eBay Inc. (NASDAQ:EBAY) Bernstein 40th Annual Strategic Decisions Conference May 30, 2024 1:30 PM ET

Company Participants

Stephen Priest - CFO

Conference Call Participants

Nikhil Devnani - Bernstein

Nikhil Devnani

All right. Good afternoon, everybody. Thank you so much for being here. My name is Nikhil Devnani. I'm Bernstein's U.S. emerging Internet analyst, covering eBay, and it's my pleasure today to be hosting Steve Priest, CFO of eBay. Steve has been in the role for the past three years, where eBay has been progressing along its transition towards enthusiast buyers and focus verticals, and we're going to get into that discussion today. Steve, welcome back to the SDCs. It's great to have you.

Stephen Priest

Thank you, Nikhil. It's great to see you. Great to be back here again, and good afternoon, everyone. Looking forward to the session.

Question-and-Answer Session

Q - Nikhil Devnani

Before we get started, I just wanted to remind everybody that you can submit questions for this session as well. You can use the QR code in your agenda, or you could go to pigeonhole.at. And the passcode, I believe, is SDC2024. And I'll try and work your questions into the conversation as well.

So with that, let's get the discussion underway. Maybe with some news to kick-off. This week, you announced that the Adevinta deal closed. Maybe for folks in the room that are a little bit less familiar, can you just walk through what that deal was, what the implications are for eBay now from a cash inflow perspective, because you've basically divested a portion of your equity stake there.

Stephen Priest

Yeah. Thank you, Nikhil. So as you'd said yesterday, we shared via an 8-K the news that we sold a significant stake in Adevinta. So Adevinta was publicly traded. We saw the opportunity as a consortium coming in. We generated significant benefits for shareholders. The price on the trade was 50% increase on the undisturbed price when the initial transaction was discussed. We realized $2.4 billion yesterday, as a result of the holding.

We retain 18% in the company and the existing consortium of shareholders have an option to take another sort of 10% off the table at their discretion over the next six months. Really, really pleased that we've been able to create that level of value. We continue to be very good stewards of capital in the overall paradigm of eBay. Really pleased with the work the teams have done and as ever, very focused on driving shareholder returns.

Nikhil Devnani

And in terms of uses of that capital, you teased out that you'll give us an update in a couple of months when you report. But I guess, broadly speaking, how do you think about returning capital, strategic acquisitions, other investment areas?

Stephen Priest

As you said, we were under normal course, we will be updating the investor community at our next earnings release, as we generally do. Again, we've been fantastic stewards of capital over the last couple of years. In fact, since the start of 2022, we've returned $6.2 billion of capital, which is 134% of our free cash flow over that period on a cumulative basis versus a target of 125%. So really pleased with what we've done. Our philosophy hasn't changed. And again, I'm looking forward to giving an update at the next earnings call.

Nikhil Devnani

And Adevinta was certainly the biggest, but you do have other equity stakes, I think, worth roughly about $1 billion or so upon last reporting. Could you just remind us how liquid those are and how you think about those?

Stephen Priest

Yeah. I suppose the three most significant ones is the -- on the balance sheet is the Adyen investment in terms of the warrant probability that we've talked about. The second is our investment in Gmarket. And then the third, obviously, will be the retained investment in Adevinta. Again, we've been very diligent and thoughtful about how we continue to monetize those assets. And we've been, again, great stewards of capital over recent years. And I think it's fair to say, generated pretty significant shareholder returns in terms of how we treated those investments.

Nikhil Devnani

Maybe pivoting the conversation back to the strategic direction eBay's going in. The marketplace has been changing quite a bit under your leadership and Jamie's. What have been some of the biggest changes to eBay as you've seen it progress over the last few years?

Stephen Priest

Yeah. It's been an interesting journey. As Nikhil said, I've been at eBay for three years. And when I arrived, the transformation was underway. There's a lot of work required, a lot of investment required. And relatively recently, we sort of talked about the strategy, having done some of that initial work and just three sort of key pillars. The first one is about relevant experiences. The second one is around scalable solutions. And the third one is about magical innovation.

When I think about relevant experiences, thinking about things like focus categories, how do we lean in and drive greater trust on the platform and have relevant experiences for the customers that are shopping in those categories. It also pertains to various markets. We have a number of key markets across the globe, U.S., U.K., Germany, the big three. We will make sure that we've got relevant experiences to drive that.

The second pillar that I sort of talked about is scalable solutions. Think about payments, think about ads, think about shipping, they are things that we've taken friction of the overall platform, but they've also been vectors for momentum and growth and vectors for monetization for eBay overall, and we'll continue to explore those and see what the opportunities provide.

The third one is around magical innovations. And this is not just in focus categories that we're driving, but also across the overall platform. I think the onset of generative AI is a huge unlock. I always think I'm very fortunate to be CFO at eBay at this time. We have tens of billions of images of data with commercial data sitting behind them that we've generated over the last 29-ish years. That is a competitive advantage.

