ebay 2009 analyst day
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Agenda
8:15 INTRO AND DISCLOSURESMark Rowen, VP of Investor Relations, eBay Inc.
8:20 EBAY: Leading eBay into the future8:20 EBAY: Leading eBay into the futureJohn Donahoe, President & CEO, eBay Inc.
8:50 PAYPAL: Vision and potential for PayPalScott Thompson President PayPalScott Thompson, President, PayPal
9:30 BREAK
10:00 MARKETPLACES: Vision and potential for Marketplaces10:00 MARKETPLACES: Vision and potential for MarketplacesLorrie Norrington, President, eBay MarketplacesStephanie Tilenius, SVP Global Product & General Manager, eBay North AmericaMark Carges, SVP & Chief Technology Officer, eBay Inc.g , gy , y
11:00 SKYPEJosh Silverman, President, Skype
11 30 LUNCH11:30 LUNCH
12:30 FINANCE: Business model and operational excellenceBob Swan, Chief Financial Officer, eBay Inc.
1:00 GENERAL Q&A
Forward looking statement
This presentation 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, including those relating to the company’s ability to grow its businesses, user base and user activity.
Our actual results may differ materially from those discussed during this presentation for a variety of reasons, including, but not limited to, the impact of recent global economic events and the global economic downturn; foreign-exchange-rate fluctuations; changes in political, business, and economic conditions; our ability to profitably expand our business model to new types of merchandise and sellers;conditions; our ability to profitably expand our business model to new types of merchandise and sellers; the impact and integration of recent and future acquisitions; our increasing need to grow revenues from existing users in established markets; an increasingly competitive environment for our businesses; the complexity of managing a growing company with a broad range of businesses, our need to manage regulatory, tax, IP and litigation risks (including risks specific to PayPal and the financial industry, and risks specific to Skype’s technology and to the VoIP industry); and our need to upgrade our technology andspecific to Skype s technology and to the VoIP industry); and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability.
You can find more information about factors that could affect our actual results in our most recentYou can find more information about factors that could affect our actual results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q (available at http://investor.ebay.com). You should not unduly rely on any forward-looking statements, and we assume no obligation to update them. All information in this presentation is as of March 11, 2009, and we do not intend, and undertake no duty, to update this presentation.
This presentation contains non-GAAP measures relating to the company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the appendix at the end of this presentation.
Leading eBayLeading eBayLeading eBay into the futureLeading eBay into the futureinto the futureinto the future
March 11, 2009
What we do: Connect buyers and sellers
eBay
P P l
Buyers SellersPayPal
Classifieds
Shopping.com
StubHub
AdvertisingAdvertising
Our company has evolved
2004 2008
Classified,Classified, Advertising, all others
AuctionsAuctions
Fixed price
$3 3B
Fixed price
$3.3B$8.5B
Classified, Advertising, all others $8.5B
Our markets are still in their early days
eCommerce Online Payments
Online Communications
$1.4T
$0.6T$0.4T
$
future2008 future2008 future2008
And markets differ:Multiple winners in shopping: Few winners in paymentsMultiple winners in shopping: Few winners in payments
Shopping PaymentsShopping Payments
Online consumer behaviors continue to change
Our focusOur focus
yesterday today tomorrow
How we will win
PayPal Highlights
1 Powering global eCommerce1 Powering global eCommerce
2 Unmatched advantages
3 Significant opportunity aheadg pp y
What to expect from PayPal
d ill b bi• A second “core” … will be bigger than eBay Marketplacethan eBay Marketplace
• The leading global online kpayment network
Marketplaces
Our starting point: World’s largest marketplace
Buyers Sellers
150M+ unique visitors 25M+ sellers• 150M+ unique visitors• 3M items bought daily• 50,000 categories
• 25M+ sellers• 150M+ live listings• Multiple formats
Robust and scalable technology gyplatform
Piercing the myths
eBay Playbook Customer-driven innovation
Auctions as strategy
Auctions as one of several formatsgy
Open Managed pmarketplace
gmarketplace
Tweak the model Transform the model
eBay Highlights
1 Focus where we can win: “Secondary Market”
2 Transform our Marketplace
3 Grow complementary formats
What to expect from eBay
We are creating the “new eBay” and will win in the huge Secondary marketwill win in the huge Secondary market
hi ill k iThis will take time • 2009: growth expected to be slower than the market • 2010: growth expected to be with the market• 2011: growth expected to be faster than the market
Skype Highlights
Accelerating user growth and outstanding fundamentals
1outstanding fundamentals
Attacking an enormous2 Attacking an enormous opportunity, positioned to win
2
Business is getting stronger and3 Business is getting stronger and more valuable
3
What to expect from Skype
St t d l b iStrong standalone business … one of fastest growing in historyg g y
We’ll ensure it’s successful &We ll ensure it s successful & realizes best value
Operating differently across the company
• Customer driven
• Unlocking technology
• Operating discipline
Summary
• Connecting buyers and sellers … in innovative waysways
