Operator: Good day, ladies and gentlemen, and thank you for standing by, and welcome to eBay's Second Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, today's conference may be recorded.
It's now my pleasure to turn the floor over to Tom Hudson, Vice President, Investor Relations. Please go ahead.
Tom Hudson - IR: Good afternoon. Thank you for joining us, and welcome to eBay's earnings release conference call for the second quarter of 2013. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer.
We're providing a slide presentation to accompany Bob's commentary during the call. All growth rates mentioned in John and Bob's prepared remarks represent year-over-year comparisons unless they clarify otherwise. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the IR section of eBay's website at httpinvestor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through that 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 and talk about our Company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measure in the slide presentation accompanying the call. In addition, management will make forward-looking statements relating to our future performance 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 expected financial results for the third quarter and full year 2013, and the future growth in the Payments, Marketplaces and eBay Enterprise businesses.
Our actual results may differ materially from those discussed in the call for a variety of reasons, including, but not limited to, changes in political, business, and economic conditions; foreign exchange rate fluctuations; our need to successfully react to the increasingly importance of mobile payments and commerce and increasing social aspect of commerce; an increasingly competitive environment for our businesses; the complexities of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity. Our need to manage regulatory tax and litigation risks, including risks specific to PayPal and Bill Me Later, and our need to timely upgrade and develop our systems, infrastructure and customer service capabilities at reasonable costs while maintaining site stability and performance and adding new products and features.
You can find more information about the factors that could affect our operating results in our most recent Annual Report on our Form 10-K and our subsequent quarterly reports on Form 10-Q available at httpinvestor.ebayinc.com. You should not rely on any forward-looking statements. All information in this presentation is as of July 17, 2013, and we do not intend and undertake no duty to update it.
With that, let me turn the call over to John.
John Donahoe - President and CEO: Thanks Tom. Good afternoon, everyone, and welcome to our Q2 earnings call. We had a strong second quarter, enabling $51 billion of commerce volume, up 21%. Revenue was up 14% and non-GAAP EPS was up 12%. And double-digit active user growth continued to accelerate for both eBay and PayPal.
Our second quarter and first half performance underscores our Company's strengths and opportunities. Led by mobile, our commerce revolution is underway and we're well-positioned to capitalize on the accelerated changes happening globally.
We're a mobile commerce leader, adding more than 3 million new customers in Q2 through mobile. eBay and PayPal each expect to do $20 billion of mobile commerce and payments volume this year. And our global commerce platforms are a competitive advantage, enabling commerce to happen anytime, anywhere.
In Q2, we generated $11 billion of cross-border trade through our platforms, 22% of total enabled commerce volume for the quarter.
With our technology outsets and capabilities, we are enabling new retail interfaces. For example, our partnership in Q2 with Kate Spade Saturday, reimagines a storefront window as a 7/24 shoppable screen.
We're also creating diverse new consumer experiences; from ordering online and picking up in store, to ordering via mobile and having the product delivered to you wherever you are, to ordering lunch ahead and skipping a long line; innovation is everywhere and a seamless, web enabled, omnichannel and multiscreen commerce environment is rapidly emerging. We intend to be a leader in this new commerce world.
Before getting into our second quarter results, let me briefly recap three things we shared with you at our Investor Day earlier this year. First, with technology accelerating change in how consumers shop, our Company has a bigger adjustable market, the $10 trillion commerce market. By 2015, we expect to enable $300 billion in commerce volume up from $175 billion in 2012. This is one of the ways we'll measure our success.
Second, our core businesses are strong. We have proven monetization models, and we've built a powerful set of technology and innovation capabilities.
Third, we see four emerging battlegrounds of omnichannel commerce, mobile, local, global and data. In our global commerce platforms, technology assets and innovation capabilities leave us well positioned to lead and compete. We have clear strengths, opportunities and capabilities in each area. In this environment, both retailers and brands need a partner and that's who we are, a partner, not a competitor. Our success is strongly tied to enabling others to win whether an entrepreneur or a global brand. Commerce is never a zero-sum game and in this period of disruption and innovation, we believe technology should enable more opportunity for everyone.
Now let's take a look at the quarter, starting with PayPal. In Q2, PayPal continued to expand its footprint increasing merchant coverage and share checkout finishing the quarter with 132 million active accounts globally, PayPal added almost 5 million new accounts during the period, the fifth consecutive quarter of accelerated growth. Merchant Services generated strong growth of 29% for the quarter accelerating three points from Q1 and representing $30 billion of payment volume.
