SAN JOSE, Calif.--(BUSINESS WIRE)--eBay Inc. (Nasdaq: EBAY) today reported financial results for its second quarter ended June 30, 2008. The ecommerce company posted second quarter revenue of $2.20 billion, up $361 million from the same period last year. Net income on a GAAP basis was $460 million, or $0.35 per diluted share, and non-GAAP net income was $568 million, or $0.43 per diluted share.

“This was a strong quarter and we are very pleased with the performance of the portfolio, particularly with the growth generated by PayPal,” said eBay Inc. President and CEO John Donahoe. “We have made bold moves across the eBay marketplace to accelerate long-term growth. We remain confident in our strategies to improve the customer experience as we manage in an uncertain economic climate.”

eBay continues to benefit from an increasingly diversified portfolio of businesses. While Marketplaces transaction revenue continues to represent a majority of revenue for the company, revenue growth rates were helped by the company’s faster growing businesses such as PayPal, global classifieds, advertising and Skype. The company's global footprint helped it benefit from strength in other currencies, relative to the U.S. dollar.

GAAP operating margin decreased slightly to 24.8% for the quarter, compared to 24.9% for the same period last year. Non-GAAP operating margin decreased to 31.9% for the quarter, compared to 32.4% for the same period last year. The decrease in operating margins was caused primarily by the company’s faster growing, lower-margin businesses, such as PayPal and Skype.

eBay Inc. generated $738 million of operating cash flow during the second quarter. Free cash flow during the quarter was $617 million.

Quarterly Business Highlights

• eBay Inc. repurchased approximately 19 million shares of its outstanding common stock at a cost of approximately $566 million. Since the inception of the share buyback program in the third quarter of 2006, the company has repurchased $4.7 billion of its common stock.
• eBay announced initiatives to enhance the safety and vibrancy of the marketplace including: new rewards and discounts for PowerSellers and expanded protections for customers using PayPal.
• eBay Motors completed agreements to feature certified pre-owned inventory from Chrysler, GM and Lexus on its showroom hub.
• The company’s global classifieds businesses averaged 81 million unique visitors per month during the quarter, representing an increase of 121% year-over-year.
• StubHub announced a deal making it the official online secondary ticket marketplace for Madonna’s 2008 North American Tour. The company reached a milestone with its 15 millionth ticket sold.
• PayPal signed merchant services deals with Delta Airlines, Blockbuster.com, Arcadia Group (U.K.) and William Hill (U.K.).
• Skype launched 4.0 in Beta, the largest redesign of the Skype interface since the company’s inception.
• Skype named former Motorola veteran, Scott Durchslag, to the position of chief operating officer to oversee product strategy and marketing.

Financial Highlights (presented in millions, except per share data and percentages)
			Second Quarter
			2008		2007		Change
	Net revenue		$2,196		$1,834		$361		20%
	GAAP
	Net income		$460		$376		$85		22%
	Earnings per share (diluted)		$0.35		$0.27		$0.07		27%
	Non-GAAP
	Net income		$568		$471		$96		20%
	Earnings per share (diluted)		$0.43		$0.34		$0.09		25%
			`

Quarterly Business Unit Discussion

Marketplaces

The Marketplaces business unit, which consists of eBay, Shopping.com, StubHub, Kijiji and other ecommerce sites, had a strong second quarter, generating $1.46 billion in revenue, equating to 13% year-over-year growth. The business unit saw strong growth in advertising, StubHub and classifieds. Revenue from our text and graphical advertising partnerships grew 183% year-over-year. Net revenues generated outside the U.S. were 56% of total Marketplaces net revenues for the quarter. Gross merchandise volume was $15.68 billion for the quarter, an increase of 8% over the second quarter of 2007. Marketplaces continues to focus on customer-facing initiatives designed to make transactions on the eBay platform safer and its various global sites easier to use, while enhancing selection in a uniquely eBay way.

Payments

PayPal had a strong quarter with $602 million in net revenue, an increase of 33% year-over-year. Net total payment volume (TPV) for the quarter was $14.93 billion, an increase of 35% year-over-year. The net revenue and net TPV growth was driven primarily by the continued excellent growth of merchant services globally and increased penetration on eBay internationally. Global active registered accounts increased to 62.6 million, representing 19% year-over-year growth. Globally, PayPal will continue to focus on greater penetration into the Marketplaces business and the acquisition of new merchants.

Communications

Skype continued its robust growth trajectory, reporting $136 million in revenue for the quarter, representing 51% year-over-year growth. Skype added nearly 29 million registered users in the quarter, ending the period with more than 338.2 million registered users around the world. In addition to growing its user base, Skype is focused on product strategies to enhance customer engagement.

Other Selected Financial Results

• Taxes — The GAAP effective tax rate for the quarter was 19%, compared to 23% for the second quarter of 2007 and 21% for the first quarter of 2008. The non-GAAP effective tax rate for the quarter was 22% compared to 25% for the second quarter of 2007 and 23% for the first quarter of 2008.
• Cash and cash equivalents — The company’s cash and cash equivalents totaled $3.70 billion at June 30, 2008, compared to $4.22 billion at December 31, 2007.

