The Power of Three
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The Power of Three

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The Power of Three The Power of Three Presentation Transcript

  • Acquisition of Skype
  • Legal disclosures placeholder This presentation contains non-GAAP measures relating to the company's performance. You can find the reconciliation of those measures to GAAP measures in the tables of our earnings release which is available through our investor relations website located at http://investor.ebay.com/downloads/Reconciliation.pdf. In addition, this presentation may contain forward-looking statements regarding matters that involve risk and uncertainty, including those relating to the future financial results of Skype and eBay, and the impact of the acquisition of Skype on eBay’s financial results. Our actual financial results could differ materially from those represented in this presentation. Factors that could cause or contribute to such differences include, but are not limited to, the receipt and timing of the closing of the transaction, the possibility that the transaction may not close, the reaction of the users of Skype’s services, the future growth of Skype’s user base, the reaction of competitors and regulatory agencies to the transaction, developments in the regulation of voice-over-Internet protocol (VoIP) services including those provided by Skype, and the possibility that integration following the transaction may be more difficult than expected. More information about factors that could affect the company’s operating results is included under the captions “Risk Factors That May Affect Results of Operations and Financial Condition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, copies of which may be obtained by visiting the company’s investor relations site at http://investor.ebay.com. Undue reliance should not be placed on the forward-looking statements in this release, which are based on information available to the company on the date hereof eBay assumes no obligation to update such statements. 2
  • The acquisition of Skype 3
  • eBay is evolution • 1996 – 1998: US only, collectibles only • 1999 – Moving beyond collectibles • 1999 – Going global • 2000 – Introducing Fixed Price and eBay Stores • 2002 – PayPal: removing friction and building a huge new business • 2004 – 2005: Creating other marketplaces Marktplaats, Mobile, Rent.com, Shopping.com, Kijiji, ProStores • Common theme – expanding our vision, our market and our opportunity • Aspirational goal of growing faster than e-commerce 4
  • High performance company (Real 2003 $M) 1,000,000 100,000 10,000 1,000 100 10 1 1 5 9 13 17 21 25 29 33 37 41 Years Since Incorporation 5
  • High performance company (Real 2003 $M) 1,000,000 100,000 GMV 10,000 TPV 1,000 100 10 1 1 5 9 13 17 21 25 29 33 37 41 Years Since Incorporation 6
  • Expanding eBay’s share of e-commerce • Skype will accelerate commerce on eBay • Skype opens up new lines of business, new monetization models, new geographies • A great standalone communications business • eBay + PayPal + Skype = Unparalleled e-commerce and communications engine 7
  • Agenda What is Skype? Expanding eBay’s share of e-commerce A great standalone business Financials 8
  • Simply powerful Any Skype user in the World (Free) Internet 9
  • Simply powerful Any Skype user in the World (Free) Internet Any Regular Telephone in the World (Low cost) 10
  • Easy to set up and use 1 Download and install Skype client from website, get headset 11
  • Easy to set up and use 1 2 Download and install Look up and Skype client from website, add buddies get headset 12
  • Easy to set up and use 1 2 3 Download and install Look up and Start talking with Skype client from website, add buddies other Skype users get headset 13
  • Rich functionality Skype Me… Find other Skype users Send any kind of file Advanced Instant Messaging Make conference calls Are you available? Call any phone Wallet Get calls from any Leave voicemail phone on your Skype number Forward calls to any number 14
  • Viral growth 44.1 On track for 57M 32.9 registered Users in Q3! 19.8 11.5 6.8 4.1 Q104 Q204 Q304 Q404 Q105 Q205 Skype Registered Users (M) 15
  • Viral usage 3.9 67% 3.3 CQGR! 2 0.9 0.5 0.3 Q104 Q204 Q304 Q404 Q105 Q205 Skype Quarterly Minutes Served (B) 16
  • Historic success Number of Reg Users (MM) 60 50 40 30 20 10 0 1 3 5 7 9 11 13 15 17 19 21 23 25 Months(1) (1) eBay starts Q2 98, PayPal starts Q1 00, Yahoo! starts Q1 95, AOL since Q1 92 17 (IPO) from company data and Merrill Lynch estimates, Skype since launch in 2003