• PayPal: Leading online global payment network
• eBay Marketplace: Win in global secondary marketmarket
• Skype: Great standalone, we will maximize its potential and value
• Unlocking Technology to innovate for UserUnlocking Technology to innovate for User Experiences
A t bl di i li d• Accountable, disciplined
The Global InternetThe Global InternetPayment NetworkPayment Networkyy
March 11, 2009
24
An evolving industry
1 Powering global eCommerce
2 Unmatched advantages2 Unmatched advantages
3 Significant opportunity ahead
25
26
Traditional payments not designed for the web
HelgaReview &Complete
Helga
27
Traditional payments not designed for the web
Helga F d tHelga • Fraudsters• ID theft
28
Traditional payment networks are limited
29
Worldwide accessibility
30
Enabling small sellers
BlakeBlake
31
Enabling large merchants across the web
or
32
Solving consumer payment problems
Personal Payments
Marsha Ali
33
Solving consumer payment problems
Personal Payments
Marsha Ali
Erica
34Grocery
We’ve built a global Internet payment network
• 190 global marketsg
• 17 local language sitesg g
• 19 currencies
35
Unmatched advantages & network effects
Internet FraudInternet technology
Fraudexpertisetechnology p
PayPal t knetwork
effectsGlobal
connectionsClosed-loop
d t connectionsdata
36
Growth in active accounts
TPV growing 2 3X f t16%
+23%2-3X faster than competitors
+16%
competitors
$36 $48 $6049 4 57 3 70 4$36 Billion
$48 Billion
$60 Billion
49.4 Million
57.3 Million
70.4 Million
2006 2007 2008
37
Growth in global Total Payment Volume (TPV)
TPV growing 1 5 2X f t1.5-2X faster than eCommerceeCommerce
$36 $48 $60$36 Billion
$48 Billion
$60 Billion
2006 2007 2008
38
Strong stated preference for online payments
#2#2
#1#1
#3#3
#2
#1#1
39
Tremendous payment volume opportunity
TPV Growing 2-3X
Faster than CompetitorsTPVTPV
$100-120BILLION
$36 $48 $60$36 Billion
$48 Billion
$60 Billion
2006 2007 2008 2011
40
How we’ll get there
Global eBayGlobal eBay
Global Merchant Global Merchant Adjacent Adjacent ServicesServices paymentspayments
41
Global eBayGlobal eBayGlobal eBayGlobal eBay
42
Penetration growing on eBay
201173 78% 201173-78%
rage 200858%
ller C
ove
SHARE
eBay
Sel SHARE
Consumer Preference
43
Significant opportunity in international markets
2008 eBay aGMV & PayPal penetration(Including Shipping & Handling)
$24B$29B
( c d g S pp g & d g)
$24B
41%
79%
41%
North America International
44
Share gains across eBay markets
100
PayPal penetration in eBay markets (%)100
80
60
40
20
2006
2007
2008
2005
2004
20082007200620052004
45
eBay is a powerful partner
New active accounts acquired
Total Payment Volume
9.7M$31B
q
7.8M $22B
MS
eBay
1H 2007 2H 2008 1H 2007 2H 2008
46
Global Merchant ServicesGlobal Merchant ServicesGlobal Merchant ServicesGlobal Merchant Services
47
Gaining share in Global Merchant Services
20118 9% 20118-9%
vera
ge
5% 2008
chan
t C
o
SHARE
Mer
c SHARE
Consumer Preference
48
Success across merchant segments
eCommerce volume PayPal TPV2006-08 CAGR
Largemerchants 130%
77%
Small/71%
77%
medium businesses
71%
17%Soleproprietors
33%
17%
6%Total
6%54%
49
Serving the worlds largest online brands
PP # of top 50online merchants
21
1414
88
18
30
50
Share gain opportunity in North America…
North America
$305-315$237
Billion
315Billion
20
Share2008 2011
9% 13-14%
51
…and in large International markets
$460-
InternationalNorth America
$460-480Billion
$293Billion
$305-315$237
Billion
315Billion
2008 2020 2008 2011
2% 5-6%2008 2011
9% 13-14%Share
52
Bill Me Later complements PayPal
• Helps PayPal drive coverageHelps PayPal drive coverage & preference
• Helps merchants drive sales• Helps merchants drive sales
53
Sales lift for merchants
Sales lift through promotionalpromotional offers
54
Fast, convenient, secure credit for consumers
55
Structural advantage in risk management
Credit card
$$$$$$$$$$
$
$$
56
Significant PayPal – BML synergies
Grow eBay GMV
Accelerate merchant sales cycle
Speed Bill Me Later consumer acquisition
Turn transaction expense into revenue
Decrease Bill Me Later fraud losses
Reduce Bill Me Later cost of capital
57
Adjacent paymentsAdjacent paymentsAdjacent paymentsAdjacent payments
58
Many sectors need payment solutions
Mobile & other devices Banks
Businesses withspecializedpayment needs
Governmentspayment needs
Social networksNon-profits
59
PayPal platform enables developers
225k+ developers
100k+ developers
660k+ developers
developers
Millions of
Platform
Millions of .NET developers
PayPal global Internet payments network
60
Early traction: Non-retail & mobile
61
Tremendous growth ahead
$100 120B
Global Total Payment Volume
Adjacent Payments
$100-120B
Global M h t
y
$60B Merchant Services
$60B
eBayeBay
2008 2011
$4-5 billion in revenue by 2011
$2 4 $4 5$2.4BILLION
$4-5BILLION
2008 2011
63
Long-term high growth businesses
2009 10: margin decrease due to2009-10: margin decrease due to BML integration
Medium term: margins return to 18-20%g
Longer term: margin expansion as theLonger term: margin expansion as thebusiness scales over investments
64
The Internet is becoming more mainstream
1.4B global Internet usersg
> 50% of users are in emerging markets
Users spend 15 hours per week online
eCommerce from 5% to 15 20% of retaileCommerce from 5% to 15-20% of retail
65
An evolving industry
1 Powering global eCommerce
2 Unmatched advantages2 Unmatched advantages
3 Significant opportunity ahead
66
The world’s favorite way toThe world s favorite way to pay and be paid
67
p y p
What is going on at eBay?What is going on at eBay?
