eBay, Inc. (NASDAQ:EBAY) Q3 2015 Earnings Call October 21, 2015 5:00 PM ET
Executives
Selim Freiha - Vice President-Investor Relations
Devin N. Wenig - President, Chief Executive Officer & Director
Scott Schenkel - Chief Financial Officer & Senior Vice President
Analysts
Brian Nowak - Morgan Stanley & Co. LLC
Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC
Colin A. Sebastian - Robert W. Baird & Co., Inc. (Broker)
Scott W. Devitt - Stifel, Nicolaus & Co., Inc.
Mark A. May - Citigroup Global Markets, Inc. (Broker)
Heath P. Terry - Goldman Sachs & Co.
Eric J. Sheridan - UBS Securities LLC
Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Mark S. Mahaney - RBC Capital Markets LLC
Matt Nemer - Wells Fargo Securities LLC
Douglas T. Anmuth - JPMorgan Securities LLC
Ross Sandler - Deutsche Bank Securities, Inc.
Operator
Good day, ladies and gentlemen, and welcome to eBay's Q3 2015 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 follow at that time. As a reminder, today's conference is being recorded.
I would now like to introduce your host for today's conference Mr. Selim Freiha, Vice President of Investor Relations. Sir, please begin.
Selim Freiha - Vice President-Investor Relations
Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2015. 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 both Devin's and Scott's commentary during the call. We've updated the format of our presentation following the spinoff of PayPal and in anticipation of the completion of the sale of our eBay Enterprise business.
All growth rates mentioned in Devin and Scott's prepared remarks represent year-over-year comparisons unless they clarify otherwise.
This conference call is also being broadcast on the Internet and both the presentation and call are available through the Investor Relations sections 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 relating 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 planned sale of our eBay Enterprise business, the future performance of eBay Inc. and its consolidated subsidiaries on a standalone basis, including expected financial results for the full-year 2015, the future growth in our business, and mobile commerce.
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, in our subsequent quarterly reports on Form 10-Q available at investors.ebayinc.com. You should not rely on any forward-looking statements. All information in this presentation is as of October 21, 2015, and we do not intend and undertake no duty to update this information.
With that, let me turn the call over to Devin.
Devin N. Wenig - President, Chief Executive Officer & Director
Selim, thank you, and good afternoon, everyone. Welcome to our Q3 earnings call. Overall, we had a solid quarter marked by FX neutral GMV and revenue growth of 6% and 5%, respectively, both consistent with last quarter. Our performance one quarter following our spinoff of PayPal is steady and it's in line with our expectations. I'm proud that the team was able to remain focused on executing our strategy while managing a complex separation. We still have a lot of work ahead of us in order to reposition our business and to deliver the level of performance that we aspire to achieve, but our Q3 results are a step in the right direction.
When we spoke to you in July, we outlined our strategy to improve eBay's competitive position and drive stable and profitable long-term growth. We said that we'd build a more robust commerce platform, enhance our engagement with the core buyers and sellers who create a vibrant marketplace, and create exceptional product and brand experiences. We also indicated that our efforts would take time as we traded off short-term growth and focused more on long-term investments while dealing with the impact of near-term headwinds. And finally, we said that we'd be vigilant about our portfolio and we'd be disciplined about allocating capital to drive value.
This quarter, we drove hard to make progress on that strategy. Simply put, we're doing what we said we would do and we have confidence in our plans going forward. Now let me share some of the progress that we made in this quarter.
First, as I discussed during the Q2 earnings call, our efforts to deliver a more robust commerce platform will be built on a solid foundation of structured data. And while this is a longer-term effort, we are making progress. I'll spend a moment to share some more context on our structured data initiative, including a few slides that accompany my commentary. There are three key efforts underway.
First, we're collecting product data from our sellers as they list their inventory on our site. On June 29, we started requiring product information from our sellers across 18 categories in the U.S., the U.K., Germany, and Australia. We've seen positive reception and adoption in line with our expectations with limited disruption to the listing process. The next phase will add coverage to more countries and categories, and our plan is to expand the requirement where relevant across all sites and categories by the end of 2016.
Second, we use machine learning to process that data so that we can leverage it in our user experiences. Getting a product identifier is most useful to us after we associate that product information to similar products in our catalog and bring in additional data related to the product such as descriptions, pictures, and reviews. In the roughly 12 weeks since we launched this initiative, 27 million more listings have been successfully mapped to products, and five million new products have been identified and added to our catalog.
And finally, we're leveraging that data to improve our product and marketing experiences. We've already started using this data in several areas of the user experience such as SEO, merchandising, deals, and our selling. We provided a few examples of how we're using the data in the slides that accompany this call. While this is an encouraging start, these efforts are in the early stages, and we'll continue to share more on our progress along the way.
A robust commerce platform also means diversified sources of traffic and user acquisition. Along these lines, we continue to expand our use of social channels, and traffic from these channels saw significant growth in Q3. We're now consistently leveraging 10 unique social channels on a regular basis.
Our second key strategic priority is to create a vibrant marketplace. In September, we celebrated our 20th anniversary, and we hosted a seller conference which included many eBay-only sellers in San Jose. At that time, we announced a number of significant upcoming changes to our seller policies. These changes, which include more objective standards, are intended to help small- and medium-sized sellers be more successful on our platform and better reward sellers who provide great service to eBay buyers. We're also giving sellers the ability to customize how they manage returns based on their specific business needs with as much or as little involvement from eBay as they choose.
