eBay, Inc. (NASDAQ:EBAY) Q2 2016 Earnings Call July 20, 2016 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
Eric J. Sheridan - UBS Securities LLC
Heath Terry - Goldman Sachs & Co.
Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC
Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Mark A. May - Citigroup Global Markets, Inc. (Broker)
Mark Mahaney - RBC Capital Markets LLC
Colin A. Sebastian - Robert W. Baird & Co., Inc. (Broker)
Douglas T. Anmuth - JPMorgan Securities LLC
Robert S. Peck - SunTrust Robinson Humphrey, Inc.
Richard Kramer - Arete Research Services LLP
Brian J. Pitz - Jefferies LLC
Ronald V. Josey - JMP Securities LLC
Operator
Good day, ladies and gentlemen. And welcome to eBay's Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer section and instructions will be given at that time. As a reminder, today's conference is being recorded.
I'd now like to introduce your host for today's conference, Mr. Selim Freiha, Vice-President Investor Relations. Sir, please go ahead.
Selim Freiha - Vice President-Investor Relations
Thank you, operator. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the second quarter of 2016. 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 section of the eBay website at investors.eBayinc.com. You can visit our Investor Relations website for the latest company news and updates. In addition, an archive of the webcast will be accessible for 90 days through the same link.
Before we begin, I'd like to remind you that, during the course of this conference call, we will discuss some non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call.
In addition, management will make forward-looking statements that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of eBay Inc. and its consolidated subsidiaries including expected financial results for the third 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 and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company's Investor Relations website at investors.eBayinc.com or the SEC's website at sec.gov. You should not rely on any forward-looking statements. All information in this presentation is as of July 20, 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. Q2 was a good quarter for us. We delivered strong top line and bottom line financial results, led by acceleration in our core eBay platform, and continued strong performance from StubHub. We made good progress on our strategy and we're starting to see some positive movement in underlying traffic and conversion metrics, driven by early versions of our new user experiences.
Overall, total GMV was up 6% for the quarter, while revenue was up 7%. And active buyer growth was stable at 4% year-over-year, as we added over one million new buyers to our platform in Q2. GMV on our Marketplace platform grew at 5% year-over-year, a one point acceleration, driven by strength in the U.S. StubHub grew volume at 35% year-over-year, a six point acceleration. And our Classified platform grew revenue at 15%.
Finally, we repurchased a $500 million of our stock, and continue to invest in acquisitions to help strengthen our business. We acquired Expertmaker in the quarter and recently announced our intent to acquire SalesPredict, each of which will enable our efforts around machine learning, artificial intelligence, and structured data. And we announced our intent to acquire TicketBis and Ticket Utils, further strengthening our StubHub platform.
It's been a year since we spun off PayPal, and we announced a focused strategy to reposition our business for long-term success, by driving the best choice, the most relevance, and the most powerful selling platform.
I have never been more convinced than I am today that this is the right strategy for our company and I'm pleased to see how our teams have embraced this direction and are driving execution. However, I'm also clear about the gaps we still need to address in our business, such as repositioning our brand, reigniting our new buyer acquisition flywheel, and stemming the decline in our C2C platform; and while we're making good progress, our efforts will take time to yield material results in the business. We continue to drive best choice by providing the broadest spectrum of value for our consumers while working with our sellers to offer high shipping standards.
In Q2, we hit a significant milestone, crossing the one billion live listing mark for the first time in our history. And in the U.S., two-thirds of all items shipped for free, and they arrived within three business days or less. This inventory growth is in part enabled by our success in signing on strategic inventory partners, while continuing to tap into large pools of SMB merchants, with partners like BigCommerce. Finally, we launched a new Wine category, and it's off to a very good start. You can expect several more category launches over the remainder of this year.
We're also building on our highly successful multibillion dollar eBay deals platform in the U.S., doubling the number of deals available to our consumers since the beginning of the year. All of our deals shipped for free for everyone, every day without a membership required.
Next, we continue innovating to drive the most relevant shopping experience for our consumers. These innovations are being built on top of a strong and growing foundation of structured data. Our structured data mandate currently covers approximately 60% of relevant live listings on our site. And in Q2, we increased the percentage of structured data listings that we've processed to 42% of relevant live listings.
While our effort to expand our penetration of structured data will continue over the coming months, our current footprint is already enabling us to build compelling new user experiences not previously possible in a listing space marketplace. Over time, this will help us in multiple areas of our business, including more effectively enabling our consumers to get the items they want and need through better search, browse, and merchandising, educating our sellers on inventory gaps and opportunities, more persistence and better ranking in natural search results, and more effective paid search marketing just to name a few.
Product reviews are a great example of a feature made possible by structured data. In Q2, our customers added 3.1 million new product reviews, nearly double the number added in the prior quarter, for a total of nearly 12 million reviews on the platform.
Looking at other new user experiences, we continue to launch and iterate on our new browse and product pages, and we're starting to see early positive results. Q2 was the first positive quarter of SEO traffic in over a year-and-a-half.
In the U.S., users who land in our new browse experience from our SEO channel are converting at approximately 10% higher rates. And we're also seeing similar results with our new product pages. We now have 15 million of these pages live, and as we add more categories and more product pages, we'll have more data to validate these early encouraging signs. While this is a step in the right direction, I want to remind you that SEO traffic only comprises about 10% of our overall traffic.
