eBay Inc (EBAY) 2002 Q2 法說會逐字稿

Ladies and Gentlemen please continue to standby. Once again please continue to standby. We thank you for your patience. Ladies and Gentlemen please continue to standby. Once again please continue to standby. We thank you for your patience. Ladies and Gentlemen thank you for standing by and welcome to the eBay second quarter 2002 earnings release conference call. During the presentation all participants will be in a listen only mode and afterwards we'll conduct the question and answer session. At that time if you've a question, you need to press the one followed by the four on your telephone. As reminder this conference call is being recorded today Thursday July 18th 2002. I'd now like to turn the conference call over to Mr. Mark Rubash , Vice-President of finance for eBay. Please go ahead

Good afternoon, thank you and welcome to eBay's earnings' release conference call for the 2002 2Q. Joining me are Margaret Whitman, our president and CEO, and Rajiv Dutta,our CFO. This conference call is being broadcast on the Internet and is available to the investor relation section of the eBay website. Before we began I would like to take this opportunity to remind you that during the course of this conference call management may make forward-looking statements regarding matters that involve and risks and uncertainties including those relating to the Company's ability to grow its business and userbase. Our actual financial results could differ materially from those discussed during this conference call. Factors that could Contribute to such differences included but are not limited to. The Company's need to manage an increasingly broad range of businesses to deal with the increasingly competitive environment from online trading to manage regulatory and litigation risks even as this product offerings and geographies expand to maintain size, stability and continue to expand its model to new types of merchandise and sellers to continue to expand outside of the US as well as the timing in commercial success of new features and functions added to the Company's site, the price in demand for advertising offered by the Company, the success of the Company's commercial partners and the cost of announcing prospective joint ventures, acquisitions, and other commercial transactions. Additional factors that could cause or contribute to such differences relate to the announced acquisition of Paypal include the possibility of delay

action of each Company's user base to the acquisition, the future growth and identified risks relating to Paypal and the possibility that future integration of the two companies will be more difficult or costly than expected. More information, about potential factors, which could affect the Company's business and financial results is included in the Company's annual report on form 10-K for the year ended December 31, 2001, its quarterly report on form 10-Q for 1Q02 and its other SEC filings and prospectuses. Our forward-looking statements are based on information available to the Company on the

and the Company is under no obligation to update such statements. Investors and security holders are urged to read the proxy statements prospectus regarding the announced acquisition of Paypal reference in this conference call when they become available because they will contain important information. The proxy statement prospectus will be filed with the SEC by EBAY. Investors and security holders may obtain a free copy of the proxy statements prospectus when available and other documents filed by EBAY and Paypal with the Commission at the Commission's website at www.sec.com. Free copies of the proxy statements prospectus and EBAY's other filings for the May also be obtained by directing a request to eBay at investor relations at eBay.com. Free copies of PayPal filings may be obtained by directing a request to PayPal at investor relations at PayPal.com. We will begin today's call with Margaret, an overview of our business followed by Rajiv who will provide greater detail on our financial performance and key operating methods. Following Rajiv's discussion, we will be happy to respond to your questions. Now over to Meg..

Thank you Mark, and welcome to today's conference call. I am very happy to report that eBay has had another excellent quarter with strong growth across all key matrix. The 2Q saw record levels of registered users, listings, and gross merchandize sales, as well as record net revenues, operating margin, net income, and operating cash flow. Our strong results for the quarter validates our long term strategy and the continued vibrancy and transparency of our business model. They also underscore the ongoing commitment of our community of users. I would like to highlight two matrixes that really underscore the strength of the business. The first, online transaction revenue which represents the vibrancy of the market totaled $235.3m, which is a jump of 66% year-over-year. The second matrix pro forma operating margin remained at 30% for the second consecutive quarter demonstrating the leverage we continue to achieve even as we invest in the business. We remain steadfastly focused on helping our users become more successful. The vast majority of our users are individuals and small businesses who rely on eBay to access national and international markets. As the marketplace manager, our responsibility is to improve the user experience, build out new and different categories, be solid tool to expand our own sales, attracts new buyers and create new communities around the world. The importance of this partnership with the community was never so apparent as at eBay Live for the first time in eBay's history. We have a live of community conference in Anaheim, California. Five thousand, six hundred and forty three (5643) people registered from 48 states and 8 eight foreign countries. The community came together to meet in person often for the first time and share stories and business tips. It was an exhilarating experience for all of us at eBay. We learned as much from our community there as I hope they did from us. eBay Live reinforced our vision of eBay as a level playing field where your next door neighbor can compete side by side with large corporations each with an equal chance of success. This is the root of eBay's growth because what eBay does that is make inefficient market proficient providing a marketplace that allows sellers who would otherwise be limited by size and location to reach customers around the world. It is not just our mission; it is our business model. Now one other request we heard most often at eBay Live is for greater integration of PayPal into the eBay platform. There is no question online payment is a key part of the trading process, and that's why we were very happy last week to announce our agreement to acquire PayPal, the most popular online payment service. Combining the two companies will allow us to expand the eBay platform, strengthen both businesses, and accelerate growth over the longer term. First and foremost so, the acquisition is about making the eBay experience easier, faster, and safer, which will in turn fuel the growth of all of our categories. And by sharing our expertise in setting

