Selim Freiha - ‎VP, IR Devin Wenig - President & CEO Scott Schenkel - CFO

Paul Bieber - Credit Suisse Ross Sandler - Barclays Justin Post - Bank of America Merrill Lynch Mark May - Citi Brian Fitzgerald - Jefferies Dan Salmon - BMO Capital Markets Heath Terry - Goldman Sachs Ken Sena - Wells Fargo Securities

Good day, ladies and gentlemen, and thank you for your patience. You've joined the eBay Q4 2017 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Vice President of Investor Relations, Mr. Selim Freiha. Sir, you may begin.

Thank you, Latif. Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the fourth quarter of 2017. Joining me today on the call are Devin Wenig, our President and Chief Executive Officer; and Scott Schenkel, our Chief Financial Officer. We're providing a slide presentation to accompany Scott's commentary during the call. All revenue and GMV growth rates mentioned in Devin and Scott's remarks represent FX-neutral year-over-year comparisons unless they indicate otherwise. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the Investor Relations section of the eBay website at investors.ebayinc.com. You can visit our Investor Relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for 90 days through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of eBay Inc. and its consolidated subsidiaries, including expected financial results for the first quarter and full year 2018 and the future growth in our business. Our actual results may differ materially from those discussed in this call 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 annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations website at investors.ebayinc.com, or the SEC's website at www.sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of January 31, 2018, and we do not intend and undertake no duty to update this information. With that, let me turn the call over to Devin.

Thanks, Selim, and good afternoon, everyone. Quarter four was a record quarter for us, highlighted by the fifth straight quarter of volume acceleration in our U.S. Marketplace, flow strong growth had stepped up. Overall total GMV grew 10% on an as-reported basis and 7% on an FX-neutral basis. Total revenue was up 7% and active buyers grew 5%, ending the year at $170 million. GMV and revenue on our Marketplace platform grew at 6%. Our StubHub platform grew volume at 15%, and our Classified platform grew revenue at 13%. Finally, we repurchased $922 million of our own shares, taking advantage of a share price that we do not believe reflects the long-term value of our company. In our Marketplace platform, volume growth accelerated by one point in the U.S, while international growth decelerated three points, driven in part by the timing and impact of Korean Thanksgiving and slower export trade due to the stronger British pound in Europe. eBay was again one of the top holiday shopping destinations for consumers around the world and performance this quarter was driven by strong U.S. consumer spending and good execution on our key initiatives. Our new product rollouts, which leverage our structured data foundation got good initial traction in Q4. Over 150,000 customers a day used guaranteed delivery while searching on eBay in U.S. during the holiday season. Group listings which is the first-time buyers are seeing a product-based commerce experience on eBay, performed well and set the foundation for the next set of changes we'll make this year. And finally, we began to ramp eBay Authenticate where we're already seeing inventory scaling nicely and much higher conversion on like-for-like items. We continue to invest in brand advertising with a coordinated holiday activation across all of our key markets. Significantly changing consumer consideration is a long-term effort, and we plan to invest more heavily in our brand in 2018. Lastly, our first-party advertising revenue continues to pick up momentum. Nearly 160,000 sellers use promoted listings to advertise over 100 million items in the quarter, driving over 50% sequential revenue growth in Q4. The rapid growth of promoted listings is enabling us to shift away from non-strategic third-party advertising. Our StubHub platform had a good Q4 with a 13-point GMV growth acceleration, driven by a strong concert environment and good MLB playoff and college football performances. While we don't expect growth in 2018 to be at the same level as Q4 due to the ongoing ticketing landscape challenges we discussed last quarter, StubHub continues to be the world's favorite destination for fans looking to buy event tickets. And Classifieds continues to enjoy robust vibrancy and double-digit growth with Mobila and eBay Kleinanzeigen continuing to be standout performers. Now taking a step back and putting Q4 in the context of the past two and half years, we've made great progress against our key strategic priorities to drive the best choice, the most relevance and a powerful selling platform while sharpening the eBay brand. This strategy is enabling us to transform the eBay experience and accelerate the growth of our business. We significantly simplified and improved our customer experience and built equity in our brand. We built a strong foundation of structured data with the majority of our listings now tied to our product catalog and 14% of all traffic landing on catalog-enabled experiences and we've done this while accelerating growth in our core eBay platform by nearly three points. Looking to 2018, our strategy remains unchanged. We intend to raise the bar on our customer experience and again accelerate growth despite tougher comps. We'll focus on key areas of our user experience, including search, delivery and returns, customer service and payments, while continually planting the seeds of technology innovation. Let me share a few examples of our plans. We will take the next step in transforming our user experience, including on eBay search, by launching a full product-based commerce experience for relevant inventory. This experience will leverage our structured data catalog in a more holistic way than we've previously done. We'll do this while also focusing on our overall search experience using data and AI to improve our recall and relevance. We'll continue to shrink delivery times by expanding Guaranteed Delivery and work with our sellers to provide retail standard experiences for consumers. This will include enabling our vastly simplified returns process for buyers and sellers. Our technology innovation continues to focus on emerging platforms such as artificial intelligence, voice and image technology, virtual and augmented reality and distributed commerce. I've often said that eBay runs on AI, powering many aspects of our buying and selling experience. In 2018, we'll focus our AI capabilities on computer vision, personalization, search and dynamic pricing capabilities for our sellers. AR, VR and mixed reality are becoming viable platforms for development. As this tech becomes more consumer-friendly and accessible, eBay will take advantage of their unique capabilities, delivering immersive and engaging buying and selling experiences. And there is a step-change opportunity to remove friction from the user experience by allowing users to interact with eBay by simply typing a message or using their voice to engage a digital assistant. In 2018, we plan on taking the first step towards unifying conversational commerce with the core eBay shopping experience, providing seamless voice or text assistance when needed within our desktop and app platforms. 2018 will be a year of significant focus on customer service. In 2017, we on-shored a significant number of support roles, and that trend will continue this year, enabling us to provide top-tier life-support to a broader set of our customer base. And for customers looking for a fast self-service, we're rolling out brand-new AI-enabled mobile and desktop pages to address their service requests. And finally, we anticipate that our digital assistant will have the capability of directly handling certain service requests instantly and without human intervention. Finally, let me touch on our strategy and approach for payments on eBay. We've been looking closely at the customer payments experience and the economics under our existing PayPal relationship. After careful consideration, we believe that we can offer a more seamless experience while giving buyers and sellers more choice for payment and payout options. At the same time, we believe we can capture significantly better economics while reducing overall selling costs. Therefore, we have made the decision to intermediate payments on eBay. We have already begun building this capability and we'll move as quickly as we can under the terms of our operating agreement with PayPal. I'm excited to announce a deal with Adyen, a leading global payment processor to be our primary partner in this effort. We are looking forward to working with Adyen, who we believe are uniquely qualified to support us in this transition. The power payment processing for a number of the world's leading global marketplaces and bring to our partnership a broad global footprint with a flexible and scalable technology platform. We've also aligned on terms for a new commercial agreement with PayPal to include them as a way to pay at checkout under our intermediated payment model. PayPal has been a great partner for eBay and we look forward to a continued strong partnership with them going forward. We've built a world-class team to execute on this payment opportunity, including senior executives from companies such as PayPal, Alipay and Amazon Payments. In 2021, we expect to have transitioned a majority of our market Marketplace customers to our new payment experience. In summary, we've made good progress in 2017, delivering fundamental customer improvements while accelerating growth and improving the operating performance of the business. We enter 2018 with a healthier ecosystem and on a path for further acceleration this year. Looking forward to a year of significant progress to the benefit of our global community, of buyers and sellers, shareholders and employees. Now let me turn it over to Scott to provide more details on our quarterly financials and our 2018 guidance.