PayPal continues to be a global leader in mobile payments generating strong growth and driving incremental sales for merchants. Mobile is enabling seamless shopping experiences for consumers, and PayPal is focused on delivering great product experiences for merchants and consumers anytime, anywhere. For example RadioShack went live in Q2 with PayPal point-of-sale option in the majority of their U.S. locations.
PayPal is also driving innovation for small merchants. The cash for registers program was announced in Q2 and went live earlier this month in the U.S. PayPal is waving transaction fees for up to $20,000 of transactions per month through January 2014 for the first 10,000 merchants who qualify. With a 132 million digital wallets in the cloud, availability in a 193 countries and unmatched global risk management capabilities, PayPal has powerful competitive advantages. PayPal's core business is strong and growing. And as merchants and consumers need better, more convenient and smarter payment options across every commerce channel, PayPal is committed to leading disruptive innovation.
Now let's turn to Marketplaces. In Q2, eBay's core or non-vehicles GMV grew 13% over the prior year and in the U.S., core GMV growth was up 16%. Active user growth was also up making this the fourth consecutive quarter of accelerating double-digit growth.
Performance was driven by continued site improvements and by eBay's focus on delivering consumers abundant selection at great value with personalized trusted shopping experiences.
Top-rated sellers continue to deliver a great experience and outpace ecommerce growth, accounting for 45% of U.S. GMV in Q2. Their same store sales grew 22%. Fixed price listings accounted for 69% of GMV globally, and half of all U.S. transactions included free shipping in Q2.
eBay continue to see strong growth in mobile. eBay mobile attracted 2 million new users in Q2 and drove an average of 5.6 million listings per week for eBay sellers.
The pace of innovation continues to accelerate at eBay. For example, Cassini, eBay's new search engine, was fully rolled out to North America in Q2, and shipping is another way where eBay is continuing to innovate. eBay's global shipping program added eight countries in Q2, bringing the total to 36. This program makes international shipping for sellers easier and it creates a more trusted experience for buyers, with shipments now fully trackable.
These are examples of the range of product enhancements and initiatives being implemented by eBay to improve the buyer experience, create more consistent retail-like standards, and drive increased selection. eBay is driving growth by pulling multiple levers, which collectively deliver a great customer experience.
Now, let me briefly touch on eBay Enterprise. In Q2, we rebranded GSI Commerce to its new name, eBay Enterprise. The new name best captures this business today. A commerce partner of choice for retailers and brands, and it captures its role in our Company. eBay Enterprise continued its success in Q2 by enabling its retail clients to grow faster than ecommerce. Same-store sales grew 19%. We feel very good about eBay Enterprise's ability to deliver omnichannel solutions that leverage eBay Inc. capabilities.
So in summary, our Company had a strong second quarter and first half. As we look ahead to the second half of the year, we expect continued macroeconomic headwinds in Europe and Korea. Despite that, we still expect to deliver within the range of our guidance for the full-year. We have a strong core business and we feel very good about our strengths and competitive advantages and global opportunities in the evolving $10 trillion commerce market. We remain confident in our ability to deliver the goals we have set for ourselves.
Now, I'll turn it over to Bob, who'll provide more details on Q2 and our outlook.
Bob Swan - SVP, Finance and CFO: Thanks, John. During my discussion, I'll reference our earnings slide presentation that accompanies the webcast.
The first half was a strong start to the year and Q2 was another good positive on our multi-year plan. Total enabled commerce volume in the quarter grew 21% to $51 billion. Revenue was $3.9 billion, up 14%, and non-GAAP EPS was $0.63, up 12%. User growth accelerated one point for both PayPal and Marketplaces. We are maintaining our full year guidance, yet expect to be at the lower end of our range on both the top and bottom-line. I'll provide more context on this later.
As we discussed at Analyst Day in March, we are expanding our addressable market, have a portfolio positioned to capitalize and lease, and are accelerating our mobile leadership position and the rate of innovation in our Company. As the strategic partner of choice for merchants of all sizes, we enabled $51 billion of commerce volume at a take rate of 7.7%. Our take rate has declined slightly, as our faster growing business, PayPal, has a lower take rate. We enabled $100 billion of commerce volume in the first half of the year with a growth rate in line with our three-year plan.
Now let's take a close look at the results from the quarter. In Q2, we generated net revenues of $3.9 billion, up 14%. Organic revenue growth was 15% with the divestiture of Rent.com in the second quarter last year, decreasing growth by approximately half a point.
