Good day, ladies and gentlemen, and thank you for standing by, and welcome to eBay's Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] And now I'll turn the program over to Tracey Ford, Director of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us, and welcome to eBay's Earnings Release Conference Call for the Fourth Quarter of 2010. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We're 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 at investor. ebayinc. com. In addition, an archive of the webcast will be accessible for 90 days through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures in talking about our company's performance. You can find a 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 relating to our future performance that are based on our current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding expected financial results for the first quarter and full year 2011 and the future growth in the Payments and Marketplaces businesses. Our actual results may differ materially from those discussed in this call for a variety of reasons, including, but not limited to: the aftereffects of the global economic downturn; changes in political, business and economic conditions; foreign exchange rate fluctuations; the impact and integration of recent and future acquisitions; our increasing need to grow revenues from existing users, particularly in more established markets; the increasingly competitive environment for our businesses; the complexity of managing increasingly large enterprise with a broad range of businesses at different stages of maturity; our need to manage regulatory, tax, IP and litigation risks, including risks specific to PayPal, Bill Me Later and the financial industry; and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability. You can find more information about factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q, available at investor.ebayinc.com. You cannot rely on any forward-looking statements. All information in this presentation is as of January 19, 2011. We do not intend or undertake no duty to update. With that, let me turn the call over to John.

Thanks, Tracey, and good afternoon, everyone, and welcome to our Q4 earnings call. In 2010, we have focused our company on three priorities: first, becoming a more customer-focused company; second, creating better user experiences through technology-driven innovation; and third, driving operating efficiency to reinvest in growth. We've made steady progress each quarter, and we ended the year with strong Q4 results. I'm proud of what our teams have accomplished. We're becoming a stronger, more competitive company. We're creating opportunity for sellers and merchants worldwide. Our products are becoming more innovative. And we're making it more convenient for millions of people to shop and pay online every day, with more choices to help them find whatever they want, whenever they want, wherever they are. In Q4, revenue and earnings per share exceeded our guidance. Excluding Skype, revenue increased 10%, and non-GAAP EPS was up 24% year-over-year, driven by both stronger performance and onetime items. And we generated free cash flow of over $650 million. PayPal drove strong payment and revenue growth while expanding margins. And eBay accelerated sold items growth, driven by gains in the U.S., U.K. and Germany. We've extended our leadership position in mobile commerce, nearly tripling our eBay Mobile GMV year-over-year to nearly $2 billion, with strong holiday shopping momentum in Q4. In 2011, we expect Mobile GMV to double to $4 billion. Mobile is clearly becoming a new way people shop, and eBay is helping to lead the way with innovative apps across multiple platforms, including the iPad. Our Mobile apps have now been downloaded more than 30 million times in eight languages across 190 countries. We also expanded our capabilities. In Q4, we made or announced acquisitions that we believe will strengthen our position in fashion, mobile and local commerce. brands4friends, Germany's largest online shopping club,…

Thanks, John. During my discussion, I'll reference our earnings slide presentation that accompanies the webcast. All growth rates mentioned in my prepared remarks represent year-over-year comparisons, unless I clarify otherwise. Overall, we delivered strong fourth quarter results. We came in above our guidance on the top and bottom line as we continued to execute against our strategic priorities for both PayPal and Marketplaces. During the quarter, we generated free cash flow of $657 million. We repurchased approximately $400 million worth of eBay shares, and we issued term debt of $1.5 billion to capitalize on the low-interest-rate environment and enhance our financial flexibility. Lastly, we closed three acquisitions in the last three months that will help strengthen our portfolio of businesses. We're pleased with the progress in Q4 and 2010, and we carry that momentum into 2011. In the fourth quarter, our combined businesses generated net revenues of $2.5 billion, up 5%, or a 10% increase excluding Skype. Organic revenue growth was up 12%. Foreign exchange decreased growth by two points, and the inclusion of Skype in 2009 results decreased growth by five points. The year-over-year increase in revenue was primarily due to a stronger holiday season; strong performance across our international businesses, with continued Marketplaces strength, particularly in Europe; and PayPal's strength driven by Merchant Services. Fourth quarter non-GAAP EPS was $0.52, a 16% increase, or 24% excluding Skype. Non-GAAP operating margin was 29 1/2%, up 20 basis points from Q4 '09. The year-over-year increase in EPS was primarily due to strong top line growth, a lower effective tax rate and solid productivity. We had several things that transpired in the quarter that are worth highlighting in an effort to provide a bit more transparency on our results. Versus the guidance we gave back in October, there are three things…

[Operator Instructions] Our first questioner in queue is Sandeep Aggarwal with Caris & Company. Sandeep Aggarwal - Caris & Company: Can you please let us know, have you achieved the level of improvement in U.S. marketplace that you had hoped when you made material fee changes in February? And how would you compare, basically, overall U.S. improvement relative to Germany and U.K. ?

