eBay Inc

NASDAQ:EBAY

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the eBay Q3 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Joe Billante, VP of Communications and Investor Relations. Please go ahead sir.

[Joe Billante, VP, IR]

Thank you. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2020. Joining me today on the call are Jamie Iannone, our Chief Executive Officer and Andy Cring; our interim Chief Financial Officer. We're providing a slide presentation to accompany Andy's commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com.

Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. Additionally, all revenue and GMV growth rates mentioned in Jamie's and Andy's remarks represent FX neutral year-over-year comparisons unless they indicate otherwise.

In 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 and 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 and 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 October 28, 2020 and we do not intend and undertake no duty to update this information.

With that, let me turn it over to Jamie.

[Jamie Iannone, President and CEO]

Thanks Joe and good afternoon, everyone and thank you for joining us. Today I'll walk you through some of the key highlights from the quarter and update you [technical difficulty] of the company. Then I will turn the call over to Andy to discuss our recent performance and near-term outlook.

Before I do that, I'd like to take a moment and reflect on a major milestone eBay passed last month. 25 years ago during Labor Day Weekend, our Founder Pierre launched eBay as a technology experiment. The aspiration was to create an open, fair, and trusted marketplace that empowered people and created [ph] economic opportunities for all.

Since our inception, eBay pioneered online shopping, has become an iconic brand that has shaped the modern e-commerce landscape. We are very proud of our accomplishments and today we connect over 183 million buyers to nearly 90 million sellers around the world in a broad and diverse set of categories.

We are operating during historic times when our buyers and sellers need us most, while supporting our employees who are working hard to meet the needs of our customers and adjusting [ph] to their own reality.

As we look ahead to the next 25 years, our business become the best global marketplace to buy and sell goods through our tech lead re-imagination [technical difficulty].

I will come back to this in a moment, but first let me talk about our most recent achievements. In the third quarter, we delivered strong results. Earlier this month, we updated how we report classified [ph], but to be clear on apples-to-apples basis, we performed better than expectations on both the top and bottom-lines.

Gross merchandise volume and marketplace 21%. To put that in perspective, we added over 4 billion in volume in Q3 versus last year, more than many businesses do annually. Active buyers increased over 183 million globally, organic revenue grew faster than volume, up 26% driven by payments and advertising.

Migration made significant progress in Q3 and is giving [ph] buyers and sellers a simplified end-to-end experience.

Starting with five of our largest markets, we focused first on transitioning business sellers to the payments form. As a result, we ended the quarter with over 340,000 sellers migrated.

During the quarter, eBay managed payments for over 20% of on platform volume. Additionally, we informed sellers that we are expanding manage payments to France, Italy, and Spain in early 2021. And we will begin to migrate consumer sellers in Q4 in the U.S.

We remain on track and expecting the vast majority of our transition by the end of next year. So, our feedback has been encouraging as NPS from sellers [technical difficulty] payments has averaged more than 10 points higher than the NPS of sellers who have yet to migrate. Buyers love the flexibility, choice, and ease of use. We're seeing new and reactivated buyers, ultimate forms of payment, like credit and debit cards, Google pay and Apple Pay across the majority of their purchases. We were confident that we are on pace to deliver $2 billion in revenue and $500 million in income [technical difficulty] basis by 2022.

Advertising growth continues to be driven by promoted listings, which continue to outpace volumes, a trend we expect will continue for the foreseeable future. In the third quarter, promoted listings delivered $186 million of revenue, up 77%. We are providing sellers with more data-driven recommendations to optimize their ad conversion, while we test and build more technology features to drive future growth and position eBay [technical difficulty].

Now turning to Classifieds. We believe that the transfer of Classifieds [technical difficulty] is on track to be completed in Q1 2021 subject to regulatory approvals. We're excited to bring together the two highly complementary businesses that can create tremendous value over time.

The market agrees as evidenced by the appreciation of Adevinta share price, which increased in value of eBay from $9.2 billion to over $11 billion based on recent trading levels.

As you may recall, last quarter, I outlined a long-term vision for eBay. Through a tech-lead re-imagination, we realize the enormous untapped potential of our marketplace and drive sustainable long-term growth. We have three strategic priorities to support this vision.

First, to defend our core by better compelling next gen experiences for RCVs. Second, to become the partner of choice for sellers, and third, to cultivate lifelong trusted relationships with our buyers. We are in the first phase of multiyear journey that many improvements for buyers and sellers yet to come. But over the past quarter, we were able to take several steps towards realizing this vision decision.

As I mentioned, our first priority is all about defending our core business. Our focus here is on non-newest using products and simplifying consumer selling. We're taking a holistic view of customer needs, responding and launching features to address those needs, and rapidly changing the approach leveraging scalable technology across [technical difficulty] categories.

A great example of that is the series of changes we made to our luxury watch category. Recently, we launched authenticity guarantee on all watches above $2,000. [ph]. This increases confidence both buyers and sellers.

Buyers can do a meticulous verification by third-party experts and sellers are protected from [technical difficulty] returns. In addition, we announced an [technical difficulty] for high-dollar transactions plus new app content for watch enthusiast and we also reduce fees for sellers. While this service is still in its early stages, we starting to see a modest increase in supply and higher average selling prices.

We've also turned our focus to the sneakers category, which attracts passionate enthusiast, particularly GenZ and Millennials. In the US, sneaker GMV has significantly improved from a year ago. These buyers and sellers bring tremendous value to our ecosystem.

