eBay Inc (EBAY) 2001 Q1 法說會逐字稿

EBAY FIRST QUARTER 2001 EARNINGS CONFERENCE CALL

Ladies and gentlemen, thank-you for standing by, and welcome to the eBay first quarter 2001 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. At that time, if you have a question, you will need to press '*', '1' on your touch-tone phone, and at the company's request, we are asking for the participants to limit themselves to one question. As a reminder, this conference is being recorded for Thursday, April 19th, 2001. I would now like to turn the conference over to Mr. Mark Rubash Vice-President of Finance for eBay. Please go ahead Sir.

Good afternoon and thank-you, and welcome to eBay's earnings release conference call for the 2001 first quarter. Joining me are Meg Whitman, our President and CEO, Brian Swette, our Chief Operating Officer, and Rajiv Dutta, our Chief Financial Officer. Before we begin, I'd like to take the opportunity to remind you that during the course of this conference call, management may make forward-looking statements regarding matters that involve risk and uncertainty. While we remain confident in achieving our goals, our actual financial results and specific events and transactions, could differ materially from those discussed during this conference. These risks include, but are not limited to, management execution, the integration and operation of our acquired businesses, the success of our new business initiatives, potential regulatory issues, particularly as we expand into new geographies and new businesses, and the evolution of our business in the current economic environment, which may adversely affect our end-to-end partners, our advertising revenues, and ultimately, the success of our users. Please note that any guidance provided does not include effects of any major transactions other than those previously announced. More information regarding potential risk factors, which could affect our business and financial results are included in our SEC filings, including our annual report on Form 10-K and other periodic filings and prospectuses. This conference call is also being broadcasted on the Internet and is available on [________________] and through the Investor Relation Section of the eBay website. We will begin today's call with Meg, and an overview of our business and financial performance, followed by Brian who will provide key insights into our accomplishments during the quarter. Rajiv will then provide greater detail on our financial performance in key operating metrics. Following Rajiv's discussion, we will be pleased to respond to your questions. Now, over to Meg.

Thanks Mark, and I'd like to welcome everyone to our conference call. Today, I am very pleased to report that eBay has had another fantastic quarter. In the face of a difficult environment, eBay has seen outstanding growth on all fronts. For the quarter, we reported record levels of new user growth, listings, and growth merchandised sales, which clearly show the vibrancy of our trading platform. These metrics have also translated to new eBay records for revenue, operating income, and net income, and have reinforced our view that we're right on target with our strategy and execution. In addition, the fundamentals of our business continue to be strong. We watched several operating metrics to monitor the health of our business, and we saw widespread improvements across all of them; the velocity of listing, average selling price, strength of buyer demand, and the rate of success enjoyed by our sellers. Based on our results and a very careful analysis of our near-term market opportunities, we are raising our financial guidance for the second and third quarters of this year. Rajiv will have more information on these changes in just a few minutes. Our performance this quarter showed continued momentum in the eBay marketplace. As many of you know, an integral part of our long-term strategy is to efficiently leverage this momentum and critical mass to accelerate growth. This acceleration is happening across all five dimensions of our growth strategy; users, categories, geographies, pricing formats, and end-to-end trading services. Today, I'd like to talk about how the value of our trading platform and the critical mass it has attracted is allowing us to deliver solid financial returns while setting the stage for future success. There are two metrics this quarter that really highlight eBay's accelerated growth. The first, gross merchandise sales, which is the value of goods traded on eBay, jumped 23% this quarter to a record $1.98 billion.

This represents a 72% increase year-over-year and translates into an annualized run rate of $7.9 billion in gross merchandise sales. Just to give you an idea of the velocity of trade now taking place on the site, this means that $251 worth of goods are sold on the site every second. The second metric, online net revenues grew 20% during the quarter and a remarkable 90% year-over-year. Every part of the company contributed to this growth, from the ever-growing four trading business where the volumes of both practical items and collectibles continued to spiral upwards to newer initiatives such as eBay Motors and International. We believe this accelerated growth and the resulting critical mass has made the site more compelling for both buyers and sellers. In fact, the power of eBay and its community is attracting world-class business partners. America Online has been an important partner of ours for some time, and this past quarter, we saw record results from this relationship. We collaborated on a number of co-promotional projects to bring more users to eBay, from celebrity charity events to category-specific community chats, and we also added more new users to AOL than ever before and at the lowest cost per user. At the same time, we set the stage for a new global alliance with Microsoft. Our agreement will extend eBay's marketplace to Microsoft properties, including MSN, CarPoint and bCentral and will allow third party developers around the world to integrate eBay into their own sites through the use of .Net technologies. With the help of these two powerhouses and our hundreds of other valued business partners, we are extremely confident that eBay will be able to reach more people through more devices and more markets around the world than ever before.

