Users have now generated more than 20 million product reviews in total.

We have over 180 million structured data pages live on the site.

Despite not aggressively pushing expansion in this holiday quarter, these pages continue to gain share traffic, now up to 15% of SEO traffic and 4% of total eBay traffic in Q4.

Our StubHub platform continues to be well-positioned as a leading global ticket marketplace.

Q4 was also a record quarter for StubHub, with strong MLB and theater performance, offset by lapping significant growth acceleration from last year and softer year-over-year NFL volume and a weaker concert landscape.

Despite this quarter's growth deceleration, StubHub's prospects in the US and internationally remain strong.

I believe we can continue to maintain our market leading position in the US and our acquisition and ongoing integration of Ticketbis is driving significant international growth.

Finally, our classified platform continues to enjoy double-digit growth with particular strength in key verticals such as motors and real estate and key markets like Germany, Canada, and the UK.

Taking a step back and putting Q4 in the context for the full-year, we have made great progress against our key strategic priorities: to drive the best choice, the most relevance, and a powerful selling platform while clarifying the eBay brand.

This strategy is the foundation that will enable us to transform the eBay experience and build a more resilient and differentiated business over the long term.

To drive the best choice for our consumers, we've adopted a retail focused mindset, more actively managing inventory and marketing around key retail moments.

We've also launched key integrations with several partners including InkFrog and BigCommerce enabling a broad set of small and medium-sized merchants to scale their businesses on eBay.

Sellers are responding to our efforts by bringing more relevant inventory into our marketplace.

We've seen accelerating growth in the number of business sellers on eBay throughout 2016.

Delivering the most relevant shopping experience is built on our structured data replatforming effort.

On the back of broadening the coverage of structured data throughout the year, we have built and are just beginning the roll-out of new consumer experiences that are modern, simple, and most important differentiated.

By understanding our inventory, we better understand what products to show our consumers and highlight the incredible price and selection advantages that eBay often provides across categories.

Our product experience is better reflecting our brand promise, to enable everyone to find their version of perfect.

We've made a number of platform improvements aimed at building a powerful selling platform including launching and scaling our Seller Hub product and releasing a revamped set of seller APIs.

We've also made improvements to our listing flows and simplified the consumer selling experience.

Finally, we sharpened our brand message, which has enabled us to start shifting our marketing spend up the funnel, with new social and owned media and our first TV advertising campaign since 2014.

We delivered against our financial commitments, with full-year revenue and EPS above the expectations we set coming into 2016 despite FX headwinds.

The strong revenue performance also enabled us to invest more significantly in our product and technology, planting seeds in the areas of AI and machine learning that will provide the foundation of our future.

We returned $3 billion to our shareholders through share repurchases at favorable prices, monetized our $1.4 billion stake in MercadoLibre and made a series of acquisitions to strengthen our capabilities.

Looking forward to 2017, our strategy remains unchanged.

We intend to drive even more progress against our key objectives this is reflected in our guidance which implies meaningful growth acceleration in our marketplace platform.

As we stated previously repositioning our business is a significant undertaking.

It will take time and it is not without risk, but we do believe we're on the right path.

We will focus on delivering the best choice by attracting more brands and the right inventory to our platform.

In 2017, we plan to deliver a series of enhancements to several of our key verticals, beginning with some really exciting improvements to our auto parts buying experience and will focus on driving more trust for our consumers by launching a new authentication service later this year.

We expect to see a large number of changes in our user experience this year, having built a strong foundation of structured data to support our product efforts.

We drove broad coverage globally on branded inventory through 2016.

With a critical mass of listings covered and persistent pages now available, our focus will shift towards improving the product and integrating our new experiences further into the core of the eBay shopping funnel.

We will do this in a smart way, minimizing disruption to our platform as we progress.

Now, while expansion of listings coverage will continue this year, we've chosen to introduce the next phase of coverage for unbranded and private label inventory on a voluntary basis in mid-2017.

Our technology innovation efforts are focused on emerging computing platform shifts such as AI, virtual and augmented reality, distributed commerce, and the Internet of everywhere.

The launch of eBay's ShopBot was a great example of early AI innovation, leveraging our personalization, image recognition and natural language capabilities.

You can expect to see more technology driven innovation in 2017.

We'll continue to make eBay a powerful selling platform by delivering enhanced tools and capabilities for sellers to improve their performance and to increase velocity.

In 2017, we expect to provide our sellers with data and tools to more effectively manage pricing and promotions including guidance on inventory and demand and a simplified returns experience.

Finally, we plan to be more aggressive in marketing our brand pushing more of our marketing dollars up funnel to drive consideration and make eBay the shopping destination of choice.

In summary, we made significant progress in 2016.

While we have more work to do on our multi-year journey to reposition our business, we expect 2017 to be a year of accelerating progress and significant change in our business.

EBay has worked to create a marketplace that is inclusive, fair, fostered by global trade, and empowered by small business entrepreneurship.