An average sneaker buyer purchases in 10 unique categories each year more than double the amount of other eBay buyers. Leveraging similar technology launched in watches, we expanded the authenticity guarantee to sneakers. We're requiring all collectible sneakers both new and pre-owned above $100 to be verified by a team of independent third-party industry experts. The program kicked off with the authentication of our most popular brands and styles and will scale that all sneakers sales over $100 next year.

A year ago, we were losing share in this important category. But now we're seeing over 50% [technical difficulty] growth year-to-date and that was before launching the authenticity guarantee.

And just last week, we announced the launch of new elevated experience for certified refurbished product. We see tens of billions of dollars in untapped potential in the global refurbished market. Through our new certified refurbished program, buyers can save up to 50% unlike new branded inventory with all the assurances of buying new including a two-year warranty, eBay money back guarantee, and hassle free 30 day returns.

We are launching this program in partnership with globally recognized brands, including [technical difficulty] and Fila, that was all certified refurbished inventory exclusively on eBay, not only does this program help with buyers budgets leading into the holiday season, it also helps to eliminate unnecessary waste by keeping products in circulation for many years to come.

We see a long runway to accelerate GMV growth given the $500 billion global total addressable market, we are competing for, but it will take time. By leveraging scalable technology, we can uniquely address the needs of customers across a diverse mix of categories in electronics, fashion, collectibles, home and garden, parts and accessories, and more.

Moving on to the second key priority of our vision, becoming the platform of choice for sellers. Over the past three months, in addition to enhancements in managed payments and advertising, we continue to leverage the scale of eBay to benefit small businesses. We worked closely with UPS to offer new shipping services for sellers on our platform.

In addition to a direct integration with eBay labels, sellers now have access to discounted rates saving them time and money. Sellers also have access to order details, customer information, label printing and shipment tracking all in one place and buyers benefit from lower shipping costs and integrated tracking.

Additionally, we are supporting seller profitability during the upcoming holiday season by working with the carriers on our platform to eliminate peak season shipping surcharges on eBay.

Recently, we rolled out--

[Joe Billante, VP, IR]

Can you pause for one second? We're getting some feedback on the line, we're working through, a technical issue, can you give us a moment.

[technical difficulty]

[Jamie Iannone, President and CEO]

Hi, in the midst of repeating myself, I'm going to go back a little bit just to make sure, because I understand the line got fuzzy which we apologize about the technical difficulties.

So, we also turned our focus to the sneakers category, which attracts passionate enthusiast, particularly GenZ and Millennials. In the U.S., sneaker GMV has significantly improved from a year ago. These buyers and sellers bring tremendous value to our ecosystem. An average sneaker buyer purchases in 10 unique categories each year more than double the amount of other eBay buyers.

Leveraging similar technology launched in watches, we expanded the authenticity guarantee to sneakers. We required all collectible sneakers both new and pre-owned above $100 to be verified by a team of independent third-party industry experts. The program kicked off with the authentication of our most popular brands and styles and will scale that all sneakers sales over $100 next year.

A year ago we were losing share in this important category. But now we're seeing over 50% GMV growth year-to-date and that was before launching the authenticity guarantee.

And just last week, we announced the launch of new elevated experience for certified refurbished product. We see tens of billions of dollars in untapped potential in the global refurbished market.

Through our new certified refurbished program, buyers can save up to 50% unlike new branded inventory with all the assurances of buying new including a two-year warranty, eBay money back guarantee, and hassle free 30 day returns.

We are launching this program in partnership with globally recognized brands, including De'Longhi, Dirt Devil, Hoover, Nikita, and Fila, that was all certified refurbished inventory exclusively on eBay, not only does this program help with buyers budgets leading into the holiday season, it also helps to eliminate unnecessary waste by keeping products in circulation for many years to come.

We see a long runway to accelerate GMV growth given the $500 billion global TAM, we are competing for, but it will take time. By leveraging scalable technology we can uniquely address the needs of customers across a diverse mix of categories in electronics, fashion, collectibles, home and garden, parts and accessories, and more.

Moving on to the second key priority of our vision, becoming the platform of choice for sellers. Over the past three months, in addition to enhancements in managed payments and advertising, we continue to leverage the scale of eBay to benefit small businesses.

We worked closely with UPS to offer new shipping services for sellers on our platform. In addition to a direct integration with eBay label, sellers now have access to discounted rates saving them time and money. Sellers also have access to order details, customer information, label printing and shipment tracking all in one place. And buyers benefit from lower shipping costs and integrated tracking.

Additionally, we are supporting seller profitability during the upcoming holiday season by working with the carriers on our platform to eliminate peak season shipping surcharges on eBay. Recently, we rolled out an upgraded communication system that allows buyers and sellers to connect securely on our platform.

Also, we have provided small businesses, a new marketing tool to drive traffic back to their eBay stores through our affiliate platform. And just in time for the holidays, last month, we expanded the time away functionality, making it easier for sellers to update their listings and protect their on-time delivery record while providing buyers more accurate shipping estimates.

Looking forward, we are embarking on a multi-quarter journey to improve selling flows that leverage more AI capabilities to dramatically simplify selling and drive more growth for small businesses.

The third key priority of our strategy is to cultivate lifelong trusted relationship with buyers. To achieve this, we are leveraging technology to remove friction throughout the buying journey.

