eBay Inc.
Q2 2007 Earnings Call Transcript
Published:
- Operator:
- Good day, everyone and welcome to eBay's second quarter 2007 earnings results conference call. This call is being recorded. With us today from the company are the President and Chief Executive Officer, Ms. Meg Whitman; the Chief Financial Officer, Bob Swan; and Mark Rowen, Vice President of Investor Relations. I would like to turn the call over to Mark Rowen for opening remarks and introductions.
- Mark Rowen:
- Thank you, operator. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the second quarter of 2007. Joining me today on the call are Meg Whitman, our President and Chief Executive Officer and Bob Swan, our Chief Financial Officer. We are providing a slide presentation to accompany Bob's commentary during the call. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the Investor Relations section of the eBay website. Before we begin, I would like to remind you that during the course of this conference call we may discuss some non-GAAP measures in talking about our company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management may make forward-looking statements regarding matters that involve risk and uncertainties, including those relating to the company's ability to grow its business, user base, and user activity. Our actual results may differ materially from those discussed in this call for a variety of reasons, including
- Meg Whitman:
- Thank you, Mark and welcome everyone to today’s conference call. The second quarter of 2007 was a very good one for the company, highlighted by accelerating revenue growth, consistent operating margins and great earnings and free cash flow growth. The company delivered record net revenues of $1.83 billion, representing year-over-year growth of 30%. Earnings per share grew 40%, and free cash flow grew at 45%. Let me give you some highlights for each of our business areas
- Bob Swan:
- Thanks, Meg. Today, I will discuss our Q2 financial performance, along with our outlook for the third quarter and the remainder of 2007. During my discussion, I will be referencing our earnings slide presentation which accompanies our webcast. Overall, we posted great financial results in Q2. Our results reflect accelerating top line growth, strong earnings growth and excellent free cash flow. Additionally, we continued to redeploy capital to strengthen our business via our share repurchase program and acquisitions. We're now halfway through the year and we are increasingly confident in our ability to deliver even stronger full year revenue and earnings growth. In total, our business generated record net revenues of $1.83 billion, representing 30% year-over-year growth. Organic revenue, excluding acquisitions and FX, was up 23% versus last year, an acceleration of 2 points versus the first quarter. This acceleration was driven by a strong performance from PayPal and increased traction in advertising. Non-GAAP EPS was $0.34 for the quarter, a 40% increase from last year and $0.01 higher than the top end of our guidance range. This out performance relative to the top end of our guidance was driven primarily by a lower tax rate and a weaker than anticipated U.S. dollar. We delivered excellent cash flows as well in the second quarter, generating $533 million of free cash flow, a 45% growth versus last year. The growth was driven primarily by earnings expansion coupled with lower capital expenditures. Now let's take a closer look at our segment results for the quarter. Overall, our marketplaces business had a good quarter, with strong top line growth and expanded segment margins, while we continued to make significant investments to reinvigorate our core auction business and accelerate our adjacent businesses. In the second quarter, the marketplaces business achieved net revenues of $1.29 billion, up 26% versus the year-ago period. Global GMV for the quarter was $14.5 billion, a 12% increase over last year. Excluding the impact of foreign exchange, GMV grew by 9%. Consistent with the last several quarters, revenue is growing much faster than GMV as we expand into new formats and introduce new methods of monetizing our traffic. Now let's walk through some of our key operating metrics. We added nearly 8 million new users in the quarter, bringing the total registered user base to 241 million. New listings in the quarter were 559 million, down 6% versus Q2 last year, with core listings down 2% and store inventory listings down 25%. In the U.S., new listings totaled 244 million, while there were 316 million new listings internationally. U.S. GMV grew 10% to $6.7 billion, highlighted by accelerating growth in nearly every product category. International GMV grew 