eBay Inc. (EBAY) Earnings Call Transcript & Summary

Okay. I think it's coming through. Jamie, is your sound on?

Yes. Hi, Brian.

Great. Hey, Jamie. All right. Well, thank you for joining us. Good afternoon. Good evening. Good morning, wherever you're Zooming in from. We are thrilled to have Jamie from eBay to join us for one of our keynotes. Jamie just joined eBay this year. There's a lot of things going on at eBay, within e-commerce, within the macro space, obviously. So it is always -- it's great to have you here. Love to always talk through kind of what you're seeing in e-commerce at the company and sort of the changes that you're bringing. So thanks.

No, thanks for having me on, Brian, and hello to everyone.

I have to read the disclosures. The obligatory disclosures. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions about any disclosures, please reach out to your Morgan Stanley sales representative. Last time I have to do that. So, so far, so good.

So Jamie, thanks for joining us. I wanted to sort of start with what brought you back to eBay? You're a boomerang. You were at eBay. You went to another retail e-commerce company, which starts with the W and ends with the T in name, and now you're back. So I guess, let me ask you what sort of excited you most about coming back to eBay? And what do you think are sort of some of the more misunderstood aspects for investors at the eBay opportunity?

Yes. Well, as you said, I spent 8 years at eBay earlier in my career. And having spent 20 years in different omnichannel retailers, et cetera, coming back to eBay, I saw a couple of things. One is this amazing culture, this amazing brand and so much untapped potential and opportunity for the business. And I knew it because I know the power of the company, and I've been in other places and seen that I felt like eBay was a little bit too much trying to chase new in season and be like other competitors, like places I was at. When eBay has so much opportunity in its core business of non-new essentials in consumer selling and in those areas. So coming back, I wanted to really refocus the company on this massive TAM. When I look at it, it's a $500 billion total addressable market in this non-new in season. And by that, I mean, used, refurbished, N-1 outlet, and core categories across the business where it really excels, has these long-standing buyer relationships, these great and super passionate sellers. And leaning into that is the opportunity for growth. And I think one of the things that's misunderstood about eBay is, while a large percentage of the product is new, this non-new in season is more than 50% of what's available on the site. And there's a lot of what people come to eBay for. So as I laid out strategically those opportunities, it got me really excited to come back and lead what I'm calling the tech-led reimagination of eBay, is really rethinking our focus area, dramatically rethinking how we use technology to simplify the experience, to use AI and machine learning in completely different ways. eBay is an amazing platform because of all of that data, and there's just huge opportunity. So that's what excited me about coming back. And since I've been back, I've just thought, well, there's even more potential than I thought coming in.

That's good context. I think you've been -- I think you've been incredibly transparent in some of your comments as you've come back. We've talked about how you've lost market share to some of the larger traditional retailers, and I guess, even some of the niche vertical players. So I guess the question is, do you still see that as the case now? And how do you think about the key areas to invest in to stop that and ultimately start growing faster than other traditional retailers, other e-commerce players or the more verticalized niche players?

Yes. So first is really leaning in on the end-to-end experience in the non-new in season. It's a huge opportunity. We have allowed smaller niche competitors to build experiences in specific verticals. And what you see now is eBay really taking a step back and saying, let's look at our end-to-end experience and figure out how we change it. So part of that is the launches, which I can talk about that we've done in sneakers and Certified Refurbished and in other areas, and we can get into that today. But another part is also just looking at the whole consumer selling opportunity. When I think about consumer sellers, folks like you and I, selling stuff on the platform, we have $4,000 of items in our houses that we could sell and less than 20% of that is online. And I call that the inventory gold because people in general are just trying to make a return on that product. And so it's great values on the site. It also brings really unique inventory, inventory that a B2C seller wouldn't have. I'll give you an example, which is I bought my daughter an oboe on the platform. And this is not a product that a B2C seller would have. It was pre-owned, but amazing condition. A really great experience with a consumer seller buying that product. And that's something that's really unique to eBay, where only we can win. The other benefit on the consumer seller side is that when we get you to sell on the platform, you become more than twice as valuable as a buyer on the platform. And so it has a certain flywheel effect of leaning in there. And I think it's an area, if I'm honest, we haven't focused enough on, the process of listing and selling is still too hard. And so we're dramatically looking at how do we simplify that experience and really leaning into consumer sellers. We have such an opportunity because if you look at the platform, we have 183 million buyers. We're the only platform that has the massive cross-border trade opportunity to not only sell domestically, but to sell throughout the world. And when you look at the 90 million sellers on the platform, it's just a real opportunity to lean into those categories and really drive a completely different experience.

