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Article by DailyStocks_admin    (10-30-08 02:37 AM)

The Daily Magic Formula Stock for 10/29/2008 is eBay Inc. According to the Magic Formula Investing Web Site, the ebit yield is 14% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Overview

eBay Inc. was formed as a sole proprietorship in September 1995 and was incorporated in California in May 1996. In April 1998, we reincorporated in Delaware, and in September 1998, we completed the initial public offering of our common stock. Our principal executive offices are located at 2145 Hamilton Avenue, San Jose, California 95125, and our telephone number is (408) 376-7400. When we refer to “we,” “our” or “eBay” in this Annual Report on Form 10-K, we mean the current Delaware corporation (eBay Inc.) and its California predecessor, as well as all of our consolidated subsidiaries. When we refer to “eBay.com,” we mean the online marketplace located at www.ebay.com and its localized counterparts. When we refer to “PayPal,” we mean the online payments platform located at www.paypal.com and its localized counterparts. When we refer to “Skype,” we mean the Voice over Internet Protocol, or VoIP, offerings provided by our subsidiary Skype Technologies S.A.

Our purpose is to pioneer new communities around the world built on commerce, sustained by trust and inspired by opportunity. We provide online marketplaces for the sale of goods and services as well as other online commerce, or ecommerce, platforms, online payments services and online communications offerings to a diverse community of individuals and businesses.

We have three operating segments: Marketplaces, Payments and Communications. Our Marketplaces segment enables online commerce through a variety of platforms, including the traditional eBay.com platform and our other online platforms, such as our classifieds websites, as well as Half.com, Rent.com, Shopping.com and StubHub. The wide array of websites that comprise our Marketplaces segment brings together millions of buyers and sellers every day on a local, national and international basis. Our Payments segment, which consists of PayPal, enables individuals and businesses to securely, easily and quickly send and receive payments online. Our Communications segment, which consists of Skype, enables VoIP communications between Skype users and provides low-cost connectivity to traditional fixed-line and mobile telephones.

Marketplaces

Our Marketplaces segment is comprised of online commerce platforms that enable a global community of buyers and sellers to interact and trade with one another. Our goal is to create, maintain and expand the functionality, safety, ease-of-use and reliability of our online commerce platforms while supporting the growth and success of our community of users.

We believe our Marketplaces platforms make inefficient markets more efficient because:


• Our global community of users can easily and inexpensively communicate, exchange information and complete transactions;

• Our Marketplaces platforms include more than a hundred million items on any given day and make available to our users a wide variety and selection of goods; and

• We bring buyers and sellers together for lower fees than traditional intermediaries.

We seek to create a global platform that enables individuals and businesses of all types and sizes to access broad markets. We have aggregated a significant number of buyers, sellers and items listed for sale, which, in turn, has resulted in a vibrant online commerce environment. Our sellers generally enjoy good conversion rates and our buyers enjoy an extensive selection of goods and services. Key components of our community philosophy are maintaining honest and open marketplaces and treating individual users with respect. We seek to maintain the satisfaction and loyalty of our buyers and sellers by offering a variety of community and support features, such as announcement and bulletin boards, customer support boards and personal pages, as well as other topical or category-specific information exchanges.

Markets of goods with broad buyer and seller bases, wide product ranges and moderate shipping costs have generally been successful on our Marketplaces platforms. Generally speaking, our Marketplaces platforms are more effective, relative to available alternatives, at addressing markets of scarce new goods, end-of-life products and used and vintage items. Our highest growth, however, has been in our fixed-price listing format, primarily for new in-season items.

Our historical success has resulted largely from the size of our community of active users. We had approximately 83 million active users at the end of 2007, compared to approximately 82 million at the end of 2006. We define an active user as any user who bid on, bought, or listed an item during the most recent 12-month period.

Marketplaces Platforms Overview

Our Marketplaces platforms seek to bring buyers and sellers together through fully automated and easy-to-use online websites that are available 24 hours a day, seven days a week, from any place in the world at any time. The platforms include software tools and services, some available at no charge and others for a fee, that allow buyers and sellers to trade with one another more easily and efficiently. The Marketplaces platforms consist of our core online commerce platform, eBay.com and its localized counterparts, and adjacent platforms consisting of our classifieds websites, as well as Half.com, Rent.com, Shopping.com and StubHub. Our Marketplaces platforms earn revenue from, as the case may be, listing, feature, subscription and final value fees paid by sellers, lead referral fees, transaction fees and advertising fees.

eBay.com Platform

Our Marketplaces core platform, eBay.com, includes our traditional auction-style format and fixed-price formats such as Buy-It-Now and eBay Stores. We offer the core platform on localized websites in 28 countries. In 2007, our auction-style listing format accounted for approximately 60% of our Gross Merchandise Volume, or GMV, which is the total value of all successfully closed items between users on our Marketplaces trading platform websites during the period, regardless of whether the buyer and seller actually consummated the transaction

(excluding Rent.com, Shopping.com and eBay’s classified websites), while the fixed-price listing format accounted for the remaining 40% of our 2007 GMV.

Auction-Style Listing Format

Our traditional auction-style format allows a seller to select a minimum price for opening bids, with the option to set a reserve price for the item, which is the minimum price at which the seller is willing to sell the item. A seller with appropriate feedback ratings can also sell in a “Multiple Item Auction” format, which allows a seller to sell multiple identical items to the highest bidders.

Fixed-Price Listing Format

Our fixed-price format allows buyers and sellers to accelerate the transaction process rather than waiting for the auction period to expire. Sellers with appropriate feedback ratings can choose to use the “Buy-It-Now” feature at the time an item is listed, which allows sellers to name a price at which they would be willing to sell the item to a buyer. Our Half.com subsidiary also provides a fixed-price, person-to-person online commerce platform that allows people to buy and sell new and previously owned books, movies, music and games at discounted prices.

In addition, eBay Stores enable sellers to exhibit all of their listings in one place on our eBay platform and to describe their respective businesses through customized pages. eBay Stores provides sellers with useful tools to build, manage, promote and track their businesses. “Store Inventory Format” listings allow sellers to list items for a minimum 30-day listing period at a lower insertion fee and higher final value fee than regular auction-style and fixed-price listings. As of December 31, 2007, there were over 532,000 online storefronts established by users in locations around the world.

Other Marketplaces Platforms and Services

Classifieds Websites

Our classifieds websites are available in hundreds of cities and regions around the world and are designed to help people meet, share ideas and trade on a local level. Our classifieds websites include Kijiji, Gumtree.com, LoQUo.com, OpusForum, Marktplaats.nl and mobile.de. In addition, we have a minority equity investment in craigslist, Inc., which operates the craigslist classifieds websites around the world. Our classified websites are monetized primarily through advertising.

Rent.com

Rent.com is a leading U.S. listing website in the rental housing industry. The website is designed to bring apartment seekers and apartment managers together in an efficient manner. Landlords pay a fee to Rent.com for renters who indicate that they have found their apartments through Rent.com.

Shopping.com

Shopping.com is a leading comparison shopping destination featuring products from thousands of merchants across the Internet. Shopping.com offers one of the largest product catalogs on the Internet — searchable by thousands of attributes — along with consumer product reviews through Epinions.com, which help users make informed buying decisions. Retailers pay a fee to Shopping.com for shoppers directed to their sites by Shopping.com.

StubHub

StubHub is a leading U.S. ticket marketplace, enabling fans to buy and sell tickets to a large selection of sporting, concert, theater and other live entertainment events. StubHub provides a marketplace dedicated solely to tickets and is designed to enable users to buy or sell their tickets in a secure, convenient and highly reliable environment. Buyers and sellers pay fees to StubHub when tickets are bought and sold.



Online Advertising and Other Services

We work with strategic partners in a variety of areas, such as online advertising, mailing and other services, that allow us to extend the monetization of our platforms and user base.

Key Services for Buyers and Sellers

We have developed a number of features on our platforms in the areas of Trust and Safety, Customer Support and Value-Added Tools and Services, as well as Loyalty Programs. These features are designed to make users more comfortable dealing with unknown trading partners and completing commercial transactions on the Internet.

Trust and Safety

Feedback Forum: Our Feedback Forum encourages users to provide feedback ratings and comments on other users with whom they trade. Users’ profiles, which include these feedback ratings and comments, can be viewed by any of our other users. Every registered user has a feedback profile that may contain compliments, criticisms and/or other comments by users who have conducted business with that user. The Feedback Forum requires feedback to be related to specific transactions and provides an easy tool for users to match specific transactions with the user names of their trading partners. This information is recorded in a profile that includes a feedback rating for the user, with feedback sorted according to whether the feedback has been provided over the past month, six months or twelve months. Users who develop positive reputations have color-coded star symbols displayed next to their user names to indicate the number of positive feedback ratings they have received. In addition to leaving an overall Feedback rating (positive, neutral or negative) for a seller, buyers also can leave anonymous Detailed Seller Ratings (“DSR”) that cannot be viewed by the seller in four areas: item as described, communication, shipping time and shipping and handling charges. The Feedback Forum has several automated features designed to detect and prevent certain forms of abuse, such as a user leaving positive feedback about himself or herself through multiple accounts. We recently announced updates to our feedback system, including removing the ability of sellers to leave negative feedback for buyers and providing sellers with additional tools designed to avoid negative feedback.

