Good day and welcome everyone to eBay's first quarter 2006 earnings results conference call. Today's 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 Investor Relations Director, Ms. Lydia Ventura. At this time, I would like to turn the conference over to Lydia Ventura. Please go ahead.

Good afternoon. Thank you and welcome to eBay's earnings release conference call for the first quarter of 2006. Joining me today are Meg Whitman, our President and CEO; and Bob Swan, our Chief Financial Officer. This conference call is also being broadcast on the Internet and is available to the Investor Relations section of the eBay website. Before we begin, I would like to take this opportunity 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 a reconciliation of those measures to GAAP measures in the tables of our earnings press release. In addition, management may make forward-looking statements regarding matters that involve risk and uncertainty, including those relating to the Company's ability to grow its businesses, user base, and user activities. Our actual results may differ materially from those discussed in this call for a variety of reasons, including: the complexity of managing a growing company with a broad range of businesses; our increasing need in established markets to grow revenues from existing users as well as from new users; an increasingly competitive e-commerce environment; our need to upgrade our technology and customer service infrastructure to accommodate growth at reasonable cost while adding new features and maintaining site stability; regulatory tax and litigation risks, including financial industry risks specific to PayPal and risks specific to Skype's technology and to the VoIP industry; our need to successfully extend our platforms to new countries and new types of merchandising sellers; foreign exchange rate fluctuations; and, the impact and integration of 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. Now, over to Meg.

Thank you, Lydia. Welcome, everyone to today's conference call. Q1 was another excellent quarter for eBay with strong growth across our expanded portfolio of businesses; each as a successful stand-alone business and together, they create additional opportunities for innovation and expansion, a concept we call the Power of Three. With eBay, PayPal and Skype, we have the best Internet franchise in the world, which allows us to grow revenues and invest in key areas of the business. In Q1, those investments yielded strong results. The eBay marketplace added more than 12 million new users and generated record gross merchandise volume of $12.5 billion. PayPal topped 100 million accounts and processed $8.8 billion in total payment volume. Skype added 20 million new users in Q1 and generated 23% sequential revenue growth. As a result, the Company delivered record net revenues of $1.39 billion, representing remarkable year-over-year growth of 35%. Now, before Bob discusses our financials for Q1, I would like to spend a few minutes on the achievements of these three key businesses -- the eBay marketplaces, PayPal, and Skype. EBay continues to be the cornerstone of our e-commerce engine. Last year, we laid out our strategy for driving growth in the eBay business and it continues to deliver excellent results. We have consistently focused on increasing the value of eBay for our users by investing in marketing and product innovation and connecting with our community of users. These efforts fueled the continuing growth we saw in Q1. In the US, strong user activity led to record GMV of more than $6.2 billion, the first time the US marketplace has surpassed the $6 billion mark in a single quarter. Several factors contributed to the growth in Q1. Our ongoing 'It' campaign has increased consumer awareness of the wide variety of items…

Thanks, Meg. I'm happy to be here. I'm really excited to join eBay, a company I've admired for years with its great business model, history of strong management execution and tremendous growth opportunities. Over the past month, I've been working closely with Rajiv and the rest of the management team to learn the business, and I've asked Rajiv to join us during the Q&A session to help answer your questions about the quarter. Before I talk about results, I would like to take a moment to highlight two changes in our reporting this quarter. First, information we had previously presented as pro forma will now be referred to as non-GAAP to ensure a clear distinction between our GAAP and non-GAAP measures. Second, as we indicated in our guidance last quarter, Q1 GAAP results include the impact of FAS 123R stock-based compensation expensing rules for the first time. Now, let me turn to our financial results. Q1 was yet another great quarter for eBay. We saw strong momentum across all our businesses -- eBay marketplaces, PayPal and Skype -- as we continue to build on our strong online competitive position. In total, our business generated record net revenues of $1.39 billion, representing 35% year-over-year growth and exceeding the top end of our guidance by $10 million. Organic revenue growth, excluding the impact of foreign exchange and excluding acquisitions made in the last 12 months, was 30% on a year-over-year basis, driven by great performances from our core businesses: eBay US, eBay in Europe and PayPal. Strong top line performance along with continued operational efficiencies translated into record non-GAAP operating income of $461 million for the quarter, representing a non-GAAP operating margin of 33%. Our non-GAAP EPS was $0.24, a 20% increase from Q1 2005 and $0.01 higher than the top end…