  • Historic success Number of Users (MM) 60 50 Adding 150K registered users / day 40 30 20 10 0 1 3 5 7 9 11 13 15 17 19 21 23 25 Months(1) (1) eBay starts Q2 98, PayPal starts Q1 00, Yahoo! starts Q1 95, AOL since Q1 92 18 (IPO) from company data and Merrill Lynch estimates, Skype since launch in 2003
  • A truly global community SKYPE users Non SKYPE users Skype has a presence Skype is a market leader in 225 countries and independent in every territories worldwide major country(1) (1) Skype estimates 19
  • Significant buzz all over the world… “To ‘Skype’ is to call someone over your computer” USAToday (17 December 2004) 20
  • Agenda What is Skype? Expanding eBay’s share of e-commerce A great standalone business Financials 21
  • Accelerating e-commerce • Accelerate existing categories • Create a new way to • Expand into new monetize e-commerce categories • Remove a key friction • Monetize new marketplaces • Expand the global footprint 22
  • A new way to monetize e-commerce eBay Today eBay with Skype Transaction Transaction- and based lead-generation monetization monetization Listing fees Listing fees Final value fees Final value fees Pay Feature fees Feature fees + per call PayPal fees PayPal fees 23
  • Communication is key to e-commerce The online transaction process requires various communication points along the way “Steve” “Bob” the the seller buyer Q+A before purchase Closing transaction Order status 24
  • Communication is key to e-commerce The online transaction process requires various communication points along the way “Steve” “Bob” the the seller 5M e-mail messages are buyer initiated per day between eBay buyers & sellers 30% of eBay bids take place in the last 2 hours! 25
  • Skype is a leap forward in communication • In transaction flow • Instantaneous and private • Free with rich experience • Advanced functionality 26
  • eBay has historically removed friction Friction point Solution Trust & safety Feedback Description Pictures Payments Shipping 27
  • Removing friction is powerful $1.4B $1.4B eBay UK GMV (USD) Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Q1 Q1 2001 2002 2003 2004 2005 28
  • Accelerating e-commerce • Accelerate existing categories • Create a new way to • Expand into new monetize e-commerce categories • Remove a key friction • Monetize new marketplaces • Expand the global footprint 29
  • Skype accelerates certain existing categories Motors Business and industrial Communications can accelerate categories that are: Collectibles Sporting goods • High involvement • Expensive • Complex Music instruments Jewelry and watches Motors, collectibles, and B&I alone represent ~40% of eBay GMV 30
  • Skype accelerates certain existing categories: Example Future motors listing Firstclassauto – currently online! “ Firstclassauto – currently online! ” 31
  • Communications enables expansion into new categories Skype allows superior access to categories that • Require significant communication • Are less suited to transaction-based monetization Source: Jupiter, Borrell, NADA, 32 Manheim, eBay estimates
  • Communications enables expansion into new categories Skype allows superior access to categories that • Require significant communication • Are less suited to transaction-based monetization Source: Jupiter, Borrell, NADA, 33 Manheim, eBay estimates
  • Pay Per Call enables monetization of new marketplaces Pay Per Call on Local Classifieds Paris Listing Sponsorisé Charles de Gaulle Renault Les meilleurs voitures! Skype moi! Bagnolet Peugeot Skype moi! BelleVille Audi Skype moi! 34
  • Expanding the global footprint Emerging markets New markets Cross-border trade India China Japan Nordic Poland Brazil Russia • Large grey markets • Limited eBay • Limited trust • Limited trust on Internet presence • Buyers need • Culture of haggling • Large growth in more interaction • Culture of IM/mobile Skype users and information • Price sensitivity from sellers 35
  • Skype on eBay China 36
  • Agenda What is Skype? Expanding eBay’s share of e-commerce A great standalone business Financials 37
  • A great standalone business 1 A large and growing opportunity 2 A strong leadership position 3 Competitive advantage 38
  • An important consumer activity Minutes 480 per user 500 per 450 44% of all user month(1) time online is 400 spent 350 communicating(2) 435 Calls from 300 home(3) 250 195 Share of VOIP 200 calls expected 150 127 to increase 80 significantly 100 over time 50 16 45 Skype today 0 Search eBay Web Email IM Phone marketplace Communications Source: (1) Nielsen Netratings averages for biggest sites in each category, (2) eBay estimates from Comscore data, (3) 39 Yankee Group as of April 2003