Thanks, Devin. Let's begin with Q4 financials, starting on slide four of the earnings presentation. Please note that my commentary on our 2017 financial performance is based on revenue accounting standards in place as of 2017 year-end. In Q4, we delivered GMV of $24.4 billion, increasing 10% on an as-reported basis and 7% on an FX-neutral basis. We generated $2.6 billion of total revenue, $0.59 of non-GAAP EPS, $796 million in free cash flow, and we repurchased $920 million -- $922 million of our stock. Let's start with Q4 active buyers on slide five. In the quarter, trailing 12-month growth was 5% year-over-year, resulting in 170 million active buyers. Active buyer growth in our Marketplace platform decelerated slightly, offset by strength at StubHub. The extended Thanksgiving holiday in Korea was the primary driver of the Marketplace growth deceleration. On slide six, in Q4, we enabled $24.4 billion of GMV, up 7%. By geography, the U.S. generated $9.9 billion of GMV, up 8%, accelerating three points versus the prior quarter. International delivered 14.6 billion of GMV, up 6%, down three points versus the prior quarter. Moving to revenue. We generated net revenues of $2.6 billion, up 7% organically, consistent with the prior quarter. We delivered $2 billion of transaction revenue, up 7%, and $578 million of Marketing Services & Other revenue, up 6%. Transitioning to our Marketplace platform on slide eight. Q4 GMV grew 6%, with U.S. GMV accelerating by one point to 7%, and international GMV growing 6%, a three-point deceleration. International growth was impacted by the extended Korean Thanksgiving holiday, slowing U.K. export growth due to a stronger pound and softer consumer spending in Germany. Underlying these trends, we saw our B2C segment grow 6%, relatively constant with prior quarters. C2C grew 7% year-over-year, another quarter of good growth, aided by our ongoing efforts to simplify consumer selling and drive engagement. Total Marketplace revenue was $2.1 billion, up 6% year-over-year. Transaction revenue grew 7%, driven by volume growth and the impact of our Q2 pricing changes, partially offset by heavier promotional spend in the holiday season. Marketing Services & Other revenue grew 3%, decelerating three points versus Q3, as we continued to shift our advertising efforts away from nonstrategic third-party ad placements and towards our first-party promoted listings product. This will favor transaction revenue putting ongoing pressure on MS&O revenue growth. For the full year, the Marketplace platform generated $84 billion of GMV, growing 6%, a 1.5 points faster than 2016 and $7.6 billion in revenue, also up 6%, 2 points faster than the prior year. Moving to slide nine. StubHub GMV grew 15%, accelerating 13 points from Q3 due to a stronger-than-expected event landscape, led by concerts, a great World Series and strong college football matchups. StubHub revenue grew 10%, up 5 points versus Q3, driven by volume, offset by a lower take rate and seasonal incentives to take advantage of a strong market opportunity. In 2017, StubHub grew GMV 5% to $4.5 billion and delivered $1 billion in revenue, growing 9% year-over-year. Moving to slide 10, our Classifieds platform continues to innovate and serve more than 250 million monthly unique visitors. In Q4, Classified had another strong quarter, up 13% revenue growth. We continue to see good vertical performance and strength in advertising revenue. For the full year, Classifieds generated $897 million of revenue, up 12%. Turning to slide 11 and major cost drivers. In Q4, we delivered non-GAAP operating margin of 31%, which is down 100 basis points versus last year, 40 basis points of which was due to the impact of foreign exchange. Cost of revenue increased slightly year-over-year as a percentage of revenue, driven primarily by our first-party inventory program in Korea. Q4 sales and marketing expense was up 100 basis points versus the prior year, driven primarily by the increased investment in our ongoing brand campaign. Product development was down slightly year-over-year due to leverage, partially offset by increased investment in product. G&A expense was down 50 basis points as we delivered further operating leverage. For the year, operating margin was 29.5%, down 160 basis points. Foreign exchange impacted full year margin by 70 basis points, and the remaining impact was driven by our investments in Marketplace product and marketing initiatives and growth of our first-party inventory program in Korea. Turning to EPS on slide 12. In Q4, we delivered $0.59 in non-GAAP EPS, up 9%, driven by revenue growth, the net benefit of share repurchases and a lower tax rate, offset by the impact of foreign exchange. Moving to Q4 GAAP EPS. We had three significant financial impacts related to the passage of recent U.S. tax reforms. We are recording a $1.9 billion tax charge related to the repatriation of our foreign earnings. $1.4 billion of this amount will be paid over eight years, with the first two installments to be paid in 2018. The additional $0.5 billion represents foreign withholding taxes that will be paid upon repatriation of those earnings. This tax charge is largely offset by the reversal of our $1.8 billion deferred tax liability established primarily in 2014 in anticipation of repatriating foreign earnings. We also are recording a $3 billion deferred tax liability to address other areas of U.S. tax reform, primarily a global minimum tax that will now be applicable to our foreign earnings. This tax will impact our ongoing tax rate and cash taxes. We