SafeHarbor Program: We also offer the SafeHarbor program, which provides guidelines for trading and user dispute resolution. Our SafeHarbor staff investigates users’ complaints of possible misuse of eBay platforms and takes appropriate action, including issuing warnings to users, ending and removing listings, or suspending users from bidding on or listing items for sale.

Verified Rights Owner (VeRO) Program: The VeRO Program lets intellectual property rights owners request the removal of listings that offer items or contain materials that infringe on their rights. This helps to protect community members from purchasing items that may be counterfeit or otherwise unauthorized.

Customer Support

We devote significant resources to providing personalized, accurate and timely support services to our community of users. Buyers and sellers can contact us through a variety of means, including email, online text chat and, in certain circumstances, telephone. We continue to focus our resources on improving our accessibility, increasing our capacity, expanding our category-specific support, extending our online self-help features and improving our systems and processes to allow us to provide efficient and effective support. In addition, top eBay sellers who qualify for our PowerSeller program receive prioritized customer support.

Value-Added Tools and Services

eBay users have access to a variety of “pre-trade” and “post-trade” tools and services to enhance their user experience and to make trading faster, easier and safer for them. “Pre-trade” tools and services are intended to simplify the listing process. “Post-trade” tools and services are designed to make transactions easier and more convenient to complete.

These tools and services include:


• Turbo Lister, eBay Blackthorne, ProStores, Selling Manager and Selling Manager Pro, each of which helps to automate the selling process;

• Picture Services, which enables sellers to include pictures in their listings;

• Shipping Calculator, which makes it easier for buyers and sellers to calculate shipping costs;

• Shipping Labels, which allows sellers to print certain postage and UPS labels;

• Shipment Tracking, which enables sellers to track their shipped packages;

• eBay Toolbar, which helps eBay users stay connected with eBay wherever they are on the Internet;

• eBay Desktop, which helps eBay users stay connected with eBay from their desktop computer;

• eBay Countdown, which helps eBay users bid and buy from anywhere on the Internet;

• eBay Sales Reports and eBay Sales Reports Plus, which provide sales and fee information to sellers;

• eBay Marketplace Research, which enables sellers to analyze sales in categories across the site;

• Reviews and Guides, which assists shoppers in making more informed choices;

• eBay Neighborhoods, which assists users in connecting around items in which they have a mutual interest;

• eBay To Go, which allows users to embed item listings in their own Internet websites;

• Best of eBay, where eBay users can vote for their favorite items;

• PayPal, which facilitates the online exchange of funds; and

• Skype, which enables VoIP communications between buyers and sellers.

We currently provide these services directly or through contractual arrangements with third parties.

PowerSeller program: PowerSellers are eBay’s top sellers who have consistently sustained a high volume of monthly sales and who have a high level of positive feedback. Members of the PowerSeller program get a range of special benefits, including pricing discounts, prioritized customer support, promotional offers, eBay promotional merchandise, advanced selling education, opportunities to participate in research and other special rewards. The PowerSeller program is free of charge and a special PowerSeller icon is located next to the seller’s user name if the seller qualifies for the program. In January 2008, we announced that we would raise the standards for sellers to qualify for our PowerSeller program and would provide additional benefits, such as pricing discounts for qualified PowerSellers with high DSR ratings.

Top buyer program: Our top buyers benefit from having a special phone number to call if they have an unsatisfactory user experience in connection with a transaction on our websites, and we recently announced that we would also offer special coupon initiatives to top buyers.

Marketplaces Growth Strategy

We intend to continue to work toward our mission of creating the world’s leading ecommerce franchise by investing in our core Marketplaces segment and continuing to build our adjacent Marketplaces businesses.

We intend to continue to enhance our core Marketplaces segment by reinvesting in our customers, improving the buyer experience and seller economics by enhancing our products and services, improving Trust and Safety and customer support, extending our product offerings into new formats, categories and geographies, and experimenting with various pricing and buyer retention strategies. We have made significant efforts to improve the user experience over the course of 2007, including improvements to the eBay.com homepage, the site’s search functionality, the ease with which sellers can list items, visual search, and the expansion of our customer support infrastructure. We have begun tailoring the features of our business model to the needs of specific categories, such as motors, to help drive revenue, as we recognize that a single user experience may not be optimal for all products. Furthermore, we are

invested heavily in promotions through marketing campaigns in the U.S. and pricing promotions on our site to drive traffic and continue the growth in GMV. We believe that these measures will improve the number of items sold on our site and, in turn, lead to higher GMV.

Another element of our growth strategy is to build adjacent Marketplaces businesses, such as our classified platforms and StubHub, which offer new formats and new monetization models, as well as opportunities for growth beyond our core businesses. We plan to continue to grow our adjacent Marketplaces businesses, including our classifieds websites, Half.com, Rent.com, and Shopping.com. In addition, we intend to expand our monetization models through advertising partnerships.

Payments

Our global payments platform, PayPal, enables any individual or business with an email address to securely, easily and quickly send and receive payments online in over 190 markets worldwide. We believe our global payments platform makes online commerce more efficient compared to traditional payment alternatives such as checks, money orders and credit cards via merchant accounts. These traditional payment alternatives present various obstacles to the online commerce experience, including lengthy processing time, inconvenience and high costs. PayPal delivers a product well-suited for online merchants and individuals by allowing them to send and receive online payments securely, conveniently and cost-effectively. The PayPal network builds on the existing financial infrastructure of bank accounts and credit cards to create a global, real-time payment solution.

CEO BACKGROUND

Fred D. Anderson

Fred D. Anderson, age 63, has served as a director of eBay since July 2003. Mr. Anderson has been a Managing Director of Elevation Partners, a private equity firm focused on the media and entertainment industry, since July 2004. From March 1996 to June 2004, Mr. Anderson served as Executive Vice President and Chief Financial Officer of Apple Inc., a manufacturer of personal computers and related software. Prior to joining Apple Inc., Mr. Anderson was Corporate Vice President and Chief Financial Officer of Automatic Data Processing, Inc., an electronic transaction processing firm, from August 1992 to March 1996. On April 24, 2007, the SEC filed a complaint against Mr. Anderson and another former officer of Apple Inc. The complaint alleged that Mr. Anderson failed to take steps to ensure that the accounting for an option granted in 2001 to certain executives of Apple Inc., including himself, was proper. Simultaneously with the filing of the complaint, Mr. Anderson settled with the SEC, neither admitting nor denying the allegations in the complaint. In connection with the settlement, Mr. Anderson agreed to a permanent injunction from future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 16(a) of the Exchange Act and Rules 13b2-2 and 16a-3 thereunder, and from aiding and abetting future violations of Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. He also agreed to disgorge approximately $3.5 million in profits and interest from the option he received and to pay a civil penalty of $150,000. Under the terms of the settlement, Mr. Anderson may continue to act as an officer or director of public companies. Mr. Anderson also serves on the board of directors of Move, Inc. and Palm, Inc. Mr. Anderson holds a B.A. degree from Whittier College and an M.B.A. degree from the University of California, Los Angeles.

Edward W. Barnholt

Edward W. Barnholt, age 64, has served as a director of eBay since April 2005. Mr. Barnholt served as President and Chief Executive Officer of Agilent Technologies, Inc., a measurement company, from May 1999 until March 2005, and served as Chairman of the Board of Agilent from November 2002 until March 2005. Before being named Agilent’s Chief Executive Officer, Mr. Barnholt served as Executive Vice President and General Manager of Hewlett-Packard Company’s Measurement Organization from 1998 to 1999. From 1990 to 1998, he served as General Manager of Hewlett-Packard Company’s Test and Measurement Organization. He was elected a Senior Vice President of Hewlett-Packard Company in 1993 and an Executive Vice President in 1996. Mr. Barnholt also serves as the Non-Executive Chairman of the Board of KLA-Tencor Corporation, a member of the Board of Directors of Adobe Systems Incorporated, and a member of the Board of Trustees of the David and Lucile Packard Foundation. Mr. Barnholt holds a B.S and an M.S. degree in electrical engineering from Stanford University.

Scott D. Cook

Scott D. Cook, age 55, has served as a director of eBay since June 1998. Mr. Cook is the founder of Intuit Inc., a financial software developer. Mr. Cook has been a director of Intuit since March 1984 and is currently Chairman of the Executive Committee of the Board of Intuit. From March 1993 to July 1998, Mr. Cook served as Chairman of the Board of Intuit. From March 1984 to April 1994, Mr. Cook served as President and Chief Executive Officer of Intuit. Mr. Cook also serves on the board of directors of The Procter & Gamble Company. Mr. Cook holds a B.A. degree in Economics and Mathematics from the University of Southern California and an M.B.A. degree from the Harvard Business School.

