eBay Inc (EBAY) 2009 Q4 法說會逐字稿

Hello and welcome to eBay Inc's fourth-quarter 2009 earnings call.

Today's call is being recorded.

At this time I would like to turn it over to Mark Rowen, Vice President of Investor Relations.

Thank you Kevin.

Good afternoon.

Thank you for joining us and welcome to eBay's earnings release conference call for the fourth quarter and full year of 2009.

Joining me today on the call are John Donahoe, our President and Chief Executive Officer, and Bob Swan, our Chief Financial Officer.

We are providing a slide presentation to accompany Bob's commentary during the call.

This conference call is also being broadcast on the Internet, and both the presentation and call are available through the Investor Relations section of the eBay website at investor.eBayInc.com.

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

You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call.

In addition, management may make forward-looking statements relating to our future performance that are based on our current expectations, forecasts, assumptions and involve risk and uncertainties.

These statements include, but are not limited to, statements regarding expected financial results for the first quarter and full year of 2010, the focus of the Payments and Marketplace business units going forward, and future growth in the Marketplaces and Payments businesses.

Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to the continuation or worsening of the global economic downturn, changes in political, business and economic conditions, foreign exchange rate fluctuations, the impact and integration of recent and future acquisitions, our increasing need to grow revenues from existing users in established markets, an increasingly competitive environment for our businesses, the complexity of managing an increasingly large enterprise with a broad range of businesses, our need to manage regulatory, tax, IP and litigation risks, including risks specific to PayPal, Bill Me Later and the financial industry, and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability.

You can find more information about factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q, also available at investor.eBayInc.com.

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

All information in the presentation is as of January 20, 2010, and we do not intend and undertake no duty to update this presentation.

With that said, let me turn the call over to John.

Thank you, Mark, and good afternoon everyone and welcome to our Q4 earnings call.

Today I will talk about our results from both a Q4 and full-year perspective.

I will then outline our key priorities for 2010 before turning it over to Bob for more details on the quarter and our 2010 Q1 and full-year guidance.

Let's start by taking a quick look at our Q4 results.

Revenue growth was up 16% to $2.4 billion.

Non-GAAP EPS was up 9% to $0.44.

And we generated free cash flow of almost $600 million.

In addition, we successfully completed the sale of 70% of Skype for approximately $1.9 billion.

This move allows us to focus our energies on our two core businesses, Payments and Marketplaces.

All in all we had a strong Q4 with both of these core businesses accelerating sharply from the third quarter.

Let's take a look at what we accomplished in each business unit in Q4 and for the year.

PayPal posted terrific results, significantly expanding its global presence.

For the first time PayPal's Total Payment Volume passed $20 billion in a single quarter.

PayPal is truly a global business, now supporting 24 currencies in 190 markets with 81 million active accounts.

In 2009 for the first time annual revenue and TPV from PayPal's Merchant Services business exceeded PayPal's volume on eBay.

PayPal's volume is predicated on a core fundamental strengths.

Merchants realize higher conversion rates when PayPal is available as a payment option.

By almost every measure PayPal strengthened its competitive position in Q4.

Total revenue and TPV both grew significantly year-over-year.

Penetration on eBay increased 3 points year-over-year.

And PayPal's Merchant Services business once again delivered very strong performance, with TPV growth of 50% in Q4.

And this growth is global.

In the US PayPal Merchant Services TPV grew at 10 times the market growth rate for e-commerce.

International Merchant Services TPV grew 80% year-over-year.

And volume from outside the US now accounts for 40% of PayPal's total TPV.

PayPal continues to leverage this unique global footprint by making it easy to send and receive payments across borders.

In fact, cross-border trade now accounts for almost 25% of PayPal's Total Payment Volume.

PayPal continues to drive further penetration in major markets.

For example, in Japan PayPal has signed agreements with five of the country's leading gateways, representing over $14 billion in new addressable TPV.

We also became the first major Payments platform to open up to third-party developers, a move which will accelerate PayPal adoption and innovation.

Since opening the PayPal platform in early November more than 12,000 developers have signeed up and the first Payments applications have already launched.

Simply put, PayPal is leveraging its advantages for merchants and consumers and rapidly expanding our global presence.

PayPal is well on its way to becoming the preferred online payment provider around the world.

Turning to eBay, our Q4 results demonstrate continued progress as we improve value, selection and trust and turnaround this business.

Marketplace revenue grew 15% in Q4, but more important our progress is evidenced across the three underlying metrics we are using to measure our success.

Net promoter scores for both buyers and sellers are up significantly in our major markets.

Sold items accelerated for the third consecutive quarter, up 11% globally year-over-year.

Core GMV growth also accelerated for the third consecutive quarter.