have recorded these amounts provisionally using reasonable estimates and the amounts may change in 2018. I will cover the impact of these changes on our go-forward tax rate in our 2018 guidance discussion. As a result of these charges in Q4, our GAAP EPS was negative $2.51, down $7.82 versus last year. The decrease in GAAP EPS was driven by the aforementioned tax impacts and the lapping of prior year non-cash GAAP income tax benefit of approximately $4.6 billion related to our legal entity restructuring at the time. As always, you can find the detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation. On slide 13, in Q4, we generated $796 million of free cash flow. Full year free cash flow was $2.5 billion, above our guidance range due to the timing of certain cash tax payments and capital expenditures. Turning to slide 14, we ended the quarter with cash, cash equivalents and non-equity investments of $11.3 billion, with $2.2 billion located in the U.S. In Q4, we repurchased 24.9 million shares at an average price of $36.99 per share, amounting to $922 million in total. This brings our repurchases for the year to $2.7 billion. Repurchases and separation are now $6.8 billion, which is approximately 19% of shares outstanding at an average price of $29.54. We ended the year with $1.7 billion of share repurchase authorization remaining. In light of U.S. tax reform, I would like to review our capital allocation policy, which we continue to believe drive significant value for our customers, shareholders and employees. We aim to preserve financial flexibility in order to have the resources to execute our strategy and drive long-term value creation. We will continue to invest in attractive opportunities to drive organic growth while balancing profitability over the long-term even if those investments are dilutive in the near term. We will supplement our organic growth plans with disciplined acquisitions and investments to improve our competitiveness in a rapidly evolving environment. Our M&A strategy continues to center on our geographic footprint, vertical expansion and tech and talent acquisitions. We continue to optimize our financial flexibility, access to debt and cost of capital. We believe that our current rating of BBB+ maintains a practical flexibility and aim to maintain this rating as we continue to execute on our capital allocation plans. Finally, we are committed to providing meaningful returns for our shareholders, and we believe that current valuations, share repurchases continue to be the optimal vehicle for capital return. While we will always adjust to future events, we expect to accelerate our return of capital to shareholders to approximately $3.5 billion per year over the next two years in the form of share repurchases inclusive of dilution offset. Our Board has approved a new $6 billion share repurchase authorization to enable us to execute on this plan, and we have already returned $750 million in Q1 through an accelerated share repurchase. We will continually evaluate our capital allocation strategy as we move forward, ensuring that we drive optimal value on behalf of our shareholders. Before turning to guidance, I'd like to highlight some key topics relevant to our business in 2018. I want to spend a moment to discuss the impact of a new revenue standard which we will adopt beginning with our Q1 results. There are several impacts of the new standard on our financial reporting. The primary change relates to clearly defining who our customer is and realigning how we record incentive spend based on this definition. There is also an immaterial change in the timing of revenue recognition for certain fees on our Marketplace and StubHub platforms. Our sellers are the main source of our Marketplace revenue, certain incentives solely for our buyers such as coupons and rewards, will now be recorded as sales and marketing expense instead of contra revenue going forward. The impact of this change would've amounted to $363 million and $322 million for 2017 and 2016, respectively, and our 2017 operating margin would've been 28.4% under the new standard. Ultimately, this is simply a change in how we will present our financials, resulting in increased revenue, increased expenses and a lower operating margin with no impact to operating income. Please refer to the exhibit on our press release and our website financials for more details and our historical reconciliation of 2016 and 2017 under the new revenue standard to help our investors understand our 2018 business outlook and future growth comparisons. Now I'd like to talk about payments. As Devin discussed, we believe that there is a great opportunity to provide a better buyer experience to give our sellers more choices at better value and to capture better economics. This will be a multiyear effort, but we believe it is important to provide context today on the future economic opportunity. As a payment intermediator on the eBay Marketplace, we will be responsible for collecting funds from buyers and instructing our payment processor to disburse funds to sellers. Currently, this is done via our relationship with PayPal. In the new intermediation model, we will simplify our relationship with sellers and plan to charge them a single fee for our Marketplace and payment services. When doing so, we expect to recognize the payment fees as revenue via an increase in our take rate and record the cost of payment processing and other related fees. When we reach a steady state, with the majority of our volume transition to this intermediated model, we