We've recently launched the ability for users to quickly see the spectrum of value that our sellers offer through a product comparison experience across our selection of new, refurbished and used inventory. You can see this new experience in the slides accompanying my commentary.
Mobile has long been a competitive differentiator for us, and in order to maintain that advantage, we continue to invest and innovate on our mobile experience. In Q2, we launched a completely redesigned mobile experience, and customer reception has been very positive so far. We've already released multiple updates enabled by our more efficient mobile development platform, which we released late last year. Our mobile experience is now getting back on the right track, with marketplace mobile volume growth accelerating to 19% in the quarter.
As we make progress on the user experience, another key strategic focus for us this year has been to sharpen and more clearly differentiate our brand among consumers. As the number 32 brand in the world according to Interbrand, we deliver a compelling value proposition to help every person get their version of perfect, no matter what it is. This speaks to the considerable strengths that come from the depth and breadth of our inventory and the incredible deals available to eBay shoppers every day, which are becoming increasingly discoverable and personalized.
As we continue to roll out changes to the shopping experience on eBay, our brand promise will likewise more fully come to life for consumers. In Q2, we began to reflect this positioning in marketing and we plan to expand these efforts throughout the second-half of 2016.
Finally, we continue to execute our plans to deliver the most powerful selling platform. Our structured data foundation is starting to enable us to provide sellers with insight into inventory gaps and opportunities on our Marketplace platform. In Q2, we ran several campaigns targeted to areas of the site where we saw high demand and not enough supply. These campaigns are enabling us to activate sellers and bring incremental inventory on to our platform.
On the consumer selling side, we're working in multiple areas to reduce friction and enable simpler experiences. Later this summer, we intend to launch a simplified listing flow on the core eBay platform that takes advantage of our structured data to save consumers time and effort in the listing process. And consumers continue to leverage our assisted selling service eBay Valet. Over 100,000 users have now experienced the service; and in Q2, we announced a partnership to expand Valet drop off sites to all U.S. FedEx locations, which should help drive further adoption.
StubHub had another stellar quarter, driven by innovative user experiences and strength across multiple genres. Product experience changes we've made over the past year include a new pricing display, ticket recommendations and virtual reality [in-seat] views, and they continue to propel this platform to new heights.
And we've recently announced our intent to acquire TicketBis, which will help accelerate our international footprint; and Ticket Utils, which will help enable us to offer sellers enhanced tools to better manage their inventory.
Our Classified platform continues to grow steadily, building on our market-leading position in several countries. This momentum is driven by improving the mobile experience with services like in-app chat while focusing on building and strengthening verticals in several markets such as real estate in Germany. And we continue to work on driving synergies between Marketplace and Classifieds, testing ways to expose our inventory to consumers on both platforms.
In summary, Q2 was a good quarter for our business with accelerating volume and revenue growth. We continue to invest in product and technology and are accelerating the pace of innovation and new user experiences.
One year since spinning off PayPal, we are executing our long term business strategy and beginning to see the results from those efforts. And while there will be challenges along the way, you can count on us to make steady progress. eBay's business is strong and we're running it to ensure that we will be a global technology leader for years to come.
Now, let me turn it over to Scott to provide more details on our Q2 results.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Thanks, Devin. As Devin highlighted, we delivered good top line and bottom line financial results this quarter, driven by acceleration in our Marketplace and StubHub platforms. We are starting to see some green shoots of our strategic initiatives as we reposition our business for long term success.
At the same time, we are clear about our challenges such as repositioning our brand, acquiring more new buyers, reinvigorating C2C and enabling the best tools for our sellers. We remain focused on our efforts to provide the best choice, the most relevance and a powerful selling platform as we continue executing our strategic plan.
During my discussion, I'll reference our earnings presentation beginning on slide 10. In Q2, we generated $2.2 billion of total revenue, $0.43 of non-GAAP EPS and $617 million in free cash flow. We repurchased $500 million of our stock and the board of directors has approved an additional $2.5 billion share repurchase authorization. And lastly, we are raising the full-year guidance on revenue and EPS.
Let's start at the top of the funnel with Q2 active buyers in slide 11. In the quarter, we increased the total active buyer base to 164 million, while trailing 12-month growth was stable at 4%. As Devin highlighted, SEO traffic improved in the quarter, but we are not yet seeing a material impact on acquiring new buyers through the SEO channel.
On slide 12, we enabled $20.9 billion of GMV in Q2, up 6% versus last year, accelerating one point versus prior quarter. By geography, the U.S. generated $8.5 billion of GMV, up 5%, accelerating two points versus Q1. The acceleration was driven equally by Marketplace and StubHub. International delivered $12.3 billion of GMV, up 6% year-over-year.
Moving to revenue. We delivered net revenues of $2.2 billion, up 7% versus last year, and accelerating one point versus Q1. We generated $1.7 billion of transaction revenue, up 5%, and $480 million of marketing services revenue, up 15%.
Transitioning to our Marketplaces platform on slide 14. Q2 GMV grew 5% year-over-year, accelerating one point versus Q1. We are beginning to see early signs of recovery in such areas as mobile, C2C and SEO. While we are pleased to see the uptick in growth, we are cognizant we still have work ahead of us to stay on course. Transaction revenue grew 2%, up one point sequentially driven by the increase in volume, plus lower spend in contra revenue.
