eBay Inc (EBAY) 2006 Q1 法說會逐字稿

Good day and welcome everyone to eBay's first-quarter 2006 earnings results conference call.

Today's call is being recorded.

With us today from the Company is the President and Chief Executive Officer, Ms. Meg Whitman; the Chief Financial Officer, Mr. Bob Swan; and the Investor Relations Director, Ms. [Lydia Ventura].

At this time, I would like to turn the conference over to Lydia Ventura.

Please go ahead.

Good afternoon.

Thank you and welcome to eBay's earnings release conference call for the first quarter of 2006.

Joining me today are Meg Whitman, our President and CEO, and Bob Swan, our Chief Financial Officer.

This conference call is also being broadcast on the Internet and is available to the Investor Relations section of the eBay Website.

Before we begin, I would like to take this opportunity to remind you that during the course of this conference call, we may discuss some non-GAAP measures in talking about our Company's performance.

You can find a reconciliation of those measures to GAAP measures in the tables of our earnings press release.

In addition, management may make forward-looking statements regarding matters that involve risk and uncertainty, including those relating to the Company's ability to grow its businesses, user base, and user activities.

Our actual results may differ materially from those discussed in this call for a variety of reasons, including the complexity of managing a growing company with a broad range of businesses; our increasing need in established markets to grow revenues from existing users as well as from new users; an increasingly competitive e-commerce environment; our need to upgrade our technology and customer service infrastructure to accommodate growth at reasonable cost while adding new features and maintaining site stability; regulatory tax and litigation risks, including financial industry risks specific to PayPal and risks specific to Skype's technology and to the VoIP industry; our need to successfully extend our platforms to new countries and new types of merchandising sellers; foreign exchange rate fluctuations, and the impact and integration of recent and future acquisitions.

You can find more information about factors that could affect our results in our Annual Report on our Form 10-K and our quarterly reports on Form 10-Q, available at investor.eBay.com.

You should not unduly rely on any forward-looking statement, and we assume no obligation to update them.

Now, over to Meg.

Thank you, Lydia.

Welcome, everyone, to today's conference call.

Q1 was another excellent quarter for eBay with strong growth across our expanded portfolio of businesses, each as a successful stand-alone business.

Together, they create additional opportunities for innovation and expansion, a concept we call the Power of Three.

With eBay, PayPal and Skype, we have the best Internet franchise in the world, which allows us to grow revenues and invest in key areas of the business.

In Q1, those investments yielded strong results.

The eBay marketplace added more than 12 million new users and generated record gross merchandise volume of $12.5 billion.

PayPal topped 100 million accounts and processed $8.8 billion in total payment volume.

Skype added 20 million new users in Q1 and generated 23% sequential revenue growth.

As a result, the Company delivered record net revenues of $1.39 billion, representing remarkable year-over-year growth of 35%.

Now, before Bob discusses our financials for Q1, I would like to spend a few minutes on the achievements of these three key businesses -- the eBay Marketplaces, PayPal, and Skype.

EBay continues to be the Cornerstone of our e-commerce engine.

Last year, we laid out our strategy for driving growth in the eBay business and it continues to deliver excellent results.

We have consistently focused on increasing the value of eBay for our users by investing in marketing and product innovation and connecting with our community of users.

These efforts fueled the continuing growth we saw in Q1.

In the US, strong user activity led to record GMV of more than $6.2 billion, the first time the US marketplace has surpassed the $6 billion mark in a single quarter.

Several factors contributed to the growth in Q1.

Our ongoing "It" campaign have increased consumer awareness of the wide variety of items available on eBay.

We continue to improve the effectiveness of our natural and paid search initiatives.

As a result, we saw particular strength in the health and beauty, home, entertainment and business and industrial categories, which all delivered very healthy year-over-year GMV growth.

In fact, for the first time, the business and industrial category hit 1 billion -- a $1 billion ran rate in the US.

In Q1, we also made it easier for sellers to sell and buyers to shop.

For example, sellers can now easily revise bulk listings simultaneously and buyers can have search results automatically delivered via custom RSS feeds, even when they aren't on the site.

Launching next week is eBay Express, which will give shoppers a quick and easy way to find items at a fixed price for convenience-oriented buying.

EBay Express is generating a lot of excitement among our sellers, and many have launched eBay stores in anticipation.

We have also made a number of enhancements to the eBay store's product over the year, making them one of the greatest values for sellers on the Web.

As a result, we exited the quarter with a record 247,000 stores in the United States, a 53% increase year over year.

We now have 486,000 stores worldwide, making eBay by far the largest global provider of storefronts online.

We continue to invest in trust and safety to ensure that the marketplace remains a clean and well-lit place to trade.

In Q1, we stepped up education among users and made it easier for the community to report problem items.

In Q2, we plan to roll out additional initiatives to limit prohibited items and expand our world-class detection systems.

Our efforts in this area are vital for maintaining the vibrancy and long-term health of the marketplace.

Just like in the US, eBay's international business was strong around the world.

EBay UK in particular had another excellent quarter, adding more than 1 million new users to surpass 15 million for the first time.

EBay Germany also reached a new milestone, ending the quarter with more than 20 million registered users.

Our other marketplaces in Europe also delivered strong growth in Q1.

We saw a record new user growth and strong listings growth in most markets, and eBay France and eBay Italy continued to be our fastest-growing sites in terms of GMV.