would expect annualized incremental revenue of more than $2 billion. This estimate includes an expectation that we will take steps to lower the cost of selling on eBay via a lower all-in take rate. Delivering on this revenue opportunity requires ongoing operational costs in areas such as product and technology, trust, risk, customer service and payment processing fees. Factoring in these costs, we believe the annualized incremental operating income could be $0.5 billion. While this isn't completely new business -- while this isn't a completely new business for us, given that we already act as a payment intermediary on other eBay platforms, it is important to keep in mind that this is a complex effort and may face delays along the way. However, we are moving quickly and are excited about the potential long-term benefits this creates for our ecosystem. We have already begun investing in our payment strategy, well ahead of recognizing any material new income streams. For 2018, we expect this investment to cost us between $0.03 and $0.05 in EPS, which is factored into our guidance, and the investment is likely to increase in 2019. As a reminder, our operating agreement with PayPal remains in place until mid-2020, and our ability to offset the expense related to this investment is limited until the expiration of the existing agreement. We look forward to working with Adyen as our new partner and with PayPal in a new capacity to deliver on this significant opportunity. Moving to full year guidance on slide 15. We are projecting 2018 revenue between $10.9 billion and $11.1 billion, growing 7% to 9% on an FX neutral basis and 10% to 12% on an as reported basis. The midpoint of our projected growth assumes another point of GMV acceleration in our Marketplace platform. As discussed by Devin, we will continue to drive new experiences on our platform of structured data, the most impactful of which are helping buyers find the best choice and most relevance through product-based experiences and improved search and helping our sellers drive velocity through improved tools and workflows. We expect to deliver modest full year acceleration in StubHub GMV with monetization levels on par with Q4. And Classified should continue to see stable double-digit growth. We expect operating margin of 27% to 29% for the year, which at the midpoint, is down 40 basis points from 2017, normalizing for the new accounting standard mentioned earlier. This includes our investment to build out payment intermediation and continued investments in our brand and platform, offset by leverage in functional areas. We expect non-GAAP effective tax rate in the range of 19% to 22%. We currently expect that U.S. tax reform will benefit our ongoing tax rate by approximately one point. This rate is positively impacted by the reduction of U.S. corporate tax rate from 35% to 21%, but that benefit is largely offset by the global minimum tax and other foreign taxes that can no longer be credited against our U.S. tax liability. Our guidance range is slightly wider than normal driven by uncertainty and how all elements of U.S. tax reform will impact us going forward. We are projecting non-GAAP EPS of $2.25 to $2. 30 per share, up 12% to 15% as reported versus last year. This includes the impact of continued top line growth, the ongoing benefit of our share repurchase program and a weaker U.S. dollar, partially offset by our investments in payment intermediation. We expect free cash flow of $2.1 billion to $2.3 billion. This is lower than 2017 due to approximately $300 million in cash taxes related to repatriation and assumes capital expenditures in the range of 6% to 8% of revenue. Full year GAAP EPS is projected to be $1.65 to $1.75 per share. GAAP EPS is impacted by the same drivers as non-GAAP EPS in addition to the amortization of intangibles, stock-based compensation and the amortization of deferred tax assets and liabilities. Turning to Q1 guidance on slide 16. For Q1, we are projecting revenue of between $2.57 billion and $2.61 billion, growing 7% to 9% per year. We expect non-GAAP EPS of $0.52 to $0.54 per share, representing 7% to 11% growth. EPS growth is driven primarily by revenue growth and the net benefit of our share repurchase program. We're expecting GAAP EPS in the range of $0.37 to $0.41 per share in Q1. In summary, 2017 was a year where we delivered on our commitments and saw our strategy translate into Marketplace acceleration of GMV and revenue growth. U.S. Marketplace GMV has accelerated from 1% to 7% over the past five quarters during a period of unprecedented competition, while our international Marketplace delivered another year of 7% GMV growth. Classifieds continued to grow at the double digits, and StubHub ended the year well. For the year, we delivered 6% EPS growth in the face of five points of foreign exchange headwinds in addition to our incremental investments. We have remained disciplined capital allocators, returning $2.7 billion to shareholders in the form of share repurchases in the last year alone and totaling $6.8 billion repurchased in separation. We executed several deals to further tech and talent expansion. And in Q3, we optimized our strategy in India by taking an ownership interest in Flipkart in exchange for our eBay India business and a $500 million cash investment. Heading into 2018, we will stay consistent in our strategy, continuing to improve our user experiences while delivering profitable growth and strong capital return to our shareholders. And now we'd be happy to answer your questions. Operator?

