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eBay Inc (EBAY -0.51%)
Q3Â 2019 Earnings Call
Oct 23, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to the eBay Inc. Third Quarter 2019 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today Mr. Joe Billante, VP of Investor Relations. Thank you. Please go ahead, sir.
Joe Billante -- Vice President of Investor Relations
Thank you. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the third quarter of 2019. Joining me today on the call are Scott Schenkel, our Interim 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 a reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. Additionally, all revenue and GMV growth rates mentioned in Scott 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 in our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of October 23, 2019 and we and we do not intend and undertake no duty to update this information.
With that, let me turn the call over to Scott.
Scott Schenkel -- Interim Chief Executive Officer
Thanks, Joe. Good afternoon, everyone. I'm excited to have the opportunity to take our company forward during this period of transition. In times of change, it is important to step back and make clearer assessment of where we are, confirm what does not change and identify what needs to be different.
Our value proposition remains clear. eBay is one of the world's largest global marketplaces, where consumers can shop unique inventory at great value. Sellers of all sizes have low-cost access to over 180 million buyers, with a partner that does not compete with them.
Our near-term priorities are unchanged. We are delivering our 2019 commitments, including our growth initiatives of advertising and payments; improving seller capabilities and growing the buyer base. In addition, we have completed an operating review and are implementing plans to expand margins. Lastly, we are executing a portfolio review to best position the company for the long term.
For 2020 and beyond, change is needed to improve the underlying health of the Marketplace's business. We are reassessing how to best deliver for our buyers and sellers and ensuring we match investments to serve them in an authentically eBay way. We will discuss this further at the January earnings call.
With regard to our Q3 performance, total GMV was down 2%. Organic revenue was up 3%, while our active buyer base grew 4%, up to 183 million. Underlying these results, GMV on our Marketplace platform was down 2%. StubHub volume was flat and our Classifieds platform grew revenue at 8%. We also returned $1.1 billion in capital to investors through share repurchases and dividends. Andy will go into more detail on our financial results shortly.
Our growth initiatives continue to make meaningful progress. Advertising sustained momentum in Q3, where Promoted Listings drove $103 million of revenue, up over 120% from a year ago. Over 1 million sellers promoted more than 300 million listings in the quarter. This increased adoption was partly due to our integrated mobile experience, where sellers can opt in review recommendations and manage Promoted Listing performance.
In addition, we improved our ability to vary the number of ads that appear in search results, while balancing relevance for our buyers and conversion for sellers. There is incremental opportunity to grow Promoted Listings to adoption and conversion gains and we see more untapped growth in ad rates and product formats. All of these levers give us confidence in achieving our goal of $1 billion in total Advertising revenue.
Moving to payments. Adoption is accelerating in the U.S. and was recently launched in Germany. Since we began intermediating payments on our site approximately a year ago, we have processed over $1.1 billion in payments for over 20,000 sellers. In September, in the U.S., we processed more than 9% of volume on our payment rails, accelerating close to the limit of our operating agreement.
Sellers continue to share positive feedback on the more simple experience that pay them directly into their bank account while saving them money. For buyers we have enabled more payment choices including AmEx and SEPA Direct Debit, which is commonly used in Germany. More payment methods will be added over time as we expand globally.
We are on track with our plan to realize $2 billion in revenue and $0.5 billion of operating income at scale. And this initiative will be a meaningful contributor to revenue growth in the second half of 2020.
In addition to ads and payments, we continue to deliver capabilities that are specific to eBay and drive customer success. Sellers on eBay have a unique ability to directly interact with individual buyers. For example, seller initiated offers saw increased adoption as we added more ways for sellers to drive conversion by targeting potential customers who have bandit cards.
We have also added protections for sellers in major markets against abusive buyer behavior and events outside of their control. In addition, we expanded our Seller Hub toolkit by integrating capabilities we acquired from Terapeak. In major markets, sellers now have a suite of features that identify what and when to sell and how to price inventory.
In Germany, we help sellers comply with new VAT requirements while avoiding significant disruption. One of the most important ways we serve sellers is by growing the buyer base. In Q3 we grew active buyers at 4% for the seventh quarter in a row. Acquisition of new and lapsed customers continues to be the main growth driver and is due to more focused marketing spend and new user improvements that we have launched over the past several months.
In Q3, we exposed new buyers to popular eBay features after their first purchase and are encouraging app downloads with more aggressive calls to action to migrate users to our best customer experience.
Related to the long-term health of the marketplaces business, we are continuing on a path, started a few years ago to organize one of the world's largest sets of unstructured inventory to power unique and compelling experiences. While progress has been made, we have changed our approach to make it easier for sellers to provide product details or aspects when they list items for sale. This is particularly relevant in categories like fashion and home where product aspects are not specific to a catalog ID.
With this rich dataset, we will continue and reenergize our efforts to create engaging experiences, showcasing the full spectrum of value. We'll update you further on our progress in January.
Moving on from our initiatives. One headwind continuing to impact the U.S. is Internet Sales Tax. As laws have taken effect, government officials have chosen to tax small out-of-state businesses with a no low local access in excess and are acquiring marketplaces to collect.
