Q1 2024 eBay Inc Earnings Call

Participants

Jamie J. Iannone; CEO, President & Director; eBay Inc.

John Egbert

Stephen J. Priest; Senior VP & CFO; eBay Inc.

Bryan Michael Smilek; Analyst; JPMorgan Chase & Co, Research Division

Colin Alan Sebastian; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division

Eric James Sheridan; MD & US Internet Analyst; Goldman Sachs Group, Inc., Research Division

John Ryan Blackledge; MD & Senior Research Analyst; TD Cowen, Research Division

Michael Paul Morton; MD & Research Analyst; MoffettNathanson LLC

Nathaniel Jay Feather; Research Associate; Morgan Stanley, Research Division

Richard Alan Kramer; Founder, MD & Senior Analyst; Arete Research Services LLP

Thomas Steven Champion; Director & Senior Research Analyst; Piper Sandler & Co., Research Division

Presentation

Operator

Good afternoon, and welcome to eBay's First Quarter 2024 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.
I would now like to turn the call over to John Egbert, Vice President of Investor Relations. Thank you. Please go ahead.

John Egbert

Good afternoon. Thank you all for joining us for eBay's First Quarter 2024 Earnings Conference Call. Joining me today on the call are Jamie Iannone, our Chief Executive Officer; and Steve Priest, our Chief Financial Officer. We're providing a slide presentation to accompany our commentary during the call, which is available through the Investor Relations section of the eBay website at investors.ebayinc.com.
Before we begin, I'll remind you that during this conference call, we will discuss certain non-GAAP measures related to our performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in our accompanying slide presentation. Additionally, all growth rates noted in our prepared remarks will reflect FX-neutral year-over-year comparisons, and all earnings per share amounts reflect earnings per diluted share, unless indicated otherwise.
During 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. 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, Form 10-Q and our earnings release from earlier today. You should not rely on any forward-looking statements. All information in this presentation is as of May 1, 2024. We do not intend and undertake no duty to update this information.
With that, I'll turn the call over to Jamie.

