eBay Inc (EBAY) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the eBay Inc.

Third Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Joe Billante, VP of Investor Relations.

Thank you.

Please go ahead, sir.

Thank you.

Good afternoon.

Thank you for joining us, and welcome to eBay's earnings release conference call for the third quarter of 2019.

Joining me today on the call are Scott Schenkel, our interim Chief Executive Officer; and Andy Cring, our interim Chief Financial Officer.

We're providing a slide presentation to accompany Andy's commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com.

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

Additionally, all revenue and GMV growth rates mentioned in Scott and Andy's remarks represent FX-neutral year-over-year comparisons unless they indicate otherwise.

In this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results.

These forward-looking statements involve known and unknown risks and uncertainties.

And our actual results may differ materially from our forecast 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 periodic reports on Form 10-K and Form 10-Q in our earnings release from earlier today.

You should not rely on any forward-looking statements.

All information in this presentation is as of October 23, 2019, and we do not intend and undertake no duty to update this information.

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

Thanks, Joe.

Good afternoon, everyone.

I'm excited to have the opportunity to take our company forward during this period of transition.

In times of change, it is important to step back and make clear-eyed assessment of where we are, confirm what does not change and identify what needs to be different.

Our value proposition remains clear.

eBay is one of the world's largest global marketplaces where consumers can shop unique inventory at great value.

Sellers of all sizes have low-cost access to over 180 million buyers with a partner that does not compete with them.

Our near-term priorities are unchanged.

We are delivering our 2019 commitments, including our growth initiatives of advertising and payments; improving seller capabilities and growing the buyer base.

In addition, we have completed an operating review and are implementing plans to expand margins.

Lastly, we are executing a portfolio review to best position the company for the long term.

For 2020 and beyond, change is needed to improve the underlying health of the Marketplace's business.

We are reassessing how to best deliver for our buyers and sellers, and ensuring we match investments to serve them in an authentically eBay way.

We will discuss this further at the January earnings call.

With regard to our Q3 performance, total GMV was down 2%.

Organic revenue was up 3%, while our active buyer base grew 4%, up to 183 million.

Underlying these results, GMV in our Marketplace platform was down 2%.

StubHub volume was flat, and our classifieds platform grew revenue at 8%.

We also returned $1.1 billion in capital to investors through share repurchases and dividends.

Andy will go into more detail on our financial results shortly.

Our growth initiatives continue to make meaningful progress.

Advertising sustained momentum in Q3, where Promoted Listings drove $103 million of revenue, up over 120% from a year ago.

Over 1 million sellers promoted more than 300 million listings in the quarter.

This increased adoption was partly due to our integrated mobile experience, where sellers can opt in, review recommendations and manage promoted listing performance.

In addition, we improved our ability to vary the number of ads that appear in search results while balancing relevance for our buyers and conversion for sellers.

There is incremental opportunity to grow Promoted Listings through adoption and conversion gains, and we see more untapped growth in ad rates and product formats.

All of these levers give us confidence in achieving our goal of $1 billion in total Advertising revenue.

Moving to Payments.

Adoption is accelerating in the U.S. and was recently launched in Germany.

Since we began intermediating Payments on our site approximately a year ago, we have processed over $1.1 billion in Payments for over 20,000 sellers.

In September in the U.S., we process more than 9% of volume on our Payment rails, accelerating close to the limit of our operating agreement.

Sellers continue to share positive feedback on the more simple experience that pays them directly into their bank account while saving them money.

For buyers, we have enabled more Payment choices, including AmEx and SEPA direct debit, which is commonly used in Germany.

More Payment methods will be added over time as we expand globally.

We are on track with our plan to realize $2 billion in revenue and $0.5 billion of operating income at scale.

And this initiative will be a meaningful contributor to revenue growth in the second half of 2020.

In addition to ads and payments, we continue to deliver capabilities that are specific to eBay and drive customer success.

Sellers on eBay have a unique ability to directly interact with individual buyers.

For example, seller initiated offers saw increased adoption as we added more ways for sellers to drive conversion by targeting potential customers who abandon carts.

We have also added protections for sellers in major markets against abusive buyer behavior and events outside of their control.

In addition, we expanded our Seller Hub toolkit by integrating capabilities we acquired from Terapeak.

In major markets, sellers now have a suite of features that identify what and when to sell and how to price inventory.

In Germany, we help sellers comply with new VAT requirements while avoiding significant disruption.

One of the most important ways we serve sellers is by growing the buyer base.

In Q3, we grew active buyers at 4% for the seventh quarter in a row.

Acquisition of new and lapsed customers continues to be the main growth driver and is due to more focused marketing spend and new user improvement that we have launched over the past several months.

In Q3, we exposed new buyers to popular eBay features after their first purchase and are encouraging app downloads with more aggressive calls to action to migrate users to our best customer experience.

