eBay Inc

NASDAQ:EBAY

Earnings Call Analysis

Guidance Indicates Revenue Growth and Margin Expansion

Amidst a dynamic operating environment, the company announced a revenue increase of 3% to $2.6 billion, with advertising revenues up 25% annually, reflecting more than double the ad revenue since 2019. Non-GAAP operating margins stood at 26.7%, with $379 million returned to shareholders. Over 900 million live Promoted Listings underline growing ad adoption. Q1 2024 projections include $18.2-$18.5 billion GMV, with revenue between $2.5-$2.54 billion and non-GAAP EPS of $1.19-$1.23. For the full year, despite FX headwinds, a 60-100 basis point margin expansion is expected, maintaining non-GAAP tax rate at 16.5% and forecasting nearly $2 billion in free cash flow.

Gradual Improvement in GMV Through Year-End

In the face of widespread macroeconomic pressure, particularly on discretionary spending, the company's organic GMV observed incremental growth each quarter of 2023, culminating in a near flattening at $18.6 billion for the fourth quarter.

Organizational Streamlining and Workforce Reduction

In pursuit of better addressing customer needs and streamlining execution, the company implemented significant organizational changes, resulting in the reduction of approximately 1,000 employee roles and a cutback in alternative workforce contracts.

Steady Revenue Growth and Solid Non-GAAP Operating Margin

The company's revenue grew by 3% to $2.6 billion in the fourth quarter, with a noted non-GAAP operating margin of 26.7% for the same period.

Focus on High-Performing Categories and Technological Enhancement

Certain categories, particularly Motors, Parts & Accessories, continued to demonstrate robust growth, supported by initiatives like Guaranteed Fit programs and multi-warehouse shipping optimization. Furthermore, plans are set to expand these technological enhancements across different categories in 2024.

Expansion of Authentication Centers and AI Integration

With the launch of an eighth authentication center in Tokyo, and bolstering AI capabilities in image presentation and generative background swapping for product listings, the company is strengthening its positioning in luxury goods and improving the online selling experience.

Impressive Growth in Advertising Revenue

Advertising revenue saw a substantial 20% increase to $393 million for the quarter, and on a yearly basis, it surged roughly 25% to over $1.4 billion. The company attributes part of this growth to its Promoted Listings Advanced and a robust seller adoption of its advertising products.

Guidance for Q1 and Full-Year 2024

For the first quarter of 2024, the company expects GMV between $18.2 billion and $18.5 billion, with revenue anticipated to be between $2.5 billion and $2.54 billion, reflecting growth between flat and 2% year-over-year. The non-GAAP operating margin is projected to be between 29.6% and 30%, with non-GAAP EPS estimated at $1.19 to $1.23. Looking at the full year, non-GAAP operating margin is predicted to expand by 60 to 100 basis points, and non-GAAP earnings per share are forecasted to grow by 8% to 10%.

Strong Capital Allocation and Shareholder Returns

The company's commitment to shareholder returns is reflected by a raised quarterly dividend to $0.27 per share and an increased share repurchase authorization by $2 billion. Targeting at least $2 billion in share repurchases for the year, the company forecasts cumulative repurchases and dividends to represent around 130% of free cash flow since the beginning of 2022, surpassing the initial 125% target.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the eBay Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to John Egbert, Vice President of Investor Relations. John, you may begin your conference.

[John Egbert, executive]

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

Before we begin, I'll remind you that during this conference call, we will discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect FX-neutral year-over-year comparisons and all earnings per share amounts reflect earnings per diluted share, unless indicated otherwise. As we fully lapped the TCGplayer acquisition at the end of October 2023, our organic and total FX-neutral growth rates for Q4 have largely converged.

During this conference call, management will make forward-looking statements, including, without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K, Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of February 27, 2024. We do not intend and undertake no duty to update this information.

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

[Jamie Iannone, executive]

Thanks, John. Good afternoon, everyone, and thank you all for joining us today. I'm incredibly proud of the progress we made in 2023 against our vision of reinventing the future of e-commerce for enthusiasts and our goal of returning eBay to long-term sustainable growth. Let's go over a few highlights from the full year.

First, despite significant macro pressure on discretionary spending across our major markets, we saw organic year-over-year GMV growth improve during each quarter of 2023, resulting in GMV growth down roughly 1% for the full year. Focus category GMV grew by nearly 4%, outpacing the remainder of our business by roughly 7 points and we exited 2023 at approaching 30% penetration. We stabilized our active and enthusiast buyer counts as acquisition, reactivation and retention improved year-over-year.

Our revenue grew 3% organically to over $10 billion, driven by continued momentum in first-party advertising, expansion of our financial services offerings and the launch of eBay International Shipping. And we made significant investments in tech, talent and marketing to support our strategic pillars, including making meaningful strides towards establishing eBay as a leader in generative AI for e-commerce. These results have demonstrated that we have the right strategy which has put us on a path to building a stronger, more resilient company.

In service of that goal, last month, we announced significant organizational changes focused on removing layers and simplifying execution in order to better meet the needs of our customers. This involved the difficult but necessary decision to reduce our workforce by approximately 1,000 roles and begin to scale back our alternative workforce contracts. This restructuring better aligns our expenses with the growth of our business and I'm confident it will enable us to accelerate innovation while delivering long-term value for shareholders.