Second quarter non-GAAP EPS was $0.63, up 12%. Non-GAAP operating margin was 26.3%, down a 100 basis points, due primarily to a benefit from an indirect tax settlement in the second quarter last year as well as business mix. We generated free cash flow of $658 million in the quarter. CapEx was 9% of revenue primarily due to investments in search, data and site operations.
Now let's take a closer look at our segment results. PayPal had a strong quarter. Revenue reached $1.6 billion, up 21% on an FX-neutral basis. A few quick highlights on PayPal operational metrics. Total active accounts growth accelerated one point to 17% TPV on an FX-neutral basis accelerated 3 points and grew 25%, driven primarily by continued expansion at PayPal and merchant sites around the world, an increase in share of checkout and a 160 basis point increase in PayPal penetration on eBay.
Merchant Services FX-neutral TPV grew 29% in the quarter. Transaction margin was 64.4% in Q2, down 190 basis points, due primarily to large merchant mix and smaller gains on our foreign currency hedges.
PayPal segment margin came in at 23% for the quarter, down 280 basis points, due primarily to lower transaction margin and investments in consumer awareness, product initiatives, and merchant ubiquity.
Let me touch on a few quick highlights for Bill Me Later. BML had a good quarter and is becoming an increasingly important component of our overall portfolio. BML had strong standalone financials, with TPV of 934 million, up 34%. BML's penetration as a funding source in the PayPal wallet was 4.1% share on eBay in the U.S. and 1.8% on Merchant Services. This penetration improved PayPal's funding mix and helped to reduce overall funding costs.
We continued to finance the BML loan receivable portfolio using offshore cash, which has enabled us to increase the return on this asset. Overall, BML continues to perform well.
Now let's turn to Marketplaces. Marketplaces had a strong quarter, with net revenues of $2 billion, up 10% on an FX-neutral basis. Revenue growth was negatively impacted by 2 points from lapping a one-time gain from an indirect tax settlement. Growth was driven by FX-neutral transaction revenue growth of 10% and Marketing Services revenue growth of 12% from our adjacent formats.
A few quick highlights on Marketplaces' operational metrics. Active user growth accelerated to 14% driven by mobile site enhancements and the emerging markets. FX-neutral non-vehicles GMV grew 13%, driven primarily by improvements in the customer experience, mobile, and strong performance in the auto parts and accessories and home and garden categories.
Sold items increased 11%. The growth was pressured primarily by tougher comps in Korea from low ASP categories added last year and stricter seller standards in China.
Take rate, excluding vehicles StubHub and the one-time benefits from indirect taxes was down slightly from last year due to higher promotional activity in our international markets.
Marketplaces' segment margin was 39.7% in Q2, up 10 basis points, primarily due to productivity, partially offset by investments in the user experience and trust.
Now let's turn to eBay Enterprise. eBay Enterprise continues to deliver on its goal to enable its clients to grow faster than ecommerce market, with 19% same store sales growth. Revenue for Q2 was $246 million, up 11%, driven by strong volume growth offset by a lower take rate and channel mix. Segment margins came in at 4.4%, down 30 basis points due to take rate reductions partially offset by productivity.
Turning to operating expenses. In the second quarter, our operating expenses were 43.5% of revenues, down 110 basis points. Operating expense was down due mainly to lower sales and marketing from improved marketing efficiencies and a shift in spend to product and user experience; partially offset by provision for transaction and loan losses resulting from higher loss experience in the quarter and investments in Marketplaces trust initiatives.
We ended the quarter with cash, cash equivalents and non-equity investments of $11.7 billion, including approximately $3 billion in the U.S. We've improved our financial flexibility, funding 65% of the BML loan receivables portfolio with offshore cash in the quarter; and we've repurchased 8.5 million shares of our common stock for approximately $466 million.
With that, let me turn to guidance. First, a little context on our business outlook. First, the macro environment in Korea is weak and Europe is slower than we expected, impacting both PayPal and Marketplaces. Second, currency has continued to deteriorate through the first six months of the year, and we have greater headwinds as the U.S. dollar strengthened versus the euro, pound, Australian dollar, and Korean won. Third, we expect tax-rate to be approximately 19.5% at the high end of our previous guidance due to less contribution from our international businesses.
Notwithstanding these, we expect to be within our previous full year guidance, but anticipate being at the lower end of revenue and non-GAAP EPS of $16 billion to $16.5 billion and $2.70 to $2.75 per share. We expect modest revenue acceleration from the first half of the year to the second half.