Finally, we launched a new product called Seller Hub, which puts the sellers listing and marketing tools, along with deep data insights and selling recommendations, into one central place. It's a new destination for professional sellers to manage their end-to-end business on eBay. I was extremely energized by the engagement from the sellers I met, and I've been encouraged by the industry response to the changes that we announced.
We're also investing in areas designed to drive more engagement from our consumer sellers. For example, we're growing our intermediated selling service, eBay Valet, where we're seeing significant growth. Of note, nearly one third of Valet consignments come from repeat customers. And a majority of Valet customers progress to buying and selling on their own on eBay.
At the same time, we're ramping up our efforts to drive buyer velocity. For example, in Germany, we recently launched a pilot program called eBay+. This offering enables German consumers, in exchange for a low annual fee, to enjoy free expedited shipping, free returns, and it may include access to exclusive deals and promotions over time. The intent of the program is to reach more consumers and increase loyalty in this key market where consumers have long valued free shipping and returns and the geography can support this type of program. We'll also promote within this subscription the ability for consumers to sell without fees, hence driving not only buying velocity but also the unique eBay sell to buy flywheel.
Our third key strategic pillar is to create exceptional product and brand experiences. In September, we launched a new experience across all of our mobile channels. The launch of our new mobile product marks a shift towards a discovery-based experience for buyers that also enhances our simplified mobile selling experience. And it brings in key functionality from several of the vertical-based apps which we decommissioned in Q3. With this release, we've also unified the mobile experience across platforms which enables a consistent user interface and is already resulting in faster product iteration.
This is an important part of our long-term strategy. We believe that moving in this direction with our products will enable us to drive engagement and cross-category purchasing. It's also a better expression of our brand which stands for discovery and the thrill of finding unique items and incredible deals. We believe this experience will ultimately help eBay become a more differentiated and a more personal commerce destination.
With the knowledge that we're making a very substantial change to the ecosystem, and based on our experience when we launched the new iPad app last fall, we expected to see and we did see some disruption following the launch. To-date, both the data and the reviews on our new mobile experience are following, what we believe, is a similar path to what we saw after the iPad launch – which was last fall – which was an initial dip followed by a strong recovery. You can expect us to launch a series of incremental releases in response to user feedback over the coming weeks and months. Despite this, the percentage of GMV that closed on mobile still increased to 42% in the quarter, up 1% from last.
Now let me briefly touch on two of our adjacent platforms that are great complements to our core, Classifieds and StubHub. Our Classifieds portfolio is a key part of our strategy and it provides another way to capture the local C2C opportunity, which often represents the same customers who are selling items more suited to a local transaction.
Q3 was another strong quarter of growth for eBay Classifieds with particular strength in the U.K. and in Germany. And in the U.S., we're investing in our Classifieds mobile app, Close5, and we're seeing significant growth with nearly 3 million downloads of the app as of the end of the quarter which is a 10x increase from the end of last quarter.
StubHub, our tickets vertical, had a particularly strong quarter getting back to strong growth as the industry-leading secondary ticket marketplace. This strong performance was driven by improvements to our product experience. We continue to see strong overlap between the eBay and the StubHub visitor bases, with three and four visitors to StubHub also visiting eBay.
Lastly, we continue to expand StubHub globally in key international markets where we believe the market opportunity is just beginning to hit its stride. In September, we launched StubHub in Germany which is our second major international market along with the U.K.
Finally, we continue to actively manage our investment portfolio. In this quarter, we sold part of our stake in Snapdeal while we organically invested in our fast-growing India platform and we divested our stake in the China Classifieds business, Baixing.
In summary, we delivered solid results in Q3 and we made meaningful progress against our strategy. I look forward to updating you again on our progress and we'll share our perspective on 2016 in January.
Thank you. And now, I'll turn it over to Scott, who'll go into more detail around our financial performance.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Thanks, Devin. During my discussion, I'll reference our earnings presentation beginning on slide 10. Our business was stable in Q3 as we made progress against our key objectives. We generated $2.1 billion of total revenue, $0.43 of non-GAAP EPS, and $462 million in free cash flow, and we repurchased $599 million of our stock.
On slide 11, let's start at the top of the funnel with Q3 active buyer growth. In the quarter, we added 2 million new active buyers, increasing the total active buyer base to 159 million, representing 5% year-over-year growth. Underlying this growth was a modest acceleration in our trailing three-month active buyers. This was driven by the additional investment we made in our India platform where we saw strong user acquisition in the quarter.
In addition, the actions that we've taken to reduce friction in the password reset and sign-in process have reduced our existing buyer churn. However, the SEO headwinds continue to impact our ability to acquire new buyers.
Turning to slide 12. We grew GMV 6% on an FX-neutral basis consistent with Q2. In the U.S., GMV grew 3%, accelerating one point versus prior quarter. This acceleration was driven by the improvements we made to our product experience in StubHub. International GMV grew 7% on an FX-neutral basis, decelerating one point quarter-over-quarter.
While we continue to focus on executing our strategy, this relatively stable growth across our platform continues to be dampened by the challenges of SEO, the strength of the U.S. dollar impacting cross-border trade quarters, and the product changes we believe will benefit our users over the long-term. Sold item growth grew 7% in Q3, representing a three point deceleration versus prior quarter. This was driven by a decrease in low ASP purchases this quarter versus last and the impact of fewer new buyers who generally purchase lower ASP items.
