eBay 2010 Annual Report Download - page 97

eBay Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The consolidated financial statements include 100% of the assets and liabilities of our majority-owned
subsidiaries and the ownership interests of minority investors are recorded as a noncontrolling interest.
Investments in private entities where we hold 20% or more but less than a 50% ownership interest and exercise
significant influence are accounted for using the equity method of accounting and the investment balance is
included in long-term investments, while our share of the investees’ results of operations is included in interest
and other income (expense), net. Investments in private entities where we hold less than a 20% ownership
interest and where we do not have control over, or the ability to significantly influence the operations of, the
investee are accounted for using the cost method of accounting, where our share of the investees’ results of
operations is not included in our consolidated statement of income, except to the extent of earnings distributions
actually received from the investee, and the cost basis of our investments is included in long-term investments.
Revenue recognition
Our Marketplaces segment generates net transaction revenues primarily from listing and final value fees
paid by sellers. Listing fee revenues are recognized ratably over the estimated period of the listing, while
revenues related to final value fees are recognized at the time that the transaction is successfully concluded. An
auction transaction is considered successfully concluded when at least one buyer has bid above the seller’s
specified minimum price or reserve price, whichever is higher, at the end of the transaction term.
Our Payments segment earns net transaction revenues primarily from processing transactions for customers.
Revenues resulting from a payment processing transaction are recognized once the transaction is completed.
Our Communications segment net transaction revenues were generated primarily from fees charged to users
to connect Skype’s Internet communications products to traditional telecommunication networks. These fees
were recognized when the service was provided. The majority of Communications segment transaction revenues
were prepaid. We recorded customer advances for prepaid amounts in excess of revenues recognized as a current
liability.
Our marketing services and other revenues, included in all of our segments, are derived principally from the
sale of advertisements, revenue sharing arrangements, classifieds fees, lead referral fees and other revenues. Our
advertising revenues are derived principally from the sale of online advertisements. To date, the duration of our
advertising contracts has ranged from one week to five years, but is generally one week to one year. Advertising
revenues on contracts are recognized as “impressions” (i.e., the number of times that an advertisement appears in
pages viewed by users of our websites) are delivered, or as “clicks” (which are generated each time users on our
websites click through our text-based advertisements to an advertiser’s designated website) are provided to
advertisers. For contracts with minimum monthly or quarterly advertising commitments where the fee and
commitments are fixed throughout the term, we recognize revenue ratably over the term of the agreement. Some
of our advertising contracts consist of multiple elements which generally include a blend of various impressions
and clicks as well as other marketing deliverables. Where neither vendor specific objective evidence nor third
party evidence of selling price exists, we use management’s best estimate of selling price (BESP) to allocate
arrangement consideration on a relative basis to each element. BESP is generally based on the selling prices of
the various elements when they are sold to customers of a similar nature and geography on a stand-alone basis or
an estimated stand-alone pricing when the element has not previously been sold stand-alone. These estimates are
generally based on pricing strategies, market factors and strategic objectives. Revenues related to revenue sharing
arrangements are recognized based on revenue reports received from our partners, provided that collectability is
reasonably assured. Revenues related to fees for listing items on our classified websites and are recognized over
the estimated period of the classified listing. Lead referral fee revenue is generated from lead referral fees based
on the number of times a user clicks through to a merchant’s website from our websites. Lead referral fees are
recognized in the period in which the user clicks through to the merchant’s website.
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