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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the eBay Q2 2020 Earnings Conference Call.
At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Joe Billante, Vice President, Communications and Investor Relations. Thank you. Please go ahead.
Thank you, good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the second quarter of 2020. Joining me today on the call are Jamie Iannone, our Chief Executive Officer and Andy Cring; our interim Chief Financial Officer. We're providing a slide presentation to accompany Andy's commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com.
Before we begin, I'd like to remind you that during 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. Additionally, all revenue and GMV mentioned in Jamie's and Andy's remarks represent FX neutral year-over-year comparisons unless they indicate otherwise.
In this conference call, management will make forward-looking statements including without limitation, statements regarding our future performance and expected financial results. These forward-looking statements involve known and unknown risks and uncertainties and our actual results may differ materially from our forecast for a variety of reasons. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent periodic reports on Form 10-K and Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of July 28, 2020 and we do not intend and undertake no duty to update this information.
With that, let me turn it over to Jamie.
Thanks Joe and good afternoon, everyone. Before I turn the call over to Andy to discuss our recent performance and near-term outlook, I'll take some time to share thought on my return to eBay, highlight a few observations from the quarter and share our vision for the company.
I'm thrilled to be speaking with all of you today as CEO of eBay. I've long admired this unique company for its special culture and its enormous potential.
I spent my first 100 days primarily focused on three areas, immersing myself in the business, connecting with our buyers and our sellers throughout the world and meeting different teams across the organization. Throughout these engagements, I've been fortunate to observe, firsthand, the significant opportunity we have ahead of us.
Our purpose has always been to empower people and create economic opportunity for all, and there's never been a better time where this has mattered more than right now.
We're a globally recognized brand with a strong heritage, incredible assets and a talented and dedicated team who serve our passionate and loyal customer community.
As we look into the future, we have a clear vision to build on these strengths and through a technology led reimagination of eBay, we'll become the best global marketplace to buy and sell.
Before I get into our vision for the future, I want to frame where we are in the context of today's market. Consumer behavior is rapidly evolving, and this dynamic has been accelerated by COVID-19, contributing to a significant volume acceleration and new customer acquisition. This led to a very strong quarter, coming in ahead of the recently increased expectations we shared in early June.
Volume was strong across most major markets in the Marketplaces business, growing 29%, our highest quarterly growth rate in 15 years. We also added approximately 8 million more buyers to bring the annual active buyer base to 182 million. On behalf of our buyers, I want to thank our sellers for doing an amazing job selling and shipping over the past few months.
Organic revenue was up 22% with strong Marketplaces volume offsetting an anticipated decline in Classifieds. Total margin rate was up five points to 34% and earnings per share was $1.08.
The current strength in demand creates a significant opportunity for us as we embark on the next phase, while also providing additional capacity for investment, which we're moving with pace to implement. In Q2, we were able to deploy incremental investments in the marketing and growth initiatives, while still delivering higher margins.
Operationally, our top initiative over the past two years, Managed Payments, just reached a very important milestone as we begin to scale globally. Although the original operating agreement reached the end of its term, PayPal will remain an important partner moving forward as a payment option for buyers.
And from a seller perspective, after successful launches in the US and Germany over the past two years, we've started migrating sellers in the UK, Australia and Canada on payments. We expect to transition the majority of all sellers globally over the next 18 months and we remain on track to realize $2 billion in revenue and $500 million in operating profit in 2022.
Managed payments is a great example of a tech-led reimagination of our marketplace. It provides a simpler and seamless experience for buyers and sellers around the world. Buyers can pay with ease and convenience with more choices of popular local payment methods. And, sellers benefit from a streamlined experience, more options on how and when to be paid, and the vast majority of sellers are saving money on fees.
We've also recently concluded our portfolio review, leading to the pending transfer of the Classifieds business to Adevinta for approximately $9.2 billion. We are excited to bring together two highly complementary businesses in order to create the world's largest online classifieds group, with leading positions in 20 countries, covering 1 billion people around the world.
With a strong partner in Adevinta, this structure allows us to dedicate our day-to-day focus on Marketplaces, provides immediate value for shareholders, and allows us to participate in the future growth of classifieds.
Against this encouraging backdrop, I'd like to share our long-term vision for eBay.
Put simply, our vision is to build on the company's powerful strengths to become the best global marketplace for buyers and sellers through a tech-led re-imagination of eBay.
We've come a long way in our nearly 25 years, growing from our founder's first sale of a broken laser pointer into a global platform with more than 180 million buyers and tens of millions of sellers worldwide exchanging over $85 billion of goods.
While there are many accomplishments to be proud of, we are not satisfied with where we currently stand. The reality is that in the past few years, we've not executed to our full potential. New competitors have taken share because we neglected our core area of expertise. We focused on new areas that did not drive sustainable or profitable growth. And, to be candid, we did not adapt quickly enough to the rapidly changing needs of our customers.
This leaves us with enormous untapped potential that we absolutely must capitalize on. This is what brought me back to eBay and it's what the leadership team and I are committed to executing against. It will be a multiyear journey, but I believe we can drive long-term sustainable growth and generate significant value for shareholders.