Moving to slide 13. We delivered net revenues of $2.1 billion, up 5% on an FX-neutral basis. We continue to experience currency headwinds in translation which negatively impacted total revenue growth in the quarter by approximately seven points. Transaction revenue grew 4% on an FX-neutral basis, decelerating one point versus Q2. The deceleration was driven by investments in additional seller incentives such as eBay Top Rated Seller and Daily Deals programs, which are treated as contra revenue. In Q3, this investment reflects a shift of marketing spend from operating expense to contra revenue.
Marketing services grew 9% on an FX-neutral basis, accelerating three points versus the prior quarter with our Classifieds format contributing to strong results.
The PayPal operating agreement was an addition to our MS&O revenue stream this quarter, adding four points of growth quarter-over-quarter and approximately one point to total revenue growth.
Turning to expenses on page 14. The cost of revenue increased 160 basis points year-over-year, driven by the impact of foreign exchange and the payment processing costs, which now include the effects of our agreements with PayPal. Additionally, we made investments in our structured data and security efforts, which were paid for by disciplined prioritization in other areas.
Operating expenses were 48.1% of revenue in the quarter, down 67 basis points versus last year. Each cost component benefited from the restructuring we completed earlier this year, but let me provide a bit more context on each. Sales and marketing expenses down 230 basis points year-over-year. This is primarily driven by the decreased brand spend and the shift from sales and marketing expense to contra revenue that I mentioned earlier. Product development is relatively flat year-over-year, although we continue to refocus our investments into areas like our new mobile experience and structured data. G&A increased 120 basis points year-over-year with operating leverage offset by dis-synergies due to separation and a stronger U.S. dollar.
Moving to slide 15. In Q3, we delivered $0.43 in non-GAAP EPS, down 6% year-over-year as revenue growth, good operating leverage, and the impact of share repurchases were more than offset by the impact of the stronger U.S. dollar. Our resulting operating margin was 31.9%, a 90 basis point decline versus prior year, driven by the impact of foreign exchange and dis-synergy cost due to separation.
Turning to free cash flow. We generated free cash flow of $462 million in the quarter. CapEx was 12% of revenue which is higher than our historical trends due to separation-related activities that we discussed last quarter. We expect free cash flow to accelerate in Q4, driven by our seasonal volume peak, lower separation-related CapEx spend, and improved working capital performance.
Moving to slide 17. As a reminder, on our Q2 earnings call, I described our disciplined approach to capital allocation. We reiterate our policy has several key tenets, including focusing on long-term value creation while making sure we have the resources to execute our strategy, driving growth while balancing profitability, supplementing organic growth plans with disciplined acquisitions and investments while maximizing the capital deployed in those assets and managing the capital structure in a way that optimizes our financial flexibility, access to debt, and our cost of capital while both offsetting dilution and reducing share count via opportunistic share repurchases at attractive prices.
Turning to our balance sheet and the implementation of this policy, we ended the quarter with cash, cash equivalents and non-equity investments of $8 billion including approximately $1.5 billion in the U.S. We've repurchased 21.9 million shares at an average price of $27.36 per share. We have $2.4 billion of the existing share repurchase authorization remaining.
Shortly after the Q2 earnings call, we received an average investment grade rating from the credit agencies of BBB+. In Q3, we had $250 million of debt mature. And in mid-October, we had a $600 million tranche mature, both of which we've repaid. We may seek outside financing to replace 2015 maturities and to provide additional flexibility to manage our capital structure.
We continue to be disciplined in how we manage our investments. As Devin mentioned, in Q3, we sold a portion of our equity stake in Snapdeal and sold the entirety of our stake in Baixing, a Shanghai-based Classifieds business. Consistent with prior practice, the gains from the sale of these two investments are excluded from our non-GAAP earnings but are reflected in our GAAP results. We also made two strategic acquisitions to bring in additional tech and talent to eBay and to enhance our Classifieds vertical presence.
Finally, let me share our guidance on slide 18. For Q4, we are projecting revenue between $2.275 billion and $2.325 billion, representing 3% to 5% revenue growth on an FX-neutral basis, and non-GAAP EPS of $0.47 to $0.49 per share. For the full year, we are maintaining our revenue guidance of 3% to 5% growth on an FX-neutral basis and raising our non-GAAP EPS projection to $1.80 to $1.82 a share, reflecting our Q2 earnings performance, the impact of shares repurchased and a more favorable tax rate.
In summary, we remain focused on our strategy in executing our key initiatives to reposition eBay for success while delivering on our financial commitments, buying back nearly $600 million of stock and continuing to demonstrate our disciplined approach to capital allocation.
And now, we'd be happy to answer your questions. Operator?
Question-and-Answer Session
Operator
Our first question comes from the line of Brian Nowak with Morgan Stanley. Your line is now open.
Brian Nowak - Morgan Stanley & Co. LLC
Thanks for taking my questions; I have two. You talked about StubHub performing pretty strongly and kind of driving some of the acceleration in the U.S. Can you just talk about the growth trajectory of the core U.S. business in 2Q and 3Q ex-StubHub? How big of a benefit was that? And then the second question, I guess you talked a little bit about raising debt and potentially going into the markets. How do you think about potentially going into a net debt position as opposed to staying in net cash? Thanks.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Sure. Why don't I take that, Brian? First off, just to clarify, so U.S. segment growth was 3% which was up one point Q-on-Q. That one extra point was driven by StubHub's acceleration and thus the underlying core business in the U.S. was stable. To your question on net debt, our current BBB+ rating allows us to had a 3 times to 3.5 times EBITDA multiple to be slightly in a net debt position and we have no issues with being at that level. And, right now, our plan is to continue to assess how we think about repurchasing our stock price and all of the underlying tenets of the capital allocation aspects that I laid out.