, we will also be able to increase trust and safety on the site for everyone. Payment is just one matter by which we are expanding the marketplace. Category development continues to be our primary focus in driving transaction growth. Managing the marketplace coupled with the supply and demands of goods created by our users is the proven formula for building up the categories, and this formula works. We saw healthy growth across a wide range of categories but let me just touch on a few. eBay motors, our largest category as measured by gross merchandize sales, continues to show impressive growth across the board. In 2Q, sequential gross merchandize sales in car and trucks rose 20%, parts and accessories increased to 46% and the motorcycle category jumped 95%. We now see a SUV sale in site everyone 21 minutes. This growth rate show that eBay has truly captained to a need in the used vehicle market, providing new efficiencies to both buyers and sellers. This business is becoming increasingly global as well. All of our international sites now feature motors category, which is beginning to grow the business locally. eBay Germany is already the third most popular automotive site in Germany as reported by media matrix. This is in part due to the variety of auto sellers that've come to eBay Germany, including brand name sellers like RV partners and individual car dealers like car CNBH. Over the past year a photo category is also coming into it's own. Gross merchandize sales grew 14% sequentially and 75% YoY, as a result of our plans to develop the photo business. Throughout 2Q we worked to build supply, boost demand and make the category easier to use. As a result sellers large and small are seeing greater success. One retailer in Minneapolis LivinHell Photo told us that he sold more than 100 Holdo 120 S cameras in 6 weeks on eBay, compared to the dozen he sold in his offline shop in the previous 8 months and in April, Henry's a 7 store retail chain in Toronto became one of only 8 Canadian businesses to reach start status of more than 10,000 feedback points. Only by every 20 seconds. Next to our collectibles category continues to show growth as well. Gross merchandise sales including, for example, dumped 47% YoY as a result of our efforts to grow this category. In the US, we have taken advantage of our site wide coin trading assistance program made up of experienced users who already enable to have would be sellers. In addition, we have staged promotions to catch into popular trend. The new Euro dollar and new American quarters to help pretty more main stream buyers for the category. Health and beauty is one of our newest categories is a good example of how we nurtured new businesses. Early in the year, we identified it as a potential gross category. Our research showed that it is a very big business offline and users were already beginning to lift related items on the site from vitamins to fragrances. So we created a new category structure to help users easily find items including home page and a portal page. In 2Q, we saw these early efforts start to pay off. The category demonstrated an amazing 96% YoY growth in gross merchandise sales. The key part of category growth is ensuring that the transaction themselves are an easy fast sale. I mentioned the importance of payments earlier. The fixed price has also applied a rule in accelerating transactions by allowing users to select the pricing format that best meets their need. In 2Q, our fixed price offerings contributed more than 19% of the company's gross merchandise sale. Right now, as we

has been a great success for our buyers and sellers and building on that success, we are going to expand the features through purely fixed price listings. In March, we rolled out a new format internationally in which the item is with a set price that the seller chooses and it never defaults to an option. Even with the soft launch the new format

for 8% of international growth merchandise sales. This new format rolls out on eBay.com next week and we believe it will be just as successful in the US. More importantly our