E-commerce is clearly becoming mainstream in Europe.

According to an ACNielsen study we commissioned in Q1, more than 170,000 people in the EU rely on eBay sales for their primary or secondary source of income.

Not only is eBay providing livelihoods for sellers across Europe, those sellers are in turn creating jobs. 81% of these small businesses employ between 1 and 10 people, and 29% say they plan to hire more staff in the next 2 years.

In Asia-Pacific, we continue to expand our marketplaces.

On a year-over-year basis, eBay Australia grew new listings by more than 55%, contributing to GMV growth of more than 60%.

Internet Auction Company, our business in Korea, topped 16 million registered users in Q1 with record listings growth and strong GMV, despite increased local competition.

We continue to invest in growth strategies that build on our unique local advantages and maintain our position as the leading e-commerce Website in Korea.

In China, eBay EachNet added 2.3 million new users, more than any market outside the United States, to reach a total of 20.3 million users.

Just as important for our sellers, successful listings jumped 65% year-over-year in Q1 and conversion rates also improved.

Chinese online shoppers continue to put their trust in trading on eBay.

In fact, according to a consumer survey just released from the State Press and Publications Administration, eBay was voted the number one consumer choice among shopping Websites in China for 2005.

India, which I visited 2 months ago, is becoming a vibrant e-commerce market.

Though online shopping is nascent, I believe there is great potential there in the long-term.

EBay India, which is the leading e-commerce site in India, just surpassed the 2 million user mark and listings jumped threefold from the year-ago quarter, both indicators of the growing interest in online shopping in that market.

Shopping.com also performed well in Q1.

Traffic was strong, which led to 33% year-over-year growth in clicks to our merchants, including continued traction in our international markets.

Our integration efforts are also on track.

EBay's reviews and guides now include hundreds of thousands of Epinion reviews, and Shopping.com catalogs are being used to power a number of eBay categories.

In addition, Shopping.com is being actively promoted to Pro Stores and PayPal merchants with promising early results.

As a result of this growth, in Q1, our marketplaces' businesses, which include eBay, our classified Websites and Shopping.com delivered more than $1 billion in revenues in the quarter for the first time.

This milestone underscores the untapped potential in these businesses and I believe the fantastic opportunity that lies ahead.

The second business in our portfolio, PayPal, helps make e-commerce work around the world.

In Q1, PayPal added nearly 9 million new accounts, reaching a total -- a new total of 105 million accounts, representing year-over-year growth of 47%.

TPV grew by 41% year over year to $8.8 billion in Q1.

PayPal's international business continues to grow, demonstrating that its winning formula for online payments is relevant around the world.

In fact, in France, Italy, Germany, and Australia, we saw triple-digit TPV growth year over year.

Cross-border trade, which PayPal makes fast, seamless and very cost-efficient, now accounts for 20% of total TPV.

PayPal's efforts to grow merchant services -- remember, that's payments off the eBay platform -- continued to expand the business.

The product innovation is enabling a broader segment of online merchants to adopt PayPal as one of their payment options or, for many, their sole processing option.

For example, just a few weeks ago, we integrated PayPal into the payments gateway we acquired from VeriSign, allowing those merchants to easily include the PayPal mark on their Websites.

As a result of our efforts off eBay, TPV from merchant services grew 59% year over year, its fourth consecutive quarter of acceleration.

2 weeks ago, we announced the launch of PayPal Mobile, a text message-service allowing consumers to send money anytime from anywhere using their mobile telephones.

Already, companies like 20th Century Fox, Home Entertainment, Bravo, MTV and the NBA Store are offering items for sale.

Charities such as Amnesty International, Starlight Starbright and UNICEF also accept donations via the service.

We think PayPal Mobile is a great idea that has the potential to make e-commerce even more accessible for consumers everywhere.

The third business in our portfolio is of course Skype.

Skype continues to be wildly popular around the world.

In Q1, Skype added 20 million new users, exiting the quarter with a total of 95 million users, up 76% since we announced the acquisition in September.

Today, there are more than 6 million concurrent users at peak periods, which has doubled since the acquisition.

One of the primary reasons for Skype's success is its continual innovation to benefit users.

For example, in March, we launched Skype for Business, a set of features in 18 languages, designed to help the millions of small businesses that use Skype to improve productivity and reduce costs.

We also introduced Skype Video, 10-way conference calling, Web presence off Skype and many, many other features.

In fact, Skype rolled out a record number of innovations in Q1.

We continue to take advantage of synergies between Skype and our other businesses.

We now regularly promote Skype across all of our eBay and PayPal sites.

Skype e-buttons have been fully integrated into several of our eBay Marketplaces, such as Belgium and the Netherlands.

In China, nearly 25% of our listings already include Skype.

EBay Switzerland is using Skype and customer service, and eBay Spain is using it as part of its PowerSeller support program.

We will talk more about the synergies among our three businesses at our Analyst Day conference on May 4.

As you can see from this quarter's results, the strategies we've put in place in 2005 are delivering growth and expanding our businesses in 2006.

From my vantage point, the future looks very bright.

We have built the best e-commerce portfolio in the world today.

Each of our businesses -- eBay, PayPal and Skype -- is going strong.

We continue to innovate to bring more value to our users, improving the way the world meets, talks, buys, and sells.