I think the most important thing as we look forward is that, that 3 times to 3.5 times gives us the capacity that we think is necessary to provide the flexibility to do all the elements of long-term value creation that we talked about, drive the growth of the underlying business and give us the flexibility to acquire businesses in the disciplined way that we talked about in the past.
Brian Nowak - Morgan Stanley & Co. LLC
Great. Thanks.
Operator
Our next question comes from the line of Carlos Kirjner with Bernstein. Your line is now open.
Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC
Thank you. I have two questions. For several quarters, we have seen fixed-price GMV growing robustly but auctions shrinking. Can you help us understand the extent to which fixed-price growth is cannibalistic of auctions and how we think about fixed-price growth without this effect? And secondly, with respect to the 35% of relevant listings for which you are all already collecting structural data information, it mentioned I think on page five of your presentation, to what percentage of GMV do they correspond? Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Let me take those. Let me take the two of those. So starting first with fixed-price versus auction, I think there's a couple of things going on. First of all, historically, auctions tended to correlate better with the consumer sold business on eBay. And for several years that business has grown more slowly than the B2C business. But I think there's something also going on that's more significant than that which is we've affirmatively moved through our policies and through our format guidance, a portion even of the consumer sold business, to fixed-price. So we think that certain categories we just see better conversion when we move them from an auction to a fixed-price listing.
An example might be consumer electronics. So we've made it more favorable from a pricing perspective, and our guidance suggests to consumers that they list the cell phone at a price that we know it will sell at rather than necessarily engaging in an auction, just to give you one example. So part of it is we've moved it affirmatively. Part of it is our C2C business is something that, over the last few years, as we've talked about last quarter, we were very focused on big retail. And now we're coming back to looking at the opportunity in C2C, and I think there's a real opportunity over time to reinvigorate that business. And we might see some tailwinds based on that over time. So those are the two components that drive the decline in auctions versus the strength in the fixed-price format.
On GMV, I think that roughly the coverage is in the accompanying slides, Carlos. We basically have said that there are three parts to what we're doing. Part of it is identifying the product identifiers. We look at the relevant universe as manufactured items. And manufactured items is roughly 700 million items out of our inventory. And I think if you look at the slides, you'll see that we've covered a portion of that already with the mandate. And the plan is to roll that out very aggressively over the next, let's call it, 15 months. So the slide ought to provide more color on the coverage by listings and GMV.
Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC
Okay. Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Thank you.
Operator
Our next question comes from the line of Colin Sebastian with Robert W. Baird. Your line is now open.
Colin A. Sebastian - Robert W. Baird & Co., Inc. (Broker)
Great. Thanks. I also have a couple of questions. First, Devin, during the analyst meeting and the last call you talked about needing, I think, 18 months to make the investments and transformation of the business, especially around some of the underlying technology. And I wonder if that's still the right timeframe to think about. And then secondly on the updated seller policies you rolled out at the anniversary event, there seem to be some renewed enthusiasm, I think, from that group, particularly among smaller sellers. And maybe just as a clarification on your comment, Devin, from the last question, I wonder if that small, mid-size seller base is really where you're focused. Or are you still engaging also with the larger merchants? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah, thanks, Colin, for the question. On the first part, I think the 18 months that I referred to was there were questions on this structured data initiative, when will it start to make a dent in things like SEO? And when will be able to see it in traffic and in SEO? And as I said, it isn't – it doesn't all come at once – it comes as you progress.
But I said I thought you'd be able to start to see it in around 18 months. And I still think that's the case. We are making good progress, but the external impact of that, meaning our benefits from SEO, our benefits from traffic from those channels is still relatively limited. And that's why, both in my remarks and in the slides, we wanted to clarify that there are a number of steps we need to take. And that's why there's a bit of a gap between asking sellers for the information, processing that data, applying machine learning, putting that in products and marketing channels, and then ultimately seeing the results. So I still think that's a fair timeframe for us to begin to see benefits in the channels that we mentioned.
On the seller policies, it's worth clarifying that when we talk about small and medium sellers, that's really the core of the eBay seller, it doesn't necessarily mean a mom-and-pop, we're very focused on that, but it also means multi-million dollar businesses. But compared to large retailers, that's a small- or medium-sized business. That is clearly our area of focus. I think our policies and the products that we've launched, even in the first 90 days are squarely attuned to that segment of our marketplace. What we see is that there's really great energy around there.
I'm really pleased with the progress we've made in a relatively short period of time, and I think that the opportunity for us to acquire new sellers, new inventory, differentiated inventory and differentiated sellers is real. I think the eBay brand is unique. I think we don't want to be like anyone else and we don't think that our brand is like anyone else's. And because of that, the ability to acquire unique inventory through unique sellers – both consumers and small- and medium-sized businesses – is square in the center of where we're focused. And you'll see us do even more down the balance of this year and certainly into 2016
Colin A. Sebastian - Robert W. Baird & Co., Inc. (Broker)
Thank you.
Operator
Our next question comes from the line of Scott Devitt with Stifel. Your line is now open.
Scott W. Devitt - Stifel, Nicolaus & Co., Inc.
Hi. Thank you. I had a couple questions. First on U.S. versus international growth, I was wondering, Devin, if you could just kind of go through some of the puts and takes in terms of this ongoing delta between the two? There's the impacts of search and security as kind of bad guys, I think, that are leveraged more to the U.S. business, but the U.S. business has had more than development of structured content. And then you also have the currency effect of the U.S. buyers buying European goods versus the opposite before the strength of the dollar. So could you talk through that first?
