eBay Inc. (EBAY) Earnings Call Transcript & Summary

Good morning, everybody. Thank you for joining. My name is Nikhil Devnani, I'm Bernstein's U.S. mid-cap Internet analyst, and it's a pleasure to have Steve Priest, eBay's CFO, with me on stage today. Steve took over as CFO in June of 2021. And it's been obviously a very dynamic e-commerce environment for the last couple of years. But -- through that time, eBay has been able to generate pretty steady EPS and free cash flow, and I'm sure we'll get into the financial flexibility of the model in today's discussion. But Steve, thank you for being here. Welcome back to SDC.

Thanks, Nikhil. It's great to be back here in New York. I love New York. It's a great seat to be, and good morning, everyone. It's good to see you here.

Just a quick programming note. If you would like to submit questions, you can do so via the QR code on your agendas, and you can also vote on other questions that have been submitted. And with that, let's get started.

Steve, eBay has gone through several changes over the years recently, new leadership, product development, even some M&A. And of course, COVID has created opportunities and challenges. But COVID aside, the marketplace has been on this tech-led reimagination, as Jamie talks about it. So what, from your perspective, have been some of the biggest kind of changes at eBay?

I think the pivot, as we sort of went through for the non-new-in-season and going back to the core that eBay is all about, we saw that as a great opportunity for us to focus on that TAM to sort of drive momentum in the business. I think the biggest thing for me that has worked over the last 2 years has been really leaned in hard on the sort of focused category playbook, which has all been about building trust with consumers. When you think about it, we start to do watches and sneakers and handbags and trading cards and, most recently, sort of driven significant growth in parts and accessories and the momentum that we're seeing there. And we've gone category by category, country by country in terms of rolling that out. The other thing I would say is the say-do ratio have really been taken by that at eBay. When we talked about migrating payments over to eBay, building our own payments platform, driving over $2 billion of revenue, over $0.5 billion of OI, it was a little bit of a show-me story we executed flawlessly. We've gone through the same process with ads, where we've put commitments out there, and we're well on track. So I think that what I've seen the last 2 years is a team that's really stepping up. And then the final thing I would say is really about the speed of innovation. We've brought some great talent into the company. A lot of the investors I speak to talk about the size and scale of eBay and the speed at which we're executing. And I'm really pleased with what we've done over the last couple of years and we're on the right path.

And as you look ahead, what are like the top strategic priorities that you have and Jamie has over the next 12, 18 months?

It's straight in line with what we laid out. We shared with the investors in March last year our medium-term vision and the execution that we needed over the next couple of years. We're myopically focused on that. We're executing well. Again, it's about driving the focus category playbook to build trust on the platform with a focus on driving mid-single-digit growth on a sustainable basis on a GMV basis. It's about driving the monetization of the platform, though payments and ads and additional services. And it's really about maintaining the robust nature of the financial model, which, as you said, it's -- as we've navigated these turbulent times, this macro environment is an incredibly resilient model. And we'll -- as we continue to execute towards the strategies, it's one that has very, very strong sort of financial architecture.

And I think eBay is still one of the top kind of shopping destinations in the world, but -- it's also a very competitive market and arguably increasingly competitive, not just omnichannel retailers picking up steam and in e-com, but also you look at some international businesses coming out of China scaling now. And so that market share has been under some pressure. I mean, where do you see kind of the competitive landscape today? Where do you see it going? And how does eBay fit into that as you look out 5, 10 years?

Yes. I mean, competition has been a common theme for us. We're 28 years old. We've been dealing with that over many decades. Inevitably, competition remains pretty significant, but we're leaning in hard. I think about the verticalization of eBay's platform, the investment we're making in focused categories, the sheer size and scale of eBay, where we've got 1.8 billion listings, and the opportunity for customers to shop across channels within eBay is a competitive advantage to us. We also have the fuel. If you think about in this competitive environment, we have the fuel to invest. We're monetizing the platform effectively, and it's enabled us to drive incremental trust for customers and ensures that we compete effectively. And I think about focused categories, that grew the rest of the platform by 8 points last quarter. And P&A specifically is growing at market levels of growth. And so despite a competitive environment, we're executing well, and I'm pleased with the results that we see.

Just maybe near term a little bit before we get into some of the longer-term strategic initiatives. Elephant in the room is obviously macro. You've talked about it at length, and it does remain challenging. It's been a headwind to growth in recent periods. But maybe some signs that it's stabilizing a bit, at least as you look at your international business, it feels like there's some sense of that. So I guess what trends are you seeing across your marketplace? How would you characterize how the eBay shopper is behaving today?

