E bay 2011-03-15
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  • 1. eBay EBAY MARKETPLACES Average Selling Price of Merchandise on ANALYSIS for NASDAQ : EBAY MARCH 15, 2011 eBay 4 eBay Transaction Take Rate 5 Listings-to-Sales Conversion Rate for Merchandise on eBay 6 $ 32.81 $43.5 B MKT CAP $ 30.44 $39.5 B MKT CAP Number of Merchandise Listings on eBay 7 Marketplaces EBITDA Profit Margin 8 Trefis Estimate Market Price PAYPAL Average Payment Size on PayPal 10 — CORPORATE SNAPSHOT — PayPal Payment Take Rate 11 Number of Accounts on PayPal 11eBay is known for operating the online marketplace eBay.com. The Payments per Account on PayPal 12 PayPal EBITDA Profit Margin 13companys marketplace is where third-party buyers and sellers can transact ina variety of products including clothing, electronics, media, collectibles, MARKETING & ADVERTISINGautomobiles and many other types of merchandise. Marketing & Advertising Revenue 15 In addition to eBay.com, the company operates other online commerce Marketing & Advertising EBITDAplatforms like Half.com, Rent.com, Shopping.com, and classifieds websites. Profit Margin 16 eBay also makes money through its global payments platform called PayPal. APPENDICESPayPal enables enables secure, easy, quick, and cost-effective transfer of Summary P&L for eBay 17payments online. Detailed eBay Marketplaces P&L 18 Detailed PayPal P&L 19 — VALUATION HIGHLIGHTS — Detailed Marketing & Advertising 1. eBay Marketplaces is 49% of the Trefis price estimate for eBays stock P&L 20 2. PayPal is 21% of the Trefis price estimate for eBays stockOur share price estimate and the overall company value is derived bysumming-up the values of individual divisions/businesses in a sum-of-the-parts analysis. The value of each division is calculated using a discounted cashflow (DCF) methodology. We forecast fundamental drivers like pricing, market share, and profitmargins for different businesses in estimating the division’s value within theDCF framework. The analysis below primarily focuses on those importantforecasts that drive our share price and value estimate. Our complete analysis, including sources of historical data, underlyingequations and additional discussion are available on www.trefis.com. — POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE —
  • 2. Below are key drivers of eBays value that present opportunities for upside ordownside to the current Trefis price estimate for eBay:eBay Marketplaces • eBay Transaction Take Rate: We currently forecast take rate, eBays commission on items sold, to decrease from about 8% in 2010 to 7.1% by the end of the Trefis forecast period. There could be 6% upside to the Trefis price estimate if take rate were to remain flat at around 8%. • Marketplaces EBITDA Profit Margin: We currently forecast marketplaces margin to increase from about 34% in 2010 to nearly 36% by the end of the Trefis forecast period. There could be 17% upside to the Trefis price estimate if margin were to rebound to 2005 levels of about 46%. On the other hand, there could be 13% downside to the Trefis price estimate if margins continued falling, reaching 20% by the end of the Trefis forecast period.PayPal • Payments per Account on PayPal: We currently forecast that the average number of payments per PayPal account will remain flat at around 1.3. There could be 9% upside to the Trefis price estimate if payments were to rebound to 2005 levels of 1.7 payments per account. On the other hand, there could be 16% downside to the Trefis price estimate if payments per PayPal account fell to 0.5 by the end of the Trefis forecast period. • PayPal EBITDA Profit Margin: We currently forecast PayPal margins to increase from about 18% in 2010 to 24% by the end of the Trefis forecast period. There could be 12% downside to the Trefis price estimate if margins fell to 2009 levels of 9%.For additional details, select a driver above or select a division from theinteractive Trefis split for eBay at the top of the page. — SOURCES OF VALUE —We estimate that eBay Marketplaces is the most valuable segment for thefollowing reasons:Marketplaces Take Rate Higher than PayPal Take RateThe take rate represents the average commission made by eBay ontransactions. We estimate eBays take rate for items sold through itsmarketplaces to be around 8% by 2010 compared to a PayPal take rate of 3.6%in the same period.Marketplaces Margins Higher than PayPal MarginsWe estimate that eBay Marketplaces will have operating margins of around34% by 2010. In comparison, we estimate that PayPal will have 18% operatingmargins by 2010. TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •2
