eBay 2003 Annual Report Download - page 53

safety activity we provide worldwide. If we are unable to provide these operations in a cost-eÅective
manner, users of our websites may have negative experiences, current and future revenues could
suÅer, and our operating margins may decrease.
‚Customer Accounts. Our revenues depend on prompt and accurate billing processes. We are in the
midst of a signiÑcant project to enhance our billing software. Failure to successfully complete this
project or grow our transaction-processing capabilities to accommodate the increasing number of
transactions that must be billed would harm our ability to collect revenue and our business.
We must continue to hire, train, and manage new employees at a rapid rate. If our new hires perform
poorly, if we are unsuccessful in hiring, training, managing, and integrating these new employees, or if we
are not successful in retaining our existing employees, our business may be harmed. To manage the
expected growth of our operations and personnel, we will need to improve our transaction processing,
operational and Ñnancial systems, procedures, and controls. This is a special challenge as we acquire new
operations with diÅerent systems. Our current and planned personnel, systems, procedures, and controls
may not be adequate to support our future operations. The additional headcount and capital investments
we are adding increase our cost base, which will make it more diÇcult for us to oÅset any future revenue
shortfalls by expense reductions in the short term.
Our business is adversely aÅected by anything that causes our users to spend less time on their computers,
including seasonal factors and national events.
Anything that diverts our users from their customary level of usage of our websites could adversely
aÅect our business. We would therefore be adversely aÅected by geopolitical events such as war, the threat
of war, or terrorist activity. Similarly, our results of operations historically have been seasonal because
many of our users reduce their activities on our websites with the onset of good weather during the
summer months, and on and around national holidays. We have historically experienced our strongest
quarters of online growth in our Ñrst and fourth Ñscal quarters. PayPal has shown similar seasonality,
except that its strongest quarter of online growth has historically been the fourth Ñscal quarter. We expect
these patterns of seasonality to become more pronounced as our websites gain acceptance by a broader
base of mainstream users and as the size of our European operations, which experience greater seasonality,
grows relative to our other operations.
Our business may be harmed if our services are used for illegal purposes.
The law relating to the liability of providers of online services for the activities of their users on their
service is currently unsettled in the United States and internationally. We are aware that certain goods,
such as Ñrearms, other weapons, adult material, tobacco products, alcohol, and other goods that may be
subject to regulation, have been listed and traded on our service. We may be unable to prevent our users
from selling unlawful goods or selling goods in an unlawful manner, and we may be subject to allegations
of civil or criminal liability for unlawful activities carried out by users through our service. We have been
subject to several lawsuits based upon such allegations. Our Korean subsidiary and one of its employees
were recently found criminally liable for a listing on the Korean subsidiary's website. In order to reduce
our exposure to this liability, we have prohibited the listing of certain items and increased the number of
personnel reviewing questionable items. In the future, we may implement other protective measures that
could require us to spend substantial resources or discontinue certain service oÅerings. Any costs incurred
as a result of potential liability relating to the sale of unlawful goods or the unlawful sale of goods could
harm our business. In addition, we have received signiÑcant and continuing media attention relating to the
listing or sale of unlawful goods on our websites. This negative publicity could damage our reputation and
diminish the value of our brand name. It also could make users reluctant to continue to use our services.
PayPal's payment system is also susceptible to potentially illegal or improper uses. These may include
illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or
controlled substances, piracy of software and other intellectual property, money laundering, bank fraud,
child pornography traÇcking, prohibited sales of alcoholic beverages or tobacco products, and online
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