eBay reported record consolidated Q3-04 net revenues of $805.9 million, up 52% year over year; operating income of $253.9 million, up 63% year over year; and pro forma operating income of $272.6 million, up 58% year over year.
Operating income was 32% of net revenues and pro forma operating income was 34% of net revenues.
Consolidated net income in Q3-04 was $182.3 million, or $0.27 per diluted share. eBay’s pro forma consolidated net income, excluding certain items, was $195.0 million, or $0.28 per diluted share.
These results exceeded the company’s guidance of $770 million for net revenues, $0.24 for earnings per diluted share and $0.25 for pro forma earnings per diluted share.
“Q3 was a great quarter for eBay,” said Meg Whitman, President and CEO of eBay. “An active community of users and strong demand helped us achieve robust results. We have excellent momentum going into eBay’s traditionally strongest quarters.”
Key Financial and Operating Metrics
Consolidated Net Revenues — Consolidated net revenues totaled a record $805.9 million, which represented an increase of 52% from the $530.9 million reported in Q3-03.
Transaction Revenues — Consolidated net transaction revenues totaled a record $779.2 million, which represented an increase of 51% from the $517.1 million reported in Q3-03.
— eBay U.S. Net Transaction Revenues — eBay U.S. net transaction revenues totaled $330.6 million in Q3-04, reflecting 29% year-over-year growth.
— eBay International Net Transaction Revenues — eBay International net transaction revenues totaled $282.3 million in Q3-04, representing 82% year-over-year growth.
— Payments Net Transaction Revenues — Payments net transaction revenues totaled $166.3 million in Q3-04, representing 56% year-over-year growth.
Confirmed Registered Users — Cumulative confirmed registered users at the end of Q3-04 totaled a record 125.0 million, representing a 46% increase over the 85.5 million users reported at the end of Q3-03.
Active Users — Active users, the number of users on the eBay platform who bid, bought, listed or sold an item over the trailing 12 months, increased to 51.7 million, a 38% increase over the 37.4 million active users reported in the same period a year ago.
Listings — New listings totaled a record 348.0 million in Q3-04, 48% higher than the 234.6 million listings reported in Q3-03. New listings in Q3-04 included 20.3 million new eBay Stores listings during the quarter, versus 4.1 million new Stores listings in Q3-03.
Gross Merchandise Volume (GMV) — Gross Merchandise Volume, the total value of all successfully closed listings on eBay’s trading platforms, was $8.3 billion, representing a 44% year-over-year increase from the $5.8 billion reported in Q3-03.
Total Payments Accounts — PayPal’s business had 56.7 million total accounts at the end of Q3-04, a 61% increase from the 35.2 million reported in Q3-03.
Total Payment Volume (TPV) — PayPal’s TPV was $4.6 billion in Q3-04, a 52% increase from the $3.0 billion reported in Q3-03.
Gross Profit — Gross profit was $648.8 million, or 81% of net revenues, which was up from the 79% level reported in Q3-03.
Operating Income — Operating income was $253.9 million, or 32% of net revenues, a 63% increase over the $155.9 million reported in Q3-03. Pro forma operating income increased 58% year over year to $272.6 million, or 34% of net revenues, compared to 32% in Q3-03.
GAAP Net Income — GAAP net income increased 77% year over year to $182.3 million, or $0.27 per diluted share.
Pro Forma Net Income — Pro forma net income increased 65% year over year to $195.0 million, or $0.28 per diluted share.
Operating and Free Cash Flows — Operating cash flows totaled $274.8 million. Free cash flows, representing operating cash flows less capital expenditures, totaled $201.4 million.
Key Category Performance — Based on Q3-04 GMV, eBay has twelve categories that delivered $1 billion or more in worldwide annualized GMV: eBay Motors at $10.7 billion; Consumer Electronics at $2.5 billion; Computers at $2.5 billion; Clothing & Accessories at $2.2 billion; Books/Movies/Music at $2.2 billion; Collectibles at $1.8 billion; Home & Garden at $1.7 billion; Sports at $1.6 billion; Toys at $1.3 billion; Jewelry & Watches at $1.2 billion; Cameras & Photo at $1.1 billion; and Business & Industrial at $1.1 billion.
* For further detail on eBay’s current annualized $1 billion categories, including trended data, please see the metrics section on eBay’s Investor Relations website at http://investor.ebay.com/fundamentals.cfm.
Fixed Price Trading — eBay’s fixed price trading contributed approximately $2.4 billion or 29% of total GMV during Q3-04, primarily from eBay’s “Buy It Now” feature.
eBay Stores — At the end of Q3-04, eBay hosted approximately 224,000 stores worldwide, with approximately 143,000 stores hosted on the U.S. site.
Acquisitions
Baazee.com — On August 2, 2004, eBay completed its acquisition of Baazee.com, an online marketplace in India. eBay acquired all outstanding shares of Baazee.com for approximately $50 million in cash.
Internet Auction Co., Ltd. — On August 31, 2004, September 6, 2004 and October 6, 2004, eBay purchased, for cash, an aggregate of approximately 4.8 million additional shares in Internet Auction Co., Ltd. (IAC) for an aggregate purchase price of approximately $523 million. As a result, eBay increased its investment in IAC from approximately 62.2% to approximately 99.7%.
Consolidated Financial and Operating Summary
eBay reported record consolidated net revenues of $805.9 million in Q3-04, representing a 52% year-over-year increase. On a year-over-year basis, consolidated net revenues reflected a foreign currency translation benefit in Q3-04 of approximately $22.3 million. On a sequential basis, consolidated net revenues reflected a foreign currency translation benefit in Q3-04 of approximately $4.5 million, primarily related to the Euro.