We've also seen the eBay marketplace become a global phenomenon this quarter. Online trading is as relevant in Germany as it is in Australia, and our international operations now account for 12% of our net revenues. As you know, expanding eBay into new markets around the world is part of our long-term growth strategy, and we are ramping this up steadily. Our established sites, Germany, the UK, Canada, and Australia, are the leading online trading sites in their markets and are pulling away from the competition. At the same time that we've been building these markets, we've brought eBay to new markets; France, Italy, Ireland, New Zealand, and Switzerland. In addition, our international acquisitions have allowed us to partner with some of the most creative web companies outside eBay. A perfect example of this is our purchase of a majority stake in Internet Auction Company, Korea's leading online trading site. I just visited Seoul two weeks ago, and I was very impressed by our operation there. The employees have the same energy, drive, and community focus that the rest of eBay has, and they have created some very interesting innovations in the person-to-person business model that work extremely well in Asia. There is no doubt in my mind that we will learn a lot from each other as we go forward. Alternative pricing formats are also taking our business in new directions. As we announced today Half.com has now expanded its fixed-price format to include hundreds of new types of products in four main areas, consumer electronics, computer equipments, sporting goods, and trading card, with more than 3 million items already listed in these categories. This move significantly expands Half.com's existing marketplace, allowing it to now offer products in categories that account for 47% of all projected Internet consumer commerce transactions for the year according to Jupiter.

We're really excited about the expansion of the Half.com platform, and look forward to further opportunities to extend fixed-priced trading to our users around the world. As you can see, the momentum in our business is creating an extraordinary critical mass of users, listings, and e-commerce transactions, which is in turn fuelling the extension of our platform, accelerating the execution of our strategy, and taking us to new levels of performance and profitability. As a result, we continue to see great growth opportunities in the US and around the world. Now, I'd like to turn it over to Brian who will give you a bit more insight into some of the highlights of the quarter.

Thanks Meg. Our business has a great momentum, and we're capitalizing on that by leveraging the model to grow even faster and to deliver greater profitability. I can't tell you about all our activities today, so, I'd like to focus on one thing; our efforts to expand the eBay marketplace. eBay's marketplace now includes individuals, small businesses, and large merchants, who buy and sell practicals and collectibles using dynamic and fixed price trading, and they do that on a local, national, and international level. Our mission simply is to expand each one of these elements to foster ever-growing levels of trade. One of the most significant innovations we've made in the marketplace is fixed-price trading. This format is successfully expanding online trade in a number of ways. We can now tap into new categories of mass-market products. They are better suited to fixed price. We can attract buyers who may prefer the said price format, and we can better service established offline merchants by allowing them to sell in more traditional ways. We're pleased with the success of Half.com this quarter. As many of you know, Half [________________] has really put fixed price trading on the map, and until today, Half only featured books, music, movies, and videogames, and yet, it's the largest fixed price trading site on the web. And that's why we are thrilled to talk about our expansion into consumer electronics, computer equipments, sporting goods, and trading cards. With hundreds of new types of products for consumers and businesses to buy and sell, new, overstocked, remaindered, and used products online, we know that Half.com will further penetrate the general consumer goods markets on the net. The site is also enhancing the retail experience with new search capabilities; direct communication between sellers and potential buyers, electronic funds transfer, and an expanded buyer protection policy.

On eBay.com, the fixed price feature, 'Buy it Now', which we launched in Q4 is an unqualified success. Over the past few months, we made 'Buy it Now' easier to use and rolled it out to eBay Motors where we saw sellers adopting it within the first hour of launch. The 'Buy it Now' option was offered an almost 30% of US listings in March and has been noticeably increasing the velocity of trade. Majority of the sellers who use it are reporting higher average selling prices, while at the same time, buyers are responding to the greater immediacy and convenience it offers. It's clear that 'Buy it Now' provides real value for both buyers and sellers. Of course, the majority of our business comes from the auction format where we're seeing an explosion in the variety of items traded. In fact, eBay is now solidly, a mainstream trading site. Our practicals categories, which include everything from electronics to clothing, now represent almost half of our total gross merchandise sales. While eBay Motors is quickly grown to 13% of GMS. Let me give you some examples of the new type of trading that's going on at eBay. Looking at annualized GMS, the photo and electronics category is now nearly equal to the collectibles category. Clothing and accessories, which have really taken off, now account for nearly 250 million in annualized GMS, and even golf was responsible for 72 million in GMS on an annualized basis. This is not to take anything away from collectibles, which continue to grow steadily. The first quarter saw a 23% jump in the coin and stamps category, and antiques and art grew by 18%. Responding to this accelerated growth in trade, we again added hundreds of new categories in Q1, ending with more than 9000 categories in total. In addition, these booming categories are bringing new types of sellers to eBay and they're doing more than ever.