Now turning to the fourth quarter. We generated $18.6 billion of gross merchandise volume in Q4, nearly flat versus the prior year. Revenue grew 3% to $2.6 billion. Our non-GAAP operating margin was 26.7% and we delivered $1.07 of non-GAAP earnings per share, resulting in $4.24 of EPS for the full year. Our focus category strategy remained a significant driver of underlying growth during Q4. Focus category GMV outpaced the remainder of our marketplace by approximately 6 points, growing roughly 4% for the third straight quarter. Our momentum in Motors, Parts & Accessories, or P&A, continued in the quarter, as volume growth held steady in the mid-single digits.

Our eBay Guaranteed Fit programs have benefited buyer trust and retention across the U.S., U.K. and Germany, driving incremental GMV within P&A last year. During Q4, we began rolling out multi-warehouse shipping optimization to some of our largest U.S. P&A sellers that collectively manage millions of listings. B2C sellers can activate these tools via eBay APIs, and this enables buyers to see more accurate estimated delivery dates when purchasing from sellers with multiple warehouses, which has driven a measurable uplift in conversion for early adopters.

In 2024, we plan to onboard sellers in other categories to utilize this technology and tighten delivery estimates across eBay more broadly. Our established position in P&A has led to more than 100 million vehicles being saved in the My Garage section of eBay by active customers. In addition to providing better fitment experiences, we are finding more ways to leverage this valuable data to drive utility for our customers. For example, last quarter, we introduced predictive maintenance that offers AI-driven auto part recommendations based on a vehicle's mileage. Features like this help eBay stay top of mind for customers looking for auto parts at a great value.

The work we've done in the eBay Authenticity Guarantee program has also been a key driver of our focus category momentum and raising the level of trust on the marketplace. In Q4, we launched our eighth authentication center in Tokyo, Japan, our first center focused primarily on cross-border trade. Our Tokyo center is currently authenticating luxury handbags and will expand to other high ASP categories over time. Japan is one of the largest and fastest-growing markets for personal luxury goods in the world, enabling our global buyers to tap into a wealth of inventory from the world's most exclusive brands with complete confidence.

Earlier this month, we also expanded the Authenticity Guarantee program to cover loose gemstones. This further extends our product coverage within fine jewelry with authentication from our existing partner, the Gemological Institute of America, a trusted authority for over 9 decades. In addition to expanding focus categories, last year, we made a significant investment in Germany, our third largest country as measured by demand. We adopted a similar approach to our vertical playbook to address the unique needs of German consumers. These changes included language enhancements, improvements to search, SEO and recommendations, shipping and return label improvements and a complete overhaul of the local pickup experience.

In January, we further improved local discovery in Germany by introducing a new map-based browsing experience, which services trending and recently-listed items through an intuitive interface based on what's nearby and easy to pick up. Overall, our initiative in Germany has outperformed our initial expectations. We've observed C2C seller NPS and customer satisfaction both up 20 points or more versus our previous baselines. Our buyer NPS also increased by double digits as buyers who sell returned to positive growth following the initiative launch.

In addition, enhancements made to our QR code technology has helped reduce unpaid items by more than 50% for local pickups. And importantly, C2C volume in Germany returned to positive growth resulting in hundreds of millions of dollars of incremental GMV relative to our prior trajectory. These investments have made our business significantly more resilient to the challenging macro environment in Germany, where overall e-commerce growth has been negative in recent quarters.

During 2023, we also laid the groundwork to accelerate our capabilities in artificial intelligence and further embed AI throughout the customer experience and our organization. After the first commercial large language models became available from companies like OpenAI and others last year, we immediately found ways to leverage generative AI technology to improve the eBay experience across selling, buying, advertising and marketing. Within a few months, we began fine-tuning open-source LLMs using eBay's proprietary commerce data on our own infrastructure.

These models include a smaller number of parameters and thus operated faster and more cost efficiently than commercial LLMs when operating at scale. But we also found these fine-tuned LLMs could perform as well, or in some cases better, than commercial LLMs across certain dimensions and use cases, such as generating listing descriptions. To support an even more ambitious AI road map for 2024, by the end of Q1, we expect to have doubled our GPU capacity versus the end of last year.

Importantly, this investment falls within our historical CapEx budget range of 4% to 5% of revenue. This added GPU capacity, combined with our existing infrastructure, allows us to develop LLMs from scratch pre-trained using eBay's nearly 3 decades' worth of e-commerce data. While we'll continue to take a hybrid approach, leveraging both commercial and open-source LMs, we expect more generative AI services to be powered by internal LLMs in 2024, helping make buying and selling on eBay simpler, faster and more magical.

In terms of customer-facing features, we continue to iterate on our magical listing experience that has already been used by millions of sellers, which we believe makes it one of the most widely used gen AI features in e-commerce to date. Generative AI descriptions have rolled out to 100% of users in our top 5 markets. Adoption trends remain healthy. Customer satisfaction continues to be at high levels, as we've expanded outside of English-speaking countries, and content acceptance rates remain above 90% through the full rollout. The next phase of our magical listing experience is currently being tested by up to 5% of C2C sellers on an opt-in basis. This experience is even more seamless, as it leverages our image recognition technology and generative AI to prefill or suggest product titles, categories and other item aspects using photos alone.

We are excited to make this experience available to -- more sellers in Q1 as early feedback from beta users has been incredibly encouraging. I'm also pleased to see the potential benefits our AI tools can have on the billions of listing images across our marketplace, as high-quality products photos can have a significant impact on conversion on eBay. Last quarter, we completed the global rollout of our revamped background removal tool in our listing flows, which leverages AI to effortlessly remove background noise from their product images. This tool has enabled sellers to create cleaner, more professional product images and it has received rave reviews from our customers.

