eBay 2006 Annual Report Download - page 16

• general economic conditions and those economic conditions specific to the Internet and e-commerce
industries; and
• geopolitical events such as war, threat of war, or terrorist actions.
The increased variety of services offered on our websites makes it difficult for us to forecast the level or source
of our revenues or earnings accurately. In view of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our operating results may not be meaningful, and
you should not rely upon them as an indication of future performance. We do not have backlog, and substantially all
of our net revenues each quarter come from transactions involving sales or payments during that quarter. Due to the
inherent difficulty in forecasting revenues it is also difficult to forecast income statement expenses as a percentage
of net revenues. Quarterly and annual income statement expenses as a percentage of net revenues may be
significantly different from historical or projected rates. Our operating results in one or more future quarters may
fall below the expectations of securities analysts and investors. In that event, the trading price of our common stock
would almost certainly decline.
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 services, and increase the activity levels of
our active users;
• react to changes in consumer use of the Internet and develop new services, as well as new sources of revenues
from our existing services;
• manage the costs of our business, including the costs associated with maintaining and enhancing our
websites, customer support, transaction and chargeback rates, user protection programs, and international
and product expansion;
• maintain sufficient transaction volume to attract buyers and sellers;
• cost effectively increase the awareness of our brands; and
• provide our customers with superior community, customer support, and trading, communication, 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. As our penetration in established markets grows, we will increasingly need to rely on
keeping existing users active and increasing their activity level on our sites for growth in those markets. In addition,
our Marketplaces business is facing increased competitive pressure, particularly in Asia. Because a large percentage
of PayPal transactions originate on the eBay platform, declines in growth rates in major eBay Marketplace markets
also adversely affect PayPal’s growth rate. 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 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% and 48%, respectively, of our net revenues in 2005 and 2006. Expansion into
international markets requires management attention and resources and requires us to localize our services to
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