Good day, everyone and welcome to eBay's first quarter 2007 earnings results conference call. This call is being recorded. With us today from the company is the President and Chief Executive Officer, Ms. Meg Whitman; the Chief Financial Officer, Mr. Bob Swan; and the Vice President of Investor Relations, Mr. Mark Rowen. At this time I would like to turn the call over to Mr. Mark Rowen. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us and welcome to eBay's earnings release conference call for the first quarter of 2007. It is a real pleasure for me to be here today, after listening to the call from the other side for so many quarters. Joining me today are Meg Whitman, our President and Chief Executive Officer and Bob Swan, our Chief Financial Officer. This quarter we are once again providing a slide presentation to accompany Bob's commentary during the call. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the Investor Relations section of the eBay website. Before we begin, I would like to remind you that during the course of this conference call we may discuss some non-GAAP measures in talking about our company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this call. In addition, management may make forward-looking statements regarding matters that involve risks and uncertainties, including those relating to the company's ability to grow its business, user base, and user activity. Our actual results may differ materially from those discussed in this call for a variety of reasons, including: our increasing need in established markets to grow revenues from existing users, as well as new users; an increasingly competitive environment for our businesses; the complexity of managing a growing company with a broad range of businesses; regulatory, tax, IP and other litigation risks, including risks specific to PayPal in the financial industry and risks specific to Skype's technology in the VoIP industry; our need to upgrade our technology and customer service infrastructure to accommodate growth at a reasonable cost, while adding new features and maintaining site stability; foreign exchange rate fluctuations; and the impact of integration on recent and future acquisitions. You can find more information about factors that could affect our results in our annual report on our Form 10-K and our quarterly reports on Form 10-Q, available at investor.eBay.com. You should not unduly rely on any forward-looking statements, and we assume no obligation to update them. With that, I will turn the call over to Meg.

Welcome everyone to today's conference call. I want to take a moment to welcome Mark Rowen to eBay. As many of you know, Mark recently joined eBay as our Vice President of Investor Relations and we're thrilled to have him. Previously with Prudential Equity Group, Mark covered eBay as a sell side analyst for the last eight years. I'm very pleased to welcome him to this side of the call today. The first quarter was a very strong one for the company. The strength of our core businesses, as well as the significant traction we're beginning to see across our newer businesses, helped us deliver great results across the board. In total, the company delivered net revenues of nearly $1.8 billion, representing year-over-year growth of 27%. We are particularly pleased by the year-over-year organic top line growth of 21%, and the EPS growth of 39%, as well as the expanded operating margins of 34%. During the quarter, the company made great progress against our goal of extending our leadership position by improving the user experience across all three of our businesses. So let me give you some highlights for our business areas: Marketplaces, Payments and Communications. Our Marketplaces business unit, which is made up of the eBay sites around the world -- Shopping.com, Rent.com, StubHub and our growing classifieds business -- delivered revenues of $1.25 billion this quarter, representing a growth rate of 23%. Both our GMV-driven businesses and our non-GMV-driven businesses drove these record results. Total Payment Volume on PayPal was $11.4 billion in Q1, an increase of 30% over the same quarter last year, and the number of PayPal accounts increased to more than 143 million. Also, TPV for Merchant Services -- our growing off-eBay business -- grew 51% year-over-year, and we added thousands of businesses to our…

Thanks, Meg. Today I will discuss our Q1 financial performance, along with our outlook for the second quarter and the remainder of 2007. I will again be referencing our earnings slide presentation this quarter, which accompanies our webcast. First, let me discuss our financial results. Overall, Q1 was an excellent quarter for the company. We delivered solid revenue growth, expanded operating margins and generated strong earnings and free cash flow based on good GMV, great results from non-GMV-driven businesses, and robust TPV growth. Additionally, we deployed capital to strengthen our business via our acquisition of StubHub and to repurchase an additional 10 million shares. In total, our business generated record net revenues of $1.77 billion, representing 27% year-over-year growth. Organic revenue, excluding acquisitions and FX, was up 21% versus last year. Acquisitions we made over the last 12 months contributed 1 point to our top line growth and FX, due to a weaker dollar, contributed an additional 5 points of growth. Non-GAAP EPS was $0.33, a 39% increase from last year and $0.03 higher than the top end of our guidance range. Our EPS strength relative to guidance was driven primarily by strong revenue contributions from our non-GMV businesses, expense leverage and productivity, a lower tax rate and benefits from a weaker dollar. We delivered excellent cash flows as well, generating $479 million of free cash flow, 6% growth versus last year, despite an additional $109 million of cash taxes paid in the quarter as compared to the prior year period. Now let's take a closer look at our segment results for the quarter. In Q1, the Marketplaces business achieved net revenues of $1.25 billion, up 23% versus the year-ago period. In the U.S., revenue was $613 million, up 16% over last year, while international revenue was up 29% to…

(Operator Instructions) Your first question comes from Brian Pitz - Bank of America. Brian Pitz - Bank of America: Thanks. Would you discuss any categories with unique ASP and/or conversion rate trends? Secondly on Motors 2.0, can you discuss any early statistics or data points regarding traction with this initiative? Thanks.