For the third quarter, we expect revenue of $3.85 billion to $3.95 billion, representing growth of 13% to 16%. And we anticipate non-GAAP EPS of $0.61 to $0.63, representing growth of 12% to 15%.
In summary, we feel good about our performance. Our core businesses had a strong quarter and we continue to test and learn in our adjacencies and see such as local, global, and omnichannel.
PayPal continues its strong growth with increasing focus on simplifying and improving the customer experience. Marketplaces is strong, particularly in the U.S., driven by investments in buyer and seller experiences. And eBay Enterprise is performing in line with our expectations as we continue to invest in technology and growing the client portfolio.
We are investing in our business for the long-term and we are focused on delivering the next generation of global commerce and payments capabilities.
Now, we'd be happy to answer your questions. Operator?
Operator: Colin Sebastian, Robert Baird.
Colin Sebastian - Robert W. Baird: Obviously, PayPal generated very solid growth in transaction volume, but one follow-up on the segment margin and the sequential decline from Q1, is this reflective of the offline payment service kicking in, and I'm wondering how you're tracking towards the year-end goals in terms of adding merchant acquirers and retail locations for this initiative?
Bob Swan - SVP, Finance and CFO: Yes, the PayPal segment margins are consistent with our historical trends, where first quarter and fourth quarter tend to be the higher segment margin rates and Q2 and Q3 tend to be lower. And it's more a function of the investments that we are making around ubiquity in the online and omnichannel world on investments we're making in the consumer product more than anything. The second thing is as you see on a year-on-year basis, transaction margins were down, and that is more a function of a higher take rate last year versus this year as our off eBay growth accelerated, our large merchant expansion is improving. And then as you know, Colin, the impact of hedges flowed through the PayPal revenue line in our gains this year – this quarter were a little less than last year.
John Donahoe - President and CEO: And then on point-of-sale progress, it's marching along pretty much as we outlined in March with PayPal here at the smallest merchant and continuing to grow and now the chip and PIN being released in the U.K. and soon to the other countries. Our Discover partnership is now live and I think we have roughly a 0.25 million location. And we continue to sign direct point-of-sale sell merchants; as I mentioned earlier, RadioShack being the latest. So, we're going to continue to march our way out to build over the next two and a half years build our ubiquity.
Operator: Douglas Anmuth, JP Morgan.
Douglas Anmuth - JPMorgan: I just wanted to ask if you think that anything fundamental has changed in your business since the Investor Day four months ago. And how do you get comfortable with the international softness in Korea and Europe in particular being macro rather than competitive or something more fundamental?
John Donahoe - President and CEO: Doug, we don't really see anything fundamental in the last 90 days other than what both Bob and I commented on, which is, the external environment is a little bit softer in a couple of geographies versus what we anticipated at the beginning of the year. We came into the year feeling like the U.S. economy and ecommerce market was going to be solid; and I'd say it's performing probably at or maybe even a little bit better than we would've guessed. We came into the year thinking Europe was going to be – while it was going to be weak; it was going to be kind of stable. What's happened in the first six months of the year, you read the same things we do that the Eurozone may actually contract this year. Retail is down in both Germany and the U.K. And what's a little different this year than the past couple of years is ecommerce growth rates are also coming down in the U.K. and in Germany. Last year, ecommerce held up even and in spite of a challenging market. So it's not massive, but it's just on the margin. It's softer than we thought. Then Korea; Korea, the ecommerce growth rates have dropped by more than 50% year-over-year. They were almost 9%, 10% a year ago. They are at 4% now. So as you know, we are reasonably weighted toward Europe, Germany and U.K., and Korea, and so those things are impacting our businesses in the area. But we are executing on all the initiatives and all the plans we discussed at our Investor Day, and as we said earlier, in spite of those headwinds, we still feel good about how we're executing and performing and expect to come in within our full annual guidance range.
Bob Swan - SVP, Finance and CFO: Doug, the only thing that I would add, which is a fundamental change not in our business per se, but in the environment which we're operating. Obviously, we're a very global business and international currencies relative to the dollar from beginning of the year are weaker by a little over 4%, and from the March-April timeframe weaker by a little over 3%. So, obviously, that's not a fundamental dynamic of the business that we operate; it is a dynamic of being a global business exposed to global currencies, and that clearly has an impact on us.
Operator: Heath Terry, Goldman Sachs.