Jamie J. Iannone

Thanks, John. Good afternoon, everyone, and thank you all for joining us today. We delivered strong results in Q1, even as we continue to navigate ongoing challenges in the global economy. Gross merchandise volume was roughly flat at $18.6 billion, while revenue grew more than 2% to $2.56 billion. Our non-GAAP operating margin was 30.3%, non-GAAP earnings per share rose 13% to $1.25, and we returned $638 million to shareholders through repurchases and dividends. I'm incredibly proud of our teams for delivering these results as they remain relentlessly focused on reinventing the future of e-commerce for enthusiasts. And I am pleased that we remain on track for GMV growth to turn positive by Q3 or Q4 of this year.
Now let's walk through some of the key drivers of our quarterly results. Focus categories play an important part in delivering relevant experiences to customers on eBay and remained a significant driver of underlying growth on our marketplace during Q1. Overall, focus category GMV grew nearly 5% last quarter, outpacing the remainder of our marketplace by roughly 6 points. Motors parts and accessories, or P&A, was once again the largest contributor to growth among focus categories despite facing headwinds in January due to extreme weather patterns in the U.S. Our teams continue to innovate on the P&A shopping experience, growing awareness, enhancing trust and expanding the great inventory our marketplace has to offer.
Fitment is a central component of trust within the P&A category, helping customers understand exactly which of our more than 600 million live listings in this category fit their vehicle. We continue to work closely with large P&A sellers to augment their inventory using the MyFitment tool kit. To date, we have enhanced eligible auto parts with approximately 5 billion pieces of incremental fitment data, and we've continued to see a double-digit increase in conversion on these augmented listings.
Additionally, last quarter, we redesigned our self-service experience to simplify how sellers onboard, view and publish fitment data for P&A listings. Our updated experience better serves small- and medium-sized businesses, which make up our largest cohort of P&A sellers.
On the buyer side, we continue to improve our value proposition for mass-market P&A shoppers looking to maintain their vehicles. During Q1, we added a Motors DIY guide page that makes do-it-yourself projects more accessible by integrating expert content for common maintenance jobs alongside eBay listings for the specific parts, tools and materials needed to complete them. Our full-funnel approach to marketing has increased awareness and consideration of eBay as a trusted place to shop for auto parts and accessories. And I'm excited that yesterday, we announced a multiyear partnership with the McLaren Racing Formula 1 team, which means motor sports enthusiasts around the world will see eBay branding on McLaren team race cars starting with the Miami Grand Prix this week.
EBay has been a leading player in collectibles for over 2 decades. And in recent years, we've accelerated the pace of innovation in areas like trading cards, which is one of our focus categories. We've rolled out new features like [My Collections], price guides, authentication and grading partnerships, revamped condition standards, live commerce, vault storage and new shipping methods to reduce costs.
In Q1, we continued to innovate by launching a simplified listing flow for sports trading cards to all U.S. sellers. This experience leverages our proprietary technology to [prefill] the listing with relevant item aspects, provide simpler shipping options and offer smarter pricing recommendations based on the value and the condition of the card. This rollout has resulted in a double-digit percentage reduction in listing time and measurable increases in completed listings and sold items per customer. We are also seeing a more than 20% increase in CSAT for U.S. sports trading card sellers versus our baseline prior to this rollout.
In recent quarters, we've seen improving volume trends in trading cards as many of the new and returning hobbyists who joined eBay during the pandemic remain highly engaged with our platform. With so much enthusiasm in the hobby, it's the perfect time to talk about the definitive agreement we announced a few weeks ago with Collectors, parent company of PSA, which is the gold standard in third-party authentication and grading of trading cards and collectibles.
EBay and Collectors have entered into 3 separate transactions designed to streamline and improve the overall experience for hobbyists. As part of this deal, I'm incredibly excited to welcome Ken Goldin to eBay. We have agreed to acquire Goldin, a leading U.S.-based auction house for high-value collectibles, which brings together 2 renowned marketplace brands in the trading card hobby. Many of you know Ken from his fantastic series on Netflix, King of Collectibles: The Goldin Touch. Combining Goldin with eBay enhances our respective marketplace offerings by expanding the range of inventory available to eBay customers and opening up an expansive global audience for Goldin sellers. We believe this will enable a more well-rounded collecting experience across price points and service models, complementing our acquisition of TCGplayer and recent partnership with sports trading card company COMC.
Additionally, eBay has entered into commercial agreements with Collectors and PSA to reduce friction in the authentication and grading of trading cards. We also agreed to divest the eBay vault to PSA. Through a newly branded service offering, our companies plan to launch an integrated program to buy, sell, grade and store trading cards. EBay will become PSA's exclusive marketplace partner for trading cards, enabling hobbyists to more easily list and sell their cars on eBay at the time of grading.
Importantly, these deals enable each company to prioritize what it does best. At eBay, we can focus on enhancing our marketplace and streamlining the buying and selling experience for millions of hobbyists, while collectors can concentrate on its operational expertise in grading, authenticating and securely storing collectibles. There'll be more we can share about our company's joint plans after the deals close, which we expect to occur during Q2, subject to closing conditions.
In Q1, we also continued to rapidly innovate on our eBay Live experience, which now spans multiple categories, including collectibles. We expanded coverage to new categories like comics and sports memorabilia. We introduced a revamped auctions experience that makes bidding more seamless and reliable. We enabled viewing on desktop so that buyers can join live events wherever they are shopping. And we dramatically improved the event discoverability on the home page with personalized recommendations. While eBay Live remains in beta, we are extremely excited about continuing to scale this experience throughout the year.
As a pioneer of recommerce, giving pre-owned goods a second life is core to who we are as a company. We reached a major milestone in Q1 as pre-owned and refurbished goods reached 40% of total GMV on our marketplace after consistently outpacing the sales of brand-new goods since the pandemic. In service of that mission, a major priority in 2024 is strengthening our consumer value proposition in pre-owned fashion. Through our multiyear partnership with Love Island in the U.K., we have grown awareness of the sustainability benefits of recommerce and educated consumers on the potential economic savings from shopping for pre-owned items. But there is more we can do to unlock consumers' closets and accelerate the circular economy.
To that end, last month, we began to dramatically streamline the buying and selling experiences for pre-owned fashion on eBay, focusing on the U.K. We redesigned our shopping experience from the ground up to reduce friction and better meet the needs of modern fashion consumers. Our initial rollout included a number of features and improvements such as a simplified selling flow, curated item specifics, photo guidance, intelligent pricing suggestions and condensed shipping options.