Yes. There's a couple of dynamics at play. As I take a step back and split it between international and the U.S., if you think about the awful events around this time last year, first quarter last year with the atrocities in Ukraine, the key European markets became more challenged more quickly. Think about the impact on energy prices, consumer sentiment, inflationary pressures, et cetera. The same time last year, we were seeing continued challenges with regards to trade flows, particularly from the Far East with some of the COVID lockdowns going forward in supply chain challenges. And so -- on an international basis, you're lapping through some of that where this time last year was a little bit more onerous. The U.S. was a little bit later to start to see some of those impacts. So I remember calling it out in October about some of the challenges we're starting to see. So you've definitely got that lapping impact. I think as I've said publicly, I would describe it as choppy. It's very, very difficult to predict. You speak to a lot of commentators out there. Obviously, the debt sailing issue all being well in the U.S. is behind us following yesterday. But we are continuing to see a very choppy macro environment. We have purposely just guided the quarter out. We've given some directional color for the back end of the year for our planning assumptions because there's a tremendous amount of uncertainty out there. The one thing I would say about eBay, we've been very, very disciplined about how we're working through the macro environment and planning effectively. And we'll take a balanced approach to taking cost out in the short term in terms of driving operational efficiencies to provide the capacity for us to invest for the medium and long term because we believe that's the right thing to do.

And so it sounds like at least international can start to be -- at least the gap between the U.S. and international business maybe starts to narrow and that starts to contribute a little bit to overall kind of GMV?

We don't forecast the different geographies. Obviously, we report those as we go through them. I think, again, the dynamics that I've described are really a function of some of the lapping dynamics. Again, as we go further through the year, it's not clear where the economic environment will go. But the key thing for us is that we're planning effectively to meet whatever outcome comes, and we'll be in good shape to weather the storm.

And while it obviously helps to be in a probably faster-growing e-com industry overall, to some degree on -- at least on a relative basis, you benefit from this trade down dynamic because you sell products that are secondhand or refurbished. Can you talk a little bit about that because you did see some good engagement in some of those verticals in the last quarter.

That's right. I mean, as I stand back and think about eBay, the size and scale of the platform, I think ballpark $75 billion of GMV across 190 countries. We will ebb and flow based on the macro environment. But the one thing, to your point, is with the focus on non-new-in-season, with a focus on a tightening of the belt from a discretionary income and spending power standpoint, there is an opportunity for us to help those value seekers that come to eBay to look for those hard-to-get products or looking for value. Certainly, on the refurb side, we called out that during Cyber 5, last November was our highest sort of sales through that period of time. And in the first quarter, we saw healthy double-digit growth in refurb where customers are looking to get pre-loved items, whether it's their thought process around ESG matters and the impact on the environment, but also those discernible shoppers looking for value. So I think we're well placed regarding the strategy that we're adopting for non-new-in-season.

And has that been an improvement as the macro has evolved? Or has it just been a consistent factor?

Again, as we -- we'll get buffeted around by the macro environment we're operating in. But what I would say is a focused category where we're leaning into refurb, building trust on the platform, think about things like 30-day money back guarantee sort of no-questions-asked 2-year warranties on some of these basic electronic items that are refurbed. It builds a level of trust with the customer, where they're looking for value and they're going to come forward. And that's a great example of where we're seeing traction on the platform and building trust that customers love.

And has there been any kind of trickle-down effect on the supply side of things, I think we are focused a lot on demand trends. But -- there's a lot of excess inventory in retail right now. Has that translated to more listings on the platform as well?

I mean, we look at the listings on our platform. It remains very robust. As of last quarter, we called out, we got 1.8 billion listings across the platform. So that's why customers love coming to eBay because of the wide selection that we have. The other thing that we are purposely leading into is the eBay International Shipping program that opens up the aperture for buyers and sellers and taking friction out of the seller experience. So it's easy to sell something from San Francisco to Seattle is -- some has just go through Sydney, it is from San Francisco to Seattle through some of the initiatives that we're taking forward. So robust supply and continue to provide a better opportunity for sellers to execute on the platform.

And if we just double-click on kind of your guidance for the second quarter, you pointed to a declining year-on-year between 5% and 2% on an organic constant currency basis. That's still some pressure, but improvement last year, I think it was down around 11% constant currency. Is it predominantly like the lapping of comps, that's the factor or any other things you would point out as being the helpers there in terms of that directional improvement?

