eBay Inc (EBAY) 2007 Q1 法說會逐字稿

Good day everyone and welcome to eBay's first quarter 2007 earnings results conference call.

This 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 Vice President of Investor Relations, Mr.

Mark Rowen.

At this time I would like to turn the call over to Mr.

Mark Rowen.

Please go ahead sir.

Good afternoon everyone.

Thank you for joining us, and welcome to eBay's earnings release conference call for the first quarter of 2007.

It is a real pleasure for me to be here today after listening to the call from the other side for so many quarters.

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

This quarter we are once again providing a slide presentation to accompany Bob's commentary during the call.

This conference call is also being broadcast on the Internet.

And both the presentation and call are available through the Investor Relations section of the eBay website.

Before we begin, I would like 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 the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this call.

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

Our actual results may differ materially from those discussed in this call for a variety of reasons, including our increasing need in established markets to grow revenues from existing users, as well as new users; an increasingly competitive environment for our businesses; the complexity of managing a growing company with a broad range of businesses; regulatory, tax, and IP, and other litigation risks, including risks specific to PayPal in the financial industry and risks specific to Skype's technology into the VoIP industry; our need to upgrade our technology and customer service infrastructure to accommodate growth at a reasonable cost, while adding new features and maintaining site stability; foreign exchange rate fluctuations; and the impact in 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 statements, and we assume no obligation to update them.

With that I will turn the call over to Meg.

Welcome everyone to today's conference call.

I want to take a moment to welcome Mark Rowen to eBay.

As many of you know, Mark recently joined eBay as our Vice President of Investor Relations, and we're thrilled to have him.

Previously with Prudential Equity Group, Mark covered eBay as a sell side analyst for the last eight years.

And I'm very pleased to welcome him to this side of the call today.

The first quarter was a very strong one for the Company.

The strength of our core businesses, as well as the significant traction we're beginning to see across our newer businesses, helped us deliver great results across the board.

In total, the Company delivered net revenues of nearly $1.8 billion, representing year-over-year growth of 27%.

We are particularly pleased by the year-over-year organic topline growth of 21%, and the EPS growth of 39%, as well as the expanded operating margins of 34%.

During the quarter the Company made great progress against our goal of extending our leadership position by improving the user experience across all three of our businesses.

So let me give you some highlights for our business areas, Marketplaces, Payments and Communications.

Our Marketplaces business unit, which is made up of the eBay sites around the world, Shopping.com, Rent.com, StubHub and our growing Classified business, delivered revenues of $1.25 billion this quarter, representing a growth rate of 23%.

[Frank] in both our GMV-driven businesses and our non-GMV-driven businesses drove these record results.

Total Payment Volume on PayPal was $11.4 billion in Q1, an increase of 30% over the same quarter last year.

And the number of PayPal accounts increased to more than $143 million.

Also TPV for Merchant Services, our growing off-eBay business, grew 51% year-over-year, and we added thousands of businesses to our existing stable of merchants.

Delivering its first quarter of profitability on a non-GAAP basis, Skype performed very well, adding 24 million new users to its growing base.

The launch of SkypePrime, SkypeFind and Skype Send Money, all of which I will talk a little bit more about in a few minutes, are great examples of how Skype continues to innovate ahead of the curve, and why we are optimistic about the potential of this business.

Let me now spend a few minutes to give you some additional context on the quarterly results for each of these businesses.

Beginning with Marketplaces, let's take a look at our GMV-driven businesses first.

By engaging more than 230 million global users, eBay sites around the world are performing well as some of the key underlying metrics of the Marketplace continue to improve.

Across the eBay network of sites, traffic is up, conversion rates are strong, and ASPs are high.

More buyers than ever are coming to eBay, so many sellers are seeing improved profitability and generally better economics.

As you know, this critical more buyers equals more sellers cycle is essential to our success, and it is working well.

However, the growth rate of overall listings, and therefore GMV, are not what we want them to be in the U.S.

and Germany.

Let me spend a minute specifically addressing the factors we think are contributing to the growth rates in these two countries.

First, as we told you last year, we continued to focus heavily on improving the buyer experience by advantaging our auction listing and discouraging lower quality, poorly priced listings.

This is absolutely having the desired effect of a cleaner site; however, as expected this is putting some pressure on our listings and GMV growth in the U.S.

and Germany.

But we still think this initiative will continue to substantially improve the buyer experience.

Also, in line with the evolution of the Internet and the changing environment around custom safety, we have aggressively stepped up our efforts around the identification and removal of bad sellers with a variety of new measures.

Some of these initiatives are impacting GMV growth.

But based on feedback we have heard from our buyers and rights owners alike, they are having an overall positive effect on the health of the Marketplace.

In order to accelerate growth we will continue to improve the user experience on eBay sites around the world with state-of-the-art search technology, especially around product-based search and improved search relevance.

And we will continue to advance our custom safety efforts to make our sites the safest places on the Internet to conduct business.

I'm confident that we have identified the areas we need to focus on in order to reaccelerate growth rates in the U.S.

and Germany.

But this won't be achieved overnight.

It will take time and attention.

And I believe we have put the right teams and the right strategies in place to make this work.

Looking beyond the U.S.

and Germany, eBay around the world continues to be an impressive story.

In Europe, the UK showed strong growth in its acquisition of new users, posting a 26% increase in the number of registered users from the previous year.