Building on top of this, we're now leveraging generative AI to make sellers' product images even more compelling using our new background swap tool. This feature allows sellers to show their products alongside a wide variety of AI-generated backgrounds. For example, you could display a pair of Air Jordan sneakers on a hardwood basketball court or showcase your preowned hiking boots atop a picturesque mountain summit. We are currently testing this feature in beta with 1% of sellers on iOS devices and I'm excited to see more sellers leveraging these tools to enhance their product images and drive conversion.

Now turning to our advertising business, which delivered another strong quarter. Total advertising revenue grew 20% to $393 million, while first-party ads outpaced volume by 30 points. For the full year, we generated over $1.4 billion of total advertising revenue, up roughly 25% for the year or more than double our ad revenue in 2019. Over 2.9 million sellers adopted a single ad product during Q4 and we currently have over 900 million live Promoted Listings. Our standard cost per acquisition product remained the largest contributor to year-over-year ads growth in Q4. But notably, Promoted Listings Advanced, our cost-per-click unit, was the largest contributor to sequential advertising growth.

Our CPC revenue and overall advertiser count benefited from the launch of rule-based campaigns in Q4, which allows sellers to automatically promote new listings based on rules they set for inclusion, such as price range, category, brand or condition. Additionally, during Q4, we launched a 'Top Picks' Carousel for search, which provides a curated set of Promoted Listings ads comprised of hyper-relevant top-selling items from our highest-ranked sellers. Thus far, buyers have been highly engaged with these ads, providing added velocity for our sellers.

Next, I'd like to share a few milestones around our sustainability efforts last year, starting with recommerce. Recommerce continues to provide significant value for sellers and buyers during these uncertain times. In 2023, our marketplace generated nearly $4.9 billion in positive economic impact due to sale of pre-loved and refurbished goods. This activity helped avoid approximately 1.6 million metric tons of carbon emissions that would typically be used in producing new goods and kept nearly 70,000 metric tons of waste from going into landfills.

Additionally, eBay remains committed to enabling more green energy on the U.S. electricity grid. As part of these ambitions, we have entered into agreements for 3 offsite renewable energy projects over the past 4 years. Our portion of the latest project is now fully operational and the green energy produced will be roughly equivalent to the annual energy usage at our data center in Salt Lake City. Combined with our other 2 projects, this green energy covers over 40% of our global electricity consumption. And I'm incredibly proud that we source over 90% of our energy consumption for eBay controlled offices and data centers from renewable sources overall and we remain on track to reaching our 100% renewable target by 2025.

Now let's turn to impact. I'm always amazed by the tremendous generosity of the eBay community. eBay for Charity enabled sellers and buyers to raise more than $43 million in Q4 and nearly $162 million for the full year. The eBay Foundation granted more than $19 million in 2023 to support historically excluded entrepreneurs and through our employee gift-matching program. I'm honored to be a purpose-driven company that supports communities around the world.

For the fifth year in a row, eBay was included in the Dow Jones Sustainability World and North American Indices. eBay was also included once again in JUST Capital and CNBC's list of America's Most JUST Companies, which measures corporate performance and efforts in areas such as climate change, DE&I and employee wellness. I'd like to take this opportunity to thank our employees for their incredible work in bringing our strategy to life and their tireless support in our community worldwide amid ongoing challenges in the global economy.

In closing, while we continue to navigate a dynamic operating environment, I'm incredibly optimistic about our road map for 2024. Our teams are better organized for speed, allowing us to be nimble and make critical decisions more quickly. The foundational AI capabilities we developed last year make us well-positioned to unlock the power of our data assets, fundamentally change the customer experience on eBay and drive efficiency across the company in 2024.

We will continue to invest in new and existing focus categories while also improving country-specific experiences like we did in Germany last year. We expect continued momentum in first-party advertising, despite lapping outstanding growth in the prior year, while we grow our financial service offerings for customers. And from a financial standpoint, we are in a strong position to expand margins, drive robust earnings growth and deliver healthy capital returns to shareholders in 2024, while still investing in high ROI initiatives to keep us on the path towards sustainable GMV growth.

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

[Stephen Priest, executive]

Thank you, Jamie, and thank you all for joining us today. I'll begin with the financial highlights section of our earnings presentation. Next, I'll discuss our key financial and operating metrics in greater detail. Finally, I'll provide our outlook for the first quarter and the full year and some closing thoughts before we begin Q&A. My comments will reflect year-over-year comparisons on an FX-neutral basis, unless I note otherwise.

I'm pleased that we met or exceeded expectations across our key financial metrics in Q4 despite observing a softer demand environment during the early part of the quarter. Gross merchandise volume was nearly flat at $18.6 billion. Revenue grew 3% to nearly $2.6 billion, outpacing volume by over 3 points. Non-GAAP operating margin was 26.7%. We delivered $1.07 of non-GAAP earnings per share and we returned $379 million to shareholders through repurchases and dividends.

Let's take a closer look at our financial performance during the fourth quarter. Gross merchandise volume of $18.6 billion was nearly flat year-over-year, while foreign exchange was a tailwind of roughly 2 points to reported GMV growth. As we discussed last quarter, we observed softer demand for discretionary goods during the beginning of Q4 as consumers dealt with elevated inflation and higher interest rates in our key markets. Shoppers were more discerning in their purchase behavior as we approached the holidays and the promotional environment adapted to meet their expectations.

However, we started to see our business improve towards the end of November, particularly in the U.S., driven by consumers looking for value to stretch their limited holiday budgets. Additionally, we believe recent product improvements modestly benefited our participation in last-minute holiday shopping. These include an improved accuracy of our estimated delivery dates and product changes we made in Q4 to better highlight listings with faster shipping times.