I mean, the guide is really a function of 2 things: one, the macro environment. Well, there are 3 things. One is the lapping dynamic that we talked about. Two is the macro environment that we're operating in. And thirdly, it's about execution of the playbook that we've put out there and the traction that we're getting. And I'm really, really pleased that teams are executing well and we're driving momentum on the platform.

And as we look out kind of beyond Q2, I know you haven't provided official guidance like you mentioned. You did offer a bit of a framework or at least the internal plan which was that sequentially things should look potentially like they did last year. So just as a kind of first question on that, when you look at last year, I mean, you were fighting reopening a little bit. Your focus category efforts are scaling this year. Is there some conservatism to that outlook, would you say or would you not characterize it that way?

We wanted to provide some color because I don't know, you don't know, I'm sure people in this room don't know what's going to happen in the macro environment. But what was key for us is that we shared with investors how we are planning for the business for the back half of this year. We will remain nimble. You've seen us do that over the last couple of years, and we'll continue to be very thoughtful about the architecture that we have for eBay, leaning in in the short term to drive operational efficiencies. And we will continue to invest for medium- and long-term momentum in our business. And the color we gave out in the second half is really to give the investor community a sense of the color of how we're planning our business.

And I think the kind of the second conclusion for me when looking at that color was it's not hard to get to positive growth again. So you're feeling good about the ability to kind of return to positive and go from there?

I'm feeling good about the momentum we're seeing. I'm feeling good about the traction we're seeing on the commitments we made for the medium-term aspirations that we laid out at Investor Day because we're executing. So I'm feeling good about the underlying traction of where we're going. Where that -- where we land in the short to medium term will really be a function of the macro environment and just the duration of the current challenges and the severity of them will define ultimately where the numbers lay out.

Maybe that's a good segue then to the medium term. The focus vertical strategy is kind of core to that growth thesis. Maybe for those in the room that might be less familiar, can you just kind of step back and take stock of what the focus vertical strategy is and where eBay kind of stands on that journey, right?

Great questions. So as I stand back from eBay, let's just think in broad brush terms, thinking about the sort of $75 billion to $80 billion of GMV. The thesis says half of the platform of what we sell is touched by focus categories. Well, what does that mean? It means that we deliver the products that customers want on the platform and build trust across eBay. I'll give you some examples of that. In Luxury, it's authentication. If I go on and buy a watch or a handbag or sneaker or a trading card, I know what I'm getting and it's authentic. So we drive authentication. If I want to buy a car part on the platform, I can trust the car part is going to fit my car. And so we talk about fitment and we've built the tech, and make sure that we stand behind the fitment guarantee on the platform. If I'm buying a refurbished product like a refurb vacuum cleaner or TV, there is a 2-year warranty. So I know that if I buy a refurb product and take it home, it is going to work or, alternatively, I've got a warranty that is a backstop. So it's all about building trust on the platform. We're going category by category, country by country. The thesis is we'll touch 50% of the GMV on the platform, and the 50% that we touch through the focused categories will grow at market rates of growth. The rest -- the other 50% would be flattish. And so in an environment where normalized e-commerce growth is like high-single digits, think around this 9%, 10% zone. Do the math, half the platform grown at 9% to 10%, half the platform being flat, it's the mid-single-digit GMV growth. For us, that momentum in terms of the architecture is what changes the investor perception and the paradigm of eBay, and it really drives a very, very healthy ecosystem. The execution in payments and ads. Again, we laid out very specific targets with $300 million of incremental payments revenue. We talked about 2% ads rate penetration across the platform with GMV and $2 billion of ads revenue in 2025. That helps fuel the investments in the business. And ultimately, it's about driving topline growth on GMV and the earnings power that comes from that growth and also, obviously, the revenue benefits of the ancillary initiatives that we have around the platform. And that's the thesis that we laid out in quite some detail just over a year ago. We were executing well. As I've mentioned, ads and payments getting great penetration, focused categories going well on a category and a country base. In fact, yesterday, we rolled out streetwear, a complementary focused category to sneakers. It's great from sort of Gen Z standpoint in terms of bringing younger discernible buyers onto the platform. Some great brands and products that have come on to the platform. So I'm really happy about the progress that we're making there.

Just a related question from the audience that's come in around reconciling the improvement in execution, kind of the faster velocity around product shipment with the aggregate trend in kind of GMV and buyers being kind of below 2019. I mean, what's your take on how to reconcile those 2 things?