France and Italy continue to be success stories in their own right with very strong growth.

While markets like Belgium and Spain continue to drive high awareness rates and even higher user acquisition and activity metrics.

Turning to our markets in Asia-Pacific, progress is being made in Korea.

For the last year we continued to gain share of the e-commerce markets from the smaller players.

The Korean team continues to be aggressive with several new products and marketing initiatives that are helping to close the gap with our competition.

In China and Taiwan the joint ventures we entered into last year are going extremely well.

And we're also very pleased by our local cross-border trade businesses in those markets.

And capitalizing on India's fervent passion for cricket, eBay India launched the eBay Cricket Mania campaign, which helped create huge awareness of eBay and drove a lift in GMV from the previous quarter.

Lastly, eBay Express continues to experience increased adoption and growing success.

For those of you who remember our eBay velocity statistics from the old days, on eBay Express an article of clothing sold every 67 seconds during the quarter, while a piece of jewelry sold every 2.5 minutes.

And finally we're delighted with StubHub and its selection of high-volume, high-quality ticket listings.

Whether you are already looking for Kentucky Derby tickets or a chance to see the Police reunion concert, StubHub has what you're looking for.

In terms of our non-GMV-driven businesses in the Marketplaces network we had a very strong quarter.

Our diverse portfolio of businesses that we began to build a few years ago is showing sustainable traction.

We are extremely pleased with their results this quarter.

The global Classified team has built critical mass in highly attractive markets.

With a presence in hundreds of cities around world, monthly [lot] ads totaled 8.3 million, with almost 280,000 new ads added each day.

Monthly page views to our portfolio of brands, including Kijiji, Gumtree, LoQUo, Marktplaats and Intoko were more than 2.2 billion in the month of February.

As an example of this popularity, Kijiji France is the number one free classified website in Paris, where an apply to an ad is sent every 20 seconds.

And Marktplaats, our largest classified brand, is one of the top sites in the Netherlands, with nearly two-thirds of Dutch online users visiting the site an average of 13 times a month.

Shopping.com also had a great quarter.

Globally Shopping delivered 29% year-over-year growth in Q1.

And according to the March comScore data, the Shopping.com network continues to lead the category in unique visitors.

Traffic growth in the U.S.

was 10% year-over-year, significantly outpacing the nearest competitor.

As for our growing advertising business, our partnership with Yahoo!

and Google are performing well.

After several quarters of testing we're very optimistic about the potential of this business.

As graphical advertising ramps up across our U.S.

site, Yahoo!

has seen strong advertising demand for this high-quality inventory.

And we recently expanded our relationship with Yahoo!

by providing their merchants and advertisers with a streamlined checkup process through the Yahoo!

PayPal checkout program.

Outside of the U.S.

our international advertising partnership with Google is also on track, with the first round of ads launching in February.

So in total our Marketplaces business continued to perform very well, largely because of our renewed focus on the buyer experience.

While we would like to see faster GMV growth in the U.S.

and Germany, our crafted portfolio continues to drive impressive results.

We're thrilled to see some of our smaller non-GMV-driven businesses gaining traction, as it means we're closer to being able to provide anyone with the type of online commerce experience they want, no matter where they live, or what platform app they want to buy or sell in.

Now let me turn to Payments.

PayPal had another excellent quarter.

PayPal continues to be far and away the number one online payments company, turning in impressive results, including 31% annual revenue growth, and more than $11 billion in total payment volume.

We continued to grow our on-eBay business in the U.S., achieving nearly 80% penetration of addressable GMV.

Globally, PayPal is also expanding across borders and currency.

We recently announced that PayPal had 35 million accounts in Europe.

In fact, PayPal is becoming increasingly popular in Germany, reaching the important milestone of 5 million accounts and settling nearly 12% of the addressable GMV on eBay Germany.

As part of our goal to deliver world-class security, PayPal announced the expansion of PayPal Buyer Protection in January, giving buyers up to $2,000 of coverage for qualified transactions on eBay.com.

This doubled the coverage provided by the previous program, and PayPal now offers purchase protection on more than 95% of items listed on eBay.com.

As for our Merchant Services business, it is continuing to demonstrate strong momentum.

In the first quarter this business generated $4.4 billion in TPV.

Brand-name merchants like Avon in the U.S.

and Harrods in the UK, realized the value of adding PayPal as a payment option in Q1.

In addition, we also welcomed thousands of other merchants around the globe, making payments accessible and cost effective to businesses of all sizes.

PayPal continues to go very nicely as we focus on building the largest network of users, developing the best product for online payments and making security a priority.

We're incredibly pleased by the direction and trajectory of this business.

And finally on the Communications front, Skype had a very productive quarter.

In addition to adding 24 million new users, several products were launched over the last three months.

Skype Prime is a new way for people to sell their expertise, answers and advice anytime and anywhere to other Skype users.

This product is a great illustration of our stated long-term goal of fueling Skype monetization.

Also launching in March, Skype Find allows users to recommend and promote a preferred business to the entire Skype community.

Skype Find is another way to keep the Skype community engaged and sharing with each other.

It is still quite early in the lifecycle of these product, but they are already benefiting from positive reception and high adoption.

And as an ideal example of how the Power of Three strategy continues to pay off for our users, we launched a beta version of Skype Send Money last month.