In Q3, we improved search results, which would lead to material increases in conversion by including more behavioral data, we were able to optimize machine learning algorithms at the top of the funnel that led to improved buyer engagement and ultimately, led to increased purchases. These technology advances generate significant impact, as every incremental point of conversion creates almost $1 billion more GMV annually.

More importantly, buyers are discovering the items they are searching for in faster and simpler way. Another way we are building trusted relationships with buyers is by improving our shipping tracking.

In the U.K. and Australia, we developed a unique new capability to implement virtual tracking for Royal Mail and Australia Post leading to significant increases in tracking coverage.

Sellers do not have to explicitly provide information and buyers can track orders with confidence. We will continue to invest in the buyer experience and marketing technology capabilities as we work to foster lifelong trusted relationships with buyers.

Finally, an area that I and the team are extremely passionate about is doing good for our communities around the world. We focused initiatives on the sustainability issues material for the long-term strength of our business. And where we can be most impactful to our stakeholders.

We have measurable and transparent goals to alert, evaluate our progress and to hold ourselves accountable to these important milestones. Such as driving more circular commerce getting to 100% renewable energy by 2025 and raising significant amounts for charitable causes.

We began eBay for Charity in 2003 to make it easier for customers to support their favorite charities, since then we've raised over $1 billion for charities around the world. And we're working hard on our goal of another $600 million raised by 2025.

In Q3, eBay for Charity began working alongside international artists through a campaign called Artists Band Together. We are helping to raise funds for organizations that work to increase voter turnout for the upcoming U.S. elections.

Additionally, eBay Foundation reached its $1 million Kiva lending goal to support global untapped entrepreneurs through an employee micro-lending initiatives. At eBay, everything we do ties back to our purpose of creating economic opportunity for all and I'm very proud of our team for keeping this in the forefront especially during these remarkable times.

So, in summary, we have a clear vision to realize the enormous untapped potential of eBay, while we have made meaningful progress in Q3, we still have a long way to go. We are investing in technology and focused on delivering the best marketplace in the world for buyers and sellers. And I want to thank all of our employees who have been working diligently to support our customers by bringing our tech led re-imagination to life.

With that, I'll turn the call over to Andy to provide more details on our financial performance. Andy?

[Andy Cring, Interim CFO]

Thanks Jamie and thank you all for joining today. Before I walk you through the results for the quarter, I'm going to take a few minutes to provide some additional context on the financial reporting impact of moving our Classifieds business to discontinued operations.

With that designation, our reported results reflect only the performance of our marketplace business. The Q3 results for Classifieds are reflected in GAAP EPS from discontinued operations. You can find the presentation of historical financial statements, recap to the current presentation in the Form 8-K we published on October 1st.

When we last provided guidance in July, Classifieds was included in both our Q3 and full year 2020 guidance assumptions. On slide four, you will see a refreshed look at what our July guidance would have been if we had excluded Classifieds. This will help create an apples-to-apples comparison versus our Q3 results reported today.

Let me quickly walk -- let me quickly walk you through the numbers. Adjusting for the Classifieds impact to our July guidance, the implied Q3 guide for marketplaces was between $2.38 billion and $2.45 billion of revenue growing 16% to 19% on an organic FX-neutral basis, and non-GAAP EPS between $0.68 and $0.74 per share, representing 31% to 42% growth.

On slide five, we've made a similar adjustment for our full year guide. Adjusting for Classifieds, the implied full year 2020 guide for marketplaces revenue was between $9.59 billion and $9.78 billion, growing 14% to 16% on an organic FX-neutral basis.

Operating margin in the range of 30% to 31%, non-GAAP EPS between $3.04 and $3.16 per share, and GAAP EPS between $2.51 and $2.66 per share. And finally, free cash flow adjust to the range of $2.2 billion to $2.35 billion.

With that, I will move on to our current quarter results. Turning to our Q3 highlights on slide six. In Q3, we delivered revenue of $2.6 billion, up 26% on an organic FX-neutral basis.

Non-GAAP EPS was $0.85, up 64%. Both were significantly above our expectations. Non-GAAP margin came in strong at 30.7%, inclusive of our ongoing investment in managed payments. We generated $584 million of free cash flow. We executed $700 million of share repurchases, and delivered $111 million in cash dividends in the quarter.

Our Q3 over-performance was driven by a number of factors including our migration to managed payments, strong execution in advertising and volume growth ahead of our expectations.

Based on our Q3 results and an improved topline outlook for the fourth quarter, we are raising our full year guidance, which I will cover in more detail in the guidance section.

Moving to active buyers on slide seven, we ended the third quarter with 183 million active buyers representing 5% year-on-year growth, consistent with the second quarter. New and reactivated buyers continue to drive year-on-year growth.

We continue to see strength in GMV per active buyer across all cohorts in Q3. While we initially saw stronger activity levels from buyers acquired in Q1 and Q2, those buyers are now trending toward behavior more consistent with historical cohorts.

Moving to slide eight, in Q3, we enabled $25 billion of marketplace GMV, up 21% year-on-year, decelerating eight points versus the prior quarter as global mobility continue to improve, particularly in our international on-platform markets.

In the U.S., we generated $9.8 billion of GMV, up 33% year-on-year, decelerating two points from the second quarter. Growth was at its peak in July and then moderated through August and September driven in part by the wind down of government stimulus payments even as residential mobility remained relatively constant.

