- Company Reports 73% Year-over-year Transaction Revenue Growth
- Achieves Record Pro Forma EPS of $0.22 and Pro Forma Operating Margin of 32%
- Raises Q4 2002 Revenue and Pro Forma EPS Guidance
San Jose, CA, October 17, 2002 – eBay Inc. (Nasdaq: EBAY;
www.ebay.com), the world’s online marketplace, reported financial results for its third quarter ended September 30, 2002.
eBay reported consolidated net revenues totaling a record $288.8 million. Consolidated net income for the quarter was a record $61.0 million, or $0.21 per diluted share. eBay’s pro forma consolidated net income, excluding certain items, was a record $62.7 million, or $0.22 per diluted share, exceeding the company’s most recent guidance by $0.03.
Online net transaction revenues in Q3-02 increased 73% year over year to a record $263.6 million, driven by 52% year-over-year transaction revenue growth in the U.S. and 163% year-over-year transaction growth internationally. On an overall consolidated basis, Q3-02 net revenues increased 49% over the $194.4 million generated in Q3-01, reflecting the expected 40% year-over-year decrease in third party advertising revenues.
“eBay continues to deliver terrific performance quarter after quarter,” said Meg Whitman, President and CEO of eBay. “Our success results from our thriving community of users – buyers looking for practically everything and sellers using eBay to build their businesses.”
Key Financial and Operating Metrics
Online Transaction Revenues – Net online transaction revenues totaled a record $263.6 million, representing 73% year-over-year growth from the $152.3 million reported in Q3-01, versus the 66% year-over-year growth rate achieved in Q2-02.
Gross Profit – Gross profit totaled a record $243.4 million, or 84% of quarterly net revenues, up from the 82% gross profit reported in Q3-01.
Pro Forma Operating Income – Pro forma operating income totaled a record $92.2 million, or 32% of net revenues. This income level represents a 101% increase over the $46.0 million and 24% of net revenues reported in Q3-01.
GAAP Net Income – GAAP net income totaled a record $61.0 million, or $0.21 per diluted share. This earnings level represents a 224% increase over the $18.8 million reported in Q3-01.
Pro Forma Net Income – Pro forma net income totaled a record $62.7 million, or $0.22 per diluted share. This earnings level represents an 80% increase over the $34.9 million reported in Q3-01.
Operating and Free Cash Flows – Operating cash flows totaled a record $112 million, an 82% increase from the $61.5 million reported in Q3-01. Free cash flows for Q3-02 totaled $91.7 million, a 96% increase from the $46.9 million reported in Q3-01.
Gross Merchandise Sales – eBay users transacted a record $3.77 billion in gross merchandise sales (GMS) during the third quarter, representing a 60% year-over-year increase from the $2.36 billion reported in Q3-01.
Listings – eBay hosted a record 160 million listings during the quarter, representing a 47% year-over-year increase from the 109 million reported in Q3-01.
Registered Users – Cumulative confirmed registered users at the end of Q3-02 totaled a record 54.9 million, a sequential increase of 5.2 million users and a 46% increase over the 37.6 million users reported at the end of Q3-01.
Key Execution Highlights
U.S. Online Net Revenues – U.S. online net transaction revenues totaled $188.3 million in Q3-02, representing 52% year-over-year growth. Including net revenues from third party advertising and end-to-end services, total U.S. online net revenues were $208.5 million, representing 34% year-over-year growth.
International Online Net Revenues – Net revenues from international transactions totaled $75.3 million in Q3-02, representing 163% year-over-year growth. Including net revenues from third party advertising, total international net revenues were $76.2 million, representing 152% year-over-year growth.
Key Category Performance – Based on Q3-02 annualized GMS, eBay now has five categories that generate more than $1 billion in worldwide GMS: eBay Motors at $3.8 billion, Computers at $1.6 billion, Consumer Electronics at $1.4 billion, Books/Movies/Music at $1.2 billion and Sports at $1.0 billion.
Fixed Price Trading – eBay’s fixed price offerings continue to drive seller success and increase the volume of trade on eBay. In aggregate, these offerings contributed 22% of total GMS during Q3-02, primarily from eBay’s “Buy it Now” feature.
eBay Stores – Nearly 37,000 sellers on eBay.com and 14,000 sellers internationally, are currently taking advantage of the enhanced merchandising capabilities of eBay Stores.
PayPal – eBay completed the acquisition of PayPal, the world’s online payment network, on October 3, 2002, which was earlier than expected.
Financial and Operating Summary
eBay reported record net revenues of $288.8 million in Q3-02, representing a 49% year-over-year increase. The strong Q3-02 performance was due to better-than-expected transaction revenues, driven by a 52% year-over-year increase in U.S. online net transaction revenues and a 163% increase in international online net transaction revenues. Revenues from third party advertisers were down 40% year over year to $15.0 million, which represented approximately 5% of net revenues, down from the 13% of net revenues reported in Q3-01. The decrease in advertising revenues was consistent with the company’s expectations.
Gross profit as a percentage of net revenues was 84%, comparing favorably with the 83% level reported in Q2-02 and 82% in Q3-01. The sequential improvement results from a combination of strong revenue growth, cost efficiencies in customer support and site operations, and the elimination of lower margin Butterfields revenues.
Sales and marketing expenses totaled $88.0 million, or 30% of net revenues, consistent with the 30% level reported in Q2-02, and comparing favorably to the 34% reported in Q3-01. The sequential dollar increase in sales and marketing expense was attributable to production costs for the company’s Q4-02 holiday advertising campaign and increased online and offline advertising support for eBay’s domestic and international businesses, partially offset by lower expenses after the sale of Butterfields.