And then secondly, on slide 14 of the deck, in the cost of revenue where you referenced the agreements with PayPal driving higher costs, I was of the understanding that the only incremental costs were tied to minimum volume threshold, so can you just explain what the incremental cost was tied to? Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Thanks, Scott. I'm going to let Scott take the question.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Hey, Scott. A couple of things. First off, backing up on the U.S. growth. So the U.S., as we talked about in the past, has a significantly-impacted aspect of it from the strength of the U.S. dollar, which is heavily weighted on its export basis, on the export out of the U.S. And as you think about the U.S. dollar's strength, that's pushed down the GMV associated with that product going outside of the U.S. If you look at the GMB, which I highlighted last time, it's actually relatively stable; it's at 6% growth in the core U.S. business versus 6% last quarter.
And so, to your question, the near-term aspects of the things that we're working on are actually relatively muted in those. As we've talked about, it's going to take a fair amount of time for that – for those – to the impact of things like structured data and other things to impact the growth. And so, in the near term, what the U.S. is facing is the pressure from the SEO, search issues, the associated active buyer growth impact and the FX that we talked about.
Internationally, growth is roughly stable, the levels that they are. And I would say a couple of things to highlight there. First off, China export continues to be pretty strong and consistent quarter-over-quarter. We've got a great business in India that continues to grow very nicely. And our Korea business continues to do very well and kind of in line with prior quarter growth. In Europe, the impact of SEO, the impact of some of the product changes have had a little bit of a muted impact on growth particularly at the latter part of the quarter, but still in the reasonably close to the range that they were in the prior quarter. And again, they're impacted a bit by foreign exchange and a bit by the SEO aspects that we've talked about.
In terms of your second question – the cost of revenue – the incremental cost from the operating agreement is tied to minimum volume threshold. There's two aspects that I'd call out. First off, in the revenue line, we actually have the cost – there's a benefit of the contracts with PayPal and those are the things that relate to the penetration rate, the credit bounty and the user acquisition. And then the actual costs in the cost of revenue now show up in our non-GAAP results are actually payment processing-related.
Scott W. Devitt - Stifel, Nicolaus & Co., Inc.
Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Yep.
Operator
Our next question comes from line of Mark May with Citi. Your line is now open.
Mark A. May - Citigroup Global Markets, Inc. (Broker)
Thanks. I think a lot of mine have been addressed, but, I guess, last year, Devin, you talked about some broader reach marketing plans heading into the holiday season. I know in the quarter you called out some of the leverage in sales and marketing came from reduced brand spend, but just thinking about heading into the holiday season and your guidance, what you're thinking about more on the brand-marketing side.
And then in terms of the share repurchases during the quarter, given the timing of the PayPal spend, I'm just wondering is the amount of shares that you bought back in this quarter, is that kind of a pretty fair look at sort of how you'll be opportunistic going forward or were there were some sort of restrictions that you had during the quarter that maybe pulled you back a bit in Q3? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Mark, thanks for the question. I'll take the first part; Scott will take the capital allocation question. On marketing, let me just start by giving a slight helicopter view of the way we view marketing. Historically, we've been very focused on digital channels and we've been very ROI-driven, and what that's tended to do is drive our marketing spend down the funnel. In other words, we tend to market heavily when we make sales and that's why we've heavily skewed towards things like paid search and other digital channels. I do think that as some of the markets shift and as more channels are available to us, we need to pivot some of our marketing to the mid funnel and to the upper funnel, and upper funnel is what we would call brand spend. It's more about eBay than about buying any particular item.
We've been working really hard because we don't like to waste money around here and we're very metrics-focused. And as we move from the bottom of the funnel to the top, it gets harder. Frankly, the timeframes extend and it gets harder to measure whether a dollar was well-spent in-brand and it's easier to measure that if a dollar was well spent if you sold something or not. But I still believe that it's necessary.
So we are already – particularly in the social channels that I mentioned in my remarks – beginning to move from selling individual items to selling eBay as a brand. And I think that you'll see more of that, not only through the holiday but through 2016. I think it's very important for us to say to the world who we are. Some of that is closing some of the misconceptions about our business. I think the brand is ubiquitous but not everyone knows what we do. But some of that is really the sort of emotional connection of the brand which is not a commodity, it's not a utility and it's about consumers finding unique items and incredible deals. And that's really where we think north is for our brand.
More specifically for this holiday, we'll be very active. Last holiday, we did a bit of TV, not in every DMA but we did some TV in the U.S. and some in Europe. We're not going to do a significant amount of TV this holiday but we won't spend less. We're going to be very active in digital channels and we're operationally-ready for this holiday and we will certainly be active marketing, both through promotions and marketing channels, for the holiday. So I hope that answered the first part and I'll turn it to Scott on the capital question.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, Mark. I think if you go back to one of our underlying tenets of how we'll deploy capital as it relates to share buyback, we'll continue to be prescriptive in our acquisition of our shares as it relates to the dilution-related activities, and then we'll be opportunistic in terms of how and when we buy back shares in this quarter. I don't think that is any different than how we think about it going forward. This quarter, we bought back 21.9 million shares at $27.36, roughly 1.8% of the company of the outstanding shares.
Now, that all said, I think we all – we've talked about this in the past with everyone – there is a bit of a governor over the course of the first two years where we cannot have plans nor we'd be buying back more than 20% of the shares of the company. That said, this represents a fairly, I think, clear step of how we think about buybacks for us going forward.