  • Increasing penetration Global Broadband subscribers (M) '04-'09 350 CAGR 317.3 21.6% 300 287.8 256.9 250 13.8% 223.1 200 185.4 145.7 150 18.1% 100 50 18.8% 0 2004 2005 2006 2007 2008 2009 United States Europe Asia/Pacific ROW Source: IDC 40
  • Increasing penetration Global Broadband subscribers (M) US Broadband and VOIP households (M) '04-'09 350 CAGR 80 30M VOIP 317.3 households in 72.3 Total BB 300 287.8 21.6% 70 US by 2009 66.9 256.9 58.5 60 250 13.8% 223.1 50.1 50 200 185.4 41.1 40 145.7 32.6 150 18.1% 30 24.6 38% % VoIP 100 20 29% 50 18.8% 10 20% 8% 13% 1% 3% 0 0 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009 United States Europe Asia/Pacific ROW VoIP subscribers Broadband households Source: IDC 41
  • Increasing usage VOIP Annual Minutes of Use (B) 1,495 760 367 183 42 72 10 17 27 2001 2002 2003 2004 2005E 2006E 2007E 2008E 2009E Source: IDC 42
  • A leadership position Skype’s global revenue base Other 12% NA EU 13% 48% Asia 27% % of total Source: Skype, Sandvine 43
  • A leadership position Skype’s global revenue base Skype segment share in North America Other VOIP 12% 46.2% Skype is #1 Minutes NA EU 13% 48% Asia VOIP 27% 35.8% Skype is #1 Users % of total 0 20 40 60 Estimated ~25% of Percent of total (%) Skype users are businesses Source: Skype, Sandvine 44
  • Strong team • Founders created Kazaa, were executives at Tele2 • Entrepreneurial senior Niklas Zennström management team from CEO & Co-Founder Tele2, Microsoft, Yahoo!, OpenWave • Developers pioneered peer- to-peer technology Janus Friis Co-Founder 45
  • Focus matters Commerce Payments 46
  • Focus matters Commerce Payments Search Content 47
  • Focus matters Commerce Payments Communications Search Content 48
  • Advanced technology Virtual, peer-to-peer architecture brings key advantages • System is massively scalable • No single point of failure • Low CapEx In addition, Skype has • Better firewall tunneling that allows more calls to be completed • Advanced security and encryption technology 49
  • Many great applications Internet Explorer Toolbar - Beta Integration with Outlook - Beta Web Presence Integration Voice Marketplace Interactive Language Homework voice learning tools tutoring response 50
  • Many great applications Internet Explorer Toolbar - Beta Integration with Outlook - Beta Web Presence Integration Voice Marketplace Interactive Language Homework voice learning tools tutoring response 51
  • Many great applications 52
  • Many great applications Internet Explorer Toolbar - Beta Integration with Outlook - Beta Web Presence Integration Voice Marketplace Interactive Language Homework voice learning tools tutoring response 53
  • Many great applications 54
  • Many great applications Internet Explorer Toolbar - Beta Integration with Outlook - Beta Web Presence Integration Voice Marketplace Interactive Language Homework voice learning tools tutoring response 55
  • Many great applications Internet Explorer Toolbar Integration with Outlook Picture share with Kodak Web Presence Integration 56
  • Many great applications Internet Explorer Toolbar - Beta Integration with Outlook - Beta Web Presence Integration Voice Marketplace Interactive Language Homework voice learning tools tutoring response 57
  • Many great applications Valuable content and services Voice Marketplace • Create and share Interactive Language Homework innovative voice voice learning tutoring services response tools (eg. traffic • Content providers get a reports) share of call revenue Key partners 58
  • Reinforcing ecosystem 1000+ Developers 200+ Hardware devices 200+ Skype-enabled labeled as Applications Skype-compatible 30+ partnerships with world-class companies 59
  • The power of three Users invite other users New users invite more users 60
  • The power of three Users invite Sellers go where More sellers other users buyers are offer PayPal New users Buyers go where More buyers invite more sellers are use PayPal users 61
  • The power of three Users invite Sellers go where More sellers other users buyers are offer PayPal New users Buyers go where More buyers invite more sellers are use PayPal users eBay Users PayPal Wallet eBay Users eBay Usage Skype Users Skype Users PayPal Wallet Skype-Enabled eBay & Skype Usage Commerce 62
  • Agenda What is Skype? Expanding eBay’s share of e-commerce A great standalone business Financials 63
  • Valuation considerations • Traditional financial valuation methods – Precedent transactions – Value per user – Discounted cash flow • Earn out structure based on aggressive goals • A great standalone business, not just VOIP functionality – Leading market position with considerable momentum – Technology leadership – Considerable monetization potential • Synergistic opportunities with existing businesses 64
