eBay Inc. Reports Strong Third Quarter 2012 Results

eBay Inc. Reports Strong Third Quarter 2012 Results

Revenue, Net Income and Active Users up Double Digits Year over Year

SAN JOSE, Calif.--(BUSINESS WIRE)-- eBay Inc., a global commerce platform and payments company (NAS: EBAY) , today reported that revenue for the third quarter ended September 30, 2012 increased 15% to $3.4 billion, compared to the same period of 2011. The company reported third quarter net income on a GAAP basis of $597 million, or $0.45 per diluted share, and non-GAAP net income of $718 million, or $0.55 per diluted share. GAAP and non-GAAP net income were up 22% and 14%, respectively, year over year due primarily to strong top-line growth. Segment margin in each of our three business segments expanded on a year-over-year basis.


"We had a great third quarter across our company, with Marketplaces and PayPal accelerating customer growth," said John Donahoe, eBay Inc. President and CEO. "Mobile continues to be a game changer for us, and we continue to be a clear leader in mobile commerce and payments. With our strong portfolio and global reach, we are consistently demonstrating our capabilities to help consumers shop anytime, anywhere. And we are enabling retailers of all sizes to compete in a rapidly evolving, multichannel commerce environment."

PayPal delivered a strong third quarter performance. It ended the quarter with 117.4 million active registered accounts, a 14% increase over the third quarter of 2011. Revenue increased 23% year over year and net total payment volume (TPV) grew 20% year over year to $35.2 billion. PayPal continues to innovate on a global scale while expanding its addressable market to offline. PayPal's offline initiative is following a three-pronged approach: soliciting direct merchant relationships; partnering with Discover to access its 7 million retail locations in the United States; and using a direct and indirect approach to distribute its small business payment solution, PayPal Here, both domestically and internationally.

Marketplaces delivered another strong quarter with accelerating user growth. Gross merchandise volume (GMV), excluding vehicles, increased 11% year over year to $16 billion in the third quarter of 2012. Marketplaces revenue increased 9% year over year, driven by strong growth in the United States and Asia Pacific. Active user growth continued to accelerate during the quarter, reaching 10% year over year, the fastest growth since 2007, with 800,000 new users coming from mobile. This helped boost sold items growth, which was up 19% year over year in the third quarter of 2012. U.S. GMV, excluding vehicles, increased 16% year over year, while International GMV, excluding vehicles, increased 8% year over year, in both cases driven by investment in the customer experience, growth of mobile as a channel and continued strong performance in key verticals. Downloads of eBay's suite of mobile apps have now surpassed 100 million globally, becoming an increasing point of differentiation and engagement.

GSI revenue increased 12% year over year to $226 million, driven primarily by a 16% year over year increase in global ecommerce (GeC) merchandise sales. Same store sales grew 19% year over year, reflecting strong ecommerce sales from retail clients. GSI is winning new clients and bringing eBay's innovative technology solutions and services to merchants of all sizes.

Third Quarter 2012 Financial Highlights (presented in millions, except per share data and percentages) (1)

Third Quarter

2012

2011

Change

GAAP

Net revenue

$3,404

$2,966

$438

15%

Net income

$597

$491

$106

22%

Earnings per diluted share

$0.45

$0.37

$0.08

21%

Non-GAAP

Net income

$718

$628

$90

14%

Earnings per diluted share

$0.55

$0.48

$0.07

14%

Third Quarter

2012

2011

Change

Business Units

Payments

Net revenue

$1,367

$1,107

$260

23%

Net total payment volume

$35,159

$29,282

$5,877

20%

Merchant Services

$23,704

$19,314

$4,390

23%

On eBay

$11,455

$9,968

$1,487

15%

Marketplaces

Net revenue

$1,806

$1,653

$153

9%

Gross merchandise volume (GMV), excl. vehicles

$16,281

$14,666

$1,615

11%

U.S. GMV

$6,479

$5,588

$891

16%

International GMV

$9,801

$9,078

$723

8%

GSI

Net revenue

$226

$202

$24

12%

GeC Merchandise Sales

$698

$601

$97

16%

(1) Certain amounts may not add/subtract due to rounding and may not recalculate using the rounded dollar amounts provided.

Other Selected Financial Results

  • Operating margin — GAAP operating margin increased to 19.6% for the third quarter of 2012, compared to 18.1% for the same period last year. Non-GAAP operating margin increased to 26.3% in the third quarter, compared to 25.3% for the same period last year.

  • Taxes — The GAAP effective tax rate for the third quarter of 2012 was 11%, compared to 20% for the third quarter of 2011. The decrease was due primarily to increased earnings in low tax jurisdictions and the favorable impact of discrete items, primarily related to stock-based compensation. For the third quarter of 2012 and 2011, the non-GAAP effective tax rate was 20% and 21%, respectively.

  • Cash flow — The company generated $1.2 billion of operating cash flow and $792 million of free cash flow during the third quarter of 2012.

  • Stock repurchase programs — The company repurchased approximately $47 million of its common stock in the third quarter of 2012.

  • Debt issuance — The company issued senior unsecured notes in an aggregate principal amount of $3 billion during the third quarter of 2012.

  • Cash and cash equivalents and non-equity investments — The company's cash and cash equivalents and non-equity investments portfolio totaled $10.8 billion at September 30, 2012, up from $7.5 billion at December 31, 2011.

Business Outlook

  • Fourth quarter 2012 — eBay expects net revenues in the range of $3,850 - $4,000 million with GAAP earnings per diluted share in the range of $0.55 - $0.58 and non-GAAP earnings per diluted share in the range of $0.66 - $0.69.