Selim Freiha - Vice President-Investor Relations
Next question, operator?
Operator
Our next question comes from the line of Heath Terry with Goldman Sachs. Your line is now open.
Heath P. Terry - Goldman Sachs & Co.
Great. Thanks. Devin, I know you touched on this a little bit but when you look at the impact of the product categorization work that you've done, is there a tangible impact that you see or expect to see to traffic conversion rate or some other metric that you can discuss? And then on the quarter, as we look at the take rate, can you breakdown for us the impact that you're still seeing in take rate from the changes at StubHub, any of the contra investments that you've been making or anything else that's having an impact on those numbers that's worth calling out?
Devin N. Wenig - President, Chief Executive Officer & Director
Thanks, Steve. I'll take the first part and Scott will take the second. Let me give you a qualitative rather than a quantitative view. I'm not going to componentize the qualitative side of structured data, but let me just describe it to you and why I think it ultimately has a positive impact on both traffic and on conversion. If we step back at what we're trying to do, what we're trying to do is really understand and associate the products that are on our shelves. We're trying to be able to group products. We're trying to be able to sell products in ways that are not dependent on search alone. We're trying to create better discoverability of products, both on the marketplace and off.
If you come back to what we've been saying repeatedly, there might be a faster path to SEO recovery, but this cycle of spin it up and then spin it down is not sustainable. So we're building it on a much more sustainable foundation because ultimately both SEO, and frankly discoverability on eBay, are crying for persistence. They're crying for us to understand that just because a listing comes and goes, we're still selling thousands of iPhones or sweaters or shovels or whatever we're selling. So that, at the end of the day, is why having a persistent view of the products we sell, I believe, is a traffic driver, and it's a conversion driver because, ultimately, we have 800 million items for sale.
This is the world's biggest store. It can be overwhelming, and we're asking too much of search. Search is very important, but for search to be the only lever to pick through 800 million items is becoming not sustainable. And ultimately it causes a reduction in conversion. The ability for us to group items, to merge items, to understand what's the best item out of a lot, to create trade-offs, say, between the very unique eBay categories like used, manufacturer refurbished, and new, and allow consumers to understand the value-based trade-offs of all of those choices, is to me endemic to what we're doing in the structured data initiative. So I can't give you a number, but I know that what we're driving at is better traffic. And I know that we're driving at better conversion. And that's why it's worth the investment and it's why it's worth the significant shift in what we're doing. Scott will take the second part on take rate.
Scott Schenkel - Chief Financial Officer & Senior Vice President
The cut, the way I think about this is, first off, the take rate was relatively stable quarter-to-quarter. And if you look at, it's up I think 10 basis points. We'll get a little bit of uplift from the mix of StubHub in that number. But I think the more material shift quarter-on-quarter was what I called out with the contra revenue. And as we look at our overall expense base for marketing, we, as you know, are very disciplined in how we approach the deployment of that marketing spend and occasionally will move the investment between different buckets within that expense base.
And, in some cases, shift it from expense to contra revenue, broadly speaking. But things like seller incentives, daily deal incentives, even, to the extent, buyer couponing. And it's really dependent on how we see the capabilities of those different marketing channels to be effective and get the best return for us. In this quarter that did depress revenue growth a little bit, helping some of the underlying aspects of the business in the best way we thought to spend marketing on a go-forward basis. And that's really why you see the differential between the GMV growth rate of about 6% and the transaction revenue growth rate of 4%.
Heath P. Terry - Goldman Sachs & Co.
Got you. Thanks, Scott. Thanks, Devin.
Operator
Our next question comes from the line of Eric Sheridan with UBS. Your line is now open.
Eric J. Sheridan - UBS Securities LLC
Thanks for taking the questions. Maybe just two. One on the Classifieds side, thanks for all the information into the quarter, and especially some of the color on the call. But curious how you're approaching the sort of portfolio of assets you have inside the Classifieds business, where there might be places to allocate more capital against market-leading positions versus maybe the need to either invest or divest of assets longer-term in markets where you maybe don't have a leading position? And then the second question on general health of the consumer, there's been a lot of mixed data points. What was your view of how you saw the consumer act as we move through back-to-school, through Q3, and how the consumer is set up in some of your key geographies for Q4? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah, I'll take those. On Classifieds, I think what you said is exactly the way we look at it. Classifieds markets tend to be local, they tend to be national and at least historically for horizontal Classified players, they tend to be winner-take-all. Now that winner may not be clear right away and there's certainly competitor battlegrounds in certain markets, but the markets that we operate in, we have leading and winning positions in nearly all of them other than where we have seeds planted where we believe we can win. If we're in a market where we believe that we are not going to win or there's not a clear path to winning, then we'll exit that market and reallocate that investment to an area that we can.
Our Classifieds portfolio, we have a great playbook, a team that really knows what they're doing. We've shown that we can grow and build this business. At times we use the balance sheet. There was a small Classifieds acquisition this quarter and it's been a great business for us that we'll continue to move into. An example that I mentioned of a competitive battleground is the U.S. Obviously, it's an enormous potential market, but what we see is that the Classifieds space in the U.S. has been thrown up for grabs and it's a very big market opportunity and we think we've got a winning proposition with Close5. It is growing very, very rapidly. And we'll continue to allocate resource for markets where we're not going to win into markets where we have a plausible chance of winning. We won't win in every market but that's the way we look at the portfolio.