These will be the key tenets of how we approach our business going forward and while it is not yet entirely clear how global political or regulatory changes might impact our business none of what we see on the horizon changes our strategy to deliver the best choice, the most relevance and a powerful selling platform.

Now let me turn it over to Scott to provide more details on our quarter and on our 2017 guidance.

Thanks, Devin.

Let's begin with Q4 performance starting on slide 4 of the earnings presentation.

In Q4, we generated $2.4 billion of total revenue, $0.54 of non-GAAP EPS, $484 million in free cash flow, and we repurchased $1 billion of our stock.

Let's start with Q4 active buyers on slide 5. In the quarter, trailing 12-month growth was 3% year-over-year resulting in 2 million more active buyers.

The underlying cohort dynamic show retained buyers at consistent positive growth, driven by stable churn rates.

Our reactivated buyers have also grown at a rate similar to prior quarters.

New buyer growth, while still negative, is starting to see more favorable trends in the last few months.

On slide 6, in Q4, we enabled $22.3 billion of GMV at 5%.

By geography, the US generated $9.1 billion of GMV, up 3%; while international delivered $13.2 billion of GMV, up 7% year-over-year.

Moving to revenue, we generated net revenues of $2.4 billion, up 6%, decelerating 2 points sequentially, driven by 1 point of lapping last quarter's VAT settlement and 1 point of lapping strong growth at StubHub last year.

We delivered $1.9 billion of transaction revenue, up 6% and $519 million of MS&O, marketing, services and other revenue up 5%.

Transitioning to our marketplace platform on slide 8, Q4 GMV grew 5%, accelerating 1 point versus Q3.

US GMV accelerated 2 points quarter-over-quarter to 3%.

International GMV continued growing at 7%, both benefiting from a strong finish to our holiday season and as Devon discussed improvements in mobile, C2C and structured data.

More specifically on structured data, we have process 55% of relevant listings to date, while the total base of listings has grown 40% over the same time period.

We have created 180 million structured data enabled pages that are being surfaced though SEO, which further accelerated in Q4 and now through organic channels.

Total marketplace revenue was $1.9 billion, up 4% year-over-year, a 1 point deceleration versus prior quarter.

Transaction revenue grew 5%, in line with GMV and there was minimal impact to transaction revenue from promotional spend classified as contra.

Marketing services and other revenue declined 1%, decelerating 6 points versus Q3, driven by a full quarter of comps from the PayPal operating agreement revenue, as well as the shift from our advertising business from off-eBay adds to on eBay adds.

As a reminder, the PayPal operating agreement, contributed roughly 1 point of growth to total revenue in 2016.

This will continue to be a headwind in the first half of 2017.

For the full-year, the marketplace platform generated $79 billion of GMV, up 5% and $7.2 billion in revenue, up 4%.

Moving to slide 9, StubHub GMV grew 5% decelerating 18 points from Q3 as we lap the full quarter of the pricing display and product changes from 2015.

In addition, we faced some headwinds from a weaker event landscape in December.

StubHub revenue grew 20%, down 12 points versus Q3 driven by volume offset by revenue from the Ticketbis acquisition.

In 2016, StubHub grew GMV 21% to $4.3 billion, and increased revenue 30% to $944 million.

Moving to slide 10, in Q4, classifieds had another double-digit quarter of growing revenue 13% year-over-year.

Growth in the automotive and real estate verticals in key markets, strength in engagement metrics and improvements in mobile apps continued to aid classifieds despite lower advertising monetization from the ongoing traffic shift to mobile apps.

Our classified platform continues to innovate and to serve the 250 million monthly unique visitors that come to our sites to cross 11 brands in 15 countries.

For the full-year, classifieds generated $791 million of revenue, up 15%.

Turning to slide 11 and major cost drivers.

In Q4, we delivered non-GAAP operating margin of 31.9%, which is down 250 basis points versus last year.

A stronger US dollar negatively impacted margin by 170 basis points and was felt across all spend categories.

So, I'll focus my comments on the operational dynamics of our expenses.

Cost of revenue increased year-over-year, driven by technology infrastructure investments related to growth in product and engineering.

Q4 sales and marketing expense was down slightly in total, as productivity was partially offset by reallocations across channels and platforms to help fund our marketplace brand advertising efforts.

As we have previously mentioned, we will continue to be disciplined about our marketing investments.

We will optimize across all our channels to get the most efficient ROI, whether those channels are accounted for as contra revenue or expense.

Product development was up from continued investments in our product experiences across all of our platforms.

G&A expense was up year-over-year as operating leverage was more than offset by acquisition and disposition related costs.

For the year, operating margin was 31.1%, down 250 basis points.

Foreign-exchange impacted full-year margin by 160 basis points and the remaining impact was from incremental investments in product development and stand up costs.

Before moving to Q4 EPS.

I wanted to highlights two topics, taxes and hedging.

We're continually evaluating our legal structure and the way we manage and operate our platforms.

During Q4, we began the process of realigning our legal structure, which is expected to continue into 2018, primarily impacting our international entities.