Using generative AI gives us an opportunity to unlock that. And so we're thinking about those experiences across the whole platform and how we can unlock good momentum on the overall platform by focusing on these big three pillars.

Nikhil Devnani

And you are focused on enthusiasts, how is this different from eBay of old in terms of how you position yourself within the e-commerce landscape, which is increasingly competitive? So within that competitive landscape, how do you find slivers of the market to play?

Stephen Priest

Yeah. I mean just at the context, we have about 132 million active buyers on the overall platform and about 16 million of them we term as enthusiast buyers. And those are buyers who shop at least six individual times a year and spend over $800. These enthusiast buyers account for about 70% of the GMV on the platform. They're incredibly important. And they spend, on average, about $3,000 each. So they're really sort of important buyers. And 90% of what they spend is in focus categories. And so there's this very clear alignment between the importance of those enthusiast buyers and the focus category strategy that we've been driving forward.

But in addition to that, those buyers who shop in focus categories, for example, the average buyer in parts and accessories will spend $400 in parts and accessories and then $700 elsewhere on the platform. And that's the beauty of eBay, where people will come into a certain category, they'll shop, they like what they see, they build trust on the platform, and then they shop across the overall platform. So we continue to be very focused on the overall flywheel of buyers, think about new and reactivated buyers that are coming on to the platform, particularly in this challenged macro environment that we're operating in. But the enthusiast buyer is a very important component of the architecture of the marketplace.

Nikhil Devnani

Just on the buyer point, we'd start with total buyers and then we'll get into enthusiasts. But just on the total buyer starting point, what is that funnel for new buyers look like for eBay at this stage in its life? Where are you still finding new buyers?

Stephen Priest

Yeah. It's interesting. And we've talked about this over numerous quarters about the importance of new and reactivated buyers that are coming to the platform. I'll give you a couple of examples. With regards to focus, categories as relating to trust, whether it's like luxury items where Authenticity Guarantee is very important, those buyers come to eBay, have a sense of trust. They discover through the full-funnel marketing approach that eBay is the place to go and they buy on the platform.

We've also talked about the example of Germany, where we've lent into sort of a specific strategy for C2C, consumer-to-consumer, buying and selling, where we sort of turned the corner on the German business over the last year or so. A key component of that was investing in C2C. And as a key component of that, we've seen buyers and sellers who hadn't engaged on the platform for many years, and they're coming back.

And so they continue to be an important flywheel for us as we bring new customers on to eBay. And it's all part of driving a longer-term sustainable growth on the top line of GMV and they're obviously an important component part of that.

Nikhil Devnani

We'll talk about the focus categories in a bit in more detail. But since you mentioned it there a little bit with the buyer perspective, I know the business doesn't work this way. But if you were to isolate things like parts and accessories or refurbished that have been good growth vectors for you, is the audience for those specialist verticals now growing because of the changes you've made?

Stephen Priest

Again, they are good vectors for growth, so to Nikhil's point, even in this macro environment. we saw our focus category in aggregate, think about focus category is about 30% of our overall GMV, that grew 4% year-over-year in 2023, and we took market share in aggregate in a very challenged macro environment. In the first quarter, focus categories grew 5%. And so again, that's a testament to the work that we're doing. And obviously, as buyers come into there and drive the sort of trust and value that they see on eBay and they come to platform, that's an important metric. It is a lagging metric.

So when we talk about our buyers, it's a trailing 12-month basis. So we are seeing, when we look on a quarter-to-quarter basis, as we go through, sequential improvement on the year-over-year numbers with regard to buyers. So again, it's just a reflection of the health of the platform and how we're moving in the right direction.

Nikhil Devnani

And in terms of migrating more casual buyers into enthusiast buyers and moving them up that habituation curve, is it just an accumulation of the various things you're doing across the marketplace? Is that the easiest way to think about how they make that progression?

Stephen Priest

Yeah. And there's an ebb and flow, obviously, because again, I talk about the trailing 12-month basis. But ultimately, it's graduating those occasional buyers towards enthusiasts, that's a big element of it, driving that cross category shopping, which comes from trust and leaning into eBay and doing all that in a sort of choppy macro environment. So again, we're sort of flattish. We stabilized both by cohorts. We're exactly where we expect it to be. And I'm particularly pleased that we've managed to stabilize that in aggregate based on the -- particularly the macro challenges that we're seeing in Europe.

Nikhil Devnani

Speaking of macro challenges, choppy macro, could you just distill what you're seeing from a consumer spending perspective? You obviously have a lot of shoppers, a lot of different regions that you're playing in. What are you seeing in terms of consumer behavior at this point?