14% to $7.8 billion, representing 54% of global GMV. Excluding the impact of foreign exchange, international GMV grew 8%. Let me give you some more color on the difference between the 6% decline in new listings and our 26% growth in total marketplaces revenue. There are two primary fundamentals impacting this divergence of growth. First, GMV is growing much faster than new listings; and second, revenue is growing much faster than GMV. Let me elaborate a bit more on this dynamic. The gap between listings growth and GMV growth is driven primarily by improved core ASPs and conversion rate. FX drove the remaining 3 points to total GMV growth of 12%. The gap between revenue growth and GMV growth is driven by several factors. First, continued strength in our non-GMV businesses such as Shopping.com, Rent.com, classifieds, and advertising, is contributing 4 points of growth. Secondly, our recently acquired StubHub tickets business, which features a higher take rate than our eBay platform, as well as our joint ventures in China and Taiwan where we are no longer recognizing local GMV because we now hold a minority interest drove 4 points of the difference. Third, as Meg indicated earlier, the format of our vehicles business has been shifting. While GMV from vehicles is slowing, we are monetizing this business through other platforms such as our classifieds business and our Local Motors format. We're pleased with the revenue growth these businesses are driving, however, we don't recognize GMV in these formats. These factors combined to account for 3 points of the gap between revenue and GMV growth. Finally, pricing actions we have taken in the last 12 months drove the remaining 2 points of growth. We expect the trend of revenue growing faster than GMV and listings to continue as we expand into new formats and monetize our traffic in new ways. Let's now take a closer look at the rest of our marketplaces business. The UK, France and Italy were strong contributors to overall European performance. In Germany, despite a decline in new listings, improved conversion rates and higher ASPs enabled us to deliver GMV growth in the mid single-digits while growing revenue in the double-digits. In Asia, our Korean business posted sharply accelerating GMV growth driven by continued improvements to the user experience. We believe these results demonstrate the strategies we've put into place in Korea are beginning to resonate with consumers in that market. Our non-GMV driven businesses were strong contributors to our Q2 growth. Shopping.com continues to grow faster than the overall marketplaces business, while driving our penetration into the growing online comparison shopping segment. Our classifieds business posted nearly triple-digit year-over-year revenue growth. While this segment of our business is small today, it continues to grow at a rapid pace and we're extremely excited about its future potential. Lastly, our advertising business is starting to gain some significant momentum. Overall, advertising and other revenue was up 77% versus the prior year, increasing from 3.1% of total marketplaces revenue last quarter to 4.2% this quarter. This acceleration was driven primarily by the launch of advertising in our international eBay businesses. We're pleased with the progress we're making and believe that advertising complements our existing transaction-based platform, allowing us to capitalize on our significant traffic. Overall, we are pleased with our marketplaces business performance this quarter. Our efforts to diversify our business and increase overall monetization continue to show good momentum and we're confident that our significant investments to improve the eBay user experience will make our business even stronger over time. Now let's turn to our payments business. PayPal had another excellent quarter, posting total revenue of $454 million, a 34% increase versus the same period last year. This quarter's performance underscores the excellent progress we are making in our effort to accelerate the ubiquity of PayPal on the web by expanding our global footprint and increasing our penetration on eBay. Total payment volume in the quarter was $11.7 billion, representing 32% year-over-year growth and acceleration versus last quarter's growth. TPV grew by 25% in the U.S. and 49% internationally versus last year. Our TPV growth was driven by strength in merchant services and continues to benefit from our ongoing geographic footprint expansion. In terms of key operating metrics, PayPal added nearly 10 million new accounts in the quarter to end with 153 million total accounts. Global TPV for PayPal's on-eBay business grew by 18%. Global penetration of addressable GMV was 