Good day, everyone and welcome to eBay's second quarter 2007 earnings results conference call. This call is being recorded. With us today from the company are the President and Chief Executive Officer, Ms. Meg Whitman; the Chief Financial Officer, Bob Swan; and Mark Rowen, Vice President of Investor Relations. I would like to turn the call over to Mark Rowen for opening remarks and introductions.

Thank you, operator. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the second quarter of 2007. Joining me today on the call are Meg Whitman, our President and Chief Executive Officer and Bob Swan, our Chief Financial Officer. We are 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 conference call. In addition, management may make forward-looking statements regarding matters that involve risk 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 from new users in established markets; an increasingly competitive environment for our businesses; the complexity of managing a growing company with a broad range of businesses; regulatory, tax, as well as 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 in order to accommodate growth at a reasonable cost, while adding new features and maintaining site stability; foreign exchange rate fluctuations; and the impact and integration of recent and future acquisitions and other transactions. 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 https://investor.eBay.com. You should not unduly rely on any forward-looking statements, and we assume no obligation to update them. Now, let me turn the call over to Meg.

Meg Whitman: Thank you, Mark and welcome everyone to today’s conference call. The second quarter of 2007 was a very good one for the company, highlighted by accelerating revenue growth, consistent operating margins and great earnings and free cash flow growth. The company delivered record net revenues of $1.83 billion, representing year-over-year growth of 30%. Earnings per share grew 40%, and free cash flow grew at 45%. Let me give you some highlights for each of our business areas: marketplaces, payments and communications. Our marketplaces business unit, which is made up of eBay sites around the globe, our expanding classified portfolio, Shopping.com, Rent.com, and StubHub, delivered record net revenues of nearly $1.3 billion this quarter, representing a growth rate of 26%. As our portfolio of businesses continues to diversify, the revenue contribution from our non-GMV driven businesses is growing at a very rapid pace. Our PayPal team saw total payment volume increase by 32% to $11.7 billion, up from $8.9 billion in the second quarter of last year. Revenue grew to $454 million, an increase of 34% versus a year ago. Merchant services in particular had another great quarter as we added thousands of merchants, delivered accelerating TPV growth and became increasingly ubiquitous across the web in both the U.S. and abroad. Profitable for the second quarter in a row on a non-GAAP basis, revenue at Skype grew 103% versus the prior year. Skype also added 24 million new users and announced important partnerships with Wal-Mart, Toshiba and Salesforce.com, among others. Now let me give you a little bit more context on the quarterly results for each of the three business units. Beginning with marketplaces, let's take a look at what we call our GMV-driven businesses first, starting with eBay. Overall, global eBay sites are performing well. The core metrics…

Thanks, Meg. Today, I will discuss our Q2 financial performance, along with our outlook for the third quarter and the remainder of 2007. During my discussion, I will be referencing our earnings slide presentation which accompanies our webcast. Overall, we posted great financial results in Q2. Our results reflect accelerating top line growth, strong earnings growth and excellent free cash flow. Additionally, we continued to redeploy capital to strengthen our business via our share repurchase program and acquisitions. We're now halfway through the year and we are increasingly confident in our ability to deliver even stronger full year revenue and earnings growth. In total, our business generated record net revenues of $1.83 billion, representing 30% year-over-year growth. Organic revenue, excluding acquisitions and FX, was up 23% versus last year, an acceleration of 2 points versus the first quarter. This acceleration was driven by a strong performance from PayPal and increased traction in advertising. Non-GAAP EPS was $0.34 for the quarter, a 40% increase from last year and $0.01 higher than the top end of our guidance range. This out performance relative to the top end of our guidance was driven primarily by a lower tax rate and a weaker than anticipated U.S. dollar. We delivered excellent cash flows as well in the second quarter, generating $533 million of free cash flow, a 45% growth versus last year. The growth was driven primarily by earnings expansion coupled with lower capital expenditures. Now let's take a closer look at our segment results for the quarter. Overall, our marketplaces business had a good quarter, with strong top line growth and expanded segment margins, while we continued to make significant investments to reinvigorate our core auction business and accelerate our adjacent businesses. In the second quarter, the marketplaces business achieved net revenues of $1.29…

(Operator Instructions) Your first question comes from Youssef Squali - Jefferies. Youssef Squali - Jefferies : Meg, how early do you think before we can start seeing the reacceleration in GMV growth in U.S. and Germany that you talked about? In Germany in particular, it looks like your core listings was down 29%, stores up 24%. Does your plan contemplate a fee hike there to balance that platform like you did in the U.S.? Thanks.