  • 3. — KEY TRENDS —Focus on Increasing Conversion RateConversion rate is a key focus area for eBay, as it seeks to increase the successof sellers in converting listed items to sold items. eBay has implemented anumber of features to increase the conversion rate on Marketplaces. One ofthe more important changes theyve made is improving functionality andstepping up efforts related to Trust and Safety.Growing PayPal User BasePayPal users will continue to grow as eBay continues to integrate Paypal intoits adjacent Marketplaces platforms like Shopping.com and Rent.com--andthrough increased penetration of PayPal on third party merchant platforms,as eBay increases its focus on SMEs.Increasing Payments CompetitionGoogle Checkout and credit card merchants will limit eBays ability toincrease revenues by increasing its commission on PayPal transactions ("takerate"). TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •3
  • 4. eBay MarketplacesThe eBay Marketplaces division constitutes 48.6% of our $32.81 price estimate for this stock, based on our sum of the partsanalysis.The most important drivers for the eBay Marketplaces business are: • Average Selling Price of Merchandise on eBay • eBay Transaction Take Rate • Listings-to-Sales Conversion Rate for Merchandise on eBay • Number of Merchandise Listings on eBay • Marketplaces EBITDA Profit Margin — AVERAGE SELLING PRICE OF MERCHANDISE ON EBAY —This represents the average sale price of items sold on eBays properties including eBay.com, Half.com, Rent.com andShopping.com. The average price incorporates the wide range of prices found on eBay--from low priced merchandise toexpensive electronics, motor vehicles, and boats. Average Selling Price of Merchandise on eBay ($) 60 50 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Average Selling Price of Merchandise on eBay has declined from around $60 in 2007 to $51 in 2009. We expect the samedynamic to decline for 2010 before picking up again.Forecast Rationale 1. WEAK ECONOMY IS FORCING CONSUMERS TO TRADE DOWN ON PURCHASES We believe that selling prices may decline significantly in 2010 (more in International markets), as users continue to trade down their purchases. Prices may snap back in 2011 and increase gradually afterward. 2. AVERAGE PRICES ARE A FUNCTION OF THE MIX OF ITEMS SOLD Average Selling Price of Merchandise on eBay is also a function of the mix of items listed and sold on the platform. Average Selling Price of Merchandise on eBay was impacted negatively in 2009, as higher priced auto sales were TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •4
  • 5. decimated by macroeconomic factors and declines in consumer spending.Sources for historical data and explanations can be found on the Trefis.com website (link) — EBAY TRANSACTION TAKE RATE —The eBay Transaction Take Rate represents eBays commission on items sold. Take rates are primarily a function ofpricing actions initiated by eBay to drive higher-priced listings and higher conversion rates on their platforms. eBay Transaction Take Rate (%) 7.5 5.0 2.5 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017After experiencing growth in prior years, eBay witnessed a stagnation in its take rate in 2008 and 2009 due to weakeconomy and competition. We expect the eBay Transaction Take Rate to increase.Forecast Rationale 1. EBAYS VOLUME VS. PRICING DECISIONS There is a strategic trade-off between between volume and price. eBay has shown the willingness to use pricing as a means to bring more sellers on board, as well as to provide incentives for sellers to enhance the user experience by engaging in safer, simpler transactions. We expect that to continue to be the case. 2. MIX OF THE PRODUCTS SOLD Higher priced products have lower take rates 3. MORE COMPETITION We expect Amazon--as well as brick and mortar stalwarts like Wal-Mart--to make continued efforts to expand and improve their online presence. 4. MORE DISCOUNTS TO POWERSELLERS We expect eBay to continue providing more discounts to powersellers, as they improve their service levels.Sources for historical data and explanations can be found on the Trefis.com website (link) TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •5
