eBay Inc (EBAY) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by and welcome to eBay's Q1 2010 earnings conference call.

Currently, all participants are in a listen-only mode.

Later, we'll conduct a question-and-answer session and instructions for audio questions will be given at that time.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to turn the program over to our speaker, Mark Rowen, Vice President of Investor Relations.

Sir, please go ahead.

Thanks, Operator.

Good afternoon.

Thank you for joining us, and welcome to eBay's earnings release conference call for the first quarter of 2010.

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

We're 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.ebay.com.

Before we begin, I'd 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 a 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 and assumptions, and involve risks and uncertainties.

These statements include, but are not limited to, statements regarding expected financial results for the second quarter and full year of 2010, the focus of the payments and marketplaces 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 and 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 costs, 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 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 April 21, 2010, and we do not intend and undertake no duty to update this presentation.

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

Thanks, Mark, and good afternoon, everyone, and welcome to our Q1 earnings call.

Today, I'll talk about our results and our continued progress toward achieving our three-year growth objectives.

Bob will then provide more details on the quarter and our guidance before we take questions.

I'll start by providing context.

Last year, we set out clear three-year growth and profitability goals for 2009 and 2011, goals to strengthen our position in our two core businesses, eBay and PayPal, and to achieve strong financial performance.

We're achieving these goals by focusing our Company on three themes.

First, we're becoming a more customer-focused company.

We're driving improvements to our user experience and we're measuring our success with three customer-oriented metrics -- net promoter score, velocity and market share.

I've tied a portion of our leadership compensation to customer satisfaction.

Second, we're becoming a more technology-driven company and we're increasing our commitment to innovation.

This is evident with the opening of the PayPal platform, which is driving payments innovation.

And it's demonstrated in mobile, which is experiencing widespread adoption and driving significant e-commerce and payments volume.

We have made good strides with our technology innovation and we're just getting started.

And third, we're committed to operating more efficiently, by taking $2 billion out of our cost structure over the three-year period, and reinvesting it in our highest growth priorities.

Our first quarter results reflect another strong step toward our goals.

Revenue was up 18% and non-GAAP EPS was up 15% on an apples-to-apples basis, taking Skype out.

We're off to a good start in 2010.

Now let's take a brief look about what we accomplished in each business unit.

With PayPal, we're well on our way to turning PayPal into the leader in online global payments.

Approximately 8 million merchants worldwide accept PayPal, benefiting from the higher conversion rate that PayPal delivers, with more than 84 million active registered accounts using 24 currencies across 190 countries.

PayPal had another exceptional quarter, posting record Q1 results and strengthening our global competitive position.

PayPal deepened penetration on eBay, gained global market share, signed a significant deal with China Union Pay, and drove mobile payments innovation.

Thousands of developers are using PayPal's open platform, which has already generated $30 million in TPV.

PayPal is now a convenient and easy-to-use payments choice for Facebook users and advertisers.

Across e-commerce, PayPal is gaining share.

Merchant Services payment volume grew 49%.

In Q1, total payment volume exceeded $21 billion.

Nearly 60% of PayPal's total TPV now comes from Merchant Services.

PayPal signed a number of deals in Q1 that expand its global footprint and help merchants reach more customers.

For example, 1.3 billion Chinese consumers will soon be able to use PayPal to shop worldwide, funding payments from their China Union Pay cards.

As part of our strategy to more closely partner with banks around the world, PayPal also announced agreements with Singapore's largest bank, DBS, and with First National Bank in South Africa.

Both agreements gives consumers in those markets a fast and easy way to use PayPal online.

PayPal is also leading in mobile payments, generating in Q1 almost the same payment volume that was created through our mobile applications in all of 2009.

PayPal's newest mobile app for iPhone, launched in March, was downloaded more than 1 million times in less than three weeks.

And with PayPal mobile, iPhone users can quickly bump payments to each other, easily split checks at restaurants, and send and receive money from their friends and family while on the go.

In addition, our business continues to benefit from the combination of Bill Me Later and PayPal.

We have been testing a new approval process that uses PayPal's extensive data in addition to credit bureau data.

This new process allows us to extend the amount to a wider set of customers, giving consumers increased purchasing power and driving incremental sales to our merchants.

We're already seeing promising results from the integration of BML in the PayPal wallet, and we plan to integrate BML more seamlessly into the eBay marketplace in the coming months.

Now turning to eBay, we're in the midst of a multiyear turnaround, positioning eBay to win in the secondary market.

We believe we're uniquely positioned to capture growth opportunities for sellers on the secondary market, and provide tremendous value and selection for buyers on new, used and vintage goods.