International GMV was up 14% year-on-year, a 12 point deceleration versus the second quarter driven by moderation in Germany and the U.K. We saw strong ongoing correlation between mobility restrictions and GMV growth across our international markets, where the most pronounced growth deceleration occurred in markets with the biggest increases in mobility. In our off-platform Korean business, growth was 4%, decelerating one point from the second quarter.

Looking closer at volume, we continue to assess the impact of COVID to better understand the overall performance of our business. We have seen modestly improved underlying performance versus our pre-COVID 2020 plan driven by increased velocity and product experience improvements and ongoing tailwind from the recent increases in our active buyer base.

In addition, we've seen temporary COVID-related growth acceleration in GMV that we expect will continue to moderate as mobility increases over time. And with this component being the biggest wild card in terms of magnitude and timing, it remains difficult to predict results beyond the near-term.

Turning to revenue on slide nine, our net revenue was $2.6 billion, up 26% organically, decelerating two points. We delivered $2.4 billion of transaction revenue, up 28% down five points from the second quarter with strength in payments and advertising partially offsetting the deceleration in GMV.

Looking closer at managed payments, the increased seller adoption and high customer satisfaction that Jamie mentioned that's five points of incremental revenue growth versus 2019 on a continuing operations basis. Approximately one point better than anticipated.

Transaction take rate was 9.4% for the quarter, accelerating nearly 40 basis points from Q2, primarily from the ramp of managed payments and the continued strength in promoted listings.

We expect take rate to continue to increase further as managed payments and promoted listings continue to scale. We delivered $251 million of marketing services and other revenue, down 1% accelerating 15 points from the second quarter, mostly from a lower headwind from lapping the sale of best for friends in the middle of Q3 2019 and our first-party growth in Korea.

Turning to slide 10 and major cost drivers as a percentage of revenue. In Q3, we delivered non-GAAP operating margin of 30.7%. This is approximately 4 points higher year-on-year, driven by volume leverage, partially offset by continuing investments in managed payments and strategic reinvestments.

Cost of revenue was down nearly 20 basis points year-on-year as volume leverage is partially offset by managed payments and are expanding first-party inventory program in Korea.

Sales and marketing expense was down over two points versus the prior year as volume leverage was partially offset by strategic reinvestments in online marketing brand and our vertical strategy.

Product development costs were down approximately 10 basis points, driven by volume leverage, partially offset by incremental investments in the product experience including managed payments.

G&A was down nearly 40 basis points, primarily from leverage and cost control. Transaction losses were down one point as bad debt rates have performed better than expected.

Turning to EPS on slide 11, in Q3, we delivered $0.85 of non-GAAP EPS, up 64% versus the prior year. Non-GAAP EPS growth was driven primarily by higher revenue growth and our share repurchase program, partially offset by our investment in managed payments and FX.

GAAP EPS for the quarter was $0.88, up 250% versus last year. The increase in GAAP EPS is mostly driven by the change in fair value of the Adyen warrant and the same factors as non-GAAP performance, in addition to lapping the divestiture of brands for friends.

The value of the Adyen warrant stands at $777 million at the end of Q3, an increase of $573 million year-over-year. This is an additional value driver stemming from our payments initiative, incremental to the $2 billion of transaction revenue and $500 million of operating profit that is expected in 2022.

You can find more information on the Adyen warrant and our 10-Q, and as always, you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation.

Moving to slide 12, we generated $584 million of free cash flow in Q3 down 18% driven by the timing of cash taxes, partially offset by higher earnings. Year-to-date through the third quarter, our free cash flow was $1.9 billion up nearly 30% year-on-year.

Moving to slide 13, we ended the quarter with $4.1 billion in cash and investments, and debt of $7.8 billion. In Q3, we paid down over $900 million in debt, bringing our total debt, back to the 2019 year-end balance of $7.8 billion. This completes actions taken in 2020 to strengthen our balance sheet by leveraging the favorable market conditions to improve rates on our outstanding debt.

Additionally, we paid over $700 million in income taxes from the divestiture of StubHub which is presented in operating cash flow from discontinued operations, leaving approximately $250 million to pay in Q4.

We returned $111 million to shareholders and dividends in the quarter. We executed $700 million in share buybacks in Q3, bringing our total share buyback to $4.7 billion so far this year. We entered Q4 with $2.5 billion in share repurchase authorization remaining.

Our capital allocation strategy and key tenets and targets have not changed. We remain committed to maintaining our BBB plus credit rating, mid-term leverage of approximately one and a half times net debt and gross debt below three times EBITDA, and a target cash balance of approximately $3.5 billion. We also remain committed to our dividend.

Moving to slide 14, I'd like to provide an update on the pending Classifieds transaction. We remain excited about this deal as it allows us to realize near-term value while enabling us to participate in the future upside potential of the world's largest online classifieds company.

We are on track to close the deal in Q1 subject to regulatory approvals. When we announced the deal on July 20, the valuation was $9.2 billion based on a mix of cash and net of shares. The share price has appreciated by over 30% which increases the value of the Classifieds business to over $11 billion based on recent trading levels.

Finally, we expect that the cash portion of the deal will provide approximately $2 billion net of tax. And we currently expect any potential future sale of shares would be a taxable event at the prevailing statutory rate.

