The operator, Krista, introduces the eBay Fourth Quarter 2023 Earnings Conference Call and hands it over to John Egbert, Vice President of Investor Relations. John introduces the CEO, Jamie Iannone, and CFO, Steve Priest. They will be discussing non-GAAP measures and forward-looking statements. The presentation and reconciliation of measures can be found on the eBay website. The company's growth rates and earnings per share will be discussed, and the TCG Player acquisition will be fully lapped at the end of October 2023. Management will make forward-looking statements and there are known and unknown risks and uncertainties that may affect the company's actual results. More information can be found in their periodic reports and earnings release.

In 2023, eBay saw improvement in organic GMV growth, stabilized active buyer count, and 3% organic revenue growth. They also made investments in technology and marketing, and announced organizational changes to simplify execution and better serve customers. This involved reducing the workforce and scaling back alternative workforce contracts. However, the company does not intend to update this information and will not rely on any forward-looking statements.

In the fourth quarter, eBay's gross merchandise volume and revenue remained steady, with a focus on category strategy driving growth. The company's momentum in Motors Parts & Accessories continued, with the introduction of multi-warehouse shipping optimization and predictive maintenance. eBay plans to expand these features to other categories and utilize vehicle data to enhance the customer experience.

eBay's features and programs, such as the Authenticity Guarantee and expansion into new categories like loose gemstones, have helped the company maintain its position as a top destination for auto parts and other items. The company has also made significant investments in countries like Japan and Germany, tailoring its approach to meet the unique needs of consumers in those markets. These efforts have resulted in increased customer satisfaction and improved performance in Germany.

In 2023, eBay saw significant growth in buyer NPS and C2C volume in Germany following the launch of a new initiative. They also made improvements to their QR code technology, resulting in a decrease in unpaid items. Additionally, eBay invested in AI technology, leveraging generative AI to enhance the customer experience and increase efficiency. By the end of Q1, they expect to double their GPU capacity to support their ambitious AI roadmap, all within their budget. This investment will allow them to develop large language models from scratch using eBay's extensive e-commerce data.

eBay is using a combination of commercial and open-source language models to improve their services, with a focus on generative AI. Their magical listing experience, which uses generative AI descriptions, has been well-received by customers and is now available in all top 5 markets. They are currently testing a new feature that uses image recognition and generative AI to prefill product information, with plans to roll it out to more sellers in Q1. Additionally, they have improved their background removal tool using AI and are now using generative AI to enhance product images with a new background swap tool. These AI tools have the potential to greatly improve conversion rates on eBay.

The article discusses a new feature for sellers to showcase their products on AI-generated backgrounds. It also highlights the strong performance of the advertising business, with a 20% increase in revenue and over 2.9 million sellers adopting a single ad product. The launch of rule-based campaigns and a top-picks carousel for search have contributed to this growth. The article also mentions the company's sustainability efforts, particularly in the eCommerce sector.

In 2023, eBay's marketplace had a positive economic impact of $4.9 billion and helped reduce carbon emissions and waste. The company is committed to using green energy and has already implemented renewable energy projects that cover 40% of its global electricity consumption. eBay for Charity raised $43 million in Q4 and $162 million for the full year, and the eBay Foundation granted $19 million to support excluded entrepreneurs. eBay has also been recognized for its sustainability efforts and was included in several prestigious indices and lists.

The speaker thanks their employees for their hard work and support during challenging times and expresses optimism for the company's future plans. They mention improvements made in AI capabilities and customer experience, as well as investments in focus categories and financial services. They also mention expected financial growth and returns for shareholders. The speaker then hands over to Steve to discuss financial performance and metrics in more detail, and concludes with their outlook for the upcoming quarter and year.

In Q4, the company exceeded expectations in key financial metrics despite a softer demand environment. Gross merchandise volume was flat at $18.6 billion, while revenue grew 3% to $2.6 billion. Non-GAAP operating margin was 26.7% and non-GAAP earnings per share were $1.07. The company returned $379 million to shareholders through repurchases and dividends. The company saw improvement in business towards the end of November, especially in the U.S., driven by consumers looking for value during the holiday season. Focused categories, such as P&A, Refurbished, and Luxury, were the top contributors to GMV growth. P&A saw mid-single-digit growth due to improved trust and growing shipment coverage.

In the fourth quarter, U.S. GMV remained stable while international GMV saw a slight decline. The U.K. and Germany showed resilient demand but overall e-commerce growth in these countries was still challenging. Trailing 12-month active buyers remained stable at 132 million. Revenue increased by 3%, outpacing volume by over 3 points, with foreign exchange being a slight headwind. The take rate decreased slightly due to seasonal category and product mix, but was partially offset by growth in advertising and a FX tailwind.

In the fourth quarter, the take rate remained relatively flat despite a slight FX headwind. Advertising revenue grew 20% and reached 2.1% of GMV. First-party ads saw a 30% growth and outpaced volume. The non-GAAP operating margin was 26.7%, improving sequentially but down year-over-year due to FX headwinds and investments in product development and recent M&A. The eBay international shipping program no longer weighed on operating margins, but had a modest impact on gross margins. A GAAP restructuring charge of $99 million and $15 million for legal matters were recognized in G&A expenses. Non-GAAP earnings per share were $1.07, while GAAP earnings per share were $1.40 due to unrealized gains in the equity investment portfolio and stock-based compensation.

In Q4, eBay's free cash flow was negative $3 million due to the delay in cash tax payments until October. They ended the year with $5.1 billion in cash and investments and $7.7 billion in debt. They also repurchased $250 million of shares and paid a quarterly dividend of $129 million. Their equity investments and warrants were valued at over $5 billion, with their Adevinta stake increasing by $0.5 billion. A consortium led by Permira and Blackstone is expected to acquire Adevinta in Q2. eBay's outlook for the year is uncertain due to uneven demand in major markets.