58.8% in the quarter, up 2.3 points over last year. Our global merchant services business had another phenomenal quarter, generating $4.9 billion of TPV, up 57% year over year, a marked acceleration versus Q1. We continue to attract top online retailers to our platform and we're excited about the excellent traction we're seeing in our global merchant services business. PayPal's Q2 transaction expense was 1.12%, 10 basis points higher than the year-ago period and 3 basis points higher than last quarter, driven primarily by a higher credit card funding mix versus last year. The credit card funding mix continues to be impacted by a product mix shift largely resulting from strong growth in our merchant services business. The transaction loss rate was 29 basis points this quarter, up 2 points from a year ago, but 3 basis points lower than Q1 '07. In summary, PayPal had another great quarter and continues to be a key driver of our company’s overall growth. We continue to make significant investments to extend our leadership position in the online payment space, and these investments are paying off. Looking at our communications business, Skype continues to enjoy healthy growth, posting total revenue of $90 million for the quarter, an increase of 103% versus the year ago period, while delivering a second consecutive quarter of segment profitability. Skype’s total registered users grew to nearly 220 million, representing an increase of 94% from a year ago. Geographically, the majority of new users came from Europe and Asia, while user growth in North America remained strong as well. We believe the distribution partnerships we announced this quarter will help us attract additional new users over time. Skype-to-Skype minutes in Q2 were 7.1 billion, flat compared to last year, while Skype out minutes were 1.3 billion, representing 57% growth versus the prior year. While we're pleased with total registered user growth, activation levels are not where we would like them to be. We continue to focus our efforts on engaging our rapidly growing user base and expanding our product and feature set. Now let's take a look at how our business unit performance translated into non-GAAP financial results. As I indicated earlier, eBay delivered record net revenues of $1.83 billion, up 30% year over year. Acquisitions we made over the last 12 months contributed nearly 3 points to our top line growth and FX, due to a weaker dollar, contributed an additional 4 points of growth. This top line growth, coupled with a lower share count, a lower tax rate and a weaker U.S. dollar drove EPS expansion from $0.24 to $0.34, a 40% increase versus Q2 '06. Our operating margin was 32.4%, 20 basis points lower than the prior year. Operating leverage, productivity and a weaker U.S. dollar have mostly offset the negative mix impact from the growth of our lower-margin businesses, PayPal and Skype, as well as accelerated investments across all three of our businesses. Looking at our operating expenses in a bit more detail, first sales and marketing expenses were 24.8% of revenue in Q2, down 50 basis points from the year-ago period. This decline was driven by continued leverage in our marketplaces marketing costs, offset by reinvestment in PayPal marketing initiatives to continue to increase our penetration on the Web. Next, product development expenses were 7% of revenue, 20 basis points lower than a year ago. We continue to increase our unit capacity at a faster rate than our expenses, and we're using this increased capacity to drive the significant product development roadmap across all of our businesses. Lastly, G&A at 13.9% of revenue is down 80 basis points year over year. We continue to leverage our existing infrastructure while investing more in PayPal consumer protection programs. Collectively, these factors translated into $595 million of non-GAAP operating income, 29% growth on a year-over-year basis, and non-GAAP net income of $471 million, up 34% from a year ago. We generated $655 million of operating cash flow and $533 million of free cash flow in the quarter. Capital expenditures were 6.6% of revenue in Q2, and we ended the quarter with nearly $3.8 billion in cash and cash equivalents, despite cash outlays for nearly 350 million share repurchases in the quarter, as well as our acquisition of StumbleUpon. With that, let me turn to our non-GAAP guidance. With another quarter behind us, we feel good about our results through the first half of 2007. We delivered a great financial performance this quarter, with accelerating top line growth, strong earnings expansion and excellent free cash flow. Our international growth has allowed us to continue to capitalize on a more effective tax