Related to the long-term health of the Marketplaces business, we are continuing on a path started a few years ago to organize one of the world's largest sets of unstructured inventory to power unique and compelling experiences.

While progress has been made, we have changed our approach to make it easier for sellers to provide product details or aspects when they list items for sale.

This is particularly relevant in categories like fashion and home where product aspects are not specific to a catalog ID.

With this rich dataset, we will continue and re-energize our efforts to create engaging experiences showcasing the full spectrum of value.

We'll update you further on our progress in January.

Moving on from our initiatives.

One headwind continuing to impact the U.S. is Internet sales tax.

As laws have taken effect, government officials have chosen to tax small, out-of-state businesses with a low -- no local nexus and are requiring Marketplaces to collect.

Buyers are seeing higher prices at checkout and are purchasing less, particularly large dollar items.

In Q3, the impact to U.S. GMV was more than 3 points, and we expect that headwind to grow in Q4 as new laws in California, Texas and 9 other states take effect.

While this impact is not unique to sellers on our platform, it is disproportionately affecting small businesses, many of whom sell on eBay.

Looking at our international Marketplaces.

Overall performance was slightly down versus last quarter.

In the U.K., lower consumer confidence is driving a softer market, which we offset in Q3 with improved marketing efficiency.

In Korea, we saw competitors significantly increase couponing.

And rather than match their investment levels at low ROI, we chose to focus our investments on our loyalty program.

We are on track to double the number of members in our Korean Smile Club loyalty program this year to almost 2 million.

In Japan, we saw GMV acceleration due to successful marketing program in our acquired businesses Qoo10.

At StubHub, Q3 growth was pressured by landscape softness in concerts and theater as fewer top artists and shows were active this summer.

This headwind more than offset a solid start to the NFL season and strong double-digit performance in our international markets.

In addition to these landscape dynamics, our first-party sales initiatives helped revenue growth outpace GMV, but more importantly, gave buyers more value and increase selection.

Turning to Classifieds.

Our portfolio continues to grow at healthy rates as we build on a leading position in many markets.

Both our German and U.K. platforms, including our acquisitions of Motors.co.uk, are performing well.

Looking across our portfolio.

Our motors verticals, representing roughly half of our global revenue base continue to grow at strong double-digit rates.

Recently, we have seen headwinds from lower display advertising yields in some of our horizontal platforms, including Canada and Australia.

Now let me update you on our operating and portfolio reviews.

As previously communicated, we have been conducting an operating review of our cost structure, and we committed to provide an update in the fall.

Today, I'd like to share that update.

This extensive review has resulted in a plan aligned with our Board and leadership team.

We will deliver incremental margin over the next 3 years.

The plans are robust and will impact all elements of our cost structure at different levels while enabling us to maintain and grow critical customer initiatives.

We are both building on to 2 points gross, 1 point net margin rate in gains delivered in 2019, and we intend to deliver another 2 points net of investments by 2022.

Regarding the ongoing portfolio review.

Our leadership team and the Board are evaluating the role of StubHub and classifieds businesses in our portfolio in a disciplined manner.

We anticipate sharing an update on StubHub before our next earnings release.

For the Classifieds portfolio, we do not expect to have an update to share this year but are considering long-term options.

Rest assured, we have made progress, and the outcome will be determined by the actions the Board believes will maximize long-term shareholder value.

In summary, eBay exists to empower people and create economic opportunity.

This shared purpose has driven our culture for 24 years, and it motivates our 14,000 employees to deliver for our customers every day.

In the near term, we will focus on delivering our 2019 commitment, scaling ads and payments, implementing our operating review plans and optimizing our portfolio.

In the long term, the opportunity remains substantial in the multitrillion dollar market we play, and we will evolve our business in an authentically eBay way.

Now let me turn it over to Andy to provide more details on our quarterly financial results.

Before he begins, let me say that I'm thrilled he's agreed to step in as the interim CFO.

We've worked together directly during his many years at eBay, and prior to.

And I appreciate his dedication and leadership during this critical time for the company.

Andy?

Thank you, Scott.

I will begin my prepared remarks with our Q3 financial highlights, starting on Slide 4 of the earnings presentation.

In Q3, we generated $2.6 billion of total revenue, $0.67 of non-GAAP EPS, $913 million of free cash flow, and we have returned $1.1 billion to shareholders through repurchases and dividends.

Moving to active buyers on Slide 5. In the quarter, we increased our total active buyer base by 1 million to a total of 183 million, up 4%.

Consistent with the first half of the year, we've maintained stable buyer growth by focusing on marketing spend towards new and lapsed buyer acquisition, which has been offset by a more -- by a modest increase in existing buyer churn.

Moving forward, we'll allocate more spend towards driving retention and increasing customer lifetime value of new buyer cohorts.