That's good context. I sold a Star Wars toy that I had when I was a kid just recently on eBay. So there's a marketplace for anything, especially around the holidays. You talked about a little bit sort of the key tenets to the turnaround and sort of focusing on a few areas. I guess for the audience here, it might be helpful just to sort of remind us again of sort of the 1, 2, 3 areas you are most focused on. And then like in your head, as you're sort of compartmentalizing them, talk to us about where you see the most low-hanging fruit within each of those as opposed to initiatives that are probably going to take a little more time and just more patience to really capitalize on?

Absolutely. So when I look back on our core strategy, it's really this tech-LED reimagination to be the best marketplace for buyers and sellers. And the first key part of that is defend our core business. And that's what I've been talking about. Really looking at the verticals where we need to win from a non-new in season perspective to really capture that TAM, which, by the way, is growing double digits and is a huge opportunity. And the second key piece of defending the core is really leaning into that consumer seller, dramatically changing the experience. And we're starting to see wins along the way there. And over the course of the next few quarters, you'll see a completely different selling experience on the site and some key improvements because it's an area that we're leaning into pretty significantly. The second key piece is really to be the seller platform of choice. And there's a lot of things that we're doing to help our larger sellers. B2C sellers still make up a huge amount -- the vast majority of the inventory on the site to help them make that selling process easier and be the partner of choice. So one example there is adding our stores' experience to the native app recently, giving them more exposure because of those capabilities. New pricing tools and consumer research that we give them through Terapeak, an offering that we have for our B2C sellers, and we're continuing to enhance those. Another one is things like seller-initiated offers. What I love about things like best offer and seller-initiated offers is they're really unique to eBay because they allow that communication between a buyer and seller. And seller-initiated offers has grown so much that it's now $1 billion of GMV being done where sellers can actually initiate an offer to a buyer that's watched or that's looked at one of their items on the site. And it's a great new tool for sellers. And we're continuing to innovate and find new capabilities so that we truly are the seller platform of choice. And then the third one for us is turning buyers into lifelong enthusiasts. So over time, if I look at the past few years, you asked me what I thought was not headed in the right direction. I think as a business, we were too focused on just acquiring buyers into the platform and not really moving them up the cohort curve to lifelong enthusiasts. The beauty of eBay is our organic traffic. 80% of the traffic that comes into eBay is organic. people literally coming directly to ebay.com. And that's because we've really done a good job of turning buyers into enthusiasts. The last few years, I think we've just focused too much on that active buyer number and not enough on that transition for them. And trust is a huge component. So a lot of things that you see us doing like the authenticity guarantee that we just launched, Brian, are really about how do we build a new level of trust in the platform for our consumers so that it's not only lifelong, but it's really at a different level of trust in the platform.

Got it. That's helpful. There's a couple of things I want to drill into a little more there. On the buyer point, 2020, it's been a very difficult year in general, but it's been a pretty incredible year for e-commerce, including the buyer growth and the GMV growth that eBay has put up. Is there anything you can tell us that's been different about the demographics or the characteristics of these buyers who have come on to the platform that are new? And then just talk to us about some of the strategies you have in place to make sure that you retain as many of those buyers as you can and really maximize the '21 and '22 earnings potential from the situation.

Yes. Well, what I'm pleased about is a lot of the acquisition that we're seeing is actually from Gen Z and millennial and from younger consumers. So if I think, for example, in our sneakers category where we've made a lot of innovations, over 1/3 of those buyers are Gen Z buyers. And what's great is when they come in via sneakers, they not only end up buying in that category, but they end up buying in 10 different unique categories across the platform. And so we're acquiring them in a category of really interest. But then only eBay has the scale and the scope of breadth of categories to really let them buy across a large swath of inventory. And that's what's really exciting and compelling about our business is that ability to acquire them in certain areas. Right now, PS5s are a really hot product. So we're acquiring a younger demographic in those and really being able to translate that to a longer lifelong trusted relationship, as I talked about in other categories. It's because of our scale. If you think about Q3, we added $4 billion of GMV just in that quarter alone, and that's because of the opportunity to move buyers across categories. But we're really leaning in. We invested over $100 million from the upside that we've had over the last few quarters, into things like driving those customers into app downloads because obviously, when we get them on the app, it's where the majority of our purchasing happening, that makes the buyer more sticky. We've been investing, if things go wrong, how do we recover that buyer and make sure that they become a lifelong buyer on the platform? Leading into consumer selling promotions across the site in all of our geographies. And then fourth is trying to do the same thing on the selling side. So we have a program we launched in the U.S., called Up & Running. We had similar programs in the U.K. and in Germany. And those products are really designed for those sellers that are struggling off-line, how do we bring them on to the platform and give them new online capabilities/because that brings buyers to the site, too, is just bringing more diversity of inventory onto the platform.