structure, and we continue to benefit from a weaker dollar. As we head into the second half of the year, we're raising our revenue, EPS and free cash flow guidance for the full year. We continue to reinvest our operational out performance back into the business in order to improve the user experience across our businesses and to build PayPal ubiquity across the web. The accelerated capital expenditures we undertook last year have enabled us to reduce our capital investment this year. Based on these factors, we now expect full-year '07 revenue in the range of $7.3 billion to $7.45 billion, a full year operating margin of approximately 33% and EPS in the range of $1.34 to $1.38. This guidance assumes a U.S. dollar to euro exchange rate of $1.30 and a revised full-year tax rate of 25.5% to 26%. We are also raising our free cash flow forecast to approximately $1.95 billion on full year CapEx of 7% to 8% of revenue. Looking to the third quarter, we expect net revenues to be in the range of $1.775 billion to $1.825 billion, and EPS of $0.31 to $0.33. Let me take a minute to put Meg's earlier remarks in a bit more context. As we look back on the business over the past couple of years, it is clear that our business has grown in many different ways. Overall, our mix of business has grown to be more diverse. Our core business has grown stronger over this period of time through geographic expansion and increased penetration of PayPal on eBay. We have expanded into new markets such as merchant services and communications and new formats such as classifieds and online comparison shopping. We have extended into new areas of monetization with advertising. So where we sit today, we have an excellent portfolio of businesses with a strong core and fast growing adjacencies. I'm confident this portfolio of businesses will continue to drive great results through the remainder of 2007 and beyond. In summary, our Q2 results show continued strong performance in 2007 and we feel good about our ability to deliver even stronger results for the year. Now we would be happy to answer your questions.
- Operator:
- (Operator Instructions) Your first question comes from Youssef Squali - Jefferies.
- Youssef Squali:
- Meg, how early do you think before we can start seeing the reacceleration in GMV growth in U.S. and Germany that you talked about? In Germany in particular, it looks like your core listings was down 29%, stores up 24%. Does your plan contemplate a fee hike there to balance that platform like you did in the U.S.? Thanks.
- Meg Whitman:
- We are very excited about the plans that the German team has in place. I was there about four weeks ago. I think it is some of the best work I have seen out of any marketplaces team over the last four or five years. They are totally on this issue. I can't tell you when we will see that acceleration of GMV. It is very difficult to predict. We run a large ecosystem here. We don't ever quite know exactly what lever that we can pull, whether that is products, customer safety, customer support, marketing or pricing is going to do the trick. But we feel very confident that they have diagnosed the situation beautifully. They have a great set of plans in place. I think we are going to have a good second half of the year in Germany. With regard to the listings, I will turn it over to Bob. That doesn't sound quite right to me, but you may have a better perspective.
- Bob Swan:
- Clearly, in Germany this quarter, listings did decline. For the most part, as I indicated earlier, globally across the board listings declined 6% year over year. Germany was in the same camp. It declined a little bit more, and we are still lapping a strong media listings growth in the second quarter of last year. So the decline is a little more dramatic. That being said, conversion rates and ASP improved quite dramatically in Germany in the quarter. So as we indicated, we had mid-single-digit GMV growth and revenue growth even stronger than that. The only other thing I would add, Meg , you also asked about U.S. GMV. While we are not satisfied with it, we did have accelerated GMV from Q1 to Q2. So Q1 was 8% GMV growth. Q2 was 10%. StubHub contributed to that, but also we saw accelerated GMV across almost all categories in the U.S. So we still have lots of work to do. We have some exciting stuff coming in Q3. We will see how it plays out over the rest of the year.
- Youssef Squali:
- Thanks.
- Operator:
- Your next question comes from Aaron Kessler - Piper Jaffray.
- Aaron Kessler:
- Can you talk about your priorities in terms of the improved user experience on eBay in the second half in terms of either fraud or improved user experience? Maybe if you can detail a few of those.