On the consumer, we see the same data that you do. We know there have been a number of consumer companies that have been cautious about the fourth quarter. Obviously, our guidance implies stability, but I guess we're a bit cautious about it, too, only because we see some of the data points on GDP, on jobs and on what other companies have said, so we're watching it carefully. But overall, we see net stability and that's implied in our guidance for the holiday season.
Eric J. Sheridan - UBS Securities LLC
Thanks.
Operator
Our next question comes from the line of Justin Post with Merrill Lynch. Your line is now open.
Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Great. I would like to follow up on the last thing. Just – was the quarter stable? Like every month kind of consistent for you, no surprises month-over-month? And then secondly, just wondering about the SEO challenges you highlighted, obviously, big issues last year. Have there been continuing changes this year that have impacted you at all on that? And then lastly, any quantification you can give us on the size of StubHub and the changes you recently made, why you did those? Thank you.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Let me take the first two here, Justin. First one, the quarter did stable. In total for the core business or in the overall business, it was actually relatively stable. I know there was some anxiety around some September data that was out there and I think that depends by geography. Certainly, StubHub had a very strong September. The U.S. had a slightly weaker, as did parts of Europe, a slightly-weaker September. And Asia had a strong September. And so I'd look at the overall portfolio and go, not radically different month-to-month-to-month.
SEO challenges, there's been no real new SEO challenges for the year. I know there's been a couple of changes around mobile and other things that have been out there, but, broadly speaking, we haven't really seen an incremental new impact to our business versus what we've been talking about. I don't know if you want to talk about StubHub, Devin. I think, overall, we don't give StubHub numbers but do you want to talk a bit about the changes?
Devin N. Wenig - President, Chief Executive Officer & Director
I can talk about the changes. We have new leadership at StubHub and it's a great business. It's the leading, obviously, secondary tickets marketplace. And we made a whole series of changes rapidly and saw a very nice rebound in the business. So some of that was around the product – there is a brand-new StubHub mobile experience. Some of that was around the way we display pricing changes. Some of that was around a brand campaign which has now gone bright, and you may see it on during the baseball playoffs or on football games. All of those had an impact and it was a fairly rapid turnaround of StubHub's performance back to growth, which was great to see. So I think they all contributed.
Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Thank you.
Operator
Our next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is now open.
Mark S. Mahaney - RBC Capital Markets LLC
Thanks. Two questions. One, could you – any particular international markets you'd want to call out? I think I heard you talk about India earlier on, but any other key markets, Germany, the U.K. or South Korea either as skewing better than the overall international trends or skewing weaker? And then, secondly, just following up on that StubHub question, the issue at StubHub a year ago, year and a half ago, was real changes in the pricing of some of the major competitors in the market. Have you seen any changes in that pricing environment? Or is the improvement that you're seeing at StubHub purely due to your own execution in some of the things you've done at StubHub per se rather than ameliorating or better pricing conditions across the industry? Thank you.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, hi, Mark. It's Scott. Internationally, I called a few of these out earlier but just to clarify, that Germany and U.K. slightly less than the overall international growth. The Korea platform continues to grow very nicely I think at or above e-commerce rates of growth in Korea. And then I'd highlight our China business. Our China export business still continues to do very well exporting around the world into many of our major markets. And those are a big part of the drivers around the world and I think doing mixed results across the board, as I said earlier. Do you want to talk about StubHub?
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah, well, let me just add on markets. I'll just call India out, Mark. India, there's so much been written about it and there's no doubt that there is some hype and there's been a lot of investment. But the fact is that the market is growing. I don't think it's going to be winner-take-all, and what we feel like is we're growing responsibly. We feel like we're investing appropriate amounts to grow the eBay brand, the buyer acquisition has been strong, the GMV growth has been strong, and we're going to keep watching it and keep investing in it to grow our organic eBay platform. So I think you've got to separate out the hype from the reality. There's plenty of hype but there's also a good deal of reality in India and it is a growing market, it's exciting and there will be multiple winners and we'll be one of them.
Back to StubHub, I think that just given what we've seen, a large part of what's happened with StubHub was our own execution. It just happened so rapidly after the series of changes that we made that it's hard to believe the market was shifting at the same time. I think the market is adapting, but this is a great business with a strong brand, and I think that having now gotten back in the sweet spot of this product, its pricing, and its brand position, it's in a good market and market share position.
Mark S. Mahaney - RBC Capital Markets LLC
Thank you, Devin. Thank you, Scott.
Operator
Our next question comes from the line of Matt Nemer with Wells Fargo Securities. Your line is now open.
Matt Nemer - Wells Fargo Securities LLC
Good afternoon. I've got two questions. The first is when should we expect the disruption related to the mobile app launch start to normalize? And is that enough to, on a monthly basis, take the U.S. GMV negative? And then, secondly, is there any early evidence that the structured data related to the 35% of inventory that you've converted is already starting to help SEO? You made it clear that, on a consolidated basis, it's going to take some time and I'm just wondering on that subset if you're seeing some benefit. Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Thank you. On the first question, on mobile, let me just reiterate that we're running the company for the long run and some of the things we're doing are really fundamental, and it tends to be that in marketplace ecosystems like this, fundamental things may not be growth-friendly in the short run, but they are important in the mid to long run. And mobile is one of those. I don't have an exact timeframe, but you're already seeing the beginning of recovery. And we watch carefully, the ratings are sort of public face of it.
Frankly, I care more of what millions of people do than what a few people say, but they're both important, and the data reflects what people are doing. And we are beginning to see recovery and it is mirroring what we saw with the iPad launch. That was also a fairly large change. Metrics went down, then they came back up and of course they ended stronger than where we started.