I am more confident than ever that the combination of eBay, PayPal and Skype will help define the future of e-commerce.

I have no doubt that 2006 will be an exciting and rewarding year for the Company and for our community of users around the world.

Now, I have the great pleasure of introducing Bob Swan, our new Chief Financial Officer.

Bob joined us just a month ago from EDS, where he was the CFO.

He has also worked at TRW, Webvan, and spent 15 years at GE.

I'm thrilled that he has joined the executive team and happy to welcome him here today.

So, I will turn it over to Bob for a closer look at our financials.

Thanks, Meg;

I'm happy to be here.

I'm really excited to join eBay, a company I've admired for years with its great business model, history of strong management execution and tremendous growth opportunities.

Over the past month, I've been working closely with Rajiv and the rest of the management team to learn the business, and I've Rajiv to join us during the Q&A session to help answer your questions about the quarter.

Before I talk about results, I would like to take a moment to highlight two changes in our reporting this quarter.

First, information we have previously presented as pro forma will now be referred to as non-GAAP to ensure a clear distinction between our GAAP and non-GAAP measures.

Second, as we indicated in our guidance last quarter, Q1 GAAP results include the impact of FAS 123R stock-based compensation expensing rules for the first time.

Now, let me turn to our financial results.

Q1 was yet another great quarter for eBay.

We saw strong momentum across all our businesses -- eBay Marketplaces, PayPal and Skype -- as we continue to build on our strong online competitive position.

In total, our business generated record net revenues of 1.39 billion, representing 35% year-over-year growth and exceeding the top end of our guidance by $10 million.

Organic revenue growth, excluding the impact of foreign exchange and excluding acquisitions made in the last 12 months, was 30% on a year-over-year basis, driven by great performances from our core businesses -- eBay US, eBay in Europe and PayPal.

Strong top-line performance along with continued operational efficiencies translated into record non-GAAP operating income of 461 million for the quarter, representing a non-GAAP operating margin of 33%.

Our non-GAAP EPS was $0.24, a 20% increase from Q1 2005 and $0.01 higher than the top end of our guidance range.

Additionally, operating and free cash flow reached record levels in the quarter of 584 million and 451 million respectively.

Our Q1 financial results represent a strong start to the year, and we remain enthusiastic about our portfolio of businesses, long-term strategy and growth potential.

Now, let's take a look at Q1 performance at each of our three segments in a bit more detail.

In total, our marketplaces business achieved record revenues of 1.02 billion in Q1, up nearly 28% versus the year-ago period.

The revenue growth was broad based, as US revenue reached 527 million, up 30% over Q1 2005, and international revenue reached 493 million, up 25% over Q1 2005.

Excluding the impact of foreign exchange, international revenue grew 32% year over year.

Our eBay platform delivered strong first-quarter results.

The eBay community welcomed over 12 million new users in Q1, bringing the total registered user base to almost 193 million as we expand our geographic footprint and continue to penetrate growing online populations globally.

New listings in the quarter reached a record 575 million, representing year-over-year growth of 33%.

This growth was driven by stores' listings, which grew over 160% year over year, to reach 85 million new listings in the first quarter.

The phenomenal sequential growth in new stores this quarter drove this rapid acceleration, as sellers increasingly turned to the stores' format to capitalize on the pricing structure, new functionality and the upcoming launch of eBay Express.

These strong user and listings metrics helped drive Q1 GMV to new heights, reaching a record 12.5 billion, an 18% increase over last year.

Excluding the impact of foreign exchange, GMV grew 22% year over year.

Of course, these impressive GMV numbers do not include the volume generated from businesses, such as Shopping.com, Mobile, Rent.com and our other classified sites.

Within the eBay Marketplace, US business performance was strong in Q1 with the average daily visitors growing 21% on a year-over-year basis.

These visitors translated into 3.8 million new users and drove 6.2 billion of GMV in Q1, representing an 18% growth rate versus the year-ago and consistent with last quarter.

In the US, we saw accelerating growth in several of our larger categories, including business and industrial, boaters, jewelry, and sports.

In Q1, our motors category in the US broke the $2 billion mark in GMV for the first time.

Efforts undertaken over the past year to improve the motors' user experience, including the launch of a revised best offer format and extending vehicle purchase protection across several additional categories, are beginning to deliver results.

It's important to look at US GMV growth in the context of the change we made to include store inventory listings in all search results.

We launched an increased exposure in February and have since reverted back to the previous functionality in the US and Canada.

Our expectation before we made this change was that overall volume on the site would increase, benefiting both buyers and sellers.

Instead, when we rolled out the change, the shift in the overall balance between auction format and store inventory format new listings began to impact the buyer experience as an overwhelming number of search results were returned.

This, in turn, resulted in lower GMV in the US than we expected, which also slightly impacted Q1 revenues.

As Q2 progresses, we will continue to monitor site activity to ensure that the rollback restores the optimal balance of activity on this site.

Taking a look at our international marketplace business, Q1 was another great quarter, where GMV grew to a record $6.3 billion, representing approximately 50% of global GMV for the third consecutive quarter.

Excluding the impact of foreign exchange, international GMV grew 26% versus Q1 2005, demonstrating strong growth across our major markets.

Our European marketplace was the main contributor to the international financial performance.

In Germany, year-over-year listings growth of over 30% was driven by continued effective marketing and pricing changes in the media categories.

