eBay 1999 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... Ten List''. During the year, we endeavored to make eBay a more vibrant marketplace by entering new trading regions. We expanded to reach new areas of the world including the United Kingdom, Australia, Canada and Germany. We entered regional markets to help bring trading closer to our users' homes...

  • Page 3
    ... sellers. We also introduced E-stamp to our community to enable them to purchase postage online. We strengthened our efforts to create a safe and secure online trading environment for our users through a number of initiatives. We reinforced and clarified policies, supplied additional information...

  • Page 4
    ...thank our stockholders, partners and employees for their support. We especially want to thank our community. We recognize that it is the community who makes eBay what it is today and what it will become tomorrow. Pierre Omidyar Chairman of the Board Meg Whitman President & Chief Executive Officer...

  • Page 5
    ... name of registrant as specified in its charter) eBay Inc. Delaware (State or Other Jurisdiction of Incorporation or Organization) 77-0430924 (I.R.S. Employer Identification Number) 2145 Hamilton Avenue, San Jose, CA 95125 (Address of Principal Executive Offices, Including Zip Code) (408...

  • Page 6
    ... of goods traded on the eBay service. eBay, was formed as a sole proprietorship in September 1995, incorporated in California in May 1996 and reincorporated in Delaware in April 1998. eBay pioneered online personal trading by developing a Web-based community in which buyers and sellers are brought...

  • Page 7
    ... auction pricing format and has grown into the largest and most popular personal trading platform on the Internet. The core eBay service permits sellers to list items for sale, buyers to bid for and purchase items of interest and all eBay users to browse through listed items from any place...

  • Page 8
    ... of features and services designed to strengthen this sense of community among eBay users. The Company facilitates communications between buyers and sellers by offering chat rooms, bulletin boards, threaded discussion boards, customer support assistance from eBay personnel or other eBay users and by...

  • Page 9
    ... loyal online trading communities on the Web. By instilling a vibrant eBay community experience, the Company seeks to maintain a critical mass of frequent buyers and sellers with a vested interest in the eBay community. The Company believes that new community tools, such as AboutMe personal pages...

  • Page 10
    ...to search while in the Gallery mode. The Gallery showcases items in a catalog of pictures rather than text. For sellers, the Company introduced ''Mr. Lister 2.0'', a software tool that permits automated listing of multiple items for sale on eBay. For buyers, the Company introduced ''Personal Shopper...

  • Page 11
    ... interaction between buyers and sellers, bidders wishing additional information about a listed item can access the seller's email address and contact the seller. The Company believes that this interaction between bidders and sellers leverages the personal, one-on-one nature of trading on the Web and...

  • Page 12
    ... reserve fee. Invoices for placement fees, additional listing fees and success fees are sent via email to sellers on a monthly basis. All new sellers are required to have a credit card account on file with eBay. Sellers who pay by credit card are charged shortly after the invoice is sent. Feedback...

  • Page 13
    ...of the eBay service. The Company's SafeHarbor௣ staff of 182 persons, including regular employees and contractors, investigates users' complaints of possible misuse of eBay and take appropriate action, including issuing warnings to users or suspending users from bidding on or listing items for sale...

  • Page 14
    ... Me home page can include personal information, items listed for sale, eBay feedback ratings, images and links to other favorite sites. In addition, in June 1998, the Company donated 321,750 shares of Common Stock to the Community Foundation Silicon Valley, a tax-exempt donor-advised public charity...

  • Page 15
    .... Sellers that are new to the eBay service are now required to place a credit card account number on file. In addition to these features, the eBay service also supports a number of community bulletin board and chat areas where users and eBay customer support personnel can interact. The Company...

  • Page 16
    ... software problems and human error. The volume of traffic on the Company's website and the number of items being listed by users has been increasing continually and exponentially, requiring the Company to expand and upgrade its technology, transaction processing systems and network infrastructure...