sales new buyers and sellers who want to trade with you occupying

with eBay but prefer the immediacy and the predictability of the set price, eBay stores have also become a powerful floor for the sellers allowing them to build their own brand and their merchandise servicing who are in the fixed price or on auction format. There are now more than 29,000 sellers with eBay stores who subscribes to basic feature for anchor store packages. Ranging in monthly fees from 9.95 to 499.95 each package provide a lot different level of placement and exposure on the site. Beginning

store sellers will be able to cross promote individual listings giving them flexibility and selling more items to their current customers. For example a Jewelry seller will be able to advertise matching color earrings directly to the bidder or have called less to a bid confirmation emails and the check out page. Now we have managed the US market place to optimize growth. We are equally committed to building market places for our community of users around the world. eBay's international business continues to grow at a remarkable rate. International operations now account for 24% of our net revenues up from 21% last quarter and representing year-over-year growth of a 148%. The international business is also profitable on a fully allocated basis for the third consecutive quarter.. In 2Q we began to see results from some of our strategic moves in Asia. We successfully incorporate New.Com our acquisition in Taiwan into the platform engine and our South Korean subsidiary and their auction company made significant strides in its financial performance this quarter. Our operations in Europe, Canada and Australia continue to grow as well building on their current momentum. In 2Q eBay's Germany net revenues increased 25% sequentially while eBay in the UK net revenues grew 26% in the same period. In addition we concluded an agreement with Yahoo Europe in May to become the new preferred option partner with yahoo sites in France, Germany, Italy, Spain and the UK. With $432 worth the goods being traded on the site every second the technology that keeps eBAY running smoothly is a crucial part of our success. Every quarter we achieved a record usage level and 2Q was no exception. The site reported an average of 334m page used per day and sends out more than two bigger figures of data if seconds during

each day. Most of this was made possible by the on going roll out of our next generation architecture that we call V3. Today 70%of the site traffic now floats through V3. As you may know the driving force between many of the technologies advancements we have made over the past 3 years is Maynard Webb. Maynard is an important part in the executive team and to formalize the developing role in the company he would name the chief operating officer

focus has always been on about execution, which she will now manage on a broader scale as he coordinates it. The company wide implementation our business strategy and help the executive team to build the business for the future. Quarter after quarter the eBay model continues to perform. Category growth is running at a healthy pace. Our sellers around the world continue to experiment and succeed with the more items that a

had ever-going number of buyers. And the eBay's management employees continue to expand the platform, improve the trading today I am laying the ground work for feature (phonetic). I am very excited about about eBay's features because the company has a lot more ground/room/run to continue to grow. And now I will turn it over to Rajiv Dutta for a few more details on our financial results.

I am very pleased to report that the commitment to/of the eBay community and the efficiency of our global online market place once again combined to produce an outstanding quarter. The eBay community of merely 50 million users generated a 145.2m listings and $3.4b in growth merchandise sales, both all time records. On/of the top-line eBay reported record net revenues of $266.3m built on accelerating y-o-y transaction revenues in the US and rapid growth overseas. Equally as important, the leverage in our business model was evident/evidenced by a second consecutive quarter of 30% pro forma operating margins. Record earnings per share and record operating cash flows. Based on this strong financial performance we are more confident than ever in our outlook for the balance of 2002 and beyond.

on our key online metrics, a review of the income statement and rap up with our financial guidance. With respects to our key online metrics for 2Q, confirmed registered users increased to 49.7 million, a 46% y-o-y increase; included in this increase was 4.4 million new users who offset by 700000 user ids eliminated by stricter

standards in South Korea. Listings increased to a record 145.2 million, a 47% y-o-y increase. And, gross merchandise sales reached a record of $3.4b, a 51% y-o-y increase, and in an annualized run $13.6b. Getting into more detailed look at our 2Q operating results starting with the top line. The combined US in international operations it generated $235.3m in net transaction revenues representing of 66% year-over-year growth rate and an increase from the 65% rate posted in 1Q of the sale. In the US business, net online transaction revenue totaled $172m, up 48% year-over-year with an accelerating year-over-year growth rate for the second consecutive quarter. The competitive growth was driven largely by increased transaction volume across the thousand of eBay product categories. International net revenues now contributed approximately 24% of eBay totaled net revenues and grew 148% on year-over-year basis to more than $64.3m. International transaction revenues, which totaled $63.1m, resulted from continued strong transaction volume in Germany, Canada, the United Kingdom, and South Korea. The European base revenue also benefited from its strong Euro. I have expected revenues from third party advertising totaled $16.7m or approximately 6% of net revenues down from 8% last quarter. On the combine basis revenues from end-to-end services and our offline businesses represented 5% of total net revenues consistent with 5% of net revenues reported in 1Q. But now I would you like to the income statement. The eBay reported our rapid gross profit of

