eBay Inc. (NASDAQ:EBAY) Q4 2022 Earnings Call Transcript

eBay Inc. (NASDAQ:EBAY) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the eBay Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. . Thank you. It is now my pleasure to turn the call over to Mr. John Egbert, Senior Director of Investor Relations. Sir, please go ahead.

John Egbert: Good afternoon. Thank you for joining us for eBay’s fourth quarter 2022 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 Jamie’s and Steve’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 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, unless indicated otherwise.

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 22, 2023, and we do not intend and undertake no duty to update this information.

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

Jamie Iannone: Thanks, John. Good afternoon, everyone, and thank you for joining us today. 2022 was a year of consistent execution for eBay, as we made significant progress against our long-term objectives. Our focused categories drove underlying growth in our business, as we expanded global coverage for our 16 million Enthusiast Buyers. In motors, parts and accessories, or P&A growth accelerated as we improved our fitting capabilities, increased supply of OEM parts and enhanced trust signals for buyers. We extended authentication to new categories like trading cards and fine jewelry and opened authentication centers in several new countries for handbags. We opened the Vault to store and usually transact valuable items and adoption has grown steadily week over week.

We retired legacy technology, simplified the architecture of our core services and improved our tech velocity. Our advertising growth accelerated as we scaled our three newer Promoted Listings products, optimize performance and automated more elements of campaigns. We expanded our financial services portfolio by adding FX conversion new forms of payments like Klarna and Afterpay, faster debit card payouts and a digital wallet. And we balanced our investments in innovation with prudent cost discipline to establish a strong foundation for sustainable profitable growth for many years to come. Now turning to the fourth quarter. We delivered an operating margin of close to 30%, while making critical investments in product and marketing to support our long-term growth strategy.

Non-GAAP earnings per share for the quarter were $1.07, up 2% year-over-year. Our focused category strategy was a major component of our strong financial performance during the fourth quarter. Focus categories grew more than seven points faster than the rest of our marketplace during Q4, which was two points faster than the prior quarter. Establishing a game changing level of trust between sellers and buyers has been an important driver of the momentum in our focus categories. Authenticity Guarantee enables trust in our luxury categories like watches, sneakers, handbags and fine jewelry. We have observed notable turnarounds in GMV growth since we launched authentication, improved the product experience and grew awareness to the great inventory in these categories.

In aggregate, our luxury focused categories have grown at roughly double-digit CAGR since Q4 of 2019, proving these investments have been highly effective. We dramatically improved trust in our refurbished offering by introducing warranties and half of returns, which attracted more brand and new categories to our marketplace. Those investments paid dividends in Q4 and with positive year-over-year GMV growth and the biggest sales week ever for refurbished goods during Cyber Week. Trust in our motors, parts and accessories category is most reliant on equipement for ensuring the compatibility of auto parts with a specific vehicle. During the last few months, we have taken major steps forward with our fitment capabilities. We acquired myFitment in Q3 to help sellers populate their listings with accurate fitment data, which ensures compatibility for buyers.

In Q4, we began making myFitment’s technology accessible to all buyers, starting with a pilot group of P&A sellers. Listings enhanced by this technology are seeing a measurable uplift in conversion, and we will expand this program further in 2023. Our significant investments in fitment over the past few years allowed us to launch a prominent Fit Your Vehicle badge in Q4. Similar to the Authenticity Guaranteed logo, we show on luxury goods, this badge provides a clear indication of which parts fit your vehicle throughout the buyer journey across search, merchandising, view item and checkout. This is no small feat with over 500 million active P&A listings on eBay and the increasing complexity of vehicles in the marketplace. These advancements have significantly elevated our capabilities for P&A shoppers, and I’m pleased to share a new program we launched just last week called eBay Guaranteed Fit.

This program is the breakthrough for trust and P&A that Authenticity Guarantee is in luxury and warranties are for eBay refurbished. It provides buyers with assurance that eBay will stand behind them if a part doesn’t fit their vehicle. Guaranteed Fit is a huge milestone for the P&A category and the culmination of our multiyear fitment journey. I’m incredibly proud of our teams for executing the foundational work, making this program possible and I’m looking forward to seeing their continued innovation in the category. I’m also excited about our team’s work in collectibles, which has benefited from a steady cadence of product development and partnerships, including most recently, our live commerce beta. During Q4, we scaled up a number of eBay live events with select sellers, bringing a healthy level of viewers, engagement and GMV to participating sellers.