(Operator Instructions). Our first question comes from Doug Anmuth, Lehman Brothers.

Thank you. I have two questions. First, just in terms of the guidance, I was hoping you could just give a little bit more clarity there. Obviously, beating the quarter by $0.01 or $0.02 and then keeping the guidance basically intact for the rest of the year. Can you give us a sense there in terms of what you're thinking? Why you didn't actually increase the guidance anymore? Then just in terms of the automotive category, coming after the lighter fourth quarter, it looks like automotive GMV was up 14% year-over-year. I was just wondering, how you feel like the motors category is positioned going into the seasonally strong 2Q. Thank you.

First, on the guidance, let me try to put it into context. 90 days ago, we laid out the year of revenue of $5.7 billion to $5.9 billion, or up about 27% year-over-year and earnings of $0.96 to $1.01, which is going to be up around 14%. So, a really good quarter as we continue to invest across all of our businesses. The first quarter we thought was great. We delivered and slightly exceeded expectations on the top line and generated stronger earnings. As we go into the second and third quarter, as you know, those are traditionally slower quarters. As our model continues to adapt to a more retail-oriented seasonality, we anticipate that Q2 and Q3 will continue to be our weaker quarters. In addition to that, we highlighted a couple of things that we want to continue to monitor during the quarter. We rolled back the stores' inventory format early this quarter. We want to see what the implication of that is on the US business. We anticipate making some changes to trust and safety to continue to improve the shopping on the site. We know that's the right thing to do for the long-term. In the short-term, it could have an impact on revenues. Third, Korea, which is a great business for us, is facing some competitive pressures. We want to continue to monitor events in Korea. Lastly, I would say that I've been on board for about 30 days. So, with a strong first quarter behind us and a few things we want to monitor, we think it's prudent at this stage to be conservative as we look to the second quarter, and as always update you as we go along on how we are progressing on our major initiatives. But, we feel great on the quarter. We feel great on the guidance for the year, and we will keep you apprised as we go forward.

Let me talk a little bit about motors. As you know, we've made a number of changes to motors, not only in the United States but worldwide over the last 12 months, and those are starting to pay dividends. So, we feel very well-positioned going into the strong car buying season in Q2, Q3. We actually think some of the industry factors may be working in our favor as well. As you know, when there is lots of used car supply, we do better. When the used car supply is tight, we don't do as well. So, I think we feel quite well-positioned as we go into Q2, Q3; not only in the US, but worldwide.

Thank you.

The next question is from Mark Rowen, Prudential.

Thanks, good afternoon. A couple of related questions I guess for Bob. You talked about the lower GMV growth being related to putting up stores listings with the auction listings and seeing a mix shift. Was that for the whole quarter or was that part of the quarter? Was it primarily an ASP issue or was it a success rate issue? Did both of those things play in? The fact that GMV growth was so much lower than the listings growth in the quarter, did autos globally impact that at all?

Mark, let me take a first crack at that and then turn it over to Bob if he has anything to add to it. The first thing is that giving more exposure to store inventory format listings was a success in many, many countries. In fact, we have not rolled it back to anyplace other than Canada and the United States. The difference in Canada and the United States, there was a much higher percentage of stores listings. When buyers searched, they were overwhelmed and overwhelmed by the number of search results, which we feel sub-optimized the buyer experience. What we had anticipated actually was that GMV could have been even stronger than it was in the United States, based on the overall site activity, meaning the number of unique visitors to the site and their engagement with the site. So, I would say that obviously, overall, conversion dropped a bit because we went from a small number of items to a huge number of items in the United States. ASPs for store inventory format tend to be lower because a lot of it is accessories and things like that. So, the overall mix didn't meet our expectation based on increasing store inventory format on the site. With regard to motors, I'm not sure motors had a material impact on GMV. I think motors sort of performed as we anticipated it would, and most of this was regular store inventory format being put into regular core.