In Marketplaces we are
• Creating a NEW eBay
• Fixing our foundation by transforming the user experience and technologyexperience and technology
• Positioning to win the large opportunity in the g g pp ysecondary market
i l f• Growing our complementary formats
eBay is about the largest selection of great deals in any format
Marketplace connects buyers and sellers globally
Buyers Sellers
150M+ unique visitors 25M+ sellers• 150M+ unique visitors• 3M items bought daily• 50,000 categories
• 25M+ sellers• 150M+ live listings• Multiple formats
Robust and scalabletechnology platform
An increasingly global footprint
North America(46% of Total)
Europe(45% of Total)
Asia Pacific(9% of Total)(46% of Total) (45% of Total) (9% of Total)
$2 6B $
$1.9B
$2.6B
$1.4B
$2.5B
2005 2008 2005 2008 2005 2008
$0.3B$0.5B
Broad choice of formats
A ti Fi d P iAuctions Fixed Price
ClassifiedsAdvertising
Buyers Sellers
VerticalExperiences
Unique advantages of Marketplace model
Wide global supply of Superior products without ownershipflexibility
Surface best inventory regardless of format
Ultimate buyer choice
Enabling competition, but Seller not competing against sellersplatform
Sellers compete so our buyers get the best deals
Customers win
If your Marketplace is soIf your Marketplace is so advantaged why aren’t youadvantaged … why aren t you
growing faster?g g
By 2008, we had fallen behind
• Customer experience had pfallen behind
• Optimizing for auctions, and
Customer experience
constraining fixed price
• “Open Marketplace” philosophy slowed us down
• Too incremental –not driving the marketplace
Approach to change
• Needed to “revamp” technology
Our three year journey
2008 2009 2010+
Fix the foundationFix the foundation• enhance trust• improve selection
drive great deals on our site• drive great deals on our site
P iti f g thPosition for growth• transform the user experience• innovate through technologyg gy• grow our complementary formats
20082008
L i th d kLaying the ground work.
In 2008, we began to fix the foundation
• New feedback systemTrust standards • Surface highest trust sellers in search
• Better deals “race to the top” in searchUser experience& search • 4X in listings duration for fixed price
• Created incentives for high qualitySeller• Started risk-free pricingIncentives
Our trusted sellers are doing well…
More trusted sellers…
Contributing to more of our GMV…
Growing faster than eCommerce…
49%trusted sellers
eCommerce
27%
26%
24% 17%
4%
12%
Q4 ‘07 Q4 ‘08 Q1 ‘08 Q4 ‘08 Q3 ‘08 Q4 ‘08
4%
-6%
Q4 07 Q4 08% of Sellers with 4.8+
DSRs
Q1 08 Q4 08% of GMV from 4.8+ DSR
sellers
Q3 08 Q4 08GMV Growth Y/Y
(ex. Vehicles)
Data shown is US only% of Sellers includes only sellers that have a DSR rating; Trusted sellers have 4.8+ DSRsGMV excludes vehicles, real estate and StubHub
Increased selection
Average Daily Live Listings (Millions)Fixed Price151
Auctions
119
90 122
119
90 122
29 29Q4 ‘07 Q4 ‘08
Lower shipping costs = better value for buyers
% of listings offering free shipping
30%
20%
10%
Q1 ‘08 Q2 ‘08 Q3 ‘08 Q4 ‘08
0%
N YNecessary… Yes
Enough to Win… NoEnough to Win… No
In 2009 we’re taking bolder actions
• First contact resolution for top buyersTrust t d d • eBay protection for top buyers (US, UK)
• Increasing exposure for high-quality sellersstandards eBay protection for top buyers (US, UK)
• Optimize new search platform• Product-based experience highlights valueUser experience • Product based experience highlights value
• Enabling multiple-SKU listings
User experience& search
• Integrate local classifieds listings
Eliminating upfront fees for C2C sellers (UK)
g g
S ll • Eliminating upfront fees for C2C sellers (UK)
• Improving seller economics on eBay
Seller Incentives
We must stabilize, then grow our business
2008 2009 2010+
Fix the foundation
Position for growth
Our focus: the secondary market
Large retailSmall retailLiquidationUsed
Big business Secondary MarketBig business Secondary Market~$500B
Small businessInventory:
C ll tibl
Inventory:
Small business• Collectible• Vintage• Pre-Owned
Consumer
Inventory:• Out of season• Some new
iConsumer
Market opportunity
Inventory:• Out of season• Outlet inventory
in season
eBay today
Market opportunity • Outlet inventory• Overstock/returns• Liquidation inventory
Secondary market: large, compelling opportunity
Consolidating this inventory creates step-change in deals and selection for our buyers
~$500B Market
Off-priceretailers Outlets Liquidators Wholesalers
A Marketplace is ideal to win the secondary market
Secondary market Marketplace model
Inefficient supply chains
• Absorbs volatile supply• Moves deep-SKUpp y p
Items of uncertain value
• Sellers can test market price• Multiple formats to drive velocity
Buyers lookingBuyers looking foremost for great deals
• Best deals with reliable service• Search brings it all together
g
Transforming the user experience
Before: Auctions ending soonest
Before: Auctions ending soonest
Sorted by time endingending
Less relevance
High shipping costs
After: relevant, well-priced inventory from trusted sellers
After: relevant, well-priced inventory from trusted sellers
Sorted by best ymatchMore relevant
first item
Free shipping
Search experience that merges products and listings
New vertical experience for hard goods
New vertical experience for hard goods
Inventory ysorted byconditioncondition
Shows valueand savings
Buyers can select from multiple SKUs for soft goods
Snapshot view for Clothing, Shoes and Accessories
Buyers can find local inventory from Classifieds
Core search results
ClassifiedsClassifieds
Sponsoredlinkslinks
Unique power of a marketplace
Bose iPod docking station case study
Unique power of a marketplace
Bose iPod docking station case study
• Top search is “new in box Top search is new in box Fixed Price”
• Price $50 lower than retailretail
• Great seller
Unique power of a marketplace
Bose iPod docking station case study
• Consumer seller with 100% Feedback score i lli “b l d”is selling “barely used”
• Auction price closed at 70% l th t il70% lower than retail
Trusted sellers compete to provide the best deals
Garmin Nuvi 200w eBay sale history (10/19-11/10)
Seller 1• $142.89
Seller 3$145 Seller 3• $139.95
$140
Seller 2• $141.89 Seller 4
• $136 95Seller 3 wins!