Sure, Sandeep. As you referenced, we implemented on March 30 the very significant pricing and search exposure changes in the U.S. that we had done in Europe 18 months earlier. As I said in April, based on our experience in Europe, it takes a couple of quarters, two, three quarters, to work them through, and that was certainly the case in the U.S. And we made solid progress in the fourth quarter, the same customer metrics I always refer to as what I look at: Our buyer Net Promoter Scores in the U.S. improved for the sixth consecutive quarter, with buyers clearly saying they see improved trust and improved searchability or discoverability; sold item growth grew 8% in the fourth quarter, which is an acceleration over the previous quarter, so buyers are coming to us with more frequency; and then GMV grew 5%, which is a three-point acceleration from Q3 and reflected working through some of the second-order effects from the changes in March. So I feel like we end the year in North America on a good trajectory. I'm not satisfied with where we are in the U.S. market. Our GMV growth is still behind that of the market. But I feel like we're on track and now begin implementing the vertical shopping experiences and other search-related activities that will build on the fundamental change we made last year and allow us to close the gap between our growth rate and that of e-commerce. Sandeep Aggarwal - Caris & Company: And John, can you please talk about the application of the eBay Bucks program in terms of what benefit do you drive or see the incentive you are providing to the buyers?

Yes, eBay Bucks was a program that, frankly, we were surprised at the attractiveness to heavy eBay buyers. And as you know, we started a couple of years ago focusing first on how do we retain and deepen our relationships with our top customers? And these are people who like coming to eBay, who buy with more frequency, and eBay Bucks was something that they responded to. What we see is the people that are using eBay Bucks are buying with more frequency, we think that's one of the things driving sold item growth, and we believe we're gaining share of wallet with those buyers. It's not something that's going to necessarily attract new customers to eBay, so it's something that's very much focused on our top buyers, and it's one element of our marketing mix. I would characterize it as one tool in the marketing tool kit.

Our next questioner in queue is Scott Devitt with Morgan Stanley.

John, coming out of the year with PayPal margin above the high end of your three-year range, as Bob mentioned on the call, could you just talk about the way you're thinking about the margin profile for PayPal over the next several years as the business remains in growth mode? And then separately, Bob, could you give the sold items number x Gmarket? I don't think that was in the presentation unless I missed it.

I'll let Bob handle both of those.

Yes. The sold items, Scott, we just give you kind of the year-over-year impact. Because Gmarket was not new in the quarter, that year-over-year dynamic of excluding and including it is no longer relevant. So sold items growth was up 10% on an apples-to-apples basis year-over-year. On Payment margins, back in March of '09, we said that by 2011, we'd be at 18% to 20% operating margins. And as I indicated and you referenced, we had 21% for the year. So we feel great about not just where we are in terms of margin expansion, but also the fact that we've made significant investments during the course of that time to, in essence, roughly double the amount of total payment volume from 2009 to 2011. So we feel relatively good. And the three things that improved the margins during the course of 2010 we expect to continue, and they were simply good leverage on top line growth; secondly, you know that we're very laser-focused on transaction margins and keeping them above the 60% level; and third, continued progress in scaling the Bill Me Later business and using our collective risk management tools to appeal to more consumers but also to drive down credit losses. So those three dynamics are the things that contribute to margin performance improvement. And we expect those to continue, but it won't be at the expense of investment. We think we have a wonderful business with lots of opportunity, and we will continue to invest to ensure we capitalize on the growth prospects in front of us.

Can I just ask you to clarify on the sold items? I thought the intent behind that was to normalize for the couponing in Korea and such that the Gmarket acquisition had comp last quarter as well. I'm just wondering is there a way to give that number to normalize for Korea, given what you're doing in that country from a couponing standpoint?