Our ambition to become the best global marketplace has been built with customers at the center, and an acknowledgment of the driving force of our success has always been and must continue to be our leadership in technology.
This is why the entire team at eBay is rallying around three key priorities to execute on the vision.
One, to build compelling next gen experiences for our enthusiasts. Second, is become the partner of choice for our sellers and third is to cultivate lifelong trusted buyer relationships.
I will walk through each priority in more detail. Our first key priority is to defend the core business by building compelling next gen experiences for enthusiast customers. We will cater to them by focusing on two areas of historical strength: consumer selling and vertical experiences.
Consumer sellers are dedicated eBay customers who have a proven track record of spending more than double the amount of buyers that don't sell on the platform. This group differentiates our global supply by bringing unique and compelling inventory at great value. We estimate that the average household in our major markets has approximately $4,000 worth of items to resell and is selling less than 20% of that online today.
In addition to making extra money, by keeping products in circulation longer, customers are driving social and environmental benefits for all.
To lead in consumer selling, here are the areas where we intend to focus:
We will simplify the listing flow. It's currently too long and complicated and needs to be dramatically simplified. Next, we need to increase conversion to grow the number of consumer selling enthusiasts; and finally, we must make it easier for sellers to reinvest proceeds from their sales back in the things that they need, want and love on eBay.
One recent consumer selling launch streamlined the local pickup experience by leveraging QR scanning to complete in-person transactions. While we are pleased to see this tech-based simplification, there's a lot more to do to achieve the long-term objective of growing the number of consumer sellers on the platform.
In terms of vertical experiences, we plan to focus on non-new-in-season products. Within these categories, we have unique inventory at scale, strong buyer consideration and loyal communities of buyers and sellers who connect through common interests and passions, not just to buy and sell merchandise.
This is an important focus for us as approximately half of our volume in major markets comes from these products. The TAM for these categories is expanding as more offline inventory transitions online. These categories span from luxury items to parts and accessories and motors to fashion, electronics, collectibles and more, and they represent the core of why people love eBay.
Our plan is to focus technology efforts on the evolving needs of these passionate enthusiasts, and we intend to accelerate growth in these categories in the coming years.
The second key priority of our vision is to become the platform of choice for sellers. We will aim to inspire small businesses by introducing tools and features that compel them to start and grow their business on eBay. We will treat them like true partners by making the platform easier to use, grow their brand, drive their sales and carefully protect their reputation.
By making eBay more compelling, we plan to grow the number of successful businesses on the platform. Hundreds of thousands of small businesses are already active today and tens of thousands have recently joined through programs like Up and Running across global markets.
Recently we launched several improvements to simplify registration and help sellers start and succeed on the platform. Additionally, we have boosted seller presence by launching store fronts in the mobile app and we will continue to iterate the Stores experience over time.
Seller Hub tools continue to grow and in the past quarter, we launched several new features based on customer feedback. To name some improvements, we've started providing real-time competitive pricing and traffic data and also expanded multi-user authentication capabilities. Another great example is seller initiated offers, where sellers can send custom deals directly to buyers, which launched several new features in Q2 and is expected to drive over $1 billion in GMV in 2020. This demonstrates the power of the eBay platform where sellers can connect to individual buyers.
To drive demand for sellers, we continue to augment Promoted Listings capabilities. In the second quarter, Promoted Listings delivered $196 million of revenue, up 124%. We see several growth levers including further promoted listings adoption, conversion improvements and ad product innovation designed to help sellers drive demand and grow their business.
Finally, the third key priority of our strategy is to cultivate lifelong, trusted relationships with buyers. We plan to modernize and simplify the experience to drive more purchase frequency by leveraging AI teams to remove friction throughout the buying journey.
In our highly rated app, we're delivering features that customers want. In June, we released dark mode on iOS and dark theme on Android, which was the most requested feature by customers, particularly our Gen Z customers. We also simplified search filtering on mobile, which is leading to an increase in sold items and better user efficiency.
We've made significant incremental investments in three areas of marketing during Q2. First, we leaned into performance channels, which are delivering higher efficiency due to competitive spend reduction. Second, we incented more app downloads and adoption to improve buyer retention and third, we deployed a multichannel campaign to showcase sellers and continue to attract new small businesses. These SMBs bring great selection and value for buyers to discover.
We will continue to invest in the buyer experience and marketing technology capabilities as we work to foster lifelong trusted relationships with buyers.
As we look forward, we have a clear vision to realize the enormous untapped potential of eBay. This will be a multiyear process and will require investment but through a tech-led re-imagination, our plan is to become the best marketplace in the world for buyers and sellers. And our key priorities to deliveries this vision are: to build compelling next-gen experiences for enthusiasts, to become the partner of choice for sellers and to cultivate lifelong trusted buyer relationships.
And while pursuing this vision, we will never lose sight of purpose, which is to empower people and create economic opportunity for all. It's that purpose that inspired the company and the eBay foundation to commit an additional $10 million in the second quarter to support COVID-19 relief efforts globally.