It's a function of macro. I mean, we obviously went through the pandemic. We've come out the other side of that. The business is at a much healthier place than it was coming into the pandemic. In fact, we were shrinking in 2019. As we left 2019 and came out of the final quarter of 2019, the GMV was shrinking low single digits. The planning assumptions coming into 2020 were a continued shrinking of eBay. And so we're in a much, much healthier place now than we were coming out of '19. And the ultimate topline numbers are really a function of the macro environment. The other thing I would say is that we've gone through the last few years and simplified the business. We are myopically focused on the core. We created tremendous shareholder value by looking at the assets that we held at eBay. We went through significant divestitures with regards to StubHub, the classifieds business, the career business, to really focus on the core of eBay in terms of our investments and then, ultimately, any of the acquisitions that we've done more recently are focused on building the core. And so again, I think that will continue to give us some competitive advantage as we go forward.

And a year ago, we talked about focused category coverage being around 20%. Today, it's around 25%. So implies some acceleration needed to get to 50% by the end of next year. I guess how do you feel about how quickly the strategy is ramping and the success you've seen in it so far? Would you characterize it? Have there been challenges along the way with rolling it out?

We've been very thoughtful as we rolled it out to make sure that we've got the right products. We've built the right tech. We've built the right full funnel marketing perspective, whether that's through owned, earned or paid marketing spend on a category-by-category basis. You're right. At the end of 2022, we were at 25% coverage, 28% in our big 3 markets. We see modest improvement in those numbers since then, as I just mentioned, we rolled out streetwear yesterday. You'll see this go in chunks as we go forward, and we bring certain countries on board, then we'll build them in. The thing for us, we've also continued to invest in categories that we've already defined as focused categories. So parts and accessories is a good example of this. We've seen great customer reaction to guaranteed fit in the U.S., where we're backstopping financially if the part doesn't physically fit the car. We're rolling that out in Europe in the summer. So we're driving the business forward. We're driving better penetration in the categories across the platform. And again, like some of the other items, the absolute timing of getting to that sort of 50% will be influenced by the macro environment and where the investment dollars come from. But we're on track with the investments we're making and the penetration of the business.

Is that because the macro environment influences kind of the reinvestment capacity? Or does it change how you think about categories that are worth kind of working on them?

Yes. I think what I would say is that the financial architecture, as I mentioned earlier, is it gets fueled by a lot of the sort of topline growth that goes forward, and also the dynamics of where we invest and where we cover this. Parts and accessories is a good example of this. People are buying less new cars at the moment, and people are retaining the cars that they have. And so we saw that as an opportunity to lean in more in parts and accessories and drive greater traction in that category versus jumping to the next one. And so there will be a balance in terms of investing in the categories that we see an opportunity with and also get into new categories when we get to them. Because at the end of the day, it's all about, again, driving the sort of topline GMV growth and fueling earnings power for our shareholders.

And so the focus verticals grew, I think, at a low single-digit pace in Q1. I think as you look at some of the positive contributors to that, you mentioned auto, refurb as well. In the past, it's been sneakers. How much of this comes down to the strength of the category in a given period versus the focused vertical strategy kicking in? And I guess in other words, is what have you seen from a market share perspective in these focus categories since you've kind of worked on them?

Yes, there's definite improvements in our traction from a market share standpoint where we have invested in the categories and they've gone forward. The best proof point of this -- we've got 5 mega categories on eBay. We've got parts and accessories, home and garden, collectibles, fashion electronics. They're all over $10 billion categories. So the biggest one that we've leant in today is parts and accessories. We talked about this, from our perspective, been a market rates of growth last quarter because of the traction we're getting, the investments we've made and the level of trust that we've built on the platform. Other category, for example, think about luxury. At the end of the fourth quarter, we talked about a double-digit CAGR of growth in the lux categories that we leant into on a CAGR basis since 2019. So we are seeing growth in the focus categories. And ultimately, as we've said, in aggregate, focused category GMV grew year-over-year 8 points faster than the rest of the platform, which is another proof point that the strategy is clearly working, and we're getting the fruits of our labor as we go forward. And so for me -- and it's interesting talking to a number of investors post last earnings call, we do continue to be a show-me story as we're going through it. There are the execution that we're seeing, the proof points on parts and accessories, for example, the thing we talked about with regard to refurb earlier in the conversation, these are the proof points that investors are starting to see from eBay and realize that the thesis is coming to life.