Stephen Priest

Yeah. It's interesting. And obviously, we look at a lot of external public data to see what's going on. And we obviously have our own relative experiences through eBay. I think about our big three markets that I just referred to, U.S., U.K. and Germany. Our second and third large markets, U.K. and Germany have had negative e-commerce growth for about eight quarters, which is very significant.

And obviously, with elevated inflation, higher cost of housing, higher cost of food, higher cost of fuel, it means that the consumables are stretched, and there's less disposable income for those consumers to come and spend on a marketplace, like eBay, where most of our spend is discretionary. And so that's been a continued challenge or a headwind to us. From a total macro standpoint in those two markets, they have been in sort of negative growth for -- during 2023. Both of them have just turned the corner in terms of sort of going positive and coming out of what you might term as a sort of technical recession, but it's still a very choppy environment.

The U.S. consumer is slightly better off. I think it's fair to say there was more money pumped in during COVID into this U.S. economy. However, again, the U.S. consumer is still dealing with those same factors, right? Elevated inflation in housing and food and fuel, etc., which means they've got less disposable income to spend on marketplaces, such as eBay. But despite that, we're continuing to execute. And I think that, Nikhil, puts our performance in context. We've now had three consecutive quarters of flattish GMV growth year-over-year. I acknowledge late -- the last quarter, it contained the sort of leap year effect. But really, really pleased with the overall performance of our business, despite the very choppy environment that we're dealing with out there.

Nikhil Devnani

To what extent would you benefit from the sense of -- as a value-oriented marketplace? Are there potential trade-down benefits that you would get? Have you seen any evidence of that?

Stephen Priest

Yeah. I think it's two sides of the same coin. So the first thing I would say is that because of our size and scale, we have 2 billion listings, we offer across 190 countries with $73 billion GMV business. The size of the business ebbs and flows based on macro conditions. You would naturally expect that because of the size of eBay. We do benefit because we offer you value and trust and those hard-to-find items and when customers are trading down a little bit, they will come to eBay because they're looking for value.

On the flip side, based on the conversation we just held and the questions you just raised, the vast majority of what we sell is discretionary. So we've got those different dynamics at play. But overall, I think it's probably fair to say that we are impacted just like everybody else in terms of the overall macro environment that we're operating in.

Nikhil Devnani

Having a base of millions of sellers, do you actually see them engage more in times like this? We see gig labor forces growing. We see listings in other marketplaces growing. People need extra income...

Stephen Priest

Absolutely. That's the beauty of eBay. We have a huge amount of C2C sellers. We see that like there's a huge amount of unlocking people's closet. We estimate that the average household has about $4,000 sitting in their closets and only about 20% of that is online. Good opportunity. Someone that's got kids or something, they got the ability to sell those clothes to another home or a used bike, etc.

The beauty of it, it keeps that product out of landfill. 40% of everything that we sell on eBay is either used, pre-loved or refurbished. And so it's important for the communities that we continue to serve. There's many accidental entrepreneurs that started their businesses on eBay. And so our philosophy is trying to create economic opportunity for all, particularly during the hard times.

But we also are serving the communities, and we're also trying to do the right thing for the environment. So we certainly lean in. We do not compete with our sellers. We want to continue to offer value for our sellers. We want eBay to continue to be the seller platform of choice. And that's why we continue to invest our time and that energy and the resources to support the seller community.

Nikhil Devnani

And you mentioned three quarters now of stable-ish GMV. What has contributed to that? And what's driven the confidence in that GMV turning positive at some point in the back half as per your guidance for the year?

Stephen Priest

Yeah. We've continued to invest well. We continue to see positive momentum. I would break it down, Nikhil, into sort of three things. When I look back at our momentum over the recent past, the recent quarters, it's really a function of the overall health of the platform. And I've talked extensively about the benefits we've been seeing in focus categories, being in positive year-over-year growth that culminated in the 5% growth last quarter.

In terms of your -- thinking about the three things that gives us confidence about turning GMV positive in either Q3 or Q4 of this year is the sustainable momentum around focus categories. We continue to invest, we continue to see traction, we continue to see market share gains, and we're in good -- great shape.

The second area is about our investments in specific geographies. I just touched on Germany as an example. We were seeing many quarters of negative growth in German C2C. We lost a little bit of our relevance. It's an important market for us. C2C is the flywheel of the platform, and we made some strategic investments. First of all, we thought about how do we drive a more simple shipping solution for the German consumer? And we simplified the number of options.

How do we lean in more effectively to have the relevant language in place in the German market for the German website and make sure that everything is working very effectively? How do we reduce the number of unpaid items in terms of the processes and the policies that we have on the platform? And that has worked effectively and tremendously well.

We launched eBay Lokal, which was about making sure that in certain cities in Germany buyers and sellers could meet to sort of exchange goods, have the appropriate code on their phone so they could exchange details. And so -- and obviously, we've done a fair amount of marketing and messaging around that. And this has reactivated a number of C2C sellers, C2C buyers. And we've turned GMV-positive in German C2C.