Turning to Slide 6. In Q3, we enabled $21.7 billion of GMV, down 2% year-on-year, decelerating 2 points versus Q2.

The U.S. generated $8.5 billion, down 6%, while international delivered $13.2 billion, up 1%.

Moving to revenue on Slide 7. We generated net revenues of $2.6 billion, up 3% organically.

We delivered $2.1 billion of transaction revenue, up 3%, and $534 million of Marketing Services & Other revenue, down 2%, inclusive of a 2-point headwind from the sale of brands4friends.

Turning to Slide 8. Our Marketplace platform GMV was down 2% in Q3, decelerating 1 point versus the prior quarter.

U.S. GMV was down 6%, flat quarter-on-quarter, with 2 points of deceleration from Internet sales tax, offset by reduced headwinds in marketing and modest conversion improvements from our evolving buyer experience, including the reduction of third-party ads.

On a year-on-year basis, Internet sales tax accounts for over 3 points of headwind, and we expect that impact to increase in Q4.

This dynamic will sustain into 2020, and we believe it will taper off towards the end of the year as we lapse states that rolled out in 2019.

International GMV grew 1%, decelerating 1 point driven by factors Scott covered earlier.

Total Marketplace revenue was $2.1 billion, up 1%, decelerating 2 points from the prior quarter.

Transaction revenue grew 4%, a 1 point deceleration and 6 points higher than GMV.

The gap between GMV and revenue continues and is being driven primarily by 2 factors: triple-digit growth in Promoted Listings, which made up more than half of the 6 points; and over a point from category mix effects.

Keep in mind, as our payments initiative scales further, transaction revenue will continue to grow at a higher level than GMV.

Today, it's less than 1 point of the difference, and we expect it to increase in the second half of 2020.

Marketing Services & Other revenue was minus 13%, decelerating 7 points versus Q2, with 4 points coming from the sale of brands4friends and the continuation of our ad strategy, moving from third-party ad placements towards our first-party Promoted Listings product.

We continue to expect total Advertising revenue in 2019 to be more than $700 million.

Marketplace margin was 31%, up year-on-year primarily due to continued cost leverage and reduced marketing, partially offset by our investments in Payments and Advertising.

Moving to Slide 9 on Payments.

Since our launch in September of last year, we've intermediated over $1.1 billion of GMV, over $500 million of that in the third quarter.

In September, the U.S. penetration rate was over 9%, and we expect to remain near this level until the end of July of 2020.

Turning to Slide 10.

StubHub GMV was flat, decelerating 6 points primarily from the factors Scott mentioned.

StubHub revenue grew 5%, decelerating 2 points from Q2.

Transaction revenue was flat, a 1 point deceleration driven by volume, partially offset by a higher take-rate from pricing changes and event mix.

MS&O has more than tripled year-on-year for the third straight quarter, delivering $20 million of revenue in Q3.

Most of StubHub's MS&O revenue is first-party sales, which provides buyers access to unique and exclusive inventory and insurance for purchased tickets.

Both are nascent and have potential for significant revenue growth.

StubHub segment margin was 10%, flat year-on-year.

Moving to Slide 11.

Classifieds revenue grew 8%, decelerating 4 points primarily from lower display advertising yields in some of our horizontal platforms, as Scott covered.

Segment margin for Classifieds was 41%, up 2 points year-on-year driven by operating leverage and marketing reductions.

Turn to Slide 12 in major cost drivers.

In Q3, we delivered non-GAAP operating margin of 26.6%, which is up 20 basis points versus last year, despite our continued investment in Payments and FX pressure from a stronger U.S. dollar.

Cost of revenue increased 80 basis points year-over-year driven by site operations and first-party cost of sales in Korea and StubHub.

Q3 sales and marketing expense decelerated 170 basis points driven by a reduction in marketplaces, on platform marketing and operational leverage, partially offset by investments in Japan.

Product development costs were up 10 basis points from our investments in Payments and Advertising, mostly offset by increased productivity.

G&A was up 20 basis points year-on-year driven primarily by investments in risk management for our Payments initiative and costs to support the operating and portfolio reviews.

Moving to EPS on Slide 13.

We delivered $0.67 of non-GAAP EPS, up 19% versus the prior year, our sixth consecutive quarter of double-digit non-GAAP EPS expansion.

Non-GAAP EPS growth was primarily driven by our share repurchase program and improved cost controls, offsetting our investments in Payments.

Favorability versus our guidance in July was mostly driven by our lower tax rates and continued cost control.

GAAP EPS for the quarter was $0.37, down 50% versus last year.

The decrease in GAAP EPS is primarily driven by lapping the gain on the sale of our Flipkart stake, the current and prior year changes in the value of the Adyen warrant, the divestiture of brands4friends and severance costs, partially offset by a reduced share count.