  • 6. — LISTINGS-TO-SALES CONVERSION RATE FOR MERCHANDISE ON EBAY —This represents the percentage of items for sale listed on eBay that are actually sold. If the conversion rate is increasingwhile total listings remain the same or continue to increase, this means that the number of items sold on eBay hasincreased Listings-to-Sales Conversion Rate for Merchandise on eBay (%) 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Listings-to-Sales Conversion Rate for Merchandise on eBay has stayed more or less in a tight range of 39-43% over theyears. We would expect the conversion rates to stay stable going forward as well.Forecast RationaleSupporting: 1. REWARDS PROGRAMS LIKE EBAY BUCKS TO DRIVE SALES – eBay has introduced a few programs like the eBay Bucks (in August 2010) in which shoppers can earn 2% of the purchase value of qualified items and are issued an eBay Bucks certificate at the end of each quarter. This sum can then be redeemed within the next 30 days. According to the eBay management, over three million shoppers have enrolled in the eBay Bucks program and spent five times more than those not enrolled till October 2010. If eBay continues to come up with such innovative programs, this conversion rate could actually increase in the future 2. ENHANCED CONSUMER EXPERIENCE DRIVEN BY RATINGS-BASED FEE INCENTIVES FOR SELLERS – DSR (Detailed Seller Ratings) based fee incentives for sellers is motivating them to exceed buyer expectations in all respects, which creates a positive feedback loop that brings more buyers on the site and leads to increasing conversion rates. 3. ENHANCED CONSUMER EXPERIENCE DRIVEN BY RATINGS-BASED FEE INCENTIVES FOR SELLERS DSR (Detailed Seller Ratings) based fee incentives for sellers is motivating them to exceed buyer expectations in all respects, which creates a positive feedback loop that brings more buyers on the site and leads to increasing conversion rates. 4. AS EBAY ATTACKS FRAUD IN MORE EFFICIENT WAYS eBay continuously updates its fraud detection software. For example, eBay can detect if someone is selling most items significantly below the sticker prices. eBay has more robust authentication programs--especially for sellers of higher- TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •6
  • 7. valued goods. It can even gathers phone numbers, addresses, and credit reports if needed; and keeps on adding features like password key chains to reduce instances of fraud on their platforms. 5. AS EBAY MAKES SEARCH ON ITS PLATFORM MORE EFFICIENTMitigating: 6. RISING CONVERSION RATES OF LISTINGS CAN LEAD TO MORE LISTINGS Although the positive factors listed above may initially increase conversion rates, such initiatives over the long run may not necessarily translate into a higher sales to listing ratio, since more listings are likely to be added, putting downward pressure on the ratio.Sources for historical data and explanations can be found on the Trefis.com website (link) — NUMBER OF MERCHANDISE LISTINGS ON EBAY —This represents the number of items for sale listed on eBays properties including eBay.com, Half.com, andShopping.com. Number of Merchandise Listings on eBay (Bil) 5 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017The number of listings have increased from 2.4 million in 2006 to 2.9 million in 2009. We expect listings to grow.Forecast Rationale 1. TRADITIONAL RETAILERS HAVE STARTED TO LIST THEIR MERCHANDISE ON EBAY – Traditional retail players like the U.K.s Saville Row, Jigsaw and Ed Hardy have started to list their merchandise on eBay website. We believe such trend will benefit eBay by dramatically increasing its merchandise listings. 2. NUMBER OF INTERNET USERS CONTINUE TO GROW RAPIDLY – Global Internet-users have increased from 700 million in 2003 to around 1.7 billion in 2009, and is expected to be around 2 billion by the end of 2010. We expect the rapid increase of internet users in the future also. TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •7