We also introduced the eBay Live Hub, where users can subscribe to channels and receive notifications about future events. This hub will serve as a central discovery point as we broaden the availability of live commerce to more sellers and categories this year. Our acquisition of TCGplayer has also greatly enhanced our collectibles category. And in Q4, we began developing synergies between our respective marketplaces. In addition to its customer base of nearly 800,000 hobbyists, a major competitive advantage for TCGplayer is its relationship with thousands of local brick-and-mortar hobby shops with many subscribing to its point of sale and channel management solution. Due to this software, sellers can now more easily streamline listings and inventory on both TCGplayer and eBay.

TCGplayer also further diversified its marketplace by introducing Comex during Q4, which is a natural adjacency to collectible card games. eBay’s historical sales data enabled TCGplayer to launch Comex with robust pricing intelligence, which will help us scale this offering. While our integration is in its early days, I’m incredibly excited to see what TCGplayer community will bring to eBay over time. One of the key pillars of our strategy is being the platform of choice for sellers. eBay’s scale and global footprint represent key advantages for our platform as we work toward achieving this vision. In 2022, roughly one-fifth of our GMV was facilitated through cross-border trade. Sellers who activate their listings internationally can reach buyers in over 200 countries globally.

However, less than half of the inventory in our top three markets is currently available for export due to the friction associated with these transactions. To unlock more valuable inventory for global buyers, last fall, we announced a major revamp of our cross-border capabilities with the launch of eBay International Shipping. Under this program, eBay handles any customs forms, coordinates duties with buyers, and intermediates returns. Sellers are protected from item not received complaints, while buyers benefit from greater selection and lower shipping costs. The program is resonating well as we gradually ramp enrollment for sellers, while buyer satisfaction on eBay International Shipping transactions reached 80%. Steve will discuss the financial implications of this program, and I’m confident it will increase cross-border inventory and drive incremental GMV for eBay.

Investments in AI are also improving customer perception of our shipping capabilities. In Q4, we deployed a new machine learning model for estimated delivery date in the US and select international markets, enabling us to make more accurate delivery predictions to buyers. Applying this model in the US reduced the average delivery estimate by one and a half days for all domestic listings, resulting in a noticeable uplift in conversion. A separate model deployed for eligible Authenticity Guarantee products resulted in an average reduction of approximately two days for US listings. These rollouts are just the latest example of our ability to leverage AI to make our existing processes more efficient, which will be a continued focus for us in 2023 and beyond.

Moving on to ads. Our marketplace continues to benefit from innovation in our advertising business, which delivered strong growth in Q4 despite headwinds in the broader digital ad market. Promoted Listings drove first-party ad revenue of $276 million, up 27% or more than 30 points faster than GMV growth. Over 2 million sellers adopted a single ad product in Q4 and we eclipsed $700 million live voted listings. Additionally, our total ad revenue is nearing 1.8% penetration of GMV. Promoted Listing Standard was again the largest contributor to growth, both on a sequential and an annual basis as optimization gains from prior quarters continue to benefit ad rates. In Q4, we also improved our merchandising algorithms to show a greater diversity of products, which improves buyer satisfaction, while also preserving relevance and conversion.

Our newer ad products also continued to scale nicely in Q4 and grew more than 20% quarter-over-quarter. Promoted Listings Advanced, our cost per click product continues to be a standout among the new products. Seller adoption of Advanced has grown, as we have expanded access and automated more elements of campaign management to make this powerful ad unit easier to use. In Q4, we launched Quick Setup, a one-click campaign creation solution for sellers, where eBay automates and optimizes the campaign structure, ad groups targeting and keyword bids for CPC advertisers. We also introduced multiuser account access across our full suite of promoted listings, which enables eBay sellers to delegate campaign management to trusted third parties like brands or ad agencies.