  • Page 17
    ... Electronics: Best Buy, Buy.com, Circuit City, Compaq, CompUSA, Dell, Egghead, Fry's Electronics, Gateway, The Good Guys, IBM, MicroWarehouse, The Sharper Image, Shopping.com, ValueAmerica.com Home & Garden: IKEA, Crate & Barrel, Furniture.com, Homepoint.com, Home Depot, Living.com, Garden.com...

  • Page 18
    ...a non-negative feedback rating at no cost to the user. New technologies may increase the competitive pressures by enabling the Company's competitors to offer a lower cost service. Some Web-based applications that direct Internet traffic to certain websites may channel users to trading services that...

  • Page 19
    ... make users reluctant to continue to use the Company's services. Fraudulent Activities on the eBay Website The Company's future success will depend largely upon sellers reliably delivering and accurately representing their listed goods and buyers paying the agreed purchase price. The Company has...

  • Page 20
    ... cover issues such as online contracts, user privacy, freedom of expression, pricing, fraud, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property...

  • Page 21
    ... nature of the products listed by the Company's users change, eBay may become subject to new regulatory restrictions. Several states have proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal...

  • Page 22
    ... laws by monopolizing or attempting to monopolize a market, the Company is competing unfairly, and that the Company interfered with their contract with eBay magazine. Bidder's Edge is seeking treble damages, an injunction and its fees and costs. Expedited discovery in this case has commenced...

  • Page 23
    ... Market for Registrant's Common Equity and Related Stockholder Matters Price Range of Common Stock eBay's Common Stock has been traded on The Nasdaq Stock MarketSM under the symbol ''EBAY'' since September 24, 1998. The following table sets forth the high and low sales prices of the Company's Common...

  • Page 24
    ..., except per share data) Consolidated Statement of Income Data: Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Sales and marketing ...Product development ...General and administrative ...Amortization of acquired intangibles ...Merger related costs ...Total operating...

  • Page 25
    ... one bid above the seller's specified minimum price or reserve price, whichever is higher). Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Overview eBay pioneered online personal trading by developing a Web-based community in which buyers and sellers...

  • Page 26
    ... of the merger were converted into options and warrants to purchase shares of eBay common stock. The merger has been accounted for as a pooling of interests. alando On June 15, 1999, eBay acquired alando.de.ag. (''alando''). alando was Germany's leading online personal trading platform. The...

  • Page 27
    ... in the number of registered users, listings, and gross merchandise sales. The Company expects that future revenue growth will be largely driven by the online services, including revenue derived from the Billpoint services. The Company has reviewed Securities and Exchange Commission Staff Accounting...

  • Page 28
    ... purchased equipment, and continues to grow its customer support function. Sales and Marketing The Company's sales and marketing expenses for both the online sales and traditional auction businesses are comprised primarily of compensation for the Company's sales and marketing personnel, advertising...

  • Page 29
    ... shares of common stock by the Company's outside directors and compensation expense of approximately $1.7 million associated with stock options granted to employees. Additional year over year increases resulted from increases in personnel related expenses, the allowance for doubtful accounts, fees...

  • Page 30
    ... net cash generated from operating activities. The Company has obtained additional financing from the sale of preferred stock and warrants, proceeds from the exercise of those warrants, proceeds from the exercise of stock options, and proceeds from its initial and follow-on public offerings. Net...

  • Page 31
    ... following maintain and increase our number of registered users, items listed on our service and completed sales; expand into new markets; maintain and grow our website and customer support operations at a reasonable cost; continue to make trading through our service safer for users; maintain and...

  • Page 32
    ... base, to attract new users who list items for sale and who purchase items through our service and to maintain customer satisfaction; our ability to keep our website operational and to manage the number of items listed on our service; the amount and timing of operating costs and capital expenditures...

  • Page 33
    ...to attract buyers and sellers; manage the costs of our business, including the costs associated with maintaining and developing our website, customer support and international expansion; increase our brand name awareness; and provide our customers with superior community and trading experiences. We...

  • Page 34
    ... website unavailable for periods of time. These and other types of attacks could harm us. Actions of this sort may be very expensive to remedy and could damage our reputation and discourage new and existing users from using our service. Our business may be harmed by the listing or sale by our users...