We are considering many factors in evaluating this realignment including foreign-exchange exposures, long-term cash flows and needs of our platforms, capital allocation considerations and the associated tax effects.

As a result of the initial stages of this realignment, we recorded a non-cash GAAP income tax benefit of approximately $4.6 billion in Q4 to recognize a deferred tax asset.

The non-cash amortization of this deferred tax asset will significantly impact our GAAP tax rate going forward.

But it has no impact on our free cash flow or our non-GAAP tax rate.

As we have discussed in the past post-separation, due to hedge accounting considerations, our revenue was fully exposed to currency movements; however, our hedging program allowed us to economically protect net income, helping to reduce the 160 basis points of foreign exchange impact on 2016 operating margin by 70 basis points.

Therefore the impact on net profit margin was only about 90 basis points.

Realignment of our legal structure and US GAAP considerations resulted in us to having to replace our existing hedging program with a new hedging program.

Implementing a new hedge strategy required us to start unwinding the existing program, resulting in a Q4 gain of $16 million from the termination of certain cash flow hedges.

Beginning in the second half of 2017, we will start to utilize hedge accounting to project revenue from currency movements, which is intended to reduce the volatility of our top-line from foreign exchange.

We will complete the transition of our hedging programs by the end of the first half of 2017.

Turning now to EPS on slide 12.

In Q4, we delivered $0.54 in non-GAAP EPS, up $0.04 versus prior year driven by revenue growth and the net benefit of share repurchases, partially offset by the impact of a stronger US dollar.

In Q4, GAAP EPS was $5.31, up $4.88 versus last year.

The increase in GAAP EPS was driven by the aforementioned realignment of our legal structure as well as the sale of our stake in MercadoLibre.

As always, you can find the detailed reconciliations of GAAP to non-GAAP financial measures in our press release and our earnings presentation.

On slide 13, in Q4, we generated $484 million of free cash flow inclusive of $272 million of cash taxes paid on the sale of our stake in MercadoLibre.

As reminder, the proceeds from the sale are included in the investing activities on the statement of cash flows, while the cash taxes data are included in the operating activities.

Full-year free cash flow was $2.2 billion.

CapEx was 6% of revenue in Q4.

We finished the full-year at 7%.

CapEx was at the low end of our guidance range, partially driven by the timing of some investments that we now expect to happen in 2017.

Turning to slide 14, we ended the quarter with cash, cash equivalents and non-equity investments of $11 billion, with $2.8 billion in the US.

In Q4, we repurchased 34.6 million shares at an average price of $28.93 per share amounting to $1 billion in total.

This brings our repurchases for the year to $3 billion.

Repurchase since separation to $4.2 billion or approximately 13% of shares outstanding.

We ended the year with $1.3 billion of share repurchase authorization remaining.

As we wrap up the year I would like to remind everyone of our capital allocation policy, which we believe strides the most value for our customers shareholders and employees.

Our policy has several key tenets including: focusing on long-term value creation while making sure we have the resources to execute our strategy; driving growth, while balancing profitability; supplementing organic growth plans with disciplined acquisitions and investments; and optimizing financial flexibility; access to debt and cost of capital.

Heading into 2017, these principles will continue to guide our capital allocation, while there are many macroeconomic uncertainties, we will be disciplined in our investments and potential acquisitions.

We expect to return capital to shareholders at a minimum of 50% of our free cash flow in the form of share repurchase inclusive of the dilution offset.

Before turning to guidance, I'd like to highlight some changes in disclosure.

First, in order to align our internal operations and how we talk about the business, we have started reporting B2C and C2C growth.

We will no longer report fixed price and auction format growth; however, we will continue to provide the format split on our website.

Second, structured data will continue to be a critical enabler of our business, As Devin mentioned, the focus in 2017 will shift towards exposing our new experiences to more traffic and driving data quality to improve execution -- improve conversion.

While continuing to make progress on penetration of structured data, we will no longer be disclosing the operational input metrics of listings coverage and percent process.

We will be providing quantitative updates and qualitative updates on output measures such as traffic and conversion.

Moving to full-year guidance on slide 15, we are projecting 2017 revenue between $9.3 billion and $9.5 billion, growing 6% to 8%.

The midpoint of our projected growth assumes roughly 2 points of acceleration in the marketplace platform, partially offset by the tougher comps for StubHub and PayPal operating agreement revenue.

We expect operating margin of 29% to 31% for the year, which at the midpoint is roughly 110 basis points lower than 2016 due to the impact of a stronger US dollar, as well as incremental investments in product development and marketing.

The increased product development costs investments will focus on our new shopping experiences, C2C and enhancements to key verticals.

We will also continue to invest in marketing particularly brand advertising to grow our active buyers and to increase consideration in GMV.

We are projecting non-GAAP EPS of $1.98 to $2.03 per share, up 5% to 8% as reported versus last year.

The impact of the stronger US dollar will cost us roughly 6 points of EPS growth.