Thank you, sir. [Operator Instructions] Our first question comes from the line of Paul Bieber of Credit Suisse. Your line is open.

Hello, thank you for taking my question. As you become the merchant of record, how much of the value will you pass along to sellers versus creating incremental revenue for eBay? And then secondly, what are some of the initiatives that give you confidence that growth can actually accelerate in 2018? Are you most pleased by SEO, the conversion rates impact on marketing? If you could just give some color along those lines, that will be very helpful. Thank you.

Sure. First of all, on payments, I don't -- just a technical detail. We have not made the decision to become a merchant of record. There are many ways that we can become a payment intermediary. MLR is one of them. That's a decision yet to be made, and it may actually change depending on the geography in which we operate in. But vis-à-vis sellers, we're fairly confident that we can lower the overall selling cost on eBay. We have not yet made final decisions, and it will be a process that will take some time to publicize our pricing to sellers. But what I want sellers to hear is that, number one, we have their experience in mind, we want to give them flexibility, increased payout options, and we want to lower their costs. So that was very much front and center in our mind when we made this very consequential decision. On acceleration in '18, there are quite a few things. We've built a foundation of structured data that now has tentacles into almost everything we do. We have rolled out quite a significant number of new product experiences, like Guaranteed Delivery, Authentication and a product-based commerce experience, and we're going to scale those in 2018. So, when we see -- and part of the impact that these initiatives are making, when we see the trajectory that our business is on, we're confident that we can continue to deliver improvement in the business. I'll go back and say, over 2.5 years, 2.5 years ago, when we started this journey, we said that we were going to address the core customer pain points and issues directly and head on. We said it wasn't going to be easy. We said that you could expect steady improvement and a strong return of capital along the way. We've done exactly that. We've seen the customer experience improve. We've seen the foundation of the house being short up. We've seen acceleration in the growth of the business, and we've been aggressive in returning capital to shareholders. You can expect more of that in 2018.

Thank you.

Thank you. Our next question comes from the line of Ross Sandler of Barclays. Your line is open.

Great guys. Just a follow-up on payments. So, I guess can you just walk us through -- we understand the $0.03 to $0.05 impact on building out your own intermediation in '18, but the PayPal agreement, I think you can do 5% of GMV under this new approach in '18. What happened beyond '18? And it looks like you extended the agreement to 2023. So how do you -- how much do you expect to cut over in terms of GMV over the next, call it, five years? And does that $500 million of OI that you called out materialize kind of at the end of this time period or how long until that starts to materialize? Thank you.