With regard to specific categories and ASPs, technology was strong from an ASP point of view, but it was actually relatively broad-based around the world. We're actually pleased that the underlying metrics of conversion rate and average selling price are working in the right direction. Because what we believe is that in this business, supply follows demand. With strong demand, strong conversion rates, we actually do think we're going to see those listings begin to grow again in our two biggest markets. With regard to Motors 2.0, we have seen some nice early results here, particularly around local and we have also been testing about 5% of all eBay Motors users are seeing Motors 2.0, and we're actually getting ready to expand. So we're excited about it.

Brian, the only thing I would add is as we indicated in the fourth quarter of last year, for both conversion rates and ASPs virtually in all geographies and all categories, we saw improvement. To Meg's point, those improvements continued -- virtually all categories, all geographies -- in the first quarter this year. Brian Pitz - Bank of America: Great, thank you very much.

Your next question comes from Imran Khan - JP Morgan. Imran Khan - JP Morgan: Thank you very much for taking my questions. I have two questions. First, I was wondering if you can give us some color how conversion rate in Q1 compared to historical conversion rates? Are we back to that historic high level? Secondly Meg, active user growth rate has been decelerating; it is 10% now. As you try to acquire new active users, do you think this leverage we saw in sales and marketing will be maintainable?

Imran, let me take your first question. Conversion rates, again, I'm going to give you a trend-based answer. In the fourth quarter we saw accelerating conversion rates off of Q3 and Q2 of last year, but hadn't quite gotten to the conversion rates that we experienced in the fourth quarter of '05 and the first quarter of '06. We continue to make progress during the course of the first quarter and what we see is conversion rates on the eBay platforms around the globe are in essence in line with where they were in the prior year, so we continue to make traction. We're essentially flat on a year-over-year basis.

Imran, with regard to active user growth rate, we have seen a decline in the growth rate of active users, and we're very much focused on that. We think the most important lever there is user experience. Within user experience, we think the most important lever is search and find, and making sure that when you come to eBay, you can find what you're looking for quickly and seamlessly. We are in the process of really upgrading our search technology, not only with relevant space, but also when you get to a section of the site that you're interested in, we have really made some significant improvements, I think. So we are focused on it. I don't actually think that it is a problem with sales and marketing per sae. We don't see a degradation of the sales and marketing effectiveness. If anything, we see a continued improvement in the efficiency of our ability to buy keywords, largely through our proprietary technology, which you’ve heard us refer to as Triton, where we know precisely the ROI of many, many, many hundreds and thousands, millions of keywords. So I wouldn't worry about the sales and marketing leverage point. Imran Khan - JP Morgan: Thank you.

Your next question comes from Doug Anmuth - Lehman Brothers. Doug Anmuth - Lehman Brothers: Can you talk a little bit more about the Yahoo! PayPal Checkout program? Specifically in terms of the economics on both the top and bottom line? I'm curious specifically if all the merchant fees are being paid through PayPal, or is Yahoo! potentially sharing any of that impact as well? Thank you.

The Yahoo! relationship is really an extension of what we announced in June of last year. We talked a lot about advertising on the Marketplace side. But the more recent announcements really deal with PayPal on Yahoo!, and there has been a series of them. Maybe I should try to capture them. First, back in March Yahoo! stores released its integrated PayPal product where merchants can now choose between PayPal Pro and PayPal Express checkout. Earlier this month, PayPal was accepted as a means of payment for Yahoo! Premium services, such as Premium Mail and Personals. And then most recently, yesterday, a further extension of the relationship where icons will now appear in Yahoo!-sponsored search results for merchants who accept PayPal Express. So all these things, we're pretty excited about continuing to gain more consumer usage of PayPal and extend our broad merchant-based community. In terms of the overall economics, we're not going to break that out in terms of how they work. But we think that expansion of PayPal as the payment provider of choice on the web will, over the long term, drive really positive economics for the business. Doug Anmuth - Lehman Brothers: Thank you.