Focus categories continue to drive underlying momentum in our business, growing roughly 6 points faster than the remainder of our marketplace during the quarter. P&A, Refurbished and Luxury were the top 3 contributors to GMV growth in focus categories. P&A delivered another quarter of mid-single-digit GMV growth as improved trust from programs like Guaranteed Fit and [ ground shipment ] coverage continued to benefit the overall customer experience.

Next, I'll walk through our results on a geographic basis. U.S. GMV was nearly flat in Q4, an improvement of 1 point sequentially. U.S. consumer demand was notably more resilient relative to our largest international markets, consistent with market benchmarks. The underlying growth was even stronger when we include U.S. buyer spending on cross-border goods. International GMV was down nearly 1% on an FX-neutral basis and up 4% as reported due to FX tailwinds.

While we saw resilient demand in the U.K. and Germany over the holidays, e-commerce market growth in these countries remain challenged. The progress we made in Germany to improve the seller and buyer experiences, particularly within C2C, helped mitigate a tough environment where e-commerce growth has been persistently negative. In the U.K., our GMV growth narrowed the gap to market as consumers continued to look for value during the holidays. We also benefited from the lapping of the Royal Mail strike that impacted results in Q4 of 2022.

Moving to buyers. Trailing 12-month active buyers were 132 million at the end of last year, continuing the trend of stabilization in 2023, after a period of post-COVID rationalization in recent years. Enthusiast buyers remained approximately 16 million. Spend for enthusiasts was stable quarter-over-quarter at around $3,000 annually despite continued pressure on discretionary spending across our major geographies.

Turning to revenue. We generated revenue of $2.6 billion during the fourth quarter, up 3%, outpacing volume by over 3 points. Foreign exchange was a headwind of over 1 point to reported year-over-year revenue growth. Our take rate in Q4 was approximately 13.8%, down roughly 10 basis points quarter-over-quarter. The sequential decline was primarily driven by seasonal category and product mix, partly offset by continued momentum in our advertising business and a modest tailwind from FX. On a year-over-year basis, our take rate was roughly flat despite nearly 0.5 points of FX headwind.

Total advertising revenue grew 20% to $393 million and reached 2.1% penetration of GMV. First-party ads grew 30% to $368 million or 30 points faster than volume. As Jamie discussed earlier, we saw robust seller adoption of Promoted Listings Advanced in Q4, driven by recent innovations like smart targeting and rules-based campaigns.

Moving to profitability. Non-GAAP operating margin was 26.7% during the quarter, improving 30 basis points sequentially and down roughly 3 points year-over-year. Foreign exchange was a headwind to margins of approximately 150 basis points in Q4 compared to a year ago. The remainder is largely attributable to continued investment in product development and the margin impact of recent M&A. As expected, eBay International Shipping was no longer a drag on our operating margins in Q4. But this program weighed modestly on gross margins year-over-year, as its costs primarily fall within cost of revenue.

Overall gross margin was down about 60 basis points year-over-year as modest headwinds from eIS were partly offset by efficiencies in cost of payments. Within G&A expense, we recognized a GAAP restructuring charge of $99 million in Q4 relating to our recent organizational changes as well as the GAAP accrual of $15 million related to pending legal matters. You will find more information on adjustments in the GAAP to non-GAAP reconciliations in the appendix of our earnings presentation, while additional details on the legal matters will be provided in our upcoming 10-K.

We generated non-GAAP earnings per share of $1.07 in Q4, roughly flat year-over-year. On a GAAP basis, our earnings per share was $1.40 for the quarter, driven by unrealized gains in our equity investment portfolio. These gains were partly offset by stock-based compensation on the aforementioned GAAP restructuring charge.

Turning to our balance sheet and capital allocation. Our free cash flow was negative $3 million in Q4, consistent with our guidance for de minimis free cash flow, as California's disaster tax relief program for 2023 delayed the majority of our annual cash tax payments until October. We ended the year with cash and nonequity investments of $5.1 billion and gross debt of $7.7 billion. We repurchased $250 million of eBay shares at an average price of approximately $41 during Q4 and had $1.4 billion remaining in our buyback authorization at the end of the quarter. In addition, we paid a quarterly cash dividend of $129 million in December or $0.25 per share. Since the beginning of 2022, we have returned nearly $5.6 billion to shareholders through repurchase and dividends, or roughly 134% of cumulative free cash flow over that period.

Turning to our investment portfolio. Our equity investments and warrants were valued at over $5 billion at the end of Q4. Our Adevinta stake was valued at nearly $4.5 billion, up nearly $0.5 billion versus Q3. On November 21, a consortium led by Permira and Blackstone announced an offer to acquire Adevinta. This offer is proceeding as expected and we continue to expect it to close in Q2. The public offer period expired on February 9, with 95% of shareholders accepting the offer, which satisfied the requirement of at least 90% acceptance rate. We understand that the consortium is working expeditiously to achieve the remaining regulatory approvals and clearances. Our Adyen warrants were valued at over $360 million at the end of Q4. Our warrant value is calculated based on several assumptions, including Adyen share price and the probability of vesting.

Moving to our outlook. We have started the year with relatively uneven demand across our major markets, with the U.K. [indiscernible] GDP growth and U.S. retail sales weaker than expected in January. The dynamic nature of the operating environment has been incorporated into our GMV outlook as well as a 1 point boost to GMV growth from the extra leap year day. For the first quarter, we expect between $18.2 billion and $18.5 billion of GMV, representing an FX-neutral decline of 2% to flat year-over-year or a spot GMV decline of 1% to flat. We expect to generate revenue between $2.5 billion and $2.54 billion in Q1, representing FX-neutral growth between flat and 2% year-over-year.

