eBay (EBAY) Devin N. Wenig on Q4 2015 Results - Earnings Call Transcript

eBay, Inc. (NASDAQ:EBAY) Q4 2015 Earnings Call January 27, 2016 4:30 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

Richard Kramer - Arete Research Services LLP

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Heath Patrick Terry - Goldman Sachs & Co.

Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC

Brian Nowak - Morgan Stanley & Co. LLC

Eric J. Sheridan - UBS Securities LLC

Kunal Madhukar - SunTrust Robinson Humphrey, Inc.

Jim Shaughnessy - RBC Capital Markets LLC

Stan Velikov - Jefferies LLC

Operator

Good day, ladies and gentlemen, and welcome to the eBay, Inc. Fourth Quarter 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 be given at that time. As a reminder, today's program is being recorded.

I would now like to introduce your host for today's conference Selim Freiha, Vice President of Investor Relations. Please go ahead.

Selim Freiha - Vice President-Investor Relations

Thank you. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the fourth 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. All revenue and GMV growth rates mentioned in Devin and Scott's prepared remarks represent FX neutral 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 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 2016 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, in 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 27, 2016, 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

Thanks, Selim, and good afternoon, everyone. Our business was stable in Q4 and we delivered solid results as we continue to reposition our business amidst the backdrop of a competitive holiday retail environment. Overall, total GMV and revenue were both up 5% for the quarter and we also grew active buyers 5% year-over-year to 162 million.

GMV on our Marketplace platform grew at 4% year-over-year. And underlying this growth, our B2C business, which is the best analog for other retailers and marketplaces grew at 8%. We also saw particular strength in our StubHub and Classifieds platforms, which grew revenue at 34% and 15% respectively.

Looking deeper at our Marketplace platform, we continue to see an impact on traffic and new user acquisition along with continued near-term pressure from some of our strategic longer-term initiatives which curtailed growth in the quarter. Six months ago, we began a series of platform, inventory and policy changes, which we believe are critical to make our business more competitive over the long-term. While we're making steady progress on these strategic initiatives, we don't expect to see material benefit from them for some time to come.

With our structured data initiative, we increased the percentage of listings processed to 37% of our relevant listings in Q4, up from 28% in the prior quarter, while adding 79 million unique products to our catalog, and we recently announced that the next phase of required product identifiers would go into effect at the end of February. This phase will add more categories and countries to increase coverage to approximately 60% of relevant listings on our platform.

Historically, as a listings-based marketplace, providing users with features such as product reviews and pricing data was extremely challenging. As we have begun converting more of the site to structured data, we're starting to leverage these features and are seeing good results. In Q4, our users created nearly 1 million product reviews, up 20-fold from the prior quarter. Over time, this is the type of user-generated content that will help us to improve discoverability and conversion.

We're also starting to use our data to enable price trending and comparisons as well as better merchandising capabilities. Early results show we're picking up conversion rate improvements, which is a clear signal that we're on the right track here. You can see some of these examples in the slides accompanying my commentary.

Another key area of focus for us is mobile. While reviews of the mobile experience we launched in September have significantly improved, it's not yet delivering results on par with the prior version. We're aggressively iterating it to enhance the user experience and to drive adoption and usage, and our new platform is enabling us to get new releases in front of our users more rapidly and efficiently than we have in the past. Despite those challenges, we still grew mobile GMV 21% on a year-over-year basis.

Finally, we continue to make progress in other areas such as social and promoted listings. Our social traffic continues to grow at strong double digits driven by our presence now across 14 key channels. And with promoted listings, we open the service to all store subscribers and we expanded placements into many new categories in Q4.

As I've discussed previously, we believe StubHub and Classifieds are important complements to eBay, and we continue to see strong overlap across each user base. Over the past six months, many of you have indicated that you'd like to better understand the scale of these platforms relative to our Marketplace platform. In an effort to increase transparency and disclosure across our portfolio, we will disclose volume and revenue for StubHub and revenue for Classifieds moving forward, which mirrors how we manage them internally.

Our StubHub platform continues to be a strong partner to sports leagues, teams and artists. We saw significant growth acceleration in the quarter driven by the product changes we made in August and aided by a strong sports landscape and high demand for concert tickets. And our Classifieds platform saw particular strength on eBay Kleinanzeigen in Germany along with Gumtree in the UK, resulting in accelerating year-over-year growth. We also continue to grow our U.S. Classifieds presence via our Close5 mobile app, where total downloads approach 6 million, more than doubling where we ended Q3.

Now, I want to step back and put Q4 in the context of our first six months post-separation from PayPal. Six months ago, we indicated that our key strategic priorities were to create a robust commerce platform, a vibrant marketplace and enhanced product and brand experiences and reposition our business to better compete over the long-term. We also set expectations that executing on this strategy would take time and that we prioritize repositioning our business over near-term growth opportunities.