Yes, let me just be first, crystal clear, Ross. The operating agreement has not been extended and it will not be extended. This is a different agreement, which is a commercial agreement, which will run coterminous with the operating agreement and extend to three years beyond it. It is a different agreement which is a simple agreement to keep PayPal on as a form of payment in the eBay Marketplace. All the other terms of the operating agreement will end in June of 2020. Under that agreement, which is a public agreement that you've obviously read, we will move 5% in this year, we have the right to, and up to 10% in '19. And then as we said, in June of 2020, at some date beyond June of 2020, and we're not announcing a date today, we will move the majority of our customers. And it is currently anticipated that this will not be a kind of slow roll customer by customer. Beyond a certain date, which, over due course, we will announce, you will not be able to be on eBay selling or buying without this intermediated relationship with us. So, we do intend -- we will, or I think we have published a blog from our corporate site which gives more detail on the migration, the benefits to sellers, the timing of this migration, as much detail as we're prepared to give, we put out now, and it can be accessed by our community. But I do anticipate that this will be a small amount of GMV this year with significant costs, as you heard from Scott, more GMV next year, but still relatively small with even more significant costs. And then in 2020 or some date beyond that, we'll move the entire base over to this new model. Scott, I don't know if you want to add anything on the economics?

No, I think that's well said. I don't if there's any follow-up question, Ross.

Yes, so just to be clear then. Once you move everything over, that's when that $500 million of OI savings -- of OI accretion starts to materialize or kind of halfway through 2020?

That's right.

Okay. Thank you.

Thank you. Our next question comes from the line of Justin Post of Bank of America Merrill Lynch. Your line is open.

Great. One more on payments. Thanks for taking my question. I guess the first question is, why this route versus extending? Are you worried about maybe some disruption as you migrate sellers or some anticipation ahead of the migration date? Why did you choose this route? And then secondly, once you're done, I think your take rates are already quite a bit below Amazon, but they include payments over there. How do you think your take rates will compare to, say, industry averages or Amazon's third-party market? Thank you.

Yeah, let me -- on the first part, let me just also say, this is not new to us. Today, we intermediate over 10 billion of volume on our Marketplace. So, we know how to do this and we already do, do it. And we have a very stark comparison inside our own business of what life is like in an intermediated model and then the existing model. First, PayPal is a great partner; this has nothing to do with PayPal's capability or the degree of our partnership. It has everything to do with a relentless focus on the customer experience. We are confident that we can deliver a materially better customer experience for buyers and sellers by moving to this model, and we've seen it in our own business in the parts of it where we already do this. On the take rate, as you heard from Scott, there are a lot of economics at stake here. We're going to move a lot of revenue, and we're pretty confident that we can lower the cost and we're pretty confident that the all-in costs will be below our competitors when all this is said and done.

Great. Thank you. And maybe one follow-up, U.S. GMV really accelerated in the quarter. Do you think that's maybe one or two drivers there? Is that a leading indicator of maybe what you hope to achieve internationally? Thank you.

Of course, it's what we hope to achieve internationally, and I -- we've said in prior quarters, the U. S. always gets a lot of our product innovation first. It often gets the most significant changes that we make earliest and strongest and then we adopt it for other markets. So of course, there are things that are coming to other markets at various paces. I would not get over our skis and say it's all going to go right in quickly. There are different issues in different markets, but we do anticipate something like Guaranteed Delivery coming to other markets. We do anticipate Authentication coming to other markets. We do anticipate a number of the really, what I said is, you can see it from space. You certainly can in the U.S. business. I'm not sure yet you can see it from space internationally. The hope is that you will as we go through 2018.

Okay. Thank you.

Thank you. Our next question comes from the line of Mark May of Citi. Your line is open.

Thanks for taking my questions. And again, also focused on payments here. One is, if you're already intermediating 10 billion in GMV, I guess can you shed some light on, I think, your guidance range as an incremental of $30 million to $50 million in investment as you begin this ramp up? What exactly then do you need to invest in if you're already kind of doing this? And how material – how much does that get you towards where you need to be in terms of thinking about any additional investment, incremental investment beyond what you have to make this year? And then secondly, I think when you referred to the sort of fully transitioned benefits of 2 billion and 500 million, you're kind of referring to 2021, it sounds like that you could actually roll this out before the holiday season in 2020. So, am I right in thinking that you'll start to see some pretty nice benefit as early as the second half seasonally big part of your year in 2020?

Mark, this is Scott, let me take those two. On the costs, the $0.03 to $0.05 as you called out and we called out for the year, I think right now, it's about building out the intermediation capability on -- and the associated customer, both seller and buyer flows, to make them a lot better, and there's a lot of background to that. The intermediated model that we spoke about, that kind of $1 billion on it, it's really not on the core eBay business. So, it's not like we're dragging and dropping code from 1 country in the eBay core business to another. This is building out the core eBay marketplace payment intermediation capability. And that's going to take product and technology. It's also going to start to require us to invest in areas like trust and risk, customer service, to be able to prepare ourselves to take on these volumes and do it in a compliant and safe way. To your second question, in terms of the scale, let me kind of lay out the $2 billion and the $0.5 billion in a little bit more detail just so we're clear. To your question, here's -- to start with, we're gated for the next 2.5 years at 5% and then 10%. And so how quickly we can then scale from there is going to be partially determined on our capabilities and partially determined on how quickly we can scale with our sellers and our buyers and role that globally. But our base assumption is that if you continue to grow the core marketplace platform that the new payment intermediation model applies to and you assume a migration schedule that scales rapidly after the operating agreement expires mid-2020, you start to talk about a pretty high penetration rate with intermediated model as you head into the latter part of 2020 and 2021. So, when I talk about a fully scaled kind of stable state, you start to talk about the latter part of 2020, 2021, even into 2022. And the $2 billion, to be clear, is then taking that new intermediated GMV, applying a take rate that will be discounted versus the existing PayPal rate and you quickly get to $2 billion or more of revenue. When we size the costs associated with that, both the 19 that we've already framed up -- sorry, the 18 that we already framed up as well as the 19 that we're thinking about, the first couple of years, there will be some burn associated with that. That's already incorporated into our guidance obviously for this year, but when you start to think about the associated cost, not only to get this up and running, but the ongoing cost that are going to be associated with Adyen and with PayPal on the new model, we start to look at about $0.5 billion at scale when we're scaled up for the future.