Product development costs totaled $24.2 million, or approximately 8% of net revenues, compared to 9% of net revenues in Q2-02 and 10% of net revenues in Q3-01. The sequential percentage decline reflects an actual increase in product development spending, offset by required capitalization for major site and product development efforts.
General and administrative costs totaled $39.4 million, or about 14% of net revenues, consistent with the 14% of net revenues reported for both Q2-02 and Q3-01. The sequential dollar increase resulted principally from costs to support the company’s international employee base and investments in trust and safety programs, offset by continuing improvements in the company’s accounts receivable collection experience.
Net interest and other income totaled $6.1 million in Q3-02, down from the $8.3 million reported in Q2-02. The sequential decrease primarily reflects the write-down of certain equity investments.
eBay reported a consolidated pro forma tax provision of $35.1 million. As expected, the Q3 effective pro forma tax rate was 36%, which compares favorably to a 38% effective tax rate in Q2-02 and a 40% rate in Q3-01. The lower effective tax rate reflects the increasing profitability of the company’s international operations.
eBay’s balance sheet remains strong. At the end of Q3-02, the company had consolidated assets totaling nearly $2.1 billion, including more than $1.4 billion in aggregate cash and investments.
The company reported $112 million in operating cash flows, 82% higher than the $61.5 million reported in Q3-01. Of this amount, $34.2 million is attributable to tax benefits on stock option exercises.
Free cash flows during Q3-02 totaled $91.7 million, 96% higher than the $46.9 million reported in Q3-01. Capital expenditures in Q3-02 totaled $20.2 million, relating primarily to the purchase of site hardware and software and the required capitalization of certain product development costs.
Payments Highlights
PayPal – During Q3-02, PayPal users generated $1.79 billion in Total Payment Volume, representing a 93% increase from the $925 million generated in Q3-01. PayPal net revenues totaled $59.3 million, representing a 98% increase from Q3-01. Beginning with Q4-02 financial results, eBay will report the combined operations of PayPal and Billpoint in a separate Payments segment. As previously announced, eBay expects to complete the phase-out of PayPal’s gaming business during Q4-02.
eBay Payments by Billpoint – Billpoint generated $6.1 million in revenues in Q3-02, or roughly two percent of eBay’s total online transaction revenues. As previously announced, eBay expects to complete the phase-out of Billpoint’s operations in the first half of 2003.
Business Outlook
Q4 2002 – Based on the company’s most recent performance, as well as the incremental PayPal business, eBay now expects that net revenues for Q4-02 could range between $372 and $381 million and Q4-02 pro forma earnings per diluted share could range between $0.22 and $0.23. The company expects that Q4-02 GAAP earnings per diluted share could range between $0.19 and $0.20.
Excluding PayPal, eBay expects that net revenues for Q4-02 could range between $312 and $317 million, representing an increase of $4 million to $6 million from the company’s most recent guidance. As previously indicated, eBay expects that Billpoint revenues in Q4-02 will represent approximately $6 million of this net revenue total.
Full Year 2002 – For the full year 2002, eBay expects that consolidated net revenues could range between $1.172 billion and $1.181 billion, reflecting $60 million to $64 million of incremental PayPal revenues and $1.112 billion to $1.117 billion from the core eBay business. On the bottom line, eBay expects that pro forma earnings per diluted share could range between $0.81 and $0.82, representing a $0.04 to $0.05 increase from the company’s most recent guidance. On a GAAP basis, the company expects that earnings per diluted share could range between $0.76 and $0.77.
Full Year 2003 – For the full year 2003, eBay consolidated net revenues will reflect the combination of eBay’s core business and the new Payments segment. The core eBay business is expected to range between $1.47 billion and $1.52 billion, reflecting the company’s previous guidance of $1.5 billion to $1.55 billion, less $30 million that was expected from the company’s Billpoint operations. The Payments segment could range between $300 million and $310 million, reflecting the company’s current expectations for PayPal’s business without gaming, the assumption that most Billpoint payment volume will transfer to PayPal, and expected revenue synergies as the PayPal service is more deeply integrated into the eBay platform. Hence, consolidated net revenues for 2003 could range between $1.77 billion and $1.83 billion.
On a consolidated basis, the company expects that 2003 pro forma earnings per diluted share could range between $1.12 and $1.15, and that GAAP earnings per diluted share could range between $1.02 and $1.05.
About eBay
eBay is the world’s online marketplace(TM). Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world.
Forward-Looking Statements
This announcement contains forward-looking statements that involve risks and uncertainties, including those relating to the company’s ability to grow its business and user base. Actual results could differ materially from those discussed. Factors that could cause or contribute to such differences include, but are not limited to: the company’s need to manage an increasingly broad range of businesses, to deal with the increasingly competitive environment for online trading, to manage the integration of PayPal and the litigation, regulatory and credit card association and other risks specific to PayPal, to manage other regulatory and litigation risks even as its product offerings and geographies expand, to maintain site stability and continue to expand its model to new types of merchandise and sellers, to continue to expand outside of the U.S., as well as the timing and commercial success of new features and functions added to the company’s sites, the price and demand for advertising offered by the company, the success of the company’s commercial partners and commercial relationships, and the costs of announced and prospective joint ventures, acquisitions and other commercial transactions. More information about potential factors which could affect the company’s business and financial results is included in the company’s Annual Report on Form 10-K for the year ended December 31, 2001, its quarterly reports on Form 10-Q, and its other S.E.C. filings and prospectuses. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.