This product allows PayPal and Skype users to use their PayPal accounts to spend and receive money via the Skype client.

By combining these services our customers benefit tremendously, allowing them to communicate and pay in an easy, safe and fun way.

In addition to helping PayPal increase its customer base internationally, this also helps expose U.S.-based PayPal users to the benefits of Skype.

An updated version of Skype Send Money is expected to launch during Q2, and we view this as a perfect illustration of the Power of Three at work.

For the next several quarters the focus for Skype remains extending our leadership position by continuing to build the user base, expanding the active ecosystem of developers and partners, and enhancing the call quality for our users around the world.

By enabling the world's conversations for 196 million users, Skype is providing more ways for people all over the globe to connect with one another, at home, at work and on the go.

Ultimately, Skype lets people express, share and do more online than they ever could before, and we remain excited about this business.

So in summary, the compelling combination of our three businesses continues to drive impressive revenues and profits that we're using to strategic invest in key product initiatives that will strengthen all parts of the business.

As I just outlined for you, each of the business units is making progress on achieving our 2007 objectives.

I'm very pleased by what we are seeing here.

Our corporate strategy for 2007 is all about further establishing our leadership in e-commerce, payments and communications, and continuing to explore new opportunities and ways to enhance the user experience across all of them.

Let me close by saying that in addition to being a leader in these three important areas, I think the human component of our business truly remains at the core of what we do.

EBay as a Company is about connecting people.

It is what all of our businesses do.

We deliver fun, engaging, and trusted online experiences for people around the globe to trade, pay and communicate with each other, and to discover new opportunities from those connections.

Today those opportunities take the form of e-commerce, payments and communications.

And people are discovering new ways to prosper with eBay Inc.

every day.

It is our portfolio of powerful brands which enables these human connections.

That sets us apart as a catalyst for global interaction and innovation.

And we continue to have a profound impact on the world every day.

I am enormously excited and confident about our future.

And I'm extremely thankful to the hundreds of millions of loyal users who choose to interact with eBay properties every single day.

It is the needs and wants of those users that truly remain at the forefront of everything we do.

And now I would like to turn it over to Bob for a closer look at our financials.

Today I will discuss our Q1 financial performance, along with our outlook for the second quarter and the remainder of 2007.

I will again be reverencing our earnings slide presentation this quarter which accompanies our webcast.

First, let me discuss our financial results.

Overall, Q1 was an excellent quarter for the Company.

We delivered solid revenue growth, expanded operating margins, and generated strong earnings and free cash flow based on good GMV, great results from non-GMV-driven businesses, and robust TPV growth.

Additionally, we deployed capital to strengthen our business via our acquisition of StubHub, and to repurchase an additional 10 million shares.

In total, our business generated record net revenues of $1.77 billion, representing 27% year-over-year growth.

Organic revenue, excluding acquisitions and FX, was up 21% versus last year.

Acquisitions we made over the last 12 months contributed 1 point to our topline growth.

And FX, due to a weaker dollar, contributed an additional 5 points of growth.

Non-GAAP EPS was $0.33, a 39% increase from last year, and $0.03 higher than the top end of our guidance range.

Our EPS strength relative to guidance was driven primarily by strong revenue contributions from our non-GMV businesses, expense leverage and productivity, a lower tax rate, and benefits from a weaker dollar.

We delivered excellent cash flows as well, generating $479 million of free cash flow, 6% growth versus last year, despite an additional $109 million of cash taxes paid in the quarter as compared to the prior year period.

Now let's take a closer look at our segment results for the quarter.

In Q1 the Marketplaces business achieved net revenues of $1.25 billion, up 23% versus the year ago period.

In the U.S.

revenue was $613 million, up 16% over last year, while international revenue was up 29% to $638 million.

EBay's global GMV for the quarter was $14.3 billion, a 14% increase over last year.

Excluding the impact of foreign exchange, GMV grew by 10%.

Now let's walk through some of the key operating metrics.

We added 12 million new users in the quarter, including 3 million from our acquisition of StubHub, bringing the total registered user base to 233 million.

EBay new listings in the quarter were 588 million, representing year-over-year growth of 2%.

Globally, core listings were up 4%, and store inventory listings declined by 6% to 79 million new listings in the quarter.

Looking at the U.S., new listings were down 2% compared to Q1 '06, as core listings grew by 2% to reach 210 million, and store listings declined by 18% to 48 million.

Internationally, new listings grew by 6% year-over-year, with core listings growing 5% to reach 299 million, and store listings up 21% to 31 million.

U.S.

GMV grew 8% to $6.7 billion, which includes 1 point of growth from our acquisition of StubHub.

We saw strength in several categories such as technology, apparel and jewelry, but total GMV growth was negatively impacted by our Motors business, which reduced growth by approximately 2 points.

The lower GMV growth in Motors reflect softness in the casual seller segment of our vehicles business.

Despite this, we enjoyed strong traction in our dealers segment, aided by the launch of our local market offering.

We believe that with a seasonally strong Q2, and the upcoming launch of eBay Motors 2.0, we are well-positioned exiting Q1.

In our international eBay business GMV grew 20% to $7.5 billion, representing 53% of global GMV.

Excluding the impact of foreign exchange, international GMV grew 11%.

I will discuss our international business in a bit more detail shortly.