John J. Donahoe

John J. Donahoe, age 47, serves eBay as its President and CEO. He has served in that capacity since March 2008. From January 2008 to March 2008, Mr. Donahoe served as CEO-designate. From March 2005 to January 2008, Mr. Donahoe served as President, eBay Marketplaces. From January 2000 to February 2005, Mr. Donahoe served as Worldwide Managing Director for Bain & Company, a global business consulting firm. Mr. Donahoe serves on the Board of Trustees for Dartmouth College. Mr. Donahoe holds a B.A. in Economics from Dartmouth College and an M.B.A. degree from the Stanford Graduate School of Business.

Rajiv Dutta

Rajiv Dutta, age 46, serves eBay as President, eBay Marketplaces. He has served in that capacity and as a director of eBay since January 2008. From June 2006 to January 2008, Mr. Dutta served as President, PayPal. From October 2005 to June 2006, Mr. Dutta served as Skype’s President. From January 2001 to March 2006, Mr. Dutta served as eBay’s Senior Vice President and Chief Financial Officer. From August 1999 to January 2001, Mr. Dutta served as eBay’s Vice President of Finance and Investor Relations. From July 1998 to August 1999, Mr. Dutta served as eBay’s Finance director. Prior to joining eBay, Mr. Dutta held positions at KLA-Tencor, a manufacturer of semiconductor equipment, and Bio-Rad Laboratories, Inc., a manufacturer and distributor of life science and diagnostic products with operations in over 24 countries. Mr. Dutta holds a B.A. degree in Economics from St. Stephen’s College, Delhi University in India and an M.B.A. degree from Drucker School of Management.

William C. Ford, Jr.

William C. Ford, Jr., age 50, has served as a director of eBay since July 2005. Mr. Ford has served as Executive Chairman of the Board of Directors of Ford Motor Company, a company that manufactures and distributes automobiles, since September 2001 and has served as Chairman of the Board of Ford since January 1999. Mr. Ford also serves as Chairman of Ford’s Finance Committee and as a member of Ford’s Environmental and Public Policy Committee. From October 2001 to September 2006, Mr. Ford was Ford’s Chief Executive Officer. Mr. Ford has held a number of management positions at Ford since 1979. Mr. Ford serves as Vice Chairman of The Detroit Lions, Inc. and Chairman of the Board of Trustees of The Henry Ford. He is also a Vice Chairman of Detroit Renaissance. Mr. Ford holds a B.A. degree from Princeton University and a M.S. degree in management from the Massachusetts Institute of Technology (MIT).

Dawn G. Lepore

Dawn G. Lepore, age 54, has served as a director of eBay since December 1999. Ms. Lepore has served as Chief Executive Officer and Chairman of the Board of drugstore.com, inc., a leading online provider of health, beauty, vision, and pharmacy solutions, since October 2004. From August 2003 to October 2004, Ms. Lepore served as Vice Chairman of Technology, Active Trader, Operations, Business Strategy, and Administration for the Charles Schwab Corporation and Charles Schwab & Co, Inc., a financial holding company. Prior to this appointment, she held various positions with the Charles Schwab Corporation including: Vice Chairman of Technology, Operations, Business Strategy, and Administration from May 2003 to August 2003; Vice Chairman of Technology, Operations, and Administration from March 2002 to May 2003; Vice Chairman of Technology and Administration from November 2001 to March 2002; and Vice Chairman and Chief Information Officer from July 1999 to November 2001. Ms. Lepore also serves on the board of directors of The New York Times Company. Ms. Lepore holds a B.A. degree from Smith College.

Pierre M. Omidyar

Pierre M. Omidyar, age 40, founded eBay as a sole proprietorship in September 1995. He has been a director and Chairman of the Board since eBay’s incorporation in May 1996 and also served as its Chief Executive Officer, Chief Financial Officer, and President from inception to February 1998, November 1997 and August 1996, respectively. Prior to founding eBay, Mr. Omidyar was a developer services engineer at General Magic, a mobile communications platform company, from December 1994 to July 1996. Mr. Omidyar co-founded Ink Development Corp. (later renamed eShop) in May 1991 and served as a software engineer there from May 1991 to September



1994. Prior to co-founding Ink, Mr. Omidyar was a developer for Claris, a subsidiary of Apple Inc., and for other Macintosh-oriented software development companies. Mr. Omidyar is currently co-founder and chairman of Omidyar Network, a philanthropic investment firm committed to creating opportunity for individuals to improve their lives. He serves on the Board of Trustees of Tufts University, Omidyar-Tufts Microfinance Fund, the Santa Fe Institute and the Punahou School, and as a director of Meetup, Inc. Mr. Omidyar holds a B.S. degree in Computer Science from Tufts University.

Richard T. Schlosberg, III

Richard T. Schlosberg, III, age 64, has served as a director of eBay since March 2004. From May 1999 to January 2004, Mr. Schlosberg served as President and Chief Executive Officer of the David and Lucile Packard Foundation, a private family foundation. Prior to joining the foundation, Mr. Schlosberg was Executive Vice President of The Times Mirror Company and publisher and Chief Executive Officer of the Los Angeles Times. Prior to that, he served in the same role at the Denver Post. Mr. Schlosberg serves on the board of directors of Edison International, BEA Systems, Inc., and is also a member of the USO World Board of Governors, a trustee of Pomona College and a founding Director of the U.S. Air Force Academy Endowment. Mr. Schlosberg is a graduate of the United States Air Force Academy and holds an M.B.A. degree from the Harvard Business School.

Philippe Bourguignon

Philippe Bourguignon, age 60, has served as a director of eBay since December 1999. Mr. Bourguignon has been Vice Chairman of Revolution Resorts, a division of Revolution LLC, a company focused on health, living, and resort investments and operations, since January 2006. From April 2004 to January 2006, Mr. Bourguignon served as Chairman of Aegis Media France, a media communications and market research company. From September 2003 to March 2004, Mr. Bourguignon was Co-Chief Executive Officer of The World Economic Forum (The DAVOS Forum). From August 2003 to October 2003, Mr. Bourguignon served as Managing Director of The World Economic Forum. From April 1997 to January 2003, Mr. Bourguignon served as Chairman of the Board of Club Méditerranée S.A., a resort operator. Prior to his appointment at Club Méditerranée S.A., Mr. Bourguignon was Chief Executive Officer of Euro Disney S.A., the parent company of Disneyland Paris, since 1993, and Executive Vice President of The Walt Disney Company (Europe) S.A. since October 1996. Mr. Bourguignon was named President of Euro Disney in 1992, a post he held through April 1993. He joined The Walt Disney Company in 1988 as head of Real Estate Development. Mr. Bourguignon holds a Masters Degree in Economics at the University of Aix-en-Provence and holds a post-graduate diploma from the Institut d’Administration des Enterprises (IAE) in Paris.

Thomas J. Tierney

Thomas J. Tierney, age 54, has served as a director of eBay since March 2003. Mr. Tierney is the founder of The Bridgespan Group, a non-profit consulting firm serving the non-profit sector, and has been its Chairman of the Board since late 1999. Prior to founding Bridgespan, Mr. Tierney served as Chief Executive Officer of Bain & Company, a consulting firm, from June 1992 to January 2000. Mr. Tierney holds a B.A. degree in Economics from the University of California at Davis and an M.B.A. degree with distinction from the Harvard Business School. Mr. Tierney is the co-author of a book about organization and strategy called Aligning the Stars.

David M. Moffett

David Moffett, age 56, has served as a director of eBay since July 2007. Mr. Moffett has more than 30 years of strategic finance and operational experience in banking and payment processing. He joined Star Banc Corporation in 1993 as CFO and played integral roles as Star Banc Corporation acquired Firstar Corporation in 1998, which then acquired U.S. Bancorp in February 2001, retaining the U.S. Bancorp name. Prior to 1993, Mr. Moffett held executive level positions at some of the nation’s leading financial services companies, including Bank of America and Security Pacific Corp. Mr. Moffett also serves on the board of directors of MBIA Inc., Building Materials



Holding Corporation (BMHC) and The E. W. Scripps Company. Mr. Moffett holds a B.S. degree in Economics from the University of Oklahoma and a Master’s degree from Southern Methodist University.