We are very excited about the plans that the German team has in place. I was there about four weeks ago. I think it is some of the best work I have seen out of any marketplaces team over the last four or five years. They are totally on this issue. I can't tell you when we will see that acceleration of GMV. It is very difficult to predict. We run a large ecosystem here. We don't ever quite know exactly what lever that we can pull, whether that is products, customer safety, customer support, marketing or pricing is going to do the trick. But we feel very confident that they have diagnosed the situation beautifully. They have a great set of plans in place. I think we are going to have a good second half of the year in Germany. With regard to the listings, I will turn it over to Bob. That doesn't sound quite right to me, but you may have a better perspective.

Clearly, in Germany this quarter, listings did decline. For the most part, as I indicated earlier, globally across the board listings declined 6% year over year. Germany was in the same camp. It declined a little bit more, and we are still lapping a strong media listings growth in the second quarter of last year. So the decline is a little more dramatic. That being said, conversion rates and ASP improved quite dramatically in Germany in the quarter. So as we indicated, we had mid-single-digit GMV growth and revenue growth even stronger than that. The only other thing I would add, Meg , you also asked about U.S. GMV. While we are not satisfied with it, we did have accelerated GMV from Q1 to Q2. So Q1 was 8% GMV growth. Q2 was 10%. StubHub contributed to that, but also we saw accelerated GMV across almost all categories in the U.S. So we still have lots of work to do. We have some exciting stuff coming in Q3. We will see how it plays out over the rest of the year. Youssef Squali - Jefferies : Thanks.

Your next question comes from Aaron Kessler - Piper Jaffray. Aaron Kessler - Piper Jaffray : Can you talk about your priorities in terms of the improved user experience on eBay in the second half in terms of either fraud or improved user experience? Maybe if you can detail a few of those.

Sure, let me take that. As you have correctly pointed out, making improvements to the user experience is one of our main strategic priorities. Let me tell you about a few of them. First is to improve the finding experience, what we call finding 2.0. You can see that we have actually done some work in something we call DefMatch, which is in fact a relevant and algorithmic search engine that actually, based on your prior searches on eBay and what we know about other people who search for those same items, we think we can get you to the items that you're looking for faster and better. You might recall in the old age of eBay, you'd do a search for Madonna and you'd get 20,000 items, everything from T-shirts to books. Now we're able to get you there much faster. So the first bucket would be finding. The second would be making the auction experience even more fun. The first is something we call Bid Assistance, which is really great. We heard from a lot of buyers that they were scared to bid on more than one item because God forbid you won five iPods instead of the one that you really wanted. So we have created something called Bid Assistance that allows you to bid on multiple items. We manage that bidding for you, and you will not win more than one item. That actually has come across with great results. We have something called eBay Countdown, which actually visualizes the fun of the end of the auction with avatars and showing the race towards the end. We've got Feedback 2.0, which is launched and expanded now in virtually every country. We've got a new homepage layout coming. We have also increased customer support for both buyers and sellers. Also, by the end of the year, we will have a 360-degree view of the customer, so that if you are a PayPal customer and you have issues around your eBay account, we can help you on that same phone call or same chat as opposed to having to transfer you between centers. Those are probably the highlights. I would direct you to something called www.playground.ebay.com, where we have a really fun site for users to test a number of the new products that we're launching and provide feedback. I think you'll find it to be exciting, and our users are actually giving us great feedback on it. Aaron Kessler - Piper Jaffray : Great. That's helpful.

Feel free to buy or bid on something while you are there.

Your next question comes from Brian Pitz - Banc of America. Brian Pitz - Banc of America : Thank you. Just a question on your local strategy. You recently launched classifieds site Kijiji in the U.S., as mentioned. Is your primary goal to capture share from craigslist and eventually monetize this site? Or are you really more interested in applying what you may learn from local classifieds to help you with really more local initiatives on the main eBay platform? Thanks.

No, we are interested in building a robust classifieds business in the United States. Because of our success internationally, we actually think it is the right platform on which to expand into the U.S. and serve classifieds communities in the U.S. with a new kind of offering. Interestingly enough, we think actually that the U.S. market is large enough and diverse enough to support a number of different players in this area. This is a very fragmented market. Our plan is to use the U.S. classified business, it is really quite a differentiated offering versus craigslist, with a slightly different target market, and see what happens. If we have anywhere near the success we have had with Kijiji outside the United States, I think we will be quite pleased. We may learn some things that help the eBay U.S., but this is actually a classifieds play in the U.S. Brian Pitz - Banc of America : Great, thanks.