$135• $136.95 wins!
• $128.97$130
$125
Deals are better than ever
In the U.S., a new Tivo HD DVR costs an average of 12% less than competitiors
Daily Deals driving great value for consumers
Breadth of inventory
Secondary Market
LatestiPod NanoBrand New
LatestiPod Nano
New Open Box
Prior GeniPod NanoBrand New
All generationsiPod Nano
Refurbs / UsedBrand New New, Open Box Brand New Refurbs / Used
eBay is the best way to access the world’s inventory
eBay is the best way to access the world’s inventory
Retail-like option: experienced sellers
vetted by eBay
eBay is the best way to access the world’s inventory
Marketplace option: great deals & valuegreat deals & value
eBay is the best way to access the world’s inventory
Local option: connects buyers
with nearby sellers
eBay is the best way to access the world’s inventory
Advertising: shows what’s available
across the web
We will continue to transform our user experience
eBay will be:
• A trusted, easy-to-use and rewarding shopping experience with different vertical experiencesexperience with different vertical experiences
• Powered by search that integrates multiple• Powered by search that integrates multiple formats, experiences and inventory
• Positioned to capture the secondary market and support larger sellerssupport larger sellers
Becoming the channel of choice for web’s best sellers
Velocity • Best channel for velocity and cash flowSteering traffic to our best sellersy • Steering traffic to our best sellers
Efficiency• Increasing operational efficiency
- Reduce contacts via better trustEfficiency- Tools for shipping and tracking- Seller dashboard for better insights
• Release management and Reliability
gcommunications
A new day forA new day fortechnology at eBaytechnology at eBay
Top eBay technology questions
“I thought you were going“I thought you were going“I thought you were going to fix search?”“I thought you were going to fix search?”to fix search?to fix search?
“What are you doing to “What are you doing to y gimprove the user
y gimprove the user pexperience?”
pexperience?”
2009 Priorities
1 Search
2 Catalog
3 User Experience3 Use xpe e ce
4 Platform4 Platform
Search in a real-time marketplace
All changes immediately reflected in searchg y80M+ from bids, price changes, listings, purchases, etc.
S hi i d i i & fiSophisticated navigation & refinementDifferent for each of our 50,000 categories
Unique mix of formats and inventoryFixed price and auction• Fixed price and auction
• Vintage & collectible to liquidation & new out-of-season
Search in 2009
Improve relevanceImprove relevanceData mining & machine learning
Better sortingBest Match surfaces most relevant info
S h l tfSearch as a platformFoundation for custom shopping experiencespp g pacross categories
2009 Priorities
1 Search
2 Catalog
3 User Experience3 Use xpe e ce
4 Platform4 Platform
Catalogs: bringing structure …
UPC codeUPC code
B ghtBought catalog
… to unstructured data
… to unstructured data
Big pictures
“Satin floral accents”accents”
eBay’seBay s CataloggBringing structure tounstructured dataunstructured data
2009 Priorities
1 Search
2 Catalog
3 User Experience3 Use xpe e ce
4 Platform4 Platform
User experience
User experience
User experience: visual browse
“More like this color”this color
“More like this style”
User experience: category customization
2009 Priorities
1 Search
2 Catalog
3 User Experience3 Use xpe e ce
4 Platform4 Platform
Opening eBay.com to developers
Native on BeBay
Transforming technology at eBay
2008 2009 2010+
Search & PlatformSearch & Platform• Best Match• Project Echo
Product based experiences• Product-based experiences
Catalog & User Experience• Onboard more product catalogs• Bring structure to unstructured data• Bring structure to unstructured data• Custom shopping experiences
Driving the technology agenda at eBay differently
Technology driving strategyTechnology driving strategy
Innovation driven world classInnovation-driven, world-class software developmentp
Agile test-and-learnAgile, test-and-learn, intensely customer-focused ydevelopment process
Growing our FormatsGrowing our Formats
We’ll continue to grow formats like Classifieds
Classifieds global revenue
$270M$270M46%CAGR
$86M2005 2008
Classifieds market: large, growing, complementary
Global online classifieds market size
Services, dating, jobs & housing
Vehicles, goods
Services, dating, jobs & housing
$22B
$17B
$22BComplementary to eBay$17B
2008 2010
Sources: Gerson Lehman Group Analysis - August 2008; eMarketer; Collins Steward LLC Report - Nov 2008; Internal estimates
Classifieds is a strong global opportunity
dCanada
#1 Denmark
#1
Netherlands
#1
United Kingdom
#1
Germany
#1
A t liItaly
Spain
#2
Australia
#2 #1
We are #1 or #2 in 8 major markets
Multiple ways to monetize Classifieds
Insertion Fees Feature Fees Advertising
CPC advertisingHome page featuredJob posting fees
High value goods
CPM advertising
High value goods
A ti Fi d P iAuctions Fixed Price
ClassifiedsAdvertising
Buyers Sellers
VerticalExperiences
We are reshaping the Marketplaces business
Auctions
Marketplaces revenue
$5 6BAuctions
Fixed price
Advertising
$5.6B
Classifieds
Other $3.5B
2005 2008
We are reshaping the Marketplaces business
Marketplaces revenue
AuctionsAuctions
$5-7B$5 6B Auctions
stabilizes but trails the market
Fixed price
Advertising
$5.6B
Classifieds
Other Fixed Price grows faster
$3.5Bthan the market
Oth f tOther formats grow faster than
the market
2005 2008 2011
3 things to remember3 things to remember
A New eBay
Transforming our Marketplace1 Transforming our Marketplace... Fixing the foundation1
2 Focusing where we can win… 2 gSecondary market
3 Growing our complementary formats3 g p y
One of the fastest growingOne of the fastest growing 5 year-olds in history
With accelerating growth, and outstanding g g gfundamentals
Attacking an enormous opportunity, and positioned to win
Business is getting stronger
Enabling the World’s Conversations
How we make money
Wh t’ F ? What’s Paid?