We now lapped the implementation of that, which was in March 2023, and we're still positive. And so the investments that we've seen in Germany, we took some of those learnings. And we've recently taken it to the U.K., our second largest market, with a focus on pre-loved fashion. Obviously, it's very relevant to Gen Z. We think about the demographics on the platform.

The importance of the environmental impacts that I talked about, the importance of the benefits of having pre-loved fashion and having those communities sort of buy and sell in that space, again, thinking about simplifying the proposition, driving better shipping options, means that we're investing in that specific market. And we talked about that on the last earnings call. So geographic investment is really important.

And then third is just the level and the pace of innovation across the horizontal platform that we have. I think about the work we're doing in search, where by the use of generative AI whenever we had a situation with simple search in eBay and they had only a couple of results come back or no searches coming back, we're now using generative AI to offer up those consumers more listings that they can look at as part of the search, which is helping conversion and helping the health of the platform.

I think about magical listing, we've already launched V1, which is giving generative AI automatic description completion for all of our consumer across our top five markets. This is taking a lot of friction out of the listing process for C2C and putting more healthy inventory on the overall platform. And we've done something very similar with buyers with regards to Shop the Look and other initiatives in terms of Explore that we talked about last quarter in the U.K. market.

So there's a number of investments we're making in focus categories, in geo-specific investments and also horizontally across the overall marketplace. And we're starting to leverage the investments we've been making over the last three or four years to really change the health of the platform. And that's in aggregate is what gives us the confidence that we can turn GMV-positive in either the third or the fourth quarter this year.

Nikhil Devnani

A follow-up for you on each of those, but let's start with the focus category piece. The durability of growth once you've worked on a category, do we have enough data now to look back at some of the early focus categories, which I believe were more in luxury, more in trading cards? Do we have enough data to look at -- look back at that now and say that those have -- the growth rates around those categories are stuck, whatever it is one, two years later, and they're persisting and sticking with you as you go forward?

Stephen Priest

Yeah. As you can imagine, a platform like eBay, we have a crazy amount of data that is -- it's a great asset for us, and we can use it in many different ways. Talking about focus category specifically, we continue to iterate, we continue to learn. Parts and accessories has obviously been a significant category for us. It was about building fitment, which works very effectively. That's the unlock for the customer. Is that part going to hit my car? And what happens if it doesn't?

So we got behind it and said like, we will guarantee this part will fit your car if you sort of see the check mark on the website. If it doesn't, we've got your back. And that drives a huge level of trust on the overall platform. That was a big unlock for the U.S. called Guaranteed Fit. We rolled that out in the U.K., we rolled that in Germany, and we start to continue to see the momentum. But we haven't stopped there. The benefits of the data that we have on eBay, we look at parts and accessories. We've got over 500 million listings in parts and accessories.

Think about the cars on the platform. We know the age, the model, the make of the car. We were able to now look at sort of preventive maintenance and offer solutions to customers to say, "You're coming up to a certain mileage. This is what you might need to drive." We're using generative AI to look at solutions for where our customer has an error code on their car or on their dashboard, they can then put that into eBay and we'll suggest a part. So we continue to use data to iterate, take the learnings in specific categories and continue to invest.

There's countries that we're also investing in, where we've invested previously in focus categories. Japan is a good example of that. We had seven authentication centers across the globe, looking at watches, sneakers, handbags, et cetera, to really drive that Authenticity Guarantee, which is an important part of our luxury parallel. We recognize that there's a huge amount of luxury inventory sitting in Tokyo and across Japan. Really great products, really great value.

How do we unlock that? Historically, those items will be authenticated in the U.S. when they arrive. We've now moved the authentication to the source and with a partner launched our eighth authentication center. So now we have one in Tokyo. So that Japanese seller that was selling those handbags now has a level of confidence that once it's sold on the platform, it gets authenticated at source and before it's shipped to the U.S. or Europe.

So this is unlocking trust. It's unlocking some of our experience that we've seen from both the data and the experiences that we've had in different categories and different markets, which is informing us about what customers are looking for and how we continue to work with them to generate benefits for all.

Nikhil Devnani

I'll just loop in an audience question here. Do you feel like you're gaining share again against the specialists in these categories?

Stephen Priest

Yes. I mean we talked about this in 2023. I mentioned our focus category cohort in aggregate grew 4%, and we gained share in 2023. We do a lot of triangulation. There's obviously competitors in the public space and some in the private space, but we're confident that we continue to gain share. It takes time, right? We've invested over many years, but I'm really pleased with the momentum we're seeing and where we are.