Heath Terry - Goldman Sachs: John, just kind of curious, we've now seen over five quarters of accelerating growth in users, particularly Marketplaces, and historically, that's had a pretty direct impact on other metrics within the business, whether revenue growth or GMV. Is there anything that you're seeing that's sort of different about these incremental users that are coming in now? Are they activating at a lower rate; are they spending less either for geographic reasons, or is there any other sort of context that you can provide around when you expect to see that accelerating user growth translate into the rest of the business?
John Donahoe - President and CEO: Well, Heath, as you said, in actually both Marketplaces and in PayPal we've now got, I think, four and five straight quarters of accelerating double-digit active user growth and I feel thrilled about that. You recall a couple of years ago, people were repeatedly asking, when are you going to start marketing to new users, and we waited till we felt like our user experience deserved that. So, really ever since Devin came on board, he has made this a real focus in the Marketplace business. What's driving the acceleration in new users is really three things. One, it's just plain and simple, an improved user experience, and the word-of-mouth that goes along with that. Two, mobile. Almost 30% of our new users in second quarter came from mobile. So, that's a way we're relevant to someone on the spot when they want to trade. And then third, BRIC and emerging markets. And frankly, much of the BRIC and emerging markets is also registering on mobile. So these new users, they are in segments we really like. A, they are – mobile users tend to be younger, so we like that. They may have less disposable income, but they are younger and we love the lifetime value. The BRIC and emerging markets new users are people that are just coming into the global commerce environment; and again, they tend to be a little bit younger and a little bit – they tend to start with a little bit lower ASP. So we're very glad to be rolled into these segments, and now we're working on increasing both frequency and our ASP with each of these segments to convert them into long-term users. It's still too early to tell. We have something we call class curves, which are the maturity curves of each new cohort of new user. It's still too early to tell if there's any fundamental difference of the slope of those class curves of a mobile user, or a BRIC or emerging market user. But what we like is they are in the segments that we think are fundamentally important and strong segments for our business over the medium to longer-term. So, I view it as very positive development.
Operator: Youssef Squali, Cantor Fitzgerald.
Youssef Squali - Cantor Fitzgerald: Bob, could you just go back and maybe help explain what drove the decline in growth in FX-neutral Marketplace revenue to that 10% you talked about earlier? This is the lowest we've seen in about five or six quarters. I think you spoke to some tax settlement, I think 200 basis points related to tax settlement. Maybe you can talk about that. And then, can you also make – I guess as you talk about eBay or as you comment on eBay Now, can you just make that business breakeven on the current $5 offering, or how should we be thinking about it? Is it just more of a transaction-accelerant over time?
Bob Swan - SVP, Finance and CFO: Yes, first, Marketplace revenue deceleration Q1 to Q2 was 13% to 10%. The biggest driver of that was, you may remember last year, Youssef, we had an indirect tax settlement in one of our international businesses that was VAT-oriented, therefore went through the revenue line. So that item itself contributes to 1.5 points of the deceleration. The second thing what I'd characterize as promotional activities and they came into two ways. One, in our Korean market more directed coupon orientation which is more of a counter revenue. And the second was – the second aspect of promotional activities is things we were doing in some of our European markets to stimulate the supply side of economics that were getting more selection on the site, if you will. So those are the two primary drivers. 13 goes to 10, primarily driven by indirect tax settlement from a year ago that we talked about, and things we do to stimulate promotion in both Korea and European markets.
John Donahoe - President and CEO: Then, Youssef, on eBay Now what this is really proving – and I think it's been ahead of what I would have expected. It's proving that consumers like choice. They like to have the option of when they want something delivered to them same day, that they like that. Interestingly, we've been doing it within an hour time window pretty consistently in the three cities we've been doing it. And then like that, but they also would like the ability to schedule at some point in the afternoon, and so we'll be driving towards that. Retailers like it because it's leveraging their stores as fulfillment centers. And our focus to-date has been building a great consumer experience where – so that – and I think that's one of the things that's distinguishing our pilot from other pilots right now, is if you talk about consumers that have used it, it works and they like it. Now, as we think about rolling it out and we've announced we'll be going in addition to the three cities to Chicago and to Dallas, we'll begin experimenting on two things; one is driving more scale. One of the things that we have inside the eBay Marketplace is we have a fair amount of local transactions, where a buyer and a seller happen to be in the same city, and so now we'll be exposing those, so we can begin to build more density within those cities. And we think we're probably the only people around that with the eBay Marketplace volume and the retailer volume, we can aggregate in a given city to have the most compelling economics on behalf of pulling multiple retailers together. And then we'll experiment with other delivery approaches including taking more of a marketplace approach to delivery, where we have vetted delivery drivers and use a – what I might call, an uber-like approach to the delivery side. So, we think this can be an effective way to offer consumers choice and allow merchants to use their stores as performance centers.