How we make money
What’s Free? What s Paid?
• SkypeOut (pay as you• Skype-to-Skype
SkypeOut (pay as you
go)calls
• Subscriptions
• Video Calling• Online numbers
• Chat/IM • Voicemail
• Conference Calling • SMS
Skype is one of the fastest adopted technologies in historytechnologies in history
With massive (and accelerating)
Skype Calling Minutes (billions)
8%usage
8%of world’s
internationalcalling minutes
20100B Cumulative
Minutescalling minutes
14 2 14 816
10 9 10 811.9
14.2 14.8
7 59.5
10.9 10.8 9.8
7.5
2006 2007 2008
Remarkable global reach
US/CAN EUS/CAN
52MAPAC
Europe
148M
147M
Rest of the World
59M
And a powerful business modelp
Skype Revenue($Milli )
Slightly ahead of eBay and PayPal
at 5 years ($Millions)at 5 years
2004 and 2005 estimated based on SkypeOut billings
With Outstanding FundamentalsWith Outstanding Fundamentals
Skype Segment Margin• Negligible customer
acquisition costs
Skype Segment Margin
• Negligible capex/network maintenance costsmaintenance costs
• Pre-funded accounts =Pre funded accounts negative working capital
• Strong free cash flow conversion (FCF)
** Direct segment margin and does not include allocation for corporate costs
An historic time:An historic time:Communication is moving from
hardware to softwarehardware to software
Internet
Paradigm changeHardwired Software-basedParadigm changeHardwired into the network & device
Software based network & flexible devices
==Voice Data
rMeans there is potential for Skype “everywhere”
Unlocking massive benefits for usersUnlocking massive benefits for users
rEasier / EverywhererRicher Experience rMore Choicesr
Presence
r
Video-callingConsumers buy data plan
r
Unified Messaging
S l d i
Chat, Voice, File Transfer are t bl t k
Consumers buy data plan
Select best-of-breed applicationSeamless device
integrationtable-stakes application
PAYG, premium services
=Voice Data
The opportunity to become the world’s leadingto become the world s leading
communication software company.
The opportunity is i
Telecom has remained ~2% of
massive
Communication is a HUGE $1.4T market
Telecom has remained ~2% of HH income for the past 40
years
2.5%
3.0%
1.5%
2.0%
2.5%
0.5%
1.0%
0.0%1981 1986 1991 1996 2001
$300BEBITDA
Market size: Communication relative to Search and ecommerce ($ in Bn)Source:Trends in Telephony Service from FCC (June 2005)
In 2008 we sharpened our focus on t ith k bl ltcustomers, with remarkable results
39% 72%39%YoY
Q4 08
72%YoY
Q4 08
A i U
Q4 08 Q4 08
Active Users Engagement (Calling Minutes per Active User)
Leading to Accelerating Revenue Growth
70%YoY Growth Rates (Revenue)50%
60%
38%
Organic*
41%
31% 33%30%
40%38%
10%
20% Reported(Fx-impacted)
0%Q1 08 Q2 08 Q3 08 Q4 08
* Euro-denominated (Skype’s functional currency)
Higher VIDEO penetration led to more users, d lli i tand more calling minutes
Vid lli i t d tilitVideo calling increases engagement and utility
SUBSCRIPTIONS added a popular new paid product and increased engagementproduct, and increased engagement
We hit an inflection point in 2008
With Sk ’ i ll h kWith Skype’s size, small changes make a HUGE difference
Increasing penetration of paid products by 1 percentage point = $60m in revenuepercentage point $60m in revenue
To be a billion dollar businesswe need our existing paying users to makewe need our existing paying users to make
just one more call per day!