And in some of the earlier categories like the sneakers and watches and -- are you still seeing durability of growth there? Are those verticals still growing?

We haven't specifically talked about a specific category in a specific quarter and broken that down for competitive reasons. But the direction, as I mentioned, lux where sneakers is a part of, we saw that over the period from 2019 through the end of 2022, we saw a double-digit CAGR in terms of growth going forward. So it's clear that we're seeing durability in the focus categories that we've invested in and customers are coming back to eBay on -- with respect to the macro environment that we're operating in.

And how long does it take to kind of jump start a vertical or category with something like auto parts, when did you start investing in it from a product development standpoint, but then also presumably brand awareness and marketing tied to it? How long does that ramp take to come to fruition?

I think it's fair to say with parts and accessories we've probably been at it for about 18 months or so now. It depends on the category. I mean, streetwear will be a fast follower to sneakers, for example. We've recognized what customers are looking for. We've recognized what works from a full front and marketing standpoint. We can use that as a sort of fast follower. We look at another major category on the platform to understand what it is customers are looking for to build the tech to sort of get traction, might take a little longer. So there isn't a sort of generic, it takes this amount of time. It depends on the category, it depends on the customer base. The other thing it depends on -- so often when we've rolled stuff out in the U.S., we'll do a fast following in other markets and drive authentication, for example, in Germany or U.K. or Australia off the back of the U.S. And again, we end up having fast followers. But it depends on the category. It depends on where we're sitting in terms of the competitive environment. But whenever we do it, we want to make sure we do the right levels of investment and deliver a product that customers love.

And you talked about trust, obviously, being a core component of it through some form of, I guess, of authentication or making sure consumers know what they're buying effectively, depending on the category. Are there other gaps that the team is working at as well? I don't know if it's in search or payments or however you want to take it. But besides the trust component, what else underlying this like helps you kind of get to a more steady level of growth?

Yes. I'm really pleased with the talent that we have attracted to eBay, particularly over the last sort of 12 to 18 months. There's been some sort of -- some dislocation in the employment environment in the Valley, and we've attracted some really great talent to eBay. Things like search and really looking at SEO under the hood and bringing that talent in has been a great thing for us. The thing I'm -- because that touches the whole platform. It's not just about one specific category. And so we're building trust across the platform. Think about ads, for example, and making sure that sellers have got eyeballs on their products. Think about payment services, we're now driving things like Buyer FX on the platform. So if you're a U.S. seller listing an item in U.S. dollars and the buyer is sitting in the U.K., wants to pay in sterling, eBay is now providing the services for those customers to do what they want to do. And that's another great example of something that we've done. The thing I'm most excited about is the AI envelope that we have an opportunity to really drive eBay. If you think about a platform that's got 1.8 billion listings and x number of images per listing, times 28 years of history, we have an incredible level of bespoke information with commercial data sitting behind those images. Our ability to use plug-ins to improve the listing flow for sellers to enable buyers to find those unique items that they've been looking for. I think there's a huge potential unlocked for us to take AI and take eBay to the next level. And we talked extensively about this on the last quarter's earnings call, and you should expect to hear more of us over the forthcoming months about what we're going to do to deploy that at eBay and really continue to delight our customers with some really magical experiences.

I think within AI, the focus is on this wave of generative AI right now. Is partnership the way forward for eBay in that sense?

I mean, we've always been a company that will look at various items, whether it's like build, buy, or partner. We have enjoyed really great partnerships as we've gone through the last few years. I think about someone like Adyen that we've partnered with extensively to build the payments platform and take that through. And so we'll continue to look at opportunities for as to build some of the capabilities in-house, embrace partnerships but ultimately to delight our customers and drive shareholder value.

And recently, one of these kind of the initiatives to help has been around the International Shipping efforts. Just talk about the strategic objective there. And then also how you think about the adoption of the service over time? Like, what's -- you dream the dream a little bit on where it gets to in terms of penetration of sellers? What's the outlook?

