eBay Inc. (Nasdaq:EBAY) ([www.ebay.com]), The World’s Online Marketplace, reported financial results for its quarter ended March 31, 2004. eBay reported record consolidated Q1-04 net revenues of $756.2 million, up 59% year over year; record operating income of $266.7 million, up 80% year over year; and record pro forma operating income of $286.4 million, up 73% year over year. Operating income was 35% of net revenues and pro forma operating income was 38% of net revenues.
Consolidated net income in Q1-04 was $200.1 million, or $0.30 per diluted share. eBay’s pro forma consolidated net income, excluding certain items, was a record $210.8 million, or $0.31 per diluted share.
These results exceeded the company’s guidance of $700 million for net revenues, $0.24 for earnings per diluted share and $0.25 for pro forma earnings per diluted share.
“eBay’s Q1 results exceeded our highest expectations,” said Meg Whitman, President and CEO of eBay. “Our continuing momentum demonstrates yet again the power of eBay’s community and reinforces our confidence in the long-term potential of our business.”
Key Financial and Operating Metrics Consolidated Net Revenues — Consolidated net revenues totaled a record $756.2 million, which represented an increase of 59% from the $476.5 million reported in Q1-03.
Transaction Revenues — Consolidated net transaction revenues totaled a record $738.8 million, which represented an increase of 59% from the $465.6 million reported in Q1-03.
— eBay U.S. Net Transaction Revenues — eBay U.S. net transaction revenues totaled $326.2 million in Q1-04, reflecting 39% year-over-year growth. — eBay International Net Transaction Revenues — eBay International net transaction revenues totaled $257.1 million in Q1-04, representing 87% year-over-year growth.
— Payments Net Transaction Revenues — Payments net transaction revenues totaled $155.5 million in Q1-04, representing 67% year-over-year growth. Confirmed Registered Users — Cumulative confirmed registered users at the end of Q1-04 totaled a record 104.8 million, representing a 52% increase over the 68.8 million users reported at the end of Q1-03.
Active Users — Active users, the number of users on the eBay platform who bid, bought or listed over the trailing 12 months, increased to 45.1 million, a 45% increase over the 31.1 million active users reported in the same period a year ago. Listings — Listings totaled a record 327.7 million in Q1-04, 49% higher than the 219.7 million listings reported in Q1-03. Gross Merchandise Sales (GMS) — GMS, the total value of items sold, was a record $8.0 billion, representing a 51% year-over-year increase from the $5.3 billion reported in Q1-03.
Total Payments Accounts — eBay’s PayPal business had 45.6 million total accounts at the end of Q1-04, a 67% increase from the 27.2 million reported in Q1-03.
Total Payment Volume (TPV) — PayPal’s TPV was $4.3 billion in Q1-04, a 64% increase from the $2.6 billion reported in Q1-03.
Gross Profit — Gross profit was a record $621.9 million, or 82% of net revenues, which was up from the 81% level reported in Q1-03.
Operating Income — Operating income was a record $266.7 million, or 35% of net revenues, an 80% increase over the $148.1 million reported in Q1-03. Pro forma operating income increased 73% year over year to a record $286.4 million, or 38% of net revenues, compared to 35% in Q1-03.
GAAP Net Income — GAAP net income increased 92% year over year to $200.1 million, or $0.30 per diluted share.
Pro Forma Net Income — Pro forma net income increased 81% year over year to a record $210.8 million, or $0.31 per diluted share.
Operating and Free Cash Flows — Operating cash flows totaled $366.2 million. Free cash flows, representing operating cash flows less capital expenditures, totaled $295.3 million.
Key Category Performance — Based on Q1-04 GMS, eBay now has twelve categories that deliver $1 billion or more in worldwide annualized GMS: eBay Motors at $8.7 billion; Computers at $2.6 billion; Consumer Electronics at $2.5 billion; Books/Movies/Music at $2.4 billion; Clothing and Accessories at $2.2 billion; Sports at $2.0 billion; Collectibles at $1.6 billion; Home & Garden at $1.6 billion; Toys at $1.5 billion; Jewelry & Gemstones at $1.3 billion; Cameras & Photo at $1.2 billion; and Business & Industrial at $1.1 billion. Fixed Price Trading — eBay’s fixed price trading contributed approximately $2.2 billion or 28% of total GMS during Q1-04, primarily from eBay’s “Buy It Now” feature.
eBay Stores — eBay hosts approximately 146,000 stores worldwide. In Q1-04, the company initiated store fees for the first time for certain of its international websites.
Mobile.de — On April 1, 2004, eBay completed its acquisition of mobile.de, one of the leading online classifieds websites for vehicles in Germany. eBay acquired all outstanding shares of mobile.de for approximately Euro 121 million in cash, or approximately US $150 million, based on the April 1, 2004 exchange rate of Euro 1.24 per US $1.00.