The launch of our new Fashion category, as well as eBay buyer protection and our innovative eBay mobile apps for the iPhone and iPad, reflect our efforts in Q1 and demonstrate eBay's potential as the e-commerce landscape continues to evolve.

Our Q1 results show the steady progress we're making against our turnaround priorities.

Marketplace revenue grew 13%, and the key underlying metrics continue to improve with our focus on trust, value and selection.

Net promoter scores were up for key segments, such as Top in Active Buyers, and Top in Hobby Sellers.

Sold items in the US and UK, and core GMV in the US accelerated for the fourth consecutive quarter.

Our Korean business also performed well, as we successfully integrate Gmarket and IAC.

Our most trusted sellers continue to win on eBay.

Top-rated sellers generated about 31% of core GMV in the US, and same-store sales for top-rated sellers accelerated 3 points to 13% in the US, outpacing e-commerce.

We also announced a number of changes in Q1 to make eBay pricing more competitive for sellers and improve the eBay experience for buyers.

It's too early to assess the impact of these changes, since most just went live in the past couple of weeks; but we continue to align our success with that of eBay sellers by dramatically lowering and even eliminating the upfront costs of selling on eBay, and we believe these changes in the US will have the same positive impact that we've seen in Europe.

For buyers, we have implemented eBay buyer protection in the US and UK, a big step in making sure buyers can shop eBay with confidence.

EBay buyer protection adds a new level of customer support and trust to the world's largest online marketplace.

Through eBay buyer protection, buyers have access to customer support specialists seven days a week, and will cover the buyer's purchase price and original shipping for most purchases, should a problem arise and the seller be unable to resolve the issue.

EBay buyer protection, along with our vehicle and business equipment protection programs, covers almost every item purchased on eBay.

eBay's newly launched Fashion category illustrates how we're delivering better experiences for buyers on servicing in more compelling ways the deep inventory that eBay sellers offer.

The Fashion tab and category on eBay delivers a dramatically different eBay shopping experience, offering the convenience of visual search and features that will help buyers more easily find the items they want.

We introduced Fashion Outlet in the UK and Germany, and launched Fashion Vault in the US, which was successfully piloted in the fourth quarter.

We're pleased with the progress we're making in positioning eBay as a fashion destination offering great value and selection from top brands, retailers, designers and other sellers.

So we're starting from a strong position as the number one clothing site based on sales and traffic, and we begin to expect traction from these initiatives in Q2 and beyond.

In fact, we expect to generate more than $5 billion in GMV from clothing, shoes and accessories.

Mobile continues to be a focus of innovation for eBay, and our mobile apps are driving strong demand.

Our main eBay shopping app has been downloaded more than 8.5 million times, and we expect our mobile apps to generate $1.5 billion of gross merchandise volume in 2010.

That's 2.5 times our volume last year.

In the first quarter, we offered and introduced more apps offerings more ways to buy and sell on eBay.

Our new eBay selling app lets sellers conveniently list an item from their iPhone in less than 60 seconds.

We launched a new eBay app for the iPad that delivers a more visual and easy to shop mobile experience in what the New York Times called the best shopping experience on the Web.

Turning to our adjacent e-commerce formats, our Classified business was up 14% in Q1, with strong growth in Canada, the UK and Denmark.

At the end of Q1, we also announced eBay Classifieds in the US, relaunching our Kijiji platform with major enhancements that create industry-leading standards in trust, safety, consumer service, and user experience.

We also introduced the eBay Classifieds Mobile app for the iPhone, making it easy to photograph and list items in less than a minute, and search for your items in your local community.

StubHub also had a solid quarter, as ticket demand for professional and college sporting events, such as the Super Bowl and March Madness, was strong.

StubHub continues to gain momentum as the tickets marketplace that offers the most choice and availability.

So, in summary, 2010 is off to a strong start, as we continue to strengthen our core e-commerce business and aggressively grow payments.

We accomplished a great deal in the first quarter, building on our 2009 momentum.

And we're performing well against our three-year goals.

I'm pleased with how we're strengthening the fundamentals of our business, enhancing our competitive advantages, and focusing on our customers and driving innovation.

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

Thanks, John.

During my discussion, I'll 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.

Overall, we delivered strong first quarter results.

We came in at the high end of expectations on the top line, and above expectations on the bottom line, while we increased the financial strength of the Company.

We continued to execute against our strategic priorities during the quarter.

PayPal gained market share off of eBay and increased penetration on eBay, as total TPV growth accelerated for the fourth consecutive quarter.