Additionally, during the quarter we donated more than $1.3 million in the NAACP Legal Defense Fund and Equal Justice initiative in an effort to take action against systemic racism and injustice.
With that, I'll turn the alter the call over to Andy to provide more details on our financial performance. Andy?
Thanks Jamie and thank you all for joining today. The last 90 days have been an incredibly exciting time for eBay. First, we've begun the process of ramping managed payments, which will greatly improve the experience for both buyers and sellers, while delivering incremental revenue and operating profit of the business.
Second, we're extremely pleased with our announced agreement to transfer our Classifieds business to Adevinta for $9.2 billion in cash and stock. And third, we had an outstanding quarter financially. Our Marketplaces business continue to see significantly higher growth levels for traffic, buyers, conversion, GMV, revenue and operating margin and our business is recovering faster than our previous outlook. On the basis of that strength, we are raising our full-year guidance for revenue, earnings and free cash flow.
Marketplaces on platform GMV growth in both the US international markets was within the mid 30% range for the quarter with acceleration across all major verticals compared to Q1. We are well positioned to benefit from the offline to online shift that's occurring as we continue to deliver significant year-on-year volume growth.
As Jamie said, while there is much to be proud of, we are certainly not satisfied. The current strength in demand is providing an opportunity for eBay to attract and retain new buyers and sellers and we're investing during this period to position the company for a higher long-term sustainable growth rate.
Turning to slide four, in Q2 we delivered revenue of $2.9 billion up 22% on an organic FX neutral basis, above the high-end of our most recent guidance. Non-GAAP EPS was $1.08 up 63%. Non-GAAP margin was strong at 34.3% inclusive of our ongoing investments and managed payments. We generated $964 million of operating cash flow and $866 million of free cash flow. We returned to $112 million to shareholders in cash dividends in Q2. And, in early July, we completed our $3 billion accelerated share repurchase at an average share price of $40.77.
Moving to active buyers on slide five, we ended Q2 with 182 million active buyers representing 5% year-on-year growth, accelerating three points from Q1 with new and reactivated buyers driving the acceleration. To put that number in perspective, the increase of approximately 8 million buyers in the trailing 12 month metric is more than we've seen in the last six quarters combined.
While the growth rate in the trailing 12 month metric is a bit muted, we are excited about the significant increase in buyers and are focused on increasing engagement and retention. It's clear that stay-at-home mandates and a more restrictive offline shopping environment drove more buyers online.
While it's extremely early in the lifecycle of these newly acquired buyers, in the second quarter we saw increased engagement. Repurchase rate, frequency, multi-category shopping and migration to the app are all significantly higher than previous cohorts. And our retained buyer base is purchasing with a higher frequency compared to the pre-pandemic levels.
Moving to slide six, in Q2 we enabled $27.1 billion of marketplace GMV up 29% year-on-year accelerating 29 points versus the prior quarter. The growth in volume was driven primarily by consumer behavioral shift to online shopping, which brought more buyers to the platform, who on average spend more per buyer than in the past. Approximately, 80% of the GMV growth came from increased purchase frequency in our existing buyer base and the remaining growth came from new buyers.
In the US, we generated $10.5 billion of GMV, up 35% year-on-year and accelerated 39 points from Q1. Although it's difficult to precisely measure given the magnitude of volume, the year-on-year growth figure includes a four point headwind from the continued impact of Internet sales tax across the US, improving two points compared to Q1 and slightly better than our expectations.
Next quarter will be the last quarter with a material impact on growth rates as the majority of states have gone live before October 01, 2019. Please refer to the appendix to see the impact of Internet sales tax over time. International GMV was up 26% accelerating 23 points versus Q1, driven by strength in the UK and Germany. Growth in Korea was 5% decelerating one point.
Looking to revenue on slide seven, for the company, we generated net revenues of $2.9 billion up 22% organically, accelerating 20 points from Q1. We delivered $2.4 billion of transaction revenue up 33% and $418 million of marketing services and other revenue, down 20%, inclusive of a five point headwind from the sale of Brands 4 Friends.
Turning to slide eight, our marketplace revenue was $2.7 billion, up 26%, accelerating 25 points from the prior quarter. Transaction revenue grew 33%, a 30 point acceleration versus Q1, driven by strength in GMV and promoted listings. Marketing services and other revenue was down 16% decelerating one point versus Q1. The year-on-year decline is driven by 11 points from the sale of Brands 4 Friends, in addition to lower third-party ads, partially offset by growth in our Korea first party business, which grew at over 80% year-on-year.
Marketplace segment margin was 40%, up eight points year-on-year. The margin expansion was driven by strong volume leverage and continued cost control, partially offset by incremental marketing and technology investments as we aim to increase engagement with new buyers cohorts and accelerated product delivery.
Moving to slide nine, in Q2, Classifieds had a tremendous quarter in an incredibly tough environment. The leadership team had to deal with the realities of the pandemic pressures and the uncertainty of a pending transaction. Through it all the team executed beyond expectations. Revenue was down 24% year-on-year decelerating 24 points versus Q1, driven by motors fee discounts in addition to continued headwinds and display advertising across markets.