Let me first give you some context at how we were able to convert 2% new listings growth to 23% total revenue growth.

First, GMV growth is dramatically higher than new listings growth.

This was primarily driven by improved average selling prices and conversion rates across many of our markets, as we continue to focus on improving the quality of listings on the site and enhancing the buyer experience.

FX, or a weaker U.S.

dollar, drove the remaining 4 points to total GMV growth of 14%.

Second, revenue growth is much higher than GMV growth.

This is driven by strong growth from our non-GMV-based revenue, including Shopping.com, Rent.com, classifieds, and advertising, which contributed 3 points of growth.

Additionally, the stronger relative growth rates at some of our higher take rate businesses contributed an additional 4 points of growth.

Last, pricing actions in the last 12 months drove the remaining 2 points of growth.

Clearly, our revenue growth has benefited from better quality inventory and acceleration of non-GMV and higher take rate businesses.

We are pleased with the strong topline growth and improvements in ASP and conversion rates; however, we're not satisfied with our GMV growth in the U.S.

and Germany.

We do believe that over time our continued focus on improving the buyer experience will bode well for listings growth and in turn GMV.

Now let's take a closer look at the rest of our Marketplaces business.

In Europe growth was driven by the UK, France and Italy.

In Germany, while conversion rates and ASPs were up over last year, listings were down, causing GMV growth to be lower than we would like.

As in the U.S., we're focused on improving the buyer experience and trust and safety in Germany in order to reaccelerate the business.

Our business in the UK posted a good Q1, driven by strong visitor growth and customer conversion.

France and Italy continue to grow at healthy rates and were strong contributors to overall Europe performance.

In Asia our Korean business remains focused on reaccelerating GMV growth and continuing to gain market share.

Our recent pricing actions enable us to be more competitive and improve our seller value proposition versus the local competition.

In addition, we have recently launched several initiatives, such as on-site shopping cart and immediate payment capability in order to fuel more user engagement.

As I indicated earlier, our non-GMV-driven businesses were strong contributors to our growth in the quarter.

Shopping.com had a great quarter, extending its lead against its nearest competitor in the U.S., and delivered solid revenue growth.

Internationally, Shopping.com continues to gain momentum with over 50% revenue growth in the quarter.

And our classifieds business is growing strongly, nearly doubling revenue in Q1 as compared to last year, aided by the rollout of advertising on many of our Kijiji sits in the second half last year.

Overall, we're pleased with the performance of our Marketplace business where we have seen good traction in non-GMV businesses, while we work to improve GMV growth rates, especially in the U.S.

and Germany.

Now let's turn to our Payments business.

PayPal had another great quarter, posting total revenue of $439 million, a 31% increase versus the same period last year.

Total Payment volume in the quarter was $11.4 billion, representing 30% year-over-year growth.

TPV grew by 22% in the U.S.

and 50% internationally versus last year.

Our TPV growth was driven by record eBay penetration level, continued strength in Merchant Services, and an ongoing benefit from the Q4 expansion of our geographic and currency footprint.

In terms of key operating metrics, PayPal added 10 million new accounts in the quarter.

Global TPV for PayPal's on-eBay business grew by 19%.

Growth was paced by 59% global penetration of addressable GMV, up over 3 points from last year.

In the U.S.

the penetration rate of 80% is up 1 point from the prior year, while UK penetration grew by 2 points to 71%.

And Germany, our second-largest GMV market, we nearly doubled eBay penetration in the last year.

Our global Merchant Services business also had an excellent quarter.

Merchant Services posted another impressive performance, generating $4.4 billion of TPV, up 51% year-over-year.

We continued to get excellent traction on our global Merchant Services business, with strong adoption of our Express Checkout product in the U.S.

and growing penetration in our major international markets.

In March we began to charge fees in Germany, and we also started to migrate our payment gateway merchants on to the full PayPal product in Q1.

The PayPal Q1 transaction expense was 1.09%, 5 basis points higher than the year ago period, but on par with last quarter, driven primarily by a higher credit card funding mix versus last year.

The transaction loss rate was 32 basis points this quarter, up 3 basis points from a year ago, but down 9 basis points from Q4, with increased consumer protection in order to provide a better user experience and build trust, while proactively updating our models so we stay ahead of the fraudsters.

In summary, PayPal had another great quarter and continues to be a key driver of our overall growth.

Looking at our Communications business, Skype once again grew at a rapid pace this quarter, posting total revenue of $79 million, an increase of 123% versus year ago period, and achieving its first quarter of profitability on a non-GAAP basis.

Skype's user base grew to nearly 196 million, representing an increase of 107% from a year ago.

Europe continues to drive significant increases in new users.

And we are pleased with our traction in North America where user acquisition continues at a strong pace, and adoption of paid subscription plans is ahead of our expectations.

In Asia user growth slowed somewhat as a result of the expiration of our Try Before You Buy promotion last quarter.

Q1 Skype-to-Skype minutes were approximately 7.7 billion, up 11% on a year-over-year basis, while SkypeOut minutes grew to 1.5 billion, representing 131% growth versus the prior year.

While growth in SkypeOut minutes was strong relative to last year, sequential growth was not as strong due to the expiration of free promotions in both North America and Asia.

As Meg discussed, we launched several new products in Q1 to enable us to increase monetization in user activity over time.