It's well know that manufacturers such Sun use eBay to reach end-users directly. Government agencies such as the State of Texas and the United States Postal Service are also selling items on the site, and in fact, this segment saw a 71% increase in GMS during Q1. A fairly new group to the site, Liquidators such as eValuville and OverDirect and others saw a GMS increasing of a 125% in Q1. So, even while retail, overall, is slowing, consumer demand for items that can be bought on eBay has only grown. For example, we've seen GMS in books, music, movie categories including Half.com grow by 20% quarter-over-quarter which translates to more than $700 million in annualized GMS, while nationally, this segment seems to be experiencing flat tips. This demonstrates the flexibility of the eBay marketplace and the suaveness of our users. People come to eBay for a variety of reasons and a big one is value. During tougher economic times, the value proposition of the lower prices on eBay become even more attractive and compelling. In addition, we provide the platform where people can recycle their own goods and make money while doing so. Of course, large companies are buying on the site too. In March, Carnival Cruise Lines purchased a $95,000 refurbished Sun server on eBay. They were so pleased with that transaction that two weeks later, they brought four more servers bringing their total purchase on eBay to $172,000. Now, with all this increased traffic on the site, we are even more committed to improving the user experiencing at eBay, making the site easier to use and providing new services that enable our community to trade. In the first quarter, we made registration and photo hosting easier, enhanced 'My eBay', and the community section, and we began to role out a new Anti-Spam initiative to both protect user privacy and bring more activity back on to the site.

Of course, customer support plays a big part of that experience, and in February, we were honored to receive the Best Customer Satisfaction Award from Satmetrix, a leading provider of customer support products and services. We also worked to enhance our online payment service Billpoint. In Q1, we integrated the Billpoint into the 'Buy it Now' in 'My eBay' features, and introduced it as a buyer-initiated payment option. Billpoint also became the credit card processor in Half.com's checkout process. As a result of these initiatives, we saw Billpoint adoption rates climb and realized a 124% increase over the prior quarter in the number of transactions that used this service. One of the pillars of our expansion is the API, which will provide sellers with greater benefits in partnering with eBay. Even though it's in early stage of development, already 5 API enabled applications have gone live this side in Q1, and there are many more under works. The API will get an even bigger boost when it becomes part of the Microsoft's .Net technologies later in the year. Let me just give you a snapshot on how the API is adding significant value to one of our important sellers. Ritz Camera, one of the largest retail chains of photography equipment in the country is currently testing the API. Its eBay listings are now integrated into its own website, thereby giving online shoppers several entry points to those items. In the past 6 weeks, Ritz Camera has seen its sales on the site nearly double, while maintaining a high conversion rate of 98%. Obviously, Ritz is pleased with these early results and so are satisfied customers. This is just one example, but it illustrates the power of our platform and the great potential for growth in our current markets.

We're also reaching critical mass internationally. As Meg mentioned, our more established sites are growing strongly with enough momentum to support fee increases this quarter in Germany, UK, and Canada. Because of this accelerated growth, a number of our international sites are ahead of schedule to reach profitability. Being able to monetize these sites after a little more than a year, shows the kind of growth potential we see around the world. In addition, we're really looking forward to the finalization of the acquisition of eBazar, the European online trade pioneer, which will help solidify our position across key markets in Europe. By this summer, we expect to be in 15 of the top 20 e-commerce markets around the world, which currently account for more than 90% of the world e-commerce. Due to a large part to the success of our first international sites, we have already surpassed our goal being in 10 countries by the end of 2001, and we're well on our way to our goal being in 25 countries by the end of 2005. We fully expect that our strategy of category development, alternative pricing formats, simplified electronic payments, and an extensible platform will allow us to realize the same levels of success abroad that we already have achieved in the US. And finally, I would like to talk about technology because none of this growth would be happening without the ongoing development and the enhancement of our trading platform. We continually invest in new technologies, not only to deliver new features and functions, but to make the site faster, more dependable, and capable of handling ever-soaring traffic. During the quarter, our site supported an average of 220 million page views per day, sent out nearly 1.1 gigabits of data per second during peak usage daily, and rolled out additional user functionality including the API.

All the while, we continue to deliver an uptime service level in excess of 99%, and as many of you know, eBay has been in the process of distributing its architecture in order to eliminate the likelihood of a system-wide outage. As of today, 75% of our database including CEEBIC, most categories, and core functionality has been distributed to separate servers, which strengthens our platform's overall structure and performance. We expect this process to be completed by the end of Q2. Behind our expanding marketplace are two very important groups; a vibrant community and a dedicated organization. Our community has grown along with the site in a truly collaborative way, is helping us enter new markets, and build an ever more successful marketplace. Our employees not only embrace eBay's vision for growth, but they execute it everyday while delivering on profitability. Together, we make a powerful combination, and now, I'll turn it over to Rajiv for more details on our financial results.