Turning to payments. We continue to roll out additional payment services to support high ASP transactions and improve fire conversion. During Q4, we introduced split payments in the US for transactions over $1,000, enabling buyers to spread large purchases across two credit cards. We’ve already processed transactions from thousands of buyers at an average order value of over $3,000, and we’re excited to expand this offering globally later this year to better support our focus categories. Additionally, building on the success of Afterpay, we recently partnered with Zip to introduce a suite of buy now pay later options to our Australian buyers. Zip supports purchases of up to $10,000, extending our ASP coverage in this valuable market. By managing our end-to-end payments process, we are also able to leverage our own proprietary risk models to assess transaction requests across our marketplace.

Last year, our risk and protection team without enhanced controls that allowed us to approve transactions that may have otherwise been declined in the past, enabling over $0.5 billion of annualized GMV and reducing potential escalations to customer service. In connection with risk management, we continue to invest in the security of our marketplace to ensure our capabilities remain world-class. Last week, we announced the acquisition of 3PM Shield, a provider of state-of-the-art marketplace compliance tool. 3PM Shield offers effective solutions for the prevention and identification of counterfeit listings and prohibited items. Combining this technology with our proprietary data, will further enhance the integrity of our marketplace. Before we move on, I’d like to touch on the actions we’ve taken to sharpen our focus as a company and run our business more efficiently, particularly in light of the uncertain economic environment.

Earlier this month, we made the difficult decision to eliminate approximately 500 jobs or roughly 4% of our global employee base. This decision followed a thoughtful review of our organization to ensure our people and roles were aligned with priorities that advance eBay’s commitment to long-term sustainable growth. These changes provide additional flexibility for us to invest efficiently and create new roles in high potential areas of our business like new technologies, trusted customer experiences and key markets. There is no easy way to say goodbye to our talented colleagues, their passion and accomplishments over the last few years have helped us get us to where we are today. We are incredibly thankful for their contributions and are committed to supporting them through this difficult transition.

Photo by Oberon Copeland @veryinformed.com on Unsplash

Next, I’d like to share a few milestones from our ESG efforts last year, starting with e-commerce. In 2022, our marketplace generated $4.6 billion in positive economic impact through the sale of pre-loved and refurbished goods. This activity avoided 1.6 million metric tons of carbon emissions and kept 73,000 metric tons of waste from going into landfills. E-commerce continues to provide significant economic benefit for sellers and buyers during these uncertain times. And buying pre-loved items shows no sign of slowing down. In fact, just yesterday, we published our third annual e-commerce report, which found that 90% of surveyed respondents engaged in e-commerce during 2022. Cost savings were the most popular motivator for buying pre-loved especially among Gen Z buyers.

64% of whom said its financial savings as a primary reason for shopping e-commerce and sustainability was the second most important factor with people increasingly turning to pre-loved to help the environment. This positions us well as we continue to pave the way as an industry leader enabling economic empowerment and sustainability through our platform. Now, let’s turn to impact. I’m always amazed by the tremendous generosity of the eBay community. In Q4, eBay for Charity enables sellers and buyers to raise more than $35 million. And for the year, customers raised over $163 million. This represents an all-time high in fund raised through eBay for Charity, since we started this program 20 years ago. The eBay Foundation granted nearly $23 million in 2022, primarily to non-profit organizations advancing, inclusive entrepreneurship and through our employee matching gift programs.

This represents another all-time high for annual foundation grants. I am fortunate to lead a purpose-driven company with a team dedicated to helping communities around the world, while protecting our planet. For the fourth year in a row, eBay was included in the Dow Jones Sustainability World and North American indices. We were also included on CDP’s A List for 2022, which recognizes companies that are leading the way in environmental transparency and performance on climate change. Additionally, eBay ranks number one on cross-border commerce Europe’s list of the top sustainable marketplaces operating in Europe. Looking to 2023, I’m incredibly excited about the road map ahead of us. Today, I’ll offer just a glimpse of a few areas where you should expect to see progress from us this year.

We’ll continue to innovate for customers in our focus categories and extend to new countries and categories this year. We will continue our work in P&A by expanding the guaranteed FIT program and fifth-year vehicle badge globally. We’ll also grow our tire installation capabilities after we began improving the end-to-end tire shopping experience and broaden our network of installation partners in five markets during Q4. We’ll ramp assets in the vault and extend eligibility for more collectible items. While integrations with TCG player and known Origin will strengthen our value proposition for collectors. We will also continue to iterate next-gen shopping features like live commerce to better engage with enthusiasts. And we will further develop the category landing pages we debut for sneakers, watches and handbags in Q4, which offer trending inventory and personalized recommendations, powered by machine learning.