In fact, in most of our major markets we were able to grow at or above e-commerce growth rates during Q4.

Let's take a quick look at what's behind this momentum.

Asia Pacific remains our fastest growing region where GMV grew almost 50% over last year.

And that is before adding Gmarket, an acquisition that extends our leadership position in Korea and enhances our momentum in the region.

And EBay's ability to conveniently connect buyers and sellers across borders continues to be a competitive strength.

For example, exports from Chinese sellers doubled in Q4, delivering over 15 million great deals to consumers all over the world during this holiday season.

In Europe we have successfully transformed our seller value proposition and business model over the past 18 months.

By offering lower insertion fees to our sellers we have almost doubled the number of live listings, a significant increase in selection.

We plan to adopt similar best practices in the US in early 2010.

We are improving the fundamentals of our business, which positions us to win in the secondary market.

In fact, we are increasingly moving new types of merchandise at high velocity.

In North America we experienced early success with our Fashion Vault pilot, with brands such as Cole Haan, DKNY, Hugo Boss and Max Mara.

Popular items sold out in hours and drove strong incremental sales for our sellers.

EBay is absolutely becoming a more trusted Marketplace.

Buyers are responding and our best sellers are winning.

And we are continuing to raise the bar for our sellers.

As you know, we have introduced a top-rated seller status that all buyers can see.

In Q4 our top-rated sellers in the US grew same-store sales by over 10% and accounted for approximately 30% of total core GMV.

In Germany our top-rated sellers grew same-store sales by 25%, and in the UK they grew same-store sales by 35%.

Bottom line, sellers who deliver the very best experience are succeeding on eBay and buyers are benefiting.

These turnaround efforts are paying off.

Marketshare gains are evident internationally, where we are further along in our turnaround.

In the UK, for example, we posted 17% growth during the second half of 2009, significantly outperforming the market.

We are also increasing innovation across eBay and becoming a more technology-driven Company.

One example of this is our efforts in mobile commerce, where eBay made tremendous progress over the past year.

Our eBay mobile application has been downloaded almost 7 million times, making it consistently one of the top apps on the iPhone.

And even more important, consumers are using our mobile application, changing the way they shop, and generating over $600 million in GMV on eBay during 2009, more than a 200% increase over the previous year.

We will continue to innovate in mobile in 2010 and provide consumers other convenient ways to buy, sell, find and pay for the best deals on eBay with their smart phones.

Turning to our adjacent e-commerce formats, StubHub had a strong quarter with Q4 ticket sales up 54% over last year.

High-profile concerts and sporting events such as the World Series drove strong ticket demand and marketshare gain.

People are increasingly shopping on StubHub for sought-after tickets at great value in a Marketplace they can trust.

Our Classifieds business was up 20% in 2009 as we strengthened our global footprint.

We saw promising early results from initiatives in Spain, France, Germany and Italy that integrate our core -- or local classifieds offerings with the core eBay business and eBay brand.

We expect these initiatives to continue to drive innovation in other markets in 2010.

So overall this was both a strong quarter and a strong year for our Marketplace business, and we feel good about our progress.

Before I close, let me remind you of the three-year growth targets we laid out for our Company in March of 2009.

First, we said that PayPal will be the leader in online global payments.

And we intend to almost double PayPal to revenues of between $4 billion and $5 billion by the end of 2011.

PayPal made significant progress for this goal during 2009.

And second, in our Marketplace business we said we will focus and win in the secondary market and grow adjacent formats such as classifieds.

Again, we made progress toward this goal in 2009, improving our growth rates relative to the market.

We plan to grow GMV with e-commerce in 2010 and grow our business faster than e-commerce in 2011.

So 2009 represented an important first step toward our three-year goals, and we are entering 2010 with strong momentum.

Now with the sale of Skype we are fully focused on our two core businesses, Payments and Marketplaces.

We have clear priorities for both businesses in 2010.

At PayPal we will strengthen and expand our leadership position in online payments.

We will do this by continuing to maximize PayPal's potential on eBay, and rapidly growing Merchant Services through merchant acquisition and increased consumer preference as we expand our consumer footprint.

And we will continue to launch new products and accelerate innovation off of our platform in this exciting business.

In our core eBay Marketplace business we are positioned in 2010 to make even more progress in trust, value and selection, and further penetrate the secondary market.

We will do this by offering buyers great experiences they can trust with innovative shopping experiences that deliver great value and selection, and by providing tools and pricing to align our success with our sellers.

We will continue to make eBay the most attractive opportunity available for entrepreneurial sellers, casual consumer sellers, and larger sellers.

So today we are a more customer-focused and technology-driven Company.

We are driving significant operational efficiencies that enable us to reallocate and reinvest significant resources into our growth initiatives that directly benefit our customers.