Operator: Sanjay Sakhrani, KBW.
Sanjay Sakhrani - KBW: I just have two questions. First, I was just wondering, if you could talk about where the ongoing risks might be to your current guidance, and perhaps where you might feel you are conservative in your outlook? And then second, I was wondering if you could talk about some of the leaked proposals in the FT last night for Europe and how that might impact PayPal. Specifically, I was just wondering whether you guys have seen any competitive pressure on your cross-border fees as a result of those rates going down for Visa and MasterCard.
Bob Swan - SVP, Finance and CFO: Sanjay, on the first part of your question, right now, I characterize our second half outlook and our outlook for the full year is fairly well balanced. I think what it incorporates is kind of the three things we know today the U.S. – we've characterized the U.S. macroeconomic environment and our business to be performing well. Europe macroeconomic environment to be not so good, but we feel like the actions we've taken are okay. International and Korea in particular is a high risk, but we think we factor that into our second half outlook. In terms of conservative, look, if the European market accelerates, we'll all feel great but we are not counting on it in currencies. Yet I think we've, in essence, captured spot into our guidance both on the top and bottom line with the bottom line fairly well hedged, top line obviously will be impacted. So it incorporates kind of our best view about what's transpired through the first six months of the year and how we see the second half playing out.
John Donahoe - President and CEO: Sanjay, on your second question, I make it a general policy not to comment on leaked draft plans. That said, anytime something like this comes out, we look at it and we'll will – as this evolves further along, we'll assess it but there is nothing official as yet.
Operator: Ron Josey, JMP Securities.
Ronald Josey III - JMP Securities: So, I wanted to ask on Cassini, which I believe rolled out in North America in June at some point. Wanted to see if you're seeing any benefits? I know relatively early, but see any benefits or lessons learned since the rollout. And specifically, what you're expecting from Cassini, maybe an increased conversion rate maybe in the back half of the year?
John Donahoe - President and CEO: Yeah, Ron, Cassini represents two things for us. One is the next search platform which we can continue to innovate on. So actually, the current user functionality which I will describe in a minute is great but what's probably as important is it gives us the foundation for the next couple of years to continue a series of iterative search improvements. The search improvement that's coming in kind of its first rollout is simply that it's indexing the entire listing instead of just the title which does two things. One, it improves the quality of the search results and it reduces our nil searches or zero result searches. So, we're seeing both of that. As with any search change when an ecosystem as large as ours, that when you initially do it, it tests negative and then you work hard to sort of get it back to positive or neutral and then you hope to get some positive benefit out of it. And we now think it's in the modestly positive category. I've said this before; I'll say it again, I don't – Cassini itself is not going to create any discontinuous positive benefit, any more than any other search change we've made in the last few years. It's really the combination of Cassini, of other search or user experience changes, of trust changes, or pricing changes, that it's the combination of those things that we think will drive the positive growth. And so, while I'm very proud of it, I don't want people to overly isolate it or focused on it because that's just not – it's not how our ecosystems worked over the last five to six years, and it's not going to be how it works in the future. I wish there were silver bullets, but there seem to be none in our business. So, a lot of hard work and pulling lots of levers. But I will say that I do think we have more levers than we ever had to pull going forward.
Operator: Ben Schachter, Macquarie.
Ben Schachter - Macquarie: A couple of questions. One, could you talk about the key milestones that we should look for in PayPal offline? I mean, how from the outside can we track the progress there? And then second part, loan losses seem to be going up a bit more than we would expect. What do the trends look like here? How should we think about how high that can go? What does it look like a year from now, et cetera?