Sellers across our marketplace will benefit from the expansion of our international shipping program to more markets, which will drive incremental GMV as sellers tap into our global demand. We will continue to scale our advertising offering as we track toward our next $1 billion by 2025, and €“ we’ll simplify and grow adoption of float listings advance, deliver more AI-driven optimization and further expand our ads portfolio. Finally, just as we have done in focus categories, this year, we will adapt our one-size-fits-all approach, to build more relevant and compelling localized experiences in some of our European markets. We will enhance local discoverability, reduce friction through simplified selling experiences, offer new local forms of payment and address other market-specific experience gaps in search, language and return policies.

In closing, I would like to thank our extraordinary eBay employees for their accomplishments this year. Their unrelenting focus on serving our community has supported our sellers and buyers during these challenging economic times. I’m confident that with our talented eBay team, our strategic vision and a persistent focus on operational excellence we will continue to develop compelling experiences for customers and create long-term value for our shareholders. With that, I’ll turn the call over to Steve to provide more details on our financial performance. Steve, over to you.

Steve Priest: Thank you, Jamie, and thank you all for joining us today. I’ll begin with highlights from the fourth quarter on Slide 9 of our earnings presentation. Next, I’ll review our key operating and financial metrics in greater detail. Finally, I’ll provide our outlook for the first quarter and some additional color on 2020 fit before we begin Q&A. As usual, my comments will reflect year-over-year comparisons on an FX-neutral basis, unless I note otherwise. We delivered solid results in Q4 as our key financial metrics exceeded expectations and landed near the high end or above our expected guidance at Aegis. Gross merchandise volume declined 6% to $18.2 billion, while FX was a 6-point headwind to reported growth. Revenue was down 1% to approximately $2.5 billion, which outpaced volume by 5 points, primarily due to FX and robust growth within our advertising business.

Non-GAAP operating margin was 29.9%, down 1.8 points due to volume deleverage and continued investment at the marketing to support the strategic initiatives. We delivered $1.07 of non-GAAP earnings per share, up 2% year-over-year, and we generated $533 million of free cash flow, up 43% year-over-year, while returning $419 million to shareholders through repurchases and dividends. Our Q4 results demonstrate the continued resilience of our marketplace amid economic uncertainty. I’m extremely proud of our teams delivering on their quarterly financial commitments, maintaining prudent cost discipline and executing key deliverables in support of our long-term growth objectives. Let’s take a closer look at our financial performance during the fourth quarter.

Gross merchandise volume is down 6% year-over-year, decelerating roughly 1 point sequentially. Our business remains resilient despite headwinds from geopolitical uncertainty, inflationary pressures, low consumer confidence and rising interest rates. Additionally, FX was a headwind of approximately 6 points of GMV roughly 0.5 point greater than Q3. Momentum in focused categories continues to drive underlying growth in our business. In aggregate, focused categories outgrew the remainder of our marketplace by over 7 points year-over-year during Q4, roughly two points faster than the prior quarter delta. Motus Parts accessories growth accelerated sequentially and remain the largest contributor to this outperformance. And we are excited to see what recent rollouts like fix you vehicle badge and Guaranteed Fit program will do for momentum in this category.

Refurbished goods also contributed positively to growth in Q4, as we continue to expand to new brands and categories. We’ve also made the onboarding process for third-party sellers more scalable to increase the breadth and depth of refurbished selection on our marketplace. Within our luxury and trading cards categories, we continue to see healthy trends in authenticated item transactions in Q4, which has mitigated the macro driven ASP pressure observed across these industries in recent months. As you’ll recall, we closed the acquisition of TCGplayer at the end of October. A partial quarter of GMV revenue and expenses are included in our financials for Q4. But based on the timing of the deal close, TCGplayer’s contribution is not material to results.

