The conference call for eBay's Q3 2023 earnings has begun, with the operator introducing the speakers and providing instructions for the question-and-answer session. The call will include non-GAAP measures and forward-looking statements, and listeners can access a slide presentation on the company's website. The speakers will also discuss risks and uncertainties that could affect the company's performance.

The speaker, Jamie Iannone, discusses the company's recent financial results and the challenges they faced in the global macro environment. He mentions their three strategic pillars and the progress they have made in each, specifically in driving growth in their focus categories. These categories have grown faster than the rest of their marketplace and have contributed to a 4% year-over-year growth.

During the first half of 2023, market rates of growth in discretionary goods were low, but eBay has seen mid-single digit growth in their motors, parts, and accessories (P&A) category thanks to their investments in innovation. The eBay Guaranteed Fit program has boosted trust and conversion rates for P&A shoppers, and similar programs have been rolled out in the UK and Germany. This success is due to years of investment in P&A technology, including the acquisition of myFitment. Two-thirds of large U.S. P&A sellers have adopted the myFitment toolkit, resulting in double-digit conversion uplift and increased GMV for eBay.

In the beginning of October, there was a major milestone of 2 billion pieces of fitment data added to live listings using myFitment's technology. The company continues to invest in simplifying the onboarding process and identifying more vehicle matches for their 550 million live P&A listings. In the collectibles category, eBay generated over $10 billion in GMV in the last 12 months, with one in four buyers purchasing at least one collectibles item. eBay's goal is to remain the top destination for passionate collectibles enthusiasts and they have launched direct submissions to the eBay vault and a revamped condition grading system for trading cards. They also announced Vault Enhanced Submission, which allows them to gather high-value cards in person at major events.

eBay has introduced new features for listings, such as including professional grading and card conditions, to improve trust and sales for buyers and sellers. They have also launched eBay Live, a live shopping experience within the app, which has been successful and is expanding to more categories and sellers. The company is also making progress with their eBay International Shipping Program, making cross-border trade easier for sellers and buyers.

The new Combined Shipping for EIS program has received positive feedback from sellers, with high customer satisfaction rates. Advertising revenue also saw strong growth, with over 2.3 million sellers using a single ad product and over 850 million live promoted listings. Promoted Listings Standard and Advanced were the main contributors to this growth, with the latter benefiting from simplified and automated campaign management processes. In September, eBay launched Smart Targeting for PL Advanced, which uses AI to manage keywords and optimize campaigns for sellers. This feature has also been extended to the Similar Items Recommendations module. The company's third pillar, Magical Innovations, will be discussed next.

eBay's Magical Listing experience, which uses Generative AI, has been well received by sellers and has increased usage and customer satisfaction. The first phase, which populates item descriptions based on title and category, has been rolled out to mobile app users in the US, UK, and Germany. The next phase will allow sellers to simply take a photo of an item and have eBay populate the listing with details using computer vision technology. The camera-based experience is currently in beta testing and has received positive feedback from sellers.

eBay is excited to bring a new experience to more sellers and has rolled out an improved background removal tool powered by AI. The company is making progress in all three pillars of their strategy, with recent advancements in AI and machine learning helping to address long-standing pain points for sellers and buyers. In addition, eBay's Second Annual Small Business Report shows that sellers are confident in their ability to grow their businesses and give back to their communities. The company also announced the winners of their Up & Running Grants program and celebrated the 20th anniversary of eBay for Charity, which has raised over $1.3 billion for nonprofits to date. In Q3, the eBay community raised $40 million for various causes.

In this paragraph, the speaker discusses the company's recent achievements and recognition, including being ranked on the U.S. News & World Report's list of best companies to work for and being recognized as a top corporate philanthropist. They also thank the eBay team for their efforts and highlight the company's progress in Q3, including their pace of innovation and focus on long-term objectives. The speaker then hands over to Steve, who will provide more details on the company's financial performance, which was solid despite global economic uncertainty. Gross merchandise volume was down 1%, but revenue grew 4% and non-GAAP operating margin was 26.4%.

In the third quarter, the company delivered $1.03 of non-GAAP earnings per share and generated $777 million of free cash flow. They also returned $783 million to shareholders through repurchasing dividends. Gross merchandise volume was down 1% organically, but foreign exchange provided a two-point tailwind to reported growth. Focus categories, such as P&A and eBay Refurbished, drove momentum in the business. U.S. GMV was down 2%, but showed improvement compared to the previous quarter. International GMV was flat on an FX neutral basis and up 4% as reported.