My related question then, Meg, is on the stores listings, since that is driving a lot of the listings growth -- particularly in the US -- can you help us better understand the economics of the store listings? Is the velocity of those listings significantly slower than the auction listings? Is the ASP -- I know you just said it was lower, but is it significantly lower than your typical listings?

Yes, Mark, let me try that. Just for the record, I would have nailed that question that Meg answered as well.

I'm sure you would have.

Exactly what she said. But, in terms of the listings growth, yes, the US had strong listings growth in the first quarter of 23%. Clearly, that was impacted by stellar accelerating stores inventory. GMV in the quarter up 18%, as Meg indicated, came off to a really good start in the first part of the quarter and trended down after the change. In terms of the overall impact, stores inventory has a marginally lower conversion rate and a marginally lower ASP. We anticipate with more volume that we'll be able to more than offset that with higher growth as we go forward.

Just a housekeeping question -- did you give the exact number for the negative impact from FX?

Yes. It's in the press release.

I will look it up. Thanks.

The next question is from Christa Quarles, Thomas Weisel.

I had a couple of questions on PayPal. One, if you strip out VeriSign, it looks like your take rates went down pretty dramatically and I'm assuming that's because of the off-eBay TPV. So, I was wondering if you could highlight what VeriSign was and what the take rate differential is between on and off-eBay TPV. Then, also, if you could highlight what the international growth was. I wasn't able to find it in the release. Thanks.

First in terms of VeriSign's impact, we're not going to break that out going forward. You know, it was $6 million in Q4. It grew quite a bit in the first quarter but not really material to the overall performance of the business. It did have a positive impact on take rate. Because as you know, those revenues are included in the numerator and not in the denominator. That positive impact was marginally offset by the expansive growth of merchant services within PayPal overall, which as we indicated, TPV was up 59% year-over-year. The take rate on merchant services is a little bit lower than the take rate on eBay performance.

The other thing that you have to watch when you look at PayPal's take rate is international; cross-border versus domestic within country. Obviously, it is still incredibly cost-effective cross-border, but we do have a slightly higher take rate on cross-border trade than we do domestically. So, it's domestically -- or German to German or French to French or UK to UK -- increases relative to cross-border. You may see a little depression there as well. Fundamentally, there's nothing out of whack here. PayPal has performed incredibly well, and there's nothing unusual or very strange about the overall take rate.

Could you highlight us the international growth at PayPal? It sounds like the UK fee decline was maybe to mitigate the cross-border fee?

The overall growth for PayPal is 44%, and the percent coming from international hasn't changed. So, it stayed at 35% of PayPal is from international, both last year at this time, as well as this year. So, it's growing at the same rate as the rest of the PayPal business.

Our next question is from Anthony Noto, Goldman Sachs.

Thank you very much. Meg and Bob, a couple of questions. The first question is, why wouldn't we see a recovery in revenue per listing? If you look at the calculated revenue per listing in the first quarter, it was down 4% year-over-year. I've never seen revenue per listing decline before on eBay, and the quarter showed that you just had a higher conversion of closed listings, which have a lower ASP. If those are not being merchandised as well, sort of at the end of the aisle, the mix should go back. I was trying to understand what is the risk there, and what have you seen through the first 18 days in the quarter? Because, if you actually do the math on it, your business probably would've done close to $1.415 billion to $1.420 billion in revenues, so we can get a sense for the normalized growth. Then, Bob, it sounds like you've gone through the Rajiv Dutta school of guidance here pretty quickly, so I will have to push back on that as well. You didn't change your second quarter guidance and you didn't change your back half of the year guidance. So, if you take your out-performance in the first quarter and add up what you've given in terms of the parts, it's greater than what you have given out for the whole. I'm just trying to understand that math, not so much why didn't you raise guidance but just given what you gave, you beat by $17 million, you didn't change Q2, you didn't change the back half of the year, the full year should go up by $17 million. What am I missing on the math? Thanks.