Lastly, during this period of time we said we'd be disciplined with our investments while returning capital to shareholders. Over the past six months, we've made progress against our key priorities while delivering on the higher end of the growth expectations that we indicated and the investments we're making have been largely paid for by the restructuring we undertook in the first quarter of last year. Additionally, we've shed non-strategic assets while returning over $1.1 billion in capital to shareholders through our share repurchase program. In short, we're on plan and we will continue to execute on this strategy as we head into 2016.

Looking forward, we believe we can create a customer experience and a brand message that will sharpen the focus on what is unique about eBay. This year, I will be focused on stepping up our efforts to drive the best choice, the most relevant and a powerful selling platform in addition to further clarifying what our brand stands for. Having made many foundational investments, we expect to deliver significantly improved experiences for buyers and sellers across multiple dimensions this year.

We'll do this by improving discoverability, both on and off our site. We'll give buyers more choice, but also more data to facilitate better comparisons and will provide sellers with more effective tools, better service and fair policies to enhance their eBay businesses, incenting them to provide their best inventory and competitive prices on our platform.

Finally, we intend to innovate and improve upon our C2C experience to reaccelerate our sell-to-buy flywheel. In summary, we exit the year on plan and executing on the strategy and the financial framework we laid out six months ago. We're looking forward to a year of significant progress.

Now, let me turn it over to Scott to provide more details on our fourth quarter and full year results and 2016 guidance.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Thanks, Devin. During my discussion, I'll reference our earnings presentation beginning on slide 12. Our business was stable in Q4 as we made progress against our key objectives. We generated $2.3 billion of total revenue, $0.50 of non-GAAP EPS, $1 billion in free cash flow and we repurchased $550 million of our stock.

On slide 13, let's start at the top of the funnel with Q4 active buyers. In the quarter, we added 3 million new buyers, increasing the total active buyer base to 162 million. Trailing 12-month growth rate was stable at 5% in Q4.

Turning to slide 14. In Q4, we enabled $22 billion of GMV, growing 5% versus last year. By geography, the U.S. generated $9 billion of GMV, up 4%, while international delivered $13 billion of GMV, up 6%. I'll discuss these results in more detail later. Sold items grew 4% in Q4, a 3-point deceleration versus prior quarter. Sold item growth continues to be influenced by our product, geographic and seller mix. In Q4, we saw an increase in the mix of higher ASP electronics sold during the holiday.

Moving to slide 15. We delivered net revenues of $2.3 billion, up 5% versus last year, growing at the same rate as GMV. We continue to experience currency headwinds in translation negatively impacting growth by 5 points and resulting in Q4 revenue which was flat year-over-year on an as-reported basis. We generated $1.8 billion of transaction revenue, up 3% versus last year and $500 million of marketing services revenue, up 12% versus last year.

On the next three slides, I'll take you through a bit more detail on our Marketplace, StubHub and Classifieds platforms. Let's start with the Marketplace platform on slide 16. This platform is one of the world's largest online marketplaces with extensive product inventory that combines unique and interesting items with great deals on what shoppers want and love. We build connections between buyers and sellers across the world with product experiences that are fast, mobile, secure, and backed by the eBay Money Back Guarantee. Our flagship brand, eBay.com, has localized sites in Germany, the UK and Australia amongst others. We operate other brands as well, such as IAC and Gmarket in Korea and GittiGidiyor in Turkey. Over the years, our Marketplace has shifted from used goods and auctions to new goods and fixed price. In Q4, 80% of the sold items were new and 85% of GMV was fixed price. Additionally, 63% of orders shipped for free and 60% of orders were delivered in three days or less.

Turning to Q4 results. Marketplace GMV grew 4% year-over-year decelerating 1 point versus Q3. This performance reflects the ongoing challenges of SEO, the impact of the new mobile experience launched in Q3 and continued pressure on our C2C business. Total revenue for the Marketplace platform grew 1%, 2 points lower than the prior quarter. This deceleration was primarily driven by transaction revenue which was flat year-over-year and 2 points lower versus Q3. Transaction revenue was impacted by volume in addition to seller and category mix which showed an overall lower take rate. We also modestly increased contra revenue spend on coupons and seller incentives, shifting marketing spend away from operating expense.

Marketing services revenue grew 9%, accelerating 3 points over Q3. This revenue stream is comprised of advertising, our vehicles vertical and the PayPal operating agreement amongst others. As a reminder, the PayPal operating agreement was in addition to the MS&O revenue starting in Q3, and it contributed to the Q4 acceleration in growth.

Moving to slide 17. Our StubHub platform is the largest ticket marketplace in the U.S. We enable fans to buy and sell tens of thousands of tickets daily for sports, concerts, performing arts and other events. Throughout the United States, Canada, the United Kingdom and Germany, StubHub provides a specialized tickets experience custom-built for fans. StubHub is our tickets vertical experience, much like fashion or electronics that you can find on our Marketplace platform. We continue to see strong overlap between the Marketplace and StubHub visitor bases. We encourage all of our customers to use StubHub as their tickets marketplace to take advantage of the tailor-made experience for fans and the security offered by StubHub's FanProtect Guarantee, assuring fans that they will make it to their event or we will make it right.