Margaret C. Whitman

Margaret C. Whitman, age 51, serves eBay as a special advisor to the President and Chief Executive Officer. From February 1998 to March 2008, Ms. Whitman served eBay as President and Chief Executive Officer. Ms. Whitman has served as a director of eBay since March 1998. Prior to joining eBay, Ms. Whitman held executive-level positions at Hasbro Inc., a toy company, FTD, Inc., a floral products company, The Stride Rite Corporation, a footwear company, The Walt Disney Company, an entertainment company, and Bain & Company, a consulting firm. Ms. Whitman also serves on the board of directors of The Procter & Gamble Company and DreamWorks Animation SKG, Inc. Ms. Whitman holds an A.B. degree in Economics from Princeton University and an M.B.A. degree from the Harvard Business School.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Our Business

We operate three primary business segments: Marketplaces, Payments and Communications. Our Marketplaces segment provides the infrastructure to enable global online commerce on a variety of platforms, including the traditional eBay.com platform, and our other online platforms, such as Shopping.com, StubHub, classifieds, Half.com and Rent.com. Our Payments segment, which consists of PayPal, enables individuals or businesses to securely, easily and quickly send and receive payments online. Our Communications segment, which consists of Skype, enables VoIP calls between Skype users and provides low-cost connectivity to traditional fixed-line and mobile telephones.

We generate revenues from our Marketplaces segment primarily from listing, feature and final value fees paid by sellers and lead referral fees. For our Payments segment, revenues are generated primarily by fees from payment processing services. Our Communications segment primarily generates revenues from fees charged to users to connect them from Skype’s VoIP network to traditional telecommunication networks. These fees are charged on a per minute basis and we refer to these minutes as SkypeOut minutes. Revenues from advertising are derived principally from the sale of advertisements and from revenue sharing arrangements. Other revenues are derived principally from contractual arrangements with third parties that provide transaction services to eBay and PayPal users and interest earned from banks on certain PayPal customer account balances.

Revenues are attributed to U.S. and international geographies based upon the country in which, as the case may be, the seller, payment recipient, Skype user’s Internet protocol address, online property that generates advertising, or other service provider, is located. Because we generate the majority of our revenue internationally, fluctuations in foreign currency exchange rates will impact the results of our operations.

Key Operating Metrics and Financial Information

Members of our senior management team regularly review key operating metrics such as active users, listings, Gross Merchandise Volume (“GMV”), net Total Payment Volume (“TPV”), transaction loss rates, registered users and SkypeOut Minutes. Members of our senior management team also regularly review key financial information including net revenues, operating margins, earnings per share, cash flows and financial metrics that exclude certain non-cash items. These financial measures allow us to monitor the profitability of our business and to evaluate the effectiveness of investments that we have made (and continue to make) in the areas of marketing, product development, international expansion, customer support and site operations. We believe that an understanding of these key operating and financial measures and how they change over time is important to investors, analysts and other parties analyzing our business results and future market opportunities.

Financial Summary

During 2007, our combined businesses generated net revenues totaling $7.7 billion, representing a $1.7 billion, or 29%, year-over-year increase, with each of our segments achieving double digit-growth. Overall, our operations were favorably impacted by the weakening of the U.S. dollar relative to foreign currencies, the geographic mix of taxable income, a tax benefit from a favorable ruling issued by a tax authority and more efficient use of our resources as demonstrated by reducing our sales and marketing, product development, and general and administrative expenses as a percentage of revenues. Furthermore, our operating results were negatively impacted by the $1.4 billion impairment charge related to Skype goodwill.

Revenue generated by our Marketplaces segment increased 24% in 2007 as compared to 2006 as our core business generated $59.4 billion in GMV in 2007, representing a 13% increase over the prior year. Revenue growth was primarily driven by StubHub (acquired in February 2007), advertising, and the fixed-price format on eBay. Our Marketplaces segment represents approximately 70% of our total net revenues and continues to drive the majority of our consolidated net revenue increase in dollars.

Revenue generated by our Payments segment, PayPal, increased 34% in 2007 as compared to 2006. PayPal represents approximately 25% of our total net revenue and generated net TPV of $47.5 billion in 2007, a 33% increase over the $35.8 billion generated in 2006. PayPal continued to be a popular payment vehicle on various Marketplaces platforms. Revenue derived from our Merchant Services business increased by approximately 51% in 2007 compared to 2006 and represented approximately 42% of net TPV in 2007 compared to 35% in 2006.

Revenue generated by our Communications segment, Skype, increased 96% in 2007 as compared to 2006. Revenue growth at Skype was due primarily to the growth in SkypeOut minutes driven by our expanding user base and the broadening of our product offerings and various strategic relationships. Skype represents approximately 5% of our total net revenue.

Our operating margin was 8% in 2007, which reflected the significant impact of the goodwill impairment charge related to Skype of $1.4 billion, which represented 18% of net revenues. In 2006, our operating margin was 24%.

Our diluted earnings per share was $0.25 in 2007. The goodwill impairment charge related to Skype of $1.4 billion reduced our diluted earnings per share by $1.01. In 2006 our diluted earnings per share was $0.79.

We generated operating cash flow of $2.6 billion in 2007, which allowed us to repurchase approximately 44.6 million shares of our common stock for approximately $1.5 billion. As of December 31, 2007, our cash and cash equivalents balance was approximately $4.2 billion.

We expect that our business will continue to grow; however, our growth rate has declined over time and we expect that to continue in 2008, primarily as a result of the following:


• we face challenges in the U.S., U.K. and Germany, which are our three largest markets, as growth of listings, active users and GMV on the eBay.com platform in those countries has slowed. In January 2008, we announced our plan to implement changes to our fee structure, seller incentives and standards and feedback system, all of which may impact our Marketplaces revenue growth;

• consumer spending in our major markets, including the U.S., Germany and the U.K., is expected to be weaker in 2008; and

• we anticipate that ecommerce growth as a whole will decelerate in 2008.

We believe that our operating margin percentage will be impacted negatively by the growth of our lower gross margin businesses, primarily PayPal and Skype, which are growing faster than our Marketplaces business and investment in buyer and seller initiatives, and may be affected by the other changes mentioned above. To partially offset this trend, we intend to continue to improve operating productivity to keep our operating expenses growing at a slower pace than revenue.

We announced another stock repurchase program in January 2008 for $2.0 billion, giving us the ability to repurchase up to $2.85 billion of our common stock under our combined stock repurchase programs. Any repurchases of our common stock under our combined stock repurchase programs may impact our liquidity.

In addition to the above, to the extent that the U.S. dollar fluctuates against foreign currencies, particularly the Euro, British pound, Korean won and Australian Dollar, the translation of these foreign currency denominated transactions into U.S. dollars will impact our consolidated net revenues and, to the extent that they are not hedged successfully, our net income.

Seasonality

Results of Operations

Net Revenues

The following table sets forth, for the periods presented, the breakdown of net revenues by type, segment and geography. In addition, we have provided a table of key metrics that drive our revenue results. Certain key metrics, such as “active registered accounts” and “net Total Payment Volume”, or net TPV, are new metrics recently adopted by management to measure and monitor its Payments segment. These new metrics replace “active accounts” and “Total Payment Volume” and are defined below.

Marketplaces Net Transaction Revenues

Total net transaction revenues from Marketplaces increased 22% in 2007 compared to 2006. The increase in net transaction revenues was the result of growth in our GMV-based businesses as well as growth in our non-GMV-based businesses (Shopping.com, Rent.com and our classifieds websites), which continued to grow faster than our overall Marketplaces businesses. GMV increased 13% during 2007 compared to 2006, and was due primarily to an increase in conversion rates and average selling prices, a weaker U.S. dollar, and inclusion of our StubHub results (which we acquired in February 2007). GMV growth in 2007 occurred across all major categories, with the motors, consumer electronics, home and garden, clothing and accessories and tickets having the most significant positive dollar impact when compared to 2006.

Total net transaction revenues from Marketplaces increased 24% in 2006 compared to 2005. The increase in net transaction revenues was due primarily to growth in our GMV-based businesses as well as growth in our non-GMV-based businesses. GMV increased 18% during 2006 compared to 2005, primarily driven by an increase in listings and higher average selling prices offset by lower conversion rates. GMV growth in 2006 occurred across all major categories, with the motors, consumer electronics, clothing and accessories, computers, home and garden, books/movies/music, sports, and collectibles categories having the most significant dollar impact when compared to 2005.

Marketplaces net transaction revenues earned internationally were $2.7 billion in 2007, $2.1 billion in 2006 and $1.7 billion in 2005, representing 52%, 50% and 49% of total Marketplaces net transaction revenues, respectively. Based on changes in foreign currency rates year-over-year, Marketplaces net revenues were positively impacted by foreign currency translation of approximately $222.4 million, $30.6 million and $6.7 million in 2007, 2006 and 2005 respectively. Changes in foreign currency rates will impact our operating results and, to the extent that the U.S. dollar strengthens, our foreign currency denominated net revenues will be negatively impacted.

In 2008, we expect Marketplaces net transaction revenues to continue to increase, driven by increased levels of GMV and continued growth from our non-GMV-based businesses. In January 2008, we announced changes to our fee structure, as well as changes to our seller incentives and standards and feedback system, on the Marketplaces platforms in an effort to increase user activity, particularly in our three largest markets, the U.S., U.K. and Germany. The reaction of our community of buyers and sellers to these changes, as well as the other factors discussed above under “Financial Summary” could impact our revenue growth and may affect future trends.