These listings translated into solid transaction revenue and GMV growth, as both ASPs and conversion rates increased across most categories.

In the UK, strong user acquisition fueled 80 million new listings, which in turn, drove strong GMV growth.

France and Italy also continued to be important drivers of our European business, with impressive GMV growth and increasing market share.

In the Asia-Pacific region, our Australian business continues to be a stand-out performer with accelerating new user growth and increasing ASPs.

Our business in Korea remains the market leader in e-commerce, despite aggressive local competition.

We are increasing our investment in Internet marketing and product innovation, while expanding user content in order to ensure our market-leading position.

In China, we saw accelerating revenue growth, driven by strong listings and GMV results, despite the seasonality of Chinese New Year.

Shopping.com continues to perform well, and our global footprint places us as one of the top online comparison shopping sites globally with over 35 million products and 325 categories for more than 8,000 retailers.

In summary, the overall marketplaces business demonstrated strong performance this quarter.

Through continued effective marketing campaigns, product innovation and further development of our international markets, we are on track to deliver strong results through the remainder of the year.

Now, let's turn to our payments business.

PayPal had another tremendous quarter, posting total Q1 revenue of 335 million, a 44% increase versus the same period last year.

The quarter was highlighted by strong eBay market growth and penetration and a phenomenal merchant services performance.

Our network of 105 million total accounts coupled with strong addressable GMV and penetration gains drove record TPV of 8.8 billion, representing 41% year-over-year growth.

In our eBay business, Q1 addressable GMV penetration climbed to record levels across all of our markets.

In our two largest markets, the US and UK, penetration rates grew to 78.8% and 69.1% in Q1.

In Canada, our most highly-penetrated market, reached 82.7%.

PayPal's fastest-growing segment, merchant services, generated 2.9 billion in TPV, up 59% year over year, the fourth straight quarter of accelerating results.

Our competitive pricing structure and innovative payment products enable all classes of merchants, small and large, to scale their businesses which drives TPV growth.

We're pleased with the early results of our payment gateway acquisition, where increased activity contributed to strong payment volume and revenue growth post-holiday retail season.

Overall, we are excited by our payments business.

The combination of expanding our on-eBay presence, increasingly adopted merchant services products and new initiatives, such as PayPal Mobile, positions us well for continued future growth.

Now, let's talk about our communications business.

Skype also had an outstanding quarter, continuing the strong growth trends we've seen since the acquisition in Q4.

Skype revenues of 35 million increased 23% sequentially over full Q4 2005 revenue.

Skype continues to expand its community of registered users at a phenomenal pace.

We ended Q1 with nearly 95 million registered users, representing a nearly 200% increase from a year ago and sequential increase of 27%.

To put this in context, in Q1, Skype acquired over 220,000 new users per day.

The rapid acquisition of new users along with the expansion of the Skype ecosystem is enabling increased activity, which resulted in 6.9 billion Skype-to-Skype minutes served in Q1, a sequential increase of 31%.

We are extremely happy about Skype's Q1 performance, and we are on track to achieve our full year revenue guidance of approximately 200 million for Skype.

Let's now take a look at how our business unit performance results translated into non-GAAP operating profits.

As I indicated earlier, eBay delivered record revenues with 1.39 billion this quarter.

Gross margins in Q1 were 81%, down 1 point from the year-ago period.

We continued to gain traction on cross leverage, offset by increased mix from the strong growth of PayPal and Skype, which have structurally lower gross margins.

Sales and marketing was 27% of revenue in Q1, up 1 point from the year-ago period and down sequentially by 1 point.

The year-over-year increase was driven mainly by increased spend on our successful integrated marketing campaigns globally and marketing expenses in our Shopping.com business.

On a sequential basis, the decline is consistent with our seasonal pattern.

Product development was 7% of revenue, unchanged from the year-ago period.

We continue to invest strongly in product development, fueling innovation with products such as eBay Express, PayPal Mobile, Skype for Business and the development of synergies amongst our three businesses.

General and administrative expenses was 13%, in line with the year-ago period.

We continued to efficiently scale our administrative expenses, offset by increased investment to support our trust and safety initiatives and expand our business internationally.

Collectively, these factors translated into 461 million non-GAAP operating income, 25% growth on a year-over-year basis, and representing non-GAAP operating margin of 33%.

Consolidated non-GAAP net income in Q1 was 343 million, up 24% over the year-ago period or $0.24 per diluted share and $0.01 above the top end of our guidance range.

On a GAAP basis, Q1 net income was 248 million or $0.17 per diluted share.

This includes 84 million of stock option expense, primarily related to our implementation of FAS 123R, in line with our previously-stated guidance.

These operating profits in turn grew 584 million in operating cash flows, which resulted in record free cash flow of 451 million.

We continue to be pleased with the strong cash generation potential of our business.

Now, let me turn to our guidance.

At our last earnings call, we laid out our plan to deliver full year revenue of 5.7 billion to 5.9 billion.

Additionally, our expectation was to hold 2006 margins, excluding Skype, flat with 2005 and invest up to 2 points of margin in Skype as well as the integration of our newer businesses and expanding our PayPal merchant services business.

We expected this revenue growth to translate into non-GAAP EPS in the range of $0.96 to $1.01.

Our strong Q1 results give us more confidence that we are on track to meet these full year guidance estimates.