Anthony, on the first point, it is clearly accelerated listings from stores. The preponderance of growth in stores is going to have a lower impact on the overall revenue per listing. That happened, of course, for the first quarter. Secondly, in terms of the Rajiv school of guidance, you know, look, we gave a range for guidance for the full year including the second quarter. It's a decent-sized range because it's a decent-sized business. So, $1.37 billion to $1.415 billion -- that's a pretty decent range. We will shoot to outperform, but think all factors considered, we thought it was prudent to leave guidance where it was for the quarter. For the $10 million we were up in Q1, given the $200 million range for the full year, as we continue throughout the course of the year, we will revise that as necessary.

In terms of recovery in the revenue per listing, you know, we may see that. But, the other thing of course we have launching is eBay Express. We do not know quite what the dynamics of eBay Express is. We're very excited about it. Our sellers are excited about it. But, as you know, it is a fixed-price only that will be populated in large part by eBay stores inventory format. We believe it will be incremental but may still depress the revenue per listing based on the mix, which would still be the right thing to do from the consumers' point of view. It would be the right thing for GMV. But it might depress revenue per listing. Because we haven't launched it, we don't know. I don't think it will be a big depression, but it could be some. You know, we just don't know. What we have learned at eBay over the last 8 years is until you launch these new formats, until you launch the new incremental functionality, you don't actually know what it is going to do because no one has done it before.

Our next question is from Scott Devitt, Stifel Nicolaus.

Thanks for taking my call. You noted that the stores rollback occurred in the US and Canada, and was mostly a US issue. I think the number of eBay stores grew something like 27% sequentially, and the international piece of that grew 40% sequentially. International transaction revenue growth slowed by 10 percentage points. So, I was wondering if you could expand on the stores growth, specifically internationally, given that Express doesn't launch in the UK or Germany until 3Q. Also, I'm wondering the type of impact that that store's growth may have had on the international rev growth rates, since you didn't roll back the search changes outside the US. Thanks.

So it's a bit of a complicated question, I think. There is a much smaller base of store inventory format listings outside the United States. So, the important thing to look at is the ratio between core listings and store inventory format listings. In the United States, that ratio is double to triple what it is outside the United States. And as a result, you didn't see the degradation in the buyer experience. You still saw a lot of people open stores; you saw an increase of store inventory format listings but nothing to the extent that we saw in the US. There may have been an accelerating factor, if people knew their store inventory format was going to show up in core search; and also, we are anticipating the launch of eBay Express. So, I think that is a little bit of the dynamics. The other thing that is true is stores inventory format is priced differently in every market, consistent with giving pricing decisions to our country managers. The relative difference in pricing outside the United States and inside the United States varies by country.

Just to follow up on that, the change in the user experience that occurred in the US did not occur internationally?

Correct.

The last point -- because of the huge volume of stores inventory in the US, the impact on the buyer was an abundance of inventory when they did a core search. We don't have that preponderance of stores inventory in the international markets like we do in the US.

Our next question is from Steve Weinstein, Pacific Crest.

Two questions for you. One, can we get the organic growth rate in the business for the quarter? If you do want to break it out, the organic in the US, that would be great. Second, continuing with stores, you obviously had a lot of growth in that, which I think means sellers seemed to like the format and the pricing scheme there. How does that make you think about your pricing strategy overall and potential changes you might want to make?

Did you want to take the organic question?