Our forecast implies revenue will outpace volume by over 2 points on an FX-neutral basis, while FX represents close to a 1-point headwind to spot revenue growth. We forecast Q1 non-GAAP operating margin between 29.6% and 30%, marking both a sequential and year-over-year improvement at the midpoint. We expect to generate non-GAAP earnings per share between $1.19 and $1.23 in the first quarter, representing EPS growth between 7% and 11% year-over-year. At current rates, FX would represent a 2-point headwind to year-over-year EPS growth in Q1.

Now let me share some thoughts on the full year. Assuming no fundamental change in the macroeconomic environment this year, we expect our FX-neutral GMV growth rate to turn positive in Q3 or Q4 of this year. We expect revenue to outpace GMV growth by about 2 points on an FX-neutral basis. We expect FX to represent close to a 1-point headwind to spot revenue growth. We anticipate our take rate expansion to be primarily driven by continued healthy growth in advertising revenue throughout 2024, although we do face elevated year-over-year comps starting in the second quarter, due to our acceleration in 2023, along with continued secular headwinds within our third-party ads.

We expect non-GAAP operating margin to expand by 60 to 100 basis points for the full year, as we balance continued investments in tech, talent and marketing with organizational efficiencies, productivity gains and savings from our ongoing structural cost program.

Our non-GAAP operating margin outlook includes a net benefit of approximately 40 basis points year-over-year, which is primarily driven by a change in accounting estimate associated with the extension of the useful life of data center equipment. Following an assessment of our servers and networking equipment in December, we determined it was appropriate to extend the accounting useful life from 3 years to 4 years. You can find more information on this policy change in our 10-K filing.

Offsetting this benefit is an operating margin headwind of roughly 50 basis points year-over-year due to foreign exchange as we lapped sizable FX hedging gains in 2023. This is on top of the approximately 30 basis point year-over-year operating margin headwind we experienced in 2023 as we lapped even more meaningful hedging gains in 2022.

Our capital expenditures for 2024 are expected to be stable, between 4% and 5% of revenue, while our non-GAAP tax rate should remain unchanged at 16.5%. We expect just under $2 billion of free cash flow in 2024, which contemplates headwinds of $99 million in restructuring charges and $234 million from repatriation tax payments. As a reminder, these repatriation tax payments will remain a temporary headwind to free cash flow through 2025, which is the final year of an 8-year repayment schedule. Details on these tax payments are in the appendix section of our earnings presentation.

For Q1, we have raised our quarterly dividend by $0.02 to $0.27 per share to be paid out in March. And I'm pleased to announce that our Board recently increased our share purchase authorization by $2 billion, bringing our total remaining authorization to approximately $3.4 billion. We are targeting at least $2 billion of share repurchases for the year, though the pacing may fluctuate from quarter-to-quarter. We expect to end 2024 with cumulative repurchases and dividends representing approximately 130% of free cash flow since the beginning of 2022, above our original target of 125% for the period. Given our top line assumptions, margin outlook and healthy capital return expectations, we forecast non-GAAP earnings per share growth of 8% to 10% year-over-year in 2024.

In closing, I'm incredibly proud of our team's execution during 2023. Despite a very challenging macro environment, we saw underlying momentum in our business as GMV trends improved gradually through the year and we delivered non-GAAP earnings per share of $4.24, up 3% for the full year. While we are planning our business around the assumption that the macro environment will continue to be challenging, we remain incredibly confident in our strategy and our plan for 2024.

Assuming no further degradation in the environment, we expect our investments in focus categories, local market and C2C initiatives, generative AI and other site-wide improvements, to turn GMV growth positive in Q3 or Q4 of this year. Although we will continue to invest in our strategic pillars, we are committed to striking the right balance between expenses and revenue growth and continue to lean into cost efficiencies to drive 60 to 100 basis points of operating margin expansion in 2024.

Our fortress balance sheet enabled us to increase our buybacks and dividends this year, leading to total capital return to shareholders of approximately 130% of cumulative free cash flow from 2022 to 2024. And I'm extremely pleased this financial plan allows us to target non-GAAP EPS growth of between 8% to 10% year-over-year, demonstrating the earnings power of our business.

With that, Jamie and I will now take your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Nikhil Devnani from Bernstein.

[Nikhil Devnani, analyst]

I wanted to ask about GMV growth. Could you provide a bit more context on the potential for positive GMV growth in Q3 or Q4? Is that anchored on the timing of certain product initiatives that should accelerate your growth? Anything on your visibility into the back half would be helpful. And then I had a follow-up on margins as well. Your Q1 outlook is quite strong, close to 30%. But it looks like for the full year, you're anticipating 28% to 28.5%, so just wondering if that delta is due to seasonality or some discretionary investments that you see coming down the line? Anything there would be helpful.

[Jamie Iannone, executive]

Yes. Thanks, Nikhil. I'll cover the GMV one and then I'll ask Steve to talk about margins. So when we looked at the start of the year here, we talked about January having some weather impact. You heard that from other folks as well and improvements kind of since then. You saw January retail sales showed the consumer is a bit stretched. But when we look at the overall plan that we have for the year, we feel really good about the strategy that we're executing on. When you look at focus categories, they continue to outperform the rest of the business.