Revenue growth was at its lowest point in April before delivering steady acceleration through May and June. The acceleration was primarily driven by a combination of ending the fee discounts we provided to dealers as lockdown restrictions eased through the quarter, and modest improvements in advertising. Performance was ahead of our expectations as the recovery in motors and ads materialize more quickly than originally anticipated.
Segment margin for classifieds was 30%, down eight points year-on-year, driven primarily by fee discounts, which resulted in lower topline leverage and our continued investment in verticals, partially offset by a reduction in sales and marketing spend.
Last week we came to an agreement to transfer our classifieds business to Adevinta for $9.2 billion. Upon closing, eBay will receive $2.5 billion in cash which we anticipate will yield approximately $2 billion net of taxes. In addition, eBay will receive 540 million shares of Adevinta valued as of the July 17 closing share price at $6.7 billion. While the value of this stake will move with the share price from Adevinta, early positive reactions indicate alignment with our view of the long-term value in this combination. We are excited about this deal as it allows us to realize near-term value while also enabling us to participate in the future upside potential of the world's largest online Classifieds company.
Turning to slide 10 and major cost drivers; in Q2, we delivered non-GAAP operating margin of 34%. This is approximately five points higher year-on-year driven by marketplace volume leverage and continued cost control, partially offset by the impact of lower classifieds revenue and our investment in managed payments.
Cost of revenue is down nearly two points year-on-year as a percentage of revenue as volume leverage more than offset investment in managed payments and are expanding first party inventory program in Korea. Sales and marketing expense was down over three points versus the prior year as marketplace volume leverage and Classifieds spend reductions were partially offset by reinvestments in the marketplace segment.
Product development costs were down one point driven by volume leverage, partially offset by incremental investments in the product experience, including managed payments. G&A was up 30 basis points as leverage and cost actions were more than offset by advisor costs associated with the cost price transactions, charitable donations and cost related to the closure of a large office.
Transaction losses have grown approximately 70 basis points driven by volume and modest rate increases in our bad debt and eBay money back guarantee reserves.
Turning to EPS on slide 11, in Q2 we delivered $1.08 of non-GAAP EPS up 63% versus the prior year, our tenth consecutive quarter of double-digit non-GAAP EPS expansion. Non-GAAP EPS growth was driven primarily by higher revenue growth and our share repurchase program, partially offset by the impact of a stronger US dollar and our investment in managed payments.
GAAP EPS for the quarter was $1.04 up 125% versus last year. The increase in GAAP EPS is mostly driven by the change in fair value of the Adyen warrant, in the quarter and the same factors as non-GAAP performance, partially offset by a higher tax rate driven by our California tax law change. As always, you can find the detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation.
Moving to slide 12, in Q2 we generated $866 million of free cash flow up 54% driven by higher earnings and the timing of cash taxes. Moving to slide 13, we ended the quarter with $5.8 billion in cash and investments and debt of $8.7 billion. We continue to strengthen our balance sheet and are leveraging the current market to improve the rates we're paying on our outstanding debt.
In Q2, we issued $750 million of debt bringing our total debt raise for the first half to $1.75 billion. We are using the proceeds to retire our 2020 and 2021 debt maturities. In Q2 we repaid approximately $830 million and we expect to pay the remaining $920 million by the end of Q3.
We paid $112 million in dividends in the quarter. In early June, we completed the $3 billion accelerated share repurchase plan we announced in February at an average price per share of $40.77. We have $500 million in share buyback left to hit the $4.5 billion in our guidance. We ended the quarter with $3.2 billion of share repurchase authorization remaining.
Our capital allocation strategy, key tenets and targets have not changed. We remain committed to maintaining our triple B plus credit rating, midterm leverage of approximately 1.5 times net debt and gross debt below three times EBITDA and a target cash balance of approximately $3.5 billion. We also remain committed to our dividend.
Turning to slide 14 and guidance, the guidance we are providing assumes Classifieds results are included in both Q3 and full year. We will provide updates moving forward as appropriate. As we indicated in April, this is an unusually dynamic time without historical precedent and presents challenges in drawing conclusions on trends and outlooks beyond the immediate term.
In April we experienced a significant broad-based acceleration. At the time it was unclear how long that strength would last or when growth rates would return to pre-pandemic levels, if ever. What we observed throughout the second quarter varied across geographies, in countries like Germany and Italy, we saw the height of GMV growth in April and then began to see moderation of growth as these countries began to reopen. Although growth levels continue to be higher than pre-COVID levels.
In the US where the impact of the virus continues at elevated levels, growth has been steady through July so far. Across most markets, we have yet to settle back into a new baseline, making it harder to accurately forecast future growth rates. We are however providing updates to both our Q3 and full year guidance today. Our visibility in the near-term is clear but beyond Q3, it's harder to predict exactly how buyer behavior, retail channels shifts and changes in the economic environment will affect our outcome. There is a model of e-commerce growth recovery from a global pandemic and considering these factors, we see a wider range of potential outcomes.