  • 8. 3. ONLINE RETAILING CONTINUES TO GROW, AS IT STILL REPRESENTS LESS THAN 10% IN THE US AND 5% INTERNATIONALLY OF TOTAL RETAIL SPENDING ON "ELECTRONICS AND GENERAL MERCHANDISE" – Online retail penetration of Electronics and General Merchandise in the US in 2009 was around 10% having grown from 5% in 2004. We expect the penetration to continue to grow. Online retail penetration of Electronics and General Merchandise outside the US in 2009 was around 5.7%, having more than doubled from 2.4% in 2004. 4. ACTIVE USERS ON THE SITE CONTINUE TO INCREASE – eBay had 90 million active users in 2009 as compared to just 48 million in 2004. 5. NUMBER OF LISTINGS PER ACTIVE USER CONTINUES TO INCREASE – The number of listings per active user has gone up in response to efforts put in place by eBay to simplify the fee structure. eBay has made significant reductions in the insertion fee for fixed price listings.Sources for historical data and explanations can be found on the Trefis.com website (link) — MARKETPLACES EBITDA PROFIT MARGIN —Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are profits after factoring in typical expenses,such as Cost of Goods and Services Sold, SG&A Expenses, and R&D Expenses. EBITDA Margin represents divisionalEBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-recurring charges and non-cash charges, such as Stock-Based Compensation Expenses. Marketplaces EBITDA Profit Margin (%) 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Marketplaces EBITDA Profit Margin has been 30-36% in recent years. We expect Marketplaces EBITDA Profit Marginto remain constant.Forecast Rationale 1. CONTINUED TOUGH PRICING--AND THUS TAKE RATE DECREASES--SHOULD KEEP A LID ON MARKETPLACES MARGINS. 2. LACK OF OPERATING LEVERAGE – SG&A at least needs to keep pace with revenues, as growth moves away from auctions to fixed-price formats, where the competition is much stiffer. TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •8
  • 9. 3. PRICING WILL FIX THE SELLER SIDE OF THE TRANSACTION FOR EBAY – Lower fees will drive an increase in sellers and listings. However, to drive conversion of those listings into eventual sales, eBay has a lot of work ahead to facilitate a more enriched buyer experience on the site, which would mean continued investments in R&D to improve the Finding facility on its platforms or to enhance its safety and trust features.Sources for historical data and explanations can be found on the Trefis.com website (link) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Revenue (Bil $) 4.68 4.71 4.46 4.80 5.17 5.57 6.00 6.46 6.96 7.50 8.08 Direct Expense (Bil $) 2.61 3.03 3.08 3.12 3.32 3.57 3.78 4.08 4.39 4.73 5.10 Indirect Expense (Bil $) 0.35 1.02 0.34 0.79 0.67 0.76 0.85 0.93 1.01 1.13 1.23 Gross Profit (Bil $) 2.07 1.68 1.38 1.68 1.86 2.00 2.21 2.38 2.57 2.77 2.98 Free Cash Flow (Bil $) N/A N/A N/A N/A 1.19 1.24 1.36 1.46 1.55 1.64 1.76In addition, you can see the detailed P&L for the eBay Marketplaces business in the Appendix (link) TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •9
  • 10. PayPalThe most important drivers for the PayPal business are: • Average Payment Size on PayPal • PayPal Payment Take Rate • Number of Accounts on PayPal • Payments per Account on PayPal • PayPal EBITDA Profit Margin — AVERAGE PAYMENT SIZE ON PAYPAL —This represents the average size of each transaction carried out through Paypal. Average Payment Size on PayPal ($) 70 60 50 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Average Payment Size on PayPal declined from a peak of $68.02 in 2007 to $64.09 in 2009, owing to weak economy. Weexpect Average Payment Size on PayPal to increase in future.Forecast Rationale 1. AVERAGE PAYMENT SIZE FOR PAYPAL HIGHER THAN THE AVERAGE SELLING PRICE ON MARKETPLACES, IMPLYING THAT EITHER: – The average price of items sold--and thus payments size--is higher for non-eBay platforms; or. The transactions carried out through PayPal--out of all transactions on eBays Marketplaces--have a higher average selling price associated. 