Your next question comes from Ben Schachter - UBS. Ben Schachter – UBS: Meg, in the past you had discussed the idea that buying things on eBay should be fun, and that people should win things, not necessarily buy things. I'm just wondering if you could comment on fixed-price goods going up as about 39% of total GMV. Bob, I was wondering if you could discuss on sales and marketing the margin improvement there. Was that something planned going into the quarter? Were there specific channels that were affected by that? Thanks.

With regard to eBay, the core of eBay has been and always will be the long tail business, where auctions is particularly relevant because it enables people to put a price on items of an unclear value, and it is really fun. It is a business that we refer to as the ‘win-dorphine’ business. You win, but you also get endorphins like you do when you exercise. We are refocusing on that business to try to really have it be the most fun. We were the original social networking site. We think around the buyer experience, adding fun and getting the next generation of fun on eBay is a really important thing. We have not lost sight of that. At the same time, we have so much traffic that comes to this site on unique daily visitors, unique monthly visitors, that we also want to offer the new and seasoned experience, the convenient shopping experience so that we can have an increased share of wallet for every visitor that comes to the site. So we think we can do both and we think we can actually continue the journey of making eBay a really, really fun place to do business in the auction format.

On the sales and marketing question, maybe I will step back a little bit and refresh your memory about the architecture for our full-year plan. As PayPal and Skype grow fast in the Marketplace business, we will have a negative gross margin impact from their rapid growth. That being said, we expect to increase operating margins this year versus last year. The ways we said we would be able to do that is more effective leverage on our sales and marketing spend, continued investment in product development, albeit with more offshore; and third, G&A as a percent of revenue coming down. On sales and marketing in particular, the first quarter was a little bit better than we expected. The reason is we were able to generate more revenue on essentially the same amount of spend during the quarter. That in fact allowed us to increase operating margins a little bit better in the first quarter versus our plan.

Your next question comes from Anthony Noto - Goldman Sachs. Anthony Noto - Goldman Sachs: Thank you very much. Meg and Bob, it seems that you have been able to keep your Marketplace growth over 20% for several quarters, and inorganic growth pretty stable at 21%. That has been driven by the vibrancy of the marketplace improving simply through pricing mechanisms and taking [inaudible] out of core search results. There's a lot of initiatives on the horizon that could really drive ability to drive the vibrancy of the marketplace that are technology driven, specifically dynamic merchandising of the home page and landing pages, content match, Feedback 2.0, and then new listing functionality, SY 3.0 and then potentially a relationship with News Corp. I was wondering if you touch on all four of those and let us know the timing of when they're going to hit, and what you think the incremental benefits are to conversion rate and market vibrancy? Thank you.

The good news, Anthony, is you are a user of the site. Let me keep this at a relatively high level. I would say that the number one priority for the Marketplaces business in 2007 is to improve the buyer experience along all dimensions. When a user hits the site, helping them find what they want, making sure that they have all the information they need to buy that item, and we look at every single path that those users follow through the site and make sure that we're trying to optimize all of that. The dynamic merchandising gets people interested when they hit the home page. Content match is an example of improved search functionality. So you're right, we are working all of these different levers, and probably more aggressively than we have done in several years. I can't give you a precise timeframe on when you will see the results. But again, I think the strong conversion rates and the strong ASPs are indicative that we're on the right path.

Great, thank you.

Your next question comes from Christa Quarles - Thomas Weisel Partners. Christa Quarles - Thomas Weisel Partners: A couple of questions on the active registered users. I was wondering if you could give us those numbers ex-China? I assume the numbers you gave already include China. As well, if you could discuss the robustness of the user base under the age of 35? A second question just on the advertising side. The revenues were much better than my expectations, so I'm assuming that is related to Yahoo! and Google, but should we expect accelerating growth in that line item as you further develop that relationship? Thanks.

On the first question, we tried to break out listings for you. We have not broken out users in terms of how many came from China or Taiwan. To that point, we haven't broken out any demographics of the age of that user base. I apologize, we haven't provided that. Your first question on advertising and other, our advertising on a year-over-year basis was up about 65% and we have several items in that bucket. The drivers of improvement on a year-over-year basis, I would really call them twofold. One, within our PayPal business we are earning interest on certain customer cash balances on a year-over-year basis and the growth in those cash balances, we generate higher revenue on that. On the Marketplace side, we get the growth coming from two areas. Meg talked about one, advertising revenue on our classifieds sites is a component. Secondly, it is the relationships with Yahoo! and Google, which we got pretty good traction in the quarter and we expect to get continued traction as we go through the remainder of the year. Overall, that revenue is about 3.5% of the overall company's revenue, and we expect it to grow marginally as we go forward. Christa Quarles - Thomas Weisel Partners: Just to be clear, even though you have divested China, you're still including the user metrics?