The marketplace's turnaround remains on track, as growth and velocity for the number of sold items accelerated for the fourth quarter in a row.

We're pleased with the results we achieved this past quarter, which gives us a good headstart on our full-year objectives.

We're maintaining full-year guidance, as the strong trends at PayPal and the improvement from the turnaround at eBay marketplaces will be offset by headwinds from a stronger US dollar.

Our combined businesses generated net revenues of $2.2 billion in the first quarter, a 9% increase, or 18% excluding Skype from Q1 2009.

FX increased growth by 3 points and our acquisition of Gmarket increased growth by 4 points, resulting in organic revenue growth of 11%.

First quarter non-GAAP EPS was $0.42, an 8% increase, or 15% excluding Skype.

The year-over-year increase was primarily due to productivity gains, which we reinvested in a lower take rate and this, in turn, helped achieve higher sales volume.

We also recognized a one-time benefit of approximately $0.01 during the quarter related to the early repayment of Skype notes to us.

Also worth noting, relative to guidance, the strength of the US dollar cost us $0.01 of EPS in the quarter.

Non-GAAP operating margin was 30.6%, roughly flat with the year-ago period.

We generated $266 million of free cash flow in the quarter.

Cash flow was reduced by a one-time tax payment of approximately $200 million related to a fourth quarter 2009 business restructuring, which allowed us to move $1.1 billion in cash to the US from overseas.

It was also reduced by a higher employee bonus payment versus the historical norm of approximately $50 million related to a change in the timing of bonus payments.

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

Return on invested capital was 22.5% on a trailing 12-month basis, the second consecutive quarter of improvement.

Earnings growth, coupled with lower invested capital as a result of the sale of 70% of Skype, drove the improvement.

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

Starting with our payments business, PayPal posted another great quarter.

Total revenue increased 26% to $809 million.

Total payment volume increased 35% to $21.3 billion.

Geographically, TPV growth was 25% in the US and 52% internationally.

Today, as John indicated, we operate in 190 countries and 24 currencies as we continue to expand PayPal's global footprint.

In the first quarter, 40% of our TPV -- we generated 40% of our TPV outside the US, compared to 35% in the first quarter of 2009.

PayPal's Merchant Services business had another stellar quarter, driven by an increase in the number of merchants who accept PayPal, the number of active accounts, and an increase in our share of check-out.

Merchant Services TPV grew 49% in the quarter and now accounts for three-fifths of PayPal's total TPV.

On the eBay platform, PayPal's TPV growth accelerated to 18%, the fourth consecutive quarter of improvement, driven by strong GMV growth and 68% penetration of addressable GMV, a 420 basis point increase.

PayPal transaction margin was also strong, increasing to 63.5% in the quarter.

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

PayPal segment margins came in at 22.6% in Q1, up 480 basis points from Q4 and 520 basis points year-over-year.

The increase from last year was primarily the result of a higher transaction margins held by some one-time benefits; operating leverage on volume; transferring much of the cost of the eBay buyer protection program to marketplaces; and improvement at Bill Me Later.

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

Bill Me Later's gross receivable balance at quarter-end was $641 million.

The quality of BML receivables has continued to improve, which has resulted in reduced growth, but we believe this is the right trade-off for the current economic environment.

We've begun using eBay Inc.

data to help reduce the customer decline rate without taking on additional risk.

BML's net charge-off rate decreased to 9.5% in the quarter from 11.1% in Q4, resulting in a risk-adjusted margin of 11.5%, 120 basis points sequential improvement.

Now let's move to our marketplaces business.

Overall, marketplaces achieved net revenues of $1.4 billion, a 13% increase.

Marketplaces generated 60% of its revenue internationally this quarter, up from 54% in Q1 2009.

We continue to be pleased with the strong double-digit growth we're seeing in our Fixed Price format, with Fixed Price now accounting for more than 60% of GMV, excluding vehicles.

On an FX neutral basis, GMV in our Fixed Price format grew at 33%, while the auction format declined 3% and vehicles was down 7%.

Beyond transaction revenue, we connect buyers and sellers through alternative formats, which are becoming increasingly important to the marketplaces.

Marketing services now represents 15% of marketplaces revenue and grew 12% in the quarter.

Our Classifieds business continued its strong trajectory, with 14% growth, due to strength in Canada, UK and Denmark.

Total global advertising revenue increased by 12%, driven by strong growth in AdCommerce, our internally-developed, CPC-based advertising solution for sellers, as well as higher revenue per click on our search advertising.

A few quick highlights on marketplaces' operational metrics.

Active users accelerated in our three largest markets.

However, globally, this was offset by weakness in some of our smaller European markets.