So that's the hope with what we're doing here and we'll watch it carefully and we'll adjust as we go. We're constantly looking at that data and listening to customers and we'll respond to it rapidly. Is it a slight drag on growth? Yes, it is, it's globally, as is, frankly, adding the requirement on structured data and a few other things. These are all things that are not necessarily growth-friendly in the short run, but important for us to do in the long run. So there's no doubt there's some impact in there.
On the second question, the answer is yes. Again, we watch the data carefully. If you look at things like our slides, where you see us deploying structured data, and it is very small right now, you are seeing improvement in our rankings, you're seeing some traffic flowing, and you're seeing some conversion benefits being picked up. So that gives us comfort that we're on the right track, but I'd caution that this is going to take time, as I've said consistently for months now. So...
Matt Nemer - Wells Fargo Securities LLC
Thank you so much.
Operator
Our next question comes from the line of Douglas Anmuth with JPMorgan. Your line is now open.
Douglas T. Anmuth - JPMorgan Securities LLC
Thanks for taking the question. I just wanted to drill down a little bit more on active buyers. You talked about an acceleration in the trailing three-months and also India being strong. Can you just help us understand how to think about the value of those new buyers in India relative to kind of the average overall and how long it takes them to ramp up spend? And then also, what are the actions that you highlighted in terms of reducing the sign-up friction on the platform? Thanks.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, so I'm going to take the first one. Doug, the active buyer growth of 5% is down a point Q-on-Q on a trailing 12-month basis. And what I've highlighted for the last couple of quarters is the trailing three-month is really purposely to help highlight how the more recent trends have developed based on the actions that we've taken. And the trailing three-month we've seen some modest acceleration, as I called out, based on the investments in India – which obviously on a GMV per user basis – is going to be lower than the rest of the world on average. And then the actions that we've taken to reduce friction on sign-in. And those include things like, over the last several months, providing security, much more robust set of security questions, allowing for text messaging to allow quick retrieval of a sign-in code, and then having users be able to remain signed in for a period of time.
There's a number of other smaller things, but what that's had the impact of doing is actually reducing the churn of our existing user base. And we continue to work on going after those customers that have come back and not been able to sign in. And that's one of the ways that we think about using contra to go after them in the form of couponing, as well as direct marketing on e-mails, et cetera.
Now, I will call out, as I did my comments, that there continue to be headwinds, even in the underlying trailing three-month results on active buyers that we see where even though we're making some progress in our cataloging penetration, if you will, as well as the changes to the user experience and what you're seeing in the Google search, it's not sufficient as of yet to stem the tide of the active buyers, the new active buyers, that aren't coming to the experience yet. And that's really our primary focus here.
Devin N. Wenig - President, Chief Executive Officer & Director
Let me – just a quick add-on on reduction of friction. The tension, obviously, is security. And security is an incredibly important priority for us, particularly given the events of last year. So we constantly are trying to push the efficient frontier of removing friction, but not reducing our customers' security. And I think that there have been advancements. You're starting to see some of the big web companies do some interesting things with phone numbers, mobile phone numbers, even using basically piggybacking on things like biometric off of the iOS device. You should expect to see us do that. We'll continue to push to reduce sign-in and password reset friction, as long as we feel like it doesn't compromise our customers' security.
Selim Freiha - Vice President-Investor Relations
Operator, we have time for one more call – question. Excuse me.
Operator
Our last question comes from the line of Ross Sandler with Deutsche Bank. Your line is now open.
Ross Sandler - Deutsche Bank Securities, Inc.
Great. Thanks for squeezing me in, guys. Just one follow up to that last question and then a bigger-picture question. So if we look at the buyer cohorts in western markets like the U.S. and the U.K., how long do you think it will take for some of these new buyers that you're bringing in to get up to the levels of the top cohorts and kind of replace some of the drop-off that you saw from those top cohorts after the password breach last year? Is that a one-year phenomenon? Is it a multi-year phenomenon? Just a little bit of help there would be great. And then somewhat related to that, just big picture, are you comfortable with the low-double-digit fixed-price GMV growth that you're currently seeing? It seems pretty stable. Or once all the re-cataloging work is done, could we see some more aggressive marketing and essentially drive that number or that growth rate higher? How should we think about that longer-term? Thanks.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, Ross, the way I would answer your question on the cohorts is that as we get new buyer growth to reaccelerate in the core major markets, what I would expect is that those new buyers actually have a cohort profile similar to the ones that we have today. Underlying the trailing 12-month active buyer growth and the existing trailing three-month is a relatively stable set of cohorts that aside from the new buyers remain relatively stable in terms of how much they buy. And so, I don't anticipate that once we reactivate and get that new buyer growth going again that it would be materially different, although I don't necessarily have data to prove that at this point.
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah, and, Ross, on the second question, I think the question was, are we comfortable? I'd point back to the question that I answered around C2C, which is, I take the two together in part because it's not separate businesses anymore. And, no, we're not comfortable with a 6% growth rate. We're proud of the work we're doing, we're running the company for the long run, but we're not settling comfortably into a 5% or 6% growth rate. We're not satisfied with that. We want to push this harder, but we want to do it the right way and run the business over the long run, so this will take time. But our aspiration is certainly to grow the business faster. So I hope that answers the question.
Ross Sandler - Deutsche Bank Securities, Inc.
Great. Thank you.
Selim Freiha - Vice President-Investor Relations
Thank you, everybody, for joining us on the call today.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone, have a great day.
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