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eBay, Inc. (EBAY) Q2 2023 Earnings Call Transcript

eBay, Inc. (EBAY)

Q2 2023 Earnings Conference Call

Company Participants

John Egbert - IR

Stephen Priest - SVP & CFO

Jamie Iannone - CEO, President & Director

Conference Call Participants

Eric Sheridan - Goldman Sachs Group

Nikhil Devnani - Sanford C. Bernstein & Co.

Michael Morton - MoffettNathanson

Deepak Mathivanan - Wolfe Research

Wesley Sanford - JPMorgan Chase & Co.

Wesley Sanford - JPMorgan Chase & Co.

Thomas Champion - Piper Sandler & Co.

Kenneth Gawrelski - Wells Fargo Securities

Presentation

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the eBay Second Quarter 2023 Earnings Conference Call. [Operator Instructions].

Thank you. It is now my pleasure to turn the call over to the Vice President of Investor Relations, Mr. John Egbert. Sir, please go ahead.

John Egbert

Good afternoon. Thank you all for joining us for eBay's Second Quarter 2023 Earnings Conference Call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com.

Before we begin, I'll remind you that during this conference call, we will discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect organic FX-neutral year-over-year comparisons unless indicated otherwise.

During this conference call, management will make forward-looking statements including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q and our earnings release from earlier today.

You should not rely on any forward-looking statements. All information in this presentation is as of July 26, 2023. We do not intend and undertake no duty to update this information.

With that, I'll turn the call over to Jamie.

Jamie Iannone

Thanks, John. Good afternoon, everyone, and thank you all for joining us today. We delivered another solid quarter in Q2, exceeding expectations across all key metrics while investing in a disciplined manner to support our long-term objectives.

Before I jump into the details around our second quarter results, I'd like to discuss the evolution of our strategy. Three years ago, I articulated our ambition of becoming the best global marketplace to buy and sell through a tech-led re-imagination of eBay. This would help us realize the enormous untapped potential of this company and put it firmly on a path to sustainable long-term growth.

Since then, we've renewed our focus on products where we are uniquely positioned to offer meaningful choices and value for our customers. We've accelerated innovation to adapt to the changing needs of buyers and developed world-class shopping experiences in our focus categories. And we've changed our marketing strategy to support these experiences, pivoting to a full funnel approach aimed at attracting and retaining enthusiast buyers. These accomplishments make it a logical time to embark on the next phase of our journey.

The foundational work of our tech-led re-imagination will continue, including our prioritization of non-new products, expansion of focus categories in ads and payments initiatives. And now we're raising the bar for innovation and have set our sights on an even more ambitious vision which is reinventing the future of e-commerce for enthusiasts only at eBay.

We will achieve this vision in the coming years by focusing on 3 key pillars: relevant experiences, scalable solutions and magical innovation. Let's start with our first pillar, relevant experiences. This means we are solving the specific and ever-changing needs of our customers across all shopping occasions.

Through our focus category strategy, we've proven that when we build relevant experiences, we can dramatically improve customer satisfaction which translates into faster GMV growth. While we'll continue to understand customer needs and innovate at the category level, we will leverage the new tools, capabilities and technologies we have developed over the last few years to enhance more elements of the site-wide experience.

This includes developing a more relevant, consistent experience for the next generation of online shoppers through a comprehensive overhaul of our user experience and design rolled out in phases over the course of 2023 and beyond. This evolution will result in simpler, more personalized browsing experiences that will inspire people to sell, shop and connect with their community on eBay.

This initiative is a cross-collaborative effort between design, product, core AI, search, engineering and other key stakeholders to ensure our modernized shopping experience is powered by intelligent computing at scale. Enabled by artificial intelligence, we will fine-tune the breadth of inventory and other aspects of the shopping journey to cater to the varying needs of new buyers, infrequent shoppers and eBay enthusiasts.

We believe these innovations will increase our ability to bend cohort curves, drive higher lifetime values and ultimately grow enthusiasts and average spend per buyer.

We began rolling out these changes to consumers in recent months, starting with testing a more modern and intuitive view item page, which is the most visited page on eBay.

The updated page offers a streamlined appearance, larger and higher resolution images and an optimized information hierarchy. Early tests indicate a measurable uplift in GMV versus our existing design.

Over the next few quarters, you will see a continued evolution of the look, feel and experience of our marketplace, including updates to view item, our header, homepage, search results and other landing pages.

Alongside this work, we're investing in new capabilities for search, where relevance is also critical. We're investing in technologies like deep learning and visual similarity to improve ranking and retrieval, reducing queries with low or no results to see if there's more of our amazing inventory for customers.

Now let's turn to our second pillar, scalable solutions. Combined with improving relevance, our scale is a powerful asset. As we discussed at our Investor Day last year, eBay has 5 categories that each generate more than $10 billion annually in GMV, making up more than 80% of volume on our marketplace in aggregate.

Our global footprint across 190 markets and density of supply and demand across major trade corridors are tremendous advantages in cross-border trade, and our proprietary data assets are powered by tens of billions of cumulative transactions and commercially relevant product information and images accumulated over our nearly 28-year history.

