eBay 2007 Annual Report Download - page 58

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Overview
Our Business
We operate three primary business segments: Marketplaces, Payments and Communications. Our Market-
places segment provides the infrastructure to enable global online commerce on a variety of platforms, including the
traditional eBay.com platform, and our other online platforms, such as Shopping.com, StubHub, classifieds,
Half.com and Rent.com. Our Payments segment, which consists of PayPal, enables individuals or businesses to
securely, easily and quickly send and receive payments online. Our Communications segment, which consists of
Skype, enables VoIP calls between Skype users and provides low-cost connectivity to traditional fixed-line and
mobile telephones.
We generate revenues from our Marketplaces segment primarily from listing, feature and final value fees paid
by sellers and lead referral fees. For our Payments segment, revenues are generated primarily by fees from payment
processing services. Our Communications segment primarily generates revenues from fees charged to users to
connect them from Skype’s VoIP network to traditional telecommunication networks. These fees are charged on a
per minute basis and we refer to these minutes as SkypeOut minutes. Revenues from advertising are derived
principally from the sale of advertisements and from revenue sharing arrangements. Other revenues are derived
principally from contractual arrangements with third parties that provide transaction services to eBay and PayPal
users and interest earned from banks on certain PayPal customer account balances.
Revenues are attributed to U.S. and international geographies based upon the country in which, as the case may
be, the seller, payment recipient, Skype user’s Internet protocol address, online property that generates advertising,
or other service provider, is located. Because we generate the majority of our revenue internationally, fluctuations in
foreign currency exchange rates will impact the results of our operations.
Key Operating Metrics and Financial Information
Members of our senior management team regularly review key operating metrics such as active users, listings,
Gross Merchandise Volume (“GMV”), net Total Payment Volume (“TPV”), transaction loss rates, registered users
and SkypeOut Minutes. Members of our senior management team also regularly review key financial information
including net revenues, operating margins, earnings per share, cash flows and financial metrics that exclude certain
non-cash items. These financial measures allow us to monitor the profitability of our business and to evaluate the
effectiveness of investments that we have made (and continue to make) in the areas of marketing, product
development, international expansion, customer support and site operations. We believe that an understanding of
these key operating and financial measures and how they change over time is important to investors, analysts and
other parties analyzing our business results and future market opportunities.
Financial Summary
During 2007, our combined businesses generated net revenues totaling $7.7 billion, representing a $1.7 billion,
or 29%, year-over-year increase, with each of our segments achieving double digit-growth. Overall, our operations
were favorably impacted by the weakening of the U.S. dollar relative to foreign currencies, the geographic mix of
taxable income, a tax benefit from a favorable ruling issued by a tax authority and more efficient use of our
resources as demonstrated by reducing our sales and marketing, product development, and general and admin-
istrative expenses as a percentage of revenues. Furthermore, our operating results were negatively impacted by the
$1.4 billion impairment charge related to Skype goodwill.
Revenue generated by our Marketplaces segment increased 24% in 2007 as compared to 2006 as our core
business generated $59.4 billion in GMV in 2007, representing a 13% increase over the prior year. Revenue growth
was primarily driven by StubHub (acquired in February 2007), advertising, and the fixed-price format on eBay. Our
Marketplaces segment represents approximately 70% of our total net revenues and continues to drive the majority
of our consolidated net revenue increase in dollars.
Revenue generated by our Payments segment, PayPal, increased 34% in 2007 as compared to 2006. PayPal
represents approximately 25% of our total net revenue and generated net TPV of $47.5 billion in 2007, a 33%
increase over the $35.8 billion generated in 2006. PayPal continued to be a popular payment vehicle on various
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