I continue to be pleased with our pace, our progress and our performance.

We are committed to consistently delivering on our financial commitments, while doing what is necessary to position our business for long-term growth and leadership.

Now I will turn it over to Bob for more details on the quarter and our financial outlook.

Great, thanks John.

During my discussion I will reference our earnings slide presentation that accompanies the webcast.

All growth rates mentioned in my prepared remarks represent year-over-year comparisons, unless I clarify otherwise.

Also I would like to remind you that we sold the majority of Skype on November 19, so financial results for Skype are only included up to that date.

Overall we delivered strong fourth-quarter results.

We outperformed on both the top and bottom line, and we increased the financial strength and flexibility of the Company.

We executed against our strategic priorities during the quarter.

PayPal continued to gain marketshare as transactions and TPV growth accelerated sharply.

We completed the first phase of BML integration into the PayPal wallet.

As John highlighted, Marketplaces achieved improvement in all three of the key metrics, net promoter score, velocity and marketshare.

Finally, we completed the sale of Skype, focusing our portfolio on our strategic mission of connecting buyers and sellers online.

We are pleased with the results we achieved this past quarter, particularly given the backdrop of a difficult consumer environment both here in the US and abroad.

We head into 2010 cautiously optimistic.

Our combined businesses generated net revenues of $2.4 billion in the quarter, a 16% increase, or 19% excluding Skype from Q4 2008 and Q4 2009.

Organic revenue was up 12%, a sharp acceleration versus the third quarter.

A weaker US dollar increased our revenue growth by 4 points, and acquisitions increased revenue growth by 1 point.

Fourth-quarter non-GAAP EPS $0.44, 9% increase.

Excluding Skype, non-GAAP EPS grew at 11%.

The year-over-year increase was primarily due to higher volume, productivity gains and FX, partially offset by a lower take rate.

Non-GAAP operating margin was 29.3%, down 350 basis points, driven by business mix, acquisitions and a favorable one-time item in the fourth quarter of 2008.

We generated $598 million of free cash flow in the quarter, or 25% of revenues.

CapEx as a percentage of revenues was 7% for the quarter and 6.5% for the year.

Return on invested capital was 22.2% on a trailing 12 month basis, marking the first sequential improvement since the third quarter of 2008.

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

Starting with our Payments business, PayPal had an exceptional quarter.

Total revenue increased 28% to $796 million, a sharp acceleration from Q3.

Total Payment volume increased 34% to $21.4 billion.

Geographically TPV growth was 22% in the US and 54% internationally.

PayPal's Merchant Services business posted another great quarter with the number of payment transactions growing 53%.

This, coupled with a slight decrease in average transaction size, resulted in $12.1 billion of global TPV, representing 50% growth over last year.

Merchant Services accounted for 57% of total TPV in the quarter compared to 50% in the fourth quarter of last year.

PayPal transaction margin was strong, improving to 62.1% in the quarter.

Although global take rate was down, we were able to offset this decline with modestly lower transaction expense and a more significant improvement to transaction losses due to better fraud detection and prevention.

PayPal segment margin came in at 17.8% in the quarter, up 300 bips from Q3 and down 100 bips year-over-year.

The 100 basis point drop from last year was primarily the result of an economic currency hedge and dilution in Bill Me Later, partially offset by higher transaction margin and volume-related leverage.

Let me touch on a few key operating metrics for Bill Me Later.

Bill Me Later's gross receivable balance at quarter end was $673 million.

The quality of Bill Me Later receivables has improved, which reduced growth, but we continue to believe this is the right trade-off in the current economic environment.

The net charge-off rate decreased slightly to 11.1% in the quarter, and risk-adjusted margin remains better than industry average.

Now let's move our Marketplace business.

Overall, Marketplaces achieved net revenues of $1.5 billion, a 15% increase from last year and sharp sequential improvement.

Growth was driven by the acquisition of Gmarket, strength in our StubHub and Classifieds businesses, and improvement on the core eBay sites.

International accounted for 60% of Marketplaces' revenue this quarter, up from 55% in the year ago period.

We continued to be pleased with the double-digit growth we are seeing in our fixed-price format.

Auction format GMV declined slightly, which represented an improvement over the prior quarter.

Vehicles also improved from prior quarters.

Let's turn to marketing services and other, which we view as alternative formats for bringing buyers and sellers together.

Our Classified business continued its strong trajectory with 20% revenue growth, or 9% on a FX-neutral basis.

Total global advertising revenue increased by 3%.

Ad revenue was negatively impacted by the placement of advertising on our eBay site, as we continue to optimize the user experience.

Shopping.com, rent and other revenue was up 7% in the quarter.

Just a couple of quick highlights on Marketplaces' operational metrics.