Looking at our business on a geographic basis. Our US GMV declined 9% year-over-year decelerating by roughly two points versus the prior quarter. International GMV declined 4% on an FX neutral basis, which was stable sequentially. Compared to Q4 of 2019, our total marketplace grew 2%, a deceleration from 6% last quarter versus 2019, US GMV rose 12% in Q4 while international GMV was down 5%. Although macro headwinds remain more pronounced in Europe, our focused category strategy continued to drive underlying growth internationally, including positive year-over-year growth in P&A and notable strength in luxury categories during Q4. Moving to active buyers. 134 million active buyers shopped on eBay during the trailing 12 months. We had 132 million active buyers, excluding our TCGplayer acquisition and bias from our Turkey business, where we ceased operations in July.

Excluding these impacts, active buyers were down roughly $1 million sequentially as a gradual improvement in buyer reactivation over the past few quarters has led to modest stabilization in our active buyer counts. Enthusiast buyers accounted for over 16 million of our active buyers in Q4, less than $0.5 million sequentially from churn within enthusiasts remains de minimis. The net downward migration of enthusiast is the mid-value group was also the lowest we observed since we began disclosing these buyer groups as lapping pressure has eased in recent quarters. Average spend per enthusiast rose again sequentially and continue to be healthy at above $3,000 annually. Turning to revenue. You’ll notice in our Q4 earnings release and upcoming 10-K that we are now presenting a single net revenues line, which better aligns our reporting with how our business is operated.

We provided one final quarter of marketing services and other revenue in slide 12 of our earnings presentation. Today, I’m moving forward when we r efer to take rate, we will be referencing our all-in net revenue divided by GMV. Net revenue was down 1% to over $2.5 billion during the fourth quarter, one point acceleration versus Q3. Our take rate was 13.8% in Q4 at roughly 40 basis points sequentially. Although FX hedge gains were the most significant driver of our sequential take rate increased in Q4, we continue to see healthy contributions in both advertising and payments revenue. Our advertising business continues to build momentum. Total ad revenue grew 19% during the quarter. Our first-party ads grew 27%, outpacing volume by more than 30 points for the second straight quarter.

This extraordinary result was primarily driven by optimization and performance improvements in our standard promoted listings product. Healthy growth in our newer products, most notably our cost per click as also contributed meaningfully. Our legacy third-party display ads were weaker in Q4 due to industry-wide headwinds over the Holloway, but these ads represent an increasingly smaller portion of our mix. Managed payments contributed nearly 10 basis points to our sequential take rate expansion driven by new financial service offerings. These include buyer and seller FX conversion that facilitates cross-border trade, faster debit card payouts, and new high SP transaction services supporting our luxury categories. Importantly, both advertising and payments remain on track to meet our multiyear revenue targets we discussed at our Investor Day.

Moving to profitability. Non-GAAP operating margin was 29.9% in Q4, up nearly one point sequentially but down 1.8 points year-over-year. Gross margins were down modestly year-over-year due to volume deleverage and authentication costs, partly offset by lower payment processing fees. Sales and marketing rose by over one point as a percentage of revenue as we invested in full funnel marketing to support our focused categories, while product development was relatively flat as some one-time impacts offset continued hiring of technical talent. Our G&A expense rise as a percentage of revenue due to charitable contributions and other one-time items. In Q4, we recognized a GAAP charge within G&A expense of $50 million related to pending legal matters.

You’ll see these adjustments including our GAAP to non-GAAP reconciliations in the appendix of our earnings presentation. Additional details on this accrual will be provided in our upcoming Form 10-K. We generated $1.07 of non-GAAP earnings per share in Q4, up 2% year-over-year, benefiting from a 12% reduction in share count from our share repurchase. We delivered GAAP earnings per share of $1.23, with the delta being driven by a recovery in our equity investment portfolio. Turning to our balance sheet and capital allocation. Free cash flow grew 43% to $533 million in Q4, driven primarily by the lapping of cash tax payments on investment sales in the prior year. Our balance sheet position remains strong as we ended the quarter with cash and non-equity investments of $5.9 billion and gross debt of $8.9 billion, following a successful $1.2 billion debt raise in November.

