To Our Stockholders,
The past year has brought remarkable challenges and opportunities for both the technology industry and for eBay. It was a year of reckoning for many consumer tech companies, with a breakout of societal issues around privacy, trust, trade and immigration. In an age of profound shifts – in technology, society, and consumer expectations – the only choice is to transform or be left behind.
For eBay, this means making the tough foundational changes needed to deliver on customer expectations now. Our path is simple. We are fiercely loyal in protecting eBay’s unique advantage as a true marketplace in service of small independent businesses, consumer sellers, and buyers, and working to dramatically simplify the buyer and seller experience.
Unlike other digital commerce businesses, we don’t compete with our sellers and we refuse to compromise the shopping experience to push “house brands” and irrelevant posts. Millions of small businesses and consumers sell only on eBay. I believe it’s because of our purpose and policies – this matters to customers. We fundamentally object to unnaturally bundling services to overcome barriers to competition. At eBay, we empower third party sellers to thrive, which actually serves consumers seeking value and selection. We are a benchmark on this. We always have been.
This was a year of decisions that we expect will fundamentally change our company. In many ways eBay grew up as a loosely coupled marketplace where your experience was largely defined by your interactions with each other more than the company. That spirit of connection must always remain core to our experience, but it is also clear that this should not come with complexity. Today customers demand more, and our imperative is to evolve to a managed marketplace where uniqueness and value is delivered in parallel with elegant simplicity. Managing our marketplace means building a foundational product catalog, increasingly playing a role in package delivery and returns, and managing the end-to-end payment process. We have strong conviction in the journey we are on, but no misconception of the challenges this brings. This evolution is happening at massive scale. In 2018, $95 billion worth of goods and services were bought and sold on our marketplace. eBay is not only the second largest ecommerce business in the US but also second largest in the world outside of China.
Our marketplace is growing, resilient and steadily profitable in a hypercompetitive industry, and not many can claim this. It would be easy to rest on those accomplishments, and quite frankly it would be easier to transform if we were just beginning. But we don’t have that choice, and it would be an enormous strategic mistake to not transform the business. And because eBay plays such an important role in the world, because it’s one of the most iconic companies ever created, and because it provides economic independence to tens of millions of people, it’s worth the hard work even if the path isn’t always smooth.
In the three years after completing the spin-off of PayPal, we have added 20 million new buyers to a total of 179 million and grew our inventory to 1.2 billion listings from 850 million. In those three years, the volume of transactions on our platform — gross merchandise volume (GMV) – increased to $95 billion, up 16% from $82 billion. Over the same period, we have returned $11.3 billion to shareholders, which is 140 percent of our free cash flow.
That said, 2018 was not always smooth. After several years of steadily accelerating growth and progress on transformation, our growth slowed in the second half of the year, and we saw some challenges with the pace of adoption of some of our transformational changes. This doesn’t change the fact that what we are doing is critical and we will only win if we are persistent but nimble in adapting to what we have learned and what our customers need.
Purpose-Driven and Profitable
We are innovating, investing and transforming the business not only to win in the marketplace, but also to level the playing field for tens of millions of people who operate on our platform and depend on it for their livelihood. Many have successfully pursued their dreams of starting and scaling a business on eBay.
Since our founding, we have used the power of technology to create an inclusive and accessible marketplace. This mission has been a driving force for us for the last two decades and is still what inspires us every day. As an example, we are proud of our work in re-invigorating small businesses through the launch of our Retail Revival initiative. As part of this program we partnered with select cities to bring their local brick-and-mortar businesses online, providing access to new customers around the world. These businesses received in-depth training, dedicated coaching and promotional support designed to enable their expansion into the digital marketplace. Our first city was Akron, Ohio, and we expanded the program to include Lansing, Michigan, and the City of Wolverhampton, U.K. Two more Retail Revival cities — Halifax, Nova Scotia, Canada, and Greensboro, North Carolina — were announced in early 2019. To date, Akron and Lansing sellers have sold over 40,000 items to more than 32,000 customers in all 50 states and 110 countries — demonstrating the incredible reach this program enables. Wolverhampton sellers hit the $2.6 million mark in gross merchandise volume (GMV) in just five months of the program, which is a deeply meaningful result for the participating small businesses, and they’re just getting started.
eBay has always been an enabler of a better and sustainable form of commerce — where people are empowered, and opportunities are open to everyone. We continue to advocate on behalf of entrepreneurs around the world who grow their businesses, support their families and connect to communities on our platform. In particular, we continue to support free and fair trade, tax structures that do not penalize small businesses, and responsible immigration that allows us to foster innovation by attracting the best and brightest talent from around the world.
And above all these important issues, we focus on building trust with our consumers every single day. That means ensuring that a customer gets a quality product on time, but it also means ensuring that the customer’s data privacy is protected, and eBay is a trusted partner.
Highlights from 2018
I’m proud of our work on behalf of our customers, employees and shareholders. We made our product and customer experience the best it’s ever been, we invested in our brand, and we sharpened our focus across the board. We had plenty of wins, both big and small. 2018 was a transition year in our complex journey, and there were many highlights along the way.