Got it. That's helpful. I want to talk about sort of some of the vertical-specific focus that you talked about and referenced a little bit around shoes and sneakers, watches and then the certified authentic items. I guess the question is sort of, one, why those categories? Or what drove you to go toward those categories to focus on first? And what has sort of been the early learnings from the initiatives of increasing focus on them?

Yes. So let me start with watches. So when you look at a category like watches, it's a great category for us. A lot of new but a lot of new in season, preowned, a lot of collectors in the space. And a category with not only a big TAM, but one where the online -- a lot of the off-line over the next few years will be moving online, same thing that we think we'll see in sneakers. And so when we looked at that end-to-end experience, we said, we really need to change a bunch of things. One is we want to put an authenticity guarantee in. So every watch over $2,000 will actually stop at an authenticator in both directions, both on a sale and if there's a potential return to make sure the customer is getting the product that they wanted. And so what we wanted to see there is higher selling prices, people bringing more inventory and really just a higher level of NPS. And the early signs are we're seeing all of those things in a positive direction. Then what I'm really proud of is, while it took us months to develop that experience in watches, we were able to launch it weeks later for sneakers. And in sneakers, we do the same type of thing, every sneaker over $100, starting with top brands, we'll do every sneaker over $100 by the beginning of next year. We'll actually stop at an authenticator, have a really great chip. I was watching a YouTube video of a sneaker enthusiast talk about the experience on eBay of here's the chip and you hold your phone up to it, You see what the sneaker is. You know that it's authenticated. And that buyer then is not only going to buy more sneakers, but they're going to buy other stuff on the platform because of this new level of trust that we put into that experience. We've also done a new level of marketing. So we're going out and reaching these consumers where they are, Brian. We had a TikTok promotion that went extremely viral. We got 4 billion views on that. If you're -- on watch enthusiast sites, you'll see us promoting this authenticity guarantee. We're now doing escrow over $10,000. So it's really a game-changing type of experience on the platform. And what we're seeing is that the NPS, which used to be in the 60s, is now in the 80s. So -- and recently in the high 80s. So you're seeing this dramatic change in NPS from our customers because they realize the value of the experience. Let me just finish on Certified Refurbished because I think it's really at the sweet spot of the type of experience that we're talking about for eBay. Certified Refurbished is a tens of billions of dollars of opportunity. It's always been a core category for eBay. But we did the same type of thing, which says how do we lean in, in that category? And what we wanted to do is a game-changing level of trust there. So we added a 2-year warranty, 30-day returns, eBay money-back guarantee, all part of Certified Refurbished. And we went out and recruited brands like De'Longhi and Makita and Lenovo. In a lot of cases, we're their exclusive distribution channel for their Certified Refurbished product. And so it's a way to say, look, for these amazing values at a product that it's going to be hard to tell it's not new on the platform. Like I bought a computer and a drill, and there's no way, without seeing the box, you wouldn't be able to tell this is a new product. They've got a 2-year warranty. It's just an amazing value on the platform. And what I like about these is that we're building horizontal features that allow us to compete better vertically. So these authentication capabilities that we've built and this new level of trust, it's not only relevant for those categories, but think about handbags or other high-selling price items on the site, other luxury categories, high-end collectibles. There's lots of opportunities to take, capabilities that we're building vertical by vertical and extend them across categories, extend them across the world. And that's the power of the eBay platform, and that's what gets me really excited is our ability to keep innovating quarter after quarter to really dramatically change the customer experience.