Velocity or sold items grew at 11% in the quarter, excluding Gmarket, driven by geographic strength in China cross-border, the UK and Germany.

Marketplaces segment margin was 40.4% in the quarter, down 480 basis points.

The main drivers include dilution from acquisitions and increased litigation expense reserves in the fourth quarter of 2009, as well as a tough comp due to the reversal of accrued bonuses in the fourth quarter of 2008.

Global take rate was 7.5% in the quarter, down 20 basis points from last year.

Excluding the impact from vehicles, StubHub, currencies and Gmarket, take rate was down 40 basis points year-over-year.

The decline in take rate is primarily due to a reduction in feature fees and larger discounts given to our highest rated sellers.

In the fourth quarter sales and marketing as a percentage of revenue was up 140 basis points due to increased investment in Merchant Services, a shift in type of spend from contract to expense, and the inclusion of Gmarket.

Our core Marketplaces marketing programs spend for 2009 was down modestly from 2008 level, as we continue to use data and technology to improve the efficiency of our marketing.

Product development was 30 basis points higher than last year, driven by continued investment in the user experience and our technology platform.

G&A cost increased 160 basis points from last year, predominantly due to a tough comp from the reversal of accrued bonuses in Q4 2008 and the inclusion of Gmarket.

Our provision for transaction loan losses was up 40 basis points, primarily due to our new eBay dispute revolution program and higher BML credit losses.

Last March at our analyst day we discussed the need for us to operate smarter and more efficiently.

At that time we laid out plans to reduce our cost structure by a cumulative $2 billion over three years.

We remain on track to achieve this goal, generating more than $600 million in savings since the fourth quarter of 2008.

Then we have reinvested these savings into areas of customer experience, trust, marketing and technology to improve our competitive position.

From a cash perspective we generated strong free cash flow of approximately $600 million during the quarter.

We received $1.9 billion in cash for the sale of 70% of Skype, and we paid off the remaining $200 million balance on our line of credit.

Cash, cash equivalents and non-equity investments was $5.2 billion at quarter end.

We brought back $1.1 billion from overseas as a result of a business restructuring during the quarter, and ended the quarter with $1 billion cash in the US.

While the tax impact is $200 million to $225 million from the business restructuring will occur in the first quarter, it will give us additional flexibility with our US cash balance.

While the first half of 2009 was an extremely difficult environment to operate in, we built momentum throughout the year.

Revenue accelerated in the second half, EPS improved in the fourth quarter, and we generated excellent free cash flow throughout the year.

We exited 2009 stronger than we entered it.

Given that, let me turn to guidance.

A year ago in light of the cloudy economic environment we suspended issuing full-year guidance.

While there is still some uncertainty in the economic outlook, we are reinstating full-year guidance for 2010 due to better visibility on the economy and progress we have made in our core Marketplace business.

Our guidance for the first quarter and full-year 2010 no longer consolidates Skype, as we will incorporate Skype into our financials using the equity method of accounting.

For Q1 2010 we anticipate revenue of $2.1 billion to $2.2 billion.

This represents growth of 12% to 18%, excluding Skype.

We anticipate non-GAAP EPS of $0.39 to $0.41, which represents growth at 8% to 13%, excluding Skype.

For the full year of 2010 we anticipate revenue of $8.8 billion to $9.1 billion.

This represents growth of 9% to 12%, excluding Skype.

We anticipate non-GAAP EPS of $1.63 to $1.68, representing growth of 11% to 14%, again also excluding Skype.

In summary, we are pleased with the progress we made in 2009.

We continue to focus on our key priorities.

In Payments we will strengthen and expand our leadership position in online payments, while accelerating innovation off our platform.

In Marketplaces we will continue to make progress in trust, value and selection, while further penetrating the secondary market.

And we will continue to become a more customer-focused and technology-driven Company.

We remain cautiously optimistic as we head into the new year.

Now we would be happy to answer your questions.

Operator?

(Operator Instructions).

Mark Mahaney, Citi.

Great, thanks.

I would like to ask a two-part question.

First, is it clear to you from a macro read that the Internet consumer and consumer discretionary spend has come back?

Is that part of your cautious optimism for 2010?

Then secondly, Bob, just in terms of the EPS organic and revenue growth organic guidance for 2010, if there isn't a change in the tax rate that implies that margins are up or should we assume that this rate is consistent with Q4 levels going forward?

Thank you.

Mark, the first part of that, and Bob the second.

On the macro -- on our macro outlook I would say this, two things.

One, on the economy we don't have any additional insight for anyone else, or versus anyone else.

I would say we are cautiously optimistic about slow, steady progress in the global economy.

So there is no intended message on that.

What we do see, however, goes back to what I said at analyst day last March, which is e-commerce continues to gain share versus off-line retail.

