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San Jose, CA, October 18, 2006 — eBay Inc. (Nasdaq: EBAY; www.ebay.com) reported financial results for its
third quarter ended September 30, 2006.
eBay reported record consolidated Q3-06 net revenues of $1.449 billion, representing a growth rate of 31% year
over year. GAAP operating income was $339 million, a decrease of 5% year over year, and represented 23% of
net revenues. Excluding stock-based compensation of $74 million, operating income would have increased 16%
year over year to $413 million, or 28% of net revenues. Non-GAAP operating income in Q3-06 was $464
million, representing a 32% operating margin and an 18% year-over-year increase.
GAAP net income in Q3-06 was $281 million, or $0.20 earnings per diluted share, an increase of 10% year over
year. Excluding stock-based compensation of $51 million (net of tax effects), net income increased 30% year
over year to $332 million, or $0.23 earnings per diluted share. Non-GAAP net income in Q3-06 was $367
million, or $0.26 earnings per diluted share, a 31% year-over-year increase.
The company repurchased approximately 24 million shares of its common stock at a total cost of $667 million
during the quarter, completing one-third of its previously announced stock repurchase program.
“Q3 was a very good quarter for the company and a continuation of the strong earnings growth we delivered
throughout the first half of the year,” said Meg Whitman, President and CEO of eBay Inc. “As our results
demonstrate, we are executing on our strategy to grow our Marketplaces, PayPal and Skype businesses
individually and collectively to deliver greater value to our community of users and to our shareholders.”
Q3 Business Unit Discussion
Marketplaces
Our Marketplaces businesses had a good quarter, in line with our expectations, characterized by solid growth in
key geographic markets and a strong quarter from Shopping.com.
Marketplaces net revenues totaled a record $1.049 billion in Q3-06, a growth rate of 22% over the $858 million
reported in Q3-05. The eBay platform confirmed registered user base at the end of Q3-06 totaled 212 million,
representing a 26% increase over the 168 million users reported at the end of Q3-05.
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eBay’s users generated a total of 584 million new listings in Q3-06 (which included 95 million new Store
Inventory Listings), 27% higher than the 459 million new listings reported in Q3-05 (which included 52 million
new Store Inventory Listings). These listings helped drive eBay Gross Merchandise Volume (GMV), the total
value of all successfully closed items on the eBay trading platforms, to $12.6 billion in Q3-06, representing a
17% year-over-year increase from the $10.8 billion reported in Q3-05.
Payments
PayPal had another excellent quarter, highlighted by increasing penetration on-eBay and excellent growth in our
Merchant Services business.
PayPal net revenues totaled $350 million in Q3-06, a growth rate of 41% over the $247 million reported in Q3-
05. PayPal had nearly 123 million total accounts at the end of Q3-06, a 41% increase from the 87 million
reported in Q3-05. Those accounts helped drive record Total Payment Volume (TPV) of $9.1 billion in Q3-06,
a 37% increase from the $6.7 billion reported in Q3-05.
PayPal Merchant Services posted a record $3.3 billion in global TPV in Q3-06, representing a 59% increase
from the $2.1 billion reported in Q3-05.
Communications
Our Skype business continued to grow at an impressive pace, driven by rapid user growth and continued
innovation of Skype’s hardware and software ecosystem.
Skype net revenues totaled $50 million in Q3-06, representing a 13% increase from the $44 million reported in
Q2-06.
Skype had 136 million registered users at the end of Q3-06, representing a 20% increase from the 113 million
users at the end of Q2-06.
Other selected financial results
Operating Margin – GAAP operating margin decreased to 23% in Q3-06, down from 32% in Q3-05. Excluding
stock-based compensation of $74 million, GAAP operating margin would have been 28%, down from 32% in
Q3-05. Non-GAAP operating margin decreased to 32% in Q3-06, down from 36% in Q3-05. The year-overyear
decrease in non-GAAP operating margin was driven primarily by the inclusion of the Skype business,
investment in site operations capacity and higher costs for our consumer protection programs.
Tax Rate – The GAAP effective tax rate for Q3-06 was 26%, a decrease from 34% for Q3-05 and consistent
with Q2-06. The non-GAAP effective tax rate in Q3-06 was 27%, a decrease from 34% for Q3-05 and from
28% for Q2-06. Tax rates in the prior year period were higher due to a one-time charge for the final application
of tax regulations related to intercompany cost sharing arrangements. Excluding the one-time charge, the
difference between the effective tax rates for Q3-06 as compared to Q3-05 and Q2-06 result primarily from
changes in the estimated geographic mix of the company’s taxable income.
Cash Flows – GAAP operating cash flows increased 6% year over year to $522 million in Q3-06. Free cash
flows, representing operating cash flows less net purchases of property and equipment of $137 million,
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decreased 14% year over year to $385 million. The decrease in free cash flow is due in part to increases in
purchases of property and equipment, primarily related to data center and software investments to support
capacity expansion in our business, and capitalized product development costs related to our websites.