Buyers are seeing higher prices at checkout and are purchasing less particularly large dollar items. In Q3, the impact of the U.S. GMV was more than three points and we expect that headwind to grow in Q4 as new laws in California, Texas and nine other states take effect. While this impact is not unique to sellers on our platform, it is disproportionately affecting small businesses, many of whom sell on eBay.
Looking at our international marketplaces. Overall performance was slightly down versus last quarter. In the U.K., lower consumer confidence is driving a softer market, which we offset in Q3 with improved marketing efficiency.
In Korea, we saw competitors significantly increased couponing. And rather than match their investment levels at low ROI, we chose to focus our investments on our loyalty program. We are on track to double the number of members in our Korean smile club loyalty program this year to almost two million. In Japan, we saw GMV acceleration due to successful marketing program in our acquired businesses Q10 [Phonetic].
At StubHub, Q3 growth was pressured by landscape softness in concerts and theater as fewer top artists and shows were active this summer. This headwind more than offset a solid start to the NFL season and strong double-digit performance in our international markets.
In addition to these landscape dynamics, our first-party sales initiatives helped revenue growth outpace GMV, but more importantly gave buyers more value and increase selection.
Turning to Classifieds, our portfolio continues to grow at healthier rates as we build on a leading position in many markets. Both our Germany and U.K. platforms including our acquisitions of Motors.co.uk are performing well.
Looking across our portfolio, our motors verticals representing roughly half of our global revenue base continue to grow at strong double-digit rates. Recently we have seen headwinds from lower display advertising yields in some of our horizontal platforms, including Canada and Australia.
Now let me update you on our operating and portfolio reviews. As previously communicated, we have been conducting an operating review of our cost structure and we committed to provide an update in the fall.
Today, I'd like to share that update. This extensive review has resulted in a planned align with our Board and leadership team. We will deliver incremental margin over the next three years. The plans are robust and will impact all elements of our cost structure at different levels while enabling us to maintain and grow critical customer initiatives. We are both building on the two points growth, one point net margin rate in gains delivered in 2019 and we intend to deliver another two points net of investments by 2022.
Regarding the ongoing portfolio review, our leadership team and the Board are evaluating the role of StubHub and Classifieds businesses in our portfolio in a disciplined manner. We anticipate sharing an update on StubHub before our next earnings release.
For the Classifieds portfolio, we do not expect to have an update to share this year, but are considering long-term options. Rest assured we have made progress and the outcome will be determined by the actions the Board believes will maximize long-term shareholder value.
In summary, eBay exists to empower people and create economic opportunity. This shared purpose has driven our culture for 24 years and it motivates our 14,000 employees to live up to deliver for our customers every day.
In the near term, we will focus of delivering our 2019 commitments, scaling ads and payments, implementing our operating review plans and optimizing our portfolio. In the long term, the opportunity remains substantial in the multitrillion dollar market we play and we will evolve our business in an authentically eBay way.
Now, let me turn it over to Andy to provide more details on our quarterly financial results. Before he begins, let me say that I'm thrilled he's agreed to step in as the Interim CFO. We worked together directly during his many years at eBay and prior too. And I appreciate his dedication and leadership during this critical time for the company. Andy?
Andy Cring -- Interim Chief Financial Officer
Thank you, Scott. I will begin my prepared remarks with our Q3 financial highlights, starting on slide four of the earnings presentation. In Q3, we generated $2.6 billion of total revenue, $0.67 of non-GAAP EPS, $913 million of free cash flow and we have returned $1.1 billion to shareholders through repurchases and dividends.
Moving to active buyers on slide five. In the quarter, we increased our total active buyer base by 1 million to a total of 183 million, up 4%. Consistent with the first half of the year, we've maintained stable buyer growth by focusing on marketing spend toward new and lapsed acquisition, which has been offset by a more by a modest increase in existing buyer churn. Moving forward, we'll allocate more spend toward driving retention and increasing customer lifetime value of new buyer cohorts.
Turning to slide six. In Q3, we enabled $21.7 billion of GMV, down 2% year-on-year, decelerating 2 points versus Q2. The U.S. generated $8.5 billion, down 6%, while international delivered $13.2 billion, up 1%.
Moving to revenue on slide seven. We generated net revenues of $2.6 billion, up 3% organically. We delivered $2.1 billion of transaction revenue, up 3% and $534 million of marketing services and other revenue down 2%, inclusive of a 2-point headwind from the sale of brands4friends.
Turning to slide eight. Our Marketplace platform GMV was down 2% in Q3, decelerating 1 point versus the prior quarter. The U.S. GMV was down 6%, flat quarter-on-quarter, with 2 points deceleration from Internet sales tax, offset by reduced headwinds in marketing and modest conversion improvements from our evolving buyer experience, including a reduction of third-party ads.
On a year-on-year basis, Internet sales tax accounts for over 3 points of headwind and we expect that impact to increase in Q4. This dynamic will sustain into 2020 and we believe it will taper off toward the end of the year as we lapse states that rolled out in 2019.
International GMV grew 1%, decelerating 1 point, driven by factors Scott covered earlier. Total Marketplace revenue was $2.1 billion, up 1% decelerating 2 points from the prior quarter. Transaction revenue grew 4%, a 1 point deceleration and 6 points higher than GMV.