We saw that in the fourth quarter, where I think when it is all said and done e-commerce growth rates will be higher than off-line retail.

And I continue to believe we participate in a large and growing market where there is going to be a lot of opportunity for multiple winners.

So I think we feel good about the market we are competing in and cautious about the economic outlook.

In terms of your second question on our full-year guidance, we gave roughly 10% topline growth and about 11% to 12% bottom line growth.

From a tax rate perspective we expect the tax rate to go up year on year, and quite a bit from Q4, which as you can see it was at a pretty low level.

We are looking at 20% to 21% tax rate for the full year of 2010.

What that implies is we will see modest operating margin expansion from 2009 to 2010 reflected in our guidance.

Doug Anmuth, Barclays.

John, you talked about how the international business is further along in the turnaround than the US, and I am curious what you think the primary things you need to do here, or in the US, and why the international business is really further ahead.

Then secondly, Bob, can you talk about the $1 billion plus dollars that you basically have now in US cash, and what your intentions are for that now that you have brought some back?

Thanks.

On the international business, one of the I suppose benefits we have, particularly in Germany and to some extent the UK, is we can clearly differentiate business sellers from consumer sellers.

So when we put in place the pricing changes we did at the end of '08 we differentiated business pricing from consumer pricing across fixed price and auctions more aggressively in Europe.

And in particular, we particularly lowered insertion fees on fixed-price.

As I said, what that did is that allowed a huge inflow of fixed-price items from business sellers.

And it allowed consumer sellers to add their items, but more in an auction format, which is, I think increasingly the better way for consumer sellers to sell on eBay.

In the US we don't have the luxury, if you will, of being able to mechanically differentiate consumer sellers from business sellers, and so we didn't go to quite the same extremes in our pricing here.

We also have such big selection in the US.

So I think what we will do in 2010 is take some of the learnings that we generated outside the US and apply them as appropriate and as tailored to the US market.

I think we feel we have proven out some of these things outside the US, and they will apply inside the US.

On your second question, we end the year with a great cash position.

But as you know, the makeup of our cash has been predominantly offshore historically, and that was exacerbated by the proceeds from the Skype transaction.

That being said, we are able to -- we have continued to pursue ways to get a more equal distribution of our cash geographically, provided we can to do tax efficiently.

And the restructuring we did in the fourth quarter allowed us to do that, to bring more of our total cash position here domestically.

I would say our priority is we will continue to maintain a conservative balance sheet, but to give us the flexibility to first be able to finance the growth of our expanding BML portfolio here domestically, and also the capacity or the flexibility to pursue acquisitions, both internationally and domestically, as they arise and materialize.

So our priorities haven't really changed.

I think our fourth quarter allowed us to get a more equal distribution of where our cash sits and gave us a good chunk of cash here domestically.

James Mitchell, Goldman Sachs.

Thank you for taking my one part question on the Marketplaces segment margins.

I guess the Marketplaces segment margins are down year-on-year, because you're consolidating Gmarket now and those unusual bonus reversals in the fourth quarter of last year.

But can you talk about why the Marketplaces segment margins were down quarter-on-quarter?

Is it mostly due to nonrecurring items like litigation expenses or were mostly due to recurring items like lower fees?

First, maybe if I could just characterize the change in margins year-over-year in terms of what is going on underneath the covers.

This is, I would say, a unique comment, but definitely pertains to the Marketplace business.

First, our program that we term as operational excellence, which essentially is finding better ways to do more things efficiently, enabled us to generate great productivity in the Marketplace business during the course of the year, including the fourth quarter.

We have taken that productivity and we have reinvested it in lower take rates and higher product-related expenses.

So those two -- good productivity, going into lower take rates and higher product-related expenses.

The margin decline is really due to the acquisition of Gmarket, number one.

Number two, in the fourth quarter two things that you highlighted.

One was a good guy last year reversal of bonuses in the fourth quarter.

The other was a bad guy in 2009, which was higher litigation reserves and expenses.

So a little bit of both.

The sequential decline Q3 to Q4 was primarily due to a lower take rate and the impact of higher litigation expenses.

If I roll the clock forward in terms of implied margins in our 2010 guidance, we have essentially implied, as I indicated to Mark, that margins overall will go up modestly from 2009 to 2010, and within our Marketplace business they will be relatively stable.

We will continue to absorb the impact of lower take rate changes that we did in Q4, which will impact the full year of 2010, but we will fund those are continuing to operate smarter in all the different components of our costs in the core business.

Scott Devon, Morgan Stanley.

Just a question about your recent acquisitions.

Gmarket and Bill Me Later seem to be doing very well.