Consolidated Financial and Operating Summary
eBay reported record consolidated net revenues of $756.2 million in Q1-04, representing a 59% year-over-year increase. On a year-over-year basis, consolidated net revenues reflected a foreign exchange benefit in Q1-04 of approximately $47.1 million. On a sequential basis, consolidated net revenues reflected a foreign exchange benefit in Q1-04 of approximately $18.0 million, primarily related to the Euro.
Gross profit as a percentage of net revenues was 82%, a percentage point improvement from the 81% level reported in Q1-03, primarily reflecting improved cost leverage and the continuing effects of cost savings from eBay Picture Services, launched in Q4-03.
Sales and marketing expenses totaled $192.7 million, or 25% of net revenues, compared with 26% reported in Q1-03. The incremental dollar change in sales and marketing costs primarily reflects international expansion and increases in both on-line and off-line marketing efforts.
Product development expenses totaled $52.7 million, or 7% of net revenues, consistent with 7% of net revenues reported in Q1-03. Total product development expenses in Q1-04 do not include $10.2 million of required cost capitalization for major site and other product development efforts.
General and administrative costs totaled $90.6 million, or 12% of net revenues, down from the 13% of net revenues reported in Q1-03. The incremental dollar change in general and administrative costs primarily reflects increases in headcount and professional services.
Income from operations totaled a record $266.7 million during Q1-04, an 80% increase over the $148.1 million reported in Q1-03. On a pro forma basis, income from operations totaled a record $286.4 million, a 73% increase over the $165.6 million reported in Q1-03. Included in both the GAAP and pro forma Q1-04 results was a $29.5 million year-over-year net benefit from changes in foreign exchange rates.
Net interest and other income totaled $21.2 million in Q1-04, up from the $7.4 million reported in Q1-03. The increase in Q1-04 was primarily the result of gains of approximately $14.8 million due to certain sublease amendments and contract terminations.
The GAAP and pro forma effective tax rates for Q1-04 were 30% and 31% respectively, a decrease from the 32% GAAP and pro forma effective tax rates in Q1-03. The lower rates reflect an increased profit contribution from the company’s international operations.
eBay’s balance sheet remains strong. At the end of Q1-04, the company had $3.1 billion in aggregate cash and investments and more than $6.4 billion in total assets.
The company reported $366.2 million in operating cash flows and $70.9 million of capital expenditures in Q1-04, resulting in free cash flows of $295.3 million.
For the remainder of 2004, and consistent with eBay’s long-term opportunity and financial strategy, the company plans to invest aggressively in China, product development, site infrastructure, sales and marketing, and the international expansion of PayPal.
Net Revenues — The company now expects that consolidated net revenues for 2004 could be as high as $3.15 billion, $150 million higher than the company’s most recent guidance. This improved outlook derives from the strength of eBay’s U.S., International and Payments businesses. From a quarterly perspective, eBay expects that consolidated net revenues could be as high as $760 million in Q2-04, $765 million in Q3-04 and $869 million in Q4-04. eBay’s guidance is based on an assumed 2004 quarterly weighted average exchange rate of US $1.20 per Euro.
GAAP Diluted EPS — eBay now expects that GAAP earnings per diluted share for the full year 2004 could be as high as $1.06, $0.07 higher than the company’s most recent guidance. From a quarterly perspective, eBay estimates that GAAP earnings per diluted share could be as high as $0.24 in Q2-04, $0.24 in Q3-04 and $0.29 in Q4-04.
Pro Forma Diluted EPS — eBay now expects that pro forma earnings per diluted share for the full year 2004 could be as high as $1.13, $0.09 higher than the company’s most recent guidance. From a quarterly perspective, eBay estimates pro forma earnings per diluted share could be as high as $0.26 in Q2-04, $0.25 in Q3-04 and $0.31 in Q4-04.
Effective Tax Rate — eBay’s current estimate for its 2004 effective tax rate is 30% on a GAAP basis and 31% on a pro forma basis, which is consistent with previous guidance.
Capital Expenditures — eBay expects its capital expenditures to total $250 million for the full year 2004, without taking into account acquisitions, which is consistent with previous guidance.
To supplement the company’s consolidated financial statements presented in accordance with GAAP, eBay uses non-GAAP measures of certain components of financial performance, including gross profit, operating income, net income, earnings per share, cash flows, and effective tax rate, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors’ overall understanding of the company’s current financial performance and the company’s prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results. In addition, because eBay has historically reported certain non-GAAP results to investors, the company believes the inclusion of non-GAAP measures provides consistency in the company’s financial reporting. These measures should be considered in addition to results prepared in accordance with generally accepted accounting principles, but should not be considered a substitute for, or superior to, GAAP results. Consistent with the company’s historical practice, the non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure.
eBay is The World’s Online Marketplace(R). Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Through an array of services, such as its payment solution provider PayPal, eBay is enabling global e-commerce for an ever-growing online community.
For complete details on eBay’s and PayPal’s first quarter performance visit CardData ([www.carddata.com]).