We are pleased with the progress we're making at Skype with multiple new product launches this quarter and continued strong user acquisition.

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

As I indicated earlier, eBay delivered record revenues of $1.77 billion, up 27% year-over-year.

This topline growth, coupled with operating expense leverage, a lower share count, a lower tax rate, and a weaker U.S.

dollar drove EPS expansion from $0.24 to $0.33, a 39% increase versus Q1 '06.

Our operating margin was 33.6%, 50 basis points higher versus the prior year.

Our ability to drive expense leverage and productivity, along with the benefit of a weaker U.S.

dollar, more than offset the negative mix impact coming from our higher growth, lower margin businesses, PayPal and Skype.

Let's look at our operating expenses in a bit more detail.

First sales and marketing expenses were 24% of revenue in Q1, down 220 basis points from a year ago period.

We continue to gain marketing leverage in our Marketplaces segment, offset by investments in PayPal marketing this quarter to drive PayPal ubiquity across the Web.

Next, product development expenses were 6.9% of revenue, down 20 basis points from a year ago.

We have continued to increase capacity faster than our product expense growth by utilizing lower-cost locations.

The increased capacity enables us to execute against our strategic priorities of improving the user experience and investing to accelerate long-term growth.

Lastly, general and administrative expenses at 14.1% is down 20 basis points year-over-year.

We have been able to leverage our infrastructure costs while investing more in consumer protection programs this quarter, such as doubling the amount of PayPal buyer protection we offer on the eBay Marketplace.

Collectively these factors translated into $593 million of non-GAAP operating income, 29% growth on a year-over-year basis, and non-GAAP income -- net income of $460 million, up 34% from a year ago.

We generated $564 million of operating cash flow and $479 million of free cash flow in the first quarter.

Capital expenditures were 5% of revenue in Q1.

And we end the quarter with $3.5 billion in cash and cash equivalents, despite cash outlays for our acquisition of StubHub and a $330 million share repurchase in the quarter.

With that, let me turn to our non-GAAP guidance.

With one quarter behind us, we fill good about our plans for 2007.

We have delivered a excellent Q1, with strong topline growth and good operating leverage.

Additionally, the mix shift towards international has allowed us to capitalize on a more effective tax structure, and we benefited from a weaker dollar.

As we head into Q2 in the back half of the year we are raising our guidance for the full year by $150 million on the topline and $0.05 on the bottom line.

More specifically, our operational outperformance in the first quarter will be reinvested back into the business to improve the user experience across each of our businesses, and to build PayPal ubiquity across the Web.

Additionally, we believe we will be able to sustain a lower tax rate for the full year.

Based on current trends we expect to continued to benefit from a weaker U.S.

dollar.

Based on these factors, we now expect full year '07 revenue in the range of $7.2 billion to $7.45 billion, a full year operating margin of approximately 33%, and EPS in the range of $1.30 to $1.34.

This guidance assumes a revised U.S.

dollar to euro exchange rate of $1.30, and a revised full year tax rate of 26 to 26.5%.

Looking to 2Q, we expect net revenues to be in the range of $1.75 billion to $1.8 billion, and EPS of $0.31 to $0.33.

In summary, our Q1 results reflect a strong start to 2007, and we feel good about the outlook for the remainder of the year.

Before we open it up for questions, I want to take a minute to thank Lydia Ventura, for leading our Investor Relations team over the past year and a half.

And I look forward to her continued contributions to our team going forward.

I'm also pleased to welcome Mark to the team.

And now we would be happy to answer your questions.

Operator?

(OPERATOR INSTRUCTIONS).

Brian Pitz, Banc of America.

Would you discuss any categories with unique ASP and/or conversion rate trends?

And then secondly on Motors 2.0 can you discuss any early statistics or data points regarding traction with this initiative?

With regard to specific categories and ASPs, technology was strong from an ASP point of view, but it was actually relatively broad-based around the world.

We're actually pleased that the underlying metrics of conversion rate and average selling price are working in the right direction.

Because what we believe is that in this business supply follows demand.

And with strong demand, strong conversion rates, we actually do think we're going to see those listings begin to grow again in our two biggest markets.

With regard to Motors 2.0, we have seen some nice early results here, particularly around local.

And we have also been testing about 5% of all eBay Motors users are seeing Motors 2.0, and we're actually getting ready to expand.

So we're excited about it.

The only thing I would add is, as we indicated in the fourth quarter of last year, for both conversion rates and ASPs virtually in all geographies and all categories we saw improvement.

And to Meg's points, those improvements continued at virtually all categories, all geographies in the first quarter this year.

Imran Khan, JP Morgan.

I have two questions.

First, I was wondering if you can give us some color how conversion rate in Q1 compared to history conversion rate?

Are we back to that historic high level?

Secondly, Meg, active user growth rate has been decelerating.

It is 10% now.

As you try to acquire new active users, do you think this leverage we saw in sales and marketing will be maintainable?

Let me take your first question.

Conversion rates, again, I'm going to give you a trend-based answer.

In the fourth quarter we saw accelerating conversion rates off of Q3 and Q2 of last year, but hadn't quite gotten to the conversion rates that we experienced in the fourth quarter of '05 and the first quarter of '06.

We continued to make progress during the course of the first quarter.