The gap between GMV and revenue continues and is being driven primarily by two factors: triple-digit growth in Promoted by two factors: triple-digit growth in Promoted Listings, which made up more than half of the six points; and over a point from category mix effects. Keep in mind, as our payments initiative scales further transaction revenue will continue to grow at a higher level than GMV. Today it's less than one point of the difference and we expect it to increase in the second half of 2020.
Marketing services and other revenue was minus 13%, decelerating seven points versus Q2 with four points coming from the sale of brands4friends and the continuation of our ad strategy moving from third-party ad placements toward our first-party Promoted Listings product. We continue to expect total advertising revenue in 2019 to be more than $700 million. Marketplace margin was 31%, up year-on-year, primarily due to continued cost leverage and reduced marketing, partially offset by our investments in payments and advertising.
Moving to Slide nine on payments. Since our launch in September of last year, we've intermediated over $1.1 billion of GMV, over $500 million of that in the third quarter. In September, the U.S. penetration rate was over 9% and we expect to remain near this level until the end of July of 2020.
Turning to Slide 10. StubHub GMV was flat decelerating six points, primarily from the factors Scott mentioned. StubHub revenue grew 5% decelerating two points from Q2. Transaction revenue was flat, a one point deceleration driven by volume, partially offset by a higher take-rate from pricing changes and event mix.
MS&O has more than tripled year-on-year for the third straight quarter, delivering $20 million of revenue in Q3. Most of StubHub's MS&O revenue is first-party sales, which provides buyers access to unique and exclusive inventory and insurance for purchased tickets. Both are nascent and have potential for significant revenue growth. StubHub segment margin was 10% flat year-on-year.
Moving to Slide 11. Classifieds revenue grew 8%, decelerating four points, primarily from lower display advertising yields in some of our horizontal platforms as Scott covered. Segment margin for Classifieds was 41%, up two points year-on-year driven by operating leverage and marketing reductions.
Turning to Slide 12 in major cost drivers. In Q3, we delivered non-GAAP operating margin of 26.6%, which is up 20 basis points versus last year despite our continued investment in payments and FX pressure from a stronger U.S. dollar. Cost of revenue increased 80 basis points year-over-year driven by site operations and first-party cost of sales in Korea and StubHub.
Q3 sales and marketing expense decelerated 170 basis points, driven by a reduction in marketplaces on platform marketing and operational leverage, partially offset by investments in Japan. Product development costs were up 10 basis points from our investments in payments and advertising, mostly offset by increased productivity. G&A was up 20 basis points year-on-year, driven primarily by investments in risk management for our payments initiative and costs to support the operating and portfolio reviews.
Moving to EPS on Slide 13. We delivered $0.67 of non-GAAP EPS, up 19% versus the prior year, our sixth consecutive quarter of double-digit non-GAAP EPS expansion. Non-GAAP EPS growth was primarily driven by our share repurchase program and improved cost controls, offsetting our investments in Payments. Favorability versus our guidance in July was mostly driven by a lower tax rate and continued cost control.
GAAP EPS for the quarter was $0.37, down 50% versus last year. The decrease in GAAP EPS is primarily driven by lapping the gain on the sale of our Flipkart stake, the current and prior year changes in the value of the Adyen warrant, the divestiture of brands4friends and severance costs, partially offset by a reduced share count. As always you can find a detailed reconciliation of GAAP to non-GAAP financial measures in our press release and earnings presentation.
On slide 14, in Q3 we generated $913 million of free cash flow, up 140%, primarily driven by lower cash taxes, working capital timing, and lower capital expenditures.
Moving to slide 15. Our capital allocation strategy and our key tenants and targets have not changed. We've executed our third dividend payment of $115 million while continuing to aggressively buyback shares, demonstrating our confidence and commitment to return capital to shareholders in a disciplined and diversified manner.
In Q3, we repurchased nearly 25 million shares at an average price of $40.12 per share, amounting to $1 billion. We ended the quarter with $3.2 billion of share repurchase authorization remaining. For the quarter, we ended with cash and investments of $4.2 billion and debt of $7.8 billion, including paying down $1.6 billion of debt as planned.
Turning to guidance on slide 16. For Q4, we are projecting revenue between $2.77 billion and $2.82 billion, representing organic FX-neutral growth between negative 1% and positive 1%. We expect non-GAAP EPS of $0.73 to $0.76 per share, representing 3% to 8% growth.
EPS growth is driven primarily from the benefit of our share repurchase program and modestly lower tax rate, partially offset by the effect of a stronger U.S. dollar, reduced income on our lower cash balances and our continued investments in Payments.
We are expecting GAAP EPS in the range of $0.55 to $0.60 per share in Q4. For the full year, revenue guidance in the range of $10.75 billion to $10.8 billion, maintaining our organic FX neutral growth rate of 2% to 3%.
We are raising our full year non-GAAP EPS guide to $2.75 to $2.78 per share based on a stronger Q3 and modestly lower tax rate and continued disciplined cost control. We expect operating margin to be approximately 28% and non-GAAP effective tax rate of 15% to 16% for the year. We are increasing our cash flow guidance to the range of $2.25 billion to $2.35 billion and we've narrowed the range of capex to 5% to 6% of revenue.
