eBay reported financial results for its second quarter ended June 30, 2008, posting second quarter revenue of $2.20 billion, up $361 million from the same period last year. Net income on a GAAP basis was $460 million. Gross Merchandise Volume for the Marketplaces business was $15.68 billion for the quarter, an increase of 8% over the second quarter of 2007.

The Marketplaces business unit, which consists of eBay, Shopping.com, StubHub, Kijiji and other ecommerce sites, generated $1.46 billion in revenue, equating to 13% year-over-year growth. The business unit saw strong growth in advertising, StubHub and classifieds. The company's global classifieds businesses averaged 81 million unique visitors per month during the quarter, representing an increase of 121% year-over-year. Fixed price listings accounted for 43% of global GMV.

Marketplaces growth was negatively impacted by three points: price rebalancing, PowerSeller discounts and customer loyalty couponing. Gross Merchandise Volume (GMV) grew 8%, impacted by lower average selling prices and a rapid decline in vehicle GMV.

In a conference call to discuss earnings with analysts, eBay CFO Bob Swan said Average Selling Price decreased by 6% for three reasons:

• Specific promotions in Germany that attracted lower-priced inventory
• Enhanced safety & reduced fraud that removed bad higher-priced listings before they convert to GMV.
• Slowing economy in the US and UK in particular that caused consumers to trade down to lower priced items.

Marketing services growth of 43% was fueled by advertising growth of 183% "as we further optimized ad placements," and the classifieds business, which increased 65% over last year.

eBay CEO John Donahoe said eBay continually tests its ad partnership program to optimize advertising, and said it was a "nice complementary way to monetize traffic."

Donahoe said eBay has signaled its intention to roll out category-based pricing in the second half of the year because sellers make different margins in different categories. Bob Swan said eBay would likely make category-based price changes along the way, leading to lower upfront fees and more backend. He said expectations on a go-forward basis are that eBay would likely drive loyalty with more couponing and continue to lower Sales & Marketing costs. And he said eBay hopes that PowerSeller discounts will continue to increase service levels, which in turn drives a more vibrant marketplace.

Donahoe told analysts that the Sold Items metric was important because it shows buyers are coming back and will translate into good GMV. "We can't manage ASPs," he said.

PayPal saw the quarter's net revenue reach $602 million, an increase of 33% year-over-year. Net total payment volume (TPV) for the quarter was $14.93 billion, an increase of 35% year-over-year. The net revenue and net TPV growth was driven primarily by the growth of merchant services globally and increased penetration on eBay internationally.

eBay's press release said that while Marketplaces transaction revenue continues to represent a majority of revenue, revenue growth rates were helped by the company's faster growing businesses such as PayPal, global classifieds, advertising and Skype, and that the company's global footprint helped it benefit from strength in other currencies, relative to the U.S. dollar.

The release quoted Donahoe, "This was a strong quarter and we are very pleased with the performance of the portfolio, particularly with the growth generated by PayPal. We have made bold moves across the eBay marketplace to accelerate long-term growth. We remain confident in our strategies to improve the customer experience as we manage in an uncertain economic climate."

During the conference call, Donahoe announced that Rajiv Dutta was retiring from the company after 10 years. He had been Chief Financial Officer, headed Skype and PayPal, and most recently was head of eBay Marketplaces. Lorrie Norrington will replace him as head of Global Marketplaces.

Transcript

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