John Donahoe - President and CEO: Yeah, Ben. On PayPal offline, here's the way we look at this, which is, mobile is blurring this boundary between what used to be online and what used to be offline, and we are looking at this as a significant opportunity to increase our addressable market over the medium to long-term, and our investment horizon is over the medium to long-term. So, as I look at it, we continue to leverage our strength on the web and we are the leader there, and our (MS PPB) numbers reflect that. We are continuing to leverage our strength in mobile and in some cases mobile is adding what you might call a digital shopping experience. In other cases, mobile even in our current result is something you could have said what used to be an offline experience. So take something like eBay Now. When you use eBay Now, you are paying with PayPal. That's in essence for 'offline transaction'; it's just not happening in a store. And the same thing is happening now in Australia and in the U.K., where we are out using PayPal the way to pay in over 2,000 cafes and restaurants in Australia and now in some cinemas and taxis and places that might have been characterized as offline, but now via a mobile device, consumers can use PayPal to pay. The more future-oriented area with its more greenfield is using PayPal to pay inside a physical – a classic physical retail store. And what we are doing there is doing just what we talked about in our Investor Day, which is building up ubiquity over the next two, three, four years and then trying to serve or develop and solve customer pain points. PayPal has never been about just replacing current payment mechanisms by trying to do the same thing. It tries to solve customer pain points. And so, we are standing in line of the customer pain points. So we are trying to solve that. Waiting for a check in a restaurant is a customer pain point; we are trying to solve that. Merchants are looking to strengthen their connections with their customers by allowing easy access to loyalty programs or offering coupons or offers while they are in the store or enabling private-label cards. So, we are driving our product roadmap to enable those kinds of experiences, and we will begin experimenting with those in different retailers and different geographies around the world. That last category I'd categorize is more greenfield and that's why in our three-year numbers, we put some of the things that are more certain in the numbers and a lot of the lesser certain things we said are – we can't estimate exactly when we will get consumer velocity and traction. So we didn't put with them in our three-year numbers.
Bob Swan - SVP, Finance and CFO: Ben, on your second question, just first, let's say, and as you know, we use Bill Me Later as a product and a vehicle to drive more engagement on our – for merchants on and off eBay. And we do that that in effect ends up lowering our processing costs and using our offshore cash to generate higher returns. That's how we use the product offerings. In terms of how we leverage our risk management capabilities to make credit decisions, what we are trying to do is generate portfolio economics that generate a 14% to 16% return on that asset deployed. In essence, what that means is – and that's kind of where we've been for a long time. Sometimes, we take a little more calculated risk, which will drive up net charge-offs. At the same time, it usually results in higher revenue. So, net charge-offs have gone up a little bit. We are at the high-end of our 14% to 16% risk-adjusted margin range, and we feel pretty good about where we are. If I were to project forward, I think we will stay within the 14% to 16% range in the foreseeable future. I expect net charge-offs to levelize, stabilize a little bit in the next six to 12 months.
Operator: Gil Luria, Wedbush Securities.
Gil Luria - Wedbush Securities: In terms of how you're rolling out the improvements to Marketplace, I think when you start with the first set of improvement three, four, five years ago, you rolled some of those internationally and then brought them to the U.S. and that's when you saw the big impact. Are you doing the opposite now? Are more of the changes happening now in the U.S. could be rolled out later internationally, and if so, what's the timeline for that?
John Donahoe - President and CEO: Yeah, Gil, frankly, what's really happening now, back then we were putting, I mean, the market we thought was most specific, and then that happened to be the U.K. in many cases; we rolled back to the U.S. Now, frankly, we've got many in the U.S., we've got some other things internationally. So, something like Cassini we've rolled first in the U.S. and now we'll roll it out more internationally. There's some other trust and other innovations we might try in a country and roll back. The short answer to your question is – and it may be an unsatisfying one, but the truth is, all those things are contained in the growth rates we put into what Devin talked about at the Analyst Day, and I don't see anything that's discontinuous where there's something that's significantly proven in region one, and when we roll it out in region two, it'll do a significant bump. We do have a number of things that we'll roll out in Europe and in the international markets in the second half and really into the first half of next year. And we have a few things on the trust front that are happening in other countries roll back into the U.S. But again, I'd message a fair amount of steadiness as those things roll out. And we're getting better, I think, at the rolling out, because we don't like discontinuous things up or down and we try to avoid them.
Gil Luria - Wedbush Securities: Then, a quick follow-up. You talked about the fact that your assumptions about Europe and Korea have gotten worse from three months ago. Have your assumptions in the U.S. gotten better from three months ago and are you assuming further improvement for the second half of the year for the U.S. consumer or the same behavior that we are seeing now?
Bob Swan - SVP, Finance and CFO: Yeah, I would say no change in the U.S. from where we were three months ago, but at the same time back in – we told you back in April that from where we were in January that U.S. was a little bit better and Europe was a little bit weaker. And I think no real change from those dynamics from April as it relates to the U.S.
Operator: Mark Mahaney, RBC Capital.
Mark Mahaney - RBC Capital: Two quick questions. At the Investor Day earlier this year you did do the deep five into the Russia market; any quick update there? And then secondly, any updated thoughts on uses of cash for share buybacks and just remind us how much of your current cash is domiciled in the U.S.?