Thanks Brian. The first quarter of 2001 was a very strong quarter for the company. The company's financial results can be summarized into three key messages. First, the core business is strong, powered by record new user growth, record listings, record gross merchandise sales, and very strong business fundamentals. Second, the future outlook of the core business and our new initiatives remains bright. And third, the eBay business model has once again demonstrated its ability to deliver on the bottom line. I will start with the summary of eBay's overall financial performance, then turn to online metrics and revenue, and conclude with the review of our consolidated income statement. For Q1 2001, eBay reported consolidated net revenues of $154.1 million. Consolidated net income on a GAAP reported basis was $21.1 million. Excluding certain charges, eBay supplementally reported pro forma net income of $30.6 million or ¢11 per diluted share exceeding the first call consensus estimates by ¢3. This represents an almost sevenfold increase in pro forma net income compared to the prior year. eBay's balance sheet, end of the quarter, at $1.3 billion in total assets including approximately 850 million of cash and investments. We continue to be very pleased with the volume of cash flows generated from operations, which totaled approximately $40 million in Q1 of this year compared to $8 million in the first quarter of last year. Turning to the key metrics in eBay's online business - eBay added over 7.2 million confirmed registered users in the quarter increasing the total to 29,715,000 at the end of Q1.

Included in this number for the first time are the 3.2 million registered users from South Korea. Excluding Korea, this represents a 110% increase over the 12,621,000 users at the end of Q1 2000. The number of listings increased to 89 million in Q1, which represents a 66% increase from the third quarter of last year. Gross merchandise sales reached $1.980 billion from the first quarter. This represented a 72% annual increase over the $1.154 billion reported in Q1 2000. In the online business, in Q1, eBay reported net revenues of 147.4 million as compared to $123.1 million in Q4 of 2000, and $77.4 million in Q1 of 2000. This represents a 90% increase in online revenues over the comparable period in the prior year. Contributors to this growth were strength in the US business, growth in our international operations, and continued contribution from partnership and advertising revenues. Additionally, as you are aware, at the end of January, we implemented an increase in some listing fees on the US and some international sites that also impacted revenue. As expected, these price changes resulted in increased monetization, increased velocity of listing, and improved conversion rates, but most of the revenue growth this quarter was driven by volume. Offline revenues, which continue to represent a small portion of our total revenues, were weaker than in prior years.

The first quarter tends to be seasonally weaker for the offline auction industry, but this quarter saw some revenue deterioration beyond seasonal norms at our Butterfield subsidiary. While the direct offline revenues were weak, we did see some improvement in the premium online revenues that are driven by the Cruise and Butterfield businesses. This trend in net revenue is due to strong performance almost across the board in our established and new businesses in the US and international, in our auction-based businesses, and our nascent fixed price businesses. Let's now review the consolidated income statement. As I said, eBay reported consolidated net revenues of $154.1 million. Consolidated net revenues grew 79% versus Q1 of the prior year. In Q1, eBay reported a gross profit of $127.1 million or 82%. Note, that these gross margins compare to the gross margin of 73% just a year ago. These strong gross margins are primarily due to strong revenue growth coupled with continuing productivity improvements in customer support and cost management inside operations. Once again, these gross margins underscore the fundamental leverage in the eBay business model despite ongoing investments to enhance site performance and customer satisfaction. Turning to operating expenses - sales and marketing increased to $55.5 million, representing approximately 36% of sales, down from about 46% of sales a year ago. Using the simple arithmetic of dividing total sales and marketing expense by the number of new users added, eBay's cost of custom acquisition remained at about $14.

Remember, that this is based on total sales and marketing expense. We maintained the efficiency of our custom acquisition efforts despite increased media spending in the quarter that has successfully led to increased reach and growth in unique visitors to the site. Product development increased to $15.7 million or approximately 10% of revenue, down from 14% of net revenue a year ago, even though we have continued to increase the absolute number of engineers in the development team and the technology they deploy. G&A increased to $21.3 million or 14% of revenue, down substantially from about 20% of revenue a year ago, as we reach scale in our infrastructure that will help build the business for the future. The cumulative result of these efficiencies is an increase in our operating margin to 20% compared to a loss of 9% just a year ago. While at the same time, upgrading and strengthening our organizations across all fronts; people, processes, and technology. The combination of increases in revenue along with leverage on the expense line resulted in the reported income from operations of $30.7 million. This is up very nicely from the prior quarter figure of $26.7 million and the loss of $7.5 million just one short year ago. Other income and expense this quarter was impacted by a write down to deflect the changed economic realities and market valuations of our small portfolio of strategic investments. This write down totaled $9.9 million, leaving our remaining investment portfolio valued at about $16 million or 1% of our total assets. Our conservative philosophy that led us to selectively invest small amounts has stood us well in this difficult economic environment.