Finally, we are updating the range of full year GAAP EPS to $1.97 to $2.02 per share, driven by changes in the value of the Adyen warrant and severance costs, partially offset by cost control, lower stock-based compensation and a modestly lower tax rate.
Similar to last year at this time, we thought it would be helpful to give some initial perspective on our expectations for 2020 in the context of our 2019 performance. We entered this year with a plan to drive modest revenue growth, expand margins and grow EPS double digits. Through three quarters of the year we are at the higher end of our original organic FX-neutral growth rate revenue guide, delivering on our margin commitments, growing GAAP and non-GAAP EPS higher than the original guidance and generating more free cash flow.
As we look forward to 2020, we expect to drive modest revenue growth through our key initiatives, expand margins and grow EPS. Our growth initiatives, advertising and payments are on track to deliver a combined $3 billion of revenue in the next few years.
In 2020, we expect total advertising revenue to be approximately $800 million, benefiting overall revenue growth by almost 1 point. And in payments, we expect approximately 2 points of benefit, most of that coming in the second half of the year.
We estimate Internet Sales Tax to negatively impact total revenue growth rates for the business by approximately two points year-on-year. We also expect revenue headwinds in 2020 of nearly $200 million from a combination of a stronger U.S. dollar and the full year impact of the sale of the brands4friends business.
Turning to margin. As Scott mentioned, we've completed the operational review in line with the timeline communicated in February. We've executed a comprehensive assessment across all expense lines of the business. Our margin expansion plan relies on continued marketing optimization, focused product and technology investments, best-in-class corporate functional costs and more effective procurement.
We expect these plans to deliver 2 points of net incremental operating margin expansion over the next three years, while providing us capacity to continue to invest in key initiatives. When combined with our anticipated 2019 results, we will have delivered 3 points of operating margin accretion, while funding key investments, including payments and Advertising.
Looking at EPS. We expect growth headwinds of approximately 7 points from the combination of a stronger U.S. dollar, less interest income based on lower cash balances and a higher tax rate, as settlement for past tax audits concluded in 2019 likely won't repeat.
We will continue to return capital to shareholders in line with our capital allocation tenets and within our mid-term leverage targets of 1.5 time net debt and gross debt below 3 times EBITDA. And we will provide additional color on shareholder return plans in January.
Our preliminary expectation based on today's portfolio, are that organic FX-neutral revenue should grow in the low single digits. Keeping in mind that, with a dynamic mentioned above, growth in the second half of the year will be higher than in the first half.
We expect to continue margin expansion, while making significant investments in our payments and advertising capabilities. Combined these dynamics will likely lead to EPS growth in the low single digits, inclusive of the 7 points of headwind mentioned earlier.
Finally, we expect to continue generating strong free cash flow and returning cash to shareholders through dividends and share buybacks. We will give more detail of 2020 guidance on our January earnings call, as per our normal process.
And now, we'd be happy to answer your questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] And your first question comes from the line of Colin Sebastian from Baird. Your line is open.
Colin Sebastian -- Baird -- Analyst
Great. Thanks guys. I guess, related to the operational review, curious if that out-year margin benefit includes the full $500 million operating income from payments. And then more generally hoping you could rank the customer initiatives in terms of priority as well as the level of investment required.
Scott Schenkel -- Interim Chief Executive Officer
Yes, Colin. Thanks. I'll take the first part of that. Yes. The out-year margin rate does include the impact of payments. If you take the roughly $2 billion of incremental revenue, we expect $0.5 billion of op income, that's an incremental that comes through at about 25% margin rate. But the two points of accretion does include that impact.
Andy Cring -- Interim Chief Financial Officer
And specific to the second the first question around or the second quarter I guess on the priority of investments. I would say, as we look toward 2020, we don't have a finalized plan yet. But broadly speaking, I would say, our investments are behind our key growth initiatives of payments and ads. Those are going to take up a fair amount of our resources focused on customers.
We'll also be working on to manage delivery plan that Devin talked about at eBay live event. And then, we'll be working on structured data and kind of aspects as I covered. And all those will be priorities. And we're also looking to do an overlay, what else we can do in the short term to solve buyers and seller pain points on our platforms. So we don't have a finite list for 2020 but that's broadly speaking how we're thinking about it.
Colin Sebastian -- Baird -- Analyst
Okay. So the managed delivery is still on schedule roll out first half of next year?
Andy Cring -- Interim Chief Financial Officer
Yes. So we're working on that as we talked about over the last couple of months. If you think about the manage delivery aspects that we've been working on, broadly speaking, what we're trying to do is solve customer pain points, right? We're looking at we're looking at a number of different aspects to try and resolve what customers are thinking this problem. For sellers, it's making sure that they have access to lower cost, faster shipping alternatives. And for buyers it's making sure that we eliminate that value for them as we look forward. That's we're going to have a pilot we already have pilots ongoing and we'll expand those as we move forward.
Colin Sebastian -- Baird -- Analyst
All right. Thanks, guys.