I was wondering if you could comment on the integration progress that you have had between eBay Korea and Gmarket, both from a sales standpoint in terms of infrastructure, as well as any early progress that you have made with Bill Me Later and PayPal Checkout.

Let me do those in order.

First, on Gmarket, as you know we closed the transaction in June.

The objective of the combination was to consolidate our leading position in Korea to continue to operate two different platforms by generating significant synergies from the integration of the back-office functions.

I would say our team in Korea, both the Gmarket team and the IT team, have made tremendous progress on essentially all fronts in a relatively short period of time.

So we feel very good about the back-office integration, the inherent synergies.

Secondly, the combined business gaining marketshare in Korea while continuing to operate two different front offices, if you will, or platforms.

On Bill Me Later we are just over a year into the combination.

And just to refresh your memory, the intention was to take the number one, PayPal, and the number two, alternative online payments businesses, with very complementary skills and put them together, leveraging the complements.

Bill Me Later with a very strong large merchant presence, PayPal with a very strong small sole proprietor SMB kind of presence.

And with the combination of the product, the platform and the salesforce that we would be able to increase our presence with large and small merchants, to offer our consumers more choices at relatively low-cost transaction expense as we monetize both merchants and consumers.

One year in we feel very good about the continued presence with merchants here domestically.

And you saw those reflected really in the accelerating TPV for PayPal during the course of the second half of the year.

We just launched the product integration for Bill Me Later in the PayPal wallet in the fourth quarter.

We feel good about the trajectory.

We got another product launch early in 2010.

And we feel pretty good about the combination of the two platforms.

So all in all we have invested quite a bit and strengthened our Asian presence with Gmarket, and expanding our reach of the PayPal business with Bill Me Later.

And six and 12 months in respectively we feel very good about our positioning.

Imran Khan, JPMorgan.

Two quick questions.

One, take rate.

How should we think about the take rate long-term as you try to do give experience to sellers?

What is an optimized take rate that you have in your mind?

Secondly, as the credit costs stabilize, or even credit costs start going down, how aggressively you will push Bill Me Later?

How should we think about say near to midterm Bill Me Later as a percentage of your Total Payment Volume?

Thank you.

I will take the first, and Bob, why don't you take the second.

On take rate I appreciate the way you asked the question, because people tend to focus quarter to quarter, and the way we really think about take rate is stepping back.

I would remind you that it was only 24 months ago when I first took over in this role.

We had one take rate applied to all categories in all geographies across all sellers around the world.

The structure of that take rate really hadn't changed since the beginning of eBay.

So we set out in what we knew was going to be a 3 to 4 year process to make changes in our take rate that would better align ourselves with our sellers, and make a robust Marketplace.

So we have really focused on three things during that time.

One, we have gone to category-based pricing, which makes sense.

Two, we have made significant changes in rebalancing front-end versus backend fees, which is to say, we were probably 70/30 front-end to backend at the beginning of '09 or '08 rather.

And today going into 2010 we are more 30/70, 30% front-end, 70% backend.

What that really means is we have aligned our incentives with that of our sellers.

If they don't succeed in selling, we don't succeed in collecting fees.

Then the last thing we have done is we have incented our sellers such that the sellers that give the best service to buyers get the lowest rates on eBay.

So we are two -- I would say we are kind of two-thirds of the way through.

We put some things in Q4 which took a further step in that direction.

We will make a few more changes in '09 that I think have to do with taking the learnings from Europe and applying them in the US about rebalancing.

But I feel good that coming out of 2010 we will have the structure and alignment of a pricing in the Marketplace that is aligned with sellers and optimized for Marketplace success.

In terms of your question about Bill Me Later and just general credit environment, a couple of things.

Obviously, our intention with the integration of Bill Me Later into the PayPal wallet and the future in the light of new item product flow, the intention is to give consumer choice.

With that choice we believe that with the unique Bill Me Later offering that they will increasingly choose Bill Me Later as a way to settle their online payments, and Bill Me Later will grow as a percentage of PayPal volume.

That being said, in the near to medium term it will still be a relatively small piece of overall PayPal volume.

Secondly, in terms of our credit decisioning or our underwriting, we don't expect in the medium term to really change how we think about credit decisioning in this current economic environment, i.e., we will continue to be fairly disciplined on keeping net charge-offs relatively low and expanding risk-adjusted margins for the portfolio until we see better just consumer sentiment and economic environments going forward.

It will be a bigger piece.

It will be relatively small in the short to medium term, and we will continue to be very disciplined in how we underwrite.

Got it.

Thank you.

Stephen Ju, RBC Capital Markets.

What do you think the fixed-price as a percentage of the total mix can go longer-term for the Marketplaces platform?

And items sold growth outstripping GMV growth implies, I guess, continued ASP compression.

Is this due to the increasing mix of fixed-price or are there other factors at work here?