Our effective tax rate for the quarter was 42%. Consolidated net income after tax for the quarter was $21.1 million or ¢8 per diluted share. eBay reported, on a supplemental basis, that pro forma net income before certain charges reached $30.6 million or ¢11 per diluted share. So in summary, this was an excellent first quarter. Now, let me turn to our expectations going forward. As I had indicated before, we continue to believe in a strong future for the expansion of eBay's marketplace. Last quarter, we had taken up revenue guidance for the year and for the first quarter. With the strong momentum from our core business as well as the strength of our newer businesses, we now expect that revenues for just Q2 and Q3 could be as much as $10 to $15 million higher than previously anticipated. As we gain additional visibility into the fourth quarter of this year, we will be in a better position to update you on our revenue outlook for the entire year. Despite our optimism about the future, we remain watchful for signs of a slowdown in consumer spending that could affect our business. To date, we have seen no signs of such a slowdown. To the contrary, we have seen strong buy demand across the online business. However, we will continue to keep a close eye on the health of this demand. In addition, even though eBay's revenues are primarily transaction oriented, we remain alert to the general softness in the Internet advertising market and possible financial difficulties facing some end-to-end partners in tightening capital markets. We expect to see gross margins remain above 80% for the balance of the year, even as we continue our investment in technology and work towards completing the integration of our newer international subsidiaries.

As in prior quarters, we think it is appropriate at this stage of growth to continually reinvest potential upsides in revenue back into the business. In addition, given our reasonably well-established debt on the seasonality that leads to slower growth in the second and third quarters of the year, we expect that sequential growth in the next few quarters will be lower than that just experienced in Q1. This, coupled with integration costs associated with our newly acquired businesses, leads us to remain generally comfortable with the current bottom line consensus expectations as adjusted for the acquisition of eBazar. Given that we expect to increase our pro forma operating profits for the first three quarters of this years by more than fivefold over the prior year. We believe that our reinvestment strategy to strengthen and expand our business is both sound and appropriate. In summary, this was a very strong quarter exhibiting all of the signs of a vibrant business with robust fundamentals across almost all business metrics with strong growth prospects. And even as we are making investments to ensure a long-term growth, the business model has demonstrated its ability to deliver record levels of profitability. Thank-you for joining us today. I would now like to open it up for questions.

Thank-you Sir. Today's question and answer session will be conducted electronically. If you would like to ask a question, you may signal by pressing the '*' key followed by the digit '1' on your touch-tone telephone. As a reminder, please limit yourselves to one question initially. We will come to you in the order that you signal and we'll take as many questions as time permits. We'll pause just a moment to allow everyone a chance to signal. And we will take our first question from Tim Albright with Salomon Smith Barney.

Great, thanks a lot. I've got a couple of questions. First, by now obviously you're seeing a very impressive take rate on that as a free service and fairly it seems to be impacting perhaps gross merchandise sales for the users as GMS per listing seems to very strong. That to me seems to be a good area for potential pricing moves. If you could comment on that and other areas where you think you might have some pricing flexibility that would be terrific? And, then I would like to follow up with a question regarding the liquidation sources and how you're pursuing that strategically?

Okay Tim. In terms of BIN, you're right, that has been a real success story of Q4, and in fact, Q1, and it is a free option at the moment. We have a philosophy at eBay that we really like to get critical mass in both new markets and our core businesses before we think about taking prices up or launching a new price initiative. So, for the foreseeable future, BIN right now is going to be a free option because of the benefits we get in GMS, average selling price, and velocity of trade. That notwithstanding, a year or two from now, we can certainly think about making some prices moves there. Other pricing flexibility, we did increase prices modestly in Q1 both in United States as well as some of our more mature international markets, and again, we think we have done enough for right now and don't anticipated any other price increases at least in the near term. Brian, do you want to take the liquidator question?

Sure. In terms of the liquidators, there are two broad approaches that we use. One is to work with intermediaries such as return-by, who is primarily on the net, and secondly, with more traditional liquidators and they become the conduit to bring the items to the site. We're also beginning to work directly with large merchants who have this need. So, those are two broad approaches, again it's a very nascent, new business for us but it's perfectly suited for eBay.

And are you developing a sales force to go out and pursue relationships?

At this point, the power of the platform enables us to do this with relatively small teams, but as we go forward, we'll evaluate the economics of the proposition and grow it based on the profitability and the opportunity.

And what about direct from manufacturers, I mean, you're obviously going down that path, are we are going to be seeing more on that?

Absolutely.

Okay. Great, thanks.

Great, next question?

It is absolutely an investment area for the company.

Okay, thank-you very much.