Payments Net Transaction Revenues

Payments net transaction revenues increased 31% and 40% in 2007 and 2006, respectively, which was consistent with our year-over-year increase in net TPV of 33% and 37%, respectively, in those periods. Payments net transaction revenues have grown primarily as a result of growth in our Merchant Services business and the increase in PayPal’s penetration of eBay Marketplaces GMV. Payments net transaction revenues continue to be

derived primarily from eBay Marketplaces transactions using PayPal. Our Merchant Services net TPV experienced 59% year-over-year growth in 2007 and 2006, and represented 42% and 35% of PayPal’s net TPV in 2007 and 2006, respectively. The increase in Merchant Services business resulted from more online merchants, both domestically and internationally, adding PayPal as a payment option. Our payments net transaction revenues as a percentage of net TPV was approximately 4% in each of 2007, 2006 and 2005.

Payments net transaction revenues earned internationally totaled $778.3 million in 2007, $533.2 million in 2006, and $364.5 million in 2005, respectively representing 42%, 38% and 36% of total Payments net transaction revenues, respectively. International growth in our Payments segment continues to benefit from the expansion of our geographical footprint, the increase in the number of currencies supported by PayPal over the last twelve months and the increase in cross-border payments, which generate larger fees. Based on changes in foreign currency rates year-over-year, Payments net revenues were positively impacted by foreign currency translation of approximately $21.4 million, $4.3 million and $5.3 million in 2007, 2006 and 2005, respectively.

In 2008, we expect the Payments net transaction revenues to increase in total and for net transaction revenues earned internationally to increase in total and as a percentage of Payments net transaction revenues. We expect continued growth in our Merchant Services business as the number of merchants integrating PayPal on their websites increases and as we build consumer preference for PayPal. In addition, we expect our Payments business to benefit from growth in Marketplaces GMV and increased penetration of PayPal on eBay Marketplaces, each of which may be impacted by, among other things, the factors discussed above under “Financial Summary.”

Communications Net Transaction Revenues

Communications net transaction revenues were $376.7 million in 2007 compared to $192.8 million in 2006. The increase in Communications net revenues was due primarily to an increase in SkypeOut minutes to 5.6 billion in 2007 compared to 4.1 billion in 2006 and to pricing changes. The increase in SkypeOut minutes was due primarily to the growth in the cumulative number of Skype registered users to 276.3 million at December 31, 2007 from 171.2 million at December 31, 2006.

Communications net transaction revenues were $192.8 million in 2006 compared to $24.8 million in 2005 (net revenues from the acquisition date of October 14, 2005 through the end of 2005). The increase in net revenues was due primarily to a full year of revenues generated from our VoIP offerings in 2006. Skype registered users increased to 171.2 million at December 31, 2006 from 74.7 million at December 31, 2005.

Net transaction revenues from Communications earned internationally totaled $315.4 million in 2007, $163.7 million in 2006 and $21.4 million in 2005, representing 84%, 85% and 87% of total Communications net transaction revenues, respectively. Skype revenue is primarily generated in Europe. Based on changes in foreign currency rates year over year, Communications net revenue was positively impacted by foreign currency translation of approximately $32.2 million in 2007 and $5.1 million in 2006.

In 2008, we expect Communications net transaction revenues to continue to increase, driven by our continued focus on increasing user activity and expanding our products and features.

Advertising and Other Net Revenues

Advertising and other net revenues totaled $321.7 million in 2007, $171.8 million in 2006 and $123.4 million in 2005. Advertising and other net revenues represented 4% of total net revenues during 2007 and 3% of total net revenues during 2006 and 2005. Advertising and other net revenues increased 87% and 39% during 2007 and 2006, respectively, compared to the same periods of the prior year due primarily to advertising initiatives in our Marketplaces segment and interest earned from banks on certain U.S. PayPal customer account balances. Prior to the fourth quarter of 2006, certain U.S. PayPal customer account balances were maintained in non-interest bearing accounts. We expect advertising revenues to increase in total as we continue to benefit from our strategic advertising partnerships that leverage the significant number of users on our Marketplaces platform. The decline in interest rates in the U.S. may have a significant impact on the amount of interest we earn from banks on certain U.S. PayPal account balances.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Beginning with the first quarter of 2008, we reclassified revenue generated primarily from our Marketplaces non-GMV based businesses (which include Shopping.com, Rent.com and our classified websites) from “Net Transaction Revenues” to “Marketing Services and Other Revenues” in order to more closely align our net transaction revenue presentation with our key operating metrics. “Marketing Services and Other Revenues” also includes amounts previously reflected under “Advertising and Other Revenue.” Prior period amounts have been reclassified to conform to the current presentation. Consolidated net revenues, as well as total segment revenues, are unchanged.



Our net transaction revenues from our Marketplaces segment are derived primarily from listing and final value fees paid by sellers. For our Payments segment, net transaction revenues are generated primarily by fees from payment processing services. Our Communications segment net transaction revenues are generated primarily from fees charged to users to connect Skype’s VoIP product to traditional telecommunication networks. These fees are charged on a per minute basis or on a subscription basis, and we refer to these minutes as SkypeOut minutes.

Our Marketing Services and Other Revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, lead referral fees and other revenues. Other revenues are derived principally from contractual arrangements with third parties that provide services to eBay and PayPal users and interest earned from banks on certain PayPal customer account balances.

Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, payment recipient, Skype user’s Internet protocol address, online property that generates advertising, or other service provider, as the case may be, is located. Because we generate the majority of our revenue internationally, fluctuations in foreign currency exchange rates will impact our results of operations.

The following table sets forth, for the periods presented, the breakdown of net revenues by type, segment and geography. In addition, we have provided a table of certain key operating metrics that we believe are significant factors affecting our net revenues.

Marketplaces Net Transaction Revenues

Total net transaction revenues from Marketplaces increased 1% and 8% during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. The slight increase in net transaction revenues for the third quarter of 2008 was primarily due to an increase in take rate resulting from a change in category mix offset by a 1% decline in total GMV due to slowing growth in our core Marketplaces business and as a result of slowing consumer spending in an uncertain economic environment more than offset the growth of listings. The increase in net transaction revenues for the first nine months of 2008 was due primarily to a 7% year-over-year growth in GMV with clothing, consumer electronics, home and garden, tickets, parts and accessories and sports having the most significant dollar impact, partially offset by a decrease in vehicles GMV. Marketplaces net transaction revenue growth rate year-over-year was negatively impacted by an increase in buyer and seller incentive programs, some of which are recorded as contra-revenue.

Marketplaces net transaction revenues earned internationally were $601.1 million and $2.0 billion during the third quarter and first nine months of 2008, respectively, and represented 52% and 54% of total Marketplaces net transaction revenues during those periods, respectively. Marketplaces net transaction revenues earned internationally were $599.3 million and $1.8 billion during the third quarter and first nine months of 2007, respectively, and represented 52% of total Marketplaces net transaction revenues during both periods. Based on changes in foreign currency rates year over year, Marketplaces net revenues were positively impacted by foreign currency translation of approximately $51.7 million and $244.6 million during the third quarter and first nine months of 2008,

respectively, as compared to net revenues that would have been recorded had foreign currency rates remained constant. Changes in foreign currency rates will impact our operating results and, to the extent that the U.S. dollar strengthens, our foreign currency denominated net revenues will be negatively impacted.

We expect our Marketplaces net transaction revenues for the remainder of 2008, compared to the same period in 2007, to decrease as a result of the slowing growth in our core Marketplaces business, the uncertain global consumer spending environment, strengthening dollar and our continued use of buyer and seller incentives (some of which are recorded as contra revenue).

Payments Net Transaction Revenues

Payments net transaction revenues increased 29% and 32% during the third quarter and first nine months of 2008 respectively, compared to the same periods of the prior year. The increase in net transaction revenues was consistent with our 28% and 32% growth in TPV during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. TPV increased due to growth in PayPal’s merchant services business and continued penetration of eBay Marketplaces transactions. However, TPV growth was negatively impacted by the difficult global economic environment.

TPV for PayPal’s merchant services business was approximately $7.5 billion and $21.4 billion in the third quarter and first nine months of 2008, respectively, which represented an increase of 49% and 56% compared to the same periods of the prior year, respectively. PayPal’s merchant services business accounted for approximately 51% and 49% of PayPal’s TPV in the third quarter and first nine months of 2008, respectively, compared to 44% and 41% in the same periods of the prior year, respectively. The increase in PayPal’s merchant services business was primarily the result of more online merchants, both domestically and internationally, adding PayPal as a payment option, as well as increased usage of PayPal by customers of our existing merchant services clients. Our Payments net transaction revenues as a percentage of TPV was 3.9% for all periods presented.