StubHub ended the year on a high note, delivering Q4 GMV growth of 30%, up 20 points versus Q3. Q4 revenue grew 34%, accelerating 17 points versus Q3. StubHub's standout performance was driven by a full quarter of product improvement launched in August including pricing display changes and our updated mobile app, plus strength in both sports and concerts in Q4. Q4 capped off a strong finish to 2015. For the full year, StubHub generated $3.6 billion of GMV and $725 million in revenue, up 15% versus prior year.

Now, turning to Classifieds on slide 18. We operate 12 brands in our Classifieds portfolio with a presence in 17 countries. eBay is the Classifieds leader in 10 markets and attracts approximately 250 million unique monthly visitors. Some of our well-known brands include Gumtree, Kijiji, and eBay Classifieds to name a few.

Classifieds provides eBay another way to serve the online C2C market which often represents the same customer with items better suited to a local transaction. We intend to continue investing in our growth markets, mobile-only experience, and strong local presence.

Turning to Q4 results. Classifieds delivered another strong quarter of growth, up 15% year-over-year, accelerating 1 point versus Q3. The strong performance in Q4 was driven by our developed markets, most notably eBay Kleinanzeigen in Germany and Gumtree in the UK. Q4 contributed to a strong performance by Classifieds in 2015, generating over $700 million in revenue for the full year, growing 15% versus prior year.

Now, moving to expenses on slide 19. I'd like to take a moment to touch on the impact of foreign exchange on our expense lines. While nearly 60% of our revenue is international, our cost base is weighted to the U.S. dollar. As a result, when the U.S. dollar strengthens, we experience some loss of leverage on a percent of revenue basis, costing us 80 basis points in Q4. We will continue to feel the impact of the stronger U.S. dollar for some time to come, and with this in mind I will focus the rest of my expense commentary on operational drivers.

Cost of revenue increased 220 basis points year-over-year, with the primary driver being the addition of PayPal processing costs. In Q4, we also increased investment in structured data and security efforts. In looking at operating expense, as we've mentioned in the prior two quarters, we undertook a reduction in workforce in Q1 which continues to drive year-over-year leverage across each expense line item. Outside of that, let me touch on some additional operating expense drivers.

Q4 sales and marketing expense is down 120 basis points year-over-year. This is primarily driven by the shift from marketing expense to contra revenue that I mentioned earlier in addition to lapping last year's significant brand spend. Product development is relatively flat year-over-year on a percent of revenue basis as we reinvest operational leverage into initiatives such as structured data.

G&A increased 110 basis points year-over-year, with stand-up costs more than offsetting the benefit from the reduction in workforce. We will see a similar year-over-year impact of stand-up costs in G&A during the first half of 2016.

Moving to slide 20. In Q4, we delivered $0.50 in non-GAAP EPS, down 10% year-over-year, as revenue growth, operating leverage and the impact of share repurchases were more than offset by the impact of the stronger U.S. dollar, a higher tax rate and stand-up costs. The impact of the strong U.S. dollar alone cost us 7 points of EPS growth.

Turning to free cash flow. Our ability to generate strong cash flow based on our low capital intensity and profitable business model continues. In Q4, we generated free cash flow of $1 billion, bringing the full year to $2.2 billion. In Q4, CapEx was 6% of revenue, six points lower than prior quarter as separation-related spending ramped down and the timing of some of our planned spend pushed into 2016. For the full year, CapEx was 8% of revenue.

Moving to slide 22. We ended the quarter with cash, cash equivalents and non-equity investments of $8.5 billion, including $1.5 billion in the U.S. As a reminder, our capital allocation policy is designed to manage the capital structure in a way that optimizes our financial flexibility, access to debt, and our cost of capital to drive long-term shareholder value.

In Q4, we repurchased 19.9 million shares at an average price of $27.62 a share. This brings our total repurchases in the second half of 2015 to over $1.1 billion, or just under 42 million shares. We ended the quarter with $1.8 billion of share repurchase authorization remaining. We continue to be disciplined in how we manage our investments and, in Q4, we closed the divestiture of eBay Enterprise and received cash proceeds of $925 million.

In 2015, we repaid $850 million of debt that matured. As a reminder, we have an average investment grade rating of BBB+, which allows a gross debt-to-EBITDA ratio of up to approximately 3.5 times providing us the capacity to take an additional $3 billion to $4 billion of debt. As we look at our capital structure in 2016, we may seek additional outside financing to replace 2016 maturities and to provide additional financial flexibility.

I'd like to take a moment to share how we're thinking about capital allocation for 2016. Subject to market conditions, we expect to continue buying our own shares throughout 2016 at or above the rate of our second half 2015 repurchases. This would be in addition to offsetting dilution. To this end, we have incorporated share repurchases into our 2016 guidance, which I will cover shortly. And consistent with what we said before, we will continue to be an acquisitive company, disciplined in our approach, and seeking the best opportunities to create long-term value.

Moving to full year guidance on slide 23. We are projecting 2016 revenue between $8.5 billion and $8.8 billion, growing 2% to 5% versus last year. Our projected growth is in line with what we discussed previously and relatively stable with 2015 as we continue to execute our long-term strategic initiatives in the face of near-term headwinds. On an as-reported basis, growth ranges from a 1% decline to a 2% increase as foreign exchange negatively impacts growth by 3 points. We expect operating margin of 31% to 33% for the year.