- Meg Whitman:
- Sure, let me take that. As you have correctly pointed out, making improvements to the user experience is one of our main strategic priorities. Let me tell you about a few of them. First is to improve the finding experience, what we call finding 2.0. You can see that we have actually done some work in something we call DefMatch, which is in fact a relevant and algorithmic search engine that actually, based on your prior searches on eBay and what we know about other people who search for those same items, we think we can get you to the items that you're looking for faster and better. You might recall in the old age of eBay, you'd do a search for Madonna and you'd get 20,000 items, everything from T-shirts to books. Now we're able to get you there much faster. So the first bucket would be finding. The second would be making the auction experience even more fun. The first is something we call Bid Assistance, which is really great. We heard from a lot of buyers that they were scared to bid on more than one item because God forbid you won five iPods instead of the one that you really wanted. So we have created something called Bid Assistance that allows you to bid on multiple items. We manage that bidding for you, and you will not win more than one item. That actually has come across with great results. We have something called eBay Countdown, which actually visualizes the fun of the end of the auction with avatars and showing the race towards the end. We've got Feedback 2.0, which is launched and expanded now in virtually every country. We've got a new homepage layout coming. We have also increased customer support for both buyers and sellers. Also, by the end of the year, we will have a 360-degree view of the customer, so that if you are a PayPal customer and you have issues around your eBay account, we can help you on that same phone call or same chat as opposed to having to transfer you between centers. Those are probably the highlights. I would direct you to something called www.playground.ebay.com, where we have a really fun site for users to test a number of the new products that we're launching and provide feedback. I think you'll find it to be exciting, and our users are actually giving us great feedback on it.
- Aaron Kessler:
- Great. That's helpful.
- Bob Swan:
- Feel free to buy or bid on something while you are there.
- Operator:
- Your next question comes from Brian Pitz - Banc of America.
- Brian Pitz:
- Thank you. Just a question on your local strategy. You recently launched classifieds site Kijiji in the U.S., as mentioned. Is your primary goal to capture share from craigslist and eventually monetize this site? Or are you really more interested in applying what you may learn from local classifieds to help you with really more local initiatives on the main eBay platform? Thanks.
- Meg Whitman:
- No, we are interested in building a robust classifieds business in the United States. Because of our success internationally, we actually think it is the right platform on which to expand into the U.S. and serve classifieds communities in the U.S. with a new kind of offering. Interestingly enough, we think actually that the U.S. market is large enough and diverse enough to support a number of different players in this area. This is a very fragmented market. Our plan is to use the U.S. classified business, it is really quite a differentiated offering versus craigslist, with a slightly different target market, and see what happens. If we have anywhere near the success we have had with Kijiji outside the United States, I think we will be quite pleased. We may learn some things that help the eBay U.S., but this is actually a classifieds play in the U.S.
- Brian Pitz:
- Great, thanks.
- Operator:
- Your next question comes from Imran Khan – JP Morgan.
- Imran Khan:
- Hi, thank you very much for taking my questions. By the way, playground looks great. Meg, if you look at the GMV growth rate of 12%, a decent chunk of the growth rate came from the conversion improvement. What gives you the confidence that once we anniversary some of the changes that you made that conversion can start to improve? How far off are we from historical conversion rates, high conversion rates? The second question is you just raised your free cash flow target to $2 billion. Why not take the opportunity of a historically low interest rate and do some sort of buy back? Thank you.
- Meg Whitman:
- On the first one, we continue to believe that listings will follow demand. What increase in conversion rate means is that more listings are selling and that our sellers are enjoying more success. As we anniversary a lot of the store inventory format shakeout and cleaning up the sites, our belief is that listings will in fact follow demand. So we are encouraged by some of those things that we're seeing very early on in the U.S., but we do think that will in fact happen as we go forward. Do you want to take the capital question?