Thank you.

On the fixed-price versus auction, I would make one very important point up front, which is our goal is to offer buyers and sellers choice, and to make our Marketplace as seamless and indifferent between that choice as possible.

So, one, we are not driving one versus the other.

That said, what is clearly happening is fixed-price is growing more rapidly than auction as the Marketplace rebalances, because that is the format that many business sellers choose to sell in and many consumers choose to buy in.

So we don't know where it will land.

Again, I think Bob said at analyst day we started 30/70 -- that is 36, 70 auctions.

And my guess is we could end up somewhere around 70/30.

That varies a lot, by the way, by category.

There are certain categories like collectibles, where auctions is a natural way to set a market price, and others of like consumer electronics, where there is more clear pricing, and an efficient market and fixed price makes sense.

So the important point is we are indifferent in terms of margin, in terms of -- on our Marketplace.

Then on items sold and GMV, I think it is important to just note, I think the economy is impacting ASPs.

We see that on both eBay and PayPal.

PayPal ASPs have been coming down off of eBay, as well as on eBay.

And, two, one of the things that eBay offers, I think has been a source of advantage for us is in a tough economy, where consumers are trying to get more out of what they spend, we see them trading down on eBay.

Which is to say, instead of buying the latest model BlackBerry, they are buying a brand-new BlackBerry that was last year's model for less.

Or instead of buying a brand-new bicycle, they are buying a used bicycle.

So we see actually within categories people getting what they want, but just trading down in terms of what they are buying and getting for their dollars.

In that way eBay is a fairly unique Marketplace in offering the ability to do that.

Gene Munster, Piper Jaffray.

Actually my question is a follow-up to Stephen, just a point of clarification, is that the shift from Buy It Now to -- from auction to Buy It Now, the impact on your margins is -- [the thought of it] has no impact and you are indifferent, but I just want to clarify that.

Yes.

I think, Bob, why don't you (multiple speakers).

I mean, we have changed (multiple speakers).

That is correct.

We have done a variety of price changes over time, but in essence, whether it is fixed-price, Buy It Now or auction, there is common themes -- lower upfront, fewer features.

And the shift of conversion has gone more from our sellers to eBay.

And the fee structure, there is no dramatic change between different formats.

So we want to provide consumers the right choice.

And, oh by the way, the margin structure, the take rate is not dramatically different in terms of overall impact.

Justin Post, Banc of America - Merrill Lynch.

I think one of your real important goals was to grow as fast as e-commerce this year.

As I look at the Merchant Services business ex FX, it went from 35% growth to 47%, so improved 1,200 basis points.

When I look at the Marketplace business it improved about 400 to 500 basis points, whether you look at revenue or GMV ex FX.

So I guess my question is do you think the Marketplace business is just taking a lot of share versus the market, or do you think it is doing okay and your core business still has a ways to go?

What do you think is the one or two most important initiatives for 2010 to get it to [as e-commerce]?

Thanks.

I think -- let me I think answer what you intended.

The Merchant Services business is absolutely gaining share of online payments.

As I said, it is kind of stunning, but the Merchant Services business grew 50% in Q4 in terms of TPV.

And that is 10 times faster than the market in the US and comparable outside the US.

So that business is still in, I believe, its early days of the global rollout of what is a very attractive and differentiated product for merchants and for consumers.

So we envision that business continuing to gain share.

The core eBay business, including the [ePayPal] on eBay, that is the one that we said was going to grow more slowly than the market in '09, at market growth rates in '10, and faster in '11.

There is no silver bullet in what is driving it.

That said, I am pleased with where we are coming into 2010.

And I love all my children, not just one.

So I will list three things that I am looking forward to in 2010 in the Marketplace business.

One, we are going to further extend trust by offering enhanced buyer protection.

So buyers can buy absolutely confidently and safely on eBay.

Two, value and selection will continue to extend with both pricing and the continued improvement in search.

You recall Mark Carges talking about our approach to technology and search at our analyst day.

We are absolutely becoming a more technology-driven Company and our search team is increasingly top-notch.

Then lastly I think what is going to be fun about 2010 is you're going to see some real differences in the eBay user experience.

You will see this most notably in clothing, shoes and accessories, about midyear where the eBay experience, as you know it will look very different.

And you'll see us taking advantage of how we bring the unique inventory we have to buyers in some new and creative ways.

So, again, that is on top of a technology platform we have been building under the eBay business that I think will really hit its stride in 2010 and 2011.

So I am looking forward to this year, and think we will continue to build the momentum that we are building up.

Great, thanks.

Congratulations on the improvement so far.

Spencer Wang, Credit Suisse.

Thanks, just a question on the PayPal take rate.