Our guidance assumes continued growth moderation across most of our portfolio, throughout Q3, assuming consumer mobility continues to improve. We expect to continue to invest in technology and marketing to maximize our opportunity to exit the pandemic at a higher growth rate than we entered.
For Q3, we are projecting revenue between $2.64 billion and $2.71 billion growing 14% to 17% on an organic FX neutral basis. This assumes marketplaces' volume growth in the high teens with gradual growth moderation through the quarter. In Classifieds, we are projecting revenue acceleration from the second quarter.
We expect managed payments to continue to deliver revenue acceleration, contributing approximately three points to Q3 revenue at the midpoint of our guide, partially based on heightened GMV growth rate, but also on strong execution. We expect non-GAAP EPS of $0.81 to $0.87 per share, representing 27% to 36% growth. EPS growth is driven primarily by marketplaces volume and lower share count, partially offset by continuing investments in technology and marketing.
We are expecting GAAP EPS in the range of $0.58 to $0.64 per share in Q3. For the full year, we are increasing our revenue guidance to the range of $10.56 billion to $10.75 billion and organic FX neutral growth of 12% to 14%. This represents marketplace revenue growth in the mid-teens and classifieds revenue at negative mid-single digits. We are raising operating margin to be in the range of 30.5% to 31.5% and maintaining a non-GAAP effective tax rate of between 15.5% and 17.5%.
With the above dynamics, we are increasing our full-year non-GAAP EPS guidance to $3.47 to $3.59 per share. We are increasing our free cash flow to $2.55 billion to $2.7 billion and narrowing the CapEx range to 4% to 5% of revenue. Finally, we are increasing full year GAAP EPS to $2.85 dollars to $3 per share.
In closing we feel great about our progress. The business performance continues to be very strong. Our revenue growth initiatives of managed payments and advertising are on track, reducing friction on the site and providing more options for buyers and sellers. We're well on our way to delivering our cost structure improvements that will drive at least two points of operating margin growth by 2022 as compared with 2019.
We are excited to have clarity on the next steps for Classifieds in a transaction that we believe creates great near-term value with the opportunity for more shareholder value over time. While we've made great progress, we know we have more work to do to achieve our full potential and we're focusing all resources towards driving improvement in the marketplaces business to fully realize the opportunity in front of us.
With that Jamie and I would be happy to answer your questions. Operator?
[Operator instructions] The first question comes from Ed Yruma of KeyBanc Capital Markets. Please go ahead. Your line is open.
Jamie, great to work with you again. I know you mentioned you're starting a lot of competitions with sellers. I know you’re trying to improve the selling process. I guess what complaints do you hear from the sellers and how quickly can you act on it? And then as a follow-up, obviously there’s some great momentum because of the current situation. I guess any specific plans to maintain those buyers and keep them active? Thanks.
Yes, good to hear your voice Ed. So on the seller side, what we're really focused on is how do we make that initial process of coming on to the platform extremely easy. So simplifying the registration process, simplifying onboarding and simplifying getting up and running on the experience. And then as they progress and build their business on eBay, how do we give them more tools and capabilities to help them continue to grow that business on eBay.
We talked about one, which is enhancing our stores product, bringing that into the native app. I'll be honest with you though, I think we have a lot more work to do in areas like that where we can make it even better and give them increased tools. And so that's going to be a huge focus for us on that second pillar of being the partner of choice for sellers.
On the momentum, we feel great about the 8 million new buyers. It's been -- it's more than the last six quarters combined. And what we're really focused on is turning those buyers into enthusiasts and keeping them on the platform. So you saw us this quarter reinvest in areas like app downloads and convincing new buyers on the platform to get the app. That's where the majority of our transactions happen on the platform. And I talked about some of the innovations that we're doing there like the dark mode on the app which is exciting, but we're also working on revamping the whole onboarding process for buyers, so how they come in, their first 30 days.
And we've just started that this quarter to really take advantage of the new buyers. But that's part of the vision that we've laid out is really just enhancing that ability to bring buyers along on the journey and increase their lifetime value with us. But we're excited by what we're seeing, excited by the early momentum of what we're witnessing from those buyers.
Your next question is from Brian Nowak of Morgan Stanley. Please go ahead. Your line is open.
Thanks for taking my questions. I have two, the first one the 2Q or sorry the 3Q GMV commentary. I think you talked to sort of teens growth inferred in the guidance, but it sounds like the US has been sort of steady. So the question is what are you seeing in the US that is steady? Is that still growing over 30? And what are the assumptions in sort of the deceleration in GMV throughout the quarter and the guidance. Why would that slow down?
And then the second one, sort of bigger picture question. Maybe talk to us a little bit about the demographic of these new buyers you’ve brought on, are you cracking into new types of household, new income of households? Who are the new people and how are they different from the older eBay buyers? Thanks.