The 10% growth on a year-over-year basis is apples-to-apples. There is a way to give you Gmarket-specific performance, but it's just not as relevant, and therefore, we're not going to. So I think the 10% is really indicative, Scott, of how well we performed across the globe, apples-to-apples, in the quarter.

Scott, what I'd just say, in Korea, we are very focused on leveraging both Gmarket and IAC to build a sustainable business and build it in a healthy way, in a way -- a year ago, 18 months ago, or maybe it was two years ago now, we were beating each other's brains out with couponing, and it wasn't necessarily producing more loyal customers. And what we've now got is we've got two sites; one that's focused on hard goods and skews toward male consumers, that's IAC; and the other that has soft goods and skews toward female shoppers, that's Gmarket. And a platform that now sellers can leverage on across both more seamlessly. And we're focusing more on customer loyalty. And the place you really see it is GMV growth versus revenue growth. The revenue growth is very much consistent with market, and in fact, perhaps a little bit above the market. It's the GMV growth in the short term that suffers from us couponing less, if you will. And we're just pouring that money into more loyalty programs, but the most important point is the competitive position of that business is improving.

Our next questioner in queue is Mark Mahaney with Citi.

A question just about the guidance. You've got EPS growth materially, or somewhat materially, below the revenue growth, yet you've got a lower tax rate. And it sounds like you're kind of calling for operating leverage in the PayPal business. So what's going on here? Just a mix shift to the lower PayPal business? Is it also dilutive acquisitions? Or is it also a lookout, outlook for material reduction in the segment margins at the Marketplace business?

In the aggregate, implied in our guidance is operating margins that are relatively flat year-on-year. The reason EPS growth is not quite as high as revenue growth is, first, because our tax rate is getting better. My guidance had us at about 19% for 2011. The overall tax rate in 2010, as the result of the fourth quarter items, was 18%. So tax rate is more effective, but in 2010, we have the, kind of, the collective benefit from prior periods flowing to the tax rate in 2010. So our effective tax rate will, in fact, be up a little bit versus 2010. The second thing is, as you know, we raised about $1.5 billion of debt in the fourth quarter, and we will incur kind of the full-year effect of interest expense. Those two drivers are primarily the difference between revenue growth and EPS growth. Overall, operating margins for the portfolio will be relatively flat year-on-year.

Our next questioner in queue is Jeetil Patel with Deutsche Securities.

Can you I guess maybe talk about the impact of the Durbin bill, in terms of the fee changes, to your business in terms of costs? Is that something that drops to the bottom line? Or do you plan to kind of make any changes on pricing as you look at the PayPal set of the business? Second, I guess you talked about it a couple of years ago, kind of gaining share in '11, maintaining share in '10. I guess, can you give us an update as to kind of how it shook out for '10 and '11, I guess, your plan, how fast you think e-commerce grows U.S. and then global and then how you pace against that?

John, maybe I'll take the former and the latter up too. Jeetil, thanks for the question, because I know Durbin is on lots of people's minds. As you know, the draft regulation just came out at the end of last year. Fairly long, it's fairly complicated, and it's in draft form. So we know it's going to change and get a little bit clear. Maybe, overall, if I cut through it all in terms of what we determine the impact of our business is, in the short and the medium term, we believe it'll probably neutral to positive on our performance. And let me maybe provide a little bit -- maybe a little context as to why we say that in terms of how we think it's going to impact us. First, we believe our transaction expense as a result of the changes will, in fact, go down as we incur lower processing costs on debit transactions, and that'll be a reasonably significant number. If, how and when we pass it on to customers is a bit of a TBD at our end, but that, net-net overall, we think that's a neutral-to-positive impact. The second area that we're impacted is on the fees that we charge for the PayPal debit card, and that's a relatively small, small portion of our revenue. It will be impacted by Durbin, but it'll be an insignificant, immaterial impact on the business. The third area, which is a little more indirect in nature, and that is whether those that are more directly impacted by Durbin, whether they will pass on higher fees that would negatively impact PayPal, particularly on ACH-related transactions. I would say a few things. First, in the short to medium term, I don't anticipate that happening. We'll see, but I don't anticipate…