Gross profit was $648.8 million, or 81% of net revenues, which was up from the 79% level reported in Q3-03.
Sales and marketing expenses totaled $207.2 million, or 26% of net revenues, which is consistent with the percentage reported in Q3-03. While sales and marketing expenses remained consistent as a percentage of net revenues, the absolute dollars increased, primarily as a result of global increases in both on-line and off-line marketing efforts and international expansion.
Product development expenses totaled $63.4 million, or 8% of net revenues, which was up from the 7% of net revenues reported in Q3-03. Total product development expenses in Q3-04 do not include $10.7 million of required cost capitalization for major site and other product development efforts.
General and administrative costs totaled $105.9 million, or 13% of net revenues, down from the 14% of net revenues reported in Q3-03. While general and administrative costs decreased as a percentage of net revenues, the absolute dollars increased, primarily as a result of increases in headcount, professional services and costs related to legal matters.
Income from operations totaled $253.9 million during Q3-04, a 63% increase over the $155.9 million reported in Q3-03. On a pro forma basis, income from operations totaled $272.6 million, a 58% increase over the $172.2 million reported in Q3-03. Included in both the GAAP and pro forma Q3-04 consolidated income from operations was a $9.9 million year-over-year net benefit from changes in foreign currencies. On a sequential basis, both the GAAP and pro forma consolidated income from operations reflected a foreign currency translation benefit in Q3-04 of approximately $2.5 million, primarily related to the Euro.
Interest and other income, net, totaled $13.2 million in Q3-04, up from the $7.8 million reported in Q3-03. The increase in Q3-04 was primarily the result of gains recorded in Q3-04 due to certain facility sublease amendments in Q1-04 and eBay’s portion of EachNet’s losses recorded in Q3-03 prior to the acquisition of the remaining interest in EachNet’s common stock.
The GAAP and pro forma effective tax rate for Q3-04 was 30% and 31%, respectively, a decrease from the GAAP effective tax rate of 32% and the pro forma effective tax rate of 33% for Q3-03. The lower rates for Q3-04 compared to Q3-03 reflects an increased profit contribution from the company’s international operations.
At the end of Q3-04, the company had nearly $3.1 billion in aggregate cash and investments and more than $7.2 billion in total assets.
The company reported $274.8 million in operating cash flows and $73.4 million of capital expenditures in Q3-04, resulting in free cash flows of $201.4 million.
Business Outlook
Fiscal Year 2004
Net Revenues — eBay now expects that consolidated net revenues for 2004 could be as high as $3.25 billion, $65 million higher than the company’s most recent guidance. From a quarterly perspective, eBay expects that consolidated net revenues will be approximately $915 million in Q4-04, $29 million higher than the company’s most recent guidance. eBay’s guidance for Q4-04 is based on an assumed weighted average exchange rate of US$1.20 per Euro.
GAAP Diluted EPS — eBay now expects that GAAP earnings per diluted share for the full year 2004 could be as high as $1.14, $0.04 higher than the company’s most recent guidance. From a quarterly perspective, eBay estimates that GAAP earnings per diluted share could be as high as $0.30 in Q4-04, which is consistent with previous guidance.
Pro Forma Diluted EPS — eBay now expects that pro forma earnings per diluted share for the full year 2004 could be as high as $1.20, $0.03 higher than the company’s most recent guidance. From a quarterly perspective, eBay estimates pro forma earnings per diluted share could be as high as $0.32 in Q4-04, which is consistent with previous guidance.
Effective Tax Rate — eBay’s current estimate for its 2004 effective tax rate is 30% on a GAAP basis and 31% on a pro forma basis, which is consistent with previous guidance.
Capital Expenditures — eBay expects its capital expenditures to total $315 million for the full year 2004, which is consistent with previous guidance.
Fiscal Year 2005
Net Revenues — eBay expects that consolidated net revenues for 2005 could be as high as $4.2 billion. From a quarterly perspective, eBay expects that consolidated net revenues could be as high as $1.02 billion in Q1-05, $1.01 billion in Q2-05, $1.01 billion in Q3-05 and $1.16 billion in Q4-05. eBay’s guidance is based on an assumed 2005 quarterly weighted average exchange rate of US$1.20 per Euro.
GAAP Diluted EPS — eBay estimates that GAAP earnings per diluted share for the full year 2005 could be as high as $1.42. From a quarterly perspective, eBay estimates that GAAP earnings per diluted share could be as high as $0.34 in Q1-05, $0.33 in Q2-05, $0.33 in Q3-05 and $0.41 in Q4-05.
Pro Forma Diluted EPS — eBay estimates that pro forma earnings per diluted share for the full year 2005 could be as high as $1.50. From a quarterly perspective, eBay estimates pro forma earnings per diluted share could be as high as $0.36 in Q1-05, $0.35 in Q2-05, $0.35 in Q3-05 and $0.42 in Q4-05.
Quarterly Conference Call
eBay will host a conference call to discuss third quarter results at 2 pm Pacific Daylight Time today. A live webcast of the conference call can be accessed through the Company’s Investor Relations website at http://investor.ebay.com. In addition, an archive of the webcast can be accessed through the same link.
Non-GAAP Measures
To supplement the company’s consolidated financial statements presented in accordance with GAAP, eBay uses non-GAAP measures of certain components of financial performance, including gross profit, operating income, net income, earnings per share, cash flows, and effective tax rate, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors’ overall understanding of the company’s current financial performance and the company’s prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results. In addition, because eBay has historically reported certain non-GAAP results to investors, the company believes the inclusion of non-GAAP measures provides consistency in the company’s financial reporting. These measures should be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. Consistent with the company’s historical practice, the non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure.
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