Turning to slide 15, in guidance. We continue to operate in an environment with low visibility which proves to be very difficult when trying to provide guidance. Each month, sometimes each week reveals new external drivers that can have a material impact on consumer behavior.

The dynamics we faced in Q3 were different from what we've faced in Q2 and it's clear that Q4 will be different than what we experienced in Q3. The shape and speed of pandemic recovery, the strength of the holiday season and the size and timing of potential government stimulus programs are among the many variables that could have a significant impact on our outlook.

For Q4, we are projecting revenue between $2.64 billion and $2.71 billion, growing 19% to 22% on an organic FX-neutral basis. This assumes marketplace volume growth at low double-digit rates with gradual moderation through the quarter.

We expect managed payments to continue to deliver revenue acceleration contributing approximately eight points to Q4 revenue at the midpoint of our guide, driven by continued seller migration. We expect non-GAAP EPS of $0.78 to $0.84 per share, representing 18% to 27% growth.

Non-GAAP EPS growth is driven primarily by volume and lower share count partially offset by continuing investments in technology and marketing. We are expecting GAAP EPS from continuing operations in the range of $0.58 to $0.64 per share in Q4.

After adjusting for Classifieds moved to discontinued operations, this Q4 guide represents a material improvement on volume, revenue, and non-GAAP EPS versus our expectations back in July.

For the full year, our revenue guidance is $10.04 billion to $10.11 billion, representing an organic FX-neutral growth rate of 19% to 20%, driven by an improved GMV outlook and continued scaling of managed payments and advertising.

We expect operating margin to be in the range of 31% to 31.5% with the non-GAAP effective tax rate of 15% to 16%. With the above dynamics, we expect non-GAAP EPS in the range of $3.34 to $3.40 per share driven by Q3 over performance and an improved topline outlook for the fourth quarter.

We now expect free cash flow of $2.5 billion to $2.6 billion, capex in the range of 4% to 5% of revenue, and we are increasing our outlook on share repurchases to approximately $5 billion for the full year. Finally, we expect GAAP EPS from continuing operations in the range of $3 to $3.06 per share.

In closing, we are excited about the progress we've made this quarter. Externally, the macro environment is helping to drive strong business performance. Internally, with the leadership team now solely focused on the marketplaces business, we're making progress with our new strategy.

We're pleased by the increase in speed of execution demonstrated by our launching authenticity guarantee across multiple categories, rolling out our certified refurbish program, expanding shipping services, and tracking and helping buyers find items in faster and simpler ways.

We're doing all of this while delivering on our revenue growth initiatives of managed payments and advertising which are both becoming critical material pieces of our financial architecture.

Our margin commitments remain in place and we're on track to deliver at least two points of operating margin growth by 2022 as compared with 2019. As we've said in the past, we will continue to balance topline growth and margin expansion as we find new opportunities we will capitalize on them to drive growth.

We remain focused on improving the underlying health of the marketplaces business. And as we've mentioned, this is going to be a multi-year journey. Although it's early, the results tell us, we're on the right track furthering our conviction to compete and win in the $0.5 trillion total addressable market we're focused on.

And now, Jamie and I would be happy to answer your questions. Operator?

[Operator]

[Operator Instructions]

Your first question comes from the line of Scott Devitt of Stifel. Your line is open.

[Scott Devitt, Stifel]

Hi, and thank you. In Q3, items sold decelerated a bit more than GMV. I was wondering what caused that, whether it's some changes in ASP driven by category mix or was there some other factor at play there?

And then secondly, this was partly answered but, in 4Q, I think you fully comp the sales tax collection implementation. It was 600 basis point headwind in 4Q '19. You did just a 22% in Q3. And I think that also had a 3% headwind in it. It does seem like we're going to have limited mobility again this quarter certainly in the U.S. and there were some announcements today in certain countries in Europe.

In 4Q, you guided to low-double-digit GMV growth, I'm just wondering is there anything that you're seeing in the business that is leading to that or is that just more as you discussed a bit on the call staying consistent with this conservative approach of guidance given the uncertain business conditions, it seems to have been the case on the 1Q and 2Q guide as well. Thank you.

[Andy Cring, Interim CFO]

I'll start with the question on guide and Scott, to your point, there is new information coming out on a daily basis, which makes this tough. I think the way that we've looked at it, clearly, there is multiple factors moving that can influence our volume outlook for the quarter. It's really hard to predict how any of them will play out and certainly to try to itemize which pieces we've included for which amount. We can't do at this point.

What we have tried to do with our guide is compile what we've learned through the third quarter and what we've seen. And it implies a continued growth moderation in the fourth quarter following what we saw in the third, and what we're seeing the beginning of the fourth with regards to consumer behavior and mobility.

What we provided, I wouldn't call it conservative, I think it's our best outlook based on the combination of these factors, and certainly any one of those could change and could impact our results.

On the -- I think you called it right on the sold items, there's GMV and category mix and similar to what you see on buyers and what you see on GMV there's just a magnitude of things changing on a quarter-over-quarter basis given the breadth of categories that we have in the different price tranches. I think you called it, right.

[Scott Devitt, Stifel]

Thank you.

[Operator]

Your next question comes from the line of Richard Kramer of Arete Research. Your line is open.