  • Page 35
    ... the Department of Justice requesting documents relating to, among other things, changes in B&B's seller's commissions and buyer's premiums and discussions, agreements or understandings with other auction houses, in each case since 1992. We believe this request may be related to a publicly reported...

  • Page 36
    ... adequacy of the steps we take to protect our users from fraud. For example, the City of New York- Department of Consumer Affairs received complaints from users about transactions on our website. In investigating these complaints, the Department of Consumer Affairs requested information about us and...

  • Page 37
    ...that participants in our markets increasingly will be subject to infringement claims as the number of services and competitors in our industry segment grows. Any claim like this, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require...

  • Page 38
    ...up to 22 hours. In addition to placing increased burdens on our engineering staff, these outages create a ï¬,ood of user questions and complaints that must be responded to by our customer support personnel. Any unscheduled interruption in our service results in an immediate loss of revenues that can...

  • Page 39
    ... cover issues such as online contracts, user privacy, freedom of expression, pricing, fraud, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as property...

  • Page 40
    ... publicly available their e-mail addresses and other personal information that some potential users may be unwilling to provide. These concerns may increase as additional publicity over privacy issues on eBay or generally over the Internet increase. Market acceptance for recently introduced services...

  • Page 41
    ... long- term employment agreements with any of our key personnel and we do not maintain any ''key person'' life insurance policies. Our new businesses are all dependent on attracting and retaining key employees. The land-based auction businesses are particularly dependent on specialists and senior...

  • Page 42
    ... that an item purchased at auction does not have good title, provenance or authenticity may rescind the purchase. Under these circumstances, the company involved will lose its commissions and fees on the sale even if the seller, in accordance with the terms and conditions of sale, in turn accepts...

  • Page 43
    ... Electronics: Best Buy, Buy.com, Circuit City, Compaq, CompUSA, Dell, Egghead, Fry's Electronics, Gateway, The Good Guys, IBM, MicroWarehouse, The Sharper Image, Shopping.com, ValueAmerica.com Home & Garden: IKEA, Crate & Barrel, Furniture.com, Homepoint.com, Home Depot, Living.com, Garden.com...

  • Page 44
    ... to offer a lower cost service. Some Web-based applications that direct Internet traffic to certain websites may channel users to trading services that compete with us. Although we have established Internet traffic arrangements with several large online services and search engine companies, these...

  • Page 45
    ...dential information over public networks. Our security measures may not prevent security breaches. Our failure to prevent security breaches could harm our business. Currently, a significant number of our users authorize us to bill their credit card accounts directly for all transaction fees charged...

  • Page 46
    ... from sellers for listing products for sale on our service and fees received from successfully completed transactions. Our future revenues will depend upon continued demand for the types of goods that are listed by users of our service. The popularity of certain categories of items, such as toys...

  • Page 47
    ... of these companies. Some anti-takeover provisions may affect the price of our common stock The Board of Directors has the authority to issue up to 10,000,000 shares of preferred stock and to determine the preferences, rights and privileges of those shares without any further vote or action by the...

  • Page 48
    ... as of December 31, 1999, and has never held such instruments in the past. In addition, eBay had outstanding debt as of December 31, 1999 of $27.3 million. Foreign Currency Risk Currently the majority of eBay's sales and expenses are denominated in U.S. dollars and as a result the foreign exchange...

  • Page 49
    ... Inc. Investor Relations 2145 Hamilton Ave. San Jose, CA 95125 (408) 558-7400 In addition, the Securities and Exchange Commission maintains a website that provides access to all filings made electronically by the Company at www.sec.gov. The Company's website is located at www.ebay.com. Information...

  • Page 50
    ... Option Plan and related documents.* Registrant's 1998 Employee Stock Purchase Plan.* Office Lease between Connecticut General Life Insurance Company, a Connecticut corporation, and the Registrant dated September 30, 1996, as amended through March 1998.* Sublease between Information Storage Devices...