  • The power of three: synergistic opportunities eBay + Paypal Users • 157M eBay registered users • 79M PayPal accounts • 1% overlap between Skype and eBay US users today(1) eBay Usage • 5M email messages/day • 1.4B new listings/year PayPal Wallet • Boosts sales of premium services (1) Nielsen Netratings 65
  • The power of three: synergistic opportunities eBay + Paypal Users Skype Users • 157M eBay registered • 54M registered users users • 79M PayPal accounts • ~25% of users are • 1% overlap between business accounts Skype and eBay US users today(1) Skype Commerce (usage) eBay Usage • Skype-enabled • 5M email messages/day commerce • 1.4B new listings/year • 200+ Skype hardware applications PayPal Wallet • Boosts sales of premium services (1) Nielsen Netratings 66
  • The power of three: synergistic opportunities eBay + Paypal Users Skype Users Skype Users • 157M eBay registered • 54M registered • >80% outside US users users • 79M PayPal accounts • ~25% of users are • 1% overlap between business accounts Skype Usage Skype and eBay US • Payment of call users today(1) services Skype Commerce • Send money to (usage) buddies eBay Usage • Skype-enabled • 5M email messages/day commerce • 1.4B new listings/year • 200+ Skype hardware applications PayPal Wallet • Boosts sales of premium services (1) Nielsen Netratings 67
  • Transaction summary • Pay $1.3B(1) in cash Transaction Value • Deliver $1.3B(1) in eBay stock subject to certain sale and Structure restrictions • Total of $2.6B (4.8% of market cap) • Earn out of up to an additional $1.5B(1,2) based on high active user, gross profit, and revenue goals in Performance-based 2008 earn out – Earn out participants received less up-front consideration – All of management opted for the earn out Expected Closing • Q4 2005 (1) Based on an exchange rate of € 1.239 68 (2) Earn-out value presented on an undiscounted basis
  • Strong Business Model • Large market opportunity • Transaction-based revenues Rapid revenue growth • No inventory or warehouses • Efficient customer acquisition • High operating leverage Outstanding cash generation • Low capital requirements (1) Nielsen Netratings 69
  • Skype revenues Free services Premium services SkypeIn and SkypeOut Free Skype to Skype calls Expressive content (avatars, ringtones, (cost nothing to ringbacks) provide) Hardware royalties 70 Voice services
  • Strong Revenue Growth $259.0 Existing Lines Of Business $200+ $103.8 $60 $47.4 $7 $12.6 (Dollars in millions) $0.4 $5.7 2004 2005E 2006E 1996 1997 1998 2000 2001 2002 71
  • Strong Revenue Growth $259.0 Existing Lines Of Business $200+ $103.8 $60 $47.4 $7 $12.6 (Dollars in millions) $0.4 $5.7 2004 2005E 2006E 1996 1997 1998 2000 2001 2002 72
  • Skype revenues Premium services New eBay Free services Opportunities • Existing eBay Categories SkypeIn and SkypeOut Free Skype to Skype calls Expressive content • Emerging markets (cost nothing to (avatars, ringtones, ringbacks) • New geographies provide) • Cross-border trade Hardware royalties • New categories • New marketplaces (classifieds, 73 Voice services shopping.com)
  • Leveraged cost structure • Efficient customer acquisition – Word of mouth significantly reduces user acquisition cost • High operating leverage – Minimal incremental cost for each user call – Software business model with low fixed costs • Infinitely scalable network infrastructure with low capex – Peer to Peer technology requires minimal capex – Distributed architecture eliminates single point of failure – Centralized server(s) for authentication for basic services – Centralized server(s) for premium services, e.g. voicemail Outstanding cash generation capability 74
  • Financial impact • Dilutive to Q4-05 pro-forma and GAAP EPS by $0.01 and $0.04, respectively • Dilutive to 2006 pro-forma and GAAP EPS(3) by $0.04 and $0.12, respectively • Breakeven on a pro-forma basis in Q4 2006 • Long term operating margins of 20-25% (3) Not adjusted for FAS 123 75
  • eBay Inc Balance Sheet • Funding acquisition through internally generated cash flows • Balance sheet fundamentals remain unchanged: – Cash reserves of >$1B – Annualized free cash flows of >$1.5B – Low capex requirements: ~$2M in 2006 – No long-term debt • Long-term revenue and profit growth will continue to add to already strong cash flow position 76
  • Summary • A great standalone business with a very complementary business model • Significant growth opportunities: – Build on Skype momentum – Accelerate eBay existing and new businesses – Create entirely new businesses • The power of 3 77
  • The power of 3 Sellers go where buyers are Buyers go where sellers are Users invite More Sellers other users Offer PayPal New users invite More Buyers more users use PayPal 78