Our scale enabled us to launch a proprietary managed payment solution capable of processing more than $70 billion in annualized volume in less than 2 years. It also allowed us to build our nearly $1.3 billion advertising business driven by Promoted Listings, which help our sellers drive greater velocity and price realization for their inventory.

Ads and payments have dramatically enhanced our financial architecture. But now we are widening the scope of scalable solutions on eBay to develop a broader suite of value-added services. Our payments infrastructure makes it possible for us to launch new financial services like FX conversion, alternative payment options and seller financing partnerships informed by transactions on eBay.

We're also investing in improved in-house risk modeling to alleviate transactional friction for sellers and buyers on eBay, which has led to measurable uplift in conversion and hundreds of millions of dollars of incremental GMV during the first half of 2023 alone. Our scale and cross-border capabilities allowed us to launch the eBay international shipping program earlier this year.

This program simplifies paperwork, lowers cost for buyers, streamlines returns and enables sellers to tap into our global demand. While this program is still ramping up in the U.S., we are seeing positive proof points in the number of listings migrated, increased exportability of new listings as well as conversion, delivery times and operational costs in line with our expectations.

The cross-category nature of eBay makes our investments in individual focus categories more scalable to other areas. This is because technology and capabilities that are developed for one category can be adapted quickly and seamlessly to others.

For instance, eBay's Authenticity Guarantee program has enabled us to rapidly transform trust across new categories and countries, from watches to sneakers, handbags, jewelry and trading cards. Now it's faster and more cost-efficient to launch authentication for a new category like we did this quarter with streetwear. We believe only eBay is in a position to bring hyper relevant experiences like these to customers at scale across this breadth of categories.

Lastly, our third pillar is magical innovations. The foundational work we've accomplished over the past 3 years has set us up for a new phase of innovation. Our teams are focused on thinking bigger and moving faster as we build game-changing features and functionality for customers to keep eBay at the forefront of e-commerce.

Our improved tech velocity has allowed us to launch and rapidly iterate on exciting features like live commerce. Other examples include the ability to instantly buy and sell trading cards in the eBay vault and our improved computer vision capabilities that streamline buying and selling on eBay.

Over the next few quarters and years, we expect advancements in artificial intelligence, including Generative AI to impact nearly every aspect of our organization, driving meaningful efficiency and productivity improvements. More importantly, they enable truly compelling customer-facing experiences that I'm confident our customers will love, such as the Magical Listing experience I'm excited to discuss with you shortly.

You will continue to hear us talk about the progress of our evolved strategy and how we're delivering on the three pillars of relevant experiences, scalable solutions and magical innovation. This work is all in service of our plan to reinvent the future of e-commerce for enthusiasts only at eBay.

As I've mentioned, these efforts are already underway, and we've begun delivering these innovative features and functionality to eBay customers.

Now let me turn to the second quarter. We delivered better-than-expected results across the board in Q2 despite continued macro uncertainty. Gross merchandise volume was over $18.2 billion while revenue grew 5% to $2.54 billion and outpaced GMV growth by roughly 6 points, and we delivered non-GAAP earnings per share of $1.03, up 5%.

Our improving growth trends continue to be led by our focused categories, which grew roughly 7 points faster than the remainder of our marketplace during Q2. This outperformance continues to be led by motors, parts and accessories or P&A where GMV grew mid-single digits year-over-year for the second straight quarter, which we believe is in line with market rates of growth for this segment of e-commerce.

We also extended our focus category coverage through new launches and category expansions during the quarter. In early June, we launched Authenticity Guarantee for streetwear in the U.S. and are now authenticating new and pre-owned streetwear items from 20 trusted brands, including Kith, Off-White, Palace and Supreme. In July, we expanded eligible streetwear to mass appeal brands like Adidas, Jordan and Nike. And later this year, we'll expand coverage to luxury brands, including Gucci, Prada, and Louis Vuitton. This marks our entry into authenticated apparel, a category that has strong overlap with our passionate community of sneaker enthusiasts, adding another layer of trust when they shop.

In April, we launched a Certified by Brand program, which we also expect to facilitate more e-commerce in the luxury space. There are already more than 20 brands participating in this program. offering new and certified preowned inventory across the watch, jewelry and handbag categories.

Listings from this program will show a direct-from-brand or brand-authorized seller badge, bringing an enhanced level of trust to these listings similar to visual trust signals for Authenticity Guarantee.

Brands benefit from eBay's scale demand, gain access to consumer and pricing insights while being able to maintain control of their brand equity and image online. eBay shoppers will benefit from these brands' unique inventory and enhanced trust as these products will include certifications and/or warranties from the brands themselves.

Our expertise in fashion is further extended by our recently closed acquisition of Certilogo, a provider of AI-powered authentication for apparel. Certilogo empowers brands and designers to manage the life cycle of their garments, protect their customers from counterfeits and encourages e-commerce via QR codes that serve as digital product passports.

While we are just beginning to explore the synergies between our companies, Certilogo already works with a number of leading global fashion brands, and we are incredibly excited to leverage this technology to accelerate the circular economy.

Next, I'd like to discuss the groundbreaking work our team is doing with artificial intelligence. In particular, I'm excited to announce that this quarter, we're ramping up a new feature we've been calling Magical Listing, which will make it significantly easier for sellers to list their inventory. ...

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