eBay 2005 Annual Report Download - page 19

We may not maintain our level of profitability or rates of growth.
We believe that our continued profitability and growth will depend in large part on our ability to do the
following:
‚ attract new users, keep existing users active on our websites, and increase the activity levels of our
active users;
‚ react to changes in consumer use of the Internet and develop new sources of monetization for some of
our services;
‚ manage the costs of our business, including the costs associated with maintaining and developing our
websites, customer support, transaction and chargeback rates, and international and product expansion;
‚ maintain sufficient transaction volume to attract buyers and sellers;
‚ increase the awareness of our brands; and
‚ provide our customers with superior community, customer support, and trading and payment
experiences.
We invest heavily in marketing and promotion, customer support, and further development of the
operating infrastructure for our core and recently acquired operations. Some of this investment entails long-
term contractual commitments. As a result, we may be unable to adjust our spending rapidly enough to
compensate for any unexpected revenue shortfall, which may harm our profitability. In addition, we are
spending in advance of anticipated growth, which may also harm our profitability. Growth rates in our most
established markets, such as Germany and the U.S., have declined over time and may continue to do so as the
existing base of users and transactions becomes larger. The expected future growth of our PayPal, Skype and
Shopping.com businesses may also cause downward pressure on our profit margin because those businesses
have lower gross margins than our eBay trading platforms.
There are many risks associated with our international operations.
Our international expansion has been rapid and we have only limited experience in many of the countries
in which we now do business. Our international business, especially in Germany, the U.K., and South Korea,
has also become critical to our revenues and profits. Net revenues outside the United States accounted for
approximately 46% of our net revenues in 2005. Expansion into international markets requires management
attention and resources and requires us to localize our service to conform to local cultures, standards, and
policies. The commercial, Internet, and transportation infrastructure in lesser-developed countries may make
it difficult for us to replicate our business model. In many countries, we compete with local companies who
understand the local market better than we do, and we may not benefit from first-to-market advantages. We
may not be successful in expanding into particular international markets or in generating revenues from
foreign operations. For example, in 2002 we withdrew our eBay marketplace offering from the Japanese
market. Even if we are successful, we expect the costs of operating new sites to exceed our net revenues for at
least 12 months in most countries. As we continue to expand internationally, including through the expansion
of PayPal, Skype, and Shopping.com, we are subject to risks of doing business internationally, including the
following:
‚ regulatory requirements, including regulation of Internet services, auctioneering, professional selling,
distance selling, communications, banking, and money transmitting, that may limit or prevent the
offering of our services in some jurisdictions, prevent enforceable agreements between sellers and
buyers, prohibit the listing of certain categories of goods, require product changes, require special
licensure, subject us to special taxes, or limit the transfer of information between eBay and our
affiliates;
‚ legal uncertainty regarding our liability for the listings and other content provided by our users,
including uncertainty as a result of less Internet-friendly legal systems, unique local laws, and lack of
clear precedent or applicable law;
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