Payments net transaction revenues earned internationally were $256.6 million and $753.8 million during the third quarter and first nine months of 2008, respectively, and represented 45% and 44% of total Payments net transaction revenues in the third quarter and first nine months of 2008, respectively. Payments net transaction revenues earned internationally were $191.1 million and $543.5 million during the third quarter and first nine months of 2007, respectively, and represented 43% and 42% of total Payments net transaction revenues during those periods, respectively. International growth in our Payments segment continues to benefit from the expansion of our international operations and the number of currencies supported by PayPal over the last 12 months. Based on changes in foreign currency rates year over year, Payments net revenues were positively impacted by foreign currency translation of approximately $0.9 million and $4.6 million during the third quarter and first nine months of 2008, respectively, as compared to net revenues that would have been recorded had foreign currency rates remained constant.

We expect our Payments net transaction revenues for the remainder of 2008, compared to the same period in 2007, to continue to grow based upon growth in our merchant services business resulting from an increased number of merchants integrating PayPal on their websites, continued penetration on Marketplaces transactions and the expected completion of our acquisition of Bill Me Later in the fourth quarter of 2008. Our growth rate will continue to be impacted by the uncertain global consumer spending environment.

Communications Net Transaction Revenues

Communications net transaction revenues increased 46% and 52% during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. The increase in net transaction revenues was due primarily to an increase in SkypeOut minutes to 2.2 billion and 5.8 billion during the third quarter and first nine months of 2008, respectively, compared to 1.4 billion and 4.4 billion in the same periods of the prior year, or year-over-year growth of 54% and 30%, respectively. The cumulative number of Skype registered users increased to 370.2 million at September 30, 2008 from 245.7 million at September 30, 2007. The growth in Skype registered users was due primarily to its marketing activities and strategic partnership initiatives, such as Skype’s collaboration with MySpace.



Communications net transaction revenues earned internationally were $113.0 million and $321.6 million in the third quarter and first nine months of 2008, respectively, and represented 82% and 83% of total Communications net transaction revenues during those periods, respectively. Communications net transaction revenues earned internationally were $78.3 million and $214.8 million in the third quarter and first nine months of 2007, respectively, and represented 83% and 85% of total Communications net transaction revenues during those periods, respectively. Based on changes in foreign currency rates year over year, Communications net revenues were positively impacted by foreign currency translation of approximately $12.3 million and $46.6 million during the third quarter and first nine months of 2008, respectively, as compared to net revenues that would have been recorded had foreign currency rates remained constant.

We expect our Communications net transaction revenues for the remainder of 2008, compared to the same period in 2007, to continue to grow as we focus on increasing user activity, growing our registered user base and expanding our calling plans and products.

Marketing Services and Other Revenues

Marketing services and other revenues was $240.1 million and $737.1 million in the third quarter and first nine months of 2008, respectively, representing an increase of 25% and 37%, respectively, compared to the same periods in the prior year. Marketing services and other revenues represented 11% of total net revenues during both the third quarter and first nine months of 2008, respectively, compared to 10% of total net revenues during both the third quarter and first nine months of 2007. Marketing services and other revenues increased during the third quarter and first nine months of 2008 compared to the same periods of the prior year due primarily to the advertising initiatives in our Marketplaces segment, primarily internationally, as well as growth in our classifieds business partially offset by a decline in Shopping.com business and interest earned from banks on certain U.S. PayPal customer account balances.

We expect marketing services and other revenues for the remainder of 2008, compared to the same period in 2007, to continue to grow as advertising revenue generated from all of Marketplaces platforms increases along with our classifieds business.

Cost of net revenues consists primarily of costs associated with payment processing, customer support and site operations, and Skype telecommunications costs. Significant cost components include bank transaction fees, credit card interchange, assessments, other payment processing costs, employee compensation, contractor costs, facilities costs for our customer support and site operations, depreciation of equipment, amortization of capitalized product development costs and amortization of acquired developed technology.

The increase in cost of net revenues in the third quarter and first nine months of 2008 of $114.4 million and $391.5 million, respectively, compared to the same periods in the prior year was due primarily to an increase in customer support and site operations costs, payment processing costs and Skype telecommunications costs. Aggregate customer support and site operations costs increased $57.4 million and $162.8 million during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. The increase was due primarily to our increased focus on customer care initiatives and the development and expansion of our customer support and site operations infrastructure as a result of our growth in transaction volume. Payment processing costs increased $29.0 million and $120.8 million during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. Payment processing costs were driven primarily by an increase in PayPal TPV driven by Marketplaces and PayPal’s merchant services activity. Skype telecommunications costs increased $13.9 million and $50.0 million during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year due primarily to an increase in SkypeOut minutes. Cost of net revenues increased as a percentage of net revenues during the third quarter and first nine months of 2008, compared to the same periods of the prior year, primarily as a result of the relative growth of our lower gross margin businesses, PayPal and Skype.

For the remainder of 2008, compared to the same period in 2007, we expect our Payments and Communications segments to grow at a faster rate than our Marketplaces segment, which will increase our cost of net revenues as a percentage of net revenues.


CONF CALL

Mark Rowen

Thank you, Operator. Good afternoon, everyone and thank you for joining us. Welcome to eBay's earnings release conference call for the third quarter of 2008. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We are providing a slide presentation to accompany Bob’s commentary during the call. This conference call is also being broadcast on the Internet and both the presentation and the call are available through the investor relations section of the eBay website.

Before we begin, I’d like to remind you that during the course of this conference call we will discuss some non-GAAP measures in talking about our company’s performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying the conference call.

In addition, management may make forward-looking statements relating to our future performance that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties, including those relating to the company’s ability to grow its businesses, user base, and user activity. Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to the impact of recent global economic events and the potential global economic downturn, foreign exchange rate fluctuations, changes in political business and economic conditions, our ability to profitably expand our business model to new types of merchandise and sellers, the impact and integration of recent and future acquisition, our increasing need to grow revenues from existing users in established markets, an increasingly competitive environment for our businesses, the complexity of managing a growing company with a broad range of businesses, our need to manage regulatory tax, IP and litigation risks, including risks specific to PayPal and the financial industry and risks specific to Skype's technology and to the VOIP industry, and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability.

You can find more information about the factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q. You should not unduly rely on any forward-looking statements and we assume no obligation to update them. All information in the presentation is as of October 15, 2008 and we do not intend to -- and undertake no duty to update this presentation.

And now, I will turn the call over to John.

John J. Donahoe

Thanks, Mark. Good afternoon and welcome, everyone, to our Q3 earnings call. I’ll begin today by reviewing our financial performance and then provide an overview of our portfolio. And after a few closing thoughts, I will turn it over to Bob for more details on the quarter and on our outlook for the year.

Our Q3 results were in line with our guidance for the top line and exceeded our guidance on the bottom line. Specifically, revenue was $2.1 billion, up 12% over last year. Non-GAAP EPS was $0.46, up 11%. We generated $543 million in free cash flow and our return on invested capital continued to improve at 28.8%.

We ended the quarter with $3.3 billion in cash and cash equivalents on our balance sheet with $2.9 billion of this outside the U.S., and as we announced last week, we are strengthening our position in online payments and online classifieds through acquisitions and we proactively streamlined our organization by reducing our headcount by about 10%.

Overall, we are pleased with the performance and strength of our company. We delivered strong results in what is a very challenging external environment, an external environment we expect to continue in fourth quarter and beyond. These are turbulent times for which no one has the perfect playbook. There is a high degree of economic uncertainty and turmoil in the financial markets and this is impacting consumer spending and e-commerce growth rates, and we are seeing an impact across all of our platforms.

In this environment, we delivered a solid third quarter while also taking a number of steps to strengthen our company and better align our cost structure to invest and compete in the future.

Challenging times create opportunities for companies that are prepared to lead and eBay has the global portfolio, the management discipline, and financial strength to take advantage of opportunities created by this period of challenge and uncertainty. I am confident that we will manage through this period and emerge an even stronger company and more formidable competitor, and I believe this for three simple reasons.

First, we have a growing, diversified portfolio of businesses. Led by eBay and PayPal, we have multiple growth sources or growth engines in our company. We have leadership positions in e-commerce, online payments and communications, each with a global brand and reach. We serve hundreds of millions of users around the world and our proven business models generate solid revenue, healthy profits, and cash flow with minimum capital requirements. We have no inventory, no warehouses or other fixed costs that may impact many companies during a downturn.

Secondly, our portfolio offers consumers and merchants real value during difficult times. On an unprecedented global scale, we bring people together to buy, sell, communicate, and be paid. For consumers looking for value, we offer savings through access to the most deals and biggest selection online. For entrepreneurs or people feeling pinched by the economy, we offer a low cost way to earn money and build a business. And for both consumers and merchants, we provide peace of mind through a low-cost, safer way to pay and be paid.

And third, our company has a strong balance sheet. We have the financial flexibility to invest in growth, deliver on our financial commitments, and weather an economic downturn.

The bottom line is that eBay is well-positioned to compete and grow during a challenging and uncertain time. This is when strong companies get stronger and we intend to do just that.

Now let’s take a greater look at the four components of our portfolio. I typically start with our eBay marketplace business but today I will start with PayPal, then our [adjacencies] and Skype, and I will end with eBay, where I will spend most of my time.