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

On Slide 14, in Q3, we generated $913 million of free cash flow, up 140%, primarily driven by lower cash taxes, working capital timing and lower capital expenditures.

Moving to Slide 15.

Our capital allocation strategy and our key tenets and targets have not changed.

We've executed our third dividend payment of $115 million while continuing to aggressively buy back shares, demonstrating our confidence and commitment to return capital to shareholders in a disciplined and diversified manner.

In Q3, we repurchased nearly 25 million shares at an average price of $40.12 per share, amounting to $1 billion.

We ended the quarter with $3.2 billion of share repurchase authorization remaining.

For the quarter, we ended with cash and investments of $4.2 billion and debt of $7.8 billion, including paying down $1.6 billion of debt as planned.

Turning to guidance on Slide 16.

For Q4, we are projecting revenue between $2.77 billion and $2.82 billion, representing organic FX-neutral growth between negative 1% and positive 1%.

We expect non-GAAP EPS of $0.73 to $0.76 per share, representing 3% to 8% growth.

EPS growth is driven primarily from the benefit of our share repurchase program and a modestly lower tax rate, partially offset by the effect of a stronger U.S. dollar, reduced income on our lower cash balances and our continued investments in Payments.

We are expecting GAAP EPS in the range of $0.55 to $0.60 per share in Q4.

For the full year, revenue guidance in the range of $10.75 billion to $10.8 billion, maintaining our organic FX-neutral growth rate of 2% to 3%.

We are raising our full year non-GAAP EPS guide to $2.75 to $2.78 per share based on a stronger Q3, a modestly lower tax rate and continued disciplined cost control.

We expect operating margin to be approximately 28% and non-GAAP effective tax rate of 15% to 16% for the year.

We are increasing our cash flow guidance to the range of $2.25 billion to $2.35 billion, and we've narrowed the range of CapEx to 5% to 6% to revenue.

Finally, we are updating the range of full year GAAP EPS to $1.97 to $2.02 per share driven by changes in the value of the Adyen warrant and severance cost, partially offset by cost control, lower stock-based compensation and a modestly lower tax rate.

Similar to last year at this time, we thought it would be helpful to give some initial perspective on our expectations for 2020 in the context of our 2019 performance.

We entered this year with a plan to drive modest revenue growth, expand margins and grow EPS double digits.

Through 3 quarters of the year, we are at the higher end of our original organic FX-neutral growth rate revenue guide, delivering on our margin commitments, growing GAAP and non-GAAP EPS higher than the original guidance and generating more free cash flow.

As we look forward to 2020, we expect to drive modest revenue growth through our key initiatives, expand margins and grow EPS.

Our growth initiatives, Advertising and Payments, are on track to deliver a combined $3 billion of revenue in the next few years.

In 2020, we expect total Advertising revenue to be approximately $800 million, benefiting overall revenue growth by almost 1 point.

And in Payments, we expect approximately 2 points of benefit, most of that coming in the second half of the year.

We estimate Internet sales tax to negatively impact total revenue growth rates for the business by approximately 2 points year-on-year.

We also expect revenue headwinds in 2020 of nearly $200 million from a combination of a stronger U.S. dollar and the full year impact of the sale of the brands4friends business.

Turning to margin.

As Scott mentioned, we've completed the operational review in line with the time line communicated in February.

We've executed a comprehensive assessment across all expense lines of the business.

Our margin expansion plan relies on continued marketing optimization, focus product and technology investments, best-in-class corporate functional cost and more effective procurement.

We expect these plans to deliver 2 points of net incremental operating margin expansion over the next 3 years while providing us capacity to continue to invest in key initiatives.

When combined with our anticipated 2019 results, we will have delivered 3 points of operating margin accretion while funding key investments, including Payments and Advertising.

Looking at EPS.

We expect growth headwinds of approximately 7 points from the combination of a stronger U.S. dollar, less interest income based on lower cash balances and a higher tax rate as settlement for past tax audits concluded in 2019 likely won't repeat.

We will continue to return capital to shareholders in line with our capital allocation tenets and within our midterm leverage targets of 1.5x net debt and gross debt below 3x EBITDA.

And we will provide additional color on shareholder return plans in January.

Our preliminary expectation based on today's portfolio are that organic FX-neutral revenue should grow in the low single digits.

Keeping in mind that with the dynamics mentioned above, growth in the second half of the year will be higher than in the first half.

We expect to continue margin expansion while making significant investments in our Payments and Advertising capabilities.

Combined, these dynamics will likely lead to EPS growth in the low single digits, inclusive of the 7 points of headwind mentioned earlier.

Finally, we expect to continue generating strong free cash flow and returning cash to shareholders through dividends and share buybacks.

We will give more detail of 2020 guidance on our January earnings call as per our normal process.

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

Operator?