- Bob Swan:
- On the second question, our focus continues to be on extending our leadership positions in each one of the three business units. We continue to attempt to maintain the financial flexibility to do that, but also redistribute the rapidly growing cash flows to shareholders. So what that has meant a bit historically is in the last two years we spent about $3 billion in cash on acquisitions to strengthen some of our businesses, and you have seen the benefits of that, I think, highlighted in this quarter's performance. Secondly, in the last ten months we have bought back 75 million in shares and will continue to do that with our share repurchase program. So we've got a great balance sheet. It keeps generating cash. Our focus is on redeploying that as effectively as we can. As we think about longer-term capital structure, I am sure at a point in time, we will have debt on the balance sheet, but we have determined as of now, maintaining flexibility, reinvesting, grow while redistributing capital through share repurchase, we generate enough cash flows to do that.
- Operator:
- Your next question comes from Ben Schachter - UBS.
- Ben Schachter:
- Just a follow-up on Kijiji. It was a bit of a softer or quiet launch, and I was wondering if you could talk about what type of an investment you may or may not make there to build the business. Also, what does it mean for your craigslist ownership piece? Meg, you talked about marketing spend around the new and improved features on the site. Will there be any meaningful bartering agreement with any of your advertising partners to get more advertising on say Yahoo! or Google?
- Meg Whitman:
- With regard to craigslist, we enjoy a good relationship with craigslist and we have been an admirer of their company for a long time. We don't expect this launch to impact our investment in craigslist. We plan to maintain our minority equity stake. With regard to investment in Kijiji, obviously we've made some investments in the site. But one of the great things about having a global platform is we can actually launch in 220 cities and 50 states at a relatively low cost using the investment that we have made in the Kijiji platform overseas. So it is one of those times when scale actually helps speed. So we are going to largely grow that organically. We do a little Internet marketing, we do a little direct marketing, but particularly in 2007 and 2008, we want to see how fast we can grow this organically. With regard to marketing spend, we are actually doing, I think, a great holiday campaign in our three largest markets
- Bob Swan:
- We don't have anything of significance.
- Meg Whitman:
- So I don't actually think there will be any barter in Q4, but we could get back to you on that.
- Bob Swan:
- The only other thing that I would add is Meg indicated in her comments that the integration and the amount of activity we have going on in terms of new features to make the site more fun and compelling, we want to bring as much traffic back to experience all the new innovation we have. So that is a part of the integrated marketing campaign in the latter part of this year.
- Operator:
- Your next question comes from Douglas Anmuth - Lehman Brothers.
- Douglas Anmuth:
- Just following up on the marketing questions, can you talk a little bit about the marketing campaign in the back half, just in terms of quantifying the dollars that you can potentially spend there? Also, a little bit of color on how the current Windorphins campaign is going, if you are seeing that stimulate any buyer demand? Also, with your experiments around search moving between providers a little bit late in the quarter, what your key takeaways are there as well. Thank you.
- Bob Swan:
- First, in terms of the marketing question, during the course of this year, our expectations are that our overall margins will be roughly flat with last year at 33%, despite the fact that our lower margin businesses are growing faster than the rest of the portfolio. So we will offset that mix impact with more efficient marketing spend and lower G&A. Those dynamics are not dramatically different as a percent of sales in the second half of the year as they were in the first half. So it won't be dramatically different as a percent of sales.
- Meg Whitman:
- With regard to Windorphins, for those of you on the phone who don't know, Windorphins is a contraction between winning and endorphins, which is designed to underscore that really fun, great, euphoric feeling that you get when you win on eBay. It was a grassroots teaser campaign for our fall full-blown media campaign. It actually had completely the desired effect, which was lots of inquiry, lots of buzz, lots of talk on the blogs and things like that. So we are really pleased with it, and you will see the first effects as we launch the full-blown campaign here in the United States. But it was exactly the right thing to do and generated a lot of fun and buzz in the user community. Let's see, what was the other question?
- Douglas Anmuth:
- Regarding your search changes late in the quarter.