Operator
And your next question comes from the line of Eric Sheridan from UBS. Your line is open.
Eric Sheridan -- UBS -- Analyst
Thanks, so much. I wanted to know if I can build in on the Internet sales topic in terms of where you're seeing the pain points of the business. Is it a new buyer growth? Is it seller listing on the platform? How are you overcoming some of that in terms of some of the initiatives to outrun some of the headwinds?
And you mentioned in the comments that the pressure from that would likely move all the way to do next year. Can you give us a little sense of sort of the slope of the pressure, what you've seen in Q2, Q3, how it might build in Q4 or early next year, just so we can get a better sense of how you might comp against it and how you can invest against the headwinds to outrun that? Thank you so much.
Scott Schenkel -- Interim Chief Executive Officer
Yes. Sure. Thanks for question, Eric. Let me just try and take the construct here. So, the Internet sales tax laws that have kind of rolled across the country over the past year, as we've called out for last few quarters have been a headwind. And at the U.S. remember the first off, the U.S. business is 40% of the marketplace business, so that's where we're feeling that pressure.
And while it doesn't fundamentally create a competitive disadvantage, what it does do is hurt small sellers whose buyers when they see the prices have to pay, you know, up to 9% more for their items. So it's really less about bringing new buyers and it's really less about sellers listing items.
It's just in that flow, particularly for higher dollar items is where we see buyers abandon the cart at checkout, because they're like oh, wait a second, why is it more depending on the sales tax that we're being added.
Now, like I said, it doesn't fundamentally create a competitive disadvantage. But for period of time as it rolls out across the different states because remember this is rolling out state-by-state and I'll let Andy talk to that in a second. But as that rolls out and as we assess user behaviors, which are a little bit different state-to-state depending on the magnitude of the sales tax etc., we're just seeing different behaviors and one of them is if I will car abandonment for lack of a better way to say it.
Andy Cring -- Interim Chief Financial Officer
Okay. And Eric just in terms of how to think about slope, I pointed to a couple of things. One, in the third quarter of 2019 there were an additional 14 states that came live. And as we indicated today that took the impact in the U.S. from what we said in the second quarter of a little more than a point to the third quarter of over three points.
And what went live in October were 11 additional states including a couple of big ones in California and Texas. So that will give you a little indication of how to think about that impacting the U.S. and impacting the business in the fourth quarter.
And then in terms of the year-over-year impact clearly the full load of that fourth quarter playing through the first three quarters next year will have an impact and that's what I have included in the discussion around the 2020 guide with roughly two points of revenue impact for the full year.
Eric Sheridan -- UBS -- Analyst
Great. Thank you.
Operator
Your next question comes from the line of Ross Sandler from Barclays. Your line is open.
Ross Sandler -- Barclays -- Analyst
Hi guys. A question on the strategic review. So you're putting a timeline on this StubHub part of that portfolio, but you said UTG isn't going to be happening this year. So is the delay on UTG a function of not being like larger, kind of, more countries, more different entities? Is it just more complicated? Are there no interested parties? Any color on why that would take longer then StubHub given you started the whole process at the same time?
And then the second one is your revenue and margin outlook for next year makes a lot of sense. Can you walk us through again what those 700 basis points of EPS headwind are taxing a few other things? But typically your EPS will grow faster than operating income. It seems like it will be slower next year. So just can you walk us through that those factors? Again that'll be great. Thank you.
Scott Schenkel -- Interim Chief Executive Officer
Yeah, Ross. I'll take the first one. Look, I think if you step back, we're pretty proud of our willingness at the Board level and the leadership team level to continually assess our portfolio. We have a track record of divesting assets where it makes sense for shareholders.
As I think anyone will expect this is done by carefully assessing the strategic competitive and operational dynamics for every business. And we've done this carefully and diligently. And it also gets into as you little bit call out, how the businesses are integrated with systems people and processes and all of the dynamics that you mentioned. I can only comment that in the case of StubHub, we should culminate an announcement here by the next earnings call and no comment further on Classifieds.
Andy Cring -- Interim Chief Financial Officer
Okay. And on the 700 basis points, the three key drivers, tax rate, OI&E, primarily interest income and FX. I'll handle each of those in just a little more detail. On tax rate, our ongoing normal tax rate is probably somewhere in the range of 15.5% to 17.5%. We'll finish this year at about 15%, if we deliver on the Q4 guide, which is a little below the midpoint of that range. And so, there's a small impact from that included.
In terms of OI&E, we entered the year with close to $9 billion of cash. We'll exit close to the target that we've been talking about all year, about $3.5 billion. That's a relatively large reduction in cash balances and therefore interest income and that will have an impact on earnings growth on a year-over-year basis.
And then the final piece is FX. You'll recall, we hedge currencies 12 to 18 months in advance. The impact of the dollar strengthening late last year has been somewhat muted in our results through this year, given the hedges we had in place. And as we roll forward into 2019 some of the benefit of those hedge gains will not be in the P&L. So the combination of those two those three things will kind of mute the margin expansion and revenue growth as you get down to EPS growth.
Operator
And your next question comes from the line of Heath Terry from Goldman Sachs. Your line is open.