Good. I'll take the -- I can't even remember what the second question was now, but I do think -- I mean, we spent a lot of time working with Durbin, and I think we feel comfortable with where we are. And if anything, it could improve our competitive position. Jeetil, I think your second question was on the Marketplace business and how we're growing relative to the market and then maybe a little bit about the e-commerce outlook. So in 2010, we grew our global Marketplaces revenue 9% on an FX-neutral basis and GMV about 11%, and that was roughly in line with the markets in which we participate in. But obviously, within that, we had some markets where we grew faster than the market, like the U.K., like Australia, like Korea and other markets, where we grew more slowly than the market, the U.S. being the most pronounced of those. But as I said earlier, I feel good about where we are exiting the year. And I'm confident and optimistic we will make continued progress into 2011, and our goal is still to grow at or faster than the market. Now the market growth rate is an interesting question, because I'd say two things here. One, at our Analyst Day in March of 2009, I said that I thought e-commerce would go from 5% of off-line retail to somewhere between 15% to 20%. And we still believe that, and we saw a little bit of that in the fourth quarter with the e-commerce growth rate gap over retail widening. So I'm not sure I can exactly predict what the 2011 e-commerce growth rate is and will be, but what I will say is we clearly see changes and trends in the market that increase the fundamental attractiveness of…

So maybe we'll guess the market growth, but what does your Marketplace kind of -- what's your guidance and bet from a Marketplace GMV growth standpoint? Maybe we'll just figure out the market at that point.

We're not going to go beyond the financial guidance that Bob gave. So you'll have to do the math in that.

Our next questioner in queue is Spencer Wang with Crédit Suisse. Spencer Wang - Crédit Suisse AG: Just a two-part question on PayPal. First, for Bob, just a follow-up on the Durbin comments as we try and quantify the impact. I was wondering if you could just update us on the source of funds mix at PayPal in 2010. And then, second, for John, can you talk a little bit more about the mobile opportunity for PayPal as it relates to the off-line retail opportunity?

I think, as you're aware, we haven't really broken down sources-of-funding mix for a while. I would say that for card transactions, we've said that roughly 55% to 60% of our volume is with card transactions. We haven't broke that down between credit or debit. And we have said that while debit has gotten dramatic traction off-line, it hasn't been as dramatic online. It's a larger component, but not as dramatic. So what we try to give you is more this quarterly pulse on how we're doing in leveraging technology, providing consumer choice and influencing consumers on low-cost rails, which gets reflected in how the transaction expense number that we give you each quarter. And that's the metric that we try to manage over time. And as I indicated, in the short and medium term, our best assets, the ultimate outcome of Durbin, would indicate that, that overall number, all else equal, would go down.

And then, Spencer, on the PayPal mobile opportunity, we really break it into a couple of categories. One is we launched Mobile Express Checkout last year, and what that, in essence, does is any merchant that's implemented PayPal's Express Checkout with the exact same implementation now, integration, has a mobile payments capability, which is relevant, because those merchants want to have their inventory accessible off mobile devices. And we know consumers don't like putting credit cards into mobile devices, and so now PayPal helps them extend their inventory to mobile devices with one simple integration. And then, with respect to mobile in the off-line world, I've got to be honest. This is one where merchants are reaching across, off-line merchants, and really pulling us in. And what's happened is that the, I'll call it the last mile in teleco, there's the last inch in point-of-sale mobile payment technology. And what's happened in the last year is there's a recognition that you don't have to have one standard across NFC or RFID or Bluetooth or using tones and sounds off the Smartphone device, and there's a lot of innovation going on there. So that last inch is being solved, if you will, in multiple ways. So the recognition is that PayPal can not only offer you a mobile payments capability for a merchant; that is, consumer pays at point of sale; but it also offers that merchant an ability to use PayPal to offer coupons, offers, other things that sort of repositions PayPal not from just being a payment mechanism at point of sale, but be a demand generator, if you will, and a customer loyalty engager. And so we're working on some very interesting things with large retailers. Starbucks is, for instance, one we announced at our PayPal X platform event, where the Starbucks integration is not so much to substitute for payments. It's a way to allow their top buyers, their top consumers, to process more quickly through their lines. And so I think you're going to hear a lot more to come on this. And we think there's a -- it's almost opening up a whole new field of opportunity for PayPal that we weren't even thinking about a year ago.

Our next questioner in queue is Doug Anmuth with Barclays Capital.

First, Bob, I was hoping you could clarify the impact of the three acquisitions and the guidance for 2011 on the top line. And then secondly, John, in talking about eBay and PayPal together, you mentioned earlier in the call just how the synergy is still strong between the two, and that sort of echoes what you've said in the past. But what would make you change your mind strategically on whether these two companies need to be together going forward?