Luxury is a great example of that. Think about the economic paradigm we're dealing with, the discretionary spend comments that we had earlier, luxury has grown positively for the last five quarters despite macro. And so it's yet another proof point that we are doing the right thing. We've gotten the right inventory on the platform. We continue to delight our buyers and sellers, and it's making a difference.

Nikhil Devnani

On the local-specific playbook or the country-by-country playbook, how scalable is that? And I don't suppose you're going to tell us where you want to go next today. But are there markets that you have that you look at and say, we could be doing more here knowing what we've just learned from Germany and what we're learning now in the U.K.?

Stephen Priest

We've very thoughtful, Nikhil, about how we roll things out. And it's not just one thing. I think the beauty of the German example, and I gave just a subset of the products that we're putting into the market to drive that relevance. It's different by market and different by category. A good example of this is in Germany, where payout invoice is a very different concept to the German consumer versus maybe consumer in the U.K. or the U.S. It's a certain way that people pay for stuff. It was important for us that we find a partner that we could deliver that with so the right payment process is in place.

So we take some of that learnings. We're very nuanced by market about what we put in there to drive the relevance. Again, we've dipped our toe into the U.K. market in terms of looking at a certain segment of C2C that we felt was very pertinent, very relevant, a good entry point for people. And you're right. I mean, the last thing we're going to do is tip our hand in terms of the competition and get ahead of any announcements that we're going to be doing. But again, I'm very, very pleased with the innovation that's getting driven on the platform and the work that the teams are doing.

Nikhil Devnani

And on the magical listing piece of it, I've always thought about your marketplace has probably been more demand-constrained and supply-constrained given the number of listings you have. So what is it about the magical listings that grows GMV? Is it just the quality of the listing goes up because now you can standardize the way the product shows up and communication around product features and things like that?

Stephen Priest

I think it's twofold. Well, first of all, we have a lot of very healthy inventory on eBay, and that has continued to grow quarter after quarter. We got about 2 billion listings on a global scale. So we had a lot of healthy supply. I think where eBay is very different is the rich array of unique items, those hard-to-find items, those great value items that come from the consumer on C2C. And for us, with magical listings, it's an ability to unlock that.

So I go back to sort of that closet point, the average consumer -- U.S. consumer, we believe it's got about $4,000 of stuff at home that they could unlock and put on the marketplace. By taking the friction out, we've launched magical listing V1 across our key five major markets, and so it's in the hands of all of our consumers.

What does it mean? It means that when you list an item on eBay, you can click a button and then let generative AI fill in a description for you. It's one of the things that people stop and think about and try and figure out how would I describe this item? And generative AI does that for you. And in 90% of occasions, the user is accepting that description.

I was doing it exactly myself last week, selling the bunch of ski gear from home, from the kids, used generative AI and created the descriptions and this is online. This is a significant unlock for C2C. What I'm also really excited about is the next generation of this is where you take a photo of an item. And not only does it generate the description, but it fills in all the attributes to you based on the image, based on those tens of billions of images and the data that we have at eBay over roughly the last 29 years.

So there's a lot of opportunity for us to continue to unlock. And that supply issue is the amount of open -- opening up all that potential inventory from all those C2C sellers across our key markets will be a huge unlock from an inventory standpoint. And the richer the supply, it helps propagate and drive demand on the overall platform because people are finding more of those hard-to-find items. And it's another good example, like I shared, with regards to Japan, right? The handbags that are now getting listed from Japan, a whole new area of inventory in the handbag space that makes eBay extremely relevant for the consumer that's looking for that product.

Nikhil Devnani

And so a lot of these initiatives have been underway for a while. We've been talking about focus categories for a while. What is different now that is translating into a bit of growth? Have they just each of them in their own respects have hit a certain level of scale where they're kind of compounding on one another, and that's allowing for a bit of growth now?

Stephen Priest

I think it just takes time. I mean we've been at this journey -- I mean, if you take a step back and think about a platform, the size and scale of eBay, it takes time to continue to iterate and grow those levels of trust and get the momentum. And this is why I've been so pleased despite this macro environment that we are driving sustainable growth in focus categories because customers are coming back, we've built the trust to expand the value. And it's working very, very effectively. And so -- and the learnings that we're having and we're driving it.

The other thing that we've been doing over like in recent years and leaning in even harder is a full-funnel marketing approach because I have a very simple philosophy around focus categories. One is like understand the customer need. What's the unlock? What's the fitment of parts and accessories, which is Authenticity Guarantee for luxury, which is the two-year warranty, hassle-free returns for refurbished goods, right, is what's that trust unlock for consumers. And we sort of continue to build that. So we've identified what's important.

Secondly, we've got the tech. And with the great teams we have at eBay, we're in a position where we can drive much greater velocity. Generative AI has sort of unlocked some of that engineering capabilities with Copilot, etc., drives greater velocity. And then we're using a full-funnel marketing approach to tell people about it. And that sort of really struck me, as I was watching a couple of sports events at the weekend, just how much more relevant eBay is becoming by using focus categories as a bit of a vector for how we get behind the marketing in the full funnel shape, which is having a halo effect for the platform overall.