Sold items, excluding Gmarket, accelerated for the fourth straight quarter to 13%, geographically driven by strength in the UK, cross-border trade out of China, and the US.

Marketplaces segment margin was 42% in the quarter, down 310 bips from a year ago, but in line with our full-year guidance.

The main drivers of the year-over-year change include savings from operational excellence initiatives, which we then reinvested into a lower take rate and buyer protection programs, as well as the inclusion of Gmarket, which we acquired in June of last year.

Global take rate was 7.6% in the quarter, down 41 bips from last year, or down 49 bips excluding vehicles, StubHub and Gmarket.

The decline is primarily due to a reduction in feature fees, an increase in buyer incentives, and discounts given to our highest-rated sellers.

Turning to operating expenses, in Q1, sales and marketing was 19% of revenue, up 70 bips from last year, primarily due to the acquisition of Gmarket and the divestiture of Skype.

Product development was 8.3%, down 20 bips, as productivity gains and acquisitions more than offset the negative impact of the Skype divestiture.

G&A cost was 10.7%, a decrease of 70 bips, predominantly due to operating leverage.

Our provision for transaction and loan losses was 4.8%, up 80 bips, primarily due to our new eBay buyer protection program and PayPal's newly enhanced off-eBay protection program.

From a cash perspective, we generated free cash flow of $266 million during the quarter.

As I mentioned earlier, cash flow was reduced by a one-time tax payment of approximately $200 million, and changes in bonus payment compared to last year's.

Cash, cash equivalents and non-equity investments totaled $5.4 billion at quarter-end.

Of this, we held approximately $1.1 billion in the US.

Now let me turn to guidance.

For Q2, we anticipate revenue of [$2.15 billion to $2.2 billion].

This represents growth of 11% to 14%, excluding Skype.

We anticipate non-GAAP EPS of $0.37 to $0.39, which represents growth of 9% to 15%, excluding Skype.

As I mentioned earlier, we're maintaining full-year guidance.

Despite strength of our PayPal and improvements from the marketplace's turnaround, these positives will essentially be offset by a stronger US dollar compared to where we were three months ago.

For the full year 2010, we continue to project revenues of $8.8 billion to $9.1 billion, representing growth of 9% to 12%, excluding Skype, and we continue to anticipate non-GAAP EPS of $1.63 to $1.68, representing growth of 11% to 14%, also excluding Skype.

In summary, as John mentioned, we commuted our three-year growth in profitability goals in early 2009.

Since that time, first, we have a stronger and more focused portfolio.

We divested the majority of Skype and we acquired Gmarket.

We completed the integration of Bill Me Later and the PayPal wallet and we have a stronger balance sheet.

Secondly, we exceeded our expectations in 2009 and growth accelerated in the second half of the year.

And last, we're off to a good start in 2010.

Despite headwinds from a stronger US dollar, we're well-positioned to deliver on our full-year guidance.

And now we'd be happy to answer your questions.

Operator?

(Operator Instructions).

Spencer Wang, Credit Suisse.

Just a couple quick questions on PayPal, I guess maybe for Bob.

The decline in the take rate of PayPal, I know there a bunch of things that go into that, but should we expect a similar kind of year-over-year decline the balance of the -- for the balance of the year?

And secondly, the transaction expenses, you mentioned a couple of one-time benefits.

Could you just give us a little bit more color on what that was and the rough size?

Thank you.

Yes, thanks.

First, just in terms of take rate, we saw a 22 bip decline year-on-year and a modest uptick from the first quarter -- I'm sorry, from the fourth quarter.

I think -- we do expect take rate to come down more during the course of the year.

But to put it into context, the way we try to think about the business is more looking at transaction margins, which are a function of, obviously, take rate; secondly, transaction expenses; and third, fraud losses.

And the reason we do it that way is simply, in some geographies, take rates may be lower but transaction expenses may be lower as well.

And particularly, as we grow outside the US, we do have lower take rates outside of the US.

And as you know from our results, the growth rates internationally have been very strong.

So we do expect global take rate to come down, but we also expect transaction margins to stay above 60%.

In terms of one-timers in the quarter, in PayPal's variable costs, yes, there was probably about 1.5 to 2 points of margin benefit from PayPal, due to some one-timers flowing through transaction expense and fraud losses.

So while margins accelerated 500 bips year-over-year, it was probably 3 bips is more sustainable improvement on a year-over-year and quarter-on-quarter basis.

Great.

Thank you very much.

Next question, please.

Douglas Anmuth, Barclays Capital.

Great.

Thanks for taking the question.