In the denominator, that is right. In the total user base, we don't go back and adjust that. Christa Quarles - Thomas Weisel Partners: All right. Thanks.

Christa, let me just add one thing about the under the age of 35, because I think embedded in your question is, is eBay weaker, if you will, in the younger user base? The answer to that is actually, no, that we see good strength of younger users and so we are pleased by that. One of the things that is true, as you know, you need to be 18 to use eBay. The North American team in particular is looking at, is there a younger product that we could introduce that would enable that to have younger people use eBay, because we have that question and that demand all the time. I think Bob got the active users ex-China. I would say Skype also is a huge on-ramp for young people.

Your next question comes from Derek Brown - Cantor Fitzgerald. Derek Brown - Cantor Fitzgerald : Thank you. Taking a step back and looking at user engagement as both buyer and seller continue to trend down, if you are looking at GMV per user or listings. I know you spent a lot of time on it, but given the impact to your business both at the core level, but also on the PayPal side, how far along do you think you are in the evolution of the site and really re-engaging users? Because you have been talking the activation strategy for quite some time. How close are you to pulling all the pieces together?

I will say you're right on GMV per register user. On a trailing 12-month GMV per active registered user, actually that has been going up for some time. The active user base continues to be more active. I think the question that was asked earlier, which is how do we reaccelerate our growth of active users, is the relevant one. I would say that this is going to be an iterative and gradual process that we will do step-by-step and piece-by-piece. One of the things that is true about eBay is we have an enormous installed base who is extremely loyal to eBay. What we know is that you need to make changes to the site, we need to up the user engagement, we need to keep the site current but we have to be very careful about how we introduce those changes, because it is in fact, an ecosystem. We can't do anything dramatic because we run the risk of alienating the huge loyal user base that we have. But if I had to say -- and this is qualitative, not quantitative -- I would say we are maybe 20% of the way towards being where we would like to be in terms of user engagement and the rollout of the new features and functionality that we think will change the trajectory.

Your next question comes from Scott Devitt - Stifel Nicolaus. Scott Devitt - Stifel Nicolaus : Thanks. As you noted earlier, 8 percentage points of the growth in Marketplaces came from conversion and ASP, and revenue per listing was up 21% year over year. So sellers are getting higher sell through, but late in the third quarter of this year you will annualize a lot of the Marketplace benefits, that are driving those characteristics in the business. I'm wondering how much of that 8% you think shifts back into listings growth once you annualize the Marketplace improvements?

Clearly what our intentions are -- and I won't recapture all the things we're trying to do to improve the user experience -- is that we will continue to get a benefit from improved conversion rates, which will in turn bring more listings to the site and the combination of the two will accelerate GMV. But that is something we have to prove out as we go. In terms of revenue per listing growing faster than GMV per listing, we captured that in terms of some of the non-GMV-based businesses that are going faster than GMV; again, Rent, a strong quarter; Shopping.com, strong quarter; our classifieds business continuing to gain momentum. We hope to continue to accelerate that kind of growth. We still have some work to do and feel pretty good about the progress we're making.

Just asking, because merchants are typically fairly rapid to adjust to improving economics, so it is a little surprising that hasn't happened yet. But just following up in terms of the slide deck, the high take rate businesses that were referenced, other than StubHub, what would fall in that category?

It is a mix of really three primary components: higher take rate, StubHub really has the higher take rate. On the opposite end of the spectrum, last year's GMV at China and Taiwan had essentially no take rate. So having that GMV out of the system gives us a positive mix benefit by that being out. Third, cross-border growth. As that grows, we're getting a higher take rate from cross-border transactions. Lastly, within the quarter with Motors growing a little bit slower than overall GMV, and Motors being at a lower take rate, that impacted as well. So four primary factors affecting that, most of which we anticipate would continue.

The $0.03 from capital allocation and tax rate, how much was capital allocation?

I will ask you to do the math. I apologize. But on a year-over-year basis our share count was down a little over 50 million shares from last year. And then, our tax rate on a year-over-year basis is down almost 3 points. The combination of those two are really helping drive earnings growth.

Your next question comes from Robert Peck - Bear Stearns. Robert Peck - Bear Stearns : As we think about what is driving RPL going forward, and I guess unadjusted we would see RPL around $2.10, up from about $0.96 or so. As we think about what is driving that going forward, you've got a couple of things. One is conversion rate and ASPs and then ultimately, fees. Meg, could you talk a little bit about which one of those three levers do you see driving it the most? What is the mix shift there? Do you see a fee increase coming up in the near future? Lastly, could you give us the Shopping.com revenues?