Looking to Q2, we feel very good about the trajectory of the business, short and long-term.

That said, over the next few months, we will continue to monitor several factors, including the uncertainty of the store inventory format inserts initiative and its rollback in the US, the continued challenge of a competitive environment in Korea, new trust and safety initiatives designed to make trading even safer, and a level of excess with our upcoming launch of eBay Express.

With these factors in mind, we continue to expect Q2 2006 consolidated net revenues to be in the range of 1.37 billion to 1.415 billion.

On the bottom line, we still expect consolidated Q2 non-GAAP diluted EPS of $0.22 to $0.23 and GAAP diluted EPS to range from $0.14 to $0.16, which includes the impact of both Skype and the new stock option expensing rules which took effect on January 1, 2006.

This guidance reflects the US dollar to euro exchange rate of $1.20 for both Q2 and the full year and a full year effective tax rate of 29 to 30% on both the GAAP and non-GAAP basis.

In summary, we delivered strong performance across all of our businesses in Q1 and set the stage for a great 2006.

I believe eBay has huge growth potential, and I'm delighted to be a part of the management team, charged with driving the Company's future.

I look forward to seeing everyone at our US Analyst Day on May 4 and our European Analyst Day on May 9, where we'll lay out our strategy in more detail.

Now, we would be pleased to answer your questions.

Operator?

(Operator Instructions).

Doug Anmuth, Lehman Brothers.

I have two questions.

First, just in terms of the guidance, I was hoping you could just give a little bit more clarity there, obviously, beating the quarter by $0.01 or $0.02 and then keeping the guidance basically intact for the rest of the year.

Can you give me -- can you give us a sense there in terms of what you're thinking; why you didn't actually increase the guidance anymore?

Then just in terms of the automotive category, coming after the lighter fourth quarter, it looks like automotive GMV was up 14% year over year.

I was just wondering, how you feel like the auto -- the motors category is positioned going into the seasonally strong 2Q.

Thank you.

First, on the guidance, let me try to put it into context. 90 days ago, we laid out the year of revenue of 5.7 to 5.9 billion or up about 27% year over year and earnings of $0.96 to $1.01, which is going to be up around 14%.

So, a really good quarter as we continue to invest across all of our businesses.

The first quarter, we thought was great.

We delivered and slightly exceeded expectations on the top line and generated stronger earnings.

As we go into the second and third quarter, as you know, those are traditionally slower quarters.

As our model continues to adapt to a more retail-oriented seasonality, we anticipate that Q2 and Q3 will continue to be our weaker quarters.

In addition to that, we highlighted a couple of things that we want to continue to monitor during the quarter.

We rolled back the store -- the store's inventory format early this quarter.

We want to see what the implication of that is on the US business.

We anticipate making some changes to trust and safety to continue to improve the shopping on the site.

We know that's the right thing to do for the long-term.

In the short-term, it could have an impact on revenues.

Third, Korea, which is a great business for us, is facing some competitive pressures.

We want to continue to monitor events in Korea.

Lastly, I would say that I've been on board for about 30 days.

So, with a strong first quarter behind us and a few things we want to monitor, we think it's prudent at this stage to be conservative as we look to the second quarter and as always update you as we go along on how we are progressing on our major initiatives.

But, we feel great on the quarter.

We feel great on the guidance for the year, and we will keep you apprised as we go forward.

Let me talk a little bit about motors.

As you know, we've made a number of changes to motors, not only in the United States but worldwide over the last 12 months, and those are starting to pay dividends.

So, we feel very well-positioned going into the strong car buying season in Q2 or Q3.

We actually think some of the industry factors may be working in our favor as well.

As you know, when there is lots of used car supply, we do better.

When the used car supply is tight, we don't do as well.

So, I think we feel quite well-positioned as we go into Q2, Q3, not only in the US but worldwide.

Mark Rowen, Prudential.

A couple of related questions I guess for Bob.

On the -- you talked about the lower GMV growth being related to putting up stores listings with the auction listings and seeing a mix shift.

Was that for the whole quarter?

Or was that part of the quarter?

Was it primarily an ASP issue or was it a success rate issue?

Did both of those things play in?

The fact that GMV was so much lower -- the GMV growth was so much lower than the listings growth in the quarter, did autos globally impact that at all?

Mark, let me take a first crack at that and then turn it over to Bob if he has anything to add to it.

The first thing is that this, giving more exposure to store inventory format listings was a success in many, many countries.

In fact, we have not rolled it back to anyplace other than Canada and the United States.

The difference in Canada and the United States, there was a much higher percentage of stores listings.

When buyers searched, they were overwhelmed and overwhelmed by the number of search results, which we feel sub optimized the buyer experience.

What we had anticipated actually was that GMV could have been even stronger than it was in the United States, based on the overall site activity, meaning the number of unique visitors to the site and their engagement with the site.

So, I would say that obviously, overall, conversion dropped a bit because we went from a small number of items to a huge number of items in the United States.

ASPs for store inventory format tend to be lower because a lot of it is accessories and things like that.

So, the overall mix didn't meet our expectation based on increasing store inventory format on this site.

With regard to motors, I'm not sure motors had a material impact on GMV.

I think motors sort of performed as we anticipated it would, and most of this was regular store inventory format being put into regular core.