And what we see as conversion rates on the eBay platforms around the globe are in essence in line with where they were in the prior year.

So we continued to make traction.

We're essentially flat on a year-over-year basis.

With regard to active user growth rates, we have seen a decline in the growth rate of active users, and we're very much focused on that.

We think the most important lever there is user experience.

Within user experience we think the most important lever is search and find, and making sure that when you come to eBay, you can find what you're looking for quickly and seamlessly.

We are in the process of really upgrading our search technology, not only with relevant space, but also when you get to a section of the site that you're interested in, we have really made some significant improvements, I think.

So we are focused on it.

I don't actually think that it is a problem with sales and marketing per se.

We don't see a degradation of the sales and marketing effectiveness.

If anything, we see a continued improvement in the efficiency of our ability to buy keywords, largely through our proprietary technology, which you heard us refer to as Triton, where we know precisely the ROI of many, many, many hundreds and thousands, millions of keywords.

So I wouldn't worry about the sales and marketing leverage point.

Doug Anmuth, Lehman Brothers.

Can you talk a little bit more about the Yahoo!

PayPal Checkout program, and specifically in terms of the economics on both the top and bottom line?

And I'm curious specifically if all the merchant fees are being paid through PayPal, or is Yahoo!

potentially sharing any of that impact as well?

The Yahoo!

relationship is really an extension of what we announced in June of last year.

We talked a lot about advertising on the Marketplace side.

But the more recent announcements really deal with PayPal on Yahoo!, and there has been a series of them.

Maybe I should try to capture them.

First, back in March Yahoo!

stores released its integrated PayPal product where merchants can now choose between PayPal Pro and PayPal Express checkout.

Earlier this month PayPal was accepted as a means of payment for Yahoo!

premium services, such as premium mail and personals.

And then most recently, yesterday, a further extension of the relationship where icons will now appear in Yahoo!-sponsored search results for merchants who accept PayPal Express.

So all these things, we're pretty excited about continuing to gain more consumer usage of PayPal and extend our broad merchant-based community.

In terms of the overall economics, we're not going to break that out in terms of how they work.

But we think that expansion of PayPal as the payment provider of choice on the Web will over the long-term drive really positive economics for the business.

Ben Schachter, UBS.

A couple of questions.

Meg, in the past you had discussed the idea that buying things on eBay should be fun, and that people should win things, not necessarily buy things.

I'm just wondering if you could comment on fixed-price goods going up as about 39% of total GMV.

And then, Bob, I was wondering if you discuss on sales and marketing the margin improvement there.

Was that something planned going into the quarter?

And were there specific channels that were affected by that?

With regard to eBay, the core of eBay has been and always will be the long tail business, where auctions is particularly relevant because it enables people to put a price on items of an unclear value.

And it is really fun.

It is a business that we refer to as the "windorphin" business.

You win, but you also get indoor presents like you do when you exercise.

And we're refocusing on that business to try to really have it be the most fun.

We were the original social networking site.

We think around the buyer experience, adding fun and getting the next generation of fun on eBay is a really important thing.

We have not lost sight of that.

At the same time, we have so much traffic that comes to this site on unique daily visitors, unique monthly visitors, that we also want to offer the new in season experience, the convenience shopping experience so that we can have an increased share of wallet for every visitor that comes to the site.

So we think we can do both.

And we think we can actually continue the journey of making eBay a really, really fun place to do business in the auction format.

Then on the sales and marketing question, maybe I will step back a little bit and refresh your memory about the architecture for our full year plan.

As PayPal and Skype grow fast in the Marketplace business, we will have a negative gross margin impact from their rapid growth.

That being said, we expect to increase operating margins this year versus last year.

And the ways we said we would be able to do that is more effective leverage on our sales and marketing spend, continued investment in product development, albeit with more offshore, and third, G&A as a percent of revenue coming down.

On sales and marketing in particular the first quarter was a little bit better than we expected.

And the reason is we were able to generate more revenue on essentially the same amount of spend during the quarter, and that in fact allowed us to increase operating margins a little bit better in the first quarter versus our plan.

Anthony Noto, Goldman Sachs.

Meg and Bob, it seems that you have been able to keep your Marketplace growth over 20% for several quarters, and inorganic growth pretty stable at 21%.

That has been driven by the vibrancy of the Marketplace improving simply through pricing mechanisms and taking sift out of core search results.

And there's a lot of initiatives on the horizon that could really drive ability to drive the vibrancy of the Marketplace that are technology driven, specifically dynamic merchandising of the home page and landing pages, content match, Feedback 2.0, and then new listing functionality, SY 3.0, and then potentially a relationship with News Corp.

I was wondering if you touch on all four of those and let us know the timing of when they're going to hit?

What you think the incremental benefits are to conversion rate end market vibrancy?

The good news, Anthony, is you are a user of the site.

So I think -- let me keep this at a relatively high level.

I would say that the number one priority for the Marketplaces business in 2007 is to improve the buyer experience along all dimensions.

When a user hits the site, helping them find what they want, making sure that they have all the information they need to buy that item.

And we look at every single path that those users follow through the site and make sure that we're trying to optimize all of that.

The dynamic merchandising gets people interested when they hit the home page.

Content match is an example of improved search functionality.

So you're right, we're working all of these different levers, and probably more aggressively than we have had -- then we have done in several years.