in 2Q. in 2Q reflecting an 83% gross profit margin for the second consecutive quarter. The 2Q sales and marketing expenses increased to $79.8m or approximately 30% of revenue consistent as a percentage of revenue with the prior quarter. The sequential increase in sales and marketing dollars was driven by increased online and offline advertising for portal eBay motors and our international businesses. A full quarter of activity for eBay Taiwan and

associated with the very successful eBay live event. Product development expenses totaled $24.3m in 2Q or approximately 9% of net revenues compared to 10% of net revenue in 1Q of this year. The sequential percentage decline reflects approximately $1.6m in capitalized internal software development cost relating to our V3 architecture program. Excluding this impact, we increased our product development spending in 2Q in absolute dollars. General and administrative expenses in 2Q increased to $36.6m, or 14% of revenues compared to 13% in Q1. This net increase resulted from increased cost of the portal's international infrastructure, employee related cost, and to various legal matters, offset by improvement in account receivables collect rate (phonetic). At the operating income level, eBay reported GAAP income from operations of $79.4m, a 124% YoY increase. Pro forma income from operations increased to $80.7m, 79% higher than the $45.1m in 2Q01. Net interest expense totaled $8.3m compared to $5.5m reported in 1Q of this year. The sequential increase relates primarily to the gain on sale of seven real estate properties totaling $1.6m and some gain on security sales and forecast of each action. Our pro forma effective tax rate for the quarter was 38%. As a result GAAP net income for 2Q02 was $54.3m (phonetic), 121% above $24.6m we reported in 2Q01 and diluted GAAP EPS grew to a record $0.19 per diluted share. Pro forma net income increased to $54m in 2Q representing 61% growth over $33.5m we reported in 2Q01. Proforma EPS grew to $0.19 per diluted share, 60% higher than $0.12 reported in 2Q01 and finally, we ended the June with an even stronger balance sheet. EBAY now has nearly $2b in total assets including about $1.3b of cash and investments. Record earnings once again led to strong cash flows. Ebay generated $93m in operating cash flows in 2Q, a 34% increase from the prior year period. Operating cash flows were impacted this quarter by the timing of annual payment to AOL (phonetic) which last year occurred in 1Q as compared to 2Q this year. Now I would like to update our financial guidance. We expect that business I mentioned demonstrated in 2Q will continue through the balance of the year and beyond. In 3Q, we expect increasing amortization costs from our v3 architecture deployments, continued investments in our US and international customer support and trust and safety capabilities, and increased marketing spend in both the US and Europe. In the US, we have planned increases to support the growth in various vertical categories together with increases in our brand marketing efforts. In Europe, our expenses will also reflect the full quarter of our recent marketing agreement with the