Finally, we expect non-GAAP effective tax rate of 20% to 21%, CapEx of 7% to 9% of revenue and free cash flow of $2.2 billion to $2.4 billion.

Full-year GAAP EPS is projected to be $1.20 to $1.40 per share GAAP EPS is impacted by the same drivers as non-GAAP EPS, in addition to the amortization of intangibles, stock based compensation and the amortization from our previously discussed deferred tax assets.

Turning to Q1 guidance on slide 16.

For Q1, we are projecting revenue between $2.17 billion and $2.21 billion, growing 4% to 6% year-over-year, which at the midpoint is a 1 point deceleration versus Q4 due to leap year lapping.

We expect non-GAAP EPS of $0.46 to $0.48 per share representing negative 2% to positive 2% as reported year-over-year growth.

EPS is driven by the net benefit of our share repurchase program and revenue growth offset by the impact of a stronger US dollar and the lapping of a Q1 2016 insurance recovery.

In summary, 2016 was a year focused on our strategy to provide the best choice, most relevant and a powerful selling platform to our users.

While replatforming the business, we said we would -- growth would be constrained, but the investments in marketplace platform and marketing have already started delivering some benefits.

Along the way we have remained disciplined capital allocators, returning $3 billion to shareholders in the form of share repurchases and realigning significant -- realizing significant gains from our investments in MercadoLibre and Snapdeal.

We also executed several deals to further tech and talent and geographic expansion.

Within the year, our revenue grew 7% versus the 2% to 5% range we expected coming into 2016.

We delivered 3% EPS growth in the face of foreign exchange headwinds and incremental investments.

Heading into 2017, we will stay consistent on our approach, executing our strategy, delivering better experiences to our customers; and returning capital to shareholders.

Now, we'd be happy to answer your questions.

Operator?

Thank you.

(Operator Instructions)

Richard Kramer, Arete Research.

Thanks very much guys.

Two questions about long-term -- longer-term strategy.

The first one in the context of the user experience changes you mentioned, Devin, but also the global buyer base that you have, how aggressively might you pursue growth in your advertising business in 2017?

How much of that is a part of this reacceleration in marketplace?

And secondly seen some of the other large marketplaces shift focus away from GMV and more towards sort of marketing services trying to help sellers be more successful on the platform maybe tapping into promotion budgets.

Given some of the initiatives you just laid out for 2017, could you see eBay getting reengaged and the marketing services, almost GSI type business that you once divested?

Is there something that is now coming back into focus?

Thanks.

On the second, it's likely that we well have different forms of monetization, including potentially different services, but not if it involves software deployment.

It was my decision ultimately to dispose of GSI and that platform in large part because we are an Internet company, not a B2B software company and I just don't think that the business we should be running.

But if you look at what other marketplaces have done they've offered other services, and I would never say never to that.

It is not directly in our 2017 plan.

However advertising is.

It's a good call out.

We are very excited about our plan basically to continue the shift from third-party ads to first party ads.

That means largely is that historically we've taken a large amount of our ads from third parties and that drove our users off of eBay to their experience.

We try to do that anyway that maximized the user experience, the buyer experience.

But increasingly we're seeing good results from internal ads, ads for eBay sellers promoting their inventory in our search results and in other places on our site.

And for us that's a really, really good flywheel because keeps our buyers inside our marketplace, it allows us to create a new stream of monetization and it allows our sellers to buy up for promotional activities.

There will be a big shift in the direction this year.

It will start to show up in 2017, but it is certainly part of our future plans to accelerate our advertising growth.

(Multiple speakers )

Maybe one quick one for Scott.

Can you talk at all if you're going to spend half of your free cash flow in buybacks, can you talk about the priorities for the other half since it seems that you'll just keep piling up cash if you don't spend a bit more than that on buybacks?

I'd read the entire to capital allocation statement we made.

It's only buybacks.

We return capital to our shareholders when we think we have excess capital, and I think we've done a good job buying our stock back at prices that we don't think reflects the long-term value of the Company.

However, there's no doubt that acquisitions will be part of what we do in 2017.

It was a relatively small part of what we did in 2016, but we did a series of acquisitions.

We extended StubHub's business, we bought in tech and talent as you heard Scott say.

Undoubtedly they are opportunities.

We're running the Company to the long-term, we want to keep adding to our capabilities and extending our breadth, and we have a very strong balance sheet and free cash flow.

You can expect us to invest in the business, as you heard from Scott, 7% to 9% of revenue.

You can expect us to do acquisitions, but we're smart acquirers and where those -- where we have excess cash above those two we will be aggressive about returning capital to shareholders like we were in Q4.

(Multiple speakers )

Richard, (inaudible) question, just to point out something on promoted listings.

We've been talking about promoted listings for over a year, closer to probably 18 months, and what we been talking about is a very nascent product that we're experiencing with.

Then we launched it and started to scale it.

And I think this year we have a lot of confidence that not only the tools that we are providing sellers to be able to use and bulk upload to be able to manage those promoted those things, but is that scales and scales across different countries as well, we feel really good about that.