Thank-you. Next question?

Our next question comes from Lauren Levitan with Robertson Stephens.

Thank-you. Meg, could you give us some additional in sights into how this increasingly diversified and increasingly complex business is going to be communicated to an ever-growing range of consumers? I know you ran your inaugural TV campaign, I am wondering if you can give us some census, what you learned from that, and to the extent you think that was a driver of growth in the quarter, will we be seeing that as a primary means of delivering the message? And maybe just talk about, both in the US and internationally, how all of these businesses will be positioned for this very, very big consumer base? Thanks.

Sure Lauren, I'll give Brian a chance to talk about the TV, and then I'll come back and talk about International.

Sure. In terms of the advertising, we're really pleased that the campaign did two things. One is, it brought incremental customers to the site, and two, for good customers who saw the advertising understood the broader message that eBay is a mainstream trading site. So, that was really encouraging. But we also just tested that in a small geography, so, it did not impact our national results at all. We also did experiment with a more focused approach against a targeted category, electronics, using both radio as well as print, and that was also very successful in driving that category. So, essentially, these are additional weapons in our marketing armament to continue to drive customers to the site but have not played a major role in our results because they have been primarily in the test mode, because we continue to benefit from being strong word of mouth, great part of pop culture, and terrific relationships on an online basis.

In terms of International, interestingly, many of our International sites are ahead of where the US was 2 or 3 years ago, in its diversification of the platform to more practical items, and those sites have largely continued to grow organically with the major marketing emphasis being online, you know, with online partners. So, absolutely for this year Lauren, our objective is to continue to communicate the breadth of products available on eBay and the kinds of buyers and sellers that can successfully trade here, and we are going to use online media as well as print and radio to continue to get that word out.

Thanks, another quick housekeeping question if I could. You mentioned that there were 5 additional applications utilizing the API. Were there any revenues during the quarter recognized through the API? And also, the take rate appears to have gone down, and I'm just wondering if, given all the moving parts in the business, you could elaborate on what may have driven that take rate as a percent of GMS going down on that huge GMS increase? Thanks.

Great. The revenue generation from the API was virtually nonexistent in the first quarter. In answer to your question about the monetization of the take rate down slightly, the monetization is sort of really affected by a number of factors including product mix, geographic mix, end-to-end services, and in Q1, we had some price increases that actually helped improve the monetization rate, but offsetting that is rapid international growth and an increasing proportion of higher Ticket Items, such as computers and autos, sort of higher ASP's, which put downward pressure on monetization. So, going forward, we expect these taxes are going to continue to make monetization bounce round a bit though at, you know, overall staying in the general trend and continuing to improve.

Thank-you.

Next question please.

[_______________] with Robertson Stephens. Mr. [_______________] your line is open please go ahead. Getting no response, we'll go on to Anthony Noto with Goldman Sachs.

Thank-you, and hopefully, Pierre is not too upset that is no longer about Beanie Babies. Congratulations on very strong results. Meg, can you hear me? Hello?

Yes, yes, all right.

Sorry, I heard no reaction on that--. A question about International. Meg, could you potentially elaborate on three areas internationally? Where is eBay as an organization relative to the US at this point now that you have reached 12% of your net revenue internationally? And then secondly, how would you compare the consumer and seller activity internationally to this point in the US? And then lastly, your monetization, not just in terms of what you charge for listing and buying, but lastly, end-to-end services?

Repeat the first part of the question, you said where International is relative to eBay?

At this point in time, international reached a certain amount of revenues gap, could you compare that back to eBay at this point in its development from an organizational, consumer, selling, and then monetization standpoint?

Sure, I would say that International depends on the market. eBay in Germany is our most mature and most developed market, which I would sort of say is where eBay was 2 years ago. Very rapid growth, robust fundamentals, and then the markets behind that are a little bit less well developed, but what is really true is, we see the same exact patterns of behavior. The trends towards the increasing involvement of sellers, word of mouth driving largely all of the new registered users and growth on the site with selective additions through online revenues. So, the similarities are far more than the dissimilarities. In terms of monetization, we ultimately think these sites can be as monetized as eBay US, and again, they are sort of in varying stages of monetization, eBay Germany being the most well developed. So, I think our conclusion, particularly on the heels of this reveal a great quarter from an international perspective, is these businesses will behave very similarly to eBay US, and actually, may reach profitability sooner than we had anticipated they would even 6 or 8 months ago. So, we could not be more pleased with the level of activity and the sort of common sprit that we see among all of our eBay sites outside the United States.

Have you developed the same level of end-to-end solutions you have here in the US, internationally?

We have not. And Brian why don't you speak to that?

Sure, that is definitely on the radar screen for us. This is one of the biggest opportunities we have to increase the velocity of trade internationally is to get a robust payment solution. So, we have not yet developed that in all of our markets but intend to do so.