2. FUTURE AVERAGE PRICING TRENDS. – % of Paypal Total Payment Volume (TPV) that is generated from the eBay platform has declined from around 64% in 2006 to 44% in 2009. The average price of items sold on non-eBay platforms is higher as mentioned above. Since PayPals penetration of non-eBay could continue to increase, this situation will create an upward bias in the overall average prices for PayPal.Sources for historical data and explanations can be found on the Trefis.com website (link) TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •10
  • 11. — PAYPAL PAYMENT TAKE RATE —This represents the average commission made by PayPal on each transaction. PayPal Payment Take Rate (%) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017The PayPal Payment Take Rate has remained in a range of 3.5-3.9% from 2003 to 2009. We expect the take rate to beunder marginal downward pressure going forward as a result of increased competition.Forecast Rationale 1. INTENSELY COMPETITIVE NATURE OF PAYMENTS TO BE A CONTINUED HEADWIND TO PRICING – eBay faces a range of competitors in the payments segments, including Google Checkout, credit card merchant processors like Amex, First Data, Amazon payments, and money remittance companies like Western Union. . The competitive nature of payments will ensure that take rates face a gradual compression in the future.Sources for historical data and explanations can be found on the Trefis.com website (link) — NUMBER OF ACCOUNTS ON PAYPAL —Represents the number of users having a PayPal accounts TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •11
  • 12. Number of Accounts on PayPal (Mil) 250 200 150 100 50 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017The number of accounts has been growing at a tremendous pace for many years. Number of Accounts on PayPalincreased from around 31 million in 2006 to 77 million by 2009. The growth is a reflection of eBays concerted efforts tointegrate PayPal into its "Marketplaces" segment and forge strategic relationships with a diversified group of leadingonline commerce portals like Blue Nile and Toys R US. We expect the growth rate in user accounts to decelerate, but stillcontinue at respectable double-digit pace in both US and International markets for the foreseeable future.Forecast Rationale 1. INCREASED TOTAL PAYMENT VOLUME OF PAYPAL ON EBAYS MARKETPLACES PLATFORMS PayPal increased its Total Payment Volume from eBays marketplaces from $24 billion in 2006 to around $31 billion in 2009. This growth was however, slower than the growth of Paypals overall TPV, which increased from $38 billion in 2006 to $72 billion in 2009. We would expect the TPV from eBay marketplaces to continue to increase going forward, as eBay continues to integrate PayPal into its adjacent marketplaces platforms like Shopping.com and Rent.com. In addition, eBays focus on Buyer protection programs will increase and enhance PayPal use on the platform 2. INCREASED PENETRATION OF PAYPAL ON THIRD PARTY MERCHANT PLATFORMS Paypals TPV penetration of third party merchants has steadily increased from 36% in 2006 to 56% in 2009. PayPal has already forged relationships with leading ecommerce websites like Blue Nile, Southwest Airlines, Barnes & Noble, and Toys R US. We would expect growth in this segment to continue as eBay focuses more on small and medium businesses, as well as proprietors.Sources for historical data and explanations can be found on the Trefis.com website (link) — PAYMENTS PER ACCOUNT ON PAYPAL —This represents the number of transactions per Paypal user per month. TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •12