Marketing services revenue grew 11%, decelerating eight points versus Q1, primarily driven by less ad monetization due to continued shift to mobile and fewer ad placements on the desktop. The PayPal operating agreement added 10 points of growth year-over-year to marketplace MS&O. Excluding the PayPal offering agreement, marketplace MS&O grew 1%.
Moving to slide 15. Q2 was another standout quarter for StubHub. We delivered 35% GMV growth and 40% revenue growth, both accelerating six points versus Q1. We had a strong quarter across genres and in specific events such as the NBA finals, Copa America and Hamilton, to name a few.
We also benefited from new product innovations introduced earlier this year. We released our virtual reality tool to a limited number of venues; and by the end of Q2, approximately 20% of StubHub customers utilized their virtual reality experience before buying their ticket for those venues.
In addition, our fans have increasingly been using our ticket recommendation feature, helping them quickly find the lowest price, the best value, or the best seat. In Q2, we also kicked off an intensified cross merchandising effort between StubHub and Marketplace, providing fans with a great opportunity to buy gear and memorabilia for the event they are attending.
Moving to slide 16. In Q2, Classifieds revenue grew 15% year-over-year, as we continue to drive strength in the automotive vertical across several geographies, including Germany, the Netherlands and Canada as well as our real estate verticals in Germany and Canada. While the growth decelerated two points versus Q1, Classifieds has consistently been in the double-digit range for the last six quarters.
Turning to slide 17 and major cost drivers. Cost of revenue increased 160 basis points year-over-year, driven primarily by the addition of PayPal processing costs and the impact of foreign exchange. Q2 sales and marketing expense was relatively flat year-over-year, while product development increased 160 basis points. The increase was partially driven by the impact of foreign exchange, but primarily by the investment in structured data, the core product experience and emerging trends in e-commerce, such as artificial intelligence and machine learning.
G&A expense was relatively flat year-over-year, with stand-up costs offset by productivity. Pulling all of that together, we delivered Q2 operating margin of 29.1%, down 300 basis points versus last year. The impact of foreign exchange was approximately 83 basis points and stand-up costs an additional 90 basis points. The remaining increase was largely driven by our investment in product development.
Moving to slide 18. In Q2, we delivered $0.43 in non-GAAP EPS, up $0.01 versus prior year, aided by share repurchases which added roughly $0.03 of EPS. This was offset in part by the impact of the stronger U.S. dollar and stand-up costs, which cost roughly $0.01 of EPS each. While my prepared remarks are focused on non-GAAP financial measures, I'd like to take a moment to touch on GAAP EPS. The difference between GAAP and non-GAAP measures for eBay are stock-based compensation, amortization of intangibles, and significant one-time items.
In Q2, GAAP EPS was $0.38, up $0.03 versus Q2 2015. In addition to the $0.01 increase in non-GAAP EPS, the incremental $0.02 of GAAP EPS growth were driven by one-time investment gains in their associated tax effects. As we've done in the past, you can find a reconciliation of GAAP to non-GAAP financial measures in our press release and earnings slides which provide more detail.
On slide 19. In Q2, we generated free cash flow of $617 million, up 79%, largely due to lapping separation related costs incurred last year. As we've previously discussed, 2016 will represent a more normalized level of free cash flow now that we're past separation, and we remain on track to deliver our full-year guidance of $2.2 billion to $2.4 billion. CapEx was 7% of revenue in Q2. Our full-year guidance remains 7% to 9%.
Moving to slide 20, we ended the quarter with cash, cash equivalents and non-equity investments of $10.4 billion, including $3.1 billion in the U.S. During Q2, and over the past few weeks we've announced multiple acquisitions, some of which have not yet closed. TicketBis, Ticket Utils, Expertmaker and SalesPredict are on strategy and provide us with geographical expansion, tech and talent acquisition, or both. We expect to spend approximately $250 million across all four acquisitions, although specific details have not been disclosed.
In Q2, we repurchased 20.8 million shares at an average price of $23.99 per share, amounting to $500 million in share repurchases. We ended the quarter with $300 million of share repurchase authorization remaining. The board of directors has approved an incremental $2.5 billion in share repurchase authorization. We remain on track with our full-year plans for share repurchases as I laid out in our Q4 earnings call.
Before going through guidance, I'd like to touch on three topics: Brexit; foreign exchange; and second-half lapping.
First on Brexit, with a weaker pound, we are seeing a boost in UK exports, which is driving a strong start to the quarter for our international business. This is offset by weaker UK import demand, particularly in the U.S. corridor. We have yet to see the impact of an economic slowdown on the UK domestic marketplace.
Second, on foreign exchange, as I explained last quarter, our revenue remains fully exposed to movements in currency, so when the U.S. dollar strengthen, it impacts revenue directly. During the last earnings call, we estimated that if currency rates held for the balance of the year, we would have $80 million of second-half revenue upside versus the guidance we issued in January. We did not include that upside in the updated April guidance on revenue and based on current rates we no longer expect any of this benefit.