Business Outlook

• Full year 2008 — eBay now expects net revenues in the range of $8.800 to $9.050 billion with GAAP earnings per diluted share in the range of $1.37 to $1.42 and non-GAAP earnings per diluted share in the range of $1.72 to $1.77.
• Third quarter 2008 — eBay expects net revenues in the range of $2.100 to $2.150 billion with GAAP earnings per diluted share in the range of $0.30 to $0.32 and non-GAAP earnings per diluted share in the range of $0.39 to $0.41.

Quarterly Conference Call

eBay will host a conference call to discuss second quarter results at 2:00 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, can be accessed through the company’s Investor Relations web site at http://investor.ebay.com. In addition, an archive of the webcast will be accessible through the same link.

About eBay Inc.

Founded in 1995, eBay Inc. connects hundreds of millions of people around the world every day, empowering them to explore new opportunities and innovate together. eBay Inc. does this by providing the Internet platforms of choice for global commerce, payments and communications. Since its inception, eBay Inc. has expanded to include some of the strongest brands in the world, including eBay, PayPal, Skype, StubHub, Shopping.com, and others. eBay Inc. is headquartered in San Jose, California.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as “non-GAAP financial measures” by the Securities and Exchange Commission, or SEC: non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate, and free cash flow. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with generally accepted accounting principles. For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, see “Non-GAAP Measures of Financial Performance,” “Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin,” “Reconciliation of GAAP Net Income to Non-GAAP Net Income,” “Reconciliation of GAAP to Non-GAAP Effective Tax Rate,” “Reconciliation of Operating Cash Flows to Free Cash Flow” and “Business Outlook” included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to the future performance of eBay and its consolidated subsidiaries that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. The company’s actual results could differ materially from those predicted and reported results should not be considered as an indication of future performance. Factors that could cause or contribute to such differences include, but are not limited to: the company’s need to increasingly achieve growth from its existing users, particularly in its more established markets; the company’s ability to deal with the increasingly competitive ecommerce environment, including competition for its sellers from other trading sites and other means of selling, and competition for its buyers from other merchants, online and offline; the company’s need to manage an increasingly large enterprise with a broad range of businesses of varying degrees of maturity and in many different geographies; the effect of management changes and business initiatives; the company’s need and ability to manage other regulatory, tax and litigation risks as its services are offered in more jurisdictions and applicable laws become more restrictive and any changes the company may make to its product offerings in response to such risk; the regulatory, intellectual property, competitive and other risks specific to Skype; the competitive, regulatory, credit card association, and other risks specific to PayPal, especially as it continues to expand geographically; the company’s ability to upgrade and develop its systems, infrastructure and customer service capabilities at reasonable cost; the company’s ability to maintain site stability and performance on all of its sites while adding new products and features in a timely fashion; changes in political, business and economic conditions, including conditions that affect consumer confidence or ecommerce growth; fluctuations in foreign exchange rates; the company’s ability to profitably expand its business model to new types of merchandise and sellers; and, the company’s ability to profitably integrate, manage and grow businesses that have been acquired recently or may be acquired in the future. The forward-looking statements in this release do not include the potential impact of any acquisitions that may be announced and/or completed after the date hereof.

More information about factors that could affect the company’s operating results is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company’s investor relations web site at http://investor.ebay.com or the SEC’s web site at www.sec.gov. Undue reliance should not be placed on the forward-looking statements in this release, which are based on information available to the company on the date hereof. eBay assumes no obligation to update such statements.

eBay Inc.
Unaudited Condensed Consolidated Balance Sheet
(In Thousands)
			December 31, 2007			June 30, 2008
		ASSETS
Current assets:
	Cash and cash equivalents		$	4,221,191		$	3,696,028
	Short-term investments			676,264			355,336
	Accounts receivable, net			480,557			479,089
	Funds receivable and customer accounts			1,513,578			1,684,703
	Other current assets			230,915			305,231
		Total current assets		7,122,505			6,520,387
Long-term investments				138,237			130,353
Property and equipment, net				1,120,452			1,124,527
Goodwill				6,257,153			6,522,767
Intangible assets, net				596,038			554,633
Other assets				131,652			168,958
Total Assets			$	15,366,037		$	15,021,625
		LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	156,613		$	127,844
	Funds payable and amounts due to customers			1,513,578			1,684,703
	Accrued expenses and other current liabilities			1,151,139			908,001
	Deferred revenue and customer advances			166,495			186,483
	Income taxes payable			111,754			99,203
		Total current liabilities		3,099,579			3,006,234
Deferred and other tax liabilities, net				510,557			590,814
Other liabilities				51,299			52,531
		Total liabilities		3,661,435			3,649,579
Total stockholders’ equity				11,704,602			11,372,046
Total liabilities and stockholders’ equity			$	15,366,037		$	15,021,625