Then, my related question then, Meg, is on the stores listings, since that is driving a lot of the listings growth, particularly in the US, can you help us better understand the economics of the store listings?

Is the velocity of those listings significantly slower than the auction listings?

Is the ASP -- I know you just said it was lower, but is it significantly lower than your typical listings?

Yes, Mark, let me try that.

Just for the record, I would have nailed that question if Meg answered as well.

I'm sure you would have.

Exactly what she said.

But, in terms of the listings growth, yes, the US had strong listings growth in the first quarter of 23%.

Clearly, that was impacted by stellar accelerating stores inventory.

GMV in the quarter up 18%, as Meg indicated, came off to a really good start in the first part of the quarter and trended down after the change.

In terms of the overall impact, stores inventory has a marginally lower conversion rate and a marginally lower ASP.

But, we anticipate with more volume that we'll be able to more than offset that with higher growth as we go forward.

Just a housekeeping question -- did you give the exact number for the negative impact from FX?

Yes.

It's in the press release.

I will look it up.

Thanks.

Christa Quarles, Thomas Weisel.

I had a couple of questions on PayPal.

One, if you strip out VeriSign, it looks like your take rates went down pretty dramatically and I'm assuming that's because of the off-eBay TPV.

So, I was wondering if you could -- a, highlight what VeriSign was and what the take rate differential is between on and off-eBay TPV.

Then, also, if you could highlight what the international growth was.

I wasn't able to find it in the release.

Thanks.

Yes, first in terms of VeriSign's impact, we're not going to break that out going forward.

You know, it was $6 million in Q4.

You know it grew quite a bit in the first quarter but not really material to the overall performance of the business.

It did have a positive impact on take rate.

Because as you know, it was -- those revenues are included in the numerator and not in the denominator.

That was -- so that positive impact was marginally offset by the expansive growth of merchant services within PayPal overall, which as we indicated, TPV was up 59% year over year.

TPV was up 59% year over year.

The take rate on merchant services is a little bit lower than the take rate on eBay -- that's eBay performance.

The other thing that you have to watch when you look at PayPal's take rate is international cross-border versus domestic within country.

The -- obviously, it is still incredibly cost-effective cross-border, but we do have a slightly higher take rate on cross-border trade than we do domestically.

So, it's domestically or German to German or French to French or UK to UK increases relative to cross-border.

You may see a little depression there as well.

But, fundamentally, there's nothing out of whack here.

PayPal has performed incredibly well, and there's nothing unusual or very strange about the overall take rate.

Could you highlight us the international growth at PayPal and I guess it sounds like the UK fee decline was maybe to mitigate the cross-border fee?

The overall growth for PayPal is 44%, and the percent coming from international hasn't changed.

So, it stayed at 35% of PayPal is from international, both last year at this time as well as this year.

So, it's growing at the same rate as the rest of the PayPal business.

Anthony Noto, Goldman Sachs.

Meg and Bob, a couple of questions -- the first questions is why wouldn't we see a recovery in revenue per listing?

If you look at the calculated revenue per listing in the first quarter, it was down 4% year over year.

I've never seen revenue per listing decline before on eBay.

Our study in the quarter showed that you just had a higher conversion of mixed -- of closed listings, which have a lower ASP.

If those are not being merchandised as well sort of at the end of the aisle, the mix should go back.

So, I was trying to understand what is the risk there, and what have you seen through the first 18 days in the quarter?

Because, if you actually do the math on it, your business probably would've done close to 1.415 billion to 1.420 billion in revenues, so we can get a sense for the normalized growth.

Then, Bob, it sounds like you've gone to the Rajiv Dutta school of guidance here pretty quickly, so I will have to push back on that as well.

You didn't change your second-quarter guidance and you didn't change your back half of the year guidance.

So, if you take your out-performance in the first quarter and add up what you've given in terms of the parts, it's greater than what you have given out for the whole.

I'm just trying to understand that math, not so much why didn't you raise guidance but just given what you gave, you beat by 17 million, you didn't change Q2, you didn't change the back half of the year, the full year should go up by 17 million.

What am I missing on the math?

Thanks.

Anthony, on the first point, it clearly accelerated listings from stores.

The preponderance of growth in stores is going to have a lower impact on the overall revenue per listing.

That happened in of course for the first quarter.

Secondly, in terms of the Rajiv school of guidance, you know, look, we gave a range for guidance for the full year including for the -- including for the second quarter.

It's a decent-sized range because it's a decent-sized business.

So, 1.37 billion to 1.415 billion, that's a pretty decent range.

We will shoot to outperform.

But think all factors considered, we thought it was prudent to leave guidance where it was for the quarter.

For the 10 million we were up in Q1, given the 200 million range for the full year, you know, we will -- as we continue throughout the course of the year, we will revise that as necessary.

In terms of recovery in the revenue per listing, you know, we may see that.

But, the other thing of course we have launching is eBay Express.

We do not know quite what the dynamics of eBay Express is.

We're very excited about it.

Our sellers are excited about it.

But, as you know, it is a fixed-price only that will be populated in large part by eBay stores inventory format.

We believe it will be incremental but may still depress the revenue per listing based on the mix, which would still be the right thing to do from the consumers' point of view.

It would be the right thing for GMV.

But it might depress revenue per listing.

I think, because we haven't launched it, we don't know.

I don't think it will be a big depression, but it could be some.