As compared to 2015, we are losing roughly 1 point of margin due to the impact of foreign exchange and 50 basis points due to a full year of separation cost. Despite these factors, our margin is in line with expectations set last June, and we are utilizing leverage and cost savings to fund our investments.

We are projecting non-GAAP EPS of $1.82 to $1.87 per share, down 1% year-over-year at the low end of the range and up 2% at the high end. The impact of the stronger U.S. dollar cost us roughly 5 points of EPS growth. Finally, we expect non-GAAP effective tax rate of 19.5% to 20.5%, CapEx of 7% to 9% of revenue and free cash flow of $2.2 billion to $2.4 billion.

Moving to Q1 guidance on slide 24. For Q1, we are projecting revenue between $2.05 billion and $2.1 billion, growing 3% to 5% versus last year. We expect non-GAAP EPS of $0.43 to $0.45 a share, representing a decline of 6% to 10%. The decline is due to the stronger U.S. dollar and impact of the synergies which cost us 10 points of EPS year-over-year. This impact will be more pronounced in the first half of 2016.

In closing, we end the year with financial commitments on plan, a clear and disciplined approach to capital allocation, and executing on our strategy. In the upcoming year, we will increase our efforts to drive the best choice, the most relevant, and a powerful selling platform while driving increased clarity on what our brand stands for and we will remain focused on positioning eBay for long-term success.

And now, we'd be happy to answer your questions. Operator?

Question-and-Answer Session

Operator

Certainly. Our first question comes from the line of Richard Kramer from Arete Research. Your question, please.

Richard Kramer - Arete Research Services LLP

Thank you very much. Very quickly, can you give us any sense of the profitability of StubHub and Classifieds now that you've broken it out? Is it something you'll be able to speak to? And then, I guess, a successive question, can you talk about your international guidance in context not just of FX, but whether you're seeing impacts from the macro situation that we have, we've all been hearing about? How much have you factored into your guidance with respect to that? And are you seeing an impact currently on the business? Thanks.

Devin N. Wenig - President, Chief Executive Officer & Director

Scott's going to take the first part. He'll talk about StubHub and Classifieds, and then let me take the second part of your question. This was on margin on StubHub and Classifieds.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah. So what we've done this quarter is essentially double-click on Classifieds, Marketplace and StubHub in the way we run them which is for both StubHub and Marketplace on a GMV basis and for all three on a revenue basis. That's how we run the company. And the underlying expenses, we run as a portfolio, and we deploy capital in that way between business units to optimize across our portfolio. And so we won't be this time giving a double-click on margin now or going forward.

Richard Kramer - Arete Research Services LLP

Okay, fair enough.

Devin N. Wenig - President, Chief Executive Officer & Director

Let me take your question just on international in the context of the macroeconomic environment. I would say that there are two things to note. The first is that the strong dollar, as Scott pointed out, obviously has a translation effect, but it equally has an operating effect. We have a strong cross-border business. The continuing strengthening of the U.S. dollar has really impacted the exports of U.S. goods which was one of our biggest export corridors. So the strong dollar is both a translation impact and it's certainly underlying that in operating impact.

And our trade flows are not purely balanced. So it's helped our China business somewhat paradoxically in some of our import corridors making those goods seem cheap, but it doesn't net out to zero. In fact, it's been quite a significant headwind starting last year when the dollar started to strengthen, vis-à-vis just the overall macroeconomic situation. I guess what I would say is right now we don't – we're watching it very carefully. It's hard not to watch it given what we've seen out of both earnings and out of the market.

I would say that in the fourth quarter, we were very happy with the holiday. We had a very strong Cyber Five, and we started to see some small signs of softening in December. We're not assuming any significant change in the macroeconomic environment, but it's obviously we and every company is watching it very, very carefully. So I'd say right now FX is a much bigger operating impact than overall market softening. We don't have very much of a domestic China business for instance, but we're certainly watching that carefully as I think every company is right now.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah. And, Richard, maybe for the benefit of everyone on the phone, there's probably be a follow-up question anyway. Roughly speaking, as you know, 60% of our business is international with most of our exposure in euro, pound, Aussie dollar and Korean won. And as we look to 2016 versus today's rates, on an average, that would be about a 6% decrease across that basket of currencies for 2016, which would have about a 3% impact on our top line. So that's how the top line anyway is architected and impacted given our foreign exchange translation exposure.

And then, maybe just to go one more step further, as it relates to our hedging strategy, as I've discussed previously, we're unable to hedge revenue in the new eBay (30:11) and, as such, our top line is heavily exposed to currency fluctuations. But as I explained back in Q2 and a bit in Q3, we do utilize now different hedging instruments to economically protect net income, and that program is designed to protect as much net income as we can, and the intent is to have minimal variation versus guidance for EPS due to foreign exchange. But that doesn't eliminate the effective FX on a year-over-year basis, particularly for revenue as I called out. And as rates change, we will feel the effect of FX when comparing year-over-year.