With regards to earnings, our hedging program is set up to economically protect net income, which means our exposure versus guidance is limited to the portion that remains unhedged. And while the majority of the second-half is hedged, foreign exchange will cost $0.01 of EPS in the back half of 2016 versus our prior full-year guidance. Keep in mind that based on how our hedging is accounted for, we will continue to see the impact of hedging gains and losses in operating margins and OI&E.
Lastly, on second-half lapping, as we communicated previously, we will start lapping tougher comps for StubHub in September and we will start lapping the PayPal operating agreement in July.
Now moving to Q3 guidance on slide 21. For Q3, we are projecting revenue between $2.16 billion and $2.19 billion, growing 6% to 7% year-over-year. We expect non-GAAP EPS of $0.42 to $0.44 per share, representing minus 2% to plus 2% growth year-over-year. EPS growth is impacted by the stronger U.S. dollar, which in Q3 will cost us roughly seven points of growth, offset in part by the net benefit of the share repurchase program which adds roughly four points of EPS growth.
Moving to the full-year guidance on slide 22. Based on continued strength across our platforms, we are raising revenue guidance for the full-year. Revenue is now projected to be $8.85 billion to $8.95 billion, growing 5% to 6% year-over-year. We are also raising non-GAAP EPS guidance, now projected to be $1.85 per share to $1.90 per share, growing 1% to 4% year-over-year. The increase in guidance is driven by higher revenue and a more favorable tax rate of 19% to 20%, partially offset by product investment and foreign exchange. The resulting impact is operating margin at the low end of the 31% to 33% range we provided in January. As always, you can find guidance for our projected GAAP measurements in the earnings release and appendix of the earnings presentation.
I'd like to take a moment to reflect on where we are today versus what we committed to six months ago. In January, we projected revenue growth of 2% to 5% acknowledging that we had a lot of work ahead of us and that we aspired to do better. We now have two quarters of 6% to 7% revenue growth behind us and we believe we are on the right path. The green shoots on our strategic initiatives and the accelerating volume and revenue growth give us confidence to raise our projections for the full-year.
That said, we are realistic about what we need to accomplish and the challenges that lie ahead. We are making progress in executing our plan and we remain confident in pursuing our strategy to provide the best choice, the most relevance and a powerful selling platform.
And now, we would be happy to answer your questions. Operator?
Question-and-Answer Session
Operator
Our first question comes from the line of Eric Sheridan with UBS. Your line is now open.
Eric J. Sheridan - UBS Securities LLC
Thanks so much for taking the question. Maybe one for Devin and one for Scott. Devin, wanted to know if we could dive into some of what you're seeing on the structured data side on the category level? Is there anything you want to call out for us in terms of certain categories in terms of duration of how long they've seen structured data and what that might mean for GMV growth? Would love to get a little bit of color there.
And then, Scott, on the cost structure of the business, we were a little surprised you called out lower contra revenue as well as lower sales and marketing but you saw a reacceleration. Want to know what that might mean for the cost structure of the business long-term and sort of return on marketing spend? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Thanks, Eric, for the question. On structured data, our current efforts are crossing all categories, but I guess what I would point out is that the category where we've had structured data the longest, which is in part why we went down this path is our parts and accessories business. We've had that, even before we embarked on this journey, we've had that in place for a couple of years. It also happens to be our fastest growing category.
So, we do see that where we have time to build a catalog and then build experiences on top of it, in this case for parts and accessories we built what we call Fitment, which is simply the ability to swap parts in and out and understand what part fits what car, that's a great user experience. And each category is slightly different. That's unique to parts. But, we are seeing some of the benefits now come through across multiple categories. I'll turn it to Scott for the second part of the question.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, Eric, in terms of marketing, a couple of dynamics. As we've talked about in the past, quarter-to-quarter and year-to-year, we'll move contra to marketing expense and marketing expense to contra as we look to optimize our efficient frontier of how we reallocate marketing expense to drive growth over the long term.
As it relates to this quarter, our marketing expense was roughly flat. And I think as you look forward, what you can expect is we'll be leaning in on our consideration and brand spend and reallocating within our marketing expense. That's not to preclude that we wouldn't invest more in contra, per se, but that's kind of what we expect in the second-half which is a bit more within marketing expense reallocation.
Eric J. Sheridan - UBS Securities LLC
Great. Thanks for the color.
Operator
Our next question comes from the line of Heath Terry with Goldman Sachs. Your line is now open.
Heath Terry - Goldman Sachs & Co.
Great. Thanks. Devin, was hoping you could maybe get a little bit more into some of the contra revenue at least to provide kind of a context for where we are now. If you were thinking about this scale of one to 10, obviously contra revenue went up significantly after the data breach and everything. Are we now back down to where we were prior to that, are we 70% of the way down? What's the right way to think of where we are and sort of how much further there is to go to potentially get back to normal?
And then to the extent that motors is an area that you've seen significant strength over the last few quarters, how much of that would you say is a function of motors being one of the categories or one of the areas where you started with structured data early and is it right to think of that as a leading indicator for the rest of the business?
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, Heath, this is Scott. Let me start with parts and accessories and just make sure I differentiate between automotive. I think, as you know, vehicles, automotive, we don't put into GMV, more shows up in subscription revenue within MS&O. But for parts and accessories, we've had a catalog in Fitment for a good period of time and I think you can see through the product experience in a number of different areas that it's going to change over time and how we're going to migrate towards a product experience that's based more on a catalog. And that's more specific and helpful when you search for an item. I think that's a one foundational aspect as we think about going forward with our structured data initiative. It's not, however, the overall aspects. I'm going to turn it over to Devin in a second to comment on that.