- Platform Innovation: We continued to make the shopping journey simple, personalized and discovery-based for buyers. We provided enhanced tools and insights for sellers. We simplified the experience across multiple points in the shopping journey, including at checkout and for new buyers. Last year, we introduced Best Price Guarantee, which offers buyers 110 percent of price difference between eBay and a competitor’s offer, and we expanded our Guaranteed Delivery service. We also expanded eBay Authenticate, which gives buyers greater confidence in their purchases, to include luxury watches and jewelry. As we continued to drive our most powerful selling platform, we made the Seller Hub — a central place for all sellers to manage their information and accounts — more robust with analytics and merchandising tools. These resources help sellers with insights on what to sell, when to sell it and at what price. To help small businesses and entrepreneurs manage their capital, we partnered with Square Capital to help provide financing. And we continue to scale our new consumer listing and selling process. Sellers are also taking advantage of our promoted listings offering with hundreds of thousands of active sellers promoting millions of listings.
- Payments Debut: Last year, we began a multi-year rollout of a new payments experience, where we manage the entire payments flow on our platform, simplifying the process for all. We are off to a good start, processing $143 million in gross merchandise volume through our new payments flow and saving participating sellers $1.2 million as of the end of 2018. We’ve increased choice for consumers by adding Apple Pay at checkout. We’ve streamlined how our sellers manage their business, and we are saving them money. We look forward to accelerating this transition in 2019 and beyond.
- Geographic Expansion: We continue to explore opportunities to reach more buyers and sellers around the world. In 2018, we completed our acquisition of Giosis’ Japan business, including the Qoo10.jp platform. Giosis is helping us carve a meaningful niche in a very large ecommerce market, and we are excited about its potential. We also reintroduced eBay India marketplace after selling our equity investment in Flipkart.
- StubHub & Classifieds: 2018 saw more than 240 million unique visitors from 64 countries use StubHub to buy or sell tickets to live sports, music, theater and other events. We remain focused on customer experience and are investing to drive loyalty to the StubHub brand. For eBay Classifieds, a world-leading platform enabling people to buy and sell at a local level, our main initiative remained focused on the motors vertical and expansion across several markets, including UK and Canada. In Germany — where we have eBay Kleinanzeigen and the motors vertical mobile.de — the Classifieds brands are market leaders, powerfully advancing the way people buy, sell and connect. In UK, we acquired leading classifieds site Motors.co.uk, helping us expand our reach. The Motors.co.uk team has joined Gumtree UK, an eBay Classifieds business, and, together with eBay Motors UK, will offer more than 620,000 car listings seamlessly across these platforms.
- Capital Allocation: In 2018, we returned $4.5 billion of capital to shareholders through the repurchase of common stock, representing about 11 percent of shares outstanding. We made some significant changes to our capital allocation strategy early this year, including instituting a dividend for the first time in our history and increasing our planned share repurchases to $5 billion in 2019. We expect to return $7 billion through repurchases and dividends over the next two years. The purpose of these changes is to return more capital to our shareholders in a balanced way, highlighting our confidence in the free cash flow resiliency of our business and the opportunities ahead of us, and to significantly reduce our share count ahead of 2020.
- Employee Experience, Diversity and Inclusion: eBay has hundreds of millions of customers around the world from diverse backgrounds, races, ethnicities, genders and sexual orientations. The more inclusive and diverse we are in our workforce, the more we reflect our customers, and this enables us to make better decisions as a business.Our workforce is one of the most valuable assets we have as we drive our business forward. For the 12th year in a row, we have earned 100% on the 2019 Human Rights Campaign Corporate Equality Index and we have been named one of the Best Places to Work for LGBTQ employees. Gender pay equity is another important issue for our company, our industry and the economy as a whole. For the third year in a row, we completed a global study of gender pay equity at eBay and found that we have 99.8% gender pay equity in the U.S. and 99.7% globally. We remain committed to achieving pay equity and are taking steps needed to ensure that gender is not a factor in compensation. Our employees are also supported and empowered through our robust benefits program, whether they are pursuing wellness, navigating life changes, or confronting health challenges. As an example, we provide comprehensive maternity and parental support program – regardless of the path to parenthood – which helps employees welcome new additions to the family and return to work with ease.
The Year Ahead
In 2019, we are focused on transforming the user experience further by leveraging the foundation we have built over the past few years. For existing customers, this means focusing on conversion and frequency, removing friction, leveraging our vast user data, and providing additional ways to compare value and surface unique inventory. Sellers will gain access to more data and tools, with enhanced protections. We are also working to grow our customer base, through delivering new experiences and messaging to encourage first purchases. All customers will benefit from enhanced delivery and returns, through broader coverage of guaranteed shipping and our new returns experience. We believe this will lead to an improved experience for both buyers and sellers.
In addition, we will continue to invest aggressively in our key growth initiatives – advertising and payments – which are already showing great promise and represent a huge opportunity for the company. We will ensure we achieve the right balance between user experience and monetization as we build towards $1 billion advertising revenue opportunity. And we continue to expect to begin a full rollout of Payments in 2020, building toward a $2 billion revenue opportunity at scale.
We are in the process of conducting a review of operations and a review of our portfolio, including StubHub and eBay Classifieds, following a constructive dialogue with some of our major shareholders. We will consider all options that will be in the best interest of our company, customers, shareholders and employees.
We’re all working hard to bring the best of eBay to our buyers and sellers around the world. I’m as energized as ever about the possibilities and potential of this great company.I see firsthand the impact we have on a world that needs a company like ours. Together we will create more opportunity for people from all walks of life and make a bigger difference around the world. And we will continue to grow our company, while making the evolution required to ensure that eBay thrives well into the future.
As always, I thank you for your support.
Editor’s Note: eBay’s 2018 Annual Report and 2019 Proxy Statement will be available on April 19th from eBay’s Investors site.