eBay 2002 Annual Report Download - page 29

acquisition of PayPal. For the post-acquisition period from October 4, 2002 through December 31, 2002,
PayPal recorded transaction net revenue of $72.6 million. We expect to wind-down our Billpoint payment
operations during the Ñrst half of 2003.
Third-party Advertising and End-to-End Services Net Revenues
Payments segment revenues from third-party advertising and end-to-end services decreased as a
percentage of total Payments segment net revenues from 4% in 2001 to 2% in 2002 as transaction net
revenues grew faster than third-party advertising and end-to-end services net revenues. We continue to
view our business as primarily transaction driven, and we expect Payments segment third-party advertising
and end-to-end net revenues in future periods to continue to decrease as a percentage of total net revenues
and in absolute dollars.
Cost of Net Revenues
Percent Percent
2000 Change 2001 Change 2002
(in thousands, except percent changes)
Cost of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $95,453 41% $134,816 59% $213,876
As a percentage of net revenues ÏÏÏÏÏÏ 22% 18% 18%
Cost of net revenues consists primarily of costs associated with customer support, site operations, and
payment processing. SigniÑcant cost components include employee compensation and facilities costs for
customer support, site operations, Internet connectivity charges, depreciation of site equipment, payment
processing fees, amortization of required capitalization of major site and product development costs,
including the amortization of capitalized costs related to the development of our third generation ""V3'' site
architecture, costs to provide end-to-end services and promotions and corporate overhead allocations.
Cost of net revenues increased in absolute dollars but decreased as a percentage of net revenues from
2000 to 2001. This increase in absolute dollars was due almost entirely to our online business as we
continued to develop and expand our customer support and site operations infrastructure. The increases
were primarily the result of personnel costs, depreciation of the equipment required for site operations,
software licensing fees, Internet connectivity charges and the increased costs associated with acquired
businesses. The decrease in cost of net revenues as a percentage of net revenue resulted from cost
management initiatives and lower technology costs in site operations and increases in higher gross margin
businesses such as autos, third-party advertising and end-to-end services and promotions. The combined
eÅect of these activities resulted in our cost of net revenues per listing decreasing from $0.36 in 2000 to
$0.32 in 2001.
Cost of net revenues increased in absolute dollars but remained constant as a percentage of net
revenues from 2001 to 2002. This increase in absolute dollars was due to increased payment processing
costs resulting from our acquisition of PayPal and continued development and expansion of our customer
support and site operations infrastructure. The increase in payment processing costs totaled $50.4 million
and consists of bank charges, credit card interchange fees, and other processing charges. The increase in
customer support and site operations costs were primarily the result of increased depreciation of site
operations software and equipment of $10.9 million and personnel costs of $7.7 million. Cost of net
revenues stayed constant as a percentage of net revenue from 2001 to 2002 and reÖects cost eÇciencies in
both customer support and site operations oÅset by the addition of PayPal's lower margin payments
processing business. The combined eÅect of these activities resulted in our cost of net revenues per listing
increasing from $0.32 in 2001 to $0.34 in 2002. We expect the cost of net revenues to increase in absolute
dollars and increase as a percentage of net revenues in 2003 as a result of the addition of a full year of
PayPal's lower margin payments processing business.
27