The company's international markets are facing economic pressure, but cross-border trade has helped offset this. Active buyers and enthusiast buyers remained stable, while revenue increased by 4% organically. The take rate decreased slightly quarter-over-quarter but increased compared to the previous year. Advertising was the biggest contributor to the take rate, with a 24% increase in revenue. The release of revenue deferral for CPC ads in the previous quarter created a slight headwind for first party ad revenue growth in the current quarter.

In the third quarter, the growth of promoted listings slowed down slightly compared to the previous year due to a lack of notable optimizations. Legacy third party display ads also decreased further, leading the company to deprecate them in certain situations to improve user experience. Financial services had a positive impact on take rate, and the company has been investing in scaling and optimizing their promoted listings portfolio. The use of Adyen's services has also had positive implications for the company's financial services. Non-GAAP operating margin decreased by 2.5 points due to recent M&A and the eBay International Shipping Program, as well as foreign exchange and investments in the business. Gross margin decreased by 90 basis points due to the ramp of eBay International Shipping. Product development expenses increased by 1 point as the company invested in product and engineering talent for innovation.

In the third quarter, eBay saw a modest decrease in sales and marketing expenses due to cost efficiencies, including lower spending on coupons and incentives. They also accrued an additional $50 million to G&A expenses for pending legal matters. The company continues to focus on reducing expenses and is able to offset some investments with savings from their structural cost program. They generated free cash flow of $777 million and have a strong balance sheet with cash and non-equity investments of $5.4 billion and gross debt of $7.7 billion. They also repurchased over $650 million of eBay shares and paid a quarterly cash dividend. The company returned nearly $5.2 billion to shareholders and saw a 3% increase in non-GAAP earnings per share. GAAP earnings per share were $2.46, driven by unrealized gains on their equity investment portfolio. The company's major equity investments and warrants were valued at over $4.5 billion at the end of the quarter.

In the third quarter, eBay's $404 million Adevinta shares were valued at $4 billion, and discussions are ongoing about retaining a portion of their holdings. Their Adyen warrants were valued at nearly $200 million, but the increasing probability of vesting was offset by a decline in Adyen shares. eBay's outlook for the fourth quarter reflects softening consumer demand in Europe and the US, with an expected decline in GMV of 4-2% year-over-year.

The strengthening dollar is expected to create a significant FX headwind for fourth quarter GMV, resulting in a one-point headwind to GMV growth and nearly one point of pressure to revenue growth. The company plans to focus on cost efficiencies to protect margins and earnings in this environment, with a forecasted non-GAAP operating margin between 26.1% and 26.7% and non-GAAP earnings per share between $1.00 and $1.05. Free cash flow for the year is expected to be just under $2 billion, with a minimum in Q4 due to delayed cash tax payments. Capital expenditures for the full year are expected to be between 4% and 5%, and the non-GAAP tax rate will remain at 16.5%. The company has not yet provided specific commentary on 2024 as they are still in the planning process.

The company remains committed to balancing growth and profitability and plans to grow expenses slower than revenue next year. They will also continue to return capital to shareholders and adapt to changing demand environments. There was discussion about expanding focus categories to more verticals, which could potentially drive volume growth through 2024. The company also mentioned a shift towards CBT and highlighted their resilience in the global economy.

In response to a question about the impact of shifting focus categories on revenues and margins, Jamie Iannone discusses the company's strategy of investing in new categories while also expanding and investing in existing ones. He highlights recent launches and enhancements in areas such as authentication, guaranteed fit, and trading cards. Steve Priest then explains that a negative one organic FX and growth in GMV can be attributed to macro factors such as softening consumer demand in Europe in September and October.

The company's biggest markets, UK and Germany, have experienced negative growth in e-commerce due to economic contraction. The US market is also showing signs of softness, and the holiday season is expected to be less robust. The decline in US GMV was 2% on an FX organic basis, while international was flat. The European market has been helped by resilient cross-border trade, but the overall softness in Europe has affected GMV. The company's CFO also mentioned that the operating margin is expected to increase next year, possibly due to lapping some investments and R&D expenses.