To your earlier question on contra, year-over-year, we are actually spending a little bit more contra, but quarter-to-quarter we're spending less. And so the way I would think about it is, we're going to pulse this up and down. I foresee it to be somewhat seasonal and very much ROI-focused on testing our efficient frontier on CLV. So, I don't know if it's going to migrate down per se, as your question implied. I just view it as, over time we're going to reallocate within our marketing expense and in the second-half of the year, you can expect us to reallocate it towards the top of the funnel, or much more consideration focused spend. And on occasion, we'll continue to spend into contra as the ROIs dictate.
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah. And just on that, as we've said for two quarters in a row, we play a long game on contra. You could buy growth but destroy value, and we've never done that. And those numbers move around. We test the frontier of that, but we're going to keep playing a long game. Contra for us is about acquiring healthy customer cohorts, and we'll keep doing that.
On the structured data question, Heath, again, look, I don't want to read too much into any one category or any historical approach. For me, we've gone on a broad-based re-platforming of our data infrastructure. In January, I said I thought you might start to see it showing up a bit by the end of the year, two quarters in advance. This quarter, we're starting to see it show up a bit.
And I don't want to get over our skis. This is the beginning. We still have a lot of work to do. We've got a lot of re-platforming left. A lot of user experiences still to build. But there's no doubt that where we have deployed these new user experiences we're seeing either improved conversion or improved traffic or both. And you can just see it in the user experience, it's not a leap of the imagination, it's just a simpler, better user experience that shows how eBay is unique by showing our consumers the broad-based spectrum of value we have in a way that's not overwhelming. And that's why we've gone down this path. And this quarter gives us confidence that we're on the right path.
Heath Terry - Goldman Sachs & Co.
Great. Thanks, Devin. Thanks, Scott.
Operator
Our next question comes from the line of Carlos Kirjner-Neto with Bernstein. Your line is now open.
Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC
Hi. Thanks for taking my questions. I have two. You have said that eBay's customer experience should be fundamentally different by the fourth quarter in large part because of the ongoing structured data initiative. Yet your slide on the progress of structured data suggests only a small portion of the potential product pages were deployed by the end of 2Q. Is it correct then to assume that we should see a large number of structured data pages deployed in 3Q and are you on path to achieve that?
And secondly, can you shed some light on the extent to which the 11% FX neutral growth in fixed-price GMV was due to cannibalization of auctions or is that close to a clean organic growth? Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah, let me take the first part, Carlos. Thanks for the question. We are on track with our structured data plan. We're where we thought we were going to be. It was never going to be smooth quarter-by-quarter. There are times that we go faster, times we go slower. I would say I do expect to see a fairly large ramp of our deployed, both product and browse pages in the back half of this year.
I just want to correct one thing you said, which is I think what I said is you'll start to feel it by the end of the year. You'll start to see it in the numbers and start to feel it. I didn't say everything would be done by the end of this year. It won't be done. This is a multiyear effort, but you're starting to see it and feel it now two quarters in advance. And we expect that we will ramp both the coverage and the experiences built on top of the foundation in the second-half of the year. I'll expect acceleration in that.
The second part of the question was fixed price versus auction. Scott, why don't you take that one?
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, Carlos, the way I would think about the fixed price and the auction dynamic is auctions declined 16% this quarter, which is four points better than last quarter. So, while clearly not to our aspirations and not what we expect, if you consider that's a proxy for C2C, we've made some progress. And fixed price was roughly flat or down a point. I don't really view the shift from fixed price to auctions as cannibalization. I just think it's reflective of some of our efforts on the C2C side that we've talked about. In particular some of the work that we've been doing on Valet and FedEx in the U.S. as well as our partnership with Shyp as well as continuing to remove some of the friction from the consumer selling experience, leveraging some of the structured data work that we've talked about.
Carlos Kirjner-Neto - Sanford C. Bernstein & Co. LLC
Thank you.
Operator
Our next question comes from the line of Justin Post with Bank of America Merrill Lynch. Your line is now open.
Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Great. Thank you. A couple of questions. Just on the 15 million structured data pages live, what could that look like by 4Q? I guess what's the opportunity there and how much more pages could we see by the end of the year?
And then secondly, I'm calculating kind of a 1% decline in U.S. Marketplace revenues based on the percentage mix you give in the report. Is that right or is it zero – it could be rounding, but just what was that number for U.S. Marketplace? Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Thanks, Justin. Let me take the first part of the question. And this relates back to Carlos' question, also. I do expect acceleration. I would expect to see a significant ramp of the number of product and browse pages. I think what I would hope for – it's not a forecast, but I would hope to see a number over 100 million by the end of the year.
I also want to just caution that you can't take 15 million, draw a line to 100 million and say, there's the growth. It's different categories, some of that will be media. But that's the degree of re-platforming we're doing. And you will see a fairly significant broadening of these new experiences in the second-half. I'll turn it over to Scott for the second part of the question.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah, Justin, let me start at the top real quick. Total revenue for the company was 7%, up one point quarter-over-quarter. If you just double-click into Marketplaces, Q2 Marketplace transaction revenue accelerated one point to 2%. And the U.S. transaction revenue was minus 1%, which is I think what you flagged, which is up five points quarter-over-quarter. And really that's driven by two things. One, the increased volume, as well as less contra quarter-to-quarter.