Europe. While significant, we believe that these investments can be made while continuing to deliver strong bottomline profitability. We now believe that net revenues of 3Q could range between $278b and $281b, including approximately $16m of advertising revenues. So the full 2002, we continue to expect that net revenues would approximate $1.1b including advertising revenues of about $78m. We expect that our full-year pro forma operating margin would approximate 30% compared to the 29% to 30% range previously indicated. In addition, we expect that our consolidated pro forma effected tax rate will go up to 36% for the balance of the year. We expect both pro forma earnings per share and GAAP EPS will approximate $0.19 in 3Q. For the full year, we expect pro forma earnings per share to range between $0.76 and $0.78, representing a $0.03 increase over the guidance we offered last quarter. And on a GAAP basis, we expect earnings per share to range between $0.74 and $0.76. Based on current business momentum for 2003, we expected our consolidated net revenues, which includes online transaction revenues, third party advertising, end-to-end services and offline revenues could range between $1.5b to $1.55b. This includes a 45% YoY growth rate for our online transaction business from the currently expected levels for 2002. This strong outlook gives us continuing confidence in achieving our $3b overall revenue goals for 2005. We expect that the activation of PayPal will be additive to this goal. On the bottomline, we currently expect the 2003 pro-forma operating margins with a range from 31% to 32%, reflecting an appropriate balance of financial returns and investment for future growth. Finally before I conclude, I'd like to make a few comments about our recently announced agreement to do quite of PayPal. The exibition had the opportunity to create significant synergies in four main areas. First the integration of the payment service should drive increased beneficial of electronic payments. This will not only drive additional PayPal revenue, but its also likely to increase overall gross merchandise sales as transaction friction is reduced. Second, we believe that an increase in the number of PayPal account holders can called an increase in the store to value accounts. A development that not only helps in PayPal's economic but increases the money supplies. Within the eBay economy, driving increased by transaction. Third, we believe that the growths of the off eBay PayPal business will committ eBay to access a new customer base. we believe that there are significant cost savings as well as information synergies that will help both companies reduce fraud. Accordingly, we expected the acquisition will be immediately accreted to pro forma EPF, and on a CAP (phonetic) basis we expect that the acquisition will be initially diluted as we take on about $13m of non-cash charges per quarter. We plan to provide further detailed financial guidance for the company later in the year. In conclusion, bay's business remains very strong across all fundamentals, and we remain confident in our business strategy and our outlook for the future. Thank you for joining us today. We will now be pleased to take your questions.

Thank you sir, ladies and gentlemen if you would like to ask a question please press the 1, followed by the four. If you want to withdraw from asking a question press the 3 and the 5 on your phone. The first question is from Anthony Noto of Goldman Sachs. noto: Two quick questions. The first is on CAPEX and the second is on guidance. I saw in the quarter you spent about $62m in CAPEX. Could you some update on whether or not what you expect to spend for the next two quarters? We have the full year at $75m in CAPEX. And then secondly, as I look through the results, transactions accelerated for two quarters in a row, and when I look at the guidance and the trend that you are having in non-US transaction revenue, your guidance of about the net point of 280 implies the US transactions to grow faster again y-o-y in 3Q. Do you agree with that, is that your intention?

Let me speak for the CAPEX, for 2002 we expect CAPEX to be about $130m. This is up from the number that we previously guided. What this implies for the balance of the year is about $55m in incremental capital expenditures. For next year, we are looking at both the absolute dollars and certainly as a percentage of revenue the CAPEX component must be declining.

In terms of the guidance, feel free to chime in, you are right Anthony, we are expecting actually transaction-based revenue to accelerate again for 3Q overall. So, you got that one right.

Could you give a little more clarity on what the CAPEX was spent on this quarter, the $62m?

Yes, we have

expense the capital expenditure, including V3 and other technology, other software; the disaster recovery etc, technology and the corporate

Thank you very much. Next question. Next question comes from Jeetil Patel with DB Alex Brown. Please go ahead with your question.

Hey guys, if I look at my, the 2003 guidance as you guys highlight that which has about 45% transaction revenue growth. Can you give us a sense of how much of that is driven by Listings growth versus ASP lift versus conversion? And just a quick housekeeping question, what was the, how much of Euro benefit did you get in current quarter, and then finally cost category purchasing, if you look at, it seems like a lot of buyers are looking at one category. How much do you think you will sort to see cost category purchasing from a buyer standpoint as you sort to integrate PayPal as you look at in 2003?

Let me actually speak for the first question Jeetil. As far as, you know, 2003 guidance that we have, you know have provided Pretty early guidance of it for outlook for next year but it depends largely on the fact that we have the visibility into the business and we feel good about fundamentals in the business. Listings ASP conversion rates are actually going to follow the pattern that they have been following on the site as they currently exist. We don't really expect to see some dramatic movements in any of these metric (phonetic) but you can see the seasonal variability in conversion rates I think there will be some modest increase in average selling prices that are continually driven by the change in mix on the site and we do expect to see strong listings. And the second question regarding the Euro benefits, you know also (phonetic) for the quarter at the bottom line it was probably, this is actually a tough measure, tough number to estimate, but I think it is fair to say about $800,000 of whereabouts was the benefit to the bottom line in 2Q.