Okay, and then just one followup question on the store front initiative and the liquidation strategy. I know that you definitely don't want to cut off the growth of that business by charging too much, but how strategically do you think about what the appropriate value is that you add to these sellers since there is really no other form of this. I guess maybe the buyers and the distributors sort of do it, but not on liquidation format, so that, on the one hand, you like your growth to be robust, but on the other hands, these sellers aren't getting a free lunch.

Yeah. Right now our strategy is to continue to charge the same amount that we charge everyone on the site, maintain the level playing field. Now as these liquidators come on the site, they may need incremental services and incremental software that we provide or some of the other companies out there do provide, and the question for us is, over time, do we vertically integrate some of these services or do we continue to rely on third parties to provide those services? There is money to be made in these services, Anthony you're exactly right, and we are continuing to sort of explore what the right strategy is for eBay. Is that a partnering strategy, is that a vertical integration strategy, and frankly, it may vary through the services that these big sellers need because they do need, in terms of listing on our site, they do need more than the bare bones that a small individual seller would utilize.

Great. Rajiv, one detailed financial question. You had said $10 to $15 million in the second and third quarter, is that per quarter and is that...

No, that's cumulative at the end.

Is that net of land based revenues?

No, in total revenues, it's 10 to 15 million higher than we have previously anticipated for both Q2 and Q3.

Okay, and just remind me, do you think land based revenue will stay at the 6.7 type of level?

I'll be happy to take this with you offline, but we have the seasonality over here Anthony, in terms of weak Q1, better Q2, etcetera, and so, there is a pattern there, and certainly, I'll be happy to talk with you about that.

Thank-you very much.

Okay thanks, next question.

Steve Fitzgibbons with JP Morgan.

Hey guys, nice quarter, I will keep mine to one question and that has to do with velocity. It seems like you had pretty good increases this quarter although it's hard to quantify the exact amount but certainly below the 7 days, and a lot of that seems to be due to the penetration of 'Buy it Now', which, I think, you said was 30%. Where do you think 'Buy it Now' penetration could go longer term? And where do you think velocity could go in terms of days?

I think there are two things that are driving the increase in velocity of trade. One is 'Buy it Now', which you identified. The other is, we actually put a little surcharge on 10-day auctions, which have the affect of having our user community move towards more 3, 5, and 7-day auctions, and that obviously, also increased the velocity of trade. We think that as we go to incremental additions to fixed price trading, as we got a higher priced items, as the penetration of 'Buy it Now', it's now offered on 30% of listings. We don't know where that will go, but it does continue to increase. We think the velocity of trade will continue to accelerate and hope to also do that in our international markets. So, I think, over time, we look for continued acceleration in the velocity of trade, maybe not at the magnitude you saw in Q4 and Q1 with the innovation of 'Buy it Now', but I think we're going to see continued acceleration.

That means, could that be the magnitude of days of what it is right now?

Potentially, yes. We have seen some pretty significant declines over the last 2 or 3 quarters, and it could potentially be as much as another day.

And I would assume International is lagging behind in US at this point?

Yes, that's true because 'Buy it Now' has not actually been offered overseas yet.

Okay, thank-you.

Next question?

Henry Blodgett with Merrill Lynch.

Thanks very much Rajiv. You talked a little bit about the operating margin, which continues to increase quite impressively, and then Meg, you mentioned you were still investing in Half.com. Rajiv, you talked about in prior quarters, the amount that is being invested, can you just give us some sense of where the operating margin of the core US business would be, so we can get a good sense of where, over time the whole operating margin might go? And then, just a followup, to clarify one thing you said earlier, I think you said that you had not yet seen a deceleration that you were expecting to see in the second quarter, and if you could just clarify that, that would be great.

You've got to consider the operating margins for the core business. We have been very consistent in laying out the long-term business model for the company that hasn't changed actually, I think, right back to the IPO days, and still stands very much true, which is gross margin in the mid-eighty percent range, and an operating profit in the 30% to 35% range, and I think it's fair to say that our more mature businesses, certainly the US business is a lot closer, if not there, than some of the newer businesses. So, the overall business model is in very good shape, it really hasn't changed in any way. With regard to your second question about where can the operating margin go? Again, we are sort of focused on the long-term margins being about 30% to 35%, and we do believe that this is going to be, as we've mentioned earlier, in advance of 2005.

Great, and any comment on the current, did I misinterpret you when you said that you are not going to slowdown, that you were expecting to see?

You know, as far as the, when I had mentioned that we have seen no slowdown in consumer demand, that is really a reference to the broader economic condition outside that is clearly affecting some companies. With regards to our patterns of seasonality, which are relatively well established, we expect them to be continuing.

Great. Thanks.