PayPal is a great business with terrific momentum. Today PayPal generates about 28% of our total revenues and is well on its way to becoming more than a third of what we do. On eBay, PayPal's payment volume grew a healthy 12% in Q3 and PayPal's worldwide penetration on eBay grew faster in Q3 than any quarter in recent years, reaching almost 60% worldwide. PayPal continues to be the safest way to pay and be paid on eBay.

Off eBay, PayPal's growth is exploding. Merchant services total payment volume grew 49% in Q3 and both on and off eBay, merchants love PayPal. Why? Because PayPal delivers three things all merchants need -- new customers, incremental sales, and lower costs. And in tough economic times like this, merchants need PayPal more than ever.

And PayPal's growth shows that merchants worldwide understand this. Today more than a million merchants use PayPal, which is more than 65 million active user accounts. PayPal's global user base generates incremental business for merchants and an unmatched experience for consumers.

What excites me about PayPal, however, is not just its performance but also its potential. PayPal's opportunity is not just the 14% of e-commerce represented by the eBay marketplace. PayPal's target market goes well beyond that and it includes the other 86% of global e-commerce. In fact, this quarter for the first time the total payment volume traded through PayPal actually exceeded total merchandise volume traded on eBay. This simply reinforces the tremendous growth potential of this business. And PayPal's growth potential is also why we are excited about our recently announced acquisition of Bill Me Later, which is expected to further strengthen our position in online payments. With this acquisition, we will have the number one and number two online oriented payment brands and as I said last week, Bill Me Later brings complementary and reinforcing strengths to our company.

The second growth engine in our portfolio is what we call our adjacencies or alternative e-commerce formats. These include advertising, stub hub, and classifieds. Together, these businesses represent about 11% of our total revenue and are growing faster than e-commerce.

Our overarching goal is to connect buyers and sellers worldwide regardless of format and our alternative e-commerce formats help us achieve that goal. They enable us to offer buyers and sellers more choice about how they want to trade, where they want to trade, and when they want to trade, and they do so in a way that is complementary to eBay.

Classifieds is just one example. In just four years, we have built classifieds into a global business generating more than a quarter billion dollars in revenue with growth in Q3 of 59%, and today we have the leading classified position in multiple markets around the world. And our recent acquisition of Denmark’s leading online classified sites, DBA and BilBasen strengthens this position and gives us another market-leading position in Europe.

Advertising is another dynamic alternative format for us. Advertising on eBay grew significantly in Q3 and this fall, we are launching our eBay ad commerce beta program for sellers in the U.S. and Germany. Sellers will now be able to bid for search terms and get their ads placed directly into existing ad space on eBay. Sellers pay only when a buyer clicks on their ad and goes to their listing or eBay store. This is another way we are helping sellers gain exposure and drive demand.

The next part of our portfolio is Skype, which continues to show strong momentum. In the third quarter, registered users increased 51% over the prior year and Skype to Skype minutes increased 63% to 16 billion minutes, reflecting the power of a free voice product and a free video product in this challenging economy. Skype out minutes also increased 54%, which drove revenue growth of 46% for the quarter. Josh Silverman and his team continue to do a great job there.

Now last but not least, I would like to turn to our core eBay transaction business, which represents roughly half of our revenues. Clearly GMV in the third quarter was not what we would have liked but we remain confident in our overall direction and believe we are on the right path. eBay enjoys a global leadership position in e-commerce but buyer and seller expectations have been rising and we have not kept up. Thus we need to drive bold changes to continue our leadership position. And this is exactly what we are doing. At the beginning of the year, I laid out two clear priorities for our eBay business -- one, make eBay safer and easier to use; two, increase selection by blending auctions and fixed price in a uniquely eBay way.

To achieve these goals, we have implemented two waves of changes this year. Frankly, some of these changes were overdue and they demonstrate our commitment to better meeting the expectations of sellers and buyers. And we are doing this in a manner which is aggressive but responsible, recognizing that every change we make impacts a global eco-system trading more than $60 billion of merchandise each year.

Let me recap what we have done thus far this year. First, in March we implemented a variety of changes geared to making eBay safer and easier to use. Taken together, these changes introduced incentives and rewards for sellers to provide both great deals but also deliver a good shopping experience to buyers. Are these changes working? We believe that we are beginning to drive a better buyer experience, a safer and easier experience on eBay and here’s what we see -- sellers who are meeting or exceeding buyer expectations are growing their businesses on eBay and more and more buyers are reporting positive experiences.

Take this example -- during Q3, the highest rated sellers in the U.S. saw their eBay businesses growth significantly. These are the sellers who buyers rated 4.8 or above and who have been active on eBay for more than 12 months. At a time when most retailers are struggling to stay even, these sellers saw their same-store sales on eBay grow 26% in Q3 and together they accounted for 16% of our total GMV. And this group included both large and small sellers, reinforcing the fact that sellers of all sizes can succeed on eBay.

Meanwhile, sellers with lower ratings are seeing their businesses decline. So we are seeing a share shift within eBay where buyers are buying more from the highest rated sellers and less from lower rated sellers. And not surprisingly the entrepreneurial eBay community, selling community is responding and the number of sellers earning ratings by buyers of 4.8 and above is up 20% since we made these changes six months ago.

Now as I said, these are early signs and we do see buyers moving toward sellers with higher ratings. However, this has not yet translated into buyers increasing their overall purchases on eBay. This will take time, especially in light of the current economy, which is a mitigating factor but not an overriding excuse. Our current GMV trend is not where we would like it to be but we remain confident that the improvements we are making will ultimately move the needle.

The second major change we have announced this year was implemented in late September when we significantly rebalanced fees for fixed price inventory. Our goal is to create a marketplace that optimizes for both auctions and fixed price in a uniquely eBay way. We have made it virtually free for sellers to put fixed price inventory on eBay and we have aligned our success with theirs.

Now I’m frequently asked if we are promoting fixed price at the expense of auctions and the answer is no. What we are doing is building a marketplace that lets buyers and sellers choose the format they prefer. Fixed price has been part of eBay for many years and we are simply improving this format as more and more buyers choose to purchase that way.

Our fixed price fee changes will help improve selection and give buyers greater choice. Fixed price represented 46% of GMV in Q3 and grew 11% for the quarter, which we believe is roughly in line with e-commerce growth rates globally.

So overall, we are driving changes to make eBay a more competitive marketplace in today’s environment and we are making these changes into a very challenging economic environment, which makes our job more difficult and lengthens the time it will take for progress to flow through to the financials. But we remain committed to reinvigorating growth in our core business and we believe we are on the right path.

In the meantime, eBay remains the largest global marketplace with three times the GMV of our nearest competitor and we have important strengths in these uncertain times with more users, more traffic, and more successful transactions than any other e-commerce site.

Now I mentioned we anticipate a very challenging fourth quarter holiday season where consumers will be cautious with their spending. We intend to fight aggressively for demand in the fourth quarter to support our sellers and driving demand to their great deals and great service.

In summary, we have a strong portfolio of businesses that generate growth and healthy returns and we believe we are well-positioned to serve consumers globally in tough times. We have a leading e-commerce marketplace and we are making the right changes to reinvigorate and strengthen eBay. PayPal has strong momentum as the number one online payments brand and this business will become even stronger following our acquisition of Bill Me Later.

Classifieds, advertising, stub hub, Skype, and the rest of our portfolio are also strong and profitable and we will continue to drive leadership positions in each of these. And we will do this with our ongoing commitment to strong financial and operating discipline. We have the right team and we will deliver on our commitments while continuing to invest in the long-term growth of our company.

Simply put, eBay is a strong company in this environment; we intend to get stronger. Now let me turn it over to Bob for more details on our Q3 results.

Robert H. Swan

Thanks, John. Now I’ll review our financial performance in some detail and during my discussion, I’ll reference our earnings slide presentation which accompanies the webcast.

Overall, our Q3 financial results were solid in an increasingly difficult environment. Revenue came in slightly below the midpoint of our guidance we provided in July while EPS came in significantly above our expectations. Revenue growth was up 12% year over year, non-GAAP earnings growth was up 11%, and we generated $543 million in free cash flow during the quarter.

We continued to execute on our stock buy-back program, repurchasing $623 million worth of eBay shares. Additionally, last week we announced two acquisitions that are intended to strengthen our faster growing businesses and position us competitively for the future. We also announced actions to simplify our organization in order to streamline decision making and reduce our cost structure. This will result in a charge of approximately $70 million to $80 million, primarily in the fourth quarter and annualized savings of approximately $150 million.

Our combined businesses generated net revenues of $2.1 billion in the third quarter, a 12% increase over last year. Organic revenue growth excluding acquisitions and FX was 9%.

Overall revenue growth was enabled by high growth PayPal merchant services, classifieds, advertising, and Skype. Our revenue growth was negatively impacted throughout the quarter by the broader economic environment, as well as a strengthening U.S. dollar. We saw considerable slow down across virtually all our businesses beginning in mid-August.