O St tOur Strategy
2 Invest in Mobile Business Platform2 Invest in
1 Leverage our core consumer business
3 Build our mission critical infrastructure3 Build our mission critical infrastructure
Core CONSUMER is a $240B market2008 Worldwide Telecom Market1 - Total Market: $1.4
billion
$241BFixed VoiceCConsumer
And we have a clear plan to attack itAnd we have a clear plan to attack it
1 Continue driving1. Continue driving new users
2. Better promote our paidour paid products
3. Increase revenue per paying user
4. Monetize free
$602B Wireless Voice Market$602B
Wi lWireless Voice
Our Mobile ApproachOur Mobile Approach
A il bilit t l dAvailability post-load
Device pre-load
Operator partnerships
Skype is available for download yptoday on several platforms
Approximately 12 million downloadsat the end of 2008
Skype’s partnership with Hutchison 3yp p p
500K it ld f th t500K units sold, one of the mostpopular pre-pay handsets for 3
20% higher margin than 3’s average
79% of customers are new to 3
No Skype download requiredyp q
Partnership with leading worldwide mobile h d t idhandset provider
Skype pre-loaded and integrated on select N series devicesdevices
Available in some markets starting 2H 2009
Business is a $203B marketBusiness is a $203B market
$203BFixed VoiceBusiness
A compelling business offeringg g
Why? Skype is already used in businessWhy? Skype is already used in business35%* of
users say Reduce
Business TravelCost SavingsBenefits Productivitythey use Skype for businesspurposes
Focus Expand Develop Build out
p p
BusinessProductOffering
DevelopSales
ChannelPaid
Support 35%Offering
65%
*Based on a survey of U.S., CN, U.K of Skype users in March 2008
Platform: A Thriving Ecosystem g y
users190 Skype certified190 Skype certified devices
15,000 DevelopersPartnerships with
world-class companies
We are startinga new chapter in our history
Act 1
2003 2008
Platform: Desktop/LaptopRevenue Stream: SkypeOutyMarket segment: LD callingMain product: VoiceMain region: Mature internet
“One”
r
Main region: Mature internet marketsMain target user: Consumersr
Act 22009 2011
• Platforms + MobileDiversified revenue streams• Diversified revenue streams
• Business subscriptions• Market segments + Collaboration• Products + Video
“Many”
r
• Products + Video• Regions + Emerging• Targets + Businessr
2012 d b d2012 and beyond
• Platform• Balance of revenue streams
M ltiple market segments“Any” • Multiple market segments• Established products• Regional ubiquity• Mature target markets
Any
r• Mature target markets
What will our business look like in 2011?
• We will more than double revenue• We will more than double revenue
• While maintaining segment margins of around 18-20%margins of around 18-20%
• With more diversified revenue streams (telecom service &streams (telecom, service & licensing, and advertising)
One of the fastest growingOne of the fastest growing 5 year olds in history
With accelerating growth and outstandingWith accelerating growth, and outstanding fundamentals
Attacking an enormous opportunity, and positioned to winto win
Business is getting strongerBusiness is getting stronger
Our business model &Our business model &Our business model &operational excellenceOur business model &operational excellenceoperational excellenceoperational excellence
March 11, 2009
What you heard today…What you heard today…
What o can e pectWhat o can e pect…What you can expectf i th f t
…What you can expectf i th f tfrom us in the futurefrom us in the future
We play in very attractive markets
eCommerce Online
PaymentsOnline
Communications
$1.4T
$0.6T$0.4T
$
future2008 future2008 2008 future
Source: External estimates & internal analysis
We have the three leading brands on the web
• $5.6B Rev 2008 with 14% 06 08 CAGR
• $2.4B Rev in 2008 with 29% 06 08 CAGR
• $0.6B Rev in 2008 with 68% 06 08 CAGR14% 06-08 CAGR
• ~$60B GMV 2008
• 13% share of global
29% 06-08 CAGR
• ~$60B TPV in 2008
• 9% share of global
68% 06-08 CAGR
• More than 100B Skype calling minutes• ~13% share of global
eCommerce
• ~86M active users
• ~9% share of global eCommerce
• ~70M active users
g
• ~400M registered users
Proven and powerful business models
Strong cash Very high growth
High growth engine …
ggeneration…attractive growth …
good marginsg
good marginsattractive margins
Generating excellent cash flows… Generating excellent cash flows
M&A: Using financial strength to extend our reach
Strengthen Extend Acquire geographic footprint
formats / products
key technologiesp p g
A significantly diversified portfolio
20082004 2008StubHubOther MP
BML
Text & Graphical Ads
ClassifiedsAdjacencies Other MP
Adjacencies
AuctionsClassifieds
Auctions
Fixed price
$
Fixed price
$3.3B$8 5B$8.5B
An expanding global footprint
North America48% of total
Europe41% of total
Asia11% of total
Up 30%
Up 149%
Up 44%
$1 0$1.0Billion$0.4
Billion$3.5Billi
$2.4Billi
$4.1Billi
$3.2Billi
2006 2008 2006 2008 2006 2008
BillionBillionBillionBillion
Portfolio has generated excellent financials
Free cash flow*Non-GAAPEPS*
Revenue
23%
$7.7B
$8.5B
$6.0
$7.7B
26% 14%$4.6
$1 71 $2 2 $2.3B
$0.86$1.05
$1.53 $1.71 $1.6B $1.7B$2.2
‘05 ‘06 ‘07 ‘08 ‘05 ‘06 ‘07 ‘08 ‘05 ‘06 ‘07 ‘08
* Reconciliation in appendix
Attractive returns on invested capital
ROIC*
25% 27%23%
18%18%
2005 2006 2007 2008
* Reconciliation in appendix
2008 was a tough year …
Full year performance was ok …
T Li
2008 1st half 2nd half
U 11% 22% 2%Top Line Up 11% 22% 2%
Non-GAAP EPS* Up 12% 25% 0%
Free cash $2 3B 23% -9%flow*
$2.3B 23% -9%
… but a brutal second half!* Reconciliation in appendix