So I think there's a number of areas there, Nikhil, where we've benefited from traction on focus categories, we benefited from our experiences in the past. The customer property is getting better. And we're starting to see the benefits of the full-funnel marketing approach that we've been deploying over the last couple of years.

Nikhil Devnani

Let's expand the conversation to your financial model a little bit. Underneath that GMV line revenue growth, you've talked about it being a little bit faster than GMV. Is it predominantly driven by the growth in your advertising revenue stream? And can you talk about the potential there? And to what extent can you flex take rate outside of ads or do you not want to do it on a core basis ex that?

Stephen Priest

Yeah. Just for the audience and the listeners, the guide we put out for 2024 is that we'd expect a 200 basis point delta increase between GMV and revenue for 2024. And you're correct, one first-party ads is one of the largest contributors to that. We have some contribution from the likes of eBay International Shipping and some sort of margin increases associated with payments. Payments is much more mature now, we've been about for a certain number of years.

But I continue to be pleased with the level of revenue momentum that we're seeing on the platform and continue to be very pleased with what we've been seeing in our advertising revenue. That has doubled since 2019. And so we've seen that as a real catalyst in terms of revenue, and we continue to see opportunities in that space going forward. And so there's further opportunity to monetize the platform.

When it comes to investment in the business, we're not solving for take rate. We're solving for a healthy financial architecture at eBay. And we're looking at our investments to ultimately drive towards sustainable top line GMV growth because we believe that is the best path to unlock the business. And again, I'm pleased with the path that we're on.

Nikhil Devnani

And how about on the margin front? You've guided to a bit of margin expansion this year. The last couple of years, we've actually seen some compression, partly due to mix, partly due to reinvestment. What's changing now? What are the cost takeouts driving this margin outlook?

Stephen Priest

Yeah. We've been very conscious in the last couple of years we needed to invest. We recognize that in order to turn the ship in terms of implementing the strategy, we were going to invest over the last couple of years. I think 2024 is a story of a couple of things. Number one, we have the ability to leverage some of those investments we've been making over the last couple of years, and they're starting to pay off.

The second thing is, and I've talked about this extensively, we have a structural cost program. This is about driving cost efficiencies across the whole business. We've got everybody at eBay engaged in this because my simple view is every dollar that we spend on the business, and it maybe it's a dollar we can avoid, we can invest in the platform, we can invest in the customer.

So how do we continue to drive those cost efficiencies? We were ahead of the 300 million target that we put out there. We're seeing additional benefits from the influx of generative AI, which is driving further efficiencies across the overall platform. And that is continuing to provide the capacity that we need to invest in the business to drive sustainable long-term growth. But at the same time, we're able to flow some of that through to the bottom line.

And so you've seen us talk about our margin guide for 2024 between 60 and 100 basis points. Where we fall between that 60 to 100 basis points will be a reflection of what additional investments we can make, what we believe the return on investment will be. But certainly, we look at an opportunity to both create capacity, reinvest in the business and also drive accretion in margins.

Nikhil Devnani

How should investors think about what those reinvestments are in large part? Is it engineering talent? Is it marketing around the product efforts? How do we bucket those?

Stephen Priest

Yeah. I mean it's exactly what you talked about. The philosophy is like what vectors, as I talked about, focus categories, specific geographies, horizontal initiatives. And that is a combination of having the right tech talent, making sure we're investing effectively in it, investing in generative AI because again, we believe that's a good unlock, investing in full-funnel marketing and telling the story of eBay to all the consumers that are out there. So we're creating capacity in the right areas and then reinvesting in the others to drive long-term sustainable growth.

Nikhil Devnani

And in terms of working with a smaller workforce now after the recent actions taken, you don't feel like that's had a major impact on productivity, your ability to ship product?

Stephen Priest

No. Actually, these things are always very challenging and difficult to do. I think, one, we've obviously generated some efficiencies in the overall business as a result of that. But another primary reason for going through that was just to make us more nimble. I think we took a look at our spans and layers at eBay.

One of the things we want to make sure that we continue to do is drive a greater sense in urgency around decision-making, drive velocity across the overall platform, ship more products more quickly to consumers. And actually, by going through the changes that we did, we're actually driving a greater level of speed in terms of execution with the platform, and you're seeing that in the underlying numbers.

Nikhil Devnani

And if I think about your outlook for this year, how do we think about GMV growth, the range you provided or rough range you provided there with the margin range you've provided? Is it that the top end of these things will correspond or could you have scenarios where philosophically, if the GMV is exceeding your expectations, you actually take that excess dollar and reinvest it more, it's more capacity for you to reinvest?