Justin Post - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Great. Thank you.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yep.
Operator
Our next question comes from the line of Mark May with Citi. Your line is now open.
Mark A. May - Citigroup Global Markets, Inc. (Broker)
Thanks. I had a couple of questions that are just kind of digging into the guidance on more of a segment level. Given the strength at StubHub and you've talked about the difficult comps, I just wonder if you could frame that a little bit? How are you thinking about the growth rate going forward in the second half as you face these comps? And sort of when you strip out some of the benefits, kind of how should we be thinking about underlying organic growth for that business when we get beyond kind of this difficult comp period? And I guess similarly around the Marketplace or transaction business, as we exit the year or into the second half of the year in Q4, your comps in Q4 in particular get pretty easy. How are we thinking about growth exiting the year given those factors, the cumulative effect of structured data and maybe a better contra revenue backdrop? I mean are you thinking that we could be in the high single-digits or even double-digits exiting the year for that segment? Thanks.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Hey, Mark, look, I think we delivered solid first half results. The way we're thinking about it for the second-half is based on revenue at 6% to 7% in the first half, we expect Q3 to be about 6% to 7% as we continue to execute our initiatives. We did raise our outlook for revenue for the rest of the year and for the total year to 5% to 6%.
And the thing I would think about is just keep in mind that the second-half dynamic is such that both StubHub has some pretty significant lapping that we expect a deceleration in their growth rate, and PayPal, the PayPal operating agreements, we start to lap them.
And the combination of those two things put about one to two points of downward pressure on our revenue in the second-half of the year. But, I wouldn't let that take away from the – look, I think with a revenue guide of 5% to 6% for the full-year, I think it should show relative confidence versus the last time. I wouldn't put a double-digit number on that, though, just to be clear.
Operator
Our next question comes from the line of Mark Mahaney with RBC Capital Markets. Your line is now open.
Mark Mahaney - RBC Capital Markets LLC
Thanks. Two questions, please. You talked about kind of an improvement in SEO traffic and just if you could please comment on how sustainable you think that is? And then secondly, you did mention investments in AI and ML machine learning. Have we already seen some impact of those investments, like can you just bring it down to the P&L or bring it down to trends and how that would actually show up? Are we already seeing it or is that something that's a multi-year rollout and how would that show up? Okay, thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
First on SEO. Yeah, we've had SEO challenges since May of 2014 when Google made a significant algorithm change and a few other factors were in play. And there's been downward pressure slowly on our SEO channel ever since. It's been a long, slow decline since then. It turned around this quarter in part, because I believe we're putting fantastic user experiences based on structured data into our SEO channel.
I wouldn't get overly excited. It was marginally positive, but it was a positive trend. I do expect that trend to continue. We don't know because we don't control the SEO channel entirely. There are other factors at play. But my hope is that we've gone from a slow steady downtick to a slow steady uptick from here. Because I think objectively if you look at these new experiences, they are some of the best shopping experiences available on the Internet.
On artificial intelligence and machine learning, some of it depends on how you use the term. I guess I'd say two things. One is, when we talk about processing the data as the second step of our structured data approach, that is machine learning. That is taking the raw material that we get from sellers who are identifying the products they're selling through product identifiers and turning that into a catalog by using computing power to understand the association, the hierarchies and taxonomies that go into building a catalog that tells us where things go on the shelves metaphorically. So yes, we're already doing that.
I think that when I look out to the future, we're also planting seeds, because I think that the impact of AI will be much more significant on commerce eventually. I think that when we see now the way large scale datasets are being used by algorithms through things like GPUs and the cloud, to me AI is going to be the next platform revolution. And just like eBay was early on the Internet, was early on mobile. I want us to be early on AI.
So, yes, it's part of how we're building the catalog, but I think when I look out a few years, it's going to be significant for a massive improvement to personalization for consumers and targeting to sellers. So, we're building that capability now, possibly a little bit in advance of when that platform revolution comes.
Mark Mahaney - RBC Capital Markets LLC
Thank you, Devin.
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)
Thanks and congratulations on the good quarter. In terms of the higher conversion rates from the new product pages through SEO, I'm wondering if there is any reason why that conversion wouldn't increase by a similar or directionally similar amount as well from direct traffic?
And then secondly, given the improved rankings you are achieving in organic search, does this offer a way to reduce ad spend if you're showing up higher in search or is that allowing part of the reallocation of spending to brand as you mentioned? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Yeah. I guess – Thanks, Colin. I direct the first question to slide number five. I think that's the right one. It's called structured data user experiences. And the question was would the conversion hold when we look at the direct channel? It depends. I think for us the biggest question is how do we deploy this in the search results pages, where a lot of the traffic ends up whether it's through SEO or direct. And we're just starting to experiment with that. That as you would understand is the area we have to be the most careful. And that's when people say why don't you just throw all these experiences in, it seems to be working. We've got a high converting, very high traffic search channel.
I think that these pages matter in there. They will make an impact. But that's the main artery of commerce. And we've got to be careful and that will take test and learn time. Is there any reason I believe that we won't get conversion improvements? No. There's no reason that I would believe we would not get conversion improvements over time.