- Meg Whitman:
- Late in the quarter, as you know, we ran an experiment to see what would happen if we were to change our allocation of Internet marketing between our largest providers. As you know, we pulled back from Google, reallocated to AOL, Ask Jeeves and Yahoo! in particular. We learned a lot from this test that will actually drive our go-forward Internet marketing spend. It has to do with return on investment, where we can get the most leverage. As you know, we have gone back to spending some money on Google. We will continue to reallocate not only between IM engines as we go forward on particular words, but also, frankly, we are reevaluating our spend between offline and online. So a great test that we did. I think we learned a lot from it. I think we are going to be even more efficient than we have been in the past in terms of the efficacy of our IM spend. By the way, it had no impact at all on the results for the quarter, because the money we largely were spending on Google we moved to other partners and saw actually great ROI.
- Operator:
- Your next question comes from Derek Brown - Cantor Fitzgerald.
- Derek Brown:
- Sort of a broader question, but I am curious, why do you believe sellers are so slow to respond to improved conversions, improved ASPs, with more listings? Where do you think the obstacles are for them to get more product onto the site?
- Meg Whitman:
- I think there's a couple of things. One is, Derek, this is a big ecosystem and we made a very significant change a year ago when we incentivized store inventory format listings at the expense of core. We actually really also changed the mix of fixed-price and auction in a way that I don't think was actually appropriate for the marketplace. So I think they are sorting through fixed-price versus auction. They are sorting through average selling price on eBay's platform versus others. They are sorting through the volume that has always been the hallmark of eBay and continues to be the hallmark of eBay. I think as we get through some of these overlapping quarters in the marketplace, it settles out. As sellers increasingly see these increased conversion rates, listings will follow demand. But I think we actually upset the balance of this marketplace last year even more than we had understood when we were in the middle of the shift in core issue, because it wasn't just lower-priced listings; it was the nature of the listing. It was fixed price versus auction. I think it was a pretty big shock to the system that is only now coming back into balance.
- Derek Brown:
- Where would you point us to look to see the improvements in those metrics right now, I guess from a seller perspective?
- Meg Whitman:
- Well, I think you have to look at conversion rate and average selling prices by market and by category. As Bob said, we are a little farther along on this journey in the United States than we are in Germany. What we saw in this quarter -- it is early and it's not a huge movement -- but we did see accelerating GMV growth in every single category. GMV was up 2 points. StubHub contributed to part of that. But I actually think we're seeing some strengthening of the core. It is way too early to declare victory. We've got a lot more work to do. As I said, we've got more product changes coming to the site in the next six months than we have in the last three or four years. The other thing I would say here is while we were focused on shift in core cleanup, the other thing that we really recognized was that we had to get after the user experience on eBay in a more aggressive way than we had in the past. That has been a lot of the work in the last six months, that I think will actually strengthen demand even further, which will in fact pull listings along.
- Operator:
- Your next question comes from Anthony Noto - Goldman Sachs.
- Anthony Noto:
- Thank you very much. Two questions, one on PayPal and then one on GMV. On PayPal, you announced two new partners in the travel space, Northwest and I think Southwest. I was wondering if you think these two accounts will shorten the sales cycle into other travel providers, both the suppliers as well as the online travel companies? The second question I have is GMV growth is obviously a measure of your ability to convert demand and supply. Could you give us a sense for how much demand growth is so that as you implement the different initiatives, Meg, that this may actually give us a sense of the upside in converting that demand? eCommerce online, the best measure we have, is growing globally around 25%. Do you have demand growth of 25%, but you are only converting half of that? Could you give us a relative measure of your demand growth? Thanks.
- Meg Whitman:
- I will take the easy question, we will give Bob the hard question. With regard to our travel product, at PayPal we've spent quite a bit of time getting two kinds of travel products right. One is a product for the airlines and the other is for the online travel providers like Orbitz, Expedia. Both of those needed actually quite some adaptation from our core merchant services product by the nature of the kind of business that they run. For example, the travel providers, actually you have to create a PayPal distribution effect that, let's say I buy an airline ticket on Orbitz. Part of that has to go to the airline and part of that is the fee that Orbitz makes. You have to be able to handle that disbursement in a perfectly high-integrity way. So we are pleased with the product. We have gotten good response. I would hope that the launch of Southwest and Northwest actually accelerates the adoption in the travel segment. These are industries where they do look to what people are doing. No one wants to be the last to adopt a new payment mechanism. So I feel pretty good, actually, about our progress in payments in the travel industry. I am excited about it, actually.