For FY '23, it was a 4% year-over-year growth or about 7 points ahead of the business. We like what we saw in terms of the investments that we made in Germany and feel really good about the road map that we have in front of us to drive growth in the business in Q3 or Q4, as Steve outlined. I think importantly, when we look at the kind of underlying health of the business, right now, we still have U.K. just under a technical recession, Germany e-commerce growth is still in negative territory, and so we have those impacts from the market. But the underlying business and what's happening in the core, we feel really good about. And that's what makes us confident in being able to drive GMV growth, as we outlined there. Steve, do you want to talk about margins?

[Stephen Priest, executive]

Yes, indeed. Good afternoon, Nikhil. You're correct. Seasonally, Q1 has been our strongest quarter for operating margin. Well, why? Because of the dynamics of the seasonality. A reminder, we have been driving that through a number of cost savings that we've been driving based on recent actions, and also the accounting policy changes that we saw that we discussed in the prepared remarks.

I am really pleased with the amount of diligence that we've gone through. The teams are leaning into cost efficiencies in the short term, while we continue to invest for the long-term sustainable growth of eBay. And we're pleased to be in a position to, based on no change in the overall macroeconomic environment, to drive between 60 and 100 basis points of margin improvement, which is continuing to fuel the earnings growth that we laid out earlier in the call.

[Operator]

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

[Colin Sebastian, analyst]

Good to see the start of performance at the end of Q4. A lot of the changes in e-commerce over the past couple of years. Obviously, customer acquisition costs are going up a lot and there's more competition in the market from global marketplace players. So I was hoping, Jamie, you could talk about maybe the evolution of e-commerce as you see it and the impact of some of those changes on eBay, and if that leads you to any modifications in sort of the focus category strategy? And maybe related to that, with gen AI across the platform and the magical innovations, is there any way to quantify the impact of some of those tests, if not from a volume or revenue perspective, and maybe from listing velocity or engagement levels with sellers or buyers testing the tools? That might be helpful.

[Jamie Iannone, executive]

Yes. So first, let me talk about kind of the e-commerce piece. Specifically in customer acquisition costs, this is where eBay has a unique advantage. So first, the vast, vast majority of our traffic is organic. People coming to the eBay app or typing in ebay.com, which is a key benefit. The second is our ability to monetize users that we acquire across multiple categories is a huge win for us. So when you look at someone coming in into a single focus category, they end up shopping across categories in the site, usually more than they buy in other categories from that 1 initial acquisition. So our ability to kind of manage the CAC and the CLTV is, I think, much different than others, and that's just based on the scale of what we have.

I think our focus on non-new and season is very unique, and our drive towards Refurb, Luxury authentication and the trust we've put on the marketplace, is a real differentiator for us. For example, we've seen the fourth straight quarter now of growth in our Luxury business. Our Refurbished business maintained double-digit growth, all in a somewhat challenging macro environment. So that's unique.

As we look at the generative AI, it's still early days. I can give you some of the early perspectives, but when I'm having a hard day, I go read the message boards about how consumers feel about these features that they're launching, because they just love it. They love the speed with which it allows them to get more inventory on the site.

And what we hear is they're going to allot more of their things in their closet and their garage, because we're speeding up the listing process. So today, it's already been used by millions of sellers, our first version of the magical listing process, and over 90% of customers actually take the content that we have and include it in their listing. It has a satisfaction score of 80, which is very high for a brand-new release on the product and continues to get better each day.

And then we've had our other products in employee beta and now out to a single percentage point of our customers, things like the enhanced background that I talked about, and I've been around this business for 20 years. There's nothing that moves product like better pictures on the marketplace. It's why we now have larger pictures on our desktop view item, but the quality now of being able to take a picture that you take on your rug or even on your unmade bed, and put it on a beautiful background and make the product look more appealing for sale, we're excited to be able to get features like that out.

So we'll continue to update you on the progress, but I can tell you that the anecdotal feedback is really good. The quantitative numbers of what we're seeing is helpful and the pace of innovation around AI is exciting.

[Operator]

Your next question comes from the line of Ken Gawrelski from Wells Fargo.

[Kenneth Gawrelski, analyst]

Could you -- I was hoping maybe you could talk a little bit about -- you talked about the, some of the weakness you've seen and continue to see in the macro side, especially in Europe. Could you talk about if there are certain customer segments or even categories that you're seeing better trends or improving trends relative to those that might be still under pressure?

[Jamie Iannone, executive]

Yes. What I would say is if you look at both U.K. and Germany, 2 of our largest markets, they're both experiencing a GDP decline. So U.K., which is our second-largest market, entered a technical recession. If you look at the cost of living challenges that are happening over there, that's obviously been a challenge. And the German business has been in recession and is still experiencing negative e-commerce growth from that standpoint.

But one of the unique values of eBay is that we offer great values on the marketplace. So I think the reason that our Refurbished business, for example, is so strong, our Luxury business is so strong, is that even in challenging times, people are looking for value on the marketplace. And so I would say I'd call out specific areas like that, Refurbished growing double digits, I think, is a sign of the consumer looking for value. Also, the consumer was looking for a lot of value in December, and we really leaned into that across the globe, and that's been a big differentiator for us.

And our Parts & Accessories business continues to perform well. It grew mid-single digits for the fourth straight quarter, and consumers looking for value in what we offer there. So some puts and takes across categories, but those are the ones that I think I would highlight and what we see happening, especially over in Europe.

[Operator]

Your next question comes from the line of Justin Post from Bank of America.