We also eliminated final value fees on pre-owned apparel for C2C sellers in the U.K. and introduced new AI-powered tools to enhance discovery and drive more inspirational shopping behavior on our marketplace. One such feature is explore a new AI-powered shopping feed, enabling users to browse a nearly unlimited list of personalized recommendations based on implicit and explicit interest signals, such as the users' style preferences and sizes. The explore feed updates in real time in response to products that users interact with, while buyers can refine their shopping journey using our visually similar search feature powered by computer vision. Explore is focused on fashion to start, and we plan to expand its capabilities later this year. Explore is currently live for all U.K. users in beta alongside small pilots in other countries as we gather feedback and insights.
In April, we also rolled out an early version of shop the look, which leverages generative AI to create shoppable content and fashion recommendations. Shop the look showcases a variety of styles such as business casual, Scandinavian minimalism or urban athleisure. Recommended outlets are linked to visually similar products on eBay, drawing from our hundreds of millions of live listings in fashion. Shop the look is live in iOS in the U.S. and U.K., and we will evolve this experience throughout 2024 based on customer feedback, including additional styles, greater diversity of outfits and increased user control over personalization.
Next, I'd like to go deeper on the transformative power of AI. Last quarter, I talked about the meaningful strides we've taken in establishing eBay as a leader in generative AI for e-commerce. In Q1, we doubled our GPU capacity versus the end of 2023, which enabled our teams to accelerate our training and fine-tuning of foundational large language models to power a number of eBay features and services. In addition to powering consumer-facing features like explore, shop the look, magical listing and background enhancement, we're increasingly leveraging generative AI to change how we work, driving meaningful productivity and efficiency improvements across our organization.
A prime example of this is within our Global Customer Experience organization, or GCX. We are in the midst of a multiyear journey to transform our GCX capabilities using technology. Our north star for customer service is not just to reduce cost, but meaningfully improve the quality of interactions. Recently, we implemented generative AI technology that supports our GCX teammates by analyzing incoming communications to create a simple summary of customers' needs and intent. This technology automatically extracts relevant solutions and next steps from an LLM fine-tuned using our comprehensive knowledge base and policy documents. We are now able to present solutions and a clear and concise structure to our GCX team, allowing them to quickly provide customers with the help and support they need, improving the accuracy, consistency and quality of support. With tens of millions of live customer contacts annually, these efficiencies should yield meaningful cost savings for our GCX organization.
Generative AI tools are also improving our developer productivity and accelerating our overall tech velocity. Last year, we made GitHub Copilot available to all of our developers and saw encouraging results. We observed measurable improvements in productivity, along with code acceptance and accuracy. Nearly 3/4 of our developers now use Copilot every day. In parallel, we began building internal tools to streamline our development processes and improve efficiency. We fine-tuned an open-source LLM with eBay's codebase and other internal data to develop a proprietary coding assistant that has been incredibly helpful in labor-intensive areas like code migration and software upkeep. For instance, we estimate these tools can reduce the time required for code migration by as much as 20%.
We also created an internal GPT specifically for developers that answers thousands of questions per week, serving as a knowledge base for our internal documentation. Overall, we're still early in our generative AI productivity journey, but these are just a few examples of proprietary tools we've introduced to our GCX and technology teams that are already yielding tangible benefits.
Turning to advertising. Our ads business continued to deliver healthy growth at scale while improving velocity and price realization for our sellers at compelling return on ad spend levels. During Q1, first-party advertising grew 28%, while total ad revenue represented 2.1% of GMV. During the quarter, over 3 million sellers adopted a single ad product, and we ended the quarter with over 950 million live Promoted Listings.
Our standard cost per acquisition units remain the largest contributor to year-over-year ad revenue growth in Q1, followed by our cost per click advanced product. We are also seeing promising results from some Promoted Listing products in beta. One such product that's continued to gain traction in beta is Offsite Ads. This off-eBay solution enables sellers to more actively participate in extending the reach of their listings through CPC ads placed on external services. This product leverages eBay's decades of advertising technology investment on behalf of those sellers, enabling advanced targeting, campaign management and pricing optimization. We expanded our go-to-market efforts for Offsite Ads towards the end of last year, and this product emerged as a material contributor to first-party ad revenue growth in Q1. We have ambitious road map to further optimize these ad units and increase seller adoption throughout 2024.
Now let's turn to impact. The eBay community continues to impress us with their generosity. Last quarter, eBay for Charity enabled sellers and buyers to raise more than $46 million, up 18% year-over-year. We also recently published our eighth annual diversity, equity and inclusion report. With our purpose of connecting people and building communities to create economic opportunity for all, we know diversity makes us a better and stronger place to work, sell and buy.
Among the highlights from our 2023 DE&I report was the launch of our first-ever inclusion index, which helps us gain a stronger understanding of our employee experience, measure our progress over time and determine how we can better support our employees as a workplace.
Our Communities of Inclusion, our internal eBay resource groups, also remained an integral part of what we do. In 2023, our 11 COIs hosted more than 360 global events, reaching more than 17,000 attendees during the year. And finally, for the eighth year in a row, we've concluded our gender pay equity study, and I'm proud to report our gender pay ratio remained consistent at just over 100% globally.
In closing, Q1 marked a strong start to 2024 as we exceeded our financial targets and continued to make progress toward our goal of long-term sustainable GMV growth. Focus categories maintained significant momentum despite ongoing macro pressure on discretionary e-commerce. After many quarters of consistent innovation in focus categories like luxury, P&A, refurbished, sneakers and streetwear, we are bringing our innovation playbook to pre-owned fashion in the U.K. to simplify selling, drive inspirational shopping and promote the circular economy.
Our agreement with Collectors would further strengthen our value proposition for hobbyists as we streamline the process of buying, selling, grading and storing trading cards. And we believe our advancements in generative AI are fundamentally changing the customer experience on eBay, increasing productivity across our organization and ultimately driving more value for shareholders. Our momentum and excelling pace of innovation are a testament to the incredible work of our employees, who continue to execute our strategic road map and service of our customers.
With that, I'll turn the call over to Steve to provide more details on our financial performance. Steve, over to you.