Thanks.

Thank you. Our next question comes from the line of Brian Fitzgerald of Jefferies. Your line is open.

Thanks. Devin, you mentioned 14% of traffic landing on catalog listings, where can we get that longer-term? If the underlying cadence behind that path to higher penetration inflecting, is it pretty consistent? And then maybe along similar lines, as you get structured data deeper into the consumer experience, do you -- what do you see in terms of conversion improvement? Is it accelerating? Is it pretty consistent? Thanks.

Yeah, thanks. Let me first say that I'm not sure that this is going to end up being the right metric going forward in part because structured data is now touching so many different things in so many different ways that what we tried to do over the last year or actually more is try to just provide that as some leading indicator of structured data's progress. We're going to the degree to evaluate that because the truth is, is that 14% is a little bit misleading in the sense that you would imply that only 14% is the impact of structured data. That's not really true. In fact, structured data is making an impact in many more areas where it's not formerly a page and traffic as we define it, but yet, it's adding value in areas like the guidance that we give to sellers and a bunch of other areas. I would say even with that said, as we move to this sort of end-to-end experience that I mentioned in my prepared remarks, we're going to see the core experience move to product base much more significantly. I'd expect that you'll see whole categories move to the default being searches on eBay or product base, discovering on eBay as product base. And the reason that we have the confidence to that is, we do like what we see in terms of improvement and conversion rates. We mentioned in the past that at the edge of those gains are double digit, they continue to be. As we get to the core, we're beginning to see improvements and we believe that we can deliver conversion gains as we move this product experience from the edge to the center. And that's what gives us the confidence to move faster. So, we really like structured data in many ways as the foundation of everything we've done in this strategy over the last two and half years. It will continue to be. The 14% is a very narrow metric which we provided at the time to give investors clarity about our progress, but I don't think it accurately represents the overall impact that structured data is having and will have on the ecosystem as we go forward.

Yeah, the way I would phrase that, Brian, is, and we've talked about this with many of you this way, that – those percentages, whether it was on SEO traffic or SEM traffic or catalog penetration on structured data were inputs. And we're, increasingly, what Devin is saying in a different way is focused on outputs. And although is the GMV or B associated with transactions happening on eBay starting to see the benefits and are the experiences based on those structured data's capabilities.

Thanks, guys.

Yep.

Thank you. Our next question comes from Dan Salmon of BMO Capital Markets. Your line is open.

Good afternoon, everyone. Maybe, first, just on promoted listings, Devin, you mentioned the acceleration in the quarter, any color on drivers there, wider availability by country, by category, add a little pricing, combination of all other factors? And then just second, on your branding campaign, looked like it rolled out quite nicely in the latter parts of the year here with, if I may, sort of a theme around bringing a bit of a positive vibe back to the brand and a little bit of differentiation. Is there an opportunity there to get a little bit more tactical and educate all of those dormant potential users who may still think of eBay as its legacy as a C2C auction site which is clearly isn't anymore? Thanks.

Thanks for both questions. On promoted listings, yeah, first of all, we're delighted. This is probably the fastest growing new business, for lack of a better term, launched in eBay in years. And as I said, 50% sequential revenue growth quarter-on-quarter, that is quite significant. Most of the driver has been surface area. We are increasing the surface area of availability to sellers. We're increasing the surface area of the exposure of promoted listing to buyers. So, a lot of it is just we have started to make sure we tested our way in, and now we're on a very steep part of the curve, we're opening the aperture so that more and more sellers can use it and they should and more and more buyers get exposure to those items and they are converting. So, we are very pleased that we are now in that flywheel, and the flywheel seems to be turning very well. On the brand, I think your supposition is right on. So, step one was, we now have a unified brand around the world. Arguably, the first time in eBay's history. The brand was very fragmented, very different depending on the country you would show up in or the region. We have a unified brand expression now everywhere in the world, and we're managing it as one of the most important assets of our business with very -- very much with rigor and care. Step one on the messages we're delivering is vibrancy and getting a bit of the fun back to eBay and getting differentiated of eBay, but you can expect as this rolls forward for us to punch harder on functional messages. We don't want it to be dry, but we do want to educate people about what we do today. And what we do today is not all long-term, longtail items, it's not all options. In fact, that's a distinct minority. So, you'll see the overall brand expression remains constant, but the message has evolved. And the message evolution will punch much harder on how our -- what do you do today and why eBay. I keep asking the question of the brand, why eBay? We will answer that question definitively on selection, value, convenience where we believe we actually have a phenomenal customer proposition, just not enough people know about it.