But I'd like to just point out that won't show up in MS&O.

And so while it is effectively first party advertising the way you might think about it, the way you account for it because ultimately, you're paid on a transaction, that does end up in take rate and transaction revenue.

Okay.

Thanks.

Colin Sebastian, Robert W Baird.

Thanks guys, and it's encouraging to hear about the acceleration of volume growth that you're expecting in the year ahead.

Related to that, can we assume that you are still seeing similar benefits in the higher conversion rates from the new product pages?

And then how quickly should we expect you to ramp up the portion of traffic seeing the new pages from the 4% level, Devin, that you mentioned?

Sorry Colin, thanks.

We are seeing similar benefits.

So we've added a lot of pages, we're still building and deploying a lot of these new experiences.

And as I said in my remarks, we're up to 4% of traffic, which is pretty small.

So the impact in the quarter is still been really -- it's hard to see given how small the traffic is.

On the edge in SCO, we are still seeing the gains that we talked about of the last quarter.

There's really been no degradation.

As we experimented with moving those inside, as you would imagine, conversion rates goes down.

As I said last quarter also, I think in one of the questions that I got I wouldn't -- if you multiplied 10% conversion gains and the compounding effect of across the whole site the numbers would be monstrous.

We don't expect to see those type of conversion rates as we move the experiences into the core shopping funnel.

They're competing with much higher converting experiences like our search results, as you would imagine.

But we are optimistic that these are really good consumer game changing experiences, and we will be aggressive subject to, we don't want to disrupt the business.

We think that that 4% will grow quarter by quarter.

You will begin to see it instead of me talking about it.

When you go on eBay you will begin to see these new structured data pages further in the core shopping funnel, whether it's on the homepage or in search results or even in the view item, you will start to see the benefits of that.

We are going to be aggressive, we will do it intelligently.

We're seeing good gains, and it's certainly implicit in some of what we have talked about vis a vis acceleration of the core business.

Okay.

Then maybe one quick follow-up related to the shift towards advertising.

Should we make any influence from that in terms of changes in the commission or take rate structure of the marketplace?

Thank you.

No, I don't think structurally.

What I would point to in terms of our overall take rate, if you point to the Q4 take rate as maybe a proxy, what you saw in marketplaces take rate specific to marketplaces, is you always have the normal mix shift in the variability between what products are selling and sellers in countries et cetera.

But what you saw was about a 7.6% take rate and about 10% -- 10 basis points of that decline that was year over year was largely driven by pricing.

I would point towards some of the consumer pricing that Devin and I spoke about in our prepared remarks where we are experimenting in changing the way we incent consumer sellers to buy and sell on our site.

And that is -- that's something that I think we'll continue to see, but whether that relates back to the overall advertising and a structural take rate shift, I don't think so.

All right great.

Thank you.

Heath Terry, Goldman Sachs.

Great, thanks.

So with the new disclosure, particularly the decision to break out B2C versus C2C, can give us a sense, given the broad spectrum of the type of sellers that you have on the platform, how you are going to draw the line between B2C and C2C?

Where you're going to consider consumers that are either heavy sellers versus small businesses, and how the incentive structure that you plan to put into place for consumer sellers potentially impact that?

And then just on the take rate point, can you give us a sense of what contra revenue, what level of contra revenue items, promotions were used this quarter?

Sure.

Obviously several points in there, a couple of things.

First let me start at the macro.

The reason we're switching again is it's really the way we always try and talk to -- and the way we run the business.

And so instead of pointing you to a fixed price and auctions as a proxy quarter to quarter we just said, let's be real clear about what it is.

And so when we look at marketplace specific B2C growth quarter -- this quarter, we were at 6% and that was flat with prior quarter.

And C2C, it actually accelerated 5 points out of the negative to 3%.

And so back to my comment on the incentives that we're driving for consumers, we feel like that's starting -- as well as some of the services that we are providing, that's starting to make a nice impact.

As it relates to quantification, and actually depends by country, whether you are qualified as a B2C or a C2C seller.

In some countries to be a B2C seller you must register, generally speaking, the split is that $10,000 a year.

When you think about our overall GMV, about 80% of our GMV is through B2C sellers that do over $10,000 a year and the rest is 20% that's less than that.

All right.

I forget, was there another question in there?

Okay.

Next question.

James Cakmak, Monness, Crespi, Hardt.

Devin, you used the word accelerate a handful of times.

Just trying to understand, we saw good traction on the first half of this year, but then the tone did change to a more longer term turnaround in the third quarter.

Can you just explain what happened in the last three months that gives you that much more confidence that 2017 is going to be as fruitful as the fourth quarter was?

Secondly, can you remind us what the international cash balance is versus domestic?

Scott will take that, let me take the first part.

I've try to keep consistent in tone throughout the year.

I know our stock price has been volatility, it's been up and down, and I think sometimes it gets -- my tone gets interpreted ex post facto based on what the share price does.

But honestly I've tried to -- I think that our guidance and our performance has been relatively consistent, and we're trying to do that now.