Stephen J. Priest

Thank you, Jamie, and thank you all for joining us today. I'll begin with the financial highlights section of our earnings presentation. Next, I'll discuss our key financial and operating metrics in greater detail. Finally, I'll provide our outlook for the second quarter in context on the full year before we begin Q&A. My comments will reflect FX-neutral year-over-year comparisons, unless I note otherwise.
We exceeded expectations across our key financial metrics in Q1 despite an uneven demand environment in our major markets to start the year. Gross merchandise volume was roughly flat at $18.6 billion. Revenue grew more than 2% to $2.56 billion, outpacing volume by over 2 points. Non-GAAP operating margin was 30.3%. We delivered $1.25 of non-GAAP earnings per share, up 13%. And we returned $638 million to shareholders through repurchases and dividends.
Let's take a closer look at our financial performance during the first quarter. Gross merchandise volume of $18.6 billion was roughly flat year-over-year, while foreign exchange was a tailwind of nearly 1 point to reported GMV growth. Our teams did a tremendous job executing on our strategy across focus categories, country-specific investments and horizontal initiatives. Our Q1 volume also benefited from an extra day in the quarter due to the leap year. However, we continue to navigate through a tough environment to discretionary e-commerce, particularly in the U.K. and Germany, 2 of our largest markets.
Focus categories GMV grew by nearly 5% in aggregate or roughly 6 points faster than the remainder of our marketplace during the quarter. This continued momentum was driven by positive volume growth in P&A, refurbished, collectibles and luxury goods, reflecting the breadth and resilience of our focus categories.
Next, I'll walk through our results on a geographic basis. U.S. GMV was nearly flat in Q1. As Jamie mentioned, P&A was the largest contributor to growth among focus categories despite the slow start in January caused by severe weather conditions in the U.S. These headwinds slightly offset the solid performance in trading cards where we've seen improving volume trends in recent quarters, which disproportionately benefit our U.S. business.
International GMV grew nearly 1% on an FX-neutral basis and increased by nearly 3% as reported due to FX tailwinds. Last quarter, we highlighted the impact of our Germany C2C initiative and overall growth in the region. I am pleased that Germany C2C volume growth remain positive even as we began to lap the rollout of these changes in March of last year.
In the U.K., we did see some softness in C2C volumes during the quarter when the new U.K. digital sales reporting requirements came into effect. We are currently working to educate sellers that many of them actually do not incur taxes for selling pre-owned items. In contrast, our B2C business trends were consistent with recent quarters as we kept pace with our closest market benchmark as reported by the British Retail Consortium.
Moving on to buyers. Trading 12-month active buyers and enthusiast buyers were both stable sequentially at approximately $132 million and $16 million, respectively, at the end of Q1. Within the quarter, growth in new and reactivated buyers remained positive year-over-year, while buyer retention improved compared to recent quarters. Despite macro headwinds, spend per active and enthusiast buyer both grew slightly compared to a year ago.
Turning to revenue. We generated revenue of $2.56 billion during Q1, up over 2%, outpacing volume by over 2 points. Foreign exchange was a headwind of roughly 60 basis points to reported year-over-year revenue growth. Our take rate in the first quarter was over 13.7%, down less than 10 basis points quarter-over-quarter. The sequential decline was primarily driven by FX headwinds, which more than offset the seasonal improvement in core take rate in Q1. On a year-over-year basis, our take rate expanded by nearly 10 basis points driven by tailwinds from first-party advertising, eBay International Shipping and payments, offset by a 20 basis point headwind from FX.
Total advertising revenue grew 20% to $384 million and represented 2.1% penetration of GMV. First-party ads grew 28% to $370 million, nearly 28 points faster than volume. Our legacy third-party display ads remained a headwind to total advertising growth in Q1, with revenue declining 55% to less than $15 million. As discussed in recent quarters, we continue to selectively [duplicate] these noncore ads on certain pages to improve the overall user experience, and they now make up less than 4% of total ad revenue.
Shifting to profitability. Non-GAAP gross margin improved by 60 basis points year-over-year as headwinds from eBay International Shipping, traffic acquisition costs associated with the ramp of Offsite Ads and FX were more than offset by lower depreciation expenses and cost of payments efficiencies. As we discussed last quarter, our depreciation expense in 2024 is impacted by an extension in the accounting useful life of our servers and networking equipment, which primarily will be recognized in cost of revenue. Additional information will be available in our 10-Q filing.
Non-GAAP operating margin was 30.3% in Q1, improving 70 basis points year-over-year and 360 basis points sequentially. On a year-over-year basis, our operating margins benefited from our workforce reduction in January, the aforementioned accounting change, cost of payment efficiencies and our structural cost program. This leverage was partly offset by a foreign exchange headwind of roughly 70 basis points and reinvestments into sales and marketing to support our full-funnel initiatives.
We grew non-GAAP earnings per share by nearly 13% to $1.25 in the first quarter. On a GAAP basis, our earnings per share was $0.85 in Q1. The difference was primarily due to stock-based compensation and a reduction in the value of our equity investment portfolio, largely due to FX movements.