eBay Inc.
Unaudited Condensed Consolidated Statement of Income
(In Thousands, Except Per Share Amounts)
				Three Months Ended June 30,					Six Months Ended June 30,
					2007		2008			2007		2008
Net revenues (2)				$	1,834,429	$	2,195,661		$	3,602,503	$	4,387,884
Cost of net revenues (1)					416,789		562,103			810,478		1,087,515
			Gross profit		1,417,640		1,633,558			2,792,025		3,300,369
Operating expenses (1):
		Sales and marketing			477,768		512,787			921,020		1,039,965
		Product development			147,934		186,791			285,532		363,551
		General and administrative			283,478		333,695			561,837		688,957
		Amortization of acquired intangible assets			51,554		54,918			98,903		109,752
			Total operating expenses		960,734		1,088,191			1,867,292		2,202,225
Income from operations (3)					456,906		545,367			924,733		1,098,144
Interest and other income, net					33,967		23,385			63,987		52,995
Interest expense					(2,734)		(619)			(7,276)		(3,485)
Income before income taxes					488,139		568,133			981,444		1,147,654
Provision for income taxes					(112,315)		(107,788)			(228,444)		(227,591)
Net income				$	375,824	$	460,345		$	753,000	$	920,063
Net income per share:
		Basic		$	0.28	$	0.35		$	0.55	$	0.70
		Diluted		$	0.27	$	0.35		$	0.55	$	0.69
Weighted average shares:
		Basic			1,361,046		1,312,007			1,363,986		1,322,854
		Diluted			1,378,697		1,325,136			1,381,484		1,334,518
(1) Includes stock-based compensation as follows:
		Cost of net revenues		$	9,638	$	10,988		$	18,411	$	21,513
		Sales and marketing			23,086		24,560			42,309		48,351
		Product development			19,420		24,676			35,377		48,169
		General and administrative			27,477		31,625			55,474		61,197
		Total stock-based compensation		$	79,621	$	91,849		$	151,571	$	179,230
(2)		Net revenues for the three-month period ended June 30, 2008 were positively impacted by foreign currency translation of approximately $121 million compared to the same period of the prior year. Net revenues for the six-month period ended June 30, 2008 were positively impacted by foreign currency translation of approximately $231 million compared to the same period of the prior year. On a sequential period, net revenues for the three-month period ended June 30, 2008 were positively impacted by foreign currency translation of approximately $35 million.
(3)		Operating income for the three-month period ended June 30, 2008 was positively impacted by foreign currency translation of approximately $69 million compared to the same period of the prior year. Operating income for the six-month period ended June 30, 2008 was positively impacted by foreign currency translation of approximately $126 million compared to the same period of the prior year.  On a sequential period, operating income for the three-month period ended June 30, 2008 was positively impacted by foreign currency translation of approximately $23 million.

eBay Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
(In Thousands)
								Three Months Ended June 30,					Six Months Ended June 30,
									2007		2008			2007		2008
Cash flows from operating activities:
	Net income							$	375,824	$	460,345		$	753,000	$	920,063
	Adjustments:
		Provision for doubtful accounts and authorized credits							20,452		24,497			45,247		60,622
		Provision for transaction losses							33,832		40,633			69,769		74,566
		Depreciation and amortization							146,722		173,359			290,171		339,339
		Stock-based compensation expense							79,621		91,849			151,571		179,230
		Deferred income taxes							(9,145)		(42,017)			(51,177)		(74,051)
		Tax benefit from stock-based compensation							30,014		15,096			53,009		29,895
		Excess tax benefit from stock-based compensation							(16,001)		(2,811)			(29,774)		(3,824)
		Changes in assets and liabilities, net of acquisition effects:
			Accounts receivable						(20,241)		(6,449)			(32,917)		(58,749)
			Funds receivable and amounts due to customers						(93,572)		46,195			(118,546)		(171,124)
			Other current assets						12,061		(63,841)			(4,764)		(77,307)
			Other non-current assets						(35,469)		2,833			(57,833)		15,179
			Accounts payable						153		(32,761)			8,560		5,800
			Funds payable and amounts due to customers						93,572		(46,195)			118,546		171,124
			Accrued expenses and other liabilities						13,078		30,269			(27,425)		4,482
			Deferred revenue and customer advances						2,358		2,645			16,534		18,515
			Income taxes payable and other tax liabilities						21,326		44,760			35,106		71,109
	Net cash provided by operating activities								654,585		738,407			1,219,077		1,504,869
	Cash flows from investing activities:
		Purchases of property and equipment, net							(121,328)		(121,683)			(206,741)		(256,327)
		Purchases of investments							(47,616)		(14,618)			(160,143)		(23,928)
		Maturities and sales of investments							232,571		28,690			625,267		32,707
		Acquisitions, net of cash acquired							(61,636)		(10,100)			(320,195)		(159,064)
		Other							959		(5,742)			2,112