[Justin Post, analyst]

I guess I'll ask about buyers. You talked about your GMV getting back to growth. What will we see with buyers? And what are you seeing within the metrics as far as churn or new activations that give you encouragement right now?

[Jamie Iannone, executive]

Yes. Our buyers are exactly where we expected them to be. When you think about our enthusiast buyers, which is what we really track and go after, we said that we would see a stabilization coming off of the COVID time period, and that's what we're exactly seeing. It was roughly flat quarter-over-quarter at $16 million (sic) [ 16 million ]. We've been driving healthy buyer acquisition and buyer retention, especially in our focus categories. Our enthusiast buyers are spending over $3,000, which is essentially like membership level spends when you think about it.

So our acquisition is healthier year-over-year, our reactivation is healthier year-over-year and our churn is down year-over-year. So we're pleased with what we're seeing on the buyer side. And we're continuing to lead in with new advancements and capabilities for buyers. One I called out on the call is things like we have over 100 million vehicles stored in My Garage and we're using now predictive maintenance to say it's time to change this element for your car. Here's the parts on eBay that fit it exactly. They're backed by Guaranteed Fit. So we continue to build new tools for buyers to activate them onto the site and drive retention, and that's been working very well.

[Operator]

Your next question comes from the line of Doug Anmuth from JPMorgan.

[Douglas Anmuth, analyst]

Jamie, I just want to follow up on generative AI. Your comments were pretty interesting on how your large language models from scratch are working better. I was hoping you could talk a little bit more about that, some of the advantages that you're seeing? And then as you're doubling GPUs through '24, maybe Steve, can you talk a little bit about the impact there, just on the product development bucket and how we should think about that in context of the deleverage that we saw last year on that line?

[Jamie Iannone, executive]

Yes, Doug, one of the things I'm excited by is that we've had this model of building in a hybrid environment and having an extremely large private cloud, which has allowed us to manage our cost infrastructure even as we've grown to now close to 2 billion listings on the marketplace. But more importantly, the benefit of being able to take our 30 years of really rich data of e-commerce and combine that in a hybrid sense, in some cases, with open source LLMs, in some cases, LLMs that we built, in another case, with commercial L&Ms, makes us able to do those in a really efficient manner, without really massively impacting our cost structure in any meaningful way.

Also having good latency in terms of getting it back and also being able to fine-tune the quality of the data of what's coming back from an inference has been important for us. So we've used across the board all different models. We've started, in some cases, with some commercial models and then moved those to open source or internal models, as we refine them and gotten better. And that's been working out really well for us.

Like I said earlier to the question about magical listing, when we look at the scale and volume of the millions of listings that we get each day and what consumers are hitting us with, making sure that we have an incredible amount of quality in terms of what's happening with the AI and ease of use. And thus far, really positive feedback from it. The models are working well. And what's great is that the team iterates every single week to make them better. Steve, maybe you just want to cover how we're managing the cost?

[Stephen Priest, executive]

Yes, of course, Jamie. Doug, good to speak to you. As Jamie said, we're really excited about the opportunity to drive further efficiencies and improve productivity across eBay to the AI technology. We're doubling our GPU capacity in the first quarter, which is going to give us a lot of expanded capabilities. Specifically regarding to costs, the costs associated with gen AI, including our GPU [ acts ] are contemplated in our full year CapEx guidance range, which we laid out, and it's pretty much in line with historical averages. All the OpEx costs are contemplated in our guide. I think it's fair to say our size and scale at eBay is a distinct advantage when it comes to this sort of additional infrastructure investment.

[Jamie Iannone, executive]

Doug, the last thing I'd say is that, that refers a lot to how we're using it with our consumers. I would say internally across the organization, we're also pushing very aggressively to drive productivity in the organization. So whether that be all of our engineers now using Copilot tools as they do development; in our customer support centers, we've been using AI to really change the level of engagement we have with customers and the productivity. I call it the success of our employees there, where we summarize contacts from customers to make it easier, summarize initial responses, all the things that we can do, when you think about our scale of over 1 million self-service queries a week, in a customer service perspective, AI is incredibly helpful there. So those are just 2 examples of how we're using it across the board to drive productivity in the organization.

[Operator]

Your next question comes from the line of Lee Horowitz from Deutsche Bank.

[Lee Horowitz, analyst]

So your U.S. business has stabilized at this point and is presumably set to return to growth sooner than the total. This is obviously happening in the face of U.S. e-commerce competition that has grown increasingly intense with the introduction of low-priced Chinese competitors. Can you maybe spend some time talking about how your strategy of leaning into enthusiasts and enthusiast categories perhaps shields you from this incremental competition? And any update holistically on maybe some of the vertical players in some of your key focus categories and how competition has evolved over the last year?

[Jamie Iannone, executive]

Yes. Specifically on the low price, if you're referring to like the Temu machine, we really haven't seen a significant impact from them on our business. We really have a differentiated strategy with what we're doing with our focus categories and going after non-new and season for the business. And years ago, we really moved away from the low-ASP, low-quality items on our marketplace, and that hasn't been a focus for us for many years now. So I think that's the first key differentiation I'd call out.

The second is that, obviously, some of the competition is spending a lot of money from a marketing standpoint in the marketplace. But one of the great benefits of eBay is just the vast amount of organic traffic we have. The vast part of our traffic either comes directly to the app or types in ebay.com. So we're less reliant on paid from that perspective.

The last thing I'd say comes back to kind of the CAC, CLTV question, which is we can have one of the most healthiest CACs out there in the marketplace because of our ability to drive CLTV, really driving by the moves we've made to not be focused on active buyers, but really on acquiring enthusiast buyers or quickly moving new buyers up to become enthusiast buyers, and because of the cross-category shopping nature of the business, allows us to drive that CLTV higher for us.

