eBay 2005 Annual Report Download - page 59

Download and view the complete annual report

Please find page 59 of the 2005 eBay annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 123

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123

Advertising and Other Non-Transaction Net Revenues
Advertising and other non-transaction net revenues increased in total in 2005 as compared to 2004 and
remained consistent as a percentage of revenue in 2005 as compared to 2004. Advertising and other net
revenues totaled $123.4 million in 2005, $94.3 million in 2004 and $52.9 million in 2003. These amounts as a
percentage of total net revenues represented 3% in 2005 and 2004 and 2% in 2003. We continue to view our
business as primarily transaction driven and we expect advertising and other net revenues to continue to
represent a relatively small proportion of total net revenues during 2006.
Cost of Net Revenues
Percent Percent
2003 Change 2004 Change 2005
(In thousands, except percentages)
Cost of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $416,058 48% $614,415 33% $818,104
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏ 19.2% 18.8% 18.0%
Cost of net revenues consists primarily of costs associated with payment processing, site operations, and
customer support. Significant cost components include bank charges, credit card interchange, other payment
processing costs, employee compensation and facilities costs for our customer support and site operations,
depreciation of equipment and amortization of required capitalization of major site and product development
costs.
The increase in cost of net revenues during 2005 was primarily due to an increase in the volume of
transactions on the Marketplaces and Payments websites and continued development and expansion of our
customer support and site operations infrastructure. Payment processing costs increased to $403.1 million in
2005 from $305.1 million in 2004, due to the increase in PayPal's total payment volume and increased
payment processing costs related to the growth of our eBay Marketplaces activity. Aggregate customer support
and site operations costs increased approximately $88.4 million during 2005, compared to the prior year. The
decrease in cost of net revenues as a percentage of net revenues was primarily due to lower payment processing
costs as a percentage of total payment volume in our payments segments as compared to prior periods. Costs
of net revenues are expected to increase in total and as a percentage of net revenues during 2006 primarily due
to the Payments and Communications businesses, each of which currently has a lower gross margin than our
traditional marketplaces businesses.
The increase in cost of net revenues during 2004 was primarily due to an increase in the volume of
transactions on the PayPal and eBay websites and continued development and expansion of our customer
support and site operations infrastructure. The decrease in cost of net revenues as a percentage of net revenues
was primarily due to eBay's Marketplace's site operations costs growing at a slower rate than net revenues.
Payment processing costs increased to $305.1 million in 2004 from $215.7 million in 2003, due to the increase
in PayPal's total payment volume and increased payment processing costs related to the growth of our eBay
Marketplaces activity. Aggregate customer support and site operations costs increased $105.3 million during
2004, compared to the prior year, and resulted primarily from an increase in headcount and related employee
costs and consultant costs of approximately $37.1 million and increased facilities costs of approximately
$16.2 million. In addition, aggregate depreciation of site equipment and amortization of capitalized software
development costs increased $36.0 million as compared to 2003.
Operating Expenses
Sales and Marketing
Percent Percent
2003 Change 2004 Change 2005
(In thousands, except percentages)
Sales and marketing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $567,565 51% $857,874 43% $1,230,728
As a percentage of net revenues ÏÏÏÏÏÏÏ 26.2% 26.2% 27.0%
55