... and 2009 will be a challenging year
• A tough economy
• Turnaround effort continues in MarketplacesMarketplaces
• Significant headwind from strong US dollarg g
• Two acquisitions in 4Q 2008 … will be dil i i 2009dilutive in 2009
• Strong balance sheet but cash balances• Strong balance sheet … but cash balances will earn less
Positioning for the future: Clear priorities
• Capitalize on PayPal’s enormous potential
• Transition the core eBay platform for
Capitalize on PayPal s enormous potential
today’s consumer with alternative formats
• Skype to be all it can be
• Operating smarter … create capacity to invest
PayPal Merchant Services … ~$30B TPV
Merchant services revenue
Strong growth despite difficult economic conditions…
…will continue to grow rapidly over next 3 yrs
2011201020092008Q4 08Q3 08Q2 08Q1 08
PayPal On eBay … ~$30B TPV
On-eBay Revenue
Decelerating along with eBay core GMV…
…increased penetration will drive growth
2011201020092008Q4 08Q3 08Q2 08Q1 08
PayPal: the business model
Great deals for merchants Consumer funding choice
(T ti )Risk management
(F d l )(Global take rate) (Transaction expense) (Fraud losses)
‘05 ‘06 ‘07 Future
stable declines stable / down
‘08 ‘05 ‘06 ‘07 Future‘08 ‘05 ‘06 ‘07 Future‘08
… ~60% transaction margin business
PayPal: Capitalizing on enormous potential
$4 - $5Bi 2011
PayPal revenue
in 2011
BML/AdjacentBML/Adjacent payments
40% range
30% range Merchantservices
low singledigits On eBay
2008 2009 2010 2011
2009-20112009 2011CAGRs
Marketplaces: Broad choice of formats
A ti Fi d P iAuctions Fixed Price
ClassifiedsAdvertising
Buyers Sellers
VerticalExperiences
Marketplaces Fixed Price format … $22B GMV
Doubledi it CAGR
Fixed price revenue . . . $2B 2008
with double digit growth…
digit CAGR
and huge growth potential
2011201020092008Q4 08Q3 08Q2 08Q1 08
fx-neutral excluding vehicles.
Marketplaces: Complementary formats
Advertising Classifieds~2X2008
~2X2008revenue revenue2008 2008
2008 2011 2008 2011
Auction format: $23B GMV
CAGR in negative double
Auction revenue . . . $2B 2008egat ve doub e
digit rangeA differentiated format…Smaller before stabilizing
2011201020092008Q4 08Q3 08Q2 08Q1 08
fx-neutral excluding vehicles.
Marketplaces: A state of transition
$5 - $7Bi 2011
Marketplaces revenue
in 2011
Other
~2X 2008 levels
V hi lClassifiedsAdvertisingOther
Fi d i
Vehicles
smaller before bigger
Fixed price
2008 2009 2010 2011
Auction
2008 2009 2010 2011
Skype: Powerful standalone business
$1B +Skype revenue
$1B +in 2011
30% range 2009-2011CAGRCAGR
2008 2009 2010 2011
Strengthening the portfolio
$ $$8 5B
$10 - $12B2011 REV
$8.5B2008 REV
Auctions
Auctions
Fixed price
Auctions
p
Fixed priceMP MS&O
MP MS&O
B ildi bi d tB ildi bi d tBuilding a bigger and stronger portfolio will require investments
Building a bigger and stronger portfolio will require investmentsportfolio will require investments …portfolio will require investments …
… we will need to operate smarter in d t f d i t t
… we will need to operate smarter in d t f d i t torder to fund our investments …order to fund our investments …
Achieving full potential requires…
Operating smarter
Significant in estment$2B over 3 yearssmarter investment$ y
CustomerLower processing costs
Customerretention / loyalty
Improved customer
User experience / search / platform
customer experience
O i iImproved trust /
Organizationsimplification
comprehension
Operating smarter: we’ve simplified the org
Simplified organization by removing ~10% of HC ~$450y g
Million
Q3 ‘08 ending HC 3 yr savingsQ3 08 ending HC 3 yr savings
Operating smarter … improved customer experience
We spent $700M in 2008 on customer support …
Drive Down ContactsEliminate Root Causes
20072007
2008
R i t i b tt t i
$300M in savings … more satisfied customers
… Reinvest in a better customer experience
Operating smarter: Lower processing costs
We spent $700M in 2008 in processing PayPal transactions …
P idi g L hi gProviding consumer choice
Launching new products
ANNESSA: IANNESSA: I don’t know where these images are
Cards BalanceBank
images are
Higher Lower
… lowering processing costs … reinvestment/comprehension
g
Operating smarter to create capacity to invest
High growth lowermargin business
Operationalexcellence
Reinvest
O i M i LOperating Margin Levers
FX Business Mix
Ops Excellence
ReinvestmentMix Excellence
Appendix
Reconciliation of GAAP to Non-GAAP EPS
Twelve Months EndedDecember 31, December 31, December 31, December 31, December 31,
(in millions) 2004 2005 2006 2007 2008
GAAP net income (loss) $ 778.2 $ 1,082.1 $ 1,125.6 $ 348.3 $ 1,779.4 Stock-based compensation expense 5.8 31.8 317.4 301.8 352.1 Employer payroll taxes on stock based compensation 17 5 13 0 5 3 6 9 3 1
Twelve Months Ended
Employer payroll taxes on stock-based compensation 17.5 13.0 5.3 6.9 3.1 Amortization of acquired intangible assets (1) 65.9 128.9 214.9 223.7 264.1 Restructuring - - - - 49.1 Impairment of goodwill - - - 1,390.9 - Gain on sale of equity investment (6.4) (2.3) - - - Income taxes associated with certain non-GAAP entries (31.5) (50.5) (171.6) (165.4) (202.9)
Non GAAP net income $ 829 5 $ 1 203 0 $ 1 491 6 $ 2 106 2 $ 2 244 9Non-GAAP net income $ 829.5 $ 1,203.0 $ 1,491.6 $ 2,106.2 $ 2,244.9
Diluted net income per share: GAAP net income per diluted share $ 0.57 $ 0.78 $ 0.79 $ 0.25 $ 1.36 Non-GAAP net income per diluted share $ 0.61 $ 0.86 $ 1.05 $ 1.53 $ 1.71
Shares used in non-GAAP diluted share calculation 1,368 1,394 1,425 1,376 1,313
(1) Includes amortization of acquired intangible assets within cost of net revenues and operating expenses.