[Richard Kramer, Arete Research]

Thank you very much. Jamie, I've got two questions. The first is, I'd like to get some more detail on your tech-led re-imagination, especially given that you've seen declining R&D and relatively low capex. So, specifically, can you talk a little bit about how eBay might be developing infrastructure for social commerce, be it with more modern messaging, video or some material revamp of what's been a very consistent user experience and look and feel.

And then maybe second question, since you mentioned, eBay is being a global marketplace when we last got the geographical detail, you had roughly 80% of your business in four countries and a very wide range of markets, covering the other fifth.

So, what's your approach going to be to reaching scale and other countries? And how important is that global footprint to you and what sort of investment requirements do you see in 2021 and beyond to make eBay go beyond 80% coming just from those four markets? Thanks.

[Jamie Iannone, President and CEO]

Yes, so on the first one on the tech-led re-imagination, it's why you see us making the investments that we're making is that, we believe that there is some big horizontal things that really move the business like payments and advertising. We're obviously putting a lot of technology focus.

And then you saw this quarter, some specific vertical experiences of focus for us in both watches and sneakers and also in certified refurbish. And so we actually think this is the start of really leveraging our technology, we are horizontal plus vertical focus brings together just a much different experience on eBay. You think about the level of trust that we just put in place in those three categories. So, it's really game-changing versus where we were before.

You asked specifically about marketing, there is a lot of things that we're dealing specifically in, paid social and using new channels that we haven't used before. That's a key part of it for us.

If you think about the sneaker category, as an example, we're bringing on a lot of GenZ and Millennials. So, we're going out, reaching them where they are. Because when we enquire them in the sneaker category as we said, they end up buying in 10 unique categories across the site.

The second thing I'd say on our footprint is, look, we've got some very strong growth in some of our smaller markets. There is a lot of advantage to the scale of our cross-border trade business where we're bringing products from very different countries to our smaller countries or exporting out of our smaller countries and obviously play a role in that.

So, we continue to believe that those are important good growth opportunities, not only for the domestic business, but also for the cross-border trade that they bring.

[Richard Kramer, Arete Research]

Okay, thanks.

[Operator]

Your next question comes from the line of Colin Sebastian of Baird. Your line is open.

[Colin Sebastian, Baird]

Great, thanks. Good quarter. I guess given some of the concerns around carrier capacity during the holiday period, I'm wondering it's a long tail of sellers, if they are more impacted by that or are your contracts with the shippers largely protecting them from those bottlenecks.

And then looking at active buyer growth, what's the potential to accelerate that growth over the near-term certainly, given the secular shift we're seeing? Or are you more focused in terms of the marketing efforts on driving engagement with the existing buyers in the recent cohort ads? Thank you.

[Jamie Iannone, President and CEO]

Yes, so on carrier capacity, part of why we did the UPS deal this year was to open up more flexibility and more options for our sellers. So not only are they going to save a bunch on the rate that they're going to have on there, but the integration is going to make it really easy for sellers and provide all that tracking for buyers.

So, now you have multiple options even as a small consumer seller between USPS UPS and FedEx, one of the things we have worked on is deals that actually protect them from peak shipping charges or surcharges over the holiday. So, we think the combination of that flexibility of choices, plus the negotiating on behalf of our community, we'll work out well for them on the shipping side.

On the active buyer growth as we talked about, our real third priority is turning buyers into lifelong enthusiasts. So really focusing on how do we, when we bring in a new buyer expand them into multiple categories, because we know that drives their LTV, so I use the sneakers example earlier coming in via sneakers and they are buying in 10 categories.

It's also a big vision for our push-to-consumer selling. This quarter, I actually see the fee GMV growth grew faster than our B2C growth. And that push is really because once we get to a buyer to sell, they become more than twice as valuable as a buyer, so that's really our focus is on accelerating those things and driving that long-term potential of the people that we're bringing to the site.

[Colin Sebastian, Baird]

Okay. Thanks.

[Operator]

Your next question comes from the line of Tom Champion of Piper Sandler. Your line is open.

[Tom Champion, Piper Sandler]

Hi, good afternoon. On GMV trends, it looks like the growth between the US and international is really starting to diverge with international decelerating more. I'm just curious, what do you think might account for that or whether it's all explained by mobility.

And then on managed pay, it sounds like you added about 300,000 sellers into the program this quarter and add 5% of revenue. That seems like it's about $130 million in revenue. Is this approximately the right magnitude? Thank you.

[Andy Cring, Interim CFO]

Yes, I'll take the -- on the third quarter volume, U.S. international, look; there are differences we see globally. We indicated on our -- on the call in July that we were seeing continued strength through the month of July in the U.S. Post-July, we did see some increased moderation in August and September. And we think at least in part driven by the expiration of the US stimulus.

So that, in part, I think is a little bit of strength you're seeing in the U.S. In addition to, if you look at mobility and the progress of COVID, internationally there was a little more mobility sooner, in particularly in Germany and the U.K. than we had in the U.S. So, I don't think there is a drastic business shift between any of those regions other than some of the dynamics associated with the reopening.

I think another important, you have just generally on volume. We have there's a few things we do see that consumer behavior patterns are definitely impacted by mobility that is different depending on location and country and sometimes state.

And I think the other, the other key thing is that the customer and consumer behavior patterns aren't the same, so as mobility and lockdown happened in April and May, we had more time and less scarcity, some of that behavior is not as drastic as you -- as we saw early on in the pandemic.

And then on the second part of the question, was managed payments. Yeah, your logic is about right on that.