Yes, so I'll start and take the second one and then Andy maybe you can take the first one. So what I’d say on the demographics of the new buyers that we're bringing is it's really across the board and across all geographies. So all of our major market saw strong a buyer growth and it's really two fold. One, it's new buyers actually coming on to the platform and then it's also reactivating existing buyers or buyers that had a bit on the platform but hadn’t purchased for us for a while.
And then obviously a huge amount of growth with also just our existing buyers buying more. But what we're working on and you probably saw this in some of the TV advertising that we're doing and some of the digital is really appealing to the fact that small businesses are bringing unique inventory on to eBay and attracting buyers across the board. A key focus for us over the next couple years will be our GEN-Y customers. That’s why we've made certain investments in our sneakers business and growing that and also why a feature like dark mode in mobile app also appears to younger demographic.
So it will be a continued focus for us, Brian, over the next quarters and years. Andy, do you want to take the first one?
Hey Brian, on guidance, look, as I said in my prepared remarks, there is a lot of unknowns. I'll say that we know more today than we did in April and we see more trends. I don't want to get into specific country and monthly trends, but we've seen an increased correlation with mobility around the world. And as I indicated in my prepared remarks, particularly Germany, Italy and countries where the mobility is improving and approaching in some cases pre-pandemic levels, we've seen a moderation in growth rate.
That growth rate is still about pre-COVID levels, but it's lower than it was at the peak. And then similarly in the US, yes the growth rate is stronger than -- its not stronger, it's sustained, but it's stronger than some of the other countries given the given some of the progress on the virus that we had in the US.
Your next question is Doug Anmuth of JPMorgan. Please go ahead. Your line is open.
I have two, first Jamie, you talked about the tech-led re-imagination of eBay. Can you just talk about the company's ability to retain and attract the right engineering and product talent to make this happen and how you shift eBay to be more positioned with this tech-driven approach? And then just second, can you also just talk about the decision to keep the 44% stake in Classifieds? Did you start there or how much was that influenced by the current environment and the recent pressure on the segment? Thanks.
Yes, so on the first one Doug, on the technology side, you're absolutely right. A huge focus for us. So first off, we have a really great world-class technology team in a lot of different geographies in the business. But we are focusing on augmenting that with even new capabilities. So we're building up our capabilities in AI and data science and computer vision. You may have seen features like easy image enhancing for our sellers. All that's coming out of kind of a next gen technology group that we've been building up.
But it's a key focus for us because in that tech-led re-imagination, this company has been and always will be about how to create those game-changing technologies. To be candid though, there is also areas where we've got to get off of old legacy technologies. So part of it is just moving off of some of the older technology stack and modernizing that. The good news is that's in progress, but we're accelerating even that work.
On the Classifieds deal, what I'd say is that we're really excited by the combination of the assets that our Classifieds business combined with Adevinta. When you look at the two of them together, it creates 20 leading markets in the classifieds business and creates the world's largest online classifieds business. So we're excited because it not only gives value to shareholders in the short term, but it allow us to participate in the long-term potential of this exciting new venture.
And then the third thing that was important for us is now that we've divested StubHub and with his transfer of assets on Classifieds, it allows the whole management team, all of our technologists, the whole organization to focus on the Marketplace business. And then as you stated, in my remarks, I see a lot of untapped potential in that business. But there’s also areas where we haven't kept pace. And so I think that focus will also be good for the whole organization.
Your next question is from Stephen Ju of Credit Suisse. Please go ahead. Your line is open.
Okay. Thank you. So Jamie welcome aboard by the way. So it sounds like you want to consolidate a lot more of the out-of-season and as well as a more unique inventory, both new and used. So theoretically, you'll see a greater variety of merchandise and hopefully a spike in listings. But given the company's history with data and figuring out what people are buying and selling, what can you do to make sure that you maintain or even improve the buying experience?
And secondarily, interested in following up with what you brought up earlier in terms of generating liquidity for consumers as they sell things on eBay. After they sold what they wanted to sell, they have the money which they can go spend anywhere. So what can you do to make sure that the money that they generated on eBay stays on eBay? Thanks.
Yes, so great question. I'll start with the liquidity one. One of the benefits of the managed payments that we're launching and scaling here, we added several new countries and now we're able to really grow and ramp that with the changes a week ago with the expiration of the PayPal agreement. It is the exact ability to do what you're saying. So to make it easier for sellers and buyers to have their whole wallet and payments contained on the platform, it gives us more flexibility of things that we can do to really make that easy for them and so obviously transference is a huge benefit.
The other thing I would say is that just getting buyers to sell, so just getting them to try it out, bring some inventory on, makes them a better buyer and it's because they've played on both sides of the marketplace. They've experienced the power of eBay. And so what we've seen is there a more than doubling of benefit to their buying behavior just like getting them to try selling. So we're really happy with that flywheel effect, it's something we're going to continue to lean into. As I've talked about the first pillar of consumer selling, that's the key piece of it.
To your question on the inventory, we feel really beneficial because of the open and level playing field that we have. We can bring on that new consumer selling inventory, which is really valuable to have on the platform because it attracts a lot of buyers along with the SMB inventory that's there. And when I say we're focusing and getting back to non-new in-season it's not saying that you're not going to be able to buy a ton of new product, in-season product on eBay. We'll have that and always have that.