First one, just on the marketplace.

And John, just curious how you will know when it's really the right time to push more on the buyer side, perhaps in terms of marketing and advertising, and what your plans are there.

And then secondly, in terms of the international GMV, the deceleration on an organic basis, from the last quarter, you mentioned some weakness in smaller European markets.

Do you think that's more macro-oriented?

Or just a little more color there.

Thanks.

Yes, thanks, Doug.

You know, what was fun about Q1 was we had some product advancements that buyers can really see now.

So, eBay buyer protection, which we really put the foundation in last year, we now, in the US and UK, can communicate -- buy on eBay and you're completely covered.

We think that's going to have real cut-through to buyers where they can now reach a customer service rep any time they have a problem.

They -- usually those issues get resolved with sellers, but if not, we given them their money back plus shipping.

And we've gotten very good feedback on that.

Similarly, you see the clothing, shoes and accessories launch of a couple weeks ago.

That's really the first tailored vertical shopping experience that's built on our platform.

And I think you see it's a way that really brings eBay's inventory to life in a very different way for buyers, and allows them to access eBay's inventory in easier and more engaging ways.

So, these are just the first two of what I think will be a series of buyer-related improvements you'll see over this coming year.

And as I said all the way along, I want to make sure that our experience gets to the point where buyers can constantly know and see they are experiencing something differently, and we will, at that stage, really amp up our marketing.

To be clear, we're spending the same amount of marketing this year thus far as we did last year, and we'll continue to do that; but I want to keep making the steady progress we are.

Our biometrics are improving; our customer retention is improving; and one quarter at a time toward this three-year goal.

Hey, Doug, relative to the international growth, globally, our non-vehicles GMV was up 8%, which is roughly in line with the fourth quarter.

Underneath the covers, US GMV accelerated by 2 points Q4 to Q1, and international GMV was down by roughly 2 points.

I think there's a series of things going on.

First, as to what's execution and what's macroenvironment.

First, I would say in UK, strong performance, great execution.

If I characterized then Australia and Korea, strong performance and good macroeconomic environment.

Germany, I think was, you know, okay performance and a tough economic environment.

And the rest of Europe I'd say is a combination of both -- average performance and economic environment not so good.

And by that, I mean particularly Western Europe, both active users and GMV declined in those markets.

So it's a little bit of a good performance, some good macro, some not so good, GMV growth flat with Q4, US accelerating, and international down a bit.

Okay, great.

Thank you.

Next question, please, Operator.

Gene Munster, Piper Jaffray.

If you could please go through what the impact of the change in listing fees is having on the number of listings.

I know that that's just been over the past few weeks, and maybe give some sort of feel in terms of how that's impacting the overall search business or your search results as well.

Thanks.

Well, Gene -- I can't comment on the actual impact of these changes because it's only two weeks; but what I can say is this -- what we've done in the US is very similar to what we did in Europe a year ago or a little over a year ago, where we've, in essence, are incenting consumer sellers to list in the auctions format by making that virtually free when they list in the auctions format, and they only pay if it sells and they pay a flat rate -- which is really what our research had told us that consumers would prefer, something that's simple and easy.

And then for the smaller business seller of the people that sell a lot of volume on eBay, we are incenting them to sell on the Fixed Price format, making that, in essence, free or quite low price.

To list in the Fixed Price format, again, they only pay if it sells.

And as you know, auctions are sorted by time ending soonest.

Fixed Price is sorted or searched by, in essence, relevance and a Best Match.

What we have found in Europe is that allowed both groups of sellers to list in their most natural format and allowed the richness of inventory to come more clear, pop better for buyers.

We saw an improvement in sold items and improvement in GMV.

And so we anticipate the same reaction in the United States as this plays out over the next -- the remainder of the year.

The other thing that happens as part of that is, we no longer have the store inventory format, and so that the Fixed Price items are now all in sort of core search.

What we've proven in Europe is their search engine can take that.

So, these are things that we're proving out in Europe and they'll take time to sort of work their way into our -- initially, our listings and then into demand.

But we feel good about the impact they'll have in the US business over the next remainder of the year.

So when we see -- given those dynamics, should we start to see more of an improvement in the marketplace in the June quarter?

Or as you were saying, does it -- is it going to take several quarters to kind of take hold?

You know, the timeframe, if I were to take it in Europe, (inaudible) what happened in Europe, I would say it took kind of two to three quarters to really fully work their way through.

If they first change their listing practices and then buyers get used to them, and so we'll start really accessing the impact in kind of the summer to fall timeframe.

Next question, please.

Colin Sebastian, Lazard.