But I guess implicit in your question is less tone and why you're giving the guidance you are giving.

Look, the biggest contributor -- there are some assumptions in our guidance.

We saw a good market in Q4, obviously we saw a good holiday shopping season and we're counting on a relatively healthy consumer and a relatively strong season that continue.

We're hopeful of that.

Around the world, particularly in the US where we saw 2 points of acceleration.

And second is we have a lot of initiatives which we are bringing to bear and there are things that are getting some traction.

Mobile is getting some traction, C2C is getting some traction, we've just started our journey on the brand which we hope over time will improve traffic and new buyers.

I don't want to be -- we certainly don't want to be giddy this is not without risks let's be really clear we're not growing how we want to grow even within the guidance we shared -- I want is to be growing faster, however, we always said this was a journey we never said it was going to be perfectly smooth quarter to quarter.

We try to keep the tone level and that's what we're doing again I want to be super clear about that and not hit people hard enough to people cold.

We are making progress that progress will take time is not without risks but we're happy with where we are and we're on the right track.

Scott you want to just address the cash balance?

We have $8.2 billion in international cash at this point and $2.8 billion in the US.

Great.

Thank you very much.

Eric Sheridan, UBS.

Thanks for taking the questions, maybe two.

One, you called out investments on the product development side, I wanted to get a little more granularity about what are those investments, are they going to be lumpy, are they going to be relatively linear as we go into 2017 versus 2016.

And then also on the deceleration you're calling out from StubHub and the classifieds business, that's actually better than we would've thought given the very strong growth we saw in StubHub in 2016.

Any color you can give on what informed give you on the deceleration trends and how that worked into guidance?

Thanks guys.

I'll do the product and then Scott can talk about the decel from StubHub and ECG.

The product is largely people, headcount and engineering resource.

It isn't -- it shouldn't be lumpy.

Most of the operating investment as opposed to CapEx is -- it will scale through the year but it's not -- I don't think there are going to be big swings and peaks.

It's investment in people.

We grown our product and development resource both through acquisition, some of the tech and talent acquisitions we've done and organically.

We've hired really good people, they're clear about what they need to get done.

To me, putting aside the cost and more on the impact, which is where I'm very focused, my goal is that today we've shown slides and there are 180 million pages out there, so we've built these things, they are real, but because they are sitting at the edge, more often than not when I meet with both customers and investors I have to show them what we're doing.

It's not entirely clear when you just go to our site or you go to our mobile apps.

By the end of this year, certainly our journey is not done, I mean this is a multi year journey, but you will be able to see it.

There will be meaningful changes to our homepage, there will be meaningful changes to our search results page, there will be meaningful pages to our browse pages.

You won't be able to miss that eBay is changing in 2017, and that's where the investment is going.

Scott, you want to take the decel?

A couple of things, maybe first let's step back and think about the long-term of these two businesses.

We feel very good about both of these businesses, specific the classifieds.

While I commented on a deceleration quarter to quarter, we did not anticipate a structural change an underlying growth of that business.

That business has been mid to low double digits, in the teens for the last few years and we expect that to continue.

My comment there was more about quarter to quarter.

And there's always going to be quarter to quarter comping dynamics in year on year growth dynamics that we'll explain, but just structurally, it's a way to think about it.

Really for StubHub, this next year we're going to have three, four quarters of pretty tough comps for the StubHub business.

But as we look towards the long-term and the efforts that we have going, not only in the product and the deals that we are doing there but also in international expansion.

We're very bullish on that business and I called out -- pretty much every quarter that we will be facing some degree of lapping to the tune of about one point from StubHub over the next year and we will update you each quarter in terms of how things are going.

The other thing I would point to in terms of what is putting some pressure on, and I called it out in the prepared remarks, is the operating agreement.

So we've got about have a point-ish, little bit more than half a point of year over year lapping in revenue, and that will be about one point each quarter in the first half and then we will be fully out of the lapping with operating agreements in the second half.

So that's another dynamic that we are facing into.

Underlying that, what we're telling you in our guidance is that marketplace we expect to accelerate two points year over year, one to two points year over year, and that's on the basis of all the things that Devin just talked about.

Just a final note on StubHub, just remember also in addition to the lapping the wall that they created last year, it's an events business and they're somewhat subject to the events landscape.

And in quarter four, it was a light concert lineup and that is what it is.

The market position -- competitive positions outstanding, we think that will continue.

But if they are not great events then StubHub obviously has had to deal with -- that's out of their control.

Depending on who I'm about to insult, this Super Bowl may not be the most exciting Super Bowl in the world, we will see, I hope it is, but it's things like that StubHub can't control, but I worry about their market position and competitiveness which hasn't changed.

Great.

Thank you.

Justin Post, Bank of America Merrill Lynch.

Great.

Since you separated from PayPal, we've been watching the margins and you're guiding 29% to 31%.

Are there any abnormal expenses this year that you'll lap next year that might help with that besides FX or anything unusual?