Non-GAAP EPS was $0.46 in Q3, an 11% increase over last year and $0.05 above the high-end of our guidance range. Adjusted for a one-time tax gain in the third quarter of 2007, EPS growth would have been 24%. The stronger-than-expected EPS performance was primarily driven by a lower tax rate and cost controls as we tightened discretionary spending in light of the slowing economy.

Our operating margin for the quarter was 31.8%, up 40 bps from last year even though our lower margin businesses, PayPal and Skype, grew faster. Margins improved in all three of our business segments year over year.

We generated free cash flow of $543 million in the quarter, an increase of 6% from last year primarily driven by earnings expansion while CapEx as a percentage of revenues came in at 7%.

Return on invested capital increased to 28.8% on a trailing 12-month basis. This measure has shown continuous improvement over the course of the year as we’ve been able to generate higher earnings on roughly the same level of capital employed.

So overall we delivered solid financial results in a very tough economic climate. Externally, consumers are under significant pressure and appear to have reigned in their discretionary spending. E-commerce growth rates fell dramatically from Q2 to Q3. Similarly, merchants on PayPal's merchant services platform experienced a significant slowdown in average payment size.

Internally, we experienced economic weakness across our entire portfolio of businesses. Vehicles GMV, which makes up 20% of total GMV, decelerated by 12 points from Q2 to Q3 and got progressively worse throughout the quarter. Our non-vehicles GMV growth performed solidly in the first part of the quarter but started to decelerate sharply in mid-August. Similarly, we saw a significant slowdown at Stub Hub during the second half of the quarter.

We haven’t yet seen any changes to these trends in our businesses early in the fourth quarter, which suggests we’ll be operating in a difficult environment this holiday season.

Now let’s take a closer look at our segment results -- overall our marketplace business segment achieved net revenues of $1.4 billion, a 4% increase over the year-ago period. Transaction revenue increased 1% and marketing services revenue increased 29% over last year. Marketplace’s revenue growth decelerated by nine points from Q2, primarily due to slower GMV growth and a stronger U.S. dollar.

Our online comparison site, shopping.com, was significantly impacted by changes made by search engines that disrupted shopping’s traffic this quarter. This business decelerated sharply in Q3, impacting marketplace’s revenue growth by about a point. We expect that shopping.com will continue to negatively impact our growth rate for the next three quarters.

Global GMV came in at $14.3 billion in the quarter, down 1% compared to last year, with both the U.S. and international geographies decelerating from last quarter. Global GMV growth excluding vehicles was up 3%. Active user growth came in at 3% on a trailing 12-month basis. Excluding China and Taiwan, where we are now part of joint ventures, this metric remained at 6%.

We remain encouraged by strong rates of growth in our fixed price format, which accounted for 46% of GMV in the quarter and continues to grow much faster than the auction style format.

Let me provide a deeper look into our Q3 GMV performance. Our revised fixed price fee structure helped fuel a big surge in supply on our sites with listings growth of 26%. However, our conversion rates dropped by a sharp 18%, resulting in sold items growth of 6%, a four-point deceleration from Q2.

We’re in the early stages of improving our finding experience and there’s still a bit of work to be done. We rolled out our new finding platform in the U.S. near the end of the third quarter, which allows us to optimize our data and algorithms in order to better match up buyer demand with our vast selection of merchandise.

Average selling price continues to fall, down 7% in Q3, primarily impacted by the economic downturn as consumers trade down and buy fewer large ticket items. The combined deceleration sold items and average selling price resulted in GMV growth of minus 2% on an FX-neutral basis.

Obviously the current GMV trend is not where we would like it to be but as John said, we remain confident that we are on the right path and we believe the improvements we are making for our users will ultimately move the needle.

Clearly the tough economy makes our job more difficult and lengthens the time it will take for progress to flow through to the financials but we remain committed to reinvigorating growth in our core business.

As John said earlier, our adjacencies within marketplaces are characterized by attractive, fast-growing businesses such as classifieds, advertising, and Stub Hub. Classifieds showed strong revenue growth at 59% over last year, with our text and graphical advertising partnerships continuing to exhibit strong growth at 127%.

And despite slowing during the second half of the quarter, Stub Hub increased revenue by 46%, helped by our partnership with Major League Baseball and improvements to buyer conversion.

Now let’s turn to our payments business -- PayPal posted another strong quarter, with total revenue coming in at $597 million, a 27% increase versus the same period last year. Total payment volume was $14.8 billion, a year-over-year increase of 28%. DPV grew by 24% in the U.S. and 37% internationally.

PayPal continues to achieve ubiquity on the web through increased penetration on eBay and an increasingly expanded footprint beyond eBay.

In terms of key operating metrics, global active accounts grew to $65 million for the trailing 12 months, an increase of 19% over last year. On eBay, buyers are increasingly using PayPal as a safer way to pay online. PayPal's global TPV on eBay grew by 12% year over year as the global penetration rate of addressable GMV was 60%, a six-point increase over Q307 and a three-point sequential increase.

Beyond the eBay platform, PayPal merchant services business posted another strong quarter despite the difficult economic environment. Merchant services recorded $7.5 billion of global TPV in the quarter, representing 49% year over year growth and accounting for 51% of total TPV. As John mentioned earlier, this marks the first quarter that PayPal's TPV was larger than eBay's GPV.

In addition, this is the first quarter that PayPal's off-eBay volume was larger than its on-eBay volume. PayPal has penetrated 35 of the top 100 online merchants in the U.S. and accounts for 5.3% of U.S. e-commerce, not including eBay.

PayPal's global take rate remained flat at 3.89% in Q3, while transaction margin improved modestly to 62% sequentially.

Last week we announced our agreement to acquire Bill Me Later, a leading online transaction credit provider that is intended to strengthen and extend PayPal's leadership position in online payments. We believe Bill Me Later will help PayPal achieve greater merchant and consumer adoption, leading to benefits from network effects.

In addition, we believe we will capture significant synergies between our businesses. We expect this transaction will close mid-fourth quarter.

Now let’s turn to our communications business -- Skype posted total revenue of $143 million in the third quarter, an increase of 46% over last year. Total registered users grew to an impressive 370 million, representing an increase of 51%.

Skype to Skype minutes for the quarter increased to 16 billion, accelerating to 63% growth. Skype out minutes increased to 2.2 billion, also an acceleration of growth from last quarter to 54%. Skype continues to invest in the business while expanding its margins to 26% in the quarter.

Now let me touch briefly on ink level operating expenses and cash position before I discuss guidance. We recorded $674 million of non-GAAP operating income, up 14% from last year, and non-GAAP net income of $592 million, up 5%. Sales and marketing as a percent of revenue improved by 400 basis points from the year-ago period, due in part to a more efficient online marketing spend and in larger part to investments in buyer loyalty and retention, much of which gets recorded as contra revenue instead of being expensed as sales and marketing.

Product development came in 30 basis points higher than last year while G&A was up 50 basis points, due to higher fraud losses at PayPal and bad debt expenses.

We ended the third quarter with $3.3 billion in cash and cash equivalents, down $400 million from last quarter. At quarter end, $2.9 billion of our cash was located outside the U.S. During the quarter, we repurchased approximately 25 million eBay shares at a cost of $623 million.

So with that, let me turn to guidance -- for the full year of 2008, we now expect revenue to be in the range of $8.525 billion to $8.675 billion, and non-GAAP EPS in the range of $1.69 to $1.71. The reduction in our guidance is primarily a function of a stronger U.S. dollar, a tougher economic climate, and dilution from the acquisitions announced last week. The weak trends we saw in the second half of the third quarter have continued into Q4 and our guidance reflects the uncertainty in consumer global spending.

We continue to anticipate free cash flow for the year to be $2.35 billion to $2.45 billion, in line with prior guidance.

In the fourth quarter, we expect to generate net revenue of $2.02 billion to $2.17 billion, and we anticipate non-GAAP EPS in the range of $0.39 to $0.41.

In summary, it’s been a very busy quarter at eBay. We met our revenue guidance and exceeded EPS guidance despite a strengthening dollar and a tough consumer spending environment. We generated $543 million in free cash flow. We continued to take bold actions in our core eBay business by reducing up-front fees on fixed price, a format that consumers increasingly prefer. We continue to invest in our higher growth platforms -- classifieds, PayPal merchant services, advertising and Stub Hub, which combined grew by 55% in the quarter. And we intend to strengthen our portfolio with the acquisitions of DBA and Bill Me Later, acquisitions that are expected to extend our leadership positions in classifieds and at PayPal.

We are lowering our outlook for the fourth quarter in light of the strengthening U.S. dollar, a weak consumer spending environment, and dilution from recently announced acquisitions. However, we are confident in our priorities as we focus our efforts on making it easier and safer for our customers. While we will take more time than we had expected, we are confident in our ability to ultimately stimulate GMV growth in our marketplaces business.

And now we’d be happy to answer your questions. Operator.

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