A couple of quick ones here.

I guess, first of all, following this latest round of changes, I think you talked about before perhaps two or three rounds of changes for the year.

If you could clarify, if that's still the plan, and directionally, what the timing is for those changes, and directionally, what they might impact.

And then, secondly, on PayPal, I think Scott had talked about some expansion in Asia there.

Also curious on the timing of that and if there are any added expenses associated with those moves baked into your guidance now for the year.

Colin, let me take that.

On the marketplace changes, what we've done is we've bunched those into two releases, which makes it easier for sellers.

Sellers like the advanced warning and like to know that they can really make two sets of changes a year.

We tended to make those in March and in September, and announced them 60 to 90 days ahead of time.

So we'll have a second wave of changes this year.

And again, this is a year where you're going to see a lot of the foundational work that we did in 2008 and 2009 begin to flow through to things that buyers can touch and feel -- things like the vertical shopping experience in clothing, shoes and accessories; things like fitment in auto parts, which is, in essence, significantly simplifies selling in that category for eBay; and things like eBay buyer protection.

So, more things like that you'll see in the next release.

And then with respect to Asia, Bob and I were in Asia last week, in fact, visiting with the PayPal team, and man, there is just really, really impressive growth, frankly, in both eBay and PayPal businesses in Asia, as cross-border continues to be quite strong in that market.

And what PayPal has done, that I mentioned earlier in my remarks, is sign some deals with financial services entities that give us access to local Asian customers that may not be on eBay.

So, the China Union Pay deal allows us access to 1.3 billion Chinese consumers.

China Union Pay, by the way, is a total of 2.1 billion of overall cardholders.

So now it's easier for them to open a PayPal account and fund it with that.

We've signed deals with -- in Singapore and in South Africa, which again, allow local consumers in those markets to access PayPal more readily.

And we're doing some interesting things on the mobile front.

On guidance, I'm going to let Bob -- oh, and Japan.

In Japan, we've signed deals with several of the largest payment's gateways, which give us access to both Japanese merchants, and then we're talking with a couple of Japanese financial services concerns about doing the same thing to access Japanese consumers.

So, I think a lot of growth opportunity.

And your question on guidance, I'm going to give Bob a chance to comment on guidance, which I know some people are curious about.

Yes, Colin, I think we've been spending quite a bit of time on expanding our global footprint in PayPal in Asia.

As John indicated, we have a fantastic cross-border business there and a great domestic business in Australia; but the moves that we've been making since really early last year have been about building domestic presence over there.

So we have a reasonably -- a reasonable-sized business today.

It's been growing extensively and it will continue to grow this year.

All the costs that go along with it are reflected in the guidance that we've given.

Relative to the more macro question on guidance that maybe you didn't ask but I'll comment anyways, because I gave some words in the script and maybe I'll want to put some numbers to it, to make sure you have the context for how we're thinking about the full year.

I'll give you maybe the simple version.

We came into the year with earnings projected to be $1.63 to $1.68.

And there's really -- and I gave some words about how we're thinking about the rest of the year and how we get back to our full-year guidance.

So maybe I could put some numbers to them.

First, the negatives.

As you know, we are a global business with more than half of our revenues from offshore; a couple billion dollars in revenue exposed to the euro; $1 billion of revenue exposed to the pound.

And the implications of how currencies have changed, in particular, the strengthening of the dollar in the last 90 days, will cost us approximately $125 million in revenue and $0.05 in EPS, relative to where we were 90 days ago.

Secondly, our tax rate is going to be a little bit higher this year than what we thought, and the reason is because our US business is going to be stronger.

And that higher tax rate will likely cost us a couple cents relative to where we were 90 days ago.

So that's $0.07 down.

We maintained our guidance for the full year, and it's because of two things.

One, PayPal will grow faster than we expected a few months ago and its margins will be higher; and we're increasingly confident 90 days later about the changes that we're making in the marketplace business.

So, as we think about our full-year guidance for eBay Inc., not maybe the cost in the Asian business and PayPal, we will be down $0.07 because the currency and tax rate will be up $0.07 because of good operational performance in the PayPal business and continued progress in the core eBay business as well.

Next question, please.

Imran Khan, JPMorgan.

Thank you so much for taking my questions.

Two questions.

Can you talk a little bit about how the CyberSource acquisition impacted the payment space?

I think they talked about that they might reduce their exposure in the Merchant Service businesses.

Is there an opportunity for Merchant Service to add clients for PayPal as they shift away from merchant-acquiring businesses?

And secondly, not to nitpick, I think on slide 13, it seems like your active -- global activities have declined sequentially, despite the three largest market acceleration.