Next, I'll discuss our balance sheet and capital allocation. Our free cash flow was $472 million in Q1, down year-over-year due to the timing of working capital items. We ended the first quarter with cash and nonequity investments of $4.9 billion and gross debt of $7.7 billion. We repurchased $499 million of eBay shares at an average price of approximately $51 during Q1 and had $2.9 billion remaining under our buyback authorization at the end of the period. In addition, we paid a quarterly cash dividend of $139 million in March or $0.27 per share. Since the beginning of 2022, we have returned $6.2 billion to shareholders through repurchasing dividends of roughly 134% of cumulative free cash flow over that period.
Now I'll give an update on our investment portfolio. Our equity investments and warrants were valued at over $5 billion at the end of Q1. Our Adevinta stake was valued at over $4 billion, down over $200 million quarter-on-quarter, primarily due to FX movements.
On April 24, the consortium led by Permira and Blackstone received its final regulatory clearance regarding the offer to acquire Adevinta. We expect this transaction to close on May 29, subject to closing conditions. While changes in FX rates impact the value of our stake for quarterly reporting purposes, they do not impact the cash proceeds we expect from the pending deal.
Our Adyen warrants were valued at over $500 million at the end of Q1. Our warrant value is calculated based on several assumptions, including Adyen share price and the probability of vesting.
Turning to our outlook. Our strategy and execution are driving underlying growth in our business. However, the macro environment remains challenging and dynamic. Balancing these factors, we forecast Q2 GMV between $17.8 million and $18.2 billion, representing FX-neutral growth between negative 2% and flat year-over-year. At current rates, FX would represent roughly 0.5 point of headwind to Q2 GMV growth year-over-year and roughly 1 point of headwind quarter-over-quarter.
We expect to generate revenue between $2.49 billion and $2.54 billion in Q2, representing FX-neutral growth between negative 1% and positive 1% year-over-year. Our forecast implies revenue will outpace volume by close to 1 point on an FX-neutral basis. We estimate FX will represent more than a 1 point headwind to spot revenue growth in Q2. We expect first-party ad revenue growth to decelerate to low double digits year-over-year in Q2 due to lapping and onetime factors.
As we discussed last year, a deferral release to CPC ads put forward approximately $9 million of ad revenue into Q2 of 2023. In addition, benefits from our Halo attribution change in Q2 of last year led to extraordinary growth in first-party advertising overall, which will create more challenging year-over-year comparisons for the remainder of this year. However, we do expect a recovery in advertising growth during the second half of 2024 driven by continued adoption and optimization of our first-party ad products.
We forecast Q2 non-GAAP operating margin between 26.9% and 27.6% or 35 basis points of year-over-year improvement at the midpoint. This is consistent with historical seasonality, where Q1 is usually the high point for operating margin, followed by a sequential decline in Q2, reflecting both the seasonal decrease in volumes and the ramp-up in product and full-funnel marketing investments.
We expect to generate non-GAAP earnings per share between $1.10 and $1.15 in the second quarter, representing non-GAAP EPS growth between 6% and 11% year-over-year. Based on current rates, FX would represent a headwind of roughly 2.5 percentage points.
Moving to the full year. We continue to plan our business assuming no fundamental change in the macro environment this year. Within this context, we expect our FX-neutral GMV to turn positive in Q3 or Q4. We expect revenue to outpace GMV growth by approximately 2 points for the full year on an FX-neutral basis. In addition, FX represents close to a 1 point expected headwind to total spot revenue growth.
We maintain our outlook for non-GAAP operating margin to expand by 60 to 100 basis points for the full year. Where we land in this range could vary based on investment opportunities we see throughout the year, not necessarily our volume trends alone. At current rates, we continue to expect FX to be a year-over-year headwind of roughly 50 basis points to operating margins, which is mostly offset by an expected tailwind of 40 basis points primarily driven by the change in accounting estimate associated with the extension of the useful life of servers and networking equipment.
For the full year, we project capital expenditures to be between 4% and 5% of revenue, in line with our historical average. We expect our non-GAAP tax rate to remain stable at 16.5%. We expect just under $2 billion of free cash flow in 2024 with the majority generated in the second half of the year. As a reminder, our free cash flow has been temporarily pressured in recent years by scheduled repatriation payments and changes to the tax treatment of R&D expenses, which will largely alleviate after 2025. From a timing perspective, our federal cash tax payments will revert to a normal schedule this year with our largest outlay occurring in Q2, leading to a more normalized cadence of free cash flow.
From a capital allocation standpoint, our Board declared a quarterly dividend of $0.27 per share for Q2 to be paid in June. For the full year, we are targeting share repurchases of just over $2 billion. Given our better-than-expected Q1 results and our confidence in our strategy and execution, we are increasing our forecast for non-GAAP earnings per share growth to 9% to 11% year-over-year in 2024.
In closing, Q1 was a strong quarter for eBay as we exceeded our outlook across our key financial metrics. Our results highlight the resilience of our marketplace and business model amid persistent challenges in the global economy. We remain on track to achieve positive GMV growth this year in Q3 or Q4, driven by our accelerating pace of innovation across focus categories and horizontal initiatives. In addition, we are laser-focused on further improving our cost discipline and efficiency and expect operating margin expansion this year, even as we make incremental investments to drive sustainable, long-term growth. As a result, we plan to deliver double-digit earnings growth this year at the midpoint of our guidance and exceed our original 3-year target for total capital returns.
With that, Jamie and I will now take your questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question will come from Nathan Feather from Morgan Stanley.

