eBay 2007 Annual Report Download - page 67

Download and view the complete annual report

Please find page 67 of the 2007 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 128

  • 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
  • 124
  • 125
  • 126
  • 127
  • 128

General and Administrative
2005 2006 2007
(in thousands, except percentages)
General and administrative........................... $649,529 $978,363 $1,156,015
As a percentage of net revenues ....................... 14.3% 16.4% 15.1%
General and administrative expenses consist primarily of employee compensation, contractor costs, provisions
for transaction losses associated with PayPal, facilities costs, depreciation of equipment, provision for doubtful
accounts, employer payroll taxes on employee stock-based compensation, insurance and professional fees.
The increase in general and administrative expenses of $177.7 million during 2007 was due primarily to an
increase in employee-related costs, facilities costs, professional services, and transaction loss expense. Employee-
related costs, consultant costs and facilities costs increased by approximately $111.6 million during 2007 as
compared to the prior year due primarily to our continued focus on consumer protection programs. Professional
services costs increased $35.7 million during 2007 compared to the prior year. PayPal’s transaction loss rate, which
is the transaction loss expense as a percentage of PayPal’s net TPV, decreased to 0.29% during 2007, compared to
0.35% during 2006; however, transaction loss expense still increased by approximately $12.8 million because of the
increase in net TPV. We continue to expect our transaction loss rate to fluctuate depending on many factors,
including historical experience of losses, protection programs, funding mix and net TPV. The funding mix reflects
how senders fund their payment transactions (through credit cards, electronic funds transfers, buyer credit, or
existing PayPal account balances). General and administrative expense as a percentage of net revenue decreased
from 2006 due to our continued leverage of our existing infrastructure.
The increase in general and administrative expenses of $328.8 million during 2006 was due primarily to
increased employee-related costs, consultant costs, higher Payments transaction loss expenses, and the effect of
stock-based compensation expense related to equity awards and employee stock purchases under FAS 123(R).
Employee-related costs and consultant costs increased by approximately $112.6 million during 2006 as compared
to the prior year due to our continued focus on user protection programs. The transaction loss rate in our Payments
segment increased to 0.35% in 2006 compared to 0.28% in 2005, causing an increase in expense of approximately
$52.7 million. The increase in the transaction loss rate were due primarily to higher levels of credit card chargebacks
from unauthorized credit card transactions, which resulted from our decision to strategically enter into new
customer segments (new countries and direct card processing) having higher loss rates.
For 2008, we expect general and administrative expense to increase in total due to our continued investment
across all areas of our business and related corporate functions, particularly in our consumer protection programs, as
well as costs associated with transaction losses. However, general and administrative expenses are expected to
decrease as a percentage of net revenues due to increased efficiency in our general and administrative functions,
which we expect will be partially offset by investments in our consumer protection programs.
Amortization of Acquired Intangible Assets
2005 2006 2007
(in thousands, except percentages)
Amortization of acquired intangible assets ................ $128,941 $197,078 $204,104
As a percentage of net revenues ........................ 2.8% 3.3% 2.7%
From time to time we have purchased, and we expect to continue the purchase of, assets or businesses to
accelerate category and geographic expansion, increase the features, functions, and formats available to our users
and maintain a leading role in online ecommerce, payments and communications. These purchase transactions
generally result in the creation of acquired intangible assets with finite lives and lead to a corresponding increase in
the amortization expense in future periods. We amortize intangible assets over the period of estimated benefit, using
the straight-line method and estimated useful lives ranging from one to eight years. The increase in amortization of
acquired amortizable intangibles during 2007 and 2006 compared to prior years is due to the business acquisitions
consummated during 2007, 2006 and 2005.
Amortization of acquired intangible assets will increase as we make additional acquisitions in the future.
57