Can you give us some color what sequential decline, I think?

And that will be very helpful.

Thank you.

Imran, I'll take the first one while Bob looks for page 13 in a second.

On the payments, first of all, let me make a prediction, which is, you're going to see lots of announcements around online payments and mobile payments in the coming months.

And that's simply because payments is a large and competitive space, and there are lots of people who participate in one form or another.

And rather than comment on any specific announcement or competitor, let me just say this.

We continuously closely monitor the competitive landscape, and feel confident about our position and our competitive advantages, and feel more confident about those as the days go on.

We've got this combination of scale and speed.

And we primarily look at what customers want.

Actually, we look at it more from a customer perspective than a competitor landscape.

And what you see from the PayPal numbers is our customers like what we're doing.

And the specific things I think we have that are unique are, we have direct relationships with both consumers and merchants.

We don't have to work through issuing banks or acquiring banks.

And so we've got 80 million active consumers and 8 million merchants.

And so, as you said, I think there are additional opportunities to add merchants following this acquisition, and we'll certainly get very aggressive to be adding those.

But it's that kind of direct relationship that gives us the data that allows us to do the risk detection and fraud prevention that we do.

And that, combined with our technology platform, allows us to innovate more rapidly, you know, what we've done with our platform, opening up our platform, which no other payments platform in the world has done.

What we're doing in mobile, where there are a lot of people talking about it, we've already launched two apps and have -- [literally] did more volume in Q1 than we did all last year in mobile payments.

In digital goods, we're pushing forward.

So I think you're going to see lots of different movements in the broader e-commerce competitive space.

We're staying very focused on our consumers and feel very good about the combination of scale and speed that we bring to being the leader in online global payments.

Hey, Imran, in regards to the active users for the marketplace, the comments that I gave on accelerated growth in the biggest markets was a year-over-year comment.

What you're referring to is a sequential -- sorry -- sequential decline from Q4 to Q1.

And that has a bit to do with two things.

One, a strong holiday season, which ramps -- it ramps up fourth quarter kind of active users; and then a deceleration both year-on-year and Q-on-Q in our Western Europe markets.

Got it.

Thank you very much.

Thanks.

Operator, next question, please.

Justin Post, Merrill Lynch.

Can you talk about your new buyer protections on marketplaces?

And I think you even mentioned PayPal, how that possibly could affect results.

And then, secondly, any thoughts or update on opportunity or drivers to potentially spin-out PayPal?

Is that something that even makes sense to you at all well down the road?

Thank you.

Let me take the latter first, Justin, and I'll simply just repeat what I've said before -- which is, that we continue to believe the best way to drive long-term value for our customers and investors is by keeping these two businesses together.

There continues to be strong synergies between eBay and PayPal.

You saw that in the increased penetration PayPal has had on eBay.

It's up, I think, almost 300, 400 basis points year-over-year.

eBay continues to provide a significant number of new users for PayPal, in essence, for free.

And eBay Inc.'s balance sheet allows us to invest in PayPal's business and make investments like Bill Me Later that further its position.

So as long as those synergies are there, we're going to try to fully capitalize on them and believe it's the best thing to do for our customers and investors.

And then on eBay buyer protection, this is a nice capstone of stuff we've been working on for the last 12 to 18 months, where we've materially reduced bad buyer experiences.

We've increased trust on the site.

We've put in place from, for instance, a standing start, we had no phone coverage for buyers 12 months ago.

We now have, in essence, full phone coverage for buyers in both the US and the UK.

What this allows us to do with confidence is to say, buy on eBay and you're covered.

No questions -- almost no questions asked.

And what our research says is even though buyers receive better experiences, this kind of guarantee is going to give them that real sense of confidence they can buy with confidence.

The early feedback we're getting from consumers in the US and UK mention that.

It does result in a shifting a little bit of cost from payout, from eBay, payout of losses from PayPal to eBay.

But overall, net-net, we don't see that as a major reason -- it raises one margin and slightly lowers another.

We're confident enough that we don't see it having a material impact on the Company overall -- financially, that is; but we do hope it has a material impact on our consumers.

Great.

Thank you.

Next question, please.

James Mitchell, Goldman Sachs.

Just to follow-up to Justin's question on buyer protection.

Could you approximately size the dollar impact of the costs that were previously incurred by the PayPal business unit and are now incurred by the marketplace business unit?

Yes, it's approximately $8 million in Q1 that historically would have been in PayPal's losses, which is now in marketplace's losses.

Thank you.

Next question, please.

Yes, sir.

Our next question in queue comes from (multiple speakers) -- yes, sir?