I touched on it slightly earlier. If you're a seller sitting in San Francisco, and you're selling a pair of sneakers, and you've got a buyer in Seattle, you'll look through that lens and say there wouldn't be too much friction to undertake that transaction. With the buyer sitting in Sydney, you think about the paperwork, you think about the duties, you think about the risk of return. And if you're a seller, it's like, do I want to embark upon that? And so when we stand back and think about the 1.8 billion listings on eBay and having that level of inventory, about 1/5 -- 20%, of our GMV is generated through cross-border trade. And so if you can open the aperture up and drive more listings in front of more buyers on an international basis, then you can increase conversion. The buyers are happy because they've got their eyes on more products. Sellers are happy because they get greater levels of conversion. And eBay benefits from that because of the monetization of the product. If I think about our big 3 markets, it's only about less than 50% of the inventory is open for international trade. And so eBay International Shipping, we've taken the friction out of that process and opening things up for sellers. So the seller that's sitting in San Francisco isn't worried about shipping into Sydney, they ship it to Chicago. That's it. The friction is taken out and anything else is dealt with. The beauty for eBay is that we're using third parties. We're not building distribution centers. We're not building fixed cost entities. We're keeping it variable. We are now the principal. We get the benefits of scale in terms of the revenue opportunities and negotiations associated with that. We have the benefits of the cost side. And so strategically, we see this as a great opportunity for eBay to open the aperture and obviously, from a financial infrastructure and earnings growth, it's a great opportunity for us. And we've talked about eBay International Shipping generating positive OI by the end of 2023. And we see this as another opportunity because of the size and scale of the platform, and we're really excited about the opportunities this will provide for us.

And we've talked about the focus verticals and the ambition to cover 50% of GMV. How do you keep the rest of the GMV, the remaining 50%, that goal of keeping it flattish? What's the strategy there? And how comfortable are you with that?

It's what I just talked about, why general trust on the platform. A tremendous amount of buyers that come to eBay, cross-category shop. That's one of the beauties of our platform. You come on to buy a pair of sneakers, you end up buying some other items, hard-to-find item, that you hadn't anticipated going there. You started a trading card buyer and seller and you end up sort of finding a watch that you were looking for and you go into a different category. And so by building trust across the platform, by building seller tools through payments and ads and international shipping, and so making those investments across the platform, you get the halo effect that drives this cross-category shopping and builds the levels of trust on the platform. And we're certainly starting to see that traction.

And kind of tangential to the GMV story is the active buyer trends. You talked about some positive momentum last quarter on new and reactivated buyers. eBay is not new. So can you talk a little bit about where these new buyers are coming from? And the opportunities that you still see to kind of grow the audience for eBay?

Yes. Well, it was a little bit of a lagging indicator when we disclosed this publicly. It's on a trailing 12-month basis. We obviously look at it internally on a shorter time horizon. But the point, Nikhil, it was making is that we talked for the last 3 quarters about new and reactivated buyers, i.e., a buyer that is brand new to the platform or was on eBay for a period of time and then he left and hadn't been back for a year and now come back again. We have seen positive year-over-year growth in the last 3 quarters of these new and reactivated buyers, which basically says people are coming back. Last quarter, we saw a year-over-year increase in new buyers. These are people that have never been to eBay before and are starting to shop on eBay. And so while it's a lagging indicator, it's very, very encouraging because it goes back to the investments we're making and building trust on the platform and getting a share of voice, whether it's through parts and accessories, whether it's through collectibles that people disclaim, you know what, I'm going to give eBay a try. And that's why we're not only focused on our buyers, but also our enthusiast buyers, our 16 million enthusiast buyers, who generate about 70% of the GMV on eBay, they are coming back and shopping again because of the levels of trust that we've built on the platform. And so I'm encouraged by what we're seeing from the buyer metrics, and we'll continue to assess them. But it's an interesting element of trust that we've seen. Germany, one of our key markets, we have seen -- we've recently lent into Germany on the C2C side, we've talked about this publicly. We've seen an unlock with new and reactivated buyers that haven't shopped on the platform for many years. And again, it's this level of trust, it's this level of opportunity where we've seen people coming back to the platform.

And in terms of the buyer acquisition strategy or the marketing strategy, can you talk about how that maybe has changed versus prior years? Because in the past, we've seen buyers acquired for short periods of time, but this feels like it's -- you're going about it the right way, so to speak. So just talk about how marketing might have changed and the philosophy around it has changed?