Calculation of FCF
December 31, December 31, December 31, December 31, December 31,Twelve Months Ended
, , , , ,(in millions) 2004 2005 2006 2007 2008
GAAP operating cash flow $ 1,285.3 $ 2,009.8 $ 2,247.8 $ 2,641.3 $ 2,882.0 Purchases of property and equipment, net (292.8) (338.3) (515.4) (454.0) (565.9) Proceeds from sale of Proceeds from sale of
corporate aircraft - 28.3 - - - Payment of headquarters facility lease obligation - (126.4) - - -
Free cash flow $ 992.5 $ 1,573.4 $ 1,732.4 $ 2,187.3 $ 2,316.1 , , , ,
Calculation of RoICCalculation of RoIC(in thousands, except percentages)
Numerator components: Q4'04 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08Non-GAAP operating income 313,859$ 367,424$ 406,390$ 393,551$ 448,070$ 460,687$ 460,427$ 464,493$ 575,007$ 593,445$ 594,664$ 593,445$ 754,979$ 701,364$ 700,487$ 674,318$ 667,958$ T t 33% 29% 30% 34% 28% 29% 28% 27% 29% 26% 25% 10% 24% 23% 22% 17% 24%Tax rate 33% 29% 30% 34% 28% 29% 28% 27% 29% 26% 25% 10% 24% 23% 22% 17% 24%Non-GAAP operating income after tax 209,658$ 260,871$ 286,233$ 260,176$ 322,338$ 325,244$ 332,889$ 337,825$ 406,703$ 441,523$ 447,544$ 531,845$ 576,276$ 540,892$ 549,673$ 559,684$ 508,685$
Denominator components: Q4'04 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08Total assets 7,991,051 8,589,158 9,033,122 9,626,043 11,788,986 12,568,535 13,250,251 13,463,118 13,494,011 13,920,051 14,361,157 14,786,812 15,366,037 15,046,305 15,021,625 14,240,157 15,592,439 Total cash, cash equivalents and investments 3,278,338 3,465,015 3,848,937 3,929,828 2,943,599 3,528,735 4,010,778 3,795,865 3,495,486 3,519,880 3,793,677 4,461,775 5,035,692 4,108,141 4,181,717 3,777,482 3,458,840Total cash, cash equivalents and investments 3,278,338 3,465,015 3,848,937 3,929,828 2,943,599 3,528,735 4,010,778 3,795,865 3,495,486 3,519,880 3,793,677 4,461,775 5,035,692 4,108,141 4,181,717 3,777,482 3,458,840 Current liabilities 1,084,870 1,149,106 1,186,818 1,266,792 1,484,935 1,681,508 1,719,405 2,220,685 2,518,395 2,250,571 2,328,643 3,272,867 3,099,579 3,080,432 3,006,234 2,854,733 3,705,087
TTM Non-GAAP operating income after tax - 846,030$ 945,386$ 1,016,938$ 1,129,618$ 1,193,991$ 1,240,647$ 1,318,296$ 1,402,661$ 1,518,940$ 1,633,595$ 1,827,615$ 1,997,188$ 2,096,556$ 2,198,685$ 2,226,524$ 2,158,933$ TTM average total assets - 7,422,501 7,937,476 8,496,195 9,405,672 10,321,169 11,253,387 12,139,387 12,912,980 13,339,193 13,697,718 14,005,030 14,385,614 14,696,072 14,916,387 14,892,187 14,975,132 TTM 9 % f h h i l d i 3 0 8 3 4 3 223 111 3 340 3 8 3 318 486 3 366 062 3 469 3 4 9 6 3 3 3 148 3 486 641 3 36 980 3 622 6 0 3 8 8 23 3 9 4 641 4 100 390 4 09 313 3 68 468TTM 95% of average cash, cash equivalents and inves - 3,078,354 3,223,111 3,340,358 3,318,486 3,366,062 3,469,757 3,459,673 3,377,148 3,486,641 3,536,980 3,622,670 3,858,237 3,974,641 4,100,390 4,097,313 3,687,468 TTM average current liabilities - 1,012,921 1,058,852 1,132,802 1,234,504 1,353,832 1,467,892 1,674,665 1,924,986 2,078,113 2,207,540 2,518,232 2,694,011 2,806,418 2,957,551 3,062,769 3,161,622 ROIC - 25.4% 25.9% 25.3% 23.3% 21.3% 19.6% 18.8% 18.4% 19.5% 20.5% 23.2% 25.5% 26.5% 28.0% 28.8% 26.6%
(in thousands, except percentages)2005 2006 2007 2008
TTM Non-GAAP operating income after tax 1,129,618$ 1,402,661$ 1,997,188$ 2,158,933$ TTM average total assets 9,405,672 12,912,980 14,385,614 15,053,313
Full Year Ended December 31,
TTM 95% of average cash, cash equivalents and inves 3,318,486 3,377,148 3,858,237 3,906,756 TTM average current liabilities 1,234,504 1,924,986 2,694,011 3,149,213 ROIC 23.3% 18.4% 25.5% 27.0%
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