Operator?

Yes, sir?

Before you do that, can I just make one comment back on James to your question?

Here was a fascinating thing we found out last year.

This is where the testing and learning in how we approach many of these changes makes sense.

So we started off a year ago by saying we were certain people just wanted their money back instantly.

And so when we first piloted this buyer protection, we did it just with the top buyers in the US.

And they'd call and they gave them their money back instantly.

And what we found was that's not what they wanted.

They said, you know what?

I just want the item.

So we started intermediating with the sellers more aggressively and helping connect the buyer with the seller in the after transaction.

And we found that in 70% to 80% of the cases, they got it resolved within 24 to 48 hours, and the buyer was happy.

They preferred that from getting their money back.

So, what that has enabled us to do is to scale this in a way that's far more aggressive, because what it's, in essence, doing is connecting the buyer and seller in a post-transaction to make sure that they resolve the transaction in a satisfactory manner.

And then, at any time that the buyer would just rather get their money back, we provide it.

But it was fascinating learning to find that most cases they just -- they want to get their item, and they want to get their item in a timely and accurate basis.

In 80% of the submissions or the claim filings, that's what's, in essence, happening.

And that's why that number, Bob's number of $8 million, which sounds so small, is because for every 10 calls that come, eight of them are getting resolved between buyer and seller.

Okay, thank you.

Next question, please.

Stephen Ju, RBC Capital.

So, John, you mentioned that small businesses are receiving a listings fee adjustment incentive right now in the second quarter.

Did most of your larger volume sellers already receive these incentives during the first quarter?

And sticking with the Asia-related PayPal questions here, from what I was given to understand, PayPal is not the dominant payment methodology on the auction platform, which you market in Korea.

What is different about the Korean market and why is PayPal not used as prevalently in that market?

Thank you.

Yes, Stephen.

Real quickly on each -- the pricing change was just one pricing change.

And, in essence, it sent anyone that sells more than 50 to 100 items a month on eBay to use the Fixed Price format, because you buy a store and a subscription, and that gives you access to lower insertion fees.

So, where you draw the line between small or larger businesses -- anyone that sells more than 50 to 100 items a month on eBay is, in essence, probably better economically to sell them in a Fixed Price format.

Secondly, in payments in Korea is escrow.

And that way it's different than most any other market except the domestic Chinese market.

And we have an escrow system built into Internet Auction Company, and in essence, an escrow system is built into Gmarket.

So that's why that market is different.

Thank you.

Operator, we have time for one more question.

Yes, sir.

Our final question comes from Mark Mahaney with Citigroup.

Please go ahead.

On the payment segment margins for the balance of the year, would you give any comments on marketplace segment margins for the balance of the year?

And then one question on Germany and the UK.

The GMV trends the last couple of quarters did give this tentative evidence that some of those marketplace changes that you implemented had a real impact on those markets.

It's unclear from the March quarter results whether that's the case; but is it clear to you from your internal data that that GMV acceleration in the German and the UK market in the second half of last year continued into the March quarter?

Thank you.

Why don't you take that first and I'll (multiple speakers) [take the second].

Yes.

I think the first, Mark, was related to margins in the marketplace business.

Back in January, we indicated that our expectations kind of for full-year 2010 is marketplace margins would be roughly 42%.

And that's off of 40% in Q4.

And Q1 was 42%, so we kind of expect that to continue throughout the course of the year.

And then, Mark, in UK and Germany, to be honest, what I'm really looking at is our competitive position in each of these markets.

And I'd say that we continue to gain share in the UK.

Sold items and GMV growth is both very strong.

The UK e-commerce market is surprisingly strong.

So we're growing faster but it's -- the market is growing more quickly as offline comes online, and we're growing more quickly than the market.

The German market, as Bob said, the e-commerce market is not growing as fast.

The economy and e-commerce market is lagging behind.

And I'd say our competitive position is holding steady there.

It improved in 2009 and it held its position in the first quarter this year.

So, again, I feel good about the changes we made there in '09 and we'll bring those to the US in '10.

And I feel good about what we added in both markets in the first quarter of this year.

So, I will wrap up by saying what I say every time, and it is absolutely how we are approaching things.

I feel good about the progress, but we've got a lot of work to do and it's just one quarter at a time.

But there's no doubt we're seeing growing traction as these changes begin to build on top of each other.

So, more to come 90 days from now.

Thanks, everyone, for listening.

Take care.

Thank you, sir.

Ladies and gentlemen, this does conclude today's program.

Thank you for your participation and have a wonderful day.

Attendees, you may now disconnect.