Richard Kramer - Arete Research Services LLP

Okay. That's super helpful with respect to the guidance. I guess one quick follow-up, could you talk about the developments of the advertising business? And, certainly, at the end of last year, you had launched quite a few new native advertising products. Can you talk about how that might scale over the course of 2016, and how much of a priority that might be to sort of revive that business with eBay?

Devin N. Wenig - President, Chief Executive Officer & Director

Yeah. It's important to us. We're very optimistic about things that we've done such as promoted listings. We're in a very, very early stage and, in fact, we just really opened up the thresholds on that based on the performance at the end of the last quarter and it will grow over time. It's not yet a material lever in our results, but I'm certainly optimistic about advertising. We still have an enormous traffic and customer flywheel, 162 million active customers and we do think there are other ways to monetize that.

And this is in keeping with what we've said which is we could throw a lot of money at short-term growth. We're not doing that because we are being disciplined about our investments and we're investing in the platform and in new business opportunities that we think will be important for eBay two years, three years from now. And this is one of those areas, for sure. And you'll see a lot of activity in 2016.

Richard Kramer - Arete Research Services LLP

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Mark May from Citi. Your question, please.

Mark A. May - Citigroup Global Markets, Inc. (Broker)

Thank you. In terms of your revenue guidance for this year excluding the impact of currencies, just wondered if you could shed a little more light on kind of what you expect to be some of the key underlying drivers there, maybe the B2C versus B2B, maybe what your expectations are for growth in Classifieds and StubHub. Just trying to get a little bit more perspective on what your expectations are for the various segments of the business.

And then on the listings restructuring, for the portion of listings that you've processed and enriched, if you will, wonder if you could provide any updates or insights on the impact that that's had on SEO and conversion rates and things like that? Thank you.

Devin N. Wenig - President, Chief Executive Officer & Director

Yeah. On the first part, we're not going to break guidance out by segment. We're going to keep it at the top level. But I guess what I'd say is, I would expect our business is heavily skewed towards transaction revenue. Obviously, it's the core business and it's take rate on transactions. And that's implicit in this guidance. I think we'll see growth in marketing services, but it's a relatively small part of the portfolio compared to transaction revenue. And I would expect to continue to see reasonable growth from the components, but it's not – there's no major mix shift going on in 2016. I think you should assume that it will follow the path in terms of the components that it followed in 2015, roughly.

Second part of the question, sorry? Listings restructuring, yeah, sorry, Mark. Look, this is a major effort and we're a data-driven business. So we don't do anything without measuring it and ensuring that we're on the right path. And this is consistent with what we've been saying, which is where we are organizing data, adding content to it, where we are exposing it in a new way. We're seeing better traffic, we're seeing better conversion. It's just very small today in our ecosystem and it will take time. But we all believe we're on the right path. And I think we measure, just to be clear, in data from the top of the funnel to the bottom. We measure incoming users, new and existing. We measure their conversion through the midpoints of the funnel, and we measure ultimately their conversion to a transaction. And all of that we watch literally on a daily basis.

So if you think about the scale of what we've done, it's still very foundational. We've made a lot of progress on the foundation, but its manifestation through the pages that you're seeing in the accompanying slides is really small. But where we've done that, we're seeing better results. And that's why we really believe that as this scales and moves out, we're going to drive leverage across the business.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah, Mark, I would also point to Devin's slides at the beginning of the presentation that we posted. We've gone from the amounts that we showed going towards the 60% collection target here relatively shortly, and we've increased the amount of that information that we've already received and processed that and we've raised that from 28% to 37%, as Devin referenced.

And from that, the few pages that come behind those kind of give you a sense for how we're creating product experiences and adding value through the customer reviews that have come online in a very significant way, through some of the buying guides and some of the easier browsing and capabilities to highlight our spectrum of value. And so I think while it's obviously not across our entire portfolio or listing space, increasingly you're seeing those experiences when you search on eBay.

Operator

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

Heath Patrick Terry - Goldman Sachs & Co.

Great. Thanks. Just wanted to try and get a sense of as you are seeing these higher conversion rates, can you give us a bit of color behind what is – where that's being driven? Is it conversion of visitors to eBay and to purchasers? Is it an increase in the average basket size for your existing purchasers? Are you primarily seeing reactivation among customers that had maybe fallen off of eBay during the issues from last year? Just really trying to get sort of a better understanding as to the details behind these conversions – or these improvements in conversion rate and activity that you're seeing in the underlying business.

Devin N. Wenig - President, Chief Executive Officer & Director

I'd say the one we're most focused on is improving traffic and converting traffic to active buyers. And I'll give you a really practical example of where that's happening. Historically, we would send people to a search results page, and that search result page depending on the hundreds of millions we have, was of mixed quality and we get some conversion of that. Now, we're sending people where we have the pages to a structured browse page like the ones that are in the accompanying slides, and we know we're getting better conversion of traffic to active buyers in those pages.