Heath Terry -- Goldman Sachs -- Analyst
Great. Thanks. I was just wondering if you could give us a bit of a sense, looking at the 180 basis points in leverage in sales and marketing in the quarter, how will you think about driving further leverage in that line relative to investing in growth in GMV? And are the limitations in marketing a function of ROI or conversion rates preventing you from doing that? Or is it something else?
And then just a short one on StubHub. What kind of impact would you say digital ticketing is having? I know there have been some pretty significant developments there just in the last quarter. And do you see that transition as impacting the value of that business either positively or negatively?
Scott Schenkel -- Interim Chief Executive Officer
Yeah. First on the 180 basis points. Look, for this year, as we talked about, we had raised really over the course of 2017 particularly latter half of 2017 and 2018 our amount of marketing spend as we turn, pushing these boundaries of CLV in ROI, is to try and learn what type of cohorts we'd bring in during that time and how they would mature.
2019 was really about kind of releveling that amount and removing particularly the lower ROI. A lot of that ending up in contrast, as we've talked about in the past. As we think about the future, we'll continue to look at our marketing spend, everything from brand down to paid search and really take a look at critically where the spend is, what type of returns we're seeing, as we always do year-to-year. And then also, look at how we might diversify and really expand.
We haven't made as much progress in social as we would've liked, how do we spend and iterate there, how do we continue to optimize around our paid search efforts, where and how do we deploy our brand spend and how do we sharpen our brand message to make the branding efforts that we do do be more effective.
And so it's just really around optimizing, but I don't really look at as much of a takeout next year in our outlook and thus don't really expect, the less, high-quality GMV to deceleration that we had this year to repeat to some extent. But we're going to be pressurizing our marketing spend to the question.
On the digital ticketing yes, absolutely. This is quarter-to-quarter, it's a competitive battle. Since 95% of the business are more in the U.S. We have to really stay on top of the capabilities. I think Sukhinder and the team have done an excellent job at integrating digital ticketing and making it as seamless as possible, depending on the venue, the week, the performer, etc.. And honestly, I think they've done an excellent job at compensating for the pressures of digital ticketing. And quite frankly it's pretty seamless in most cases.
Heath Terry -- Goldman Sachs -- Analyst
Great. Thank you very much.
Operator
And your next question comes from the line of Stephen Ju from Credit Suisse. Your line is open.
Stephen Ju -- Credit Suisse -- Analyst
Okay. Thank you. So it looks like a number of sellers using your payment rails has accelerated. So wondering if we should assume that this is signaling a greater comfort around the stability of the platform and you will be looking to move even faster from here. And secondarily, anything you can share at this point about the profile of the person that the Board is looking to hire as the next CEO? Thanks.
Scott Schenkel -- Interim Chief Executive Officer
Yes. Look, first off on payments. Look, we feel great about our execution. Quite frankly, we've seen accelerated adoption, as we talked about in the U.S. Germany has launched successfully. Since a year ago, it's quite amazing. We have actually enabled over $1 billion of GMV as we talked about and as you called out.
20,000 sellers is a lot. Now we processed really up to the limit that we can for the next six months, seven months, until we get to the a little bit longer until we get the to the end of the operating agreement in July of next year. And when we do that we're preparing to ramp after that and we'll continue to ramp in Germany over the next six to nine months.
The feedback, you know the feedback remains strong. Look sellers love a simpler experience that's paying them directly into their bank account and saving them money, right? I mean what's not to like. And so, as we continue to expand this globally, we're going to be adding more forms of payment like SEPA and SEPA Direct Debit, like we called out for Germany and really being in a position of being able to offer more choices for our consumers. Specific to what the Board is looking for.
Look I'll just say, right now we're hedged down on making sure that we focus on our priorities for 2019 and deliver the numbers that we committed to you guys and to our investors. And then as we look toward 2020, making sure that we set the company up for success and beyond. In the interim, the Board, its discretion will be looking for we'll be out doing a search and we're going to worry about who is running the company.
Stephen Ju -- Credit Suisse -- Analyst
Thank you.
Operator
Your next question comes from the line of Justin Post from Bank of America. Your line is open.
Justin Post -- Bank of America -- Analyst
Great. A couple of questions. I know pullback in marketing will just focus on international GMV has been part of the deceleration. They don't have the sales tax issues next year. Do you think as you kind of level that off, you could see some reacceleration there? Are you thinking about that?
And then secondly, just thinking about StubHub, you did mention you might have an update. We're thinking about valuation too. Do you consider that a growth asset? And how do you see the major growth drivers for StubHub from here? Thank you.
Scott Schenkel -- Interim Chief Executive Officer
Yeah. So look it's a little early to be opining on 2020 GMV acceleration. We called out a number of country-specific dynamics in my script and Andy's script. And I'll just point to those and we're working plans to make sure that we do the best that we can for 2020 and beyond with investments in marketing and product and loyalty programs etc. as we think about as we think due to different country dynamics.
If I look at StubHub, it's an amazing business right? It's got a an amazing seller base, tickets to almost every venue and every week for every game and every show in a way that's in many respects uniquely StubHub. And thus it's got a good share and it's got a really nice user experience that we continue to evolve. And so we think it's a wonderful asset that will continue to grow and has tons of opportunities as a stand-alone or as a part of our portfolio. And we'll update you within the next three to four months at the plans.