Stephen Priest

Yeah. As a reminder, I was just referring to this, the guide we've put out is for GMV to turn positive in either Q3 or Q4 of 2024 based on all of the discussions we've just had. The margin range is really a reflection of the initiatives and the cost efficiencies we've driven forward, obviously, where the dynamics land in terms of the overall architecture of the business, but our conscious decision in terms of investment. We could fall anywhere in that range, depending where we deem the best investments are. And I'm not going to hold back.

If I believe that there's good ROI on some investments in '24 that is going to help speed up and drive further momentum on long-term GMV growth, then we will do that. So we wanted to give the investor community a sense of the range. And I think the important thing for me, Nikhil, is that we're doing both. We're investing in the business, and we're also driving margin increase in 2024.

Nikhil Devnani

And philosophically, your north star is, I guess, looking beyond the specific margin number more to what, like a free cash flow EPS dollar number? Is that the better way to think about it?

Stephen Priest

The two things I'd think about, number one is driving profitable, sustainable GMV growth on a continued basis. I'm pleased we've had the last three quarters in a sort of stable flattish zone. But for me, that's the big unlock. And I emphasize profitable, sustainable GMV growth. The other one is net income dollars. Because if I'm a shareholder in eBay, I want to see the business grow. I don't want to see earnings growth. And I think when I look at 2024, we've talked about GMV turning positive in either the third or fourth quarter. And the midpoint of our '24 earnings guide is double digits at 10%. So I think for me, as an investor looking in, they are the two things that I'm myopically focused on.

Nikhil Devnani

And I know you've only given guidance for this year so far. But when you step back and think about, obviously, investors are trying to think about the general trend in your margin structure longer term, right. This year was a year of improvement. Does that continue going forward? How do we think about your earnings power beyond just the current setup?

Stephen Priest

Yeah. I mean I'm not going to over my skis. We've given very clear guidance for 2024, and I'm not going to get ahead of myself. I think it's clear we have a great financial architecture. And I think unlocking the top line, seeing some of those benefits of sustainable GMV growth with the financial architecture that we have is a really good catalyst for earnings growth. And that's why I'm sort of very positive about the trajectory that eBay has going forward.

Nikhil Devnani

And I remember at Investor Day, you had talked about mid-single digit GMV ambitions -- GMV growth ambitions. Is that still the way you think about the business once we get back to a normal operating environment?

Stephen Priest

Yeah. That's exactly how we see it, and we target the medium- to long-term perspective of the business. We see that as where we should get to. But really, it's a function of the duration and the severity of the macro environment that we continue to operate in. And to your point, we're setting ourselves up extremely well for when we get back to normalized e-commerce growth in, say, the high single digits, low double-digit zone than it was historically. And that's why we're making the investments today. This is why we're driving the momentum today to set us up very well for the future when macro challenges abate.

Nikhil Devnani

We talked a little bit about capital allocation already, but maybe we could come back to that. eBay has been fairly active, I would say, recently in smaller tuck-in deals. Strategically, how have you thought about M&A as a way to enhance the marketplace? And can you talk about the integration of these various deals that have taken place over the last couple of years?

Stephen Priest

Yeah. Our philosophy hasn't changed. I think we've again been great stewards of capital. The way I think about the way we deploy capital is through the build, buy, partner framework. We've talked extensively about the opportunities that we see with generative AI, and we can do a lot of build in that sort of space. A lot of the innovation that we're driving on the platform is built.

We've had some great examples of partnership. I think about Adyen, who's been a tremendous partner. We think about payment intermediation and we've just gone through that. More recently, over the last couple of weeks, we announced the PSA deal associated with trading cards. There is best-in-class grader and really sort of happy to be partnering with them.

And then on the buy side, you're right, we've done a lot of work to really enhance the relevance and speed of innovation on the platform. I think about collectibles and trading cards, you think about TCGplayer in the collectible card game space, think about investment in [indiscernible], think about the recent acquisition of Goldin Auctions, which is a really welcome in the team to eBay. It's great to have this ecosystem, which drives a greater level of relevance for eBay in that space.

I think about parts and accessories, where we acquired MyFitment that complements the importance of fitment in that space to help us get more relevance, get better fitment data, make sure that we're delivering the proposition for the customer. So we're myopically focused on the core of the business. We will make investments based on turning that and making sure that it drives sustainable positive GMV growth. And we'll be very thoughtful about whether we build, buy or partner and use sort of investors' capital very wisely.

Nikhil Devnani

I think in e-commerce, like in other verticals, we've seen a bit of a shakeout in smaller subscale players. And as the prices have come in, how do you think about the opportunity to buy maybe faster-growing marketplaces to grow your audience? Is that an attractive use of capital? Is that something you want to be doing? Or if it's not enhancing core eBay, it's not worth it?