  • Full year 2012 — eBay now expects net revenues in the range of $13,950 - $14,100 million with GAAP earnings per diluted share in the range of $1.95 - $1.99 and non-GAAP earnings per diluted share in the range of $2.32 - $2.35.

Quarterly Conference Call

eBay will host a conference call to discuss third quarter 2012 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 website at http://investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

About eBay Inc.

Founded in 1995 in San Jose, Calif., eBay Inc. (NAS: EBAY) is a global commerce platform and payments leader connecting millions of buyers and sellers. We do so through eBay, the world's largest online marketplace, which allows users to buy and sell in nearly every country on earth; through PayPal, which enables individuals and businesses to securely, easily and quickly send and receive digital payments; and through GSI, which facilitates ecommerce, multichannel retailing and digital marketing for global enterprises. X.commerce harnesses the developer community of Magento, an ecommerce platform, by providing technology solutions and eBay Inc. capabilities to merchants of all sizes, supporting eBay Inc.'s mission of enabling commerce. We also reach millions through specialized marketplaces such as StubHub, the world's largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world. For more information about the company and its global portfolio of online brands, visit www.ebayinc.com.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as "non-GAAP financial measures" by the Securities and Exchange Commission (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 (GAAP). For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, see "Business Outlook," "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 Effective Tax Rate to Non-GAAP Effective Tax Rate" and "Reconciliation of Operating Cash Flow to Free Cash Flow" included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, the future performance of eBay and its consolidated subsidiaries that are based on the company's 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 fourth quarter and full year 2012, and the future growth in the Payments, Marketplaces and GSI businesses, mobile payments and mobile commerce. The company's actual results could differ materially from those predicted or implied 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: changes in political, business and economic conditions, including any European or general economic downturn or crisis and any conditions that affect ecommerce growth; fluctuations in foreign currency exchange rates; the company's ability to profitably integrate, manage and grow businesses that have been acquired recently or may be acquired in the future; the company's need to successfully react to the increasing importance of mobile payments and mobile commerce and the increasing social aspect of commerce; 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; any changes the company may make to its product offerings; the competitive, regulatory, credit card association-related and other risks specific to PayPal and Bill Me Later, especially as PayPal continues to expand geographically and introduce new products and as new laws and regulations related to financial services companies come into effect; the company's ability to timely upgrade and develop its systems, infrastructure and customer service capabilities, including GSI's v.11 initiative, at reasonable cost; and 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. The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures 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 website at http://investor.ebayinc.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.

eBay Inc.

Unaudited Condensed Consolidated Balance Sheet

September 30,

2012

December 31,

2011

(In millions)

ASSETS

Current assets:

Cash and cash equivalents

$

7,331

$

4,691

Short-term investments

1,804

1,238

Accounts receivable, net

694

682

Loans and interest receivable, net

1,792

1,501

Funds receivable and customer accounts

4,807

3,968

Other current assets

982

581

Total current assets

17,410

12,661

Long-term investments

2,500

2,453

Property and equipment, net

2,393

1,986

Goodwill

8,492

8,365

Intangible assets, net

1,234

1,406

Other assets

473

449

Total assets

$

32,502

$

27,320

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term debt

$

12

$

565

Accounts payable

271

282

Funds payable and amounts due to customers

4,807

3,968

Accrued expenses and other current liabilities

1,776

1,511

Deferred revenue

132

110

Income taxes payable

63

298

Total current liabilities

7,061

6,734

Deferred and other tax liabilities, net

945

1,073

Long-term debt

4,506

1,525

Other liabilities

77

58

Total liabilities

12,589

9,390

Total stockholders' equity

19,913

17,930

Total liabilities and stockholders' equity

$

32,502

$

27,320

eBay Inc.

Unaudited Condensed Consolidated Statement of Income

Three Months Ended September 30,

Nine Months Ended September 30,

2012

2011

2012

2011

(In millions, except per share amounts)

Net revenues

$

3,404

$

2,966

$

10,079

$

8,272

Cost of net revenues (1)

1,022

920

2,992

2,426

Gross profit

2,382

2,046

7,087

5,846

Operating expenses:

Sales and marketing (1)

726

623

2,120

1,763

Product development (1)

389

319

1,157

891

General and administrative (1)

369

336

1,131

1,018

Provision for transaction and loan losses

148

146

413

372

Amortization of acquired intangible assets

83

85

251

182

Total operating expenses

1,715

1,509

5,072

4,226

Income from operations

667

537

2,015

1,620

Interest and other, net

5

79

74

111

Gain (loss) on divested business

0

0

118

(256

)

Income before income taxes

672

616

2,207

1,475

Provision for income taxes

(75

)

(125

)

(348

)

(225

)

Net income

$

597

$

491

$

1,859

$

1,250

Net income per share:

Basic

$

0.46

$

0.38

$

1.44

$

0.97

Diluted

$

0.45

$

0.37

$

1.42

$

0.95

Weighted average shares:

Basic

1,292

1,290

1,291

1,291

Diluted

1,314

1,309

1,311

1,311

(1) Includes stock-based compensation as follows:

Cost of net revenues

$

13

$

14

$

41

$

43

Sales and marketing

35

32

99

100

Product development

34

26

101

91

General and administrative

40

36

119

112

$

122

$

108

$

360

$

346

eBay Inc.

Unaudited Condensed Consolidated Statement of Cash Flows

Three Months Ended
September 30,

Nine Months Ended
September 30,

2012

2011

2012

2011

(In millions)

Cash flows from o