[Tom Champion, Piper Sandler]

Great. Thanks a lot.

[Operator]

Your next question comes from the line of Stephen Ju of Credit Suisse. Your line is open.

[Stephen Ju, Credit Suisse]

All right. Thank you. So, Jamie for some of these categories that you're leaning into like watches and sneakers, it seems like there is a greater requirement to work with external parties through you to authenticate refurbished thing. So, to some degree you are putting the eBay brand at risk here with your buyers. So what are you, what incremental things are you doing to, that the seller, so that you minimize bad behavior?

And second on the C2C activity ramp, it seems like consumers are not always going to be savvy, some of the more professional sellers about probably planning the correct prescriptions for what they're selling, and you also want to get merchandise and all kinds of different conditions which seems like a pretty complicated structured data problem for your engineers to solve. So, can you talk about what you're doing to make sure that stuff people are putting up for sale or correctly serve first in search results? Thanks.

[Jamie Iannone, President and CEO]

Yes, so on the first one -- thank you for the question. We work with really industry leading experts to do the authentication specific for that category and a very intense multipoint inspection to make sure, the product is truly authentic. And so it really kind of not only you have to trust it kind of seller piece in there, but every single product, every single sneakers over $100 by the start of next year, will actually go through a third party authenticator.

And so really takes the risk away of a potential issue by the time it gets to the buyer, even sometimes there could be a mistake, it was missing a piece of documentation. So, the beauty is, we're catching all of those things.

The same thing in the returns. On making sure, and the seller is getting back the product that they actually ship the buyer, because the authentication works in both directions.

So, look, it's a really high level of trust, when you look at the community feedback that we've got, and both from sellers and buyers, they're incredibly enthusiastic. They know it will bring a lot of new buyers to the platform, and for sellers, that's what they want. Like we said on the call, the business was growing 50% in sneakers even before we launched this authentication guarantees. So, we're excited by it.

On the C2C ramp, it's a huge focus for us, it's using artificial intelligence and technologies to make it easier for the casual lister to come on and list. So, a lot of our listers will use things like sell similar, whether sell a similar product or they sell based on a specific catalog description.

And what you'll see from us over the coming quarters is continuing to make that process easier to bring more to C2C sellers on. It's our, number 1 priority is defending the core and a huge part of that is consumer-selling. I should say that they also bring a unique inventory to the platform. There is a lot of things that are not being sold by a business seller.

My -- one of my friends was looking for a guitar, [Indiscernible] hero and that's always, no one selling that B2C anymore, you're only going to get that from a C2C seller. So, we'd like to think about the unique inventory that it brings to the platform is also really important to us.

[Stephen Ju, Credit Suisse]

Thank you.

[Operator]

Your next question comes from the line of Youssef Squali, Truist Securities. Your line is open.

[Youssef Squali, Truist Securities]

Great. Thank you very much. A couple of questions here. So, just on the authenticity guarantee that you've done for sneakers and watches so far, can you maybe just speak to, and I think you also canceled some seller fees on sneakers of $100 or more.

Can you maybe just speak to and maybe it's too early, but just any uplift you've seen in and sales for these two particular areas and whether there are any other big categories which kind of lend themselves to the same thing.

And on managed payment, how was that, I think you guys talked about it tracking to your own expectations. But just considering the fact that it seems that you guys have a fair amount of control over that. Is there a chance of seeing you migrate maybe the majority of all sellers globally earlier than expected. And if not, what are the, gating factors there. Thank you.

[Jamie Iannone, President and CEO]

Yes, so the change in selling fees on sneakers we had done a while ago, and what I would say is that, it's very early and that we just launched that a few weeks ago. But the encouraging signs or what the feedback that we're getting from the community really leaning in and being excited by what it can do to unlock the categories. Watches has been live a little bit longer. And while early, what we're seeing is an increase in supply on the platform and an increase in average selling price.

And if you think about it. That's really what we want to see is that higher level of trust is making buyers really more comfortable which obviously works out for sellers as well. You know what I'm really proud of, for the team is that when we talk about a tech-led re-imagination.

Well, it took us a couple of months to launch that technology for watches. We actually rolled it out a few weeks later for sneakers. And so we're building capabilities that allow us to compete better in specific vertical, but a lot of those capabilities can be leveraged across multiple categories and that excites us. On the managed payments migration. It's important to know that there is still features that we continue to build out to be able to migrate more of a seller.

So, we're right on track. But as an example, if I'm a seller that ships cross border to a country that we haven't launched managed payments and we're not going to convert that seller over to the new managed payments platform until we are marked by country, because we don't want them split between the old platform and the new platform. So, there is still capabilities that we are continuing to build out to ramp, and we basically are on track with our plan to be complete by the end of 2021.

[Youssef Squali, Truist Securities]

Thanks Jamie.

[Operator]

Your next question comes from the line of Edward Yruma of KeyBanc Capital Markets. Your line is open.

[Edward Yruma, KeyBanc Capital Markets]

Hey, good afternoon and thanks for taking the question. I guess just to drill down on some of these new categories little bit more, I know you're using third-party authentication, but can you kind of help us understand the cost profile around that, whether they have the ability to scale, as the business grows. And then I guess, just stepping back, the three big announcement that refurbish watches and sneakers. I guess what are the three, do you think would be most significant or impactful in the medium term? Thank you.