(Operator Instructions) And your first question comes from the line of Colin Sebastian from Baird.

I guess related to the operational review, curious if that out-year margin benefit includes the full $500 million operating income from Payments.

And then more generally, hoping you could rank the customer initiatives in terms of priority as well as the level of investment required.

Yes, Colin.

Thanks.

I'll take the first part of that.

Yes.

The out-year margin rate does include the impact of payments.

If you take the roughly $2 billion of incremental revenue we expect and the half a billion dollars of op income, that's an incremental that comes through at about a 25% margin rate.

But the 2 points of accretion does include that impact.

And that's specific to the second -- the first question around -- or the second question, I guess, on priority of investment, I would say as we look towards 2020, we don't have a finalized plan yet.

But broadly speaking, I would say, our investments are behind our key growth initiatives of Payments and Ads.

Those are going to take up, let's assume, a fair amount of our resources focused on customers.

We'll also be working on the managed delivery plan that Devin talked about at the eBay live event.

And then we'll be working on structured data and kind of aspects as I covered.

And all those will be priorities.

And we're also looking to do an overlay, what else we can do in the short term to solve buyers and seller pain points on our platforms.

So we don't have a finite list for 2020, but that's broadly speaking how we're thinking about it.

Okay.

Is the managed delivery is still on schedule to roll out first half of next year?

Yes.

So we're working on that, as we talked about over the last couple of months.

If you think about the managed delivery aspects that we've been working on, broadly speaking, what we're trying to do is solve customer pain points, right?

We're looking at a number of different aspects to try and resolve what customers are thinking is a problem.

For sellers, it's making sure that they have access to lower cost, faster shipping alternatives.

And for buyers, it's making sure that we illuminate that value for them as we look forward.

That's -- we're going to have a pilot -- we already have pilots ongoing, and we'll expand those as we move forward.

And your next question comes from the line of Eric Sheridan from UBS.

I wanted to know if I could build in on the Internet sales topic in terms of where you're seeing the pain points of the business.

Is it in new buyer growth?

Is it sellers listing on the platform?

How you're overcoming some of that in terms of some of the initiatives to outrun some of the headwinds?

And you made mention in the comments that the pressure from that would likely move all the way through to next year.

Can you give us a little sense of sort of the slope of the pressure, what you've seen Q2, Q3, how it might build in Q4 early next year just so we could get a better sense of how you might comp against it and how you can invest against the headwinds to outrun that?

Yes.

Sure.

Thanks for the question, Eric.

Let me just try to take the construct here.

So the Internet sales tax laws that have kind of rolled across the country over the past year, as we've called out the last few quarters, have been a headwind.

And at -- the U.S. -- remember, first off, the U.S. business is 40% of the Marketplace business, so that's where we're feeling that pressure.

And while it doesn't fundamentally create a competitive disadvantage, what it does do is hurt small sellers whose buyers, when they see the prices have to pay up to 9% more for their item.

So it's really less about bringing new buyers, and it's really less about sellers listing items.

It's just in that flow, particularly for higher dollar items, is where we see buyers abandon the cart at checkout because they're like, oh, wait a second, why is it more depending on the sales tax that were being added.

Now like I said, it doesn't fundamentally create a competitive disadvantage.

But for period of time, as it rolls out across the different states because, remember, this is rolling out state-by-state, and I'll let Andy talk to that in a second.

But as that rolls out and as we assess user behaviors, which are a little bit different state-to-state, depending on the magnitude of the sales tax, et cetera, we're just seeing different behaviors, and one of them is, if I will, cart abandonment, for lack of a better way to say it.

And Eric, just in terms of how to think about slope, I'd point you to a couple of things: One, in the third quarter of '19, there were an additional 14 states that came live.

And as we indicated today, that took the impact in the U.S. from what we said in the second quarter of a little more than a point to the third quarter of over 3 points.

And what went live in October were 11 additional states, including a couple of big ones, in California and Texas.

So that'll give you a little indication of how to think about that impact -- impacting the U.S. and impacting the business in the fourth quarter.

And then in terms of the year-over-year impact, clearly, the full load of that fourth quarter playing through the first 3 quarters next year will have an impact, and that's what I had included in the discussion around the 2020 guide with roughly 2 points of revenue impact for the full year.

Your next question comes from the line of Ross Sandler from Barclays.

A question on the strategic review.

So you're putting a time line on the StubHub part of that -- the portfolio, but you said eCG isn't going to be happening this year.

So is the delay on eCG a function of that being like larger, kind of more countries, more different entities?

Is it just more complicated?

Are there no interested parties?

Any color on why that would take longer than StubHub, given you kind of started the whole process at the same time?

And then the second one is, your revenue and margin outlook for next year makes a lot of sense.

Can you walk us through again what those 700 basis points of EPS headwind, are tax and a few other things?