Equally, we're watching very carefully things like SEO. I mean, we have a limited number of pages still. But we're watching where are those pages ranking? What kind of traffic are those pages generating? And, ultimately, does that traffic convert to active buyers? And we like what we see so far. We believe we're on the right path and it's intuitive, it's not a hard reach to look at the page and say there's great inventory, it's a great customer experience. For a while people have asked me why is eBay complicated, and why is it hard to navigate, and why aren't there things like product reviews? Well, increasingly, now there are. It's not hard to navigate, these pages are really elegant. They're converting better and we're beginning to get really quality content on them because we now understand products and not just listings. So I just gave you two pragmatic examples. There are others, but those two alone are important. They're major levers on our business.

Heath Patrick Terry - Goldman Sachs & Co.

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Carlos Kirjner from AllianceBernstein. Your question, please.

Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC

Thank you. I have two related questions. If you look at your user and GMV growth trajectory, there is a clear break in the trajectory in May 2014, which one could plausibly attribute to the password reset issue. It seems to be behind the company and the SEO issue which seems to be still an issue. The first question is whether there has been any other aspects of the business that deteriorated and have contributed to the deceleration of FX neutral GMV and revenues or whether these two are – or whether the SEO issue is the main issue.

And secondly, unrelated, forgive me if I'm a bit deaf, but I hear you saying you are making progress and believe that the structured data initiative will work based on your early experience. I see your slide saying that structured data will cover 60% of relevant listings by end of February, but you had to say that we shouldn't expect the impact of the strategic initiatives in the foreseeable future. Will we see any benefit from structured data on traffic acquisition in 2016, and is that in your guidance? Thank you.

Devin N. Wenig - President, Chief Executive Officer & Director

Thanks for the question. I would say we don't talk about May of 2014 anymore because we're however many months on and the world has moved on. I'd say nothing fundamentally has changed, but our strategy is different, our investments are different, we're making a major transition of the business. So we don't point the finger at any one event. I just come back to this is exactly what's happening with our business is remarkably like what we said over the summer and six months ago, which was, we're going to focus our strategy; we're going to move away from commodity towards what's unique about eBay; we're going to make catch-up investments that probably historically should've been made, but were not, in order to better compete over the long run; and we're going to try to hold our growth to low-to-mid single digits while keeping our margin and cash flow high and returning capital to shareholders. All three of those things are still true.

And the reality is that, as we've said, many of these investments are not quick-hit investments. We are re-platforming eBay. 60% of coverage of listings is the first part of the equation, not the end of the equation. That's the raw material and the foundation to allow us to build product experiences and it's those product experiences which change traffic and conversion. So I would say that right now – and we watch it carefully, I don't assume that the world will continue exactly the way it is, we watch everything very carefully. But right now, the plan that we laid out really clearly, I think six months ago, we believe it's working and we believe we're on that plan. And we believe that over time eBay will get more competitive and that'll manifest itself in better growth and better competitiveness.

Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC

Thank you.

Operator

Thank you. Our next question comes from the line of Brian Nowak from Morgan Stanley. Your question, please.

Brian Nowak - Morgan Stanley & Co. LLC

Thanks for taking my questions, I have two. The first one is on the 2016 operating margin guidance. I think in – maybe my notes are wrong, I guess I thought in June the margin guidance was 31% to 35%. Now, you're saying 31% to 33%. I guess, we'd just be curious about kind of what changed to kind of change the top end there, is that is FX or is – you're having to spend more on something else than you expected to in June?

And then the second one on the international piece is, I'm curious, I know last quarter you mentioned Germany and the UK have been growing slower than the overall average. Can you just talk about how fast Germany and the UK grew in the fourth quarter relative to overall international? Thanks.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah. So let me take the first one on margin rate. So we did say 31% to 35%, and we did go 31% to 33% today for 2016. With the midpoint being around 33% we had from earlier this year or middle of last year I should say the major difference is about a point of foreign exchange movement between then and now. And so really apples-to-apples, we'd be about at the same center point of margin rate, but one point of degradation from foreign exchange. What I'd highlight is that underlying that, there's been significant movement and we continue to try and drive productivity to be able to fund our investments in the things that we've been talking about.

Devin N. Wenig - President, Chief Executive Officer & Director

And with regard to the UK and Germany, they did not – they performed in line with the portfolio, there was no outlier in performance. In fact, they picked up a little bit this quarter versus last.

Brian Nowak - Morgan Stanley & Co. LLC

Great. Thanks.

Operator

Thank you. Our next question comes from the line of Douglas Anmuth from JPMorgan. Your question, please.

Unknown Speaker

Hi. This is actually Dave (45:01) in for Doug Anmuth. So our question is based on – is on the sales and marketing spend. So in 2016, do you guys have any plans to step up the spend? And related to that, is the product where you guys wanted it to be to market it more? And a second follow-up question is, are you guys going to be moving towards a contra as you guys have been doing in the past? And that's my question.