- Bob Swan:
- Anthony, on your second question, we look at overall global market rates of growth, probably in the mid to lower 20s geographically slower in the U.S. and higher outside of the U.S. That is the market that we are going after. In terms of how we measured our performance, more and more it's from revenue growth as opposed to just GMV growth, because the different formats and the different platforms that we're trying to build, whether it is classifieds, whether it is how we monetize traffic through advertising, whether it is online comparison shopping, we're trying to make sure we have the platforms in place to enable us to grow at market rates of growth. That is how we are approaching it.
- Meg Whitman:
- The only other indication that you can look at, Anthony, is the amount of traffic that is coming to the site. That is holding up very well. We will know more at the end, obviously, of Q2. The industry traffic reports trail our traffic reports. But traffic is holding up, and I think as we launch these product features and as we launch our marketing campaigns in the fall, I will hope that we will get a disproportionate or more than our fair share of traffic coming to eBay.
- Anthony Noto:
- Would you share with us the growth from your internal logs and your traffic growth? The third-party services are not that accurate.
- Meg Whitman:
- We typically don't release that because I think it is just better for everyone to rely on the same traffic reports.
- Anthony Noto:
- Thank you.
- Operator:
- Your final question comes from Mark Mahaney – Citigroup.
- Mark Mahaney:
- Great, thank you very much. I wanted to ask about one product, which is eBay Motors 2.0, the beta that you were showing at eBay Live in Boston looked very promising. It seems that product has been slow or maybe you’ve missed some deadlines. Can you just talk about the process there? When do you think we will see that, because it does look promising? Real quickly, Germany and eBay U.S. GMV reacceleration challenges, how different do you think they are? In other words, if you get these learnings from what sounds like promising initiatives in Germany, do you think that they are easily applicable to the U.S. market or are the tools necessary to reaccelerate those two markets very different? Thank you.
- Meg Whitman:
- Let me take Motors 2.0. We are excited about Motors 2.0, but as John Donahoe has often talked about, we now have a very robust AB testing capability inside eBay, which we did not have a year ago. And so, to make sure that Motors 2.0 was exactly right and didn’t disrupt the eBay Motors marketplace in an unintended way, we actually have been showing Motors to a randomly selected, relatively small segment. We have received a ton of incredibly valuable feedback during this initial testing phase. We are making a couple of tweaks to the product that actually on reflection, listening to this user feedback, makes a ton of sense. And so we were ready to launch, but we through our AB testing capability, we decided to delay to make a few more product tweaks to make it exactly right. The other thing I would say with regard to Motors is increasingly we are going to want to part vehicles from parts. Parts and accessories is doing incredibly well, it is one of our fastest growing categories around the world, and I think we are going to want to part those two. And actually, eBay Motors, I think was better for vehicles than it was for parts, and we needed to make some tweaks to the parts side so that we didn’t have the law of unintended consequences on parts and accessories. With regard to learnings across eBay, one of the things I think that has also taken place in the marketplace business is really terrific best-demonstrated sharing practices between all of the different countries. What we learn in the U.S. immediately gets ported to Germany, and vice versa. So pricing, which is controlled on a country level, all of those learnings are being fed in centrally. Things like the social networking components that we are playing with in Germany. If they work, they will be moved to the U.S. A lot of the product changes in the U.S. will be moved to Germany. So I would say that when we actually hit on something that works, as we have, we will be able to roll it out much faster. Here is the other thing
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