Yes. Looking in the way-back time machine, I suppose the marketing was focused on 2 areas. One was master brand advertising that hadn't got any direct link to specific categories on the platform, or couponing, which was great from a short-term ROI standpoint, but you had a lot of one-and-done buyers who had a coupon, came into the platform, bought something and left. We've pivoted -- that doesn't help you from a longer-term sustainability standpoint. So we've pivoted and we drive full funnel marketing on a category-by-category basis. So think about parts and accessories for example. We are looking at entities like NPR from a radio standpoint here in New York, where we're a big part of the car shows. We're using social media influencers. We look at paid, owned and earned media, each of these categories as we go forward and have a complete full funnel approach. It means that eBay is getting into the consideration set. When a buyer is sitting there going, I have a choice of platforms or a choice of retailers that I could look at. Is eBay into the mix? And then once they -- because of the share of voice, eBay gets into the mix, then they come on to the platform. And because we're doing it on a category-by-category basis, and we're building that level of visibility, it has the halo effect. And so I'm really pleased with what we're seeing on this. We've been very, very disciplined about doing it. And the benefits of eBay, where you've got 80% of the traffic comes organically, 10% of it comes from free search and 10% is paid search. We have a great model, and we're leaning into, as I say, the full funnel marketing approach, which is after sort of medium- and long-term sustainable growth.

And maybe sticking with the theme of reinvestment broadly, I think investors kind of got used to a low 30% margin profile for the business. In the short term, you've guided to something in the range of 26% to 27% for Q2. There's some mix impact there, some M&A as well. At a recent conference, you mentioned you're still committed to the long term. I wanted to clarify, is that commitment to the low 30% margin that you talked about at Investor Day or just a broader notion of margin expansion from where the business sits today?

When we put those numbers out, it's a function of leverage as well because obviously, as we talked earlier at the very start of the conversation, the architecture that we laid out is a function of the leverage of the GMV that we went forward, but also a disciplined approach to looking at the P&L. So the margin trajectory that we've laid out is predicated on the GMV growth, it's predicated on the execution of the structural cost program, which is taking dollars out of the business in terms of driving the operational efficiency and continue to invest as we go forward. It also is a function of the execution of our ads and payments, but again, continues to create the fuel for the business. And so again, A lot of this comes from the sort of topline GMV growth, which is a key component part of the architecture and the financial model.

And is there a margin threshold that you hold yourself to? Or maybe, I guess, the actions in kind of International Shipping would suggest that if it's EPS accretive and profitable and beneficial for GMV, you kind of pursue it? Like, do you think about the margin as a threshold or more so just the profit dollars and the free cash flow dollars?

It's ultimately, as an investor, I want to see the profit dollars go up as an investor. It's all about driving bottom line earnings for the enterprise. And so you look through the lens of International -- eBay International Shipping, as you said, because we're the principal, not the agent. The economics initially are broadly the same before we get the scale out of it, but it has a dilutionary impact on margin because you're recognizing both the revenue and cost. This was and is the right thing to do for the business because it drives shareholder value. And so when I wake up every morning, that's what I think about. And so we will make the decisions with that firmly in mind.

And you mentioned advertising a couple of times as a monetization lever. The targets you guys talked about was getting to about $2 billion in revenue from advertising by 2025. How are you feeling about that trajectory? And even when you look at the penetration rate of that, I think it's between 2.5% to 3% potentially. Is that end state for eBay? Or is that just an intermediate kind of hurdle?

We're making tremendous progress in advertising. We laid the medium-term targets out just over a year ago. The last 3 quarters, advertising revenue has outpaced GMV growth by over 30 percentage points, each of those quarters, on a year-over-year basis. The advertising revenue as a whole is growing at 20% year-over-year. So I'm really, really pleased with the levels of execution that we're seeing from the teams. Promoted Listing Standard, which is the main product that we've had for a number of years, we're really leaning in and monetizing that. We're changing the algorithms. We're getting much more relevance associated with it. And we've got these 3 nascent -- more nascent products, Promoted Listings Advanced, which is our cost per clip product, Promoted Listings Express, which is the auction product, and then [ Our Fee ] by advertising where there's an opportunity to really expand the denominator is a third product. And so we're getting the traction from the team in terms of driving this forward. And we've got runway ahead of us in terms of these more nascent products and monetizing them. So I feel good about where we're seeing. And again, it's that say-do ratio, right? And we've gone out there. We said the same thing with payments and we've executed. We said the same thing with ads and the teams are executing in line with the expectations that we had.

Maybe just switching gears to capital allocation. You've been a steady kind of share buyback story as well as a dividend story. You've already returned about, I think, 140% of your free cash flow to investors. How do we think about the pace of capital return from here? And there's a question in the audience as well about how you think about the Adevinta stake and potentially freeing that up over time?