There's a lot to go after. I mean I think you talked about the $4,000 in people's closets. There's a lot of inventory to go after there. The certified piece, I think, is really interesting. So I have a couple of questions on that. So as you think about all the supply that you're going after between closets and non-new in season and then refurbished, et cetera, how do you think about sort of changes in the B2C versus C2C mix over time if you sort of are able to execute on these? And does that impact your bottom line average unit economics at all?

Not really. The C2C growth, if you look over the past few quarters, actually outpaced our B2C growth. But B2C is still the majority -- the vast majority of what's on the platform. And I think it's actually the 2 together that is the secret sauce for eBay is the magic of having the ability to buy the vast array of products that a B2C seller has on the site while there's all that uniqueness of the inventory from the C2C side. And when we think about the economics, what the economics are really being driven by is, one, is the launch of payments. So payments not only allows us to simplify the economics for a seller because now we can do a single take rate, but allows us a whole new monetization opportunity for them. And the second is advertising. Advertising is on pace to be over -- we thought it would be $800 million. It will actually be $900 million this year. And what that does is it gives sellers capabilities to promote their items. And eBay has always had a level playing field where a C2C seller could sell right alongside a B2C seller. But now with advertising, it's even more of an opportunity to be able to put your products on there, get the necessary exposure. And that, obviously, also changes the monetization opportunity for eBay. What I like about both of those, though, is that they're also enhancing the customer experience. So on the advertising side, we're doing it in a way that those listings are actually enhancing and improving the experience, which is fantastic. And on the payment side, it's not only about the opportunity financially, but it's also about the fact that think about the new buyers. We acquired 9 million new buyers over the last 2 quarters coming on. Historically, they would have had to set up an eBay account, then go set up a separate payment account. And there's just friction in that, that it's all going to be so much simpler once we've completed the payments rollout. So really excited for those 2 monetization opportunities more so than anything else.

Maybe let me ask on payments then. The payments business, one, just sort of give us an update on what percentage of the business is going through your own payments offering right now? And then as you sort of look ahead into '21 and '22, what is sort of the largest gating factor that you need to overcome to continue to drive strong payments adoption by your buyers and sellers?

Yes. So we were gated by the -- our agreement with PayPal that we can only do 2 countries and up to 10% of the business. Once that ended over the summertime, we had really pre-registered a lot of sellers, 300,000 sellers coming onto the platform as part of that initial launch. And at the end of last quarter, we announced that we're now doing 20% of the on-platform GMV. So that was, I think, 10% in 2 countries, so that's like single digits. That quickly ramped up to 20% of the GMV, and we're feeling really good about it. We just launched our consumer selling experience with managed payments 2.0. So we're starting that now. You -- we had to make a number of modifications to just make it easier for a consumer seller to come online. And obviously, that's going to take a little bit longer than a business seller just because they're not coming to the site all the time when we need to actually convert them. But what we're doing is building capabilities over time and unlocking more countries, and that's really the gating factor to getting to our goal of having it all complete by the end of '21. Things like cross border trade, if you're selling into a market that we haven't turned on yet or we haven't built that quarter, we're not going to convert that seller to managed payments 2.0. So as we convert those sellers and turn on those countries, that will continue to ramp as we build those capabilities over the course of the year, but -- so we see it as an 18-month transition, Brian. We plan it to be done by the end of '21. We feel on track for that. And the stat that I'm most excited by is that sellers that are on managed payments have a 10-point higher NPS than sellers who don't. So what it's showing you -- and I know a lot of people here have followed eBay for a long time. Sellers in general hate change on the platform. So to see them really embracing this change, liking the clarity, liking the simplicity, shows you that we're on to something. The second thing that excites me is, look, once we have a wallet, once we have the integrated payments, both for buyers and sellers, it just opens up the opportunity for eBay to do new things on the payment side that we've never been able to do before, when we've only managed the commerce and the payment's been handled separately. And that excites me, too, because as we complete this transition and get into 2022, it gives us opportunities to just do more with the customer experience and with both our sellers and our buyers.

Could that be sort of -- you mean like extra, extra revenue stream in extra businesses like FX translation? Or sort of help us unpack -- see what you mean by extra new opportunities there.