And how do you think about it five years from now?

The second question, there's been thoughts about a border tax out there, obviously you are commission business, but how do you think something like that might impact volumes for eBay?

Thank you.

Let's start with the latter question first.

I think it's important.

Obviously, everyone has questions, but we don't know what the timing or implications or substance of any tax reform or border taxation might be.

It's very much in the air.

That's not to say that we aren't modeling scenarios and looking at the impacts that we don't know about yet to just kind of get a sense.

So I think it's a bit too early to comment or provide much clarity.

I would just go to our model that you pointed out in your question.

Our model is different than a traditional retailer and so you would expect it to have a little bit different dynamic on our underlying financials if anything was done.

How I think about it and the data points I'd point to, we talked about in the past that CBT is a little bit less than 20% of our overall GMV, so that's product going between borders that might be exposed to a [border tax], but there's no single quarter in that number that's greater than one third.

So if a border tax was implemented, there would be some considerations like replacement or cannibalization or other alternatives the get provided, and then there would be the border tax implication.

So we'll work through that as we get clarity.

To your first point on margins, so 29% to 31% midpoint of 30, are there unusuals or structural things this coming year.

I would point to each quarter we try and be transparent with what goes into our results.

Last quarter there is a [VAT] adjustment.

This quarter there was an adjustment for the de-designation of hedges due to the change in our hedging strategy.

Beginning of the year there were other items.

Are they material in any given quarter?

They can drive a point.

Is it structural in nature and something that we've included an our guidance?

Yes it's in there.

Is that long-term and structural, no.

Devin I don't know if you want to talk about the longer -- how we think about the longer term structure though.

I have said consistently that just given the competitive nature of the industry operating, given the size of the industry we operate in and given the opportunities, we try to balance investment and ROI, but I don't look at a long-term margin play here.

I don't look at the margin of the business going up materially in the face -- in the last 12 months we've had one guiding principle, which is increase the competitiveness of the business, and in the face of an FX deterioration of the margin, we've invested into that rather than try to hang onto a margin at the expense of our customer experience.

So we'll watch the margin very carefully, we're not at all flippant about it, but we don't wake up in the morning managing the margin.

I've said that before and I want to be super clear about that.

I wake up the morning not hanging onto every bit but margin.

I want to invest enough that we can build a differentiated competitive business with adequate growth for the long run.

What does that mean?

I think it's too soon to tell, but I don't think you should expect the margin to go up materially over the next several years.

Just to put a point on that, for 2017 our margin, as I said was 29-31, that's 110 basis points down versus 2016 and half of that is foreign-exchange and the other half is the product development and marketing investments that we talked about.

So, relatively smaller version year-over-year from investments that we are going to make to drive the growth that we are committing to.

And what we've said is we don't wake up like Devin said, but we will remained disciplined as we think about additional investments to make sure that those returns are good.

And I think we've proven that we can do that over the last 18 months.

Great.

Thank you.

Douglas Anmuth, JPMorgan.

Thanks for taking the question.

You mentioned that conversion rates are essentially in line with the 10% you discussed in the past, the increases from structured data.

Can you talk about some of the key learnings you've had as you've exposed more pages.

And also whether there's any difference between desktop and mobile as that rollout progresses.

Then, Devin I think you also just mentioned about actively managing inventory more around key moments, can you elaborate on that a little bit?

Thanks.

Yes just quickly, so as I said, the 10% is at the edge, it's an [SEO], those numbers come down quite a bit and when you compete with well converting search pages, the conversion is similar right now to the non-structured data pages, so we have some work to do when we're competing with our best converting pages.

At the edge it's 10%, all the way into the hardest comps at zero and it's kind of a spectrum as you move out from there.

So we are still seeing gains but not all of it as I've said consistently is 10%, that would be remarkable.

And frankly, I'm really pleased that we are getting 10% even at the edge.

If we got anything meaningful, even low single digits as we move into the core, that will be a great lever to reaccelerate the business.

What have we learned?

What we've learned is we need to be careful and we need to be focused about moving these hundreds of millions of pages into our core, because 167 million people are using eBay today pretty effectively.

So, that's why we are being aggressive but smart about how we do it.

The second part of the question was on managing inventory.

So look, one of the great benefits of understanding your inventory, which is really the uber purpose of doing structured data, is that we can start to manage inventory even though we don't own it like a retailer.

What that means is getting great guidance on what it is in demand.

What is our price versus our competitors.

Where do we have gaps, based on say our search results.

And we began to journey this holiday of stepping into those gaps, going out to sellers in real-time saying we need Apple watches or we need Air Buds, or we need whatever because it's in demand, or you've got your inventory on the site, it's at too high a price, we need you to lower it and then we'll promote it.

We're starting to be able to manage peaks and troughs.

It's not that we were blind on that, it's just that if you don't know what you are selling it becomes impossible to action those retail moments.

Increasingly the fog is lifting on supply and demand at those moments and that allows us to step into that to maximize the efficiency of the marketplace.