Given the expansion of the Merchant Services business, should we continue to expect the take rate there to drift lower beyond 2010?

And can you just give us a rough sense of take rate difference between Merchant Services and the on eBay TPV?

Thanks.

First of all, let me emphasize our priorities in terms of how we manage the volume and the economics associated with the core platform.

Obviously, more presence on merchants, more preference for consumers drives volume growth.

Then there is -- the thing that is most important for that volume growth for us is the transaction margins that we generate as a result of three related variables.

One, the global take rate.

Secondly, the transaction expense.

And, third, the fraud losses.

So it is the interaction of those three variables that drives transaction margins that we said back in March, 60% or higher over the next three years.

What we just said today is that we improved Q3 to Q4 to 62%.

That dynamic -- what we expect to transpire over that timeframe is there so many variables that go into global take rate that influence it to the positive side, or at just take rate alone, the negative side.

For example, continued progress of expanding PayPal on eBay in Germany has a relatively low take rate that has very low transaction expenses and very attractive transaction margins.

So there is variables in the portfolio where global take rate may come down, but it is on fundamentally lower transaction expense, and still generates 60% plus kind of margins.

So overall we will continue to manage [any] more presence with merchants, more preference from consumers at transaction margins that take the combination of global take rate, transaction expense and fraud losses that enable us to generate 60% plus transaction margin, and drive leverage from an operating expense standpoint to expand overall operating margins for the PayPal business.

Heath Terry, FBR Capital Markets.

Bob, you mentioned bringing the $1 billion back to the US included roughly $200 million in tax cuts.

When thinking about the remainder of cash that you have got overseas, is that roughly 20% or so the right rate to think about in terms of the cost eventually at some point to bring the rest of that back?

Not really.

There is obviously lots of different variables that go into the effectiveness and the efficiency of getting our cash equally distributed around the globe.

I think those variables include potential internal restructurings, potential repatriated dividends, potential financing of onshore assets with offshore cash.

There is a variety of different variables, all within today's regs have different implications for effectiveness of repatriation strategies.

I think what we have said is we'll continue to look at how to get an equal distribution of our cash across the globe so we have the ultimate flexibility to pursue opportunities as they arise -- a real big bias for doing it as tax efficiently as possible.

And every one of the strategies has a different kind of implications.

The $1 billion we were able to bring back, while it was -- it had tax cash costs associated with it, relatively speaking it was an attractive and efficient way to restructure our balance sheet with a legitimate business purpose at relatively low tax costs.

We will continue to pursue all sorts of different strategies, and each and every one of them are somewhat dependent on circumstances.

Operator, we have time for one last question.

Brian Pitz, UBS.

Thanks, guys.

Just a quick question on mobile.

Is it becoming a more meaningful contributor to revenue?

And are there any specific product categories where adoption has been greater?

Just a second unrelated, any prospects for announcements regarding new, exclusive product inventory from the likes of TigerDirect or other new vendors into 2010, as you guys had previously announced?

Thanks.

Mobile, absolutely I think it is in the phase of an inflection point.

There is no doubt that the iPhone and smart phones in general has just illustrated to consumers all over the world the power of what a mobile device can provide.

We have been quite fortunate in that both eBay and PayPal lend themselves to the mobile format well.

That the engaging nature of eBay auctions is something that can be really brought to a mobile device.

And our best sense is our mobile commerce offering at $600 million could be half the volume in the mobile goods market thus far.

So we intend to be all over it.

We have released another app, the eBay deals app.

And we will continue to find new and interesting and creative ways to bring our inventory to the mobile device in ways that are engaging for consumers.

How much of that will be incremental volume versus just a device shift, we don't know, and to some extent we don't care.

We view mobile is simply one more device, as a way to connect buyers and sellers.

What is interesting is you don't see people necessarily starting, finishing -- or starting, doing and then concluding their whole shopping experience on one device or another.

They may do a search at home and put it in their My eBay.

They may finish the transaction while standing in line in Starbucks and pay right there with PayPal, or the reverse.

So mobile will be an important trend.

We feel we are out on our toes innovating both with eBay and PayPal and mobile.

In terms of exclusive inventory, our Marketplaces' seller team is out talking with several brands and several people that have inventory.

I think 2009 was the year of proving we could move high-volume SKUs in very short periods of time, and I think we have done that.

So there is certainly a growing number of people who want to talk about distributing on eBay.

In some cases that will be exclusive, and others it won't.

But we feel poised to take advantage of this, I will call it, the private sales trend, where retailers are looking to get rid of high-quality branded goods in quick and efficient ways online.

So that is it.

Thanks everyone.

We will look forward to talking to you in 12 weeks.

Ladies and gentlemen, again, thank you very much for joining us today.

That will conclude today's call.

Again, have a good day.