I can't give you a precise timeframe on when you will see the results.

But again I think the strong conversion rates and the strong ASPs are indicative that we're on the right path.

Christa Quarles, Thomas Weisel Partners.

A couple of questions on the user -- active registered users.

I was wondering if you could give us those numbers ex China?

I assume the numbers you gave already include China.

As well if you could discuss the robustness of the user base under the age of 35?

Then a second question just on the advertising side.

The revenues were much better than my expectations, so I was wondering -- I'm assuming that is related to Yahoo!

and Google, but should we expect accelerating growth in that line item as you further develop that relationship?

On the first question, we haven't really -- we tried to break out listings for you.

We have not broken out users in terms of how many came from China or Taiwan.

At that point we haven't broken out any demographics of the age of that user base.

So I apologize we haven't provided that.

Your first question on advertising and other, our advertising on a year-over-year basis was up about 65%.

And we have several items in that bucket.

The drivers of improvement on a year-over-year basis, I would really call them twofold.

One, within our PayPal business we are earning interest on certain customer cash balances on a year-over-year basis.

And the growth in those cash balances we generate higher revenue on that.

But on the Marketplace side we get the growth coming from two areas.

And Meg talked about one, advertising revenue on our classifieds sites is a component.

Secondly, is the relationships with Yahoo!

and Google, which we got pretty good traction in the quarter, and we expect to get continued traction as we go through the remainder of the year.

Overall, that revenue is about 3.5% of the overall Company's revenue, and we expect it to grow marginally as we go forward.

Just to be clear, even though you have divested China, you're still including these in your metrics?

In the denominator, that is right.

In the total user base, we don't go back and adjust that.

All right.

Thanks.

Christa, let me just add one thing about the under age of 35, because I think embedded in your question is, is eBay weaker, if you will, in the younger user base?

The answer to that is actually, no, that we see good strength of younger users.

And so we are pleased by that.

One of the things that is true, as you know, you need to be 18 to use eBay.

And the North American team in particular is looking at is there a younger product that we could introduce that would enable that to have younger people use eBay, because we have that question and that demand all the time.

And then I think Bob got the [obviously] active users ex China.

I would say Skype also is a huge on-ramp for young people.

Derek Brown, Cantor Fitzgerald.

Taking a step back and looking at user engagement as both buyer and a seller continue to trend down, if you are looking at GMV per user or listings.

I know we spend a lot of time on it, but given the impact to your business both at the core level, but also on the PayPal side, how far along do Yahoo!

think you are in the evolution of the site, and really re-engaging users, because you have been talking the activation strategy for quite some time?

How close are you to pulling all the pieces together?

I will say you're right on a GMV per register user.

On a trailing 12 month GMV per active registered user, actually that has been going up for some time.

The active user base continues to be more active.

I think the question that was asked earlier, which is how do we reaccelerate our growth of active users is the relevant one.

I would say that this is going to be and iterative and gradual process that we will do step-by-step and piece-by-piece.

One of the things that is true about eBay is we have an enormous installed base who is extremely loyal to eBay.

And what we now is that you need to make changes to the site.

We need to up the user engagement.

We need to keep the site current.

But we have to be very careful how we introduce those changes, because it is in fact an ecosystem.

And we can't do anything dramatic because we run the risk of alienating the huge loyal user base that we have.

But if I had to say, and this is qualitative, not quantitative, I would say we are maybe 20% of the way towards being where we would like to be in terms of user engagement and the rollout of the new features and functionality that we think will change the trajectory.

Scott Devitt, Stifel Nicolaus.

As you noted earlier, 8 percentage points of the growth in Marketplaces came from conversion and ASP, and revenue per listing was up 21% year-over-year.

So sellers are getting higher sell through, but late in the third quarter of this year you will annualize a lot of the Marketplace benefits, even better driving those characteristics in the business.

I'm wondering how much of that 8% you think shifts back into listings growth once you annualize the market improvements?

And then I had a follow-up.

Clearly what our intentions are, and I won't recapture all the things we're trying to do to improve the user experience, is that we will get -- continue to get benefit from improved conversion rate, which will in turn bring more listings to the site.

And the combination of the two will accelerate GMV.

But that is something we have to prove out as we go.

In terms of revenue per listing growing faster than GMV per listing, we capture that in terms of some of the non-GMV-based businesses that are going faster than GMV.

Again, Rent, a strong quarter, Shopping.com, a strong quarter.

Our classifieds business continuing to gain momentum.

We hope to continue to accelerate that kind of growth.

We still got some work to do, and feel pretty good about the progress we're making.

Okay.

Just asking, because merchants are typically fairly rapid to adjust to improving economics, so it is a little surprising that hasn't happened yet.

But just following up in terms of the slide deck, the high take rate businesses that were referenced, other than StubHub, what would fall in that category?

It is a mix of really three primary components.

So higher take rate, StubHub really has the higher take rate.

On the opposite end of the spectrum, last year's GMV at China and Taiwan had essentially no take rate.

So having that GMV out of the system gives us a mix -- a positive mix benefit by that thing out.

Third, cross-border growth.

As that grows, we're getting a higher take rate from cross-border transactions.

Then lastly within the quarter with Motors growing a little bit slower than overall GMV, and Motors being at a lower take rate that impacted as well.

So four primary factors affecting that, most of which we anticipate would continue.