Thanks.

Next question?

Mary Meeker with Morgan Stanley.

Thanks. Mark has a question.

On the take rate, going forward, Rajiv, you mentioned the two factors that were kind of bringing the take rate down in the first quarter. What should we think about going forward? Should that take rate, given those factors, kind of stabilize where it is now, or should we see a long-term uptake in that trend?

I think that it looks probably reasonable to assume for the next couple of quarters is, you know, some fluctuation because we really have two interacting factors over here, International and higher ASP products, offset by increased monetization, and other end-to-end in partnership revenues. So, there will be some fluctuation that's also a function of what, you know, the seasonality. Longer term, we expect it to be fairly stable, increasing.

Okay, and then you had talked about the breakout of International and US revenues. We assume that the breakout, if you were to do it in terms of gross merchandise sales, listings, or users, for all of those the international percentage would be greater than the revenue, the revenue breakup?

That is correct because, obviously, the monetization in international is lower than in the US.

Great. Thank-you very much.

Okay. Thank-you.

Thank-you guys. Another question?

Mark Rowen with Prudential Securities.

Thanks. Rajiv, I wonder if you could tell us, it was a pretty good quarter for eBay Motors, 260 million, I wonder if you could give us a comparable number last quarter, and then I have another question after that.. hello?

Yeah. Yeah. Sorry. We've seen a very strong growth Mark, in the increase in autos, which as you've pointed out, is sort of growth rate of, it's over a billion dollars in revenues and in annualized run rate basis, and that actually represented over 40% sequential, quarter-over-quarter, growth rate.

40% sequential?

Correct. Over 40%.

Okay. Great, and then I'm trying to get my arms around the growth rate between auctions, listings, and revenue. So, revenue grew quite a bit faster than auction or listing. I wonder if you could tell us, was all of that due to the price increase or is advertising revenue playing a part in that, and what's going on with advertising revenue?

Okay. The short answer is that the online revenue, GMS, and listings are actually going to continue to grow at different rates, because obviously we have mixed factors. Advertising revenues are still under 10%. GMS is really being driven by conversion rates, ASP's, and to the extent that those things are stronger, we will continue to actually see stronger GMS growth, and online revenues are benefited by end-to-end services and increasing velocity, that have also helped relative to listings. So, these metrics will not necessarily move in perfect tandem.

Okay. Great, and then if I could just follow up on Henry's question. How many businesses do you have now that you are investing in that are in operating losses at this time?

On an overall basis, we have always thought of this as really expanding a platform on multiple dimensions. So, if you look at the product categories that we are building, the newer businesses tend to be areas of investment, and as does International. As Meg and Brian have pointed out, these are actually, in some ways, ahead of our expectations. In fact, Korea Internet Auction Company that just reported its results in Korea yesterday came close to breaking even, and that's significantly ahead of our expectations. So, there are areas of investment, but we are also very mindful of making sure that this is very returns oriented and focus on building the overall eBay platform.

Okay. Great. Thank-you.

Thanks.

Let's see, why don't we take one more question?

And we'll take our final question from David Ricci with William Blair.

Guess I just snuck in there ..eh? Two quick ones. One is, what investment areas might you accelerate, given the strength of the first quarter? And secondly, as you have talked to the larger merchants, not so much the liquidators, but whether it's the retailers or manufacturers, what's on their mind as they think about using eBay as a fulfillment servicing, is it, just coming over the, getting down the curve on the economics of the deal or any other issues? Thanks.

Yeah. As we look forward, we want to continue to really drive the growth of the company across all of our different businesses. I think the strength in this quarter is the growth we've exhibited across all of our different businesses including our core business. So, we continue to invest in that business from all kinds of different areas. But if you look at our new initiatives, obviously eBay Motors had very significant growth, our international business, and some of our newer practicals categories. So, those are the areas for investment, and obviously, Half.com is getting a significant share of investment as it launches into these hundreds of new categories in those four main areas. In terms of the merchants and what they see as the value proposition of eBay, it's really three things. It's, first of all, higher yields than they can get in their more typically fragmented distribution channels are picking up the phone and calling folks on the Rolodex. Its moving the obsolete or over-stocked items faster than they could otherwise move them, and in much lower marketing cost by tapping into eBay's overall marketplace. Its great. Well, listen, thank-you everyone for joining us today. We appreciate your time and thanks for attending.

I'd like to thank everyone for your participation in today's eBay's first quarter earnings results conference call. A rebroadcast of this call will be available starting at 5 p.m. Pacific, 7 p.m. Central, this evening and will be available until April 26, 2001. The number for the rebroadcast is 719-457-0820, and the confirmation number to access it is 718-750. Once again, the telephone number is 719-457-0820 with confirmation number 718-750. This does conclude our conference. Thank-you for your participation.