Devin N. Wenig - President, Chief Executive Officer & Director

So let me take – that's all three good questions. Let me take them in turn. So first of all, on the product, as I said in my remarks, I'm really excited about this year because I do believe that with some of these foundational investments in place, you're going to see the product evolve relatively quickly for buyers and sellers. So the product's never – it's never static; it's always evolving. But I think this will be year of particular innovation for us. We have a very exciting pipeline. Based on all the things that we've been talking about, based on our ability to now understand products and persistence, we believe we can generate a really differentiated experience that shows our customers what's unique about eBay. It doesn't talk about it, but shows them. So I do think this will be a year of rapid innovation in the product experience.

Second is sales and marketing. There's no – a couple of things. First is, we are going to start almost immediately pivoting some of our spend up the funnel to what we would call more traditional brand spend. That doesn't mean television, it just means instead of selling you an iPhone or a sweater, we're going to talk more about eBay and the brand. Whether or not we ultimately spend more in that will depend on what we learn from doing that. We do believe that brand is more important, that we have to more sharply define our brand in an increasingly crowded environment, and you'll see us start to do that. There are no plans to significantly change our spend, but how we spend will begin to change and, in fact, it already is changing.

Final comment is on contra. There's no – we're very disciplined about contra revenue. I would say that we spent a bit more on that versus a little less on marketing in the fourth quarter because holidays become very deals-driven. And this holiday, we participated in deals aggressively across electronics, fashion, home and garden, and we got good results. But that does cost some mix shift in spending more on contra. I would expect those numbers to go back to historical averages. There's no break from trend other than we plus-up in the fourth quarter because that's the way shoppers are shopping.

Unknown Speaker

Thank you.

Operator

Thank you. Our next question comes from the line of Eric Sheridan from UBS. Your question, please.

Eric J. Sheridan - UBS Securities LLC

Thanks for taking the question, I guess two. One, when you start thinking about the cadence of investments you're making in the business, I guess this one would be for Scott, how do think about the cadence of investments as we move through the year first half versus second half and whether we might see more leverage against investments in the second half for the year? Or really should we be prepared for a full year impact on the leverage side from investments? And I guess, for Devin, one on marketing efficiency long-term, you've talked a lot tonight about traffic sources and improved channels, even referenced social. Have you learned anything as you continue to evolve the platform about how marketing efficiency might evolve for eBay long-term? Thank you.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Okay. So I'll – real quick on the cadence. I'd say the one cadence aspect I would call out – maybe a couple. First off, within our G&A cost bucket, we're going to have two more quarters of essentially no year-on-year comps in the baseline for standup costs. And so there's going to be, before we see productivity in G&A, we're going to have relatively difficult comps as we stood up to the company and without any baseline comparisons. I think what you could expect in product development is a continued pace of investment in line with the percentages of revenue that we've shown over the last, let's call it 12 months to 18 months, but certainly the last six months.

And sales and marketing, I would call out the pacing and refer back to the earlier response around contra. In some quarters, we may decide based on the returns that we think we can get for the strategies that we're deploying on marketing that some more marketing ends up out of the expense line and into contra. In other quarters, it may be the opposite. But I think within the ranges that we talked about last year, I would expect that to be not larger to Devin's point than what we've seen so far.

Devin N. Wenig - President, Chief Executive Officer & Director

And I'll take the second part and just to close out on contra. Just note, I've said this before, but I think it's important. We have a playbook on contra and we try not to deviate from it, which is we spend on acquiring customers when it makes sense to spend on acquiring customers. I'm not sure all companies in this environment play that same playbook, but we could have bought another point or two of growth, we just don't do that because we don't think it creates value over the long-term. So, for us, contra is one of the weapons we deploy, but we do it carefully, because it's easy to show growth, but it's not easy to create value and those are two different things.

On marketing efficiency, there's a couple of puts and takes. So every year, we try to pick up marketing efficiency. I target my marketing teams with significant basis point improvement in efficiency of the way we spend our significant marketing expenditure. Our most efficient marketing spend on an ROI basis is paid search, but that we don't believe over the long run we can be tied only to paid search. So we are spending into less efficient channels to build new channels in the future and I point to social as a great example. We're on 14 channels. None of them today is as efficient as paid search, but it's diversifying our traffic mix and we're working on making them more efficient over time. We think it's the right thing to do even though it's making us less efficient in the short-term as a mix effect.

The other thing I'd say is we watch the competitive landscape really carefully. It's really important that we maintain eBay's share of voice. And in the last couple of years, it hasn't gotten less competitive, it's gotten more. So while we pick up some gains in efficiency, I don't see a lot of leverage coming from marketing. I suspect we'll want to spend more over time as our product experience improves and we want to bring more and more people to a better eBay experience. So those are some of the puts and takes the net being I don't expect in 2016 to see a lot of leverage on the marketing line.

Eric J. Sheridan - UBS Securities LLC

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Robert Peck from SunTrust. Your question, please

Kunal Madhukar - SunTrust Robinson Humphrey, Inc.

Hi. This is Kunal for Bob. Thanks for taking the question. Couple of questions actually. One is of the structured data and at 38% coverage you're currently going up to 60%, how much of the GMV does that typically represent?