  • 13. Payments per Account on PayPal (per Month) 1.25 1.00 0.75 0.50 0.25 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Payments per account have declined from 1.7 in 2005 to 1.2 in 2009. We expect the payments per account to stabilize.Forecast RationaleSupporting: 1. INCREASING PAYPAL PRESENCE OFF EBAY AT MERCHANT SITES Payments per Account on PayPal should rise as eBay expands its partnerships with more third party sites to use PayPal.Mitigating: 2. THE LONG TAIL EFFECT Contrary to the growth trend in the number of accounts, the number of transactions has been decreasing at a rapid pace. We would expect that trend to continue as marginal users are likely to be low quality (i.e. not as heavy users of the e-commerce functionality as early adopters generally are).Sources for historical data and explanations can be found on the Trefis.com website (link) — PAYPAL EBITDA PROFIT MARGIN —Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are profits after factoring in typical expenses,such as Cost of Goods and Services Sold, SG&A Expenses, and R&D Expenses. EBITDA Margin represents divisionalEBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-recurring charges and non-cash charges, such as Stock-Based Compensation Expenses. TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •13
  • 14. PayPal EBITDA Profit Margin (%) 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017The PayPal EBITDA Profit Margin has been 9-16% in recent years. We expect PayPal EBITDA Profit Margin toincrease. For eBays overall operating margins, we expect a continued shift towards lower margin PayPal. In terms ofindividual segments, we expect the following dynamics to impact the operating margins going forward:Forecast Rationale 1. THE PAYMENTS BUSINESS IS SIGNIFICANTLY MORE COMPETITIVE THAN MARKETPLACES – This should make continued investments necessary. However, given that a significant majority of the business comes from eBay, that part of the business is shielded from competitive threats, which will marginalize the threat of competition. 2. AS AN OFFSET TO COMPETITION, EBAY WILL BE SHIFTING ITS CURRENT MIX OF TRANSACTIONS ON PAYPAL – This will likely involve a switch from credit card based to bank account or direct PayPal account based payments, which are higher margin. We are assuming a constant margin profile over the explicit period forecast, as competition and the transaction mix factors offset each other.Sources for historical data and explanations can be found on the Trefis.com website (link) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Revenue (Bil $) 1.84 2.32 2.64 3.26 3.94 4.67 5.42 6.16 7.01 7.97 9.07 Direct Expense (Bil $) 1.40 1.94 2.40 2.64 3.15 3.68 4.22 4.74 5.32 6.05 6.88 Indirect Expense (Bil $) 0.14 0.50 0.20 0.54 0.51 0.64 0.77 0.88 1.02 1.20 1.37 Gross Profit (Bil $) 0.44 0.38 0.24 0.62 0.79 0.99 1.20 1.42 1.69 1.92 2.18 Free Cash Flow (Mil $) N/A N/A N/A N/A 281 345 430 540 668 720 810In addition, you can see the detailed P&L for the PayPal business in the Appendix (link) TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •14
  • 15. Marketing & AdvertisingThe most important drivers for the Marketing & Advertising business are: • Marketing & Advertising Revenue • Marketing & Advertising EBITDA Profit Margin — MARKETING & ADVERTISING REVENUE —Marketing & Advertising revenues are derived from the sale of advertisements on Marketplaces as well as from classifiedsfees. Revenues from comparison-shopping site shopping.com are also included. Marketing & Advertising Revenue ($ Bil) 2.0 1.5 1.0 0.5 0.0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 • Overall marketing and ad revenue as a % of total revenue has increased from nearly 9% in 2004 to around 14% in 2009; and we expect that trend to continue.Forecast Rationale 1. BETTER MONETIZATION OF USER TRAFFIC ON VARIOUS EBAY SITES WILL CONTINUE TO DRIVE REVENUE GROWTH – Marketing revenues have grown at a faster pace than overall eBay revenues over the past years. We expect that trend to continue going forward, as eBay better monetizes its vast user base and traffic through text and graphical advertisements. 2. E-COMMERCE TO DRIVE GROWTH IN ADJACENT MARKETS AS WELL – Online retail is a mid-single digit percentage of overall retail sales in the US. We believe that as that percentage grows, so will the use of adjacent markets like online comparison shopping sites, such as eBays shopping.com. eBay makes money from shopping.com primarily through advertising, but also through referral fees paid by retailers whose traffic and sales comes from shopping.com.Sources for historical data and explanations can be found on the Trefis.com website (link) — MARKETING & ADVERTISING EBITDA PROFIT MARGIN — TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •15
