eBay Inc. (Nasdaq: EBAY; www.ebay.com) reported financial results for its second quarter ended June 30, 2007.
eBay reported record consolidated Q2-07 net revenues of $1.83 billion, representing a growth rate of 30% year over year. GAAP operating income was $457 million, an increase of 47% year over year, and represented 24.9% of net revenues. Non-GAAP operating income was $595 million, an increase of 29% year over year, and represented 32.4% of net revenues.
GAAP net income in Q2-07 increased 50% year over year to $376 million, or $0.27 earnings per diluted share. Non-GAAP net income increased 34% year over year to $471 million, or $0.34 earnings per diluted share. GAAP and non-GAAP earnings per diluted share increased 57% and 40% year over year, respectively.
The company purchased approximately 10 million shares of its common stock at a total cost of approximately $344 million during the quarter out of its authorized stock repurchase program of up to $2 billion by January 2009.
„The quarter was a very good one for the company, as our portfolio of businesses continued to deliver value to our global community,” said eBay President and CEO, Meg Whitman. „Providing a great user experience has always been critical to our success and will remain part of our ongoing focus as we expand the business further.“
Q2 Business Unit Discussion
Marketplaces
Overall, eBay’s Marketplaces business posted strong results in the quarter, with solid top-line growth and expanded margins. The company continues to make significant investments to reinvigorate its core auctions business as well as to expand its portfolio of adjacent businesses.
Marketplaces net revenues totaled a record $1.29 billion in Q2-07, a growth rate of 26% over the $1.03 billion reported in Q2-06. eBay’s users posted a total of 559 million listings in Q2-07, 6% lower than the 596 million listings posted in Q2-06. These listings generated Gross Merchandise Volume (GMV) of $14.46 billion in Q2-07, representing a 12% year-over-year increase from the $12.90 billion reported in Q2-06.
Payments
PayPal had another exceptional quarter, with accelerating Total Payment Volume (TPV) and revenue growth. PayPal’s Merchant Services business recorded outstanding results, as PayPal expanded its global footprint to new geographies and currencies during the quarter.
PayPal net revenues totaled a record $454 million in Q2-07, a growth rate of 34% over the $339 million reported in Q2-06. Global TPV was $11.69 billion in Q2-07, a 32% increase from the $8.86 billion reported in Q2-06.
PayPal Merchant Services contributed $4.92 billion globally to the $11.69 billion in global TPV in Q2-07, representing a 57% increase from the $3.13 billion reported in Q2-06.
Communications
Skype continues to grow rapidly, while delivering segment profitability for the second quarter in a row.
Skype net revenues totaled a record $90 million in Q2-07, a growth rate of 103% over the $44 million reported in Q2-06.
Skype had 220 million registered user accounts at the end of Q2-07, representing a 94% increase from the 113 million registered user accounts at the end of Q2-06.
Other selected financial results
Operating Margin — GAAP operating margin increased to 24.9% in Q2-07, up from 22.1% in Q2-06. Non-GAAP operating margin decreased slightly to 32.4% in Q2-07, from 32.6% in Q2-06. The slight decrease in non-GAAP operating margin is the result of the negative gross margin mix impact coming from our lower margin businesses, such as PayPal and Skype, mostly offset by productivity gains.
Taxes — The GAAP effective tax rate for Q2-07 was 23%, which was a decrease from 26% for Q2-06 and 24% in Q1-07. The non-GAAP effective tax rate in Q2-07 was 25%, which was a decrease from 28% for Q2-06 and 26% in Q1-07. The lower tax rates in Q2-07 resulted primarily from increased profits generated through the expansion of our international operations.
Cash Flows — GAAP operating cash flows increased to $655 million in Q2-07. Free cash flow increased to $533 million in Q2-07.
Cash, Cash Equivalents, and Investments — The company’s cash, cash equivalents, and investments totaled approximately $3.78 billion at the end of Q2-07.
“Overall, we posted great financial results in the second quarter.” said Bob Swan, chief financial officer, eBay Inc. “We’re now halfway through the year, and we’re increasingly confident in our ability to deliver even stronger full year revenue and earnings growth through our portfolio of businesses.”
Business Outlook
Third Quarter 2007 — eBay expects consolidated net revenues for Q3-07 to be in the range of $1.775 billion to $1.825 billion. Non-GAAP earnings per diluted share for Q3-07 are expected to be in the range of $0.31 to $0.33. These amounts assume a US dollar to Euro exchange rate of $1.30.
Full Year 2007 — eBay now expects consolidated net revenues for 2007 to be in the range of $7.300 billion to $7.450 billion. Non-GAAP operating margin for 2007 is expected to be approximately 33%. Non-GAAP earnings per diluted share for 2007 are now expected to be in the range of $1.34 to $1.38. These amounts assume a US dollar to Euro exchange rate of $1.30.
Quarterly Conference Call
eBay will host a conference call to discuss second quarter results at 2 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.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, 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 (SEC): 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 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. See “Non-GAAP Measures of Financial Performance,” “Reconciliation of GAAP to Non-GAAP Operating Income,” “Reconciliation of GAAP 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 for further information regarding these non-GAAP financial measures, including a reconciliation of these measures to the nearest comparable 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 e-commerce 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 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 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 need to manage other regulatory, tax, and litigation risks as its product offerings expand, its services are offered in more jurisdictions and applicable laws become more restrictive; 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 business 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, manage and grow 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 http://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.