Stephen Priest

Yeah. I mean it goes back to one point, it's got to be the right return on investment. I'm going to make sure that we use the same playbook, we invest wise in the business. We think as opportunities come along, we will look at them. But it's got to be the right return on investment for eBay. And again, our philosophy hasn't changed. We'll continue to do what we've been doing. And it's got to be about building the right balance and accretive growth for eBay.

Nikhil Devnani

Since you were talking about payment partners and some of the opportunities there, just an audience question on, how is the uptake on the financial products to platform merchants been? Provide an update on your partnership with Adyen. What has been the driver of shifting volumes between payment providers?

Stephen Priest

Yeah. I mean, Adyen has been a tremendous partner. We've worked with them for many years. I've loved how our payments ecosystem has continued to evolve. It's enabled us not only to intermediate payments across the $73 billion GMV that we have across the platform, but also an opportunity to monetize, right?

If you think about buyer effects, where someone lists an item in U.S. dollars as a seller and someone sitting in London wanting to buy that product in British pounds, historically, another party would have had the benefits of the arbitrage that now comes to eBay. And so we have this philosophy of finding great partners that we continue to work with, and payment is no exception to that. We have a number of partners that we work with, be it Adyen and PayPal, and other sort of financial partners to make sure this work. And I love the partnerships that we have because ultimately, it makes us so strong.

Q - Nikhil Devnani

Speaking of tools for sellers, the International Shipping effort and the progress you've made there, how do you -- can you continue to expand that to more merchants in more markets? And can that drive incremental uptake of GMV?

Stephen Priest

Yeah. For the benefit of the audience, I've seen eBay International Shipping as a great unlock. What I like about it, it's a great strategic play, but it's also great for financial architecture. And to just bring it to life, obviously, we talked about being a global platform. We bought an eBay International Shipping. If you're shipping from San Francisco to Munich versus San Francisco to New York, naturally, there feels like there's a bit more friction.

What's the level of unknown when you're shipping internationally, there's customs forms, the duties that might be applicable. It creates a little bit of angst sometimes for our sellers. And so we're launching with a partner to figure out how do we do eBay International Shipping and take the friction out. And now whether you're shipping that product from San Francisco to Munich or San Francisco to New York, it's basically the same for the seller. They ship it ultimately to Chicago, and eBay takes care of the rest.

We've now got 400 million listings that traditionally in the U.S. running domestic, and now they've opened up the aperture to a more global scale, which gets more eyeballs on the sellers' products, drives further health and conversion on the overall platform. So it's great strategically for us. It's great strategically for the sellers. And because of the way the architectures work, we have control over what we charge for buyers, et cetera, and so we can drive margin and earnings accretion as a result of it.

So very happy with the results that we've been seeing in the U.S. We continue to make a few tweaks to the proposition to make sure it's fit for purpose. And now in due course, we'll roll that out more internationally. And for me, at the moment, it's just about making sure that we're putting the right investment in dollars to work in the various parts of the marketplace. But we've been really pleased to see the results of the hard work on eBay International Shipping.

Nikhil Devnani

Is it just a test-and-learn before you scale it to more markets...

Stephen Priest

It's test-and-learn, but it's also about investment dollars and thinking about effectively prioritizing across the business. We have a lot of opportunity ahead of us, and we want to put the right dollars to work in the right areas of priority. And so when we're ready and we've finished the test and learning and we have the opportunities, then there'll be an opportunity to roll that out further.

Nikhil Devnani

Maybe that's a good segue just in the last minute or so here, Steve, you talk about balance a lot, balance between growth, investment. Can you just sum up again what investors should come to expect of you and Jamie and how that vision fits into the direction of eBay?

Stephen Priest

I mean, as I stand back and think about an investor in eBay or a potential investor in eBay, I want stability and I want consistency. And I think over the last four years, I'd give Jamie, a lot of credit. Hopefully, you sort of feel a lot of the business from myself as well. We've been very, very consistent in our mission to turn eBay around. The strategy hasn't changed. It's evolved a little bit as we've continued to see the benefits of our labor.

We continue to drive the direction that we have. I've talked extensively about focus categories and specific geographies and the horizontal investments that we're making. What I love about eBay, I love working at eBay. It's a fantastic platform. We do a lot of good. I love working with the teams. There's a huge potential unlock. And you're starting to see the fruits of the labor that we've gone forward with despite the macro environment that we're in.

It's a great time, as I said earlier, to be the CFO of eBay because we see the potential for long-term sustainable growth. But when I think about the financial architecture that we have in terms of our margin profile, in terms of our balance sheet, in terms of the capacity that we have, I think we're set very nicely for the future and particularly when the macro environment starts to turn around.

Nikhil Devnani

Great. With that, we will leave it there. Thank you, everybody. Thank you, Steve. Appreciate the time.

Stephen Priest

Thank you, Nikhil. Thank you very much, everyone.