  • Page 51
    ..., assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP San Jose, California January 25...

  • Page 52
    ...' EQUITY Current liabilities: Accounts payable ...Accrued expenses and other liabilities . . Debt and leases, current ...Customer advances and deferred revenue Income tax payable ...Deferred tax liabilities, current ...Total current liabilities Debt and leases, long-term ...Environmental accruals...

  • Page 53
    ...) Year Ended December 31, 1997 1998 1999 Net revenues: Fees and services ...Real estate rentals ...Total net revenues ...Cost of net revenues: Fees and services ...Real estate rentals ...Total cost of net revenues ...Gross profit ...Operating expenses: Sales and marketing ...Product development...

  • Page 54
    eBAY INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands, except per share amounts) Year Ended December 31, 1997 1998 1999 Net income ...Other comprehensive income: Foreign currency translation adjustments . Unrealized gains on securities ...Unrealized losses on securities ... ... $7,...

  • Page 55
    ... of Common Stock for cash in follow-on offering, net of offering expenses of $1,000 ...Distributions to partners ...Note repayments ...Cancellation or repurchase of shares and options ...Unrealized gain on investments, net of tax provision ...Tax benefit related to acquisitions ...Foreign currency...

  • Page 56
    ... B Preferred stock issued for services ...Minority interest in deficit of consolidated companies ...Loss on impairment of asset held for sale ...Acquired research and development ...Equity in partnership net loss ...Loss on sale of property ...Changes in assets and liabilities: Accounts receivable...

  • Page 57
    ... Kingdom, Germany, Australia, Canada, and Japan. eBay pioneered online personal trading by developing a Web-based community in which buyers and sellers are brought together to buy and sell almost anything. The eBay online service permits sellers to list items for sale, buyers to bid on items of...

  • Page 58
    ... lease term or the estimated useful lives of the assets. Intangible assets Intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. These include acquired customer lists...

  • Page 59
    ...reserve price, whichever is higher, at the end of the transaction term. Provisions for doubtful accounts and authorized credits to sellers are provided at the time of revenue recognition based upon the Company's historical experience. The Company has reviewed Securities and Exchange Commission Staff...

  • Page 60
    ...-line basis over the term of the contract. Advertising expenses totaled $2.8 million, $15.4 million, and $45.3 million during the years ended December 31, 1997, 1998 and 1999, respectively. Stock-based compensation The Company accounts for stock-based employee compensation arrangements in accordance...

  • Page 61
    ...placement fee revenue will be recognized ratably over the estimated period of the transaction. In November 1999, the EITF commenced discussions on EITF No. 99-17, ''Accounting for Advertising Barter Transactions.'' The EITF provides guidance on the recognition of Internet barter advertising revenues...

  • Page 62
    ...10 0.08 Effective June 30, 1998, the Company acquired all the outstanding shares of Jump, an online personal trading community. The acquisition has been accounted for using the purchase method of accounting and accordingly, the purchase price has been allocated to the tangible and intangible assets...

  • Page 63
    ...in March 1999. Butterfield & Butterfield conduct auctions and perform appraisal services of fine art, jewelry, antiques and other collectibles primarily in San Francisco, Los Angeles and Chicago. Butterfield Credit Corporation Inc. (''BCCI'') is a wholly-owned subsidiary of Butterfield & Butter...

  • Page 64
    ... is Germany's leading online personal trading community. The aggregate consideration exchanged for the acquisition was 316,000 shares of eBay common stock. The acquisition has been accounted for as a pooling of interests. Note 4-Segment Information: Effective January 1, 1998, the Company adopted the...

  • Page 65
    ... before income taxes, amortization of intangibles, stock compensation and merger related costs. The operating information for the two segments identified are as follows, (in thousands): Year Ended December 31, 1997 Online Ofï¬,ine Consolidated Net revenues from external customers ...Operating...

  • Page 66
    ...-for-sale securities and are reported at fair value as follows, (in thousands): Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Short-term investments: Municipal bonds and notes Corporate bonds ...Government securities ...Other ...Long-term investments...