But in terms of our focus, we think there is this massive opportunity, $500 billion in what eBay is fantastic and unique at. And we can build great fertile experiences. We can attract that supply. And that's where I believe there is just an enormous amount of untapped potential in going after it. And so really making sure that we nail everything about the buying experience end-to-end, having extreme customer focus will allows us to capture the potential.
Your next question is from Thomas Forte of D.A. Davidson. Please go ahead. Your line is open.
I have two high-level questions. So Jamie I wanted to know what success looks like from a sales standpoint? Do you aspire to have sustainable double-digit FX-neutral topline growth? And then second, I wanted to know what your preference was on capital allocation, M&A versus buyback versus dividend? Thank you.
Yes, so look, what we're really focused on is how do we improve the overall experience between buyers and sellers and create a really healthy business in the long term. So I think the things that we've laid out lead us to a long-term healthy growth of the core Marketplace business. We’re not going to quantify the long term what those numbers are, but I think the steps that we're going to take there will get us to a point where we're driving healthy growth.
In terms of the capital allocation, we're going to stick really to the capital tenets that we've been talking about all along. And Andy, do you just want to reiterate what those are?
Look, I think if you look at the history of what we've done since separation, I think it's close to $20 billion or maybe a little over $20 billion of return to shareholders either through dividends or share buyback. And it's important to step back at that and then look at what we've done recently with StubHub. And our view is the most value we create for shareholders is going to be getting the Marketplace business back to growth. So we're going to continue to balance margin, growth rate, M&A, buyback in all of those different levers with the purpose of improving the performance of marketplace business and increasing shareholder value.
Your next question is from Colin Sebastian of Baird. Please go ahead. Your line is open.
Jamie, welcome back and thanks the vision for the Marketplace longer-term. And I'd like to start there, specifically going back to the technology reinvestments. We have seen some of that over the last four or five years with structured data. And so I hope you can provide a little bit more context on the scale of that investment. Is this more tactical things? I mean there's been investment in data science and AI already. Or is this with the re-platforming away from the older stack, is this a larger scale technology investment phase?
And then secondly on managed payments, so congrats on that finally formally progressing. Was curious how that's not only the pace of managed payments transferring over, but also what the roadmap looks like in things like seller financing, buy now pay later, things that sellers and buyers had with PayPal that I assume are part of the eBay managed payments over time as well. Thank you.
Yes, so on the first question, it's two parts, it's one about where we're focusing our technology investments. And a key part of that is that I think for quite some time we were chasing a little bit the new in-season and not really focused on what's the core experience and how do we leverage technology in those key core verticals where eBay has an amazing stronghold and in the inventory in a non-new in-season where there is a over $500 billion opportunity.
And so to be candid, I feel like there are certain areas we let niche competitors take business away from eBay that should be done on eBay and shows you the potential that we have on eBay, if we really focus our technology effort in those areas that we know are features, tools, capability and new experiences that help buyers and sellers connect.
A small example of that is, while we don't have a huge pickup business and there's a lot of categories where people do meet in person to exchange goods. And we just made it more seamless through these QR codes for the buyer and the seller. It's kind of a magical experience, the money flows and that's the benefit of doing managed payments and technology together as we can create those experiences for buyers and sellers.
On the managed payments side, what we're really focused on right now is scaling that business. So we've got a lot of work left to do in kind of opening up all of the remaining geographies, bringing more sellers on, etc. But once we do hit that point, yes, like we're talking about earlier, there's opportunities to do more and help connect, and make it more streamlined for sellers on the payments.
We do have a buy now, pay later option, our monthly pay option. That's in partnership with PayPal. PayPal continues to be an option for how to pay on the platform and a key partner for us. But to answer your question, yes, we'll be continually looking at ways that we'll make buying and selling via payments easier, and managed payments gives us that flexibility.
Hey, Colin, maybe one more thing on margin rate. I just want to reiterate from my script the -- we remain committed to the margin commitments from last year, at least 2 points of margin by the time we get to 2022. And -- but through that time, we're going to -- you'll see us invest with balance and we're going to pace incremental revenue -- incremental investments with growth rate and earnings along the way. So no change to the long-term margin structure.
Your next question is from Ygal Arounian of Wedbush Securities. Please go ahead. Your line is open.
Hey, guys, thanks for taking the questions. So the [indiscernible] macro GMV level, just -- you noted in some of the international geographies that where mobility is getting back to normal, the growth rates go higher than pre-pandemic but coming down from the peak. Is there any way to quantify that a little bit more?
Is it slightly above where it was before? Meaningfully above? And any way in the US to quantify it, think about what the contributions from stimulus has been? And is the pace of the pandemic, really the biggest piece of why the US GMV was so much stronger than internationally?
And then one -- real brief one on payments, just thinking about where you have intermediated and managed payments has rolled out for those merchants, any positive signals you're seeing in terms of better conversion, anything else that's really giving you kind of good feel or good outlook of why and how managed payments can drive better opportunities for stronger GMV growth going forward? Thanks.