[Jamie Iannone, President and CEO]

Yes. So, when we look at the authentication costs, we look at it, in some ways it's like a marketing costs. When we think about how do we bring new buyers into the platform. So, if you look at what we, what we would have collected and final value fees for example on that product versus our cost of acquisition of bringing in a new buyer for, it's going to end up buying in 10 unique categories across the site. We're balancing that all out, and we think it's -- we think it's important, we think there is a lot of potential and we think it's a, it's a big difference for eBay to have that level of trust in the category.

We haven't talked much about certified refurbish on the call yet. But I'm really excited by that. I mean sneakers clearly has a lot of potential as those watches, but there is tens of billions of dollars in certified refurbish. It's a real sweet spot for eBay.

And this brings a whole new level of trust of feeling like you're buying unlike new product because you have the, not only all those guarantees, but you have a two-year warranty, you have a 30 day hassle free return along with the eBay money back guarantee.

So, we just think it's an important category. We're also seeing brands lean in like we talked about on the call and big brands and we're just getting started. So we think there is a lot of runway and a huge market opportunity for us to go after that.

[Youssef Squali, Truist Securities]

Thank you.

[Operator]

Your next question comes from the line of Robert Drbul of Guggenheim Securities. Your line is open.

[Robert Drbul, Guggenheim Securities]

Hey, good evening. I just got a couple of questions, mainly on M&A, in terms of like you have some -- the cash on the balance sheet, you talked a little bit about that, but I was just wondering, as you sort of look at, especially the sneaker category, would you consider acquisitions around that category to really accelerate your positioning and improve it? Maybe if you could just elaborate a little bit on that type of charge that would be helpful. Thanks.

[Jamie Iannone, President and CEO]

Yes, we're not going to -- we're not going to speculate on kind of specific categories and M&A, what I'd say is we're looking opportunistically at M&A, like we always have at opportunities where we think we could accelerate the vision that we laid out on the prior earnings calls and always doing things at an asset light way and like we tend to do here at eBay, in a way that we think enhances shareholder value. So we're going to continue to be opportunistic about it.

[Robert Drbul, Guggenheim Securities]

Great. And if I could just follow up on a different topic, but in terms of the ability to sort of grow the buyers and sellers, can you just talk a little more about like the fourth quarter marketing plans and advertising in terms of the focus on continuing to bring new buyers and sellers in -- and the level of the rate at which you're thinking about that.

[Jamie Iannone, President and CEO]

Yes, we're using some new tools and technology over the holiday, really going after some new channels like paid social like I talked about before. In addition to the other kind of brand and performance work that we normally do in the holidays.

But really we're also you're also going to see more targeted marketing from us and you're seeing it already, where we're focusing on specific campaigns, like we had a viral campaign on tick-tock for sneakers that went incredibly viral and you'll see other specific, early vertical marketing that we're doing to attract the right types of buyers in these categories that were leaning in on. So lots of things that we've experimented with that we're learning from that, that we're rolling out in the quarter.

[Robert Drbul, Guggenheim Securities]

Great, thank you very much.

[Operator]

Your next question comes from the line of Brian Nowak of Morgan Stanley. Your line is open.

[Brian Nowak, Morgan Stanley]

Great, thanks for taking my questions. I've two -- just the first one, I think in the second quarter you added a -- I think it's about $8 million net buyers sequentially. I know a lot of focus is on turning them into broader shoppers and sellers. Can you talk to us about what you saw in the retention of those buyers that you added in the second quarter? Are you seeing that expansion into new categories of them already?

And then, Jamie, just now that you had a few more months in the seat, maybe just talk to us about how you are categorizing low hanging -- low hanging fruit areas of improvement that could really change the business trajectory in 2021 as opposed to sort of your longer term areas of focus.

[Jamie Iannone, President and CEO]

Sure. So, let me start with the latter, and then we'll come back on the buyer one. So if you look at the types of things that we rolled out this quarter, it's indicative of where our focus areas are. So, when you think about defend the core, it's really around how do we go after the non-new season and help grow that business? We see a big kind of $500 billion TAM there.

And like I talked about last quarter, this is -- these are not big bang releases you I think what our payments business as a two-year build for release. Here, I think what we're working on is a lot of releases throughout the year of different capabilities and hopefully continue like I talked about before of launching something and then being able to roll it out to other categories other countries, et cetera.

On a pretty frequent basis. And that's how we're thinking about it is a multi-year journey with a lot of wins along the way. Andy, you want to take the buyer one?

[Andy Cring, Interim CFO]

Yes, Brian, look what we saw in the second quarter, clearly a significant disruption in a lot of areas and scarcity in certain areas in the supply chain and distribution that drove a lot of people shopping online and we did see some incremental activity from that, from the cohort acquired at the end of the first and in the beginning of the second.

What we've seen in the third is it's reverting to a more normalized buyer acquisition trend and more normalized repurchase frequency for those cohorts. So, not performing above all cohorts and certainly not performing any worse than buyers in the past, what we have seen consistent across both quarters is just the volume of GMV and the amount of GMV per buyer, both for existing buyers and new buyers at higher levels than we've seen in the past.

[Brian Nowak, Morgan Stanley]

Got it. Okay. Thank you, both.

[Operator]

Ladies and gentlemen, there are no -- there is no more time for questions. This concludes today's conference. Thank you for attending. You may now disconnect.