Devin N. Wenig - President, Chief Executive Officer & Director

Do you know the answer to that, Scott? If we go to 60%, that's of listings, I don't know if we know offhand.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah. The way I would think about it is we are talking as a percentage of relevant listings, but there's probably 10%-ish that aren't relevant. But that aside, I think you can kind of use this as a guidepost of GMV.

Devin N. Wenig - President, Chief Executive Officer & Director

Yeah. I don't think – we could check that number, but I don't think it's that different. I think when we talk about relevant listings, the GMV roughly follows the relevant listings.

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah. And, Kunal, maybe to kind of go back to one of the earlier questions, I'd point back to that really is an input metric to then us processing that information and churning out than a different product experience that ends up on search engines in a way that brings the traffic which would drive that active buyer increase and it brings the GMV. And so we're not tied to 60% to – yeah, 60% of our GMV is going to be covered. 60% of the listings, roughly speaking, GMV, is covered with a catalog at the end of this process halfway through the year and then a portion would then have been processed and out, if you will, in the wild and out there being indexed in Google or other search engines for users to find an access.

Kunal Madhukar - SunTrust Robinson Humphrey, Inc.

Okay, great. And a quick question on the share repurchases. Based on the run rate in the second half of 2015, it would seem you are probably guiding broadly to about $2.3 billion of buybacks this year, again, based on market conditions. What is the limitation on the number of shares you can actually buy back in the first two years post the split?

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah, Kunal, a couple of points. Our guidance includes the fact that we expect to be buying back about at the same rate as the last two quarters each quarter. And we expect to also be buying back the dilution offset, and so it's maybe in the range of what you're talking about. We have $1.8 billion remaining in our existing authorization. There's nothing precluding us from asking for more. Look, we have a limitation in the first two years to protect the tax-free nature of the spin of about 20%, a little bit less than 20% in that range, and that would be our guardrail for the first two years.

Kunal Madhukar - SunTrust Robinson Humphrey, Inc.

Okay, great. Thank you so much.

Operator

Thank you. Our next question comes in the line of Mark Mahaney from RBC Capital. Your question, please.

Jim Shaughnessy - RBC Capital Markets LLC

Hey, guys. This is Jim Shaughnessy stepping in for Mark. One quick question from us around StubHub revenue. Just obviously seeing a nice pick up here, wondering your thoughts on the sustainability of that growth rate and how we should think about that going forward? Thanks.

Devin N. Wenig - President, Chief Executive Officer & Director

Again, we're not going to guide on the segment – on the components of it, but I'd just say StubHub is a great business. It's a leader in its category. It has opportunities to expand internationally. It is increasingly partnering with leagues and teams to move from secondary opportunistically into primary, and it's a great business. So I would not expect that, I mean, these are obviously very, very strong growth rates this quarter. There were, as we said, some unique things. There was the pickup on the back of the product changes, it was a very strong World Series, it was a very strong concert landscape.

StubHub also bounces around quarter-to-quarter based on the events. It's much more choppy than eBay just because it sort of depends what the matchup is in the Super Bowl and what the events landscape is, and it was a very strong events landscape. So I would expect StubHub to keep growing. I'm not sure I'd expect it to keep growing at this rate, but it's a good business and we really we're proud of the fact that we've been able to grow StubHub using some of the eBay traffic flywheel over the last several years and it's a real good business just like Classifieds is.

Selim Freiha - Vice President-Investor Relations

Operator, we'll take one more question.

Operator

Certainly. Our final question comes from the line of Brian Pitz from Jefferies. Your question, please.

Stan Velikov - Jefferies LLC

Hi. Thanks for taking my question. This is Stan Velikov here for Brian. Active buyers growth stabilized in Q4 at about 5% while sold items growth accelerated 3 point sequentially to 4%. What were the puts and takes here? And how should we look at these metrics going forward? And, also, what part did India play in the active buyers trend stabilization?

Scott Schenkel - Chief Financial Officer & Senior Vice President

Yeah. So on active buyers, India plays a big role in our overall active buyer base. But on a Q-over-Q basis and in the growth perspective, it didn't have a material impact this quarter. Last quarter, we called out, it helped a bit. This quarter, it didn't necessarily accelerate further. The way I'd think about active buyer growth is it's been massively impacted by two things over the last two years. One was password reset and I think that's largely behind us. And I think the other is SEO, SEO as explained in many different forums has an over-indexing impact on acquiring new users, and thus has depressed the top of our funnel and reduced our overall active buyer growth over the last couple of years. And that's why the structured data and SEO initiative is so important because it'll work our way back up on that measure.

On sold items; sold items, the change this quarter was just driven primarily by the higher mix of electronics sold during the holiday. This tends to go up and down depending on everything from country and seller mix to hot items. So it's relatively difficult to predict and correlate. And just to explain it for Q4, it was higher degree of electronic items.

Stan Velikov - Jefferies LLC

Thank you.

Devin N. Wenig - President, Chief Executive Officer & Director

Thank you.

Operator

Thank you. This does conclude today's program. Thank you, ladies and gentlemen, for your participation in today's program. You may now disconnect. Good day.