I will take the question on categories. I think categories on selling; it is absolutely one of our guesses for 2002, guesses that would be aware that there are the categories besides the one which they buy and then encourage purchasing and absolutely as we look at last four and half years in the beginning the average category and it has significantly higher than that now. That has been driven in the last year by recommendation email where if you are not that able to purchase an item we will recommend you another item. We also send direct email that if you have purchased a fourth item in the category may be you are also interested in consumer electronics. And most importantly site merchandising has increased dramatically and we see, we are able to actually see increase on insight merchandising offers in one part of the site that links you to another part of the site and then we are hopeful that this cost promotion opportunities. Sellers in 3Q, the example I gave in the call was diamond earrings with the diamond necklace but actually it could be web surfers. So we actually think that will help in cross category selling and we are really excited about that access that our sellers want back and we want back.

The next question comes from Safa Rashtchy of Piper Jaffray.

Could you talk about the impact of the stores on the transaction revenues? I understand it has been very popular with the sellers. If you could give us some color as to how much activity you have seen from the buyer's side?

dutta Your question regarding the, is as I understood, the impact of stores on transaction revenues. You know, we are really pleased with the over all take up in stores. As Meg mentioned 29,000 stores and we have customers that clearly signing up for this in pretty large numbers. The impact to revenues is actually took by small and the reason actually has to do with, on an over all basis yet, you know, the surfing subscription fees that we get on this is very tiny and from the standpoint of the merchandise, its been source store. It is still relatively major. We expect that the cost over the coming month and quarters to increase as the outgoing functionality.

The other thing Mr. Safa is when we all want the extend of stores offering as in the 3Q in fact next week, people will be able to have four kinds of listings in their stores. First is their option items then is their bin items as we know it today right now then it is the pure fixed price that I described in the call and finally they ar+e still be able to have their fixed price shifting that are sort of accessories like So for the first time we are actually be able to pull all kind of different listing into the seller store. So I am hopeful that as prior to come get to know the seller store and go to that seller store and buy more from that seller. So, since we actually think that we could have an impact maybe as early as 4Q.

The quick follow up that You have been experiencing accelerating growth in the US, which was non assessed last year, it appears to be little bit above your expectations, given that I was little surprised that the guidance shouldn't go up, is it because you are just trying to be appropriately cautious or maybe allow for still economic uncertainties or some potential with in these other areas or can we expect your guidance to go up as you see continue to send in US? Thanks.

Yes. You are correct. This is we are seeing some nice acceleration in the US numbers. You know last quarter YoY growth rate was 45%, this quarter we pointed out that we are up 48% YoY growth rate and it is still be coming from growth across all categories. You know that is at we are looking for in terms of sequential transaction revenues 3Q over 2Q it is going to be stronger than it was a year ago and the guidance that we have given we think is appropriate and realistic based upon the visibility we have and we feel very good about the business. Thank you. ----

: Our next question is come from Mark Rowen from Prudential Securities. Your line is now open please go ahead.

Thank you, couple of questions. First we have seen some pockets of weaker consumer spending in June and obviously with you raising guidance overall you didn't see that, but I was wondering if there is any if you saw any weakness in any of the business categories that might have been impacted by the consumer spending? Secondly, I was wondering how much Active any foreign exchange had on your international revenue this quarter and then finally if you could just give us an update on eBay Motors on the progress there, if you compare it to a year ago. You know, what percentage of cars that you are selling that are more mainstream cars now as opposed to muscle cars or out of the mainstream. Is the success rate continuing to improve there or is it stabilized now, things like that? Thank you.

Yes, in the first we didn't really see any real pockets of weakness. Sometimes is a little bit lower than some of our classical category has been from the beginning because people like to restart their summer vacations, coloring glass is a little weaker than some of the other class of categories but nothing out of the ordinary in terms of really deep dyes or unexpected weakness. The eBay mother product is terrific and it has really become a mainstream car site. It really isn't anymore about flatter cars or muscle cars. It is as much about 1998 like Toyota. So, we are really pleased with that. On the conversion rates are actually up and for that we believe is due to the eBay insurance program, which overcame the number one barrier that people had at that time on cars on eBay. If I can really can send $4,000 for a car site unseen, the eBay insurance helped considerably in people get over that hurdle. So, the conversion rate are up significantly and I think you might know dealers represent now the vast majority of seller on the site versus independent auto dealers still joined by lot of individuals but mainstream dealers selling mainstream cars and we are you know continuing to invest in mother's business sizing point of view but from a feature and functionality point of view as well. And as I mentioned in the call, starting to grow internationally as well. Finally, every site outside the United States has a motors category, which is great news for those countries. And with regards to the foreign exchange impact that I had mentioned in the call, you know, certainly the revenues from Europe that were Euro based because the Euro strengthened relative to the US dollar. We saw some benefit from that. I estimate the overall benefit to our bottomline of $800,000.