I think your final question was just mobile, desktop, not a lot of difference right now that we're seeing on structured data pages.

Okay.

Great.

Thank you.

Mark May, Citi.

Thanks, I appreciate it, just a couple here.

I think you mentioned about ramping up TV advertising at the end of the year for the first time in a couple years.

I noticed that the active buyer growth was a little slower than in some of the recent quarters and the 2 million ads was kind of less than -- a little bit less than what you added in Q4 of 2015.

Just kind of wondering if you could talk a little bit about the dynamics that were driving the active buyer number that you reported and is that a metric that you also anticipate accelerating throughout the year?

And a question on the buyback commentary.

If I'm reading it correctly it looks like your kind of guiding for somewhere around maybe a little over $1 billion in buybacks for the year you purchased -- repurchased nearly $3 billion last year, can you shed a little more light into why you're guiding for such a slowdown, you just purchased $1 billion just in the last quarter alone, does that have something to do with the limitations up until July and you are not really factoring in the second half potential activity or what?

Thanks a lot.

Mark, here, I'll take both those.

First off on the second one first.

Yep so the guidance as I said, it's a minimum of $1 billion, the consideration for July is out there, it's something that we're thinking about.

And the way I would think about it is that's our programmatic commitment and we'll move from there depending on a lot of things plus timing.

On the second one, it's a great question on active buyers.

Bear with me for a second and I will kind of dig down into active buyer growth.

So our active buyer growth at --167 million up 5 million year on year and 2 million quarter on quarter.

I explained I won't rehash the cohort dynamic that I had in my script, but if you remove StubHub and you remove India and you just talk about the core business of marketplaces in the major markets where we started to do advertising in late Q3 in early Q4, what we started to see on a trailing three-month basis is some acceleration in trailing three-month growth.

Which is a green shoot for us and obviously I don't like having to go take out StubHub, take out India to explain it, but that's what we think -- that's very draw some of our conclusion and confidence about moving that metric going forward.

Because that is certainly a metric that we've called out today and we've called out in the past that we expect to move not only from our marketing and branding campaigns for some of the other initiatives that we've talked about.

Great.

That's helpful and just one last one, again on advertising, you talked about ramping TV at the end of the year.

But I'm looking at your sales and marketing expenses were up only 1% year on year and decelerated quite a bit from the recent quarters.

Are you seeing leverage in other items inside of sales and marketing that you'll continue to benefit from this year?

Yes absolutely.

I kind of called out in my prepared remarks.

The total is exactly the dynamic that you called out, but what we've been doing is between platforms and within platform and within different channels we've been shifting.

We've been talking about that we're shifting to brand and so what we've effectively done is reduced spend in other areas that we felt had lower ROI or that was less strategic and shifted it to the brand campaign in the quarter marketplaces business and that was true across platforms into the marketplaces platform.

And on the other side, we continue to expand channels like social and other aspects to try and make sure that our traffic that we are generating from structured data and the [SEO] channel to social is expanding and providing us the capability to not only attract new users but to drive active user growth and active buyer growth as we talked about.

Thanks.

Operator we have time for one more question.

Scott Devitt, Stifel.

Hello, thanks.

Devin, you mentioned earlier acquisitions in terms of capital allocations, just wondering if there's any areas in the business that you find particularly useful from an inorganic standpoint, whether that's classified StubHub marketplace talk and or the text back AI.

And then also as it relates to capital allocation, any changes in view on dividend?

And finally the last question is the timing of the PayPal operating agreement, when that does expire and should we expect any material changes to that agreement when that happens?

That's a doozy last question Scott well done.

( Laughter ) Let's see, taking them in turn, first of all, these are the acquisitions.

I think all three are in the fold, StubHub, eBay and classifieds.

I just point to more tech and talent, expect us to focus on what I think of the emerging major computing platform shifts I mentioned in my remarks.

AI is really important to us, VR and AR are not a toy, we want to be early and the Internet of things, the Internet of everywhere, distributed commerce, also important, you can expect us to be active in all those areas.

Expanding geographically in all of our platforms, we're always looking at.

And I'd also say there may be interesting opportunities vertically for eBay in particular.

We've seen the success of StubHub as a vertical category the benefits from the ownership of eBay, are there other verticals were sub brand might make sense, a sub experience, we're looking at that right now.

So we'll be disciplined, but you can certainly expect M&A to be part of our story in 2017.

On dividend there's no change to where we are, nothing had changed from our last position and on PayPal, look, I will just say, obviously everyone knows that it was a five-year agreement that we signed 18 months ago.

PayPal is a really good partner, we appreciate working with them, they've been a good payment provider for us for well before and well after we spun PayPal out as an operating entity, and as we go forward we will evaluate our options.

Obviously, you would expect us to look at all of our choices and options as that agreement rolls closer to the date that it rolls off, but we've still got a bit of time for that.

So that's where we are.

Thank you.

Thank you.

That's all the time we have for questions.

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

This concludes today's program.

You may all disconnect.

Everyone have a great day.