In terms of the -- just, I'll use the midpoint of our 2011 guidance of about 14%. Inherent in that is the revenues from the three transactions that we've closed: Milo, Critical Path and brands4friends. The first two are, essentially, inconsequential. The last one is, as we indicated, the largest private sale business in Germany, and I think about it as roughly a little less than 1 1/2% of growth from acquisitions in total. So midpoint of guidance, roughly 12 1/2% organic, another 1 1/2% from the acquisitions that we've announced.

And then, Doug, on synergies. Again, historically, we've identified, really, two sources of synergies. One is that eBay is still a significant source of new customers for PayPal, and as I mentioned, it's increasingly a new source of customers for BML, which helps both PayPal in having BML customers and helps the overall PayPal funding mix or transaction expense. The second source has been eBay's balance sheet. EBay Inc.'s balance sheet has helped us have the capacity to make investments and acquisitions in other areas than PayPal. And frankly, the third area of synergy that has been growing over the past 12 months is some of these areas of innovation. Our Mobile teams, we are out front, we believe, in both mobile commerce and mobile payments. And there's a lot of sharing between those two efforts. In fact, this Critical Path Software company we bought provides us mobile apps capability across both business units. Our efforts on the blurring line between online and off-line, local, when we call upon these merchants, we can offer them multi-channel capabilities as well as payments capabilities. And our platform, opening up our PayPal platform, and increasingly, you'll hear us talk about opening up our overall commerce platform. So we still see synergies. We see those synergies actually strengthening in the areas of innovation. What will change our mind is, quite simply, when one business stops making the other more successful or stronger. And this is not a religious thing for either Bob or I, and I think we demonstrated that with Skype. And so as long as the businesses make each other stronger, we think that's in the best interest of the businesses and shareholders. And if and when that changes, we'll act quite rationally.

Operator, we have time for one more question.

Our final question in queue for today comes from Colin Sebastian with Lazard.

John, I think you alluded to, earlier in the call, changes coming to search on the Marketplace platform. I was curious if you could talk about the timing for that and other changes. And then just a follow-up on Mobile as well. I'm curious if you're able to quantify how much of the Mobile volume is incremental or really a substitution from desktop shopping.

Sure, Colin. On search, and I encourage everyone to come to our Analyst Day in a couple of weeks, because Mark Carges will elaborate on this, but in essence, we built a new search -- Mark and his team built a new search platform. And the first two applications built on top of that were the Fashion experience and the eBay Mobile experience. And so if you've seen the eBay Fashion experience, it's much more customized to the category experience. In that case, it's more visual. It allows you to save your preferences. It allows you to shop in the way you want to shop in that category. In Q4, Mark and his team also rolled that out to a few subcategories, a customized shopping experience for electronics. And in particular, that was for MP3 players, navigation systems and DVDs. So if you haven't seen that, I'd go in and do a search for an iPod or a navigation system, and you'll see a more product-based experience. And so the search roadmap for 2010 has a very heavy focus on vertical shopping experiences. Fashion, electronics, auto parts, home and garden are providing better shopping experiences that allow our enormous inventory to be more easily discoverable and, we believe, will increase conversion over time. There's no doubt that the fashion conversion has improved with these search improvements. So I think you'll see a lot on the vertical front. On Mobile, because the mobile application was built on the new search platform, we've been able to rev that several times. And again, it's adding to our agility and our speed. How much of the Mobile volume is incremental? We don't know. I'm going to guess roughly a third. We're still trying to sort that through. What we're finding -- what's interesting is you have mobile-enabled transactions, which is in some cases, people start on the mobile device, buy on the mobile device and pay on the mobile device. In other cases, people start on a PC-based device and buy on a mobile device. With something like RedLaser, sometimes people are starting off-line and then they're actually buying online, and we're seeing every combination. So as we think about Mobile, both at eBay and PayPal, we're treating Mobile as another device in a what we believe will be increasingly a seamless shopping experience. Again, that's something we're going to talk about in more detail at our Analyst Day in a couple of weeks. All right, thanks, everybody. Again, I'll put our last plug in for joining us here in early February, and we'll look forward to seeing everyone then.

Thank you. Ladies and gentlemen, this does conclude today's program. Thank you for your participation, and have a wonderful day. Attendees, you may now disconnect.