Cash, Cash Equivalents, and Investments – The company’s cash, cash equivalents, and investments totaled
approximately $3.8 billion at the end of Q3-06.
“We’re pleased with the solid revenue growth, strong earnings and cash flow we delivered in Q3,” said Bob
Swan, Chief Financial Officer. “Our long-term confidence in the business is underscored by the significant
share repurchase we executed in the quarter.”
Business Outlook
The following guidance includes the estimated impact of expensing stock options from the adoption of FAS
123(R), which has been reflected in eBay’s operating results beginning in Q1-06.
Fourth Quarter 2006 — eBay expects consolidated net revenues for Q4 2006 to be in the range of $1.615
billion to $1.675 billion. GAAP earnings per diluted share for Q4 2006 are expected to be in the range of $0.21
to $0.22. GAAP earnings per diluted share for Q4 2006 includes the estimated impact of stock-based
compensation from the adoption of FAS 123(R) of approximately $0.03-$0.04. Non-GAAP earnings per
diluted share for Q4 2006 are expected to be in the range of $0.27 to $0.28. This guidance assumes a US dollar
to Euro exchange rate of $1.25.
Full Year 2006 — eBay expects consolidated net revenues 2006 to be in the range of $5.865 billion to $5.925
billion. GAAP earnings per diluted share for 2006 are expected to be in the range of $0.75 to $0.76. GAAP
earnings per diluted share for 2006 includes the estimated impact of stock-based compensation from the
adoption of FAS 123(R) of approximately $0.15 to $0.16 per diluted share. Non-GAAP earnings per diluted
share for 2006 are expected to be in the range of $1.01 to $1.02. This guidance assumes a Q4 2006 US dollar to
Euro exchange rate of $1.25, and actual rates through the first three quarters of 2006.
Full Year 2007 — eBay expects organic consolidated net revenue growth for 2007 in the range of 17% to 21%
over 2006 revenues. GAAP and non-GAAP operating margins are expected to improve by at least 0.5
percentage points over 2006 GAAP and non-GAAP operating margins. GAAP and non-GAAP diluted earnings
per share are expected to grow by at least 20% over 2006 GAAP and non-GAAP earnings per share. This
guidance assumes a US dollar to Euro exchange rate of $1.25 and does not reflect the adoption of FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). We are currently evaluating the
impact of adopting FIN 48 (which will be effective January 1, 2007) on our consolidated financial position and
results of operations.
Quarterly Conference Call
eBay will host a conference call to discuss third quarter results at 2 p.m. Pacific Time today. A live webcast of
the conference call can be accessed through the company’s Investor Relations website at
http://investor.ebay.com. In addition, an archive of the webcast will be accessible through the same link.
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About eBay Inc.
Founded in 1995, eBay pioneers communities built on commerce, sustained by trust, and inspired by
opportunity. eBay enables ecommerce on a local, national and international basis with an array of websites –
including the eBay Marketplaces, PayPal, Skype, Kijiji, Rent.com and Shopping.com – that bring together
millions of buyers and sellers every day.
Non-GAAP Measures
This press release includes the following financial measures defined as “non-GAAP financial measures” by the Securities and
Exchange Commission: non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP
operating margin, non-GAAP effective tax rate, and free cash flows as well as GAAP amounts excluding the impact of stock-based
compensation and the corresponding percentages of net revenues. These measures may be different from non-GAAP financial
measures used by other companies. The presentation of this financial information 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. See
"Unaudited Condensed Consolidated Statements of Income" and "Unaudited Reconciliations of GAAP to Non-GAAP Condensed
Consolidated Statements of Income" included in this press release for further information regarding these non-GAAP financial
measures, including a reconciliation of these measures to the nearest GAAP measures.
Forward-Looking Statements
This press release contains forward-looking statements relating to the future performance of eBay and its consolidated subsidiaries.
These statements involve risks and uncertainties, and the company’s actual results could differ materially from those discussed.
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 as well as from new users 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 need to integrate, manage, and profitably expand
its recently-acquired businesses; the need to manage an increasingly large enterprise with a broad range of businesses of varying
degrees of maturity and in many different geographies; the regulatory, patent, and competitive 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 need to manage other regulatory, tax, and litigation risks as its product offerings expand and its services are offered in
more jurisdictions; the company’s ability to upgrade and develop its systems, infrastructure and customer service capabilities to
accommodate growth at a 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; fluctuations in foreign exchange rates; the company’s ability to profitably
expand its model to new types of merchandise and sellers; assumptions and methods used to value and expense stock options provided
to employees; and, the company’s ability to profitably integrate and manage recent and future acquisitions and other transactions. 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 annual report on Form
10-K and quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company’s investor relations website at
investor.ebay.com or the SEC’s website 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.
Investor Relations Contact: Tracey Ford 408-376-7205
Media Relations Contact: Hani Durzy 408-376-7458
Investor Information Request: 408-376-7493
Company News: http://www.businesswire.com
Investor Relations Website: http://investor.ebay.com
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