Your next question comes from Imran Khan – JP Morgan. Imran Khan – JP Morgan : Hi, thank you very much for taking my questions. By the way, playground looks great. Meg, if you look at the GMV growth rate of 12%, a decent chunk of the growth rate came from the conversion improvement. What gives you the confidence that once we anniversary some of the changes that you made that conversion can start to improve? How far off are we from historical conversion rates, high conversion rates? The second question is you just raised your free cash flow target to $2 billion. Why not take the opportunity of a historically low interest rate and do some sort of buy back? Thank you.

On the first one, we continue to believe that listings will follow demand. What increase in conversion rate means is that more listings are selling and that our sellers are enjoying more success. As we anniversary a lot of the store inventory format shakeout and cleaning up the sites, our belief is that listings will in fact follow demand. So we are encouraged by some of those things that we're seeing very early on in the U.S., but we do think that will in fact happen as we go forward. Do you want to take the capital question?

On the second question, our focus continues to be on extending our leadership positions in each one of the three business units. We continue to attempt to maintain the financial flexibility to do that, but also redistribute the rapidly growing cash flows to shareholders. So what that has meant a bit historically is in the last two years we spent about $3 billion in cash on acquisitions to strengthen some of our businesses, and you have seen the benefits of that, I think, highlighted in this quarter's performance. Secondly, in the last ten months we have bought back 75 million in shares and will continue to do that with our share repurchase program. So we've got a great balance sheet. It keeps generating cash. Our focus is on redeploying that as effectively as we can. As we think about longer-term capital structure, I am sure at a point in time, we will have debt on the balance sheet, but we have determined as of now, maintaining flexibility, reinvesting, grow while redistributing capital through share repurchase, we generate enough cash flows to do that.

Your next question comes from Ben Schachter - UBS. Ben Schachter - UBS : Just a follow-up on Kijiji. It was a bit of a softer or quiet launch, and I was wondering if you could talk about what type of an investment you may or may not make there to build the business. Also, what does it mean for your craigslist ownership piece? Meg, you talked about marketing spend around the new and improved features on the site. Will there be any meaningful bartering agreement with any of your advertising partners to get more advertising on say Yahoo! or Google?

With regard to craigslist, we enjoy a good relationship with craigslist and we have been an admirer of their company for a long time. We don't expect this launch to impact our investment in craigslist. We plan to maintain our minority equity stake. With regard to investment in Kijiji, obviously we've made some investments in the site. But one of the great things about having a global platform is we can actually launch in 220 cities and 50 states at a relatively low cost using the investment that we have made in the Kijiji platform overseas. So it is one of those times when scale actually helps speed. So we are going to largely grow that organically. We do a little Internet marketing, we do a little direct marketing, but particularly in 2007 and 2008, we want to see how fast we can grow this organically. With regard to marketing spend, we are actually doing, I think, a great holiday campaign in our three largest markets: the United States, Germany and the UK. To my knowledge, I don't think we have any barter arrangements in place. We used to report barter, I don't know if we still do. If we don't, it is because it is so tiny.

We don't have anything of significance.

So I don't actually think there will be any barter in Q4, but we could get back to you on that.

The only other thing that I would add is Meg indicated in her comments that the integration and the amount of activity we have going on in terms of new features to make the site more fun and compelling, we want to bring as much traffic back to experience all the new innovation we have. So that is a part of the integrated marketing campaign in the latter part of this year.

Your next question comes from Douglas Anmuth - Lehman Brothers. Douglas Anmuth - Lehman Brothers : Just following up on the marketing questions, can you talk a little bit about the marketing campaign in the back half, just in terms of quantifying the dollars that you can potentially spend there? Also, a little bit of color on how the current Windorphins campaign is going, if you are seeing that stimulate any buyer demand? Also, with your experiments around search moving between providers a little bit late in the quarter, what your key takeaways are there as well. Thank you.

First, in terms of the marketing question, during the course of this year, our expectations are that our overall margins will be roughly flat with last year at 33%, despite the fact that our lower margin businesses are growing faster than the rest of the portfolio. So we will offset that mix impact with more efficient marketing spend and lower G&A. Those dynamics are not dramatically different as a percent of sales in the second half of the year as they were in the first half. So it won't be dramatically different as a percent of sales.