We've been good stewards of capital. We went through the divestitures over the last few years, returned a tremendous amount of capital back to shareholders. Our first priority is to invest in the business. We talked about the build, buy, partner framework. The reason that is, is because we see the best accretive growth for shareholders is through the core business. That's why we went through the divestitures. We focused on the core and the build, buy, partner framework is the first port of call. The benefits of the financial architecture we have at eBay is our ability to do both, i.e., invest in the business and return capital to shareholders. You're right, over the last 15 months, we've returned 140% of our free cash flow and $4 billion. And we laid that, our architecture, out at the investor event that said between 2022 and 2024, we would return 125%. Our commitment, and we talked about this publicly, is to offset dilution. And beyond that, we'll continue to be opportunistic as we go forward and you've sort of seen us go through that process. And nothing has changed from that standpoint. In terms of the investments that we have, again, we'll be opportunistic and look through the lens of driving further shareholder value. The Adevinta stake, we did -- we have a 33% stake in Adevinta. Again, I think the team did a really great job monetizing that asset in terms of the proceeds that we received through that sale to a couple of entities. There are restrictions on that holding of that entity through Q3 of this year. And as everything else, we'll continue to be thoughtful and disciplined about our approach to that and make sure that we look through the lens of driving medium- to long-term shareholder value as a result of what we do with that asset.

And you've also been fairly active on the M&A front with some bolt-on deals. It feels like a lot of it has been around underlying technology to supplement the core. So I guess, how is the integration of that been going? And how do you think about appetite for further such M&A going forward?

Yes. I like the approach we've taken with this. And as a leadership team, we've been very thoughtful about where we have been acquisitive. And you're right, we've been more active than we've been historically, but it's all around the core. So we went through the divestitures, we focused on the core and now the acquisitions that we've gone through have been to drive a pace of -- a greater pace of execution and speed or obviously to drive more monetization. So Sneaker Con was a great example of this, authentication with sneakers. We then went through and we purchased KnownOrigin, which is our ability to drive the physical meets and digital and drive that forward. Parts and accessories with myFitment to, again, just make sure that we have the right talent and the right tech to sort of drive greater sort of visibility of fitment across the platform. TCGplayer complements our trading card business incredibly well. And that's some -- and then more recently, last week, we lent in and executed or announced an acquisition of Certilogo, which is a QR code on fashion items. And by having that, you can track what happens to that clothing item through its life and then obviously, the resale benefits of that on eBay. So everything we are leaning into has got that thought process in mind of, is it relevant to a focused category? Can it help the platform? Can it help us drive sustainable growth? And so I feel good about those acquisitions that we've made. And they're complementing, to your point, either category or tech on the platform or looking at a future opportunity that's relevant to the core marketplace.

And just a question here from the audience around the tech-led reimagination. From the outside, maybe it hasn't necessarily performed in line with initial expectations. I guess, have there been any major lessons learned along the way or initial kind of changes made -- or changes made to the initial plans?

Yes. No, we'll never bat a 1,000, and we always sort of think about each category as we go in and we take the learnings from them about where do we launch it? What friction did we have? We do sort of the equipment of the post-investment appraise or how can we talk about this next time around? I have been pleased with the traction we've seen. We've seen market share gains in the categories that we've lent into. We see incremental growth in focused categories versus the rest of the platform. But when you're moving, you're a $75 billion to $80 billion GMV business, it takes some time. And we've been doing this through a very challenged macro environment. And so we're always learning. But ultimately, at the end of the day, it's about delighting the customer, building trust on their platform and driving long-term sustainable growth.

And maybe, Steve, it's a good segue to my final question here, which is I've heard you kind of use the word balance many times. What does balance mean to you in the CFO seat? What does it mean to Jamie and what should investors expect from you?

Yes. I really enjoy working with Jamie and the rest of the leadership team because we are very thoughtful as a group about -- ultimately it's shareholders' money, shareholders on eBay. And I want to make sure that we're balanced in our approach to investments and how we go -- take things forward. We have a fantastic opportunity ahead of us. The teams are acting with urgency. They have a high level of accountability around execution. And when I talk about balance, it's really about being thoughtful about where do we lean in, where do we invest, where do we make some bets, where do we make educated risks, but with the mind of the shareholder at the forefront of mind all the time. And whether it's about balancing resources in the business or whether it's balancing capital allocation, you're right, I use that word a lot, but hopefully, you'd expect me to do that as a CFO.

Great. Well, with that, I think we're right out of time. So Steve, thank you so much, and thanks, everybody, for joining as well. We'll leave it there.

Thank you, sir. Thanks for having me this afternoon.