Again I want to caution, this is not straight up into the right from here, we've got a lot of work to do. I said it was a multiyear journey a year ago. It's still a multiyear journey. We're seeing some green shoots, but it's still a multiyear journey. I want to make sure we don't get over exuberant and say, wow, this is just going to explode from here. We still have a ton of work to do on this and I just want to make sure, everybody understands that.
On the second question around brand. There's two things that are going on – actually three. One is, we're clear about our brand. We're clear about what the eBay brand stands for and how it's different and how that manifests itself to consumers. This idea of everybody can find their version of perfect is distinct to eBay, and I want every consumer in the world to understand that eventually and that's our job. I said two quarters ago, we have to sharpen our brand and now we're clear about what it is.
Second, we do like the trajectory we're on with these user experiences. We believe that if we bring more people to eBay they'll like what they see. And third, in the second quarter, we began to do some consideration testing. We did a test in the UK, we did a test in the U.S. A little bit of brand spend, a little bit of top of funnel, that was a little outdoor, a little television and the results were positive. We saw traffic and new user acceleration. Based on those three things, we're going to reallocate marketing spend. Don't expect us to do a huge overlay. Certainly not at this point. We're going to take spend from mid and bottom funnel, reallocate it to brand and top of the funnel, and in our major markets, you should begin to see that show up through the second-half, particularly once the summer is over, you should begin to feel the sharpened eBay brand in our major markets.
Colin A. Sebastian - Robert W. Baird & Co., Inc. (Broker)
Thank you.
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 questions. One for Scott and one for Devin. First, Scott you indicated that you've seen some imposed Brexit trade-off in the UK on exports and imports, but overall the UK not slowing. Are you comfortable now that you're in a stable place in the UK and then also just more broadly across Europe, given any macro or FX-related impacts? And then, Devin, you obviously had the new buyback authorization. Can you talk about how you and the board have thought about a buyback relative to a dividend in any recent discussions? Thanks.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah. First question on Brexit. Look, at this point what I'd tell you is it's too early to tell. What I've flagged is, we have seen the normal trade quarter shifts based on the strength of the U.S. dollar vis-à-vis the pound and the euro, quite frankly. And the uptick in the UK exports with the corresponding drop in imports, especially from the U.S. and Germany is what we would normally expect to see, but it's early days. So no doubt that we've seen a deceleration of our growth in exports from the U.S. to the UK and the same for Germany. But it's early days on this and we'll continue to watch what's going on with the domestic UK Marketplace as we go forward in the quarter.
Devin N. Wenig - President, Chief Executive Officer & Director
On capital allocation. Obviously, Scott can comment on it, but I'll just say from my perspective, we're disciplined capital allocators, and the shareholders that I've spoken to appreciate that and it's a long game. And we don't want to get buffeted by whatever the flavor of the month is, in terms of this is more in favor or that's more in favor. You're beginning to see that over time we're reducing the denominator and that's having an impact. Scott talked about the leverage we're starting to get from reducing the share count and we believe in our platform.
I guess that's the most important thing. We wouldn't be buying equity back if we didn't believe in our platform. We do. And obviously, over time it feels good to be buying stock back in the low 20%s or whatever the average number was when the stock is significantly higher for that. That's how you reward long shareholders who stay with us. And right now, we're going to keep doing that and we'll be disciplined in how we allocate capital and we've always said that.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Yeah. Look, what I'd flag, Doug is, we remain on track with our full-year plans as I said for the share repurchases as I laid out in our earnings call. The additional share authorization, repurchase authorization from the board enables us to do that. And we'll continue to be disciplined about how we return and utilize capital.
Douglas T. Anmuth - JPMorgan Securities LLC
Okay. Thank you, guys.
Operator
Our next question comes from the line of Robert Peck with SunTrust. Your line is now open.
Robert S. Peck - SunTrust Robinson Humphrey, Inc.
Yeah. Hi. Thank you. I just have two questions here related to competition. One, could you talk about the impact you saw in July on Prime Day, positive or negative flows there? And then number two, could you talk about one of the big topics in the space has been increase on brands and fraud, some recent news around Amazon on that. Are you seeing any benefit or detriment based on some of the trends on fraud and brand protection? Thank you.
Devin N. Wenig - President, Chief Executive Officer & Director
Let me start at the top. It's a super competitive market. There hasn't been any material change in the competitive landscape over the last six months. It was very competitive. It's still very competitive. With regard to Prime Day, look, I don't want to really get into it other than saying Prime Day was a really good day for us. It was a really strong day of growth for us.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Look, to your second question, Bob, I would say that fundamentally, counterfeits aren't welcome on eBay. We're committed to combatting the sale of counterfeit goods and have been consistently an Internet leader in working to stop the online sale of counterfeit goods, working with a combination of sophisticated detection tools and strong relationship with brand owners and retailers and law enforcement agencies.
And as we think about that and then the overall trust on our marketplace, what we're striving to do is improve the trust, make sure people know they're buying authentic goods and that, on a go-forward basis, we continue to expand our eBay protection and eBay guarantee that's available in the major markets today.
Robert S. Peck - SunTrust Robinson Humphrey, Inc.
Fantastic. Thank you.