With regard to Windorphins, for those of you on the phone who don't know, Windorphins is a contraction between winning and endorphins, which is designed to underscore that really fun, great, euphoric feeling that you get when you win on eBay. It was a grassroots teaser campaign for our fall full-blown media campaign. It actually had completely the desired effect, which was lots of inquiry, lots of buzz, lots of talk on the blogs and things like that. So we are really pleased with it, and you will see the first effects as we launch the full-blown campaign here in the United States. But it was exactly the right thing to do and generated a lot of fun and buzz in the user community. Let's see, what was the other question? Douglas Anmuth - Lehman Brothers : Regarding your search changes late in the quarter.

Late in the quarter, as you know, we ran an experiment to see what would happen if we were to change our allocation of Internet marketing between our largest providers. As you know, we pulled back from Google, reallocated to AOL, Ask Jeeves and Yahoo! in particular. We learned a lot from this test that will actually drive our go-forward Internet marketing spend. It has to do with return on investment, where we can get the most leverage. As you know, we have gone back to spending some money on Google. We will continue to reallocate not only between IM engines as we go forward on particular words, but also, frankly, we are reevaluating our spend between offline and online. So a great test that we did. I think we learned a lot from it. I think we are going to be even more efficient than we have been in the past in terms of the efficacy of our IM spend. By the way, it had no impact at all on the results for the quarter, because the money we largely were spending on Google we moved to other partners and saw actually great ROI.

Your next question comes from Derek Brown - Cantor Fitzgerald. Derek Brown - Cantor Fitzgerald : Sort of a broader question, but I am curious, why do you believe sellers are so slow to respond to improved conversions, improved ASPs, with more listings? Where do you think the obstacles are for them to get more product onto the site?

I think there's a couple of things. One is, Derek, this is a big ecosystem and we made a very significant change a year ago when we incentivized store inventory format listings at the expense of core. We actually really also changed the mix of fixed-price and auction in a way that I don't think was actually appropriate for the marketplace. So I think they are sorting through fixed-price versus auction. They are sorting through average selling price on eBay's platform versus others. They are sorting through the volume that has always been the hallmark of eBay and continues to be the hallmark of eBay. I think as we get through some of these overlapping quarters in the marketplace, it settles out. As sellers increasingly see these increased conversion rates, listings will follow demand. But I think we actually upset the balance of this marketplace last year even more than we had understood when we were in the middle of the shift in core issue, because it wasn't just lower-priced listings; it was the nature of the listing. It was fixed price versus auction. I think it was a pretty big shock to the system that is only now coming back into balance. Derek Brown - Cantor Fitzgerald : Where would you point us to look to see the improvements in those metrics right now, I guess from a seller perspective?

Well, I think you have to look at conversion rate and average selling prices by market and by category. As Bob said, we are a little farther along on this journey in the United States than we are in Germany. What we saw in this quarter -- it is early and it's not a huge movement -- but we did see accelerating GMV growth in every single category. GMV was up 2 points. StubHub contributed to part of that. But I actually think we're seeing some strengthening of the core. It is way too early to declare victory. We've got a lot more work to do. As I said, we've got more product changes coming to the site in the next six months than we have in the last three or four years. The other thing I would say here is while we were focused on shift in core cleanup, the other thing that we really recognized was that we had to get after the user experience on eBay in a more aggressive way than we had in the past. That has been a lot of the work in the last six months, that I think will actually strengthen demand even further, which will in fact pull listings along.

Your next question comes from Anthony Noto - Goldman Sachs. Anthony Noto - Goldman Sachs : Thank you very much. Two questions, one on PayPal and then one on GMV. On PayPal, you announced two new partners in the travel space, Northwest and I think Southwest. I was wondering if you think these two accounts will shorten the sales cycle into other travel providers, both the suppliers as well as the online travel companies? The second question I have is GMV growth is obviously a measure of your ability to convert demand and supply. Could you give us a sense for how much demand growth is so that as you implement the different initiatives, Meg, that this may actually give us a sense of the upside in converting that demand? eCommerce online, the best measure we have, is growing globally around 25%. Do you have demand growth of 25%, but you are only converting half of that? Could you give us a relative measure of your demand growth? Thanks.