Bob Swan - SVP, Finance and CFO: Mark, on Russia, I'd say nice progress in the first half of this year, and really, I guess, it was December and first half this year where we got our PayPal – in essence, domestic payments license. And then second, we've launched our Russian language site; I think at the end of the first quarter, beginning of the second quarter, and we actually ran some TV advertising in Russia which turns out to be fairly economic during the second quarter. And we are seeing nice growth rates in our Russian business. Obviously, it's all import business. We're continuing to work in how do you really make it easier to ship into Russia. But we are seeing very nice growth rates in our Russian business, and we believe we continue to be the largest B2C seller in Russia.
Bob Swan - SVP, Finance and CFO: The number one player and growing. Mark, on your second question, it's just about $11.7 billion in cash in total, about $3 billion of that $11.7 billion is here in the U.S. Philosophically in terms of deployment, no real change. Organic investment, number one priority. Bill Me Later, loan portfolio growth, the biggest consumption. We will continue to be acquisitive as a company. And then on our share repurchase, we basically had for a while now the philosophy to offset delusion from our comp based programs and we expect that to continue. In the second quarter, what that meant was we bought back just about 8.5 million shares at $466 million.
Operator: Ross Sandler, Deutsche Bank.
Ross Sandler - Deutsche Bank: Just two quick questions. John, you guys had talk about the clock speed initiative for Marketplaces where you can now ship new product I think once or twice a week versus once every six months a few years ago. So I was just curious what's the equivalent clock speed initiative looking like on the PayPal side? How quickly are you guys able to ship new innovations either on the merchant or the consumer side for PayPal? And then Bob, you guys did the small Belgian classifieds acquisition. Any revenue or expense included from that in the second half guidance?
John Donahoe - President and CEO: Ross, on clock speed, what enabled that was the hard work that Mark Carges led over the last, really three to five years to re-platform the Marketplaces’ core technology platform. Initially it was the search platform, and frankly, Cassini is Rev 2.0 of that. And then there was some other elements of the Marketplace technology platform that enables more iterative rapid innovation. I'd say PayPal is three years behind what Marketplace was. So we've really just began what I call a fundamental replatforming effort in PayPal last year and we are sort of a year into it. Some of these new features we are shipping are on the new stack and that new stack is more robust, it allows more iterative and faster approach. But it's going to be a three year slog to work our way through the PayPal replatforming. I wish I could make it go faster, but we can't and more resources doesn't make it go faster. So the good news is the PayPal team is on the same path as the Marketplace team was. Are we beginning to see some benefits? I think next year, in PayPal's clock speed and certain areas with those features and things that are on the new part of the stack will increase clock speed, but over the next three years that I think you will see the kind of significant acceleration in clock speed in PayPal that we're now seeing and enjoying in Marketplace.
Bob Swan - SVP, Finance and CFO: Ross, on the Belgian acquisition, yeah, we just announced and closed it a week or two ago. Rest assured, every bit of the revenue is reflected in our guidance, and it's not material.
Tom Hudson - IR: Operator, we have time for one last question.
Operator: Stephen Ju, Credit Suisse.
Stephen Ju - Credit Suisse: So, Bob, just to build on your earlier commentary on the decrease in the Marketplaces' take rate; I guess as you take on more promotional activities and this seems to be arriving in conjunction with a decrease in the overall marketing spend as a percentage of revenue. So, should we view this as a more deliberate shift in your marketing mix and hence to your take rate, or is this just a purely ROI-driven temporary shift?
Bob Swan - SVP, Finance and CFO: I think the general theme of us continuing to pull a variety of different levers to stimulate user growth and engagement on the site is something you've seen for a while and, I think you should continue to – you will continue to see. I think more specifically for the quarter, what that's meant for the last couple of quarters is while we've increased our sales and marketing spend overall as a percent of revenue, it's come down i.e. we've gotten more efficient in it – in higher returns. But we are investing more on product, innovation, R&D. We are investing more in buyer protection that flows through the eBay guarantees. And we continue to pull levers on contra-related spend and take-rate related dynamics that stimulate the supply side of the ecosystem. So, I think you're going to continue to see us play with the different levers in different markets to stimulate engagement and demand.
Tom Hudson - IR: Okay. I think that's it. Thanks, everyone. We'll see you next quarter.
Operator: Thank you, presenters. Thank you, ladies and gentlemen. Again, that does conclude your eBay's second quarter 2013 earnings conference call. You may now all disconnect and have a wonderful day.