Yes, I'll do the first question. Total revenue growth of 35% and organic growth was 30%. That's about the extent in which we break it out.

With regard to stores, I think this is a high-class problem. The fact that we have gone from nowhere to the single-largest storefront provider on the Web in two years is remarkable. Clearly, sellers are excited about this stores product because there's longer duration; they can upsell and cross sell. As always with pricing, we think about how to optimize the marketplace and how to best manage the marketplace. As we think about pricing in every country, over the next three to six months, we will obviously think through, is everything priced appropriately based on the dynamics that we see in the marketplace? But this is all very new, this level of store inventory format is unprecedented and I think in some ways, exciting. It hurt the buyer experience. But, it clearly tells us there's something really interesting going on with this stores product in anticipation of eBay Express. So, let's launch eBay Express. Let's see what happens. Then obviously, each of the country managers may determine that it makes sense to rebalance the marketplace based on the dynamic in that market.

Our next question is from Jim Friedland, Cowan & Company. Jim Friedland - Cowan & Co.: A question related to net neutrality, both here in the US and Germany. Deutsche Telecom has made moves to charge Internet companies. You know we've seen some, at least initial bills, passed through the House -- or at least through committees. So the question is, with Skype and all those free minutes, how exposed do you feel to any potential fees from telecom costs? Thanks.

We are obviously monitoring the net neutrality debate, both here as well as in many other countries. Our point of view is that the global open Internet has been a tremendous force for good over the last 12 years, empowering innovative businesses, both large and small. It's also been incredibly beneficial to consumers. It creates jobs across America and globally, and I think has been a help to the economies of many countries of the world. So, our position is obviously that openness and non-discrimination are central to the Internet success and that as policymakers look to develop the rules of the road for the broadband Internet. I hope that they will take that into account. I can't speculate on what the Congress will accomplish this year or what other regulatory bodies in other countries will ultimately decide. So, we are monitoring it. I think you know, this will take some number of years to sort out. Obviously, as things become clearer, we will decide what implications there are for our business and what changes we need to make, if anything. I think it's kind of important to point out that all Internet businesses, whether they are small or big and the millions of Internet consumers, they already pay for Internet access and bandwidth. I think that's something that is often lost in the debate. But that aside, we will continue to monitor the situation and make changes as we need to. Jim Friedland - Cowan & Co.: So, just to confirm though because I saw some article about Deutsche Telecom pushing for levying fees. Nothing to date has happened; it's just all the telcos want it. But today, there's nothing actually being charged?

That is correct.

Our next question is from Imran Khan, JP Morgan.

A couple of questions -- one, in terms of Skype, you talked about pay-per call and integrating Skype with your eBay marketplace platform. I was wondering if you can give us an update. Secondly, you have had Skype for two quarters now. What kind of employee retention you are seeing, primarily in your Estonia development center? Finally, in terms of PayPal penetration, could you comment what kind of improvement you're seeing in the German market?

So, we will have a cameo appearance by Rajiv to talk about Skype.

I know, I'm glad I made the trip from London. So, in terms of integration with Skype, actually, we are really, really excited with the opportunities, both with eBay and with PayPal. In fact, the more time we've spent on this was becoming pretty clear to us is that the integration opportunities, both near-term and longer-term, are very significant. So, to date, what we have done is we've done a number of promotions. We've launched Skype hubs in all eBay sites. We've got Skype e-buttons. Meg mentioned on the call that 25% of all listings in China are Skype buttons. We have Skype e-buttons for customer support. Then, we've done a number of things with PayPal, including enabling the PayPal payments on the Skype client. I think, as we look further out, we are very excited with the opportunity for integration with PayPal in particular, with really integrating PayPal wallet functionality onto Skype; and with eBay, as we look to pay-per-call. This are things that as we've indicated, we will be looking towards the end of this year, the second half of this year to roll out. We will be spending a bit more time talking to you about this at our Analyst Day.