Operator
Our next question comes from the line of Richard Kramer with Arete. Your line is now open.
Richard Kramer - Arete Research Services LLP
Thanks very much. A couple of quick ones that don't seem to be touched on. Can you de-dupe the new active buyers or the active buyers between StubHub and eBay and give us a sense of what sort of targets you might have for the overlap or some success you might get between getting StubHub or Classified users to also become eBay active buyers?
And one for Scott, when you look at the new higher levels of free cash flow to sales that you've seen, how should we think about that not just through the end of the year but into next year? Are you seeing these new levels as a result of some of the efficiencies now that you are a year on from the split and why wouldn't we expect these to be continued over time unless there is a significant new investment cycle taken?
Devin N. Wenig - President, Chief Executive Officer & Director
Thanks. On the first part of the question, it's important to me to drive synergy between our platforms, and StubHub has always benefited by being part of eBay and we're driving hard at that. So an example of what we're striving to do is have StubHub merchandise. It's a perfectly natural use case. I'm going to the game, I want to buy the jersey. And you're going to see more of that over time as we share traffic and as we merchandise and as we drive the eBay tickets category to StubHub. There's a really good complement between traffic customers and merchandising and we'll drive hard at that.
On Classifieds, similarly we have a couple of very interesting experiments. I'm encouraged by about how do we show consumer-sold inventory on both platforms? At the end of the day it's a different format, but ultimately it's a consumer trying to sell an item and there's a buyer somewhere that wants that item. So, we believe there's an experience that can get the best out of both of those platforms and we're starting to test our way into that. So, I'm encouraged by the cooperation between the various platforms. And I'm going to push hard at that as we go forward.
Scott Schenkel - Chief Financial Officer & Senior Vice President
Hey, Richard, on free cash flow, look it's a bit preliminary to be talking about 2017 free cash flow, but as I think about the underlying cash flow dynamics of the company, we'll generate between $2.2 billion and $2.4 billion of cash this year with CapEx as a percentage of revenue at 7% to 9%, and I don't really anticipate that being significantly different into the future.
Richard Kramer - Arete Research Services LLP
Okay. Thanks very much.
Operator
Our next question comes from the line of Brian Pitz with Jefferies. Your line is now open.
Brian J. Pitz - Jefferies LLC
Thanks. Just had a few more on StubHub. Was traction around product improvements as expected or better with consumers what you're seeing? Also any comment on the change in the competitive environment versus last year, which I think you called out a couple of times? And finally, do you plan on additional tuck-ins around the ticketing business? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
I don't know whether it was better than we expected or what we expected, but I'm really pleased. There's no doubt that the innovation at the point of the product is driving StubHub share gains and market competitive position.
Both the ticket pricing engine and the change to the way pricing is displayed have driven clear demonstrable growth. I'm even amazed when we talk about making innovative bets to the future. When we went down the path of building a VR application, we thought it was a little early, but it was an interesting thing to do, see how consumers like it.
You heard in Scott's remarks, for the venues available, mostly MLB baseball stadiums, I mean, 20% of ticket sales touched that VR application. That's a big deal. And we have excellent product and technology capability, not just in StubHub and in eBay.
And as the world moves to digital, I want to use that to drive a competitive wedge between us and the physical world. So, I feel really good about StubHub's market position. Their growth is going to come down because they're going to hit a growth wall as Scott said in September, but that doesn't change the fact that StubHub is very well positioned in the market right now.
On acquisitions, steady as she goes. If we find acquisitions that make sense to expand their portfolio, whether it's tech, talent or geographic expansion or whatever, we won't hesitate to do it. We have a strong balance sheet. We'll be disciplined. But, we won't back down from accelerating on our strategy.
Selim Freiha - Vice President-Investor Relations
Operator, we have time for one more question.
Operator
Our last question comes from the line of Ron Josey with JMP Securities. Your line is now open.
Ronald V. Josey - JMP Securities LLC
Great. Thanks for taking the question. Devin, you mentioned improved tools for sellers and I think you highlighted helping sellers identify where demand is. And so with that in mind, can you talk a little bit more about the Seller Hub? I think you said in 1Q 25,000 sellers were using the tool and it's going to roll out more broadly I think this summer. So, wondering if these increased metrics around product sales have led to just increased relative velocity overall with product sales? Thanks.
Devin N. Wenig - President, Chief Executive Officer & Director
Thanks for the question. Yeah, it has been launched in the U.S. There are now over 120,000 sellers that are currently using Seller Hub, mostly in the U.S., and they like the tool. And the tool for us is one part helping them manage their inventory and one part giving them insight into their pricing and supply/demand gaps within the marketplace. We mentioned that they can get great data on what's trending and where buyers are looking for inventory in their gaps. And they can fill those gaps with inventory. It's a great real time, in essence, inventory management system for both sellers and in many ways for eBay.
Later this year, we'll begin rolling it out through Europe and more broadly. I wouldn't really draw – I draw a closer line between the consumer side structured data and the new user experiences to the quarter acceleration than to Seller Hub, but Seller Hub helps over the long run. And I want to build a great experience for our sellers just like we are for our consumers. And that's a really core part of it is Seller Hub.
Ronald V. Josey - JMP Securities LLC
That's great. Thank you.
Operator
And that concludes today's question-and-answer session. 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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