Nathaniel Jay Feather

So I want to dig in and touch on the margins. The 2Q non-GAAP operating margin is at about 300 basis points at the midpoint. On top of this normal marketing seasonality you see, can you provide some more color on the puts and takes which are driving that? And then with that in mind, how should we think about the cadence of operating margin through the remainder of the year?

Stephen J. Priest

Nathan, I'll take that. Steve here. Our Q2 guide implies margin expansion between 0 and 70 basis points year-over-year, depending on where we land in the range. That's really driven by underlying advertising growth efficiency gains, partly offset by some of the investments we've talked about and some FX headwinds that we're seeing. You're right, there's a bit of seasonality that we deal with as we go through the year. The second quarter does generally have sequential contraction. That's in line with the last few years because seasonally, Q1 is our strongest quarter for operating margin due to relatively higher GMV and low expenses.
A few of the puts and takes that we're seeing, the first thing I would say is that we continue to lean in, in investment. We see a lot of opportunity for good ROI as we are continuing to be committed to growing GMV in either third or the fourth quarter of next year, and we're seeing benefits associated with that. Secondly, there's a couple of dynamics with regards to advertising. In Q2 of 2023, we saw changes in terms of the Halo attribution, which really sort of saw significant momentum in our first-party ads in the second quarter of 2023. And in addition, we saw some revenue recognition changes in the second quarter, about $9 million that was pulled forward.
So we're sort of dealing with those 2 dynamics. But as you've seen from our prepared remarks, we continue to be confident in the outlook, and we continue to guide margin expansion through 2024 between 60 and 100 basis points as we look forward to going through the rest of the year.

Operator

Our next question comes from Colin Sebastian from Baird.

Colin Alan Sebastian

Jamie, I appreciate the review of all the product initiatives in the marketplace. And I guess in the context of the confidence you have in that acceleration in growth in the back half, I guess, which of these innovations are driving the most incremental activity or conversions on the platform? And is that part of that acceleration that you're anticipating?

Jamie J. Iannone

Yes. I'd really say it's threefold, Colin. I'd say first is the focus category work that we're doing. You see us not only kind of expanding what we're doing there, but investing in categories that we've already launched before like what we announced in collectibles with the Collectors and Goldin this quarter, what we're seeing in terms of the growth of luxury, of P&A, refurbished at 5%. So that's probably the first thing I'd say.
The second is just the geo work that we're doing in specific geographies. If you look at the work that we did in Germany on C2C, we continue to see healthy returns from that. We're more than a year from launching that. We launched that in Q1 of last year, and we're continuing to see positive C2C momentum in Germany and healthy metrics and encouraging numbers from our CSAT standpoint. So that's the second.
And the third I would say is the efforts that we have against our horizontal innovations. So we've talked about things like magical listing, of simplifying the selling flow. We continue to invest in search, in CRM and a number of horizontal initiatives. I'd call out 2 that we talked about this quarter, which are explore and shop the look, new AI capabilities that we're launching first in fashion to really create a new browsing experience. So all 3 of those together is what gives us the confidence in moving forward and how we feel good about what we put out there.

Operator

Our next question comes from Eric Sheridan from Goldman Sachs.

Eric James Sheridan

Maybe 2-parter, if I could. In terms of cross-border commerce, what's the current state you're seeing in terms of cross-border and region-wide globally in terms of a driver of GMV dynamics into the business? And have you seen any impact from increased competition from cross-border, especially in areas of the world like Europe? And how would you characterize the state of competitive intensity?

Jamie J. Iannone

Yes. Look, our cross-border is one of our great strengths as a business. 1 in 5 transactions or about 20% of GMV goes across borders on eBay, and it's very strategic for us in that for sellers, it opens up a very vast demand opportunity. We've talked for a couple of quarters about eBay International Shipping as an example of one of those things. We've talked about our payments team investing in buyer and seller FX to make that more easy and take the friction out for customers.
So you take, for example, a look at parts and accessories, which continues to perform well at mid-single digits, one of the largest contributors to that growth is really healthy CBT business. You look at luxury being positive even in this macro environment. And it's in part because of the work we're doing where we launched an authentication center in Japan, and we have great inventory coming out of there.
So it's one of the benefits that we have from a global marketplace. We think we're unique from that perspective in terms of what we offer, in terms of the capability for sellers, and we're pleased with what we're seeing in the growth of CBT overall.

Operator

Our next question comes from Tom Champion from Piper Sandler.

Thomas Steven Champion

Jamie, I'm wondering if you could just talk about your view of the health of the consumer. There doesn't seem to be much consensus out there. And just curious, your view and how that may have changed over the last 90 days.