Justin Post -- Bank of America -- Analyst
Great. Thank you.
Operator
And your next question comes from the line of Dan Salmon from BMO Capital Markets. Your line is open.
Dan Salmon -- BMO Capital Markets -- Analyst
Good afternoon, everyone. And thanks in particular for some of those forward-looking comments on 2020. I just wanted to follow-up a little bit, just maybe not on 2020 specifically but first on Payments. Scott and Andy, you reiterated the targets of $2 billion in revenue and $500 million in operating income for new payments. Can you just remind us your expectations for how the payments to PayPal wind down on the opposite side of that and maybe where they sits today and what your expectations are?
And then likewise just on the advertising side, again thanks for the $800 million number that you're looking forward to next year. Any comments or color you can add on mix there between first-party and third-party and Promoted Listings and third-party? And yes I am trying to understand a little bit better on where the wind down in the third party at that question. So any help in color would be great.
Scott Schenkel -- Interim Chief Executive Officer
Look, first let me take the ads and then Andy weigh in if you have anything else. The way we look at this is first off the user experience. I think we have to be very careful with how we architect the user experience to make sure that the sellers that only that offer listing that it comes up in a natural search way in the listing flow. We don't want it to become an all encompassing Promoted Listings-only type of search results.
That said there's a lot of opportunity that we've called out and I won't necessarily rehash each of those. But from placements to alternative forms of monetization to merchandising and things like that. So we're very we remain very excited about first party.
In the meantime, absolutely third-party ads particularly display ads will reduce even further and we'll provide some headwinds in that advertising number for another year or two on the material basis. And so as we look at getting to that $1 billion, it's going to be a balance of making sure that the user experience with our first-party Promoted Listings ad product works great and that it improves the user experience, doesn't hurt it. And that third-party, how quickly it unwinds. I don't know if there's anything else, Andy, you'd add to that.
Andy Cring -- Interim Chief Financial Officer
Not on the ads. I'd just -- Dan, on the question on the PayPal wind down, are you talking about off agreement payments between the companies?
Dan Salmon -- BMO Capital Markets -- Analyst
Yes. Basically, yeah. Exactly.
Andy Cring -- Interim Chief Financial Officer
So that's all -- that is all factored into the guidance I gave. Those have been declining as we've been ramping payments. They will stop at the same time, July next year when we start to ramp payments and when we come clear of the operating agreement.
There's also data center sharing agreements between the companies. And one of the reasons we've had some increased costs on cost of sales is kind of prepping data centers to catch information going back and forth. So, while, we'll lose a little bit on the op agreements side from a revenue perspective, we'll gain some cost. And clearly, once we clear the op agreement, the payments ramp will be significant.
Dan Salmon -- BMO Capital Markets -- Analyst
That's very helpful. Thank you guys.
Operator
And your next question comes from the line of Thomas Forte from D.A. Davidson. Your line is open.
Thomas Forte -- DA Davidson -- Analyst
Great. Thanks for taking my questions. So I had two kind of high-level questions on eBay. First is, how should we think about the impact of tariffs on your business? Is there any flow-through on pricing, especially in consumer electronics?
And then second, how should we think about the countercyclicality of eBay as the potential exits for one or more major economies entering recession over the next 12 months?
Scott Schenkel -- Interim Chief Executive Officer
Yeah. I think that the user base is going to dictate I think relatively clearly the countercyclicality. I think we broadly view our unique differentiated advantage as offering alternatives selection and lower prices. And obviously, in a recession we should make sure that we have consumers having us squarely in their consideration set, if the downturn would happen. Specific to tariffs, look, the reality is, tariffs will impact everyone relatively equally, but we believe that the current customs threshold may mitigate some of the impact for us should they happen.
Thomas Forte -- DA Davidson -- Analyst
Great. Thank you, Scott.
Scott Schenkel -- Interim Chief Executive Officer
Thanks, Tom.
Operator
And your next question comes from the line of Brian Nowak from Morgan Stanley. Your line is open.
Brian Nowak -- Morgan Stanley -- Analyst
Thanks for taking my questions. I have a couple. Just -- the first one is sort of the big picture question on getting the Marketplace GMV back to growth after we get through the sales tax headwinds. How do you think about the one or two most important categories you need to focus on to really bring the U.S. business back to growth over the long term?
The second one on payments. What year are you sort of expecting the $2 billion of revenue and the $500 million of operating profit scale, as we can sort of think about the cadence of everything? And I just want to make I didn't mishear. Are there share repurchases in your 2020 EPS guidance? Or is that excluding share repurchases? Thanks.
Scott Schenkel -- Interim Chief Executive Officer
Why don't we work backwards?
Andy Cring -- Interim Chief Financial Officer
Yeah. So I'll start on the middle instead of backwards. The $2 billion and $0.5 billion payments at scale is a 2022 number, if that's helpful. And we talked a little bit about what 2020 is and then we should be -- 2021 will ramp until we get to the 2022 number.
