eBay 2008 Annual Report Download - page 64

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Product development expenses consist primarily of employee compensation, contractor costs, facilities costs
and depreciation on equipment. Product development expenses are net of required capitalization of major site and
other product development efforts, including the development of our next generation platform architecture,
migration of certain platforms, seller tools and Payments services projects. These capitalized costs totaled
$112.7 million in 2008, $110.6 million in 2007 and $67.9 million in 2006, and are primarily reflected as a cost
of net revenues when amortized in future periods.
Product development expenses increased $105.9 million, or 17%, in 2008 compared to 2007 due primarily to
an increase in staffing, consultant costs, facility costs and equipment related costs to support several platform
development initiatives to enhance the user experience and expand our existing product offerings primarily across
our Marketplaces and Payments segments. Product development expenses as a percentage of net revenues increased
slightly from 2007 as we added capacity at a faster rate than we generated revenue.
Product development expenses increased $125.0 million, or 25%, in 2007 compared to 2006 due primarily to
an increase in staffing, consultant costs, facility costs and equipment related costs to support several platform
development initiatives to enhance the user experience and expand our existing product offerings primarily across
our Marketplaces and Payments segments. Product development expenses as a percentage of net revenues
decreased slightly from 2006 as we continued to add capacity at a slower rate than we generated revenue.
General and Administrative
2006 2007 2008
(in thousands, except percentages)
General and administrative ............................ $744,363 $904,681 $998,871
As a percentage of net revenues ........................ 12.5% 11.8% 11.7%
General and administrative expenses consist primarily of employee compensation, contractor costs, facilities
costs, depreciation of equipment, employer payroll taxes on employee stock-based compensation, insurance and
professional fees.
General and administrative expenses increased $94.2 million, or 10%, in 2008 compared to 2007 due primarily
to an increase in professional services, employee-related costs and facilities costs. Professional services costs
increased $54.5 million due primarily to legal related costs incurred in connection with various ongoing litigation
that can fluctuate from period to period. Employee-related costs and facilities costs increased by approximately
$40.2 million due to a net increase in headcount. General and administrative expenses as a percentage of net revenue
decreased slightly from 2007 due to our continued leverage of our existing infrastructure.
General and administrative expenses increased $160.3 million, or 22%, in 2007 compared to 2006 due
primarily to an increase in employee-related costs, facilities costs, and professional services. Employee-related
costs and facilities costs increased by approximately $111.6 million due primarily to an increase in headcount.
Professional services costs increased $35.7 million. General and administrative expenses as a percentage of net
revenue decreased from 2006 due to our continued leverage of our existing infrastructure.
Provision for Transaction and Loan Losses
2006 2007 2008
(in thousands, except percentages)
Provision for transaction and loan losses .................. $266,724 $293,917 $347,453
As a percentage of net revenues ........................ 4.5% 3.8% 4.1%
Provision for transaction and loan losses primarily consists of bad debt expense associated with our accounts
receivable balance, loan reserves associated with our principal loan receivable balance, PayPal transaction loss
expense, as well our losses resulting from our customer protection programs.
Provision for transaction and loan losses increased $53.5 million, or 18%, in 2008 compared to 2007 due
primarily to an increase in transaction loss expense and an increase in bad debt expense. PayPal transaction loss
expense increased by approximately $32.2 million because of the increase in net TPV. Bad debt expense increased
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