The company discusses macro trends, noting softening in Europe and the US due to factors such as consumer sentiment and interest rates. They do not see significant impact from competitors like Temu or Shein. They are currently planning for 2024 and will maintain a balance between growth and profitability while leveraging existing investments and evaluating cost structures.

The company has been cautious with external spending this year, but with the introduction of AI, they plan to use it to support operations and control costs. They will prioritize high ROI investments next year and leverage AI and technology to keep costs from growing with volume. The focus categories have shown stable market share, potentially due to improved conversion rates and increased traffic.

The company has been implementing conversational help bots to improve customer support and handle higher call volume with greater satisfaction. They have launched this as a trial in Germany and have seen success in English markets. The company is focused on managing expenses while pursuing growth opportunities. The focus categories, such as P&A, have seen mid-single digit growth due to the launch of Guaranteed Fit and improvements in Fitment. These changes have led to double digit increases in conversion rates for sellers and a better overall experience for customers, particularly in the luxury category.

The speaker discusses positive growth in the luxury category and attributes it to their customer value proposition. They plan to continue innovating and investing in their focus categories, which will also benefit their other core categories. The speaker also mentions the success of the EIS program in making cross-border trade easier. The company has noticed an uptick in buybacks and plans to continue investing in the program.

eBay is handling everything for sellers with their EIS program, including customs and duty forms. They are continuing to ramp up the program and have over 400 million live listings. They have also launched new features, such as the ability to combine shipping, which has resulted in higher customer satisfaction. From a financial standpoint, the program is expected to be profitable by the end of the year.

The speaker discusses the company's ability to generate free cash flow and return it to shareholders through stock buybacks and dividends. They also mention the challenges posed by the current macro environment, but express confidence in their ability to drive growth in the future. They clarify that slower cost growth does not indicate a pullback in investments, but rather a focus on finding opportunities for leverage in the business model.

The speaker discusses the company's plans to control costs and drive efficiency through the use of AI and a structured cost program. They acknowledge that authentication has been a headwind to gross margins, but expect to see leverage in the future. They also mention the competition in the marketplace and the company's focus on direct traffic.

The speaker is impressed by the leverage eBay has gained through their investment in full funnel advertising over the past year. They have seen improved trust and cross-category shopping on the platform, particularly in their focus categories. The speaker also mentions the benefits of authentication, fitment, and warranties in different categories. The other speaker addresses a question about the company's traffic and explains that they have shifted their marketing strategy to tell their story in new and different ways.

eBay has shifted its marketing strategy to focus on targeted campaigns to enthusiasts in their key categories, leading to growth in P&A. The company also benefits from the size and efficiency of its operations. In response to a question about the softening e-commerce environment, eBay explains that it may manifest in slower buyer growth, less velocity or repeat behavior, or smaller basket sizes. They are closely monitoring these factors for signs of recovery in Q4 and beyond.

The speaker discusses the progress made on the seller services side of the eBay marketplace, particularly in areas such as ads, payments, and shipping. They mention that the biggest friction points are related to traffic and discretionary spending, especially in markets outside the US. The other speaker adds that seller services have been a key focus for over three years and highlights the development of eBay stores, ad portfolio, and shipping services.

The speaker discusses how eBay is improving their services for B2C sellers, such as allowing them to ship from multiple warehouses and offering expedited returns and payment options. They also mention investing in the C2C experience, with a focus on making listing easier and increasing customer satisfaction. The speaker highlights the positive feedback from sellers and the growth of live listings on the platform. They end by stating their commitment to continue investing in sellers and improving the customer value proposition on eBay.

Jamie Iannone, CEO of eBay, is asked about the company's strategy to deal with the increase in deal shopping during the holiday season due to macro pressures and inflation. He mentions that eBay has moved away from unhealthy couponing and instead focuses on partnering with sellers for promotions and highlighting their refurbished and used products, which have seen growth due to customers looking for better value. He also mentions a recent survey that found 90% of consumers have purchased pre-loved goods on eBay in the past year. The question then turns to Steve, who is asked about the impact of taxes on cash outflow and the company's buyback plans.

The company's new strategy of driving value is resonating with customers and they are pleased with the momentum of their buybacks. The timing of cash tax payments has been shifted to October due to California State Disaster Tax Relief, but they are still on track with their goals. The conference call has now concluded.

This summary was generated with AI and may contain some inaccuracies.