But typically, your EPS would grow faster than operating income.

It seems like it'll be slower next year.

So just, yes, can you walk us through that, those factors again, that'd be great.

Yes, Ross.

I'll take the first one.

Look, I think if you step back, we're pretty proud of our willingness at the Board level and the leadership team level to continually assess our portfolio, and have a track record of divesting assets where it makes sense for shareholders.

As I think anyone would expect, this is done by carefully assessing the strategic, competitive and operational dynamics for every business.

And we've done this carefully and diligently.

And it also gets into, as you a little bit called out, how the businesses are integrated with systems, people and processes and all of the dynamics that you mentioned.

I can only comment that in the case of StubHub, we should culminate in an announcement here by the next earnings call and no comment further on Classifieds.

Okay.

And on the 700 basis points, the 3 key drivers, tax rate, OI&E, primarily interest income, and FX, I'll handle each of those just in a little more detail.

On tax rate, our ongoing normal tax rate, it's probably somewhere in the range of 15.5% to 17.5%.

We'll finish this year at about 15% if we deliver on the Q4 guide, which is a little below the midpoint of that range.

And so there's a small impact from that included.

In terms of OI&E, we entered the year with close to $9 billion of cash.

We'll exit close to the target that we've been talking about all year, about $3.5 billion.

That's a relatively large reduction in cash balances and, therefore, interest income, and that will have an impact on earnings growth on a year-over-year basis.

And then the final piece is FX.

You'll recall, we hedge currencies 12 to 18 months in advance.

The impact of the dollar strengthening late last year has been somewhat muted in our results through this year given the hedges we had in place.

And as we roll forward into 2019, some of the benefit of those hedge gains will not be in the P&L.

So the combination of those 2 -- those 3 things will kind of mute the margin expansion and revenue growth as you get down to EPS growth.

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

Great.

I was just wondering if you could give us a bit of a sense, looking at the 180 basis points in leverage and sales and marketing in the quarter, how will you think about driving further leverage in that line relative to investing in growth in GMV?

And are the limitations in marketing a function of ROI or conversion rates preventing you from doing that?

Or is it something else?

And then just to -- a short one on StubHub.

What kind of impact would you say digital ticketing is having?

I know there have been some pretty significant developments there just in the last quarter.

And do you see that transition as impacting the value of that business either positively or negatively?

Yes.

First on the 180 basis points.

Look, for this year, as we talked about, we had raised really over the course of 2017, particularly latter half of '17 and '18, the -- our amount of marketing spend as we turn -- pushing these boundaries of CLV and ROI is to try and learn what type of cohorts would bring -- we'd bring in during that time and how they would mature.

2019 was really about, just kind of releveling that out and removing particularly the lower ROI.

A lot of that ending up in [contra] as we've talked about in the past.

As we think about the future, we'll continue to look at our marketing spend, everything from brand down to paid search, and really take a look at critically where the spend is, what type of returns we're seeing as we always do year-to-year, and then, and also look at how we might diversify and really expand.

We haven't made as much progress in social as we would've liked, how do we spend and iterate there, how do we continue to optimize around our paid search efforts, where and how do we deploy our brand spend and how do we sharpen our brand message, to make the branding efforts that we do, do be more effective.

And so it's just really around optimizing, but I don't really look at, as much of a takeout next year in our outlook, and thus, you don't really expect the less high-quality GMV to the deceleration that we had this year to repeat to some extent.

But we're going to be pressurizing our marketing spend, to the question.

On the digital ticketing, yes, absolutely.

This is a -- quarter-to-quarter, it's a competitive battle.

Since 95% of the business are more is in the U.S., we have to really stay on top of the capabilities.

I think Sukhinder and the team have done an excellent job at integrating digital ticketing and making it as seamless as possible, depending on the venue, the week, the performer, et cetera.

And honestly, I think they've done an excellent job at compensating for the pressures of digital ticketing, and quite frankly, it's pretty seamless in most cases.

And your next question comes from the line of Stephen Ju from Credit Suisse.

So it looks like the number of sellers using your payment rails has accelerated.

So wondering if we should assume that this is signaling a greater comfort around this -- the stability of the platform, and you won't be looking to move even faster from here.

And secondarily, anything you can share at this point about the profile of the person that the Board is looking to hire as the next CEO?

Yes.

Look, first off, on Payments.

Look, we feel great about our execution.

Quite frankly, we've seen accelerated adoption, as we talked about in the U.S. Germany's launched successfully.

Since a year ago, it's quite amazing.

We've actually enabled over $1 billion of GMV, as we talked about and as you called out.

20,000 sellers is a lot.

Now we processed really up to the limit that we can for the next 6 months, 7 months until we get to the -- relax a little bit longer -- until we get the -- to the end of the operating agreement in July of next year.