  • Page 67
    ...111,806 Total ...Less: Accumulated depreciation and amortization ...Total ... Within computer equipment and software, the Company capitalized $788,000 and $5.8 million in site related software during the years ended December 31, 1998 and 1999, respectively. Intangible assets, net: Intangible assets...

  • Page 68
    ... three to thirty year terms, with final installments consisting of all remaining unpaid principal and accrued interest at the end of the term. During 1997, B&B foreclosed on secured receivables totaling $815,000 and assumed a related note payable for $668,000, plus unpaid property taxes of $27,000...

  • Page 69
    ... Price Index. Under the terms of the leases, the tenants are generally responsible for the payment of property taxes, insurance and maintenance costs related to the leased property. Property on operating leases and property held for lease The following schedule provides a summary of the Company...

  • Page 70
    ...fic number of advertising impressions featuring it as the preferred provider of personal trading services on AOL's service. In consideration, the Company committed to pay $12.0 million over the three-year term of the agreement. The Company is recognizing these fees as sales and marketing expenses...

  • Page 71
    ... Company expects that participants in its markets increasingly will be subject to infringement claims as the number of services and competitors in our industry segment grows. Any claim like this, whether meritorious or not, could be time consuming, result in costly litigation, cause service upgrade...

  • Page 72
    ... services of an executive search firm affiliated with a holder of the Company's Series B Mandatorily Redeemable Convertible Preferred Stock. During 1998, the Company paid fees for services performed of $93,000 and issued 46,248 shares of Series B Mandatorily Redeemable Convertible Preferred Stock...

  • Page 73
    ... of 27,827,019 shares of Common Stock. Warrants for Series B Mandatorily Redeemable Convertible Preferred Stock In connection with the issuance of Series B, the Company issued warrants to purchase 400,000 additional shares of Series B with an exercise price of $5.00 per share. In May 1998, these...

  • Page 74
    ...). NSOs may be granted to Company employees, officers, directors, consultants, independent contractors and advisors of the Company. In October 1999, the Board of Directors adopted the 1999 Global Equity Incentive Plan (''the 1999 Plan'') and reserved 2,500,000 shares of Common Stock for issuance...

  • Page 75
    ... to the Company's initial public offering, the fair value of each option grant was determined using the minimum value method. Subsequent to the offering, the fair value was determined using the Black-Scholes model. The compensation cost associated with the Company's stock-based compensation plans...

  • Page 76
    ... number of shares reserved for issuance under the Purchase Plan shall not exceed 4,500,000 shares. The Purchase Plan became effective on September 24, 1998, the first business day on which price quotations for the Company's Common Stock were available on the Nasdaq National Market. Employees...

  • Page 77
    ...income before income taxes, (in thousands): Year Ended December 31, 1997 1998 1999 Provision at statutory rate ...Permanent differences: Foreign loss not recognized ...S Corporation (income) loss not subject to tax ...Merger related expenses ...Stock-based compensation ...Tax-exempt interest income...

  • Page 78
    ... $83.9 million at December 31, 1999 pertain to certain net operating loss carryforwards resulting from the exercise of employee stock options. When recognized, the tax benefit of these losses are accounted for as a credit to additional paid-in capital rather than a reduction on the income...

  • Page 79
    ... Disney Company, ESPN and ABC. In consideration for this agreement, eBay will pay a minimum of $30 million to GO.com over the four-year term. NEC On February 17, 2000 eBay Japan Inc., a wholly owned subsidiary of eBay, entered into a shareholder and marketing services agreement with NEC Corporation...

  • Page 80
    ...develop a co-branded site and Autotrader will refer customers desiring an auction pricing format to eBay for a referral fee. Under the terms of the agreement, eBay has committed to provide certain marketing expenditures for the promotion of the eBay service and additional automobile related services...

  • Page 81
    ... requirements of the Securities Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. eBAY INC. Date: March 29, 2000 Principal Executive Officer: Principal Financial Officer and Principal Accounting Officer: /s/ MARGARET...