Jamie J. Iannone

Yes. Tom, thanks for the question. Look, we continue to operate in a really dynamic environment given the macro challenges globally with inflationary pressures and interest rates. We talked about Q1 started off a bit softer because of some of the weather, but then we had a reasonably good tax period. I would say the backdrop remains weaker in Europe than it does in the U.S., where U.S. is in better shape. If you look at e-commerce growth rates in U.K. and Germany this quarter, they're negative, and that's overall, and obviously, we play more in discretionary than consumables.
So I think this is where our model is really winning, right? Our model is working because we have global demand. We've really focused in on non-new-in-season over the last couple of years. And we can provide value in a marketplace like this. We can be a great avenue for selling in terms of consumer demand. And I think it's why we reached the milestone this year or this quarter of now 40% of our inventory is pre-loved or refurbished is because we're seeing strength from the value proposition that we've built, and it's resonating with the consumer.

Operator

Our next question comes from Doug Anmuth from JPMorgan.

Bryan Michael Smilek

It's Bryan Smilek on for Doug. Could you just talk about the velocity of investments across generative AI and any affiliated CapEx needs and then, I guess, on that same line of questioning too, just timing of when you could see revenue uplift from these investments over time?

Jamie J. Iannone

Yes. Look, we're really excited by the advancements that we're making in AI. I feel somewhat of a privilege to be able to lead this company because when you think of the breadth of categories, the data that we have for over 20 years, the scale of the size of business, being able to put AI against those is really compelling. So on the consumer-facing side, we continue to see amazing traction with magical listing. It's now -- writes description for 100% of users across native, desktop, mWeb, and we're working on Phase 2 there. We've got that rolled out to a percentage of sellers, which is great.
When you look at explore and shop the look, those are 2 features that, starting with fashion, are really bringing a whole new browse experience to eBay. If you think about it, our fashion category on eBay is over $10 billion, and we have amazing inventory and incredible values. But if you wanted to put an outfit together on eBay, the buyer had to do all that work for the last 20 years. And most of them did, and we built a really healthy business. Now we can use AI to basically do all of that hard work for the consumer. And depending on their style, which they tell us or we infer based on their sizing, we can put the right products in front of them directly.
So we're really excited by the potential of what we're seeing, by the acceptance that we have. When you look at magical listing, 90% of customers that use and accept what we put together, which is fantastic, and also just the interest from our consumers. Steve, maybe you want to talk a little bit about financially?

Stephen J. Priest

Yes, of course. So Bryan, I think there's a couple of things I'd say. First of all, our size, our scale and our financial architecture with eBay with the strength of the balance sheet we have is a distinct advantage for us, particularly as we look to exploit generative AI and the benefits that come from that. With regards to how we're thinking about it from a CapEx and an OpEx standpoint, all of the investment that we've talked about in 2024 from a CapEx standpoint is embedded in the 4% to 5% of revenue, which we've guided for the full year.
In terms of the OpEx investments associated with generative AI and everything that comes from that, that is contemplated in both our earnings and margin architecture that we've laid out. And in terms of revenue contribution, that's sort of embedded in the work that we've done and is enabling us to put the margin accretion up on the board between 60 and 100 basis points for 2024. And it will also give us benefits, as Jamie has talked about, for years to come as we improve trust and momentum on the overall platform.

Operator

Our next question comes from John Blackledge from TD Cowen.

John Ryan Blackledge

On the trading card business, you guys mentioned that trading card volume is up over the last few quarters. Just curious, what's driving the uptick in volume? And would you expect volumes to kind of remain elevated as we get through the year?

Jamie J. Iannone

Yes. Look, we're excited by what we're seeing in trading cards. What we saw is that there was obviously a lot of activity during the pandemic, and we were able to hold on to a lot of customers that we acquired and frankly, a lot of customers that got reactivated or reinterested into the hobby. When you look at collectibles, we've been investing in it over quite some time. We've launched a number of features, whether it's price guides, making it easier, [My Collections] on the marketplace, we've launched new shipping forms, we've introduced authentication in that product, et cetera, and really built the suite of what collectors were asking us to do.
And then this quarter, as you saw a few weeks ago, the 3-part agreement that we've developed with Collectors really takes that to the next level. And frankly, this is something that collectors have been asking us to do, which is, hey, we create real value in getting our cards graded. We love selling them on eBay. How could we make that whole process easier? And when you look at the 3 separate deals that we put together, that's exactly what we intended to do with trading cards.
So we're bringing in the Goldin platform, excited to bring Ken and his team in. This is going to bring really unique inventory, frankly, the world's most desirable inventory into the platform. Like they sold a Honus Wagner card for $7 million. It was the third most expensive trading card ever sold. Michael Jordan sneakers that sold for $1.4 million. There's this great book of the [Goldin 100]. And we're just excited to have this new high-touch, white-glove experience available to sellers and to bring a global reach now for Goldin sellers on the marketplace.
And then when you look at the commercial agreements, making it easier to buy, sell, trade and grade on the platform through an integrated experience is a great opportunity because clearly, a lot of collectors buy ungraded cards on eBay that they want to get graded or they've just graded a card or they realize the value based on the grade they have that they want to sell it. And so our ability to do this really helps grow the industry. It helps grow the hobby, and it's really what collectors have been asking us to do. So I'm really excited about what it means for the collecting and the future here at eBay.