In terms of share repurchase and guidance, I don't think -- talk about a specific number yet. I'll point you to what we've been doing in the past, returning capital pretty aggressively. We're going to stick to the midterm leverage guidelines of approximately 1.5 times debt and below three times gross debt-to-EBITDA.
If you look at forecasted year-end cash balance of $3.5 billion with the cash flow profile of the business and maintaining your dividend it will give you a pretty decent range of what's possible in terms of share count or up share buyback. And we'll provide more clarity on that when we get to January.
Scott Schenkel -- Interim Chief Executive Officer
Look, I think back on payments working back up here. On payments, we're going to scale as rapidly as we can. And just our focus on specific markets should let us ramp relatively quickly over the course of the second half of 2020 and to 2021. And then 2022 will be the kind of remaining markets or remaining corridors that need to happen. And so my expectation is that we will go pretty rapidly up to 2022 to the numbers that we're talking about.
As it relates to I don't know if there's one vertical, Brian to answer your question directly. I think that there's things that we can do across the entire ecosystem. Leave payments and ads aside, we've talked about it a lot. But first I talked about earlier, solving buyer and seller paying points that's across all verticals, manage delivery will help, particularly with sellers offering lower-cost alternatives and then buyers having alternatives in the form of both tracking and speed of shipment and then structured data and the focus on aspects as we head into the latter part of this year and into next.
That's not to say that we won't have new experiences and new products by vertical and you'll be seeing some of those relatively shortly. But we've got to focus on both the kind of horizontal base level of platform as well as the verticals as we move forward.
Brian Nowak -- Morgan Stanley -- Analyst
Great. Thanks.
Operator
And your next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is open.
Brian Fitzgerald -- Wells Fargo -- Analyst
Thanks, guys. Maybe a follow-up on advertising Promoted Listings growth was great. Wondering if there's any differential to call out with respect to how things are looking heading into this holiday season relative to 2017 or 2018 when it was newer. And then you mentioned the integrated mobile app and that's helping out a bunch there. Any color or any dynamics you can give us with respect to how adoption has been going across the mobile app in particular or use these dynamics across the mobile app? Thanks.
Scott Schenkel -- Interim Chief Executive Officer
That's for ads, Brian just so I'm clear?
Brian Fitzgerald -- Wells Fargo -- Analyst
Yes. That's right. Yes.
Scott Schenkel -- Interim Chief Executive Officer
So for sellers this quarter we started we've launched the capability for sellers to manage their 1P ads via the mobile app and that is expanding very rapidly. It's been very well-received by customers.
Obviously, managing those on the fly and having the capability to adapt to the different selling and not has been very well-received. In terms of did you mean ads growth, specific to 1P ads for the holiday or did you mean just generally?
Brian Fitzgerald -- Wells Fargo -- Analyst
That's right. That's right. Yes.
Scott Schenkel -- Interim Chief Executive Officer
Look I think what we'll see in Q4 is a continued performance in line with Q3. I don't think there'll be any material difference at growth rate wise and kind of trajectory wise.
Brian Fitzgerald -- Wells Fargo -- Analyst
Appreciate it. Thanks, guys.
Andy Cring -- Interim Chief Financial Officer
Thanks, Brian
Scott Schenkel -- Interim Chief Executive Officer
Operator, we get time for one more question.
Operator
And your final question comes from the line of Kunal Madhukar from Deutsche Bank. Your line is open.
Kunal Madhukar -- Deutsche Bank -- Analyst
Hi, great. Thanks for squeezing me in. Just a quick one. As you talked about the evolution in the future, you talked about it, authentically will continue to evolve the business in a authentically eBay way? Can you help us understand, how we should think about growth longer term?
Scott Schenkel -- Interim Chief Executive Officer
Yeah. Look, I think...
Kunal Madhukar -- Deutsche Bank -- Analyst
payments.
Scott Schenkel -- Interim Chief Executive Officer
Yeah. Look, I think we all look at the growth objectives and capabilities for this business particularly marketplaces to grow at above retail, but likely below e-commerce in that spot there. And I think if we can focus our efforts around some of the items not to rehash everything that we talked about but that is we've been laying out and modifying a bit and solving for some of the buyer and seller pain points in a more short-term manner. I think we can create an ecosystem that delivers that type of growth for the long-term. Thanks for the question.
Kunal Madhukar -- Deutsche Bank -- Analyst
Thank you.
Operator
[Operator Closing Remarks]
Duration: 57 minutes
Call participants:
Joe Billante -- Vice President of Investor Relations
Scott Schenkel -- Interim Chief Executive Officer
Andy Cring -- Interim Chief Financial Officer
Colin Sebastian -- Baird -- Analyst
Eric Sheridan -- UBS -- Analyst
Ross Sandler -- Barclays -- Analyst
Heath Terry -- Goldman Sachs -- Analyst
Stephen Ju -- Credit Suisse -- Analyst
Justin Post -- Bank of America -- Analyst
Dan Salmon -- BMO Capital Markets -- Analyst
Thomas Forte -- DA Davidson -- Analyst
Brian Nowak -- Morgan Stanley -- Analyst
Brian Fitzgerald -- Wells Fargo -- Analyst
Kunal Madhukar -- Deutsche Bank -- Analyst