You know, we just don't know.

What we have learned at eBay over the last 8 years is until you launch these new formats, until you launch the new incremental functionality, you don't actually know what it is going to do because no one has done it before.

Scott Devitt, Stifel Nicolaus.

You noted that the stores rollback occurred in the US and Canada and was mostly a US issue.

I think the number of eBay stores grew something like 27% sequentially, and the international piece of that grew 40% sequentially.

International transaction revenue growth slowed by 10 percentage points.

So, I was wondering if you could expand on the stores growth, specifically internationally, given that Express doesn't launch in the UK or Germany until 3Q.

Also, I'm wondering the type of impact that that store's growth may have had on the international rev growth rates, since you didn't roll back the search changes outside the US.

Thanks.

So it's a bit of a complicated question I think.

There is a much smaller base of store inventory format listings outside the United States.

So, the important thing to look at is the ratio between core listings and store inventory format listings.

In the United States, that ratio is double to triple what it is outside the United States.

And as a result, you didn't see the degradation in the buyer experience.

You still saw a lot of people open stores; you saw an increase of store inventory format listings but nothing to the extent we saw in the US.

There may have been an accelerating factor, as people knew their store inventory format was going to show up in core search.

And also, we are anticipating the launch of eBay Express.

So, I think that is a little bit of the dynamics.

The other thing that is true is stores inventory format is priced differently in every market, consistent with giving pricing decisions to our country managers.

The relative difference in pricing outside the United States and inside the United States varies by country.

Okay, so just to follow up on that, the change in the user experience that occurred in the US did not occur internationally?

Correct.

The last point -- because of the huge volume of stores inventory in the US, the impact on the buyer was an abundance of -- an abundance of inventory when they did a core search.

We don't have that preponderance of stores inventory in the international markets like we do in the US.

Steve Weinstein, Pacific Crest.

Two questions for you -- one, can we get the organic growth rate in the business for the quarter?

If you do want to break it out, the organic in the US, that would be great.

But then second, continuing with stores, you obviously had a lot of growth in that, which I think means sellers seemed to like the format and the pricing scheme there.

How does that make you think about your pricing strategy overall and potential changes you might want to make?

(multiple speakers) Did you want to take the organic question?

Yes, I'll do the first question.

Total revenue growth of 35% and organic growth was 30%.

That's about the extent in which we break it out.

With regard to stores, I think this is a high-class problem.

The fact that we have gone from nowhere to the single-largest storefront provider on the Web in 2 years is remarkable.

Clearly, sellers are excited about this store's product because there's longer duration; they can upsell and cross sell.

As always with pricing, we think about how to optimize the marketplace and how to best manage the marketplace.

As we think about pricing in every country, over the next 3 to 6 months, we will obviously think through, is everything priced appropriately based on the dynamics that we see in the marketplace?

But, this is all very new, this level of store inventory format is unprecedented and I think in some ways, exciting.

It hurt the buyer experience.

But, it clearly tells us there's something really interesting going on with this store's product and in anticipation of eBay Express.

So, let's launch eBay Express.

Let's see what happens.

Then obviously, each of the country managers may determine that it makes sense to rebalance the marketplace based on the dynamic in that market.

Jim Friedland, Cowan & Company.

A question related to net neutrality, both here in the US and Germany.

Deutsche Telecom has made moves to charge Internet companies.

You know we've seen some at least initial bills passed through the House or at least through committees.

So the question is, with Skype and all those free minutes, how exposed do you feel to any potential fees from telecom costs?

Thanks.

So, we are obviously monitoring the net neutrality debate, both here as well as in many other countries.

Our point of view is that the global open Internet has been a tremendous force for good over the last 12 years, empowering innovative businesses, both large and small.

It's also been incredibly beneficial to consumers.

It creates jobs across America and globally, and I think has been a help to the economies of many countries of the world.

So, our position is obviously that openness and nondiscrimination are central to the Internet success and that as policymakers look to develop the rules of the road for the broadband Internet.

I hope that they will take that into account.

I can't speculate on what the Congress will accomplish this year or what other regulatory bodies in other countries will ultimately decide.

So, we are monitoring it.

I think you know, this will take some number of years to sort out.

Obviously, as things become clearer, we will decide what implications there are for our business and what changes we need to make, if anything.

You know, I think it's kind of important to point out that all Internet businesses, whether they are small or big and the millions of Internet consumers, they already pay for Internet access and bandwidth.

I think that's something that is often lost in the debate.

But, anyway, that aside, we will continue to monitor the situation and make changes as we need to.

So, just to confirm though because I saw some article about Deutsche Telecom pushing for levying fees.

Nothing to date has happened; it's just all the telcos want it.

But today, there's nothing actually being charged?

That is correct.

Imran Khan, JP Morgan.

Couple of question -- one, in terms of Skype, you talked about pay-per call and integrating Skype with your eBay Marketplace platform.

I was wondering if you can give us an update.

Secondly, going on Skype, if you have the Skype for like two quarters now, what kind of employee retention you are seeing, primarily in your Estonia development center?

Finally, in terms of PayPal penetration, could you comment what kind of improvement you're seeing in the German market?

So, we will have a cameo appearance by Rajiv to talk about Skype.

I know, I'm glad I made the trip from London.

So, in terms of integration with Skype, actually, we are really, really excited with the opportunities, both eBay and with PayPal.