  • 16. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) are profits after factoring in typical expenses,such as Cost of Goods and Services Sold, SG&A Expenses, and R&D Expenses. EBITDA Margin represents divisionalEBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-recurring charges and non-cash charges, such as Stock-Based Compensation Expenses.Forecast RationaleWe expect marketing and advertising margins to increase slightly over the foreseeable future for the following reasons: 1. REVENUE GROWTH TO GO ALONG WITH HIGHER FIXED COST We expect marketing and advertising revenue to grow in the low double-digits teens rate. However, we also expect the fixed-cost to increase proportionally, which will keep a tab on margins increase in the future. Marketing & Advertising EBITDA Profit Margin (%) 40 30 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Sources for historical data and explanations can be found on the Trefis.com website (link) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Revenue (Bil $) 0.77 0.96 1.05 1.10 1.23 1.36 1.48 1.60 1.73 1.87 2.06 Direct Expense (Bil $) 0.42 0.57 0.69 0.71 0.80 0.88 0.96 1.04 1.12 1.21 1.34 Indirect Expense (Mil $) 58.3 208 81.0 181 159 186 209 228 251 281 312 Gross Profit (Mil $) 351 387 360 386 433 476 518 560 605 655 722 Free Cash Flow (Mil $) N/A N/A N/A N/A 273 290 309 331 354 374 410In addition, you can see the detailed P&L for the Marketing & Advertising business in the Appendix (link) TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •16
  • 17. AppendixSummary P&L for eBay Summary P&L for eBay 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total Revenues (Bil $) 7.29 7.99 8.15 9.16 10.3 11.6 12.9 14.2 15.7 17.3 19.2 eBay Marketplaces (% of total) 64.2 59.0 54.7 52.4 50.0 48.0 46.5 45.4 44.4 43.3 42.1 PayPal (% of total) 25.2 29.0 32.4 35.6 38.1 40.3 42.0 43.3 44.7 46.0 47.2 Marketing & Advertising (% of total) 10.6 12.0 12.9 12.0 11.9 11.7 11.5 11.2 11.0 10.8 10.7 Direct Expenses (Bil $) 4.43 5.54 6.17 6.48 7.26 8.14 8.97 9.85 10.8 12.0 13.3 eBay Marketplaces (% of total) 72.3 68.6 69.7 62.4 60.3 57.8 56.3 54.6 52.8 51.8 50.6 PayPal (% of total) 15.4 15.7 12.1 23.2 25.7 28.5 30.5 32.6 34.7 36.0 37.1 Marketing & Advertising (% of total) 12.3 15.8 18.2 14.4 14.1 13.8 13.2 12.8 12.5 12.3 12.3 Gross Profit (Bil $) 2.86 2.45 1.98 2.68 3.08 3.46 3.93 4.37 4.86 5.34 5.89 eBay Marketplaces (% of total) 72.3 68.6 69.7 62.4 60.3 57.8 56.3 54.6 52.8 51.8 50.6 PayPal (% of total) 15.4 15.7 12.1 23.2 25.7 28.5 30.5 32.6 34.7 36.0 37.1 Marketing & Advertising (% of total) 12.3 15.8 18.2 14.4 14.1 13.8 13.2 12.8 12.5 12.3 12.3 Indirect Expenses (Bil $) 0.55 1.74 0.63 1.51 1.34 1.59 1.83 2.04 2.29 2.61 2.91 eBay Marketplaces (% of total) 64.2 59.0 54.7 52.4 50.0 48.0 46.5 45.4 44.4 43.3 42.1 PayPal (% of total) 25.2 29.0 32.4 35.6 38.1 40.3 42.0 43.3 44.7 46.0 47.2 Marketing & Advertising (% of total) 10.6 12.0 12.9 12.0 11.9 11.7 11.5 11.2 11.0 10.8 10.7 Free Cash Flow (Bil $) N/A N/A N/A N/A 1.74 1.87 2.10 2.33 2.58 2.73 2.98 eBay Marketplaces (% of total) N/A N/A N/A N/A 68.1 66.0 64.8 62.6 60.3 59.9 59.0 PayPal (% of total) N/A N/A N/A N/A 16.2 18.5 20.5 23.2 25.9 26.4 27.2 Marketing & Advertising (% of total) N/A N/A N/A N/A 15.7 15.5 14.7 14.2 13.8 13.7 13.8 TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •17
  • 18. Detailed P&L for the eBay MarketplacesbusinessThe most important drivers for the eBay Marketplaces business are discussed above, here is the detailed P&L. eBay Marketplaces: Detailed P&L 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues Marketplaces Net Revenue (Bil $) 4.68 4.71 4.46 4.80 5.17 5.57 6.00 6.46 6.96 7.50 8.08 Number of Merchandise Listings 2.34 2.69 2.87 3.06 3.26 3.48 3.71 3.96 4.23 4.51 4.82 on eBay (Bil) Listings-to-Sales Conversion Rate 42.0 39.0 39.0 39.2 39.2 39.2 39.2 39.2 39.2 39.2 39.2 for Merchandise on eBay (%) Average Selling Price of 60.4 56.9 51.1 49.9 51.4 52.9 54.5 56.2 57.8 59.6 61.4 Merchandise on eBay ($) eBay Transaction Take Rate (%) 7.88 7.90 7.80 8.03 7.87 7.71 7.56 7.41 7.26 7.11 6.97 Total Revenues (Bil $) 4.68 4.71 4.46 4.80 5.17 5.57 6.00 6.46 6.96 7.50 8.08 Expenses Direct Expenses (Bil $) 2.61 3.03 3.08 3.12 3.32 3.57 3.78 4.08 4.39 4.73 5.10 Marketplaces EBITDA Profit 44.2 35.7 30.9 34.9 35.9 35.9 36.9 36.9 36.9 36.9 36.9 Margin (%) Indirect Expenses (Bil $) 0.35 1.02 0.34 0.79 0.67 0.76 0.85 0.93 1.01 1.13 1.23 Effective Tax Rate (%) 17.9 16.7 42.0 15.8 25.8 26.8 27.8 28.8 29.8 30.8 31.8 Capex as a % of EBITDA (%) 15.6 18.0 28.7 26.8 26.8 28.8 28.8 28.8 28.8 28.8 28.8 Net Working Cap as % of -9.25 2.86 -1.54 2.51 2.31 2.11 1.91 1.71 1.51 1.31 1.11 Revenue (%) Net Other Operating Assets as % -5.90 -7.06 -7.82 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 of Revenue (%) Total Expenses (Bil $) 2.97 4.05 3.43 3.92 3.99 4.33 4.63 5.00 5.41 5.86 6.32 Gross Profits (Bil $) 2.07 1.68 1.38 1.68 1.86 2.00 2.21 2.38 2.57 2.77 2.98 Free Cash Flow (Bil $) N/A N/A N/A N/A 1.19 1.24 1.36 1.46 1.55 1.64 1.76 TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •18
  • 19. Detailed P&L for the PayPal businessThe most important drivers for the PayPal business are discussed above, here is the detailed P&L. PayPal: Detailed P&L 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues PayPal Net Revenue (Bil $) 1.84 2.32 2.64 3.26 3.94 4.67 5.42 6.16 7.01 7.97 9.07 Average Payment Size on PayPal 68.0 67.7 64.1 63.3 64.6 65.9 67.2 68.5 69.9 71.3 72.7 ($) Payments per Account on PayPal 1.35 1.17 1.21 1.28 1.28 1.28 1.28 1.28 1.28 1.28 1.28 (per Month) Number of Accounts on PayPal 44.3 63.2 76.9 94.4 112 132 152 171 193 217 245 (Mil) PayPal Payment Take Rate (%) 3.78 3.85 3.69 3.54 3.51 3.47 3.44 3.40 3.37 3.34 3.30 Total Revenues (Bil $) 1.84 2.32 2.64 3.26 3.94 4.67 5.42 6.16 7.01 7.97 9.07 Expenses Direct Expenses (Bil $) 1.40 1.94 2.40 2.64 3.15 3.68 4.22 4.74 5.32 6.05 6.88 PayPal EBITDA Profit Margin 24.0 16.6 9.09 19.1 20.1 21.1 22.1 23.1 24.1 24.1 24.1 (%) Indirect Expenses (Bil $) 0.14 0.50 0.20 0.54 0.51 0.64 0.77 0.88 1.02 1.20 1.37 Effective Tax Rate (%) 17.9 16.7 42.0 15.8 25.8 26.8 27.8 28.8 29.8 30.8 31.8 Capex as a % of EBITDA (%) 15.6 18.0 28.7 26.8 26.8 28.8 28.8 28.8 28.8 28.8 28.8 Net Working Cap as % of -9.25 2.86 -1.54 2.51 2.31 2.11 1.91 1.71 1.51 1.31 1.11 Revenue (%) Net Other Operating Assets as % -5.90 -7.06 -7.82 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 of Revenue (%) Total Expenses (Bil $) 1.54 2.44 2.60 3.18 3.66 4.32 4.99 5.62 6.34 7.25 8.26 Gross Profits (Bil $) 0.44 0.38 0.24 0.62 0.79 0.99 1.20 1.42 1.69 1.92 2.18 Free Cash Flow (Mil $) N/A N/A N/A N/A 281 345 430 540 668 720 810 TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •19
  • 20. Detailed P&L for the Marketing &Advertising businessThe most important drivers for the Marketing & Advertising business are discussed above, here is the detailed P&L. Marketing & Advertising: Detailed P&L 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Revenues Marketing & Advertising Revenue 0.77 0.96 1.05 1.10 1.23 1.36 1.48 1.60 1.73 1.87 2.06 (Bil $) Marketing & Advertising 0.77 0.96 1.05 1.10 1.23 1.36 1.48 1.60 1.73 1.87 2.06 Revenue ($ Bil) Total Revenues (Bil $) 0.77 0.96 1.05 1.10 1.23 1.36 1.48 1.60 1.73 1.87 2.06 Expenses Direct Expenses (Bil $) 0.42 0.57 0.69 0.71 0.80 0.88 0.96 1.04 1.12 1.21 1.34 Marketing & Advertising 45.7 40.4 34.3 35.1 35.1 35.1 35.1 35.1 35.1 35.1 35.1 EBITDA Profit Margin (%) Indirect Expenses (Mil $) 58.3 208 81.0 181 159 186 209 228 251 281 312 Effective Tax Rate (%) 17.9 16.7 42.0 15.8 25.8 26.8 27.8 28.8 29.8 30.8 31.8 Capex as a % of EBITDA (%) 15.6 18.0 28.7 26.8 26.8 28.8 28.8 28.8 28.8 28.8 28.8 Net Working Cap as % of -9.25 2.86 -1.54 2.51 2.31 2.11 1.91 1.71 1.51 1.31 1.11 Revenue (%) Net Other Operating Assets as % -5.90 -7.06 -7.82 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 -5.48 of Revenue (%) Total Expenses (Bil $) 0.48 0.78 0.77 0.90 0.96 1.07 1.17 1.26 1.37 1.49 1.65 Gross Profits (Mil $) 351 387 360 386 433 476 518 560 605 655 722 Free Cash Flow (Mil $) N/A N/A N/A N/A 273 290 309 331 354 374 410 TREFIS ANALYSIS for EBAY CONTENT@TREFIS.COM + 1 617 394 8763 •20