Hey, Dan, I would supplement Devin's remark on promoted listings two points. First, when Devin talks about surface area, the other thing worth mentioning is that we also started offering these on mobile. And so, it's been out there a little bit, but it's started to scale. And so, we started to really increase the surface area, to Devin's point. The other way to think about it, I alluded to this in my script, but the shift in our strategy has really put pressure on MS&O revenue growth, and the growth would've been for MS&O, in the mid-teens if promoted listings were actually part of MS&O. The reason we don't obviously put in, in MS&O is because it's more closely related to a transaction take rate model. But that aside, it just gives you -- starts to give you an idea of how this is starting to scale for us.

Great. Thank you both.

Thank you. Our next question comes from the line of Heath Terry of Goldman Sachs. Your line is open.

Hi, thanks. Devin, maybe to step back a little bit from all the talk around payments, the acceleration that we saw particularly in StubHub, but also in the U.S. GMV business, can you help breakdown for us a little bit of what drove that this quarter? And sort of how, particularly as it relates to the technology and marketing investments that you've been making around the core product, and then how you expect those benefits in Q4 to sort of flow through into the current quarter year?

Yes, I'd separate -- thanks, Heath. I'd separate eBay from StubHub for a second. So, let's talk about eBay first. I'm very confident that it's hard to parse out every change and every bit of improvement by everything we've done, but I'm very confident that the mix of significant product changes and brand and the mix of everything we've talked about for 2.5 years in our strategy has directly impacted the U.S. business. Why do I feel that? I feel that because, yes, the external market has gotten better, but keep in mind we're now on five consecutive quarters of acceleration in the face of unprecedented competition. This is our most competitive market in the world, and actually it's the business that's getting the best the fastest. And we entered this holiday and we said we're going to compete and win. And I feel like we showed up really well this holiday, and we were one of the top shopping destinations again this holiday in the world. So, I do feel really positive about the U.S. business. It doesn't mean it's going to continue linearly to accelerate, but we've made a lot of changes to this business. And with all the noise about competition, eBay is still bigger and more relevant than just about all of them combined. So, I feel great about that. With StubHub, I'd say it's slightly different. StubHub definitely benefited from the landscape. There are things that they did that improved ecosystem for sure, but as we said in the remarks, I still think there's more work to do at StubHub. So, I wouldn't get over our SKUs and assume, wow, great quarter and now we can just plug that in. I think we've always said, StubHub has a high beta based on what happens out in the world. It happens to be that the fourth quarter broke really well and we had a really good World Series, we had a really good baseball playoffs, we had really good college football. I don't – that's not a strategy, counting on things not within our control. So, we have more work to do at StubHub. As you heard from Scott, they'll grow faster, we hope, than last year, but I wouldn't plug quarter four in as a linear across 2018. We still have work to do.

Operator, maybe one more question.

Yes, sir. Our next question comes from the line of Ken Sena of Wells Fargo Securities. Your line is open.

Thank you very much. In transferring users to your own payment platform, what will be required by the user to affect the change, would you say? And in terms of that $10 billion intermediated number, that's all transactions on the platform ex PayPal. Is that correct? And then also, just maybe, how do we think about maybe the payment effort in the context of eBay's broader partnership efforts? So, in other words, would offering a lower price transactional solution allow this newer effort to maybe move off eBay, maybe in the way that Amazon and Google have attempted? And again, is there – as we think about what users have to do, is there any risk that there's a possible sort of deactivation there? And that's about it. Thanks.

First of all, with users, I direct you to this blog that we put out alongside the earnings release. It contains more detail. I would say that the overall relationship does not need to change. Sellers will need to give us a little bit of extra data. We'll likely give them the ability to start giving us that data well in advance of when we actually move to an intermediated model. And again, I direct you to that because all of the detail that we're ready to put out is in there at this point. We're not going to point out anything more than that but I think you will find it to be quite comprehensive. On the $10 billion, I think the question was is that, those are – as Scott said, it's off platform, none PayPal GMV, so that's correct. And finally, off eBay, that's not our intention. Just to be clear, we're not building a Payments business to go compete with Apple Pay, we're not competing with PayPal, we're not rebuilding PayPal. We're building an intermediated payment service for the benefit of eBay customers on the eBay Marketplace, that's what we're doing.

Got it. Thank you very much.

Thank you. And that does conclude the Q&A portion of our call and the conference itself. Ladies and gentlemen, thank you for your participation, and have a wonderful day. You may disconnect your lines at this time.