We repurchased roughly $300 million of shares at an average price of approximately $42 during Q4 and have over $2.8 billion remaining under our current authorization. We paid a quarterly cash dividend of $119 million in December or $0.22 per share. Our investment portfolio is detailed on slide 20 of our earnings presentation. Our equity investments were valued at approximately $3.4 billion at the end of the fourth quarter. Following the sale of a de minimis number of shares in December to satisfy regulatory requirements, our $404 million Adevinta shares were valued at roughly $2.7 billion. Our Adyen investment value is calculated based on the probability of our remaining warrant tranche successful. In addition to the acquisitions we completed in 2022, we continue to evaluate inorganic opportunities to accelerate our strategic objectives by our Build By Partner framework.

We closed the acquisition of 3PM Shield last week, which will strengthen trust in our marketplace, they’re helping us prevent and detect problematic listings with even greater precision. Moving on to our outlook. For the first quarter, we forecast GMV between $18 billion and $18.3 billion, representing organic FX neutral growth between negative 5% and negative 4% year-over-year. This GMV outlook includes an estimated $100 million from one-time benefits already recognized in Q1 and anticipate an FX headwind to reported growth between two and three points. We expect to generate revenue between $2.46 billion and $2.5 billion, representing organic FX neutral growth between flat and up 2% year-over-year. We anticipate a non-GAAP operating margin between 29.1% and 29.7%, and we forecast non-GAAP earnings per share between $1.05 and $1.09 and representing EPS growth between flat and up 3% year-over-year.

Although, we are not providing full year guidance at this time, given the dynamic operating environment, we will share some directional color on how we are currently thinking about 2023. Our baseline expectation is that the external demand environment does not materially improve during the first half of the year, as a result of continued macro uncertainty across our largest markets. While we do see potential for an improvement in underlying economic conditions as the year progresses, it is too early to predict the second half recovery, buying out with confidence. As a result, we currently expect our sequential GMV growth beyond Q1 to roughly approximately seasonality we observed during 2022, excluding the impact of currency. For the full year, we expect to grow total non-GAAP expenses, inclusive of cost of revenue by approximately 2% year-over-year on a spot basis, as we continue to invest in strategic growth initiatives in 2023.

This forecast contemplates one-time impacts to our P&L from recent M&A and the rollout of the eBay International Shipping program this year. These one-time factors combined are expected to represent a year-over-year headwind for operating margin of approximately 120 basis points versus 2022. Our expense growth forecast is also net of roughly $100 million of OpEx savings from our structural cost program as we continue to look inward for cost efficiencies in our business. I’d like to share some additional context on the one-time impact to margin. Over the past year, we accelerated our progress towards several core strategic objectives through the acquisitions of TCGplayer, KnownOrigin, myFitment, and 3PM Shield. While we are excited about the synergies and long-term growth potential of these assets, lowering them into a scale in the marketplace with our level of profitability does present a natural drag on margins in the short-term, which will diminish as our integration work progresses.

The rollout of eBay International Shipping will improve seller velocity and global availability of unique inventory over the long run. Our role in intermediating shipping and returns in this program will shift us to principal relationship with sellers versus being an agency in our previous global shipping program. From an accounting perspective, this means revenue from the new program will be recognized on a gross basis, while the vast majority of expenses are variable and recognize the cost of revenue, while the operating margin headwind from this program will abate as we progressively scale it through 2023. It’s primarily variable costs or impact to our reported gross margins. We expect this program to generate incremental operating profit this year despite representing a headwind of 30 basis points of gross margin in Q1, rising to 120 basis points in Q4.

Additionally, we expect foreign exchange to represent a headwind of approximately 1% of GMV in 2023 and between 3% to 4% to non-GAAP EPS, following the unwinding of recent US dollar strength. We forecast our non-GAAP tax rate to remain at 16.5% throughout 2023. On the capital allocation front, I’m pleased to announce our Board recently approved a 14% increase to our quarterly dividend, raising to $0.25 per share in 2023. We continue to target returning approximately 125% of free cash flow to shareholders between 2022 and 2024, and our broader capital allocation priorities remain unchanged. Our fortress balance sheet is a tremendous competitive advantage in this environment that enables us to invest organically in our business, accelerate our strategic objectives with disciplined inorganic investments, while still delivering healthy capital return to shareholders.

