eBay Inc. (EBAY) Earnings Call Transcript & Summary

Okay. And I'm glad that wasn't my phone. All right. This is a topic you've talked about a lot in the role of CEO, Jamie talk to us a little bit about how important it is to continue to drive momentum across buyers turning it to sellers and sellers turning into buyers and how that's a potential natural tailwind for the business.

Yes, it's been a big focus of ours for many years now is really focusing on that C2C and turning buyers into sellers. Historically, eBay had just marketed kind of the buying side of things. But over the last few years, we've been very focused on the C2C value proposition marketing kind of that value proposition of what we're doing, changing formats and capabilities in different geographies around the world. And the reason is really a couple fold. First is when a seller -- when a buyer becomes a seller, they become 2 to 2.5x more valuable as a buyer on the platform. So that's great for us. And think about it, we have features like eBay balance, right, where you go sell a bunch of stuff on the platform, it sits there in your eBay balance. What do you do? You go splurge on something that you really wanted, right? So that's a key opportunity. The second is those C2C sellers usually bring unique inventory to the platform, right? So it's stuff that generally is not available. I sold a Hammond B3 organ on the site. That's not a product that like there's some business selling Hammon B3 organs. I bought a vintage guitar we hero because my son wanted that that's not a B2C product, right? That's going to come from someone's closet. So it opens up really unique inventory on the platform. And that does help complement our B2C inventory as well because a lot of those C2C buyers that sell start buying from our B2C inventory. So it really helps grow it overall. So we've been focused -- that's why we put a lot of innovation in the magical listing. The newest version is truly fantastic. It's built with this vision that we had of if AI or existed, how should you list a product -- and so it guides you through the whole process, like, hey, those are great shoes, show me the label. I figured out that they're used, show me the soul, okay, here's how you should price them, you're done. That's it. And so all the technologies we made shipping easier in a lot of our geographies, we have what's called managed shipping. So historically, on eBay you would have had to buy the label and go through that process yourself. Now we just say we leverage AI, we can figure out what it's going to cost to ship those speakers. We'll take care of the whole thing. We've also built technology to say, we're going to open up the global demand of the world to you but make it feel like you're selling to your neighbor. So if you had sold those shoes to someone in Poland, we'd say to you, Eric, just ship them to Chicago, we'll take care of the rest. So the duties, the tariffs, all that stuff, that's a product we built called eBay International Shipping. So we've built this whole series of capabilities to really drive the C2C capability in a way. And it's why our C2C businesses are growing north of 20%. And is because of this real focus that we've put on it. And I'll close with where you started, it creates a really nice flywheel between selling and buying and between C2C and B2C and that's what we really like about what's happening there.

Okay. One last 1 on this topic, but broadening out the conversation and bringing Peggy back in. Peggy enthusiast buyers are so important for the platform more broadly. Talk a little bit about what an enthusiast buyer looks like today? And what are some of the initiatives as a team you guys are putting in place to continue to grow and evolve enthusiast buyers in the years ahead?

Sure. Enthusiast buyers have always been a focus for us, like those that are buying at a high velocity. And because we -- the majority of our GMV comes aren't busiest buyer, something like 85% of our GMV is bought by enthusiasts. And so we're -- while we really care about the top of the funnel and getting new active buyers, we're really doing that in service of getting these buyers to become enthusiast buyers. Enthusiast buyers grew 3% in Q2. But in the U.S., they grew 9%. And what we saw is that the amount that they're buying continues to increase, I think, every quarter over the last several years. the dollar in the last 12 months that an enthusiast buyer has increased. It's $3,600 as of Q2. And so we're really focused on the experiences that are going to enable them to increase their velocity on the site, things that Jamie mentioned around our features around trust, authenticity guarantee, shipping solutions because we know that these enthusiast buyers not only are going to buy in the category that caused them to become an enthusiast but also they then buy across the platform, which is very beneficial given the diversity of what we offer on the platform. And so that's why we've really been focused on driving that velocity and increasing sort of the number of enthusiast buyers that we have on the platform.

Yes. And since they now represent -- they represent about 70% of our GMV on the platform. and they're generally aligned in our strategic areas. So where 70% of our business is in e-commerce in C2C and focused categories. The combination of those 2 built a really kind of great competitive moat for us as you think about all the things we're doing to drive that enthusiast behavior. I'd like to see GMV follows happy customers in CSAT -- so as we've grown the CSAT kind of category by category, that's helped drive that GMV for enthusiast buyers that Peggy talked about, the $3,600.

Okay. Jamie, bringing you back in, there was an evolution of talking about younger buyers about 18 months ago, then you did the DPO acquisition. Talk a little bit about buy versus build and how your strategy with respect to attracting younger buyers to the platform is changing and development.

Yes. So Gen Z and millennials is the fastest-growing demographic that we have on eBay across the board. And we have a lot of things that we built in the experience to kind of continue to drive that. But we were excited to make the acquisition of Depop because Depop really leans into that Gen Z and millennial demographic, which is our fastest-growing demographic. And they built a real mobile kind of social forward experience, really that leverages a lot of the kind of focus of that generation on sustainability and e-commerce. They are much more focused at least than I was at that age on buying preloved, unlocking stuff in their closet. I've heard them say everything you ever need in this world already exist, you have to just go create it. And what we're doing is opening up all of this inventory, which hasn't been online before through the combination of the work that we're doing on eBay and the work that we're now doing with DPO. I had a group of about 50 interims joined this summer -- and I asked my head of recruiting or my head of interns recruiting. I said, finally, 4 or 5 of these folks that know a lot about Depot because we had just signed a deal, but we hadn't closed. And like 25 people showed up and to a person like, oh my God, we love Depop, Here's how we use it. And it really spoke to kind of attracting this generation that they've done so well. And what we see now is that we've seen even stronger growth rates than when we've acquired it because of the real kind of opportunity that's creating. And there is so much GMV to be unlocked that isn't yet online, but that's our real opportunity with Depop and a big part of why we did the acquisition.