And when we do that, we're preparing to ramp after that, and we'll continue to ramp in Germany over the next 6 to 9 months.

The feedback remains strong.

Look, sellers love a simpler experience that's paying them directly into their bank account and saving them money, right?

I mean what's not to like?

And so as we continue to expand this globally, we're going to be adding more forms of payment like SEPA and direct -- SEPA direct debit like we called out for Germany, and really being -- in a position of being able to offer more choices for our consumers.

Specific to what the Board's looking for, look, I'll just say right now, we're hedged down on making sure that we focus on our priorities for 2019 and deliver the numbers that we committed to you guys and to our investors.

And then as we look towards 2020, making sure that we set the company up for success and beyond.

In the interim, the Board, its discretion will be looking for -- will be out doing a search, and what we're going to worry about is running the company.

Your next question comes from the line of Justin Post from Bank of America.

Great.

A couple of questions.

I know pullback in marketing will just focus on international GMV, has been part of the deceleration.

They don't have the sales tax issues next year.

Do you think as you kind of level that off, you could see some reacceleration there?

Are you thinking about that?

And then secondly, just thinking about StubHub.

You did mention you might have an update.

We're thinking about valuation, too.

Do you consider that a growth asset?

And how do you see the major growth drivers for StubHub from here?

Yes.

So look, it's a little early to be opining on 2020 GMV acceleration.

We called out a number of country-specific dynamics in my script, in Andy's script.

And I'll just point to those, and we're working plans to make sure that we do the best that we can for 2020 and beyond, with investments in marketing and product and loyalty programs, et cetera, as we think about -- as we think -- due to different country dynamics.

If I look at StubHub, look, it's an amazing business, right?

It's got a -- an amazing seller base -- tickets to almost every venue and every week for every game and every show in a way that's, in many respects, uniquely StubHub.

And thus, it's got a good share, and it's got a really nice user experience that we continue to evolve.

And so we think it's a wonderful asset that will continue to grow and has tons of opportunities as a standalone or as a part of our portfolio.

And we'll update you within the next 3 to 4 months at the plans.

And your next question comes from the line of Dan Salmon from BMO Capital Markets.

And thanks in particular for some of those forward-looking comments on 2020.

I just wanted to follow up a little bit, just maybe not on 2020 specifically, but first on Payments.

Scott and Andy, you reiterated the targets of $2 billion in revenue and $500 million in operating income for new payments.

Can you just remind us your expectations for how the payments to PayPal sort of wind down on the opposite side of that and maybe where those sit today and what your expectations are?

And then likewise, just on the Advertising side, again, thanks for the $800 million number that you're looking forward to next year.

Any comments or color you can add on mix there between first-party and third-party or Promoted Listings and third-party?

And yes, I am trying to understand a little bit better on where the wind down in third party is at that question.

So any help on the color would be great.

Look, first, let me take on the Ads and then Andy, weigh in if you have anything else.

The way we look at this is, is first off, the user experience.

I think we have to be very careful with how we architect the user experience, to make sure that the sellers that only -- that offer listings, that it comes up in a natural search way in a listing flow.

We don't want it to become an all-encompassing Promoted Listings-only type of search results.

That said, there's a lot of opportunity that we've called out, and I won't necessarily rehash each of those.

But from placements to alternative forms of monetization to merchandising and things like that.

So we're very -- we remain very excited about first party.

In the meantime, absolutely, third-party ads, particularly display ads, will reduce even further, and we'll provide some headwinds in that Advertising number for another year or 2 on a material basis.

And so as we look at getting to that $1 billion, it's going to be a balance of making sure that the user experience with our first-party Promoted Listings Ad product works great, and that it improves the user experience, doesn't hurt it, and that third-party ads, how quickly it unwinds.

I don't know if there's anything else, Andy, you'd add to that.

Not on the Ads.

I just -- Dan, on the question on the PayPal wind down, are talking about off agreement payments between the companies?

Yes.

Basically, yes.

Exactly.

So that's all -- that is all factored into the guidance I gave.

Those have been declining as we've been ramping payments.

They will stop at the same time July next year when we start to ramp Payments -- when we've come clear of the operating agreement.

There's also data center sharing agreements between the companies.

And one of the reasons are we've had some increased cost on cost of sales is kind of prepping data centers to catch information going back and forth.

So while we'll lose a little bit on the offer agreement side, from a revenue perspective, we'll gain some cost.

And clearly, once we're clear of the op agreement, the Payments ramp will be significant.

Your next question comes from the line of Thomas Forte from D. A. Davidson.

Great.

So I had 2 kind of high-level questions on eBay.

First is, how should we think about the impact of tariffs on your business?

Is there any flow-through on pricing, especially consumer electronics?

And then second, how should we think about the countercyclicality of eBay as the potential exists for one or more major economies entering a recession over the next 12 months?