I'll start I think with the second one on US contributions. I think it's really hard to point to any one thing, particularly stimulus is having a major -- being a major driver. I'm sure there is some impact at some level. I going to point back to the best thing we've seen globally in terms of an indicator is mobility. So -- and I think it is fair to say the US is significantly stronger than international regions, just given the impact of the virus in the US.
In terms of -- on the macro question on international levels of GMV, pre-pandemic versus post, I think I'd point you probably to the Q3 guide relative to Q2 actuals. If you have the US -- similar to Q2 levels and the company with moderation of -- from a 29% growth rate to a high teens, you'll start to see -- you can back into maybe a little bit of the pressure in international.
In addition to the fact that internationally, keep in mind, Korea with relatively stable growth rates quarter-over-quarter and significantly lower with much less impact from COVID in Q2 and into Q3. So again, moderating growth rates but still sufficiently higher than pre-COVID.
Yeah. Then what I'd say on the managed payment side is a couple of encouraging things. One is the feedback that we're getting from sellers, generally very positive. The vast majority of them will see lower fees and have a simpler fee structure with the result of rolling it out. And a lot of them have signed up, pre-registered, so waiting for when we can open up the platform which we did two weeks ago. And I would say the same thing on the buyer side, especially for a new buyer, creates a lot less friction. And so we are excited and optimistic for what that means for the overall experience.
And when I talk about a tech-led re-imagination, payments is the perfect example. It just makes the whole experience easier and better. We committed to it and put a lot of resources behind making it a great experience. And so far that's the feedback that we've been getting by both buyers and sellers.
Your next question is from Justin Post of Bank of America. Please go ahead. Your line is open.
Great. Thanks. Jamie, welcome back to eBay. A couple of questions, I guess, big picture thinking about how the management team is now compensated, is it relative growth to the e-commerce industry, is it overall growth, is it certain margin targets? Could you talk a little bit about the incentive team for the management team -- incentive structure?
And then the company has gone through a pretty big period here of divestiture and cash returns. How do you think about if that could change, do you see adjacent M&A opportunities? Do you see a real chance here post-COVID to really accelerate growth? Just talk about kind of is there kind of a big change going on at eBay at this point or more of the same, but hopefully some innovation on the edges? Thank you.
Yeah. So our incentive structure really hasn't changed over the years and it's based on a combination of top and bottom line. On the M&A opportunities and the acceleration, the focus, what I'd say has changed is the whole organization is now really focused on the vision that I have outlined. Now that without StubHub and now with Classifieds transferred to Adevinta, you've got the whole organization thinking about this overall tech-led reimagination from technology, marketing, product and these three kind of key focus areas.
And so, yeah, we will look at opportunistic M&A where we think we can really help accelerate that focus on the core business. But like I said before, we see a huge amount of untapped potential just in going after these key experiences in key verticals of getting back to that kind of core C2C selling. And moving this idea I think for some years, we were acquiring buyers at all costs and really focusing on how do we turn buyers into lifelong trusted relationships and putting all of our efforts across product, marketing, technology, etc., around that focus. And I think it's that focus and that lean-in on the technology side in a big way, that's going to allow us to capture it.
Operator, I think we've got time for one more.
Your last question is from Heath Terry of Goldman Sachs. Please go ahead. Your line is open.
Great. Thanks. We obviously, talked about a lot of investments in technology, so I won't go down that path. But when you think about maybe the marketing side of things and sort of how you want to think about customer acquisition from here, particularly as the tailwind from the current environment that we're in potentially starts to dissipate, how should we think about the level of investment that you want to see?
And to the extent that there is a path, there sort of an optimal channel mix that you see is sort of working better for eBay in the future than maybe what we've seen in the past? Given your background obviously, would really appreciate sort of how you're seeing that side of the opportunity.
Yeah. So look this quarter, on the marketing side -- Heath, a great question. On the marketing side, we were able to lean in pretty well to the new buyers that we are acquiring. So both with kind of brand advertising talking about the small businesses, but also in a less competitive environment on the performance side of the business.
When I talk about marketing, it's not just the spend, but it's also just our CRM programs, how we communicate, how we leverage things like email notifications, etc. And I think that we've built some good capabilities over the years, but I think we have a massive opportunity there to help buyers get up the lifecycle in an even better way. So that will also be an opportunity that we're really focused on.
On the channel mix, we have the benefit of obviously, having lots of different channels for driving it. I would say the newest ones that we're really focused on are acquiring the Gen Y customers and looking at new opportunities in paid social and going after and making sure that customer is attracted. I talked to kind of really understanding the categories that attract that demographic on the platform.
And so, I think you'll see slight shifts in terms of the marketing mix that we're looking at. But overall, we tend to leverage all the channels that we have to maximize the ROI that we can get off of that spend. And as I talked about, we're really focused on how do we get not just a new buyer onto the platform, but how we turn that new buyer into an enthusiast. And that's where I think the real unlock and the power of the model lies.
Great. Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.