Yes. When you think about -- manage the process now is allowing us to do seller fee netting, which makes it easier for them and manage that process a whole lot easier. It's allowed us to open up new payment avenues. So now you can use Google Pay and Apple Pay and that type of thing. And so as we do it, there's more capabilities that we can give to our sellers to help them with seller financing, other conversion benefits, et cetera, that are really significant. We also just think that as we get it all transitioned, and we have store payments on file and everything is so much simpler and we take steps out of the process, there's a conversion opportunity there that's pretty significant just to be able of converting buyers and bringing new sellers onto the platform because for them, they won't have to go set up a separate payment mechanism to get paid.

Yes. Small changes in that conversion make a big difference. I remember building a sensitivity table a couple of years ago. It's a big deal. Okay. Well, that's exciting. Let me ask about the other piece of the emerging business that you talked about in advertising. You've had pretty good success at scaling that business so far. But maybe just talk to us again about your -- the areas where you've had the most success, that $900 million this year and sort of the hurdles, the investment areas you see on the advertising side to make that into a $1 billion, $2 billion, $3 billion business.

Yes. So you know what, I feel great about the advertising business is what I said upfront, which is it's not degrading the buyer experience. And in fact, it's slightly positive. But more importantly, the business that's growing there is our 1P, our Promoted Listings business, is growing really well. So it grew 35% -- overall advertising grew 35% last quarter, which was ahead of our GMV growth. But our 1P business or our Promoted Listings business, grew 77%. And what it shows is that sellers are leaning in, they're finding value in the product, and so that's what's driving the growth. And look, I think we'll continue to see here in the near term, the advertising growth outpace our GMV growth because of the experience of what we're building and the new capabilities. As we make it simpler, it's easier for us to bring more of that C2C or that consumer seller into our advertising product, which opens up opportunities. We're looking at opportunities for how do we just make more capabilities across the site to have 1P opportunities that our sellers can bid on and participate in. And that, we think, will continue to keep the volume of advertising, outpacing our GMV growth, which obviously healthy for the business, but also is having a nice material impact on the overall experience.

Got it. Okay. Last one I had for you. As a new manager comes in and you do have a new leader, you have a lot to go after. There's a lot of TAMs where you're sort of going after. Maybe just talk to us about how, philosophically, how you think about investing in these areas to make sure you capitalize them as opposed to still delivering on margins, free cash flow and ensuring that your shareholders are getting appropriate returns even through the investment period.

Yes. Look, our capital tenets hold true, and the philosophy that we've had over the years stayed true. If you look at last year, we bought back $4.7 billion of stock. We've obviously had our dividend in place and continued to pay that out, so really kind of taking a shareholder-friendly approach. And at the same time, since I've been here, I've been pulling costs out of the system to allow us to reinvest into areas that are extremely important to us. I talked about taking some of the upside from the past 2 quarters and reinvesting that into the business, like getting off of some of our legacy technology. And it's really 2 big buckets on this tech-led reimagination. The first is this vertical and C2C, defend the core focus that I talked about. And I feel great that we laid that strategy out in July. In the following quarter, we launched 3 new verticals with new experiences and continuing that pace of innovation of months to weeks is what excites me. And so that's a huge opportunity for us. But secondarily is we're making a lot of big horizontal investments as well. So those are the investments we're making in payments and the key to that ramp, investments we're making in advertising. We continue to make investments in our search and our buyer conversion experience. In fact, last quarter, we launched some great new technology in search that actually helps our conversion pretty considerably. We're making improvements across our selling platforms to make it much simpler to list, much simpler to deal with item specifics. So we're taking these big horizontal initiatives, combining them with the horizontal initiatives like authentication, the new experience that we talked about, escrow to allow us to compete better vertically and using those to really kind of change the opportunity for eBay over the next couple of years. And what I've said is that this is a multiyear effort, but it's not a big bang approach. We're going to see wins along the way like we're seeing here. And it's part of why I was excited to come in is, I feel like I've got a track record of being able to balance kind of a big growth opportunity with how do we pull costs out of the system? We're still committed to the 2 points of margin that we've outlined for 2022. And thus far, I feel really great about our ability to use that to fund the investments that we've talked about today.

Great. All right. Well, Jamie, thank you so much for joining us. We're excited to see the journey and all the new product launches and everything to come. It's been great.

Awesome. Thanks for having me on, Brian.

All right. Thank you, Jamie. Thanks to everyone for Zooming in. Hope it was helpful, and we'll talk to you all soon. Hopefully, live next year in London, Jamie.

That would be great. Would love it.

All right. Thanks. We'll talk soon.

Take care, everyone.