our next question comes from Mary Meeker and Mark Mahaney from Dean Witter and Morgan Stanley. Go ahead please.

Great thanks. Two questions. One on margins. Last quarter you talked about the international margins being in and reached double-digit levels. Can you provide us an update on that? And then secondly Rajiv, on the topic of stock options expensing, can you say or can you talk a little bit about where eBay is on that and if you're thinking about any changes going forwards? Thank you.

Okay. Let me actually speak to you on the overall margins and for the international businesses. So, on an overall basis as Meg pointed out, our international operations were profitable with strong profitability yet again. And what I point to is that we really do business in overall portfolio businesses. In this quarter, we actually picked up Taiwan for our 1Q, which clearly is a business that is in the early stage of development and at an investment stage. But that was more that offset by some very good strong growth in Germany, the UK, in Australia, in Canada, and South Korea where we saw some real benefits and real turnaround in profitability. I will turn the stock option question over to Meg.

You know, our philosophy is that stock options, particularly in the valley, have been and attracting talents from new growth companies. Most of the talent that we were able to attract to eBay when we had 30 employee and $2m of revenue was directly attributable to our ability to offer incentive compensation. That said, I think that we feel that if an appropriate methodology for valuing stock options can be derived that doesn't penalize very young companies and companies with high data like eBay than we don't actually have a problem with ultimately expensing stock options. But I think we need to continue to be able to

are going to be expensed that needs to be from companies fairly in that regard. So, that's our overall point of view at the moment. Thank you. Great

Next question. The next question comes from Justin Baldauf with Merrill Lynch. Your line is now open. Please go ahead.

Hi! Thanks a lot. On your last earnings call you indicated that you are very comfortable with your 2005 financial targets which includes revenues of I think $3b and free cash flow of about $1b. At this point, what is your comfort level with those targets assuming that we do not include PayPal?

Justin, we are more comfortable at it than we have ever been with that $3b goal because every quarter we understand the substantial growth rates in our older categories, we see new categories coming on like Health and Beauty as I mentioned in the US business; and the international business continue to hit the knee of the growth curve. So, whether it's Germany, the UK, or South Korea this quarter. We are feeling really confident about it.

The cash flow, I absolutely still believe that free cash flow is going to be very strong in terms of the overall rate at which we generate that sums to (phonetic) $1b in 2005 is certainly within reason and in fact a lot of the That you see that has taken place now is in fact for years to come in terms of overall investment in capital expenditures. So, we continue to have a great deal of confidence in that level.

: I think one of your questions was how we view payments. In addition to that Rajiv and I've both said last week that payments will be incremental to that goal.

bauldauf - Merrill Lynch: Awesome. Let me ask just a quick follow up if I may. In terms of the 2003 guidance, you mentioned that CAPEX would decline from 2002. Could you provide a little more specificity on that and then in terms of the transactions growth, I think you said 45% growth in total transaction business. Any thoughts on the US versus International breakout at a very rough level?

No, I think we'd be giving some more detailed guidance on that later in the year, adjusting a long way for the PayPals and how to think about that, because clearly in some of our numbers, we'd some revenues for both way. So, what we've to think about for revenues for next year, is to add in PayPal revenues, to subtract out the bill point, subtract out the online gaming and adding in the synergies as we go forward. CAPEX is going to be smaller, lower mixture in absolute dollars. I think we really don't have any big significant capital expenditures planned, other than in the normal course of business. The split between international and US will probably provide more colors on that as we get closer to the event. Thanks .

if there are no more questions, we thank you for your participation and look forward to hearing from you next quarter.

Thanks very much. Ladies and gentleman , that concludes our conference. Thanks you for your participation.