With regard to your first question, over the last couple of quarters revenue per listing has been driven by conversion rate as well as average selling price. We expect that to continue. The two key things that we focus on really are conversion rates and, in fact, the number of successful items. That is our focus. ASP, we don't really drive. That is a function of the ecosystem of the marketplace. ASPs, you see holidays higher, but it is all about conversion rate and ASPs. As we think about fees, as you know, we typically do something once a year. January would be the time that we would do something, and we have not made any decisions at this juncture. I would not be putting fee increases necessarily into your model for 2008 and 2009. I think it is really our job to drive revenue per listing and GMV growth through conversion rates, successful items and ASPs.

Just on Shopping, we don't break out specific revenue for Shopping.com. What we have highlighted was that year over year it was up 29%, with 50% growth from its international expansion. It is one of the contributors to the RPL growth, but we don't specifically break out Shopping revenues.

Your next question comes from Justin Post - Merrill Lynch. Justin Post - Merrill Lynch : I guess I will focus on Skype since we have covered most everything else. On Skype, it looks like the revenues accelerated to about 120%, and also the revenue per account accelerated. I'm wondering if you could talk about how your subscription model traction is working? Is that increasing the off-Skype minutes, and why off-Skype is going so much faster than Skype-to-Skype?

We launched a subscription-based offering here in North America at the beginning of the year. What we indicated is traction is better than we expected. So we're getting more and more Skype users to sign up for the subscription-based service. Additionally, we continue to have non-subscription-based users continuing to use both SkypeIn and SkypeOut. Overall traction on minutes SkypeIn and SkypeOut is very strong year over year. But in terms of sequentially, its growth rate has been somewhat muted by the promotional campaigns we had in Asia and in North America where calls were essentially free in the fourth quarter. Those stopped in the fourth quarter so our sequential growth isn't as great.

Bob, let me just add one point to that, Justin, which is these subscription plans, both in the United States and now offered in 15 European countries -- some of those are launched, and it is going to be rolled out in other countries later in 2007 -- we are seeing a really nice pickup with these subscription plans. I suspect what you will see is you may see a rebound in Skype-to-Skype minutes, and probably continued acceleration of SkypeOut and SkypeIn minutes. All of which we like, because this is all fueling user engagements. This is all about connecting people, enabling them to share and communicate and build on to that platform, products like SkypeFind and SkypePrime. So we're excited about it. I think Skype really had a very productive quarter, not only in terms of financials, but also the strength of the ecosystem. Justin Post - Merrill Lynch : Meg, one quick follow-up. Can you say whether the subscription plans are more or less profitable than the Skype business from last year? Are you happy with the margin structure there?

Last year in North America, in particular, it was free. So now we're charging a fee for the service provided, and we feel pretty good about the inherent margin structure. One additional point that is worth noting, Skype was profitable for the first time in the first quarter, so good growth but also good gross margin leverage as well. Justin Post - Merrill Lynch : Thank you.

Your final question comes from Mark Mahaney - Citigroup. Mark Mahaney – Citigroup: Bob and Meg, since we're talking about Skype, can you give us an update on where Skype margins can go long term? Are there a set of circumstances under which you would allow margins to decline this year? You talked about reinvesting some of the upside you had in the March quarter back into the business for a series of initiatives. Are there circumstances under which you would want margins to go down year over year? Thank you.

Long-term margins for Skype, we have pegged at the 20% to 25% margin rates over time. That will come from leverage on the telco-based revenue, but more from the expansion of non-telco or e-commerce type monetization over time. So long term, we still think 20% to 25% is still the right long-term margins. In terms of margin declines, yes, we're going to continue to invest quite a bit in Skype. Meg highlighted the focus, continuing to build out the user base, invest in new products to bring them to market, and continue to enhance the quality of the overall service. Yes, we're going continue to invest in products and try to bring new services to market during the course of the year.

I think, Bob, Mark was talking about company-wide margins?

Yes, that's right.

Meaning, do we envision a situation where company-wide margins would decline based on the reinvestment.

Our plans are to expand margins year over year. We are off to a great start in the first quarter. We do plan to leverage the strength in our first quarter numbers to reinvest in some great ideas we think we have for all three of our businesses. Despite that, we still expect to expand margins on a year-over-year basis in '07. Mark Mahaney – Citigroup: Thank you very much.

Thank you very much. Thanks for joining us today.