I will take the easy question, we will give Bob the hard question. With regard to our travel product, at PayPal we've spent quite a bit of time getting two kinds of travel products right. One is a product for the airlines and the other is for the online travel providers like Orbitz, Expedia. Both of those needed actually quite some adaptation from our core merchant services product by the nature of the kind of business that they run. For example, the travel providers, actually you have to create a PayPal distribution effect that, let's say I buy an airline ticket on Orbitz. Part of that has to go to the airline and part of that is the fee that Orbitz makes. You have to be able to handle that disbursement in a perfectly high-integrity way. So we are pleased with the product. We have gotten good response. I would hope that the launch of Southwest and Northwest actually accelerates the adoption in the travel segment. These are industries where they do look to what people are doing. No one wants to be the last to adopt a new payment mechanism. So I feel pretty good, actually, about our progress in payments in the travel industry. I am excited about it, actually.

Anthony, on your second question, we look at overall global market rates of growth, probably in the mid to lower 20s geographically slower in the U.S. and higher outside of the U.S. That is the market that we are going after. In terms of how we measured our performance, more and more it's from revenue growth as opposed to just GMV growth, because the different formats and the different platforms that we're trying to build, whether it is classifieds, whether it is how we monetize traffic through advertising, whether it is online comparison shopping, we're trying to make sure we have the platforms in place to enable us to grow at market rates of growth. That is how we are approaching it.

The only other indication that you can look at, Anthony, is the amount of traffic that is coming to the site. That is holding up very well. We will know more at the end, obviously, of Q2. The industry traffic reports trail our traffic reports. But traffic is holding up, and I think as we launch these product features and as we launch our marketing campaigns in the fall, I will hope that we will get a disproportionate or more than our fair share of traffic coming to eBay. Anthony Noto - Goldman Sachs : Would you share with us the growth from your internal logs and your traffic growth? The third-party services are not that accurate.

We typically don't release that because I think it is just better for everyone to rely on the same traffic reports. Anthony Noto - Goldman Sachs : Thank you.

Your final question comes from Mark Mahaney – Citigroup. Mark Mahaney – Citigroup: Great, thank you very much. I wanted to ask about one product, which is eBay Motors 2.0, the beta that you were showing at eBay Live in Boston looked very promising. It seems that product has been slow or maybe you’ve missed some deadlines. Can you just talk about the process there? When do you think we will see that, because it does look promising? Real quickly, Germany and eBay U.S. GMV reacceleration challenges, how different do you think they are? In other words, if you get these learnings from what sounds like promising initiatives in Germany, do you think that they are easily applicable to the U.S. market or are the tools necessary to reaccelerate those two markets very different? Thank you.

Let me take Motors 2.0. We are excited about Motors 2.0, but as John Donahoe has often talked about, we now have a very robust AB testing capability inside eBay, which we did not have a year ago. And so, to make sure that Motors 2.0 was exactly right and didn’t disrupt the eBay Motors marketplace in an unintended way, we actually have been showing Motors to a randomly selected, relatively small segment. We have received a ton of incredibly valuable feedback during this initial testing phase. We are making a couple of tweaks to the product that actually on reflection, listening to this user feedback, makes a ton of sense. And so we were ready to launch, but we through our AB testing capability, we decided to delay to make a few more product tweaks to make it exactly right. The other thing I would say with regard to Motors is increasingly we are going to want to part vehicles from parts. Parts and accessories is doing incredibly well, it is one of our fastest growing categories around the world, and I think we are going to want to part those two. And actually, eBay Motors, I think was better for vehicles than it was for parts, and we needed to make some tweaks to the parts side so that we didn’t have the law of unintended consequences on parts and accessories. With regard to learnings across eBay, one of the things I think that has also taken place in the marketplace business is really terrific best-demonstrated sharing practices between all of the different countries. What we learn in the U.S. immediately gets ported to Germany, and vice versa. So pricing, which is controlled on a country level, all of those learnings are being fed in centrally. Things like the social networking components that we are playing with in Germany. If they work, they will be moved to the U.S. A lot of the product changes in the U.S. will be moved to Germany. So I would say that when we actually hit on something that works, as we have, we will be able to roll it out much faster. Here is the other thing: we will be able to implement these product changes into the U.K., Italy, France, Spain, the Netherlands way ahead of the curve, so hopefully we won’t see the slowdown in those markets that we have in the U.S., because we will be ahead of the curve from a product planning point of view. Good, okay. I think we are at the end of the time. Thank you very much for listening. We appreciate it.