In fact, the more time we've spent on this was becoming pretty clear to us is that the integration opportunities, both near-term and longer-term, are very significant.

So, to date, what we have done is we've done a number of sort of strut promotions.

We've launched Skype hubs in all eBay sites.

We've got Skype e-buttons.

Meg mentioned on the call that 25% of all listings in China are Skype buttons.

We have Skype e-buttons for customer support.

Then, we've done a number of things with PayPal, including enabling the PayPal payments for top up on the Skype client.

I think, as we look further out, we are very excited with the opportunity for integration with PayPal in particular with really integrating PayPal wallet functionality onto Skype and with eBay, as we look to pay-per-call.

This is things that as we've indicated, we will be looking towards the end of this year, the second half of this year to roll out.

We will be spending a bit more time talking to you about this at our Analyst Day.

Did you talk about employee retention?

Employee retention in Estonia, actually we have had full employee retention.

In fact, we are hiring people at a record clip in Estonia.

You have to understand that we have a fantastic team in Estonia, and Skype is the place to be and it's the place to work in our Tallinn office.

It's a very exciting environment, and we have had no issues at all.

In fact, we've had a lot of increased attention to Skype and eBay.

With regard to PayPal penetration in Germany, we've got good traction, albeit often a small base.

As you know, PayPal competes with EFT in Germany.

We always knew this was going to be a more challenging market with slower increases in penetration.

We have just introduced a new product, which is electronic EFT.

We are going to even more seamlessly integrate PayPal into the German eBay buying experience.

So, I think you'll see penetration rise slowly but surely.

It's going to take longer.

But, right now, it's up 10%.

I think you know, as I said, we will continue to gradually increase.

But, it's a strong competitor -- EFT.

Every German uses EFT, and we knew that this was going to be a challenge.

That said, we are really pleased with the progress.

You know, over the last 12 months, we have made really nice strides in the German market.

So, patience is going to be a virtue.

I think the patience will pay off.

Robert Peck, Bear Stearns.

Good quarter, just a couple of quick questions here.

One was just to clarify, Bob.

The organic growth rate, was that 30%?

I think our notes for last quarter was 34%.

Is that correct?

Yes, that is.

Meg, I was wondering as far as revenues per listings and ASPs, trying to gauge how eBay Express will affect the numbers in Q2 going forward.

Could you talk about why you think the revenue per listings will be down and is it related at all to any unconfirmed address shipping that the sellers will have to do?

No, it has nothing to do with unconfirmed shipping addresses.

I think the sellers have really decided this is actually a good thing, that it offers them incremental value and the trust and safety risk around shipping to unconfirmed addresses is not meaningful.

I think the answer is we don't actually know what's going to happen here.

One could argue that revenue per listing will decrease a little bit because of the preponderance of stores listings.

On the other hand, what we believe is that the average selling price on eBay Express will be higher than core because it is I will buy it now.

It is uniquely suited for some high ASP categories, like consumer electronics, things like that.

So, there may be some offset.

If the average selling price jumps, the revenue per listing actually may go up.

But if average selling price holds, then revenue per listing may go down a bit.

So, stay tuned, we will actually give you visibility into this as we go along and as we learn more.

But, I guess if you ask me sitting here today, I think it's prudent to not predict an increase in revenue per listing based on the launch of eBay Express.

We might be pleasantly surprised, but we tend to be conservative around these things.

Will eBay Express in Germany be any different than the US?

There are some differences to that but not significant.

So, basically, the product is largely the same.

So, why don't we take one more question and we will end on time?

Mark Mahaney, Citigroup.

Two quick questions, please.

First, on Korea, can you -- have you seen any impact to date in terms of competition and have you seen that in terms of sharply-decelerating GMV growth rates?

Then, secondly, just in terms of the rollout of eBay Express, can you talk a little bit about the geographic strategy, how quickly you'll take it to different markets and how quickly you will use marketing campaigns to promote it?

Thank you.

So, Mark, we actually have record listings in Korea this quarter.

As you know, it is a remarkably successful business for us.

Q1 is typically a seasonally slower quarter due to the lunar New Year and fewer calendar days.

But, we actually were quite pleased with our first-quarter performance.

Our level of success in Korea over the last few years has attracted a lot of competition, much of which we have overcome.

There are several new competitors on the horizon, and we want to make sure that we are innovative and that we maintain and extend our lead.

So, I think that's why we are being a little bit cautious about forecasting Korean revenue growth because we want to make sure that we remain competitive in that market.

We have a fabulous team in Korea.

I think they are among our best country teams worldwide.

I assure you, they are really focused on making sure that we are evolving our business to meet the needs of the Korean consumer.

The other thing you should know is that Korea is on a local platform.

It is not on the global platform.

So, they have infinite degrees of freedom to change the product offering, to change -- to cycle through product changes much faster than in any other market.

The second question was around eBay Express rollout internationally.

We have said that pending our first rollout in the United States, we are planning Germany, the UK.

But we have not said what timeframe or when.

Again, that's going to be a little predicated upon what we see in the United States.

But, the product development work is being done, and we will be ready to roll it when we have a little bit of data from the US.

Okay, thank you very much for joining us.

We look forward to seeing you at Analyst Day here in the early part of May.

That does conclude today's conference call.

Thank you for your participation.