Yes.

I think that the user base is going to dictate, I think, relatively clearly the countercyclicality.

I think we broadly view our unique differentiated advantage as offering alternative selection and lower prices.

And obviously, in a recession, we should make sure that we have consumers having us squarely in their consideration set if the downturn would happen.

Specific to tariffs, look, the reality is tariffs will impact everyone relatively equally, but we believe that the current customs threshold may mitigate some of the impact for us should they happen.

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

I have a couple.

Just the first one, sort of a big picture question on getting the Marketplace GMV back to growth as we get through the sales tax headwinds.

How do you think about the 1 or 2 most important categories you need to focus on, to really bring the U.S. business back to growth over the long term?

The second one on Payments.

What year are you sort of expecting the $2 billion of revenue and the $500 million of operating profit scale just so we can start of think about the cadence of everything?

Now I just want to make sure I didn't mishear.

Are there share repurchases in your 2020 EPS guidance?

Or is that excluding share repurchases?

Why don't we work backwards?

Yes.

So I'll start -- I'm going to start in the middle, instead of backwards.

The $2 billion and $0.5 billion payments at scale is a 2022 number, if that's helpful.

And as we talked a little bit about what '20 is, and then we should be -- '21 will ramp until we get to the '22 number.

In terms of share repurchase and guidance, I don't think -- I talk about a specific number yet.

I'll point you to what we've been doing in the past, returning capital pretty aggressively.

We're going to stick to the midterm leverage guidelines of approximately 1.5x debt and below 3x gross debt-to-EBITDA.

If you look at forecasted year-end cash balance of $3.5 billion with the cash flow profile of the business and maintaining your dividend, it'll give you a pretty decent range of what's possible in terms of share count -- or share buyback.

And we'll provide more clarity on that when we get to January.

Look, I think back on Payments, working back up here.

On Payments, we're going to scale as rapidly as we can.

And just our focus on specific markets should let us ramp relatively quickly over the course of the second half of '20 into '21.

And then '22 will be about the kind of remaining markets or remaining corridors that need to happen.

And so my expectation is that we'll go pretty rapidly up to '22 to the numbers that we're talking about.

As it relates to -- I don't know if there's one vertical, Brian, to answer your question directly, I don't think that there's things that we can do across the entire ecosystem.

Leave Payments and Ads aside, we've talked to that a lot.

But first, I talked about earlier, solving buyer and seller pain points, that's across all verticals.

Managed delivery will help, particularly with sellers offering lower-cost alternatives and then buyers having alternatives in the form of both tracking and speed of shipment and then structured data and the focus on aspects as we head into the latter part of this year and into next.

That's not to say that we won't have new experiences and new products by vertical, and you'll be seeing some of those relatively shortly.

But we've got to focus on both the kind of horizontal base level of platform as well as the verticals as we move forward.

And your next question comes from the line of Brian Fitzgerald from Wells Fargo.

Maybe a follow-up on Advertising, Promoted Listings.

Growth was great.

Wondering if there's any differential to call out with respect to how things are looking heading into this holiday season relative to '17 or '18 when it was newer.

And then you mentioned the integrated mobile app, and that's helping out a bunch there.

Any color -- any dynamics you can give us with respect to how adoption has been going across the mobile app in particular or use these dynamics across the mobile app?

That's for Ads, Brian, just so I'm clear?

Yes.

That's right.

Yes.

Yes.

So for sellers, this quarter, we started -- we'd launched the capability for sellers to manage their 1P ads via the mobile app, and that is expanding very rapidly, and it's been very well-received by customers.

Obviously, managing those on the fly and having the capability to adapt to the different -- what's selling and not, has been very well-received.

In terms of -- did you mean Ads growth specific to 1P ads for the holiday or did you mean just generally?

That's right.

That's right.

Yes.

Look, I think what we'll see in Q4 is the continued performance in line with Q3.

I don't think there'll be any material difference, growth rate wise and kind of trajectory wise.

And your final question comes from the line of Kunal Madhukar from Deutsche Bank.

Just a quick one.

As you talked about the evolution in the future, you talked about an authentically -- will continue to evolve the business in an authentically eBay way?

Can you help us understand how we should kind of think about growth longer term?

Yes.

Look (inaudible)...

I think of the impact of Payments.

Yes.

Look, I think we all look at the growth objectives and kind of capability for this business, particularly Marketplaces, to grow at above retail, but likely below e-commerce in that spot there.

And I think if we can focus our efforts around some of the items, not to rehash everything that we talked about, but items that we've been laying out and modifying a bit and solving for some of the buyer and seller pain points in a more short-term manner, I think we can create an ecosystem that delivers that type of growth sort of long term.

And ladies and gentlemen, this concludes today's conference call.

We thank you for participating, and you may now disconnect.