In the current macro environment, we believe it is prudent to balance the timing and magnitude of share repurchases with our capital needs from quarter-to-quarter. Our first priority is offsetting dilution, and we expect to be opportunistic with regard to larger repurchases. In closing, our Q4 results capped off a resilient year for eBay in 2022 as we made meaningful progress towards our long-term strategy, despite significant macro uncertainty. We exceeded consensus expectations for GMV, revenue and EPS during Q4. Our focused categories continue to outperform and are driving underlying growth in our business. Our advertising revenue continues to meaningfully outpace volume growth, while payment initiatives continue to scale in line with expectations.

We achieved a full year operating margin of 30% despite contending with a more challenging macro environment than we anticipated at the beginning of the year. We generated nearly $2.2 billion in free cash flow in 2022 and returned over $3.6 billion to shareholders through repurchases and dividends, equating to nearly 170% of our free cash flow. I’m proud that eBay continues to pave the way as an industry leader, enabling economic empowerment and sustainability to our platform. We once again achieved carbon neutrality in 2022 and remain committed to reducing 90% of our carbon emissions from our operations by 2030. I’m incredibly appreciative of our team’s focus and execution during 2022, as we delivered on a number of our core strategic objectives, despite navigating uncertain macro environment.

I’m confident our investments in 2022 enabled us to exit the year stronger than when we entered it, keeping us on a path to sustainable long-term growth. With that, Jamie and I will now take your questions.

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Q&A Session

Operator: Your first question is from the line of Colin Sebastian with Baird. Your line is open.

Colin Sebastian: Great. Thanks, and good afternoon, guys. A couple of questions for me. Maybe, Jamie, at a high level, first off, you seem generally satisfied with the strategic focus on enthusiast buyers and the non-new-in-season segment that you outlined a year ago. But I wonder, if you could talk about any ways in which you’d say this strategy has evolved through the year as you plan for the next couple of years? Some of that may be more nuanced, but curious on your views there. And then, Steve, I just wanted to drill down a little bit more on the 2023 outlook. I think we understand the GMV perspective and some of the margin impacts. On the take rate, should we assume that, that gap between GMV and revenue growth continues to grow, given the increasing contribution of advertising and payments through the year? Thank you.

Jamie Iannone: Yes. So first on the kind of where we are, we’re pleased with the progress that we’re seeing. So if you think about focused categories outgrowing the rest of the business by seven points, the double-digit change that we’ve seen in customer satisfaction, we took on our largest focus category at the end of last year with parts and accessories, and we’re seeing that return to market share growth, which is great. It’s a very large business. We outlined that at Investor Day being over $10 billion. And the shift that we made to non-new-in-season, I think, is really helping us, especially in these challenging economic times. All the work we did and refurbished to build that as a strong category on eBay. Now we’re seeing — we had our largest week ever during Cyber Week.

And during challenging economic times, people really turn to value. And I think we’re leaning into where the consumer is headed. I’d point you to the re-commerce Report, which we put out yesterday, which said 90% of the respondents bought re-commerce in 2022 and Gen Z, 64% of them said it was because of the financial value that’s provided. So, we think we’re right in there. We’re going to continue to enhance and build on that strategy. We’re doing a lot of additional work in artificial intelligence and bringing that not only to our focused categories, but also to our horizontal businesses. I talk about the work that we did in search as one example of that, the work that we did in advertising with the merchandising there as a second one. And then you see us continuing to expand what we’re doing on the horizontal side.

I’d just end with eBay International Shipping. Cross-border trade is now one in five transactions on eBay. It’s one of the unique value propositions that we have, especially for the individual consumer. And we’re making that a whole lot easier with what we’re doing with eBay International Shipping, and that’s another kind of huge opportunity across the board on the horizontal side. So over the course of the year, I’ll get into more and more details about it, but we feel really good about the vector that we’re on. Steve, do you want to take the second part?

Steve Priest: Yes. Hi, good afternoon, Colin. With regard to as payments, versus say is really pleased with the execution from the teams did a tremendous job and we’re tracking well towards the direction that we gave at Investor Day in terms of our medium-term targets in terms of payments and ads. We don’t give any specific guidance on the call associated with that in payments for ’23, but you should expect them to continue to outpace GMV, as they did in 2022. So, great execution from the teams and pleased with where we are.

Colin Sebastian: Great. Thank you.

Operator: Your next question is from the line of Tom Champion with Piper Sandler. Your line is open.