The $0.03 from capital allocation and tax rate, how much was capital allocation?

I will ask you to do the math.

I apologize.

But on a year-over-year basis our share count was down about 50 -- a little over 50 million shares from last year.

Then our tax rate on a year-over-year basis is down a little over almost 3 points.

So the combination of those two are really helping drive earnings growth.

Robert Peck, Bear Stearns.

Just following along those same line of questioning there.

As we think about what is striving RPL going forward, and I guess unadjusted we would see PRL around $2.10, up from above $0.96 or so.

As we think about what is driving that going forward, you've got a couple of things.

One is conversion rights and ASPs and then ultimately fees.

Meg, could you talk a little bit about which one of those three levers do you see driving it the most?

What is the mix shift there?

Do you see a fee increase coming up in the near future?

And lastly, could you give us the Shopping.com revenues?

With regard to your first question, historically -- I mean over the last couple of quarters revenue per listing has been driven by conversion rate as well as average selling price.

We expect that to continue.

The two key things that we focus on really are conversion rate and in fact the number of successful items.

That is in fact our focus.

ASP, we don't really drive.

That is a function of the ecosystem of the Marketplace.

ASPs, you see holidays higher.

But it is all about conversion rate and ASPs.

As we think about fees, as you know, we typically do something once a year.

January would be sort of the time that we would do something, and we have not made any decisions at this juncture.

But I would not be putting fee increase necessarily into your model for 2008 and 2009.

I think it is really our job to drive revenue per listing and GMV growth through conversion rights, successful items and ASPs.

Just on Shopping, we don't break out specific revenue for Shopping.com.

What we have highlighted was year-over-year it was up 29%, with 50% growth from its international expansion.

And it is one of the contributors to the RPL growth, but we don't specifically break out Shopping revenues.

Justin Post, Merrill Lynch.

I guess I will focus on Skype because we have covered most everything else.

On Skype, it looks like the revenues grew -- accelerated to about 120%, and also the revenue per account accelerated.

I'm wondering if you could talk about how your subscription model traction is working?

Is that increasing the off-Skype minutes, and why off-Skype is trying so much faster than Skype-to-Skype?

We launched a subscription-based offering here in North America at the beginning of the year.

And what we indicated is traction is better than we expected.

So we're getting more and more Skype users to sign up for the subscription-based service.

Additionally we continue to have nonsubscription-based users continuing to use both SkypeIn and SkypeOut.

Overall traction on minutes SkypeIn and SkypeOut is very strong year-over-year.

But in terms of sequentially, its growth rate has been somewhat muted by the promotional campaigns we had in Asia and in North America where calls were essentially free in the fourth quarter.

Those stopped in the fourth quarter so our substantial growth isn't as great.

Let me just add one point to that, Justin, which is these subscription plans, both in the United States and now offered in 15 European countries, that is going to be -- that some of those are launched, and it is going to be rolled out in other countries later in 2007.

We are seeing a really nice pickup with these subscription plans.

I suspect what you will see is you may see a rebound in Skype-to-Skype minutes, and actually probably continued acceleration of SkypeOut and SkypeIn minutes.

All of which we like, because this is all fueling user engagements.

And this is all about connecting people, enabling them to share and communicate and build on to that platform products like SkypeFind and SkypePrime.

So we're excited about it.

I think Skype really had a very productive quarter, not only in terms of financials, but also the strength of the ecosystem.

One quick follow-up.

Can you say whether the subscription plans are more or less profitable than the Skype business from last year?

Are you happy with the margin structure there?

Yes, last year in North America in particular it was free.

So now we're charging a fee for the service provided, and we feel pretty good about the inherent margin structure.

I think one additional point that is worth noting, Skype was profitable for the first time in the first quarter, so good growth but also good gross margin -- good gross margin leverage as well.

Operator, we have time for one more question.

Mark Mahaney, Citigroup.

Bob and Meg, since we're talking about Skype, can you give us an update on where Skype margins can go long term?

And then are there a set of circumstances under which you would allow margins to decline this year?

You talked about reinvesting some of the upside you had in the March quarter back into the business for a series of initiatives.

Are there circumstances under which you would want margins to go down year-over-year?

Long-term margins for Skype, we have kind of had at the 20 to 25% margin rates over time.

And that will come from leverage on the telco-based revenue, but more from the expansion of non-telco or e-commerce type monetization over time.

So long term we still think 20 to 25% is still the right long-term margins.

In terms of margin declines, yes, we're going to continue to invest quite a bit in Skype.

Meg highlighted the focus, continuing to build out the user base, invest in new products, to bring them to market, and continue to enhance the quality of the overall service.

Yes, we're going continue to invest in products and try to bring new services to market during the course of the year.

I think, Bob, Mark was talking about Companywide margins?

Yes, that's right.

(multiple speakers) meaning do we envision the situation where Companywide margins would decline based on the reinvestment.

Our plans are to expand margins -- I apologize -- year-over-year.

And we are off to a great start in the first quarter.

We do plan to leverage the strength in our first quarter numbers to reinvest in some great ideas we think we have for all three of our businesses.

And despite that, we still expect to expand margins on a year-over-year basis in '07.

Thank you very much.

Thanks for joining us today.

Once again, thank you all very much for joining us.

That does conclude today's presentation.

Have a great afternoon.