The company expects GMV growth to be boosted by an extra leap year day and predicts a decline in Q1 but a return to positive growth in Q3 or Q4. Revenue is expected to outpace GMV growth and take rate expansion will be driven by advertising revenue. Non-GAAP operating margin is expected to improve due to a balance of investments and cost savings.

In 2024, the company expects a 40 basis point increase in non-GAAP operating margin due to a change in accounting estimate for data center equipment. However, there will be a 50 basis point headwind due to foreign exchange and a 30 basis point headwind from lapping hedging gains in 2022. Capital expenditures are expected to be stable, while the non-GAAP tax rate will remain at 16.5%. The company expects just under $2 billion in free cash flow, but there will be headwinds from restructuring charges and repatriation tax payments. The company has increased its quarterly dividend and has a remaining share purchase authorization of $3.4 billion, with a target of $2 billion in share repurchases for the year.

The company expects to end 2024 with repurchases and dividends representing 130% of free cash flow since 2022, exceeding their original target. Non-GAAP earnings per share is forecasted to grow by 8% to 10% in 2024. Despite a challenging macro environment, the company saw momentum in their business in 2023 and delivered non-GAAP earnings per share of $4.24. They remain confident in their strategy and plan for 2024. They expect their investments to turn GMV growth positive in Q3 or Q4 of this year and plan to balance expenses and revenue growth while driving operating margin expansion. They also plan to increase buybacks and dividends, leading to a total capital return of 130% of cumulative free cash flow from 2022 to 2024. They expect non-GAAP EPS growth of 8% to 10% year-over-year.

The company is confident in its potential for positive GMV growth in Q3 or Q4, which is anchored on product initiatives and a strong strategy. The Q1 outlook for margins is close to 30%, but for the full year it is anticipated to be 28-28.5%, possibly due to seasonality or discretionary investments. The company's focus categories continue to outperform and investments in Germany are expected to drive growth. However, the business is still impacted by market conditions in the U.K. and Germany.

In the paragraph, the speaker discusses the strong performance of Q1 and the company's focus on cost savings and long-term growth. They also mention the changes in the e-commerce industry, such as increasing competition and rising customer acquisition costs, but highlight eBay's advantage in organic traffic. The speaker also mentions Gen AI and the impact of their tests on the platform, but does not provide any specific quantification.

The eBay app and website are beneficial for the company as they can acquire and monetize users across multiple categories. Their focus on non-new and refurbished items, as well as their use of generative AI, sets them apart from others in the market. The AI features have been well-received by customers and have resulted in increased satisfaction and efficiency. These features are still in the early stages but have already been used by millions of sellers. The company continues to innovate and improve their products for customers.

The speaker discusses the importance of high-quality product pictures in driving sales on the marketplace. They mention the use of AI technology and the positive feedback received. The speaker then discusses the macroeconomic challenges in Europe, specifically in the U.K. and Germany, and how eBay's value proposition of offering great deals has helped drive sales in categories such as refurbished and luxury items despite the economic downturn.

The speaker highlights specific areas of growth within the company, including refurbished products and parts and accessories. They mention that the consumer is looking for value, and the company has leaned into this trend. They also mention growth in Europe and stable buyer numbers, with healthy acquisition and retention rates. The company is focused on providing new advancements and capabilities for buyers.

The speaker, Jamie Iannone, discusses how eBay is using predictive maintenance and new tools for buyers to drive retention. He also mentions the benefits of their hybrid environment and the use of large language models, which have not had a significant impact on their cost structure. The doubling of GPUs through 2024 is expected to have a positive impact on product development.

eBay has been using a variety of models, including commercial and open source, to improve their AI technology and have received positive feedback. They are continuously refining and iterating their models to make them better and are managing costs by doubling their GPU capacity and considering all costs in their guidance. The company is also using AI internally to improve productivity and engagement with customers.

The success of employees at eBay can be attributed to their ability to handle customer contacts and initial responses efficiently, aided by AI technology. The company's focus on enthusiasts and non-new in season categories has shielded them from low-price Chinese competitors. eBay also benefits from a large amount of organic traffic on their marketplace.

eBay's traffic mostly comes directly to the app or types in eBay.com, making them less reliant on paid traffic. They have a healthy CAC and CLTV due to their focus on acquiring enthusiast buyers and turning them into sellers. In Germany, they have seen success in their C2C initiative by applying their focus category strategy and improving NPS by over 20 points. They plan to extend this approach to other geographies.

The company is focused on improving its SEO and local features in the German market, as well as adjusting pricing for its C2C business. They are seeing success in these efforts and plan to expand them to other markets. There is also a question about the impact of AI and the sustainability of growth from China-based sellers in the future.

eBay is using AI in various parts of its business, such as expanding fitment capabilities for parts and accessories and using it for predictive maintenance. The majority of categories benefit from these horizontal innovations, including search and advertising. eBay is also using AI in marketing for personalized subject lines and to make CBT easier for buyers and sellers. Despite macro challenges, eBay remains focused on making it easier for buyers and sellers to interact across borders. In terms of GMV and revenue per buyer, eBay is seeing some customers trading down in certain markets, but is working on initiatives to drive purchase frequency on the platform.

In this paragraph, the speaker discusses how eBay is adapting to the economic challenges faced by consumers in certain countries, such as Germany. They mention that they are seeing growth in refurbished items and stability in their enthusiast buyers, despite macro pressures. They also mention their focus on driving frequency through programs and marketing, using generative AI and the wealth of data they have. The speaker expresses excitement about the potential for driving frequency on the platform and concludes that there are no further questions for the conference call.

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