Okay. Understood. Peggy, just maybe a couple for you. Let's start with advertising. What's the current state of advertising in terms of the business on the platform today? And how do you think about the evolution of your advertising products in the years ahead?

Yes. We've been really excited about the strength in advertising. We set a sort of near-term goal of 3% and we're at now. We don't view that as a ceiling because we have a lot of opportunities to continue to grow. I think we're really focused on the penetration of our listings and increasing that. adoption of sellers to 1 of our promoted listing products. We've used a lot of AI capabilities to really increase relevance of these advertising products and to make them even more effective because we're really focused on making sure that we're still delivering a strong road -- so we're focused as much on the penetration as we are on making sure that it's a quality product. We have a new promoted off-site product, which enables us to give even more surface to this advertising off of the platform. We recently introduced promoted stores as well. And so there's a lot of opportunity for us to continue to grow advertising even faster than GMV in total and do that while still really preserving the experience for both buyers and sellers.

Okay. You both talked about trust and various answers here. Talk a little bit to me about the authenticity guarantee and how trust-based investments continue to grow sort of scale and allow the platform to continue to sort of -- a lot of its growth momentum going forward.

Yes. I mean I think Jamie mentioned he's been boomerang, I'm a boomerang as well. Trust has been something that's always been core to the eBay offering and authenticity guarantee gives us a real opportunity to demonstrate how trust can really be an accelerator of velocity driver on the platform where it really enables buyers and sellers to have confidence in transacting. So we continue to focus on growing our authenticity guarantee, both geographically. An example would be we now authenticate trading cards in Europe. We are authenticating coins in the U.S. we're authenticating fashion in over 100 brands. And so we're really -- what we see is that, that gives buyers and sellers the trust to use our platform, and it sort of repels folks from deciding that they're going to platform in ways to push products that either not only aren't real, but also potentially the condition is not the same as described in the listing. And so we're able to offer this authenticity guarantee at scale because we have facilities where we have specialists that are able to take a lot of product and continue to put more and more volume through either by expanding categories or expanding geographically and do it in a way that also enables us then to get the product to the end buyer in a fast way.

Okay. Sticking with you. Maybe turning to capital allocation. You guys obviously just did the Depop deal. Talk to us a little bit about the evolution of your capital allocation strategy what you think of the balance sheet today, the free cash flow generation, the business throws off a lot of free cash flow? And how do you think about the priorities going forward post Depop closing for allocating capital more broadly.

Sure. We continue to take a very balanced approach to capital allocation. Obviously, we are focused on the many opportunities we have in the business to drive top line growth. You mentioned we have healthy margins. And so the more top line growth that we can drive the more ultimate flow-through to OI and EPS. We have taken opportunity in the recent quarters where we over deliver on the top line and are able to invest in our strategic priority areas, areas like vehicles and live and C2C and really be able to continue that -- those healthy top line growth numbers that you're seeing, while also being able to continue to grow OI and EPS. And we're also very focused on making sure that we're returning capital to shareholders. We have talked about our framework of 90% to 100% of organic free cash flow return through dividends and share buyback. And we've been able to do that even with the Depop acquisition. And so it's just -- we're really focused on making sure that we can kind of do it all, continue to grow the top line, but also have predictable returns to shareholders through both buybacks and dividends.

So we've got a few minutes left, Jamie bring us home with sort of bringing that all together. We've talked a lot today about where you want to take the buyers and sellers on the platform, how you want to grow the platform or you invest in the platform? What are the 2 or 3 strategic priorities that you're the most excited about for the company when you look out over the next couple of years?

Yes. First thing I'd say is what I feel great about is why I feel great about the durability of the growth is that the areas that we've been investing in, in years are the areas where we're seeing really outsized growth. I talked about the 70% of our business growing north of 20%. Our focus categories now represent 40% of our business. They're growing at 26%. And I'm excited by the strong growth rates we're seeing in our new businesses like vehicles and live. The second thing I'd say is that I'm really excited for how AI is this real tailwind for our business. We have seen great success with Magic listings. But every single week and month, the team is innovating on things like natural language search. Think about the recommendations. Peggy talked about how strong AI is for our advertising business. Our marketing team, when you think about eBay's 2.6 billion listings and how much of a long tail of inventory that is and the ability to communicate in a new way with a customer because now you can like write their e-mail subject lines, leveraging AI and -- and we're seeing 80% better engagement. When I talk about 50% listings per lister, I've been around this business for 2001. It's very rare to see things like this have that outsized of an impact. And so we're continued to push the envelope on what that does for AI. And then the last thing I would say is this trust, this enablement layer, the works that we're doing in innovating and shipping like the examples that I talked about are really great for the overall platform because it helps differentiate not only our inventory but the value-added services that we provide because of that inventory. And those things coming together, I think, are really powerful. So when you think about going forward, Peggy talked about 1 of our newest categories, which is coins. We continue to innovate in fashion. Vehicles were only a year into it, and we're already at $100 million of run rate. We see lots of opportunity to continue to drive that growth in these new categories. And those things all build on each other. I hate to overuse the word flywheel, but it is a really nice part of the strategy that we have to reinventing the future of e-commerce for those enthusiasts. So excited about the quarters, months and years ahead.

Okay. Well, we're never again choosing the word flywheel. So we're all for that. Jamie, Peggy, thanks so much for being part of the conference. Please join me in thanking eBay for attending this year.