Operator

Our next question comes from Richard Kramer from Arete Research.

Richard Alan Kramer

A quick question for both of you. Jamie, when you talk about the guidance of take rate expansion, can you talk through how you might mitigate risk of seeing seller defections to other platforms that are doing cheap promotions and also whether you'd anticipate the promotion like you're doing now in the U.K. on used apparel being something that's permanent and that people can get used to? And then, Steve, could you maybe quickly just size the cost savings from the headcount reductions you made at the start of the year and whether that's going to get reinvested? Or is that something that's supporting the margin expansion you mentioned?

Jamie J. Iannone

Yes. Look, the reason that we have such good seller metrics and sellers are so loyal, Richard, is because we let them build a brand on eBay. They build an eBay store, they have a presence, and we bring them a lot of really unique value propositions. We bring them the scale and breadth of global buyers on the marketplace. We bring them all of the capabilities to market and advertise their products really easily. We just -- we've been working the last couple of quarters on this product I talked about with Offsite Ads, which helps them bring traffic back. And so it's really -- those are really, I think, important to sellers. And what we see is really good feedback from doing those.
And what we're doing in the U.K., U.K. is a unique market for us. We have very strong awareness and we're a leading player in recommerce. But we view the pre-loved fashion category as really a gateway to recommerce. Pre-owned apparel shoppers are really valuable to our business. And what we see is that 30% of our C2C sellers actually sell in pre-owned apparel. So given the strategic nature, we not only looked at what we could do to drive that velocity with the fee structure that we outlined, but we built about 10 different discrete features in that launch, from a streamlined listing flow where there's much simpler shipping options, for example, we simplified item aspects to just the relevant fields, we now offer photo guidance in a really compelling way, including better image removal and background swap, changed the default. So did a lot of things to make the selling process easier while launching explore and shop the look on the buying side to really take advantage of a much more modern experience for shopping for fashion on eBay.

Stephen J. Priest

Thanks, Jamie. Obviously, we made a difficult decision at the start of the year to go through the reduction in force. From the magnitude of the headcount and the restructuring charges, it's obviously a significant event for us. It was not just about sort of driving cost savings and creating capacity. It was also about sort of driving greater agility, speed in decision-making across the organization, so we can continue to deliver for our customers.
As it pertains to the value of that, that, along with other savings that we continue to drive through operational efficiencies, through our structural cost program that we've been running through for a few years, it is creating the capacity for us to invest back into the business to stimulate sort of customer stickiness and also to drive long-term sustainable growth. It is contemplated in the 60 to 100 basis points of margin expansion that we've laid out for the full year and obviously, a critical part of the earnings momentum that we're expecting to see with double-digit earnings growth at the midpoint of our guide.

Operator

Our next question comes from Michael Morton from MoffettNathanson.

Michael Paul Morton

Just wanted to maybe talk a little bit about what we discussed last quarter as well, and it's the impressive strength you've seen from cross-border, I think with your ability to lower the friction around it and then also places like China opening back up. I'd love to learn a little bit more about the composition of the goods coming cross-border, if it's very representative of the entire focus category platform or eBay more broadly and then the ability to see continued strength from some of the reasons -- regions like China.

Jamie J. Iannone

Yes. So look, it's been an important strategic area for us. One of the reasons we launched eBay International Shipping was the whole concept that we wanted you to be able to ship a product from LA to Norway, and it would be as easy as shipping it from LA to Chicago. And we built that product, and eBay takes care of all of the hard work and the background of customs, duties, et cetera. And we're seeing really great feedback in terms of the CSAT and the performance that we're getting from our sellers from that perspective. We built a lot of features like buyer and seller FX, so that the buyer can transact in their currency of choice to make that really easy for the -- for both the buyer and for the seller.
When you look at the categories and what we have, it's really across the board. And it's really aligned with our focus category strategy that we have. So whether that's parts and accessories and being able to generate great parts and accessories in different parts of the world and ship them around the world, even to unique parts that may be manufactured in one country that there may be global demand from that perspective.
We talked about handbags being another example in luxury where there's inventory coming out of, for example, Japan. It's a great market for handbags. By putting authentication center there, that now opens up global demand for the great inventory that sits there. And really, when you think about it, there's great inventory in a lot of our categories all across the world. And what we really focus on is how to open that up.
When you think about the scale of a $73 billion platform where 1 in 5 transactions is going across borders, the scale of that means that it's broad, it's very diverse from that perspective. And we have 2 billion live listings on the platform. So really just about every category on the platform benefits from the work we've done in cross-border and making that simpler and easier for our customers.

Operator

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.