And then finally, the opportunity to turn them into sellers or to have buyers who sell in the marketplace also helps with that overall equation. And those are really key differentiators for us in business and why we feel really well-positioned on a go-forward basis in the e-commerce landscape.

[Operator]

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

[Thomas Champion, analyst]

Jamie, I'm wondering if you could talk a little bit more about the C2C initiative in Germany? And maybe what's the 1 or 2 key features that allowed you to crack the code there in that geography? I know it's been challenged for a while. And then where do you take this next? I mean presumably, does it port to the U.K.? How do you think about it expanding in other geographies?

[Jamie Iannone, executive]

Yes. When you think about our focus category strategy of really kind of leaning in on the specific area, driving the CSAT to a whole double-digit level, we essentially applied that to a certain segment of our business in Germany, to our C2C segment. And that's exactly what we're seeing, Tom, is greater than 20-point improvement in NPS in that business, which is really great for us. It's an important business. And what we really focused on was designing around the needs of the buyer. So that's search and SEO improvements specifically around language needs in that market.

The second was really a focus on local and things like map-based browsing in that market. Given the geography of it, we have more of that type of business in Germany than we do, for example, in our U.S. business and leaning into it. And the third is doing pricing adjustments for our C2C business there, really leaning in to being able to drive buyers who sell and bring more C2C inventory on the marketplace. And that's been working well for us. We've seen double-digit increases in buyers who sell on the platform and a really kind of healthy business there in terms of first-gen listings, that type of thing.

So with everything that we do, we look at what's successful, what do we take to other markets and we'll continue to do that and look at that on a go-forward basis. But overall, we feel really good about the metrics that we're seeing in Germany and the health of the business and the strong numbers we're putting up, despite negative e-commerce growth in that marketplace.

[Operator]

Your next question comes from the line of Michael Morton from MoffettNathanson.

[Michael Morton, analyst]

Two, if I could. Just following up on the opportunities around AI. There's a view in the market that it allows you to run more sophisticated campaigns when you have large SKU offerings for like big e-commerce platforms. So wondering if you're seeing a benefit of that now, or if it's something that's always been a part of your business? And then we haven't seen the filing yet, but for the prior quarters, a lot of strength appears coming from China-based sellers. So just wondering about the moving parts there and the sustainability of that in 2024?

[Jamie Iannone, executive]

Yes. Look, the expansiveness of our marketplace is what allows us to really go after launching compelling gen AI features. So specifically in Parts & Accessories, for example, we use AI to expand the fitment capabilities of finding what vehicles a part will fit, but now we're using it for things like predictive maintenance and things like that. The vast majority of categories are really relevant for these horizontal innovations, things like magical listings, things like background enhancers, et cetera. So search uses AI, advertising uses AI. So across the board, we're using it in very compelling places. We use it in our marketing to do much more personalized marketing, things like subject lines that can be really tailored based on what's happening on the business.

When I think about our CBT business, it remains very strong on the marketplace. So we've built more and more features to make CBT easier for both buyers and sellers. I'd call out the work that we did in payments on buyer and seller FX, really making that seamless. We've talked over the last 2 quarters about eBay International Shipping, with the concept of really opening up the 190 different geographies that we have around the world to our sellers from that perspective. And so it will continue to be a focus. We'll continue to make it easier and easier for buyers and sellers to interact across borders and drive that strategy forward.

[Operator]

Your next question comes from the line of Alexandra Steiger from Goldman Sachs.

[Alexandra Kasper Steiger, analyst]

I do want to follow up on some of your macro comments. So how should we think about GMV or revenue per buyer in that context? To what extent do you see customers trading down in certain markets? Or is it more of a function of buyer -- buyers making less purchases over a given period of time? And if that's the case, what are kind of like the key initiatives you're working on to drive purchase frequency on the platform?

[Jamie Iannone, executive]

Yes. So when you look at it overall, when you talk about something like the U.K. or Germany, where the consumer is more stretched in cost of living challenges, et cetera, we tend to lean into the deals and values on the marketplace. So Refurbished, used. And so it's not really impacting as much the -- their overall business with us, more so in terms of the categories and where they're buying. So I'd probably say, like Refurbished is a good example. Refurbished growth is up double digits. We've talked in the past that macro has pressured the spend and moved some of the enthusiast buyers to mid-value buyers. That's a little bit why we see the enthusiast number flat quarter-on-quarter, but we're pleased with that stability in this environment because it means the eBay value proposition is really resonating for those customers.

In terms of driving frequency, it's 1 way where we're looking at things like all the programs that we have, whether that's saved seller or stores or the marketing that we put out to our customers, we're now able to use generative AI to make that experience so much richer. The combination of our internal LLMs and the data that we have about what's been happening over the 30-plus years, combined with the ability to really build compelling marketing to those customers, is coming to a whole new level.

And Alexandra, I think we're just at the early stages of what's possible there. And what's exciting at eBay is the canvas that we have to work with. When you think about the number of consumers that have transacted with a given seller on the platform and have saved that seller, when you think about 100 million vehicles being in My Garage, when you think about the sizing data that we have for people for apparel, it gives us the unique ability to drive a lot of frequency on the platform.

[John Egbert, executive]

Operator, can we do 1 last question, please?

[Operator]

We have no further questions in our queue at this time. And with that, that does conclude today's conference call. Thank you for your participation and you may now disconnect.