Did you talk about employee retention?

Employee retention in Estonia, actually we have had full employee retention. In fact, we are hiring people at a record clip in Estonia. You have to understand that we have a fantastic team in Estonia, and Skype is the place to be and it's the place to work in our Tallinn office. It's a very exciting environment, and we have had no issues at all. In fact, we've had a lot of increased attention to Skype and eBay.

With regard to PayPal penetration in Germany, we've got good traction, albeit often a small base. As you know, PayPal competes with EFT in Germany. We always knew this was going to be a more challenging market with slower increases in penetration. We have just introduced a new product, which is electronic EFT. We are going to even more seamlessly integrate PayPal into the German eBay buying experience. So, I think you'll see penetration rise slowly but surely. It's going to take longer. But, right now, it's up 10%. I think you know, as I said, we will continue to gradually increase. But, it's a strong competitor, EFT. Every German uses EFT, and we knew that this was going to be a challenge. That said, we are really pleased with the progress. You know, over the last 12 months, we have made really nice strides in the German market. So, patience is going to be a virtue. I think the patience will pay off.

Our next question is from Robert Peck, Bear Stearns.

Good quarter, just a couple of quick questions here. One was just to clarify, Bob. The organic growth rate, was that 30%? I think our notes for last quarter was 34%. Is that correct?

Yes, that is.

Meg, I was wondering as far as revenues per listings and ASPs, trying to gauge how eBay Express will affect the numbers in Q2 going forward. Could you talk about why you think the revenue per listings will be down and is it related at all to any unconfirmed address shipping that the sellers will have to do?

No, it has nothing to do with unconfirmed shipping addresses. I think the sellers have really decided this is actually a good thing, that it offers them incremental value and the trust and safety risk around shipping to unconfirmed addresses is not meaningful. I think the answer is we don't actually know what's going to happen here. One could argue that revenue per listing will decrease a little bit because of the preponderance of stores listings. On the other hand, what we believe is that the ASP on eBay Express will be higher than core because it is buy it now. It is uniquely suited for some high ASP categories, like consumer electronics, things like that. So, there may be some offset. If the average selling price jumps, the revenue per listing actually may go up. But if average selling price holds, then revenue per listing may go down a bit. So, stay tuned, we will actually give you visibility into this as we go along and as we learn more. But, I guess if you ask me sitting here today, I think it's prudent to not predict an increase in revenue per listing based on the launch of eBay Express. We might be pleasantly surprised, but we tend to be conservative around these things.

Will eBay Express in Germany be any different than the US?

There are some differences to that but not significant. So, basically, the product is largely the same. So, why don't we take one more question and we will end on time?

Our next question is from Mark Mahaney, Citigroup.

Two quick questions, please. First, on Korea, have you seen any impact to date in terms of competition and have you seen that in terms of sharply-decelerating GMV growth rates? Secondly, just in terms of the rollout of eBay Express, can you talk a little bit about the geographic strategy, how quickly you'll take it to different markets and how quickly you will use marketing campaigns to promote it? Thank you.

Mark, we actually have record listings in Korea this quarter. As you know, it is a remarkably successful business for us. Q1 is typically a seasonally slower quarter due to the lunar New Year and fewer calendar days. But, we actually were quite pleased with our first-quarter performance. Our level of success in Korea over the last few years has attracted a lot of competition, much of which we have overcome. There are several new competitors on the horizon, and we want to make sure that we are innovative and that we maintain and extend our lead. So, I think that's why we are being a little bit cautious about forecasting Korean revenue growth because we want to make sure that we remain competitive in that market. We have a fabulous team in Korea. I think they are among our best country teams worldwide. I assure you, they are really focused on making sure that we are evolving our business to meet the needs of the Korean consumer. The other thing you should know is that Korea is on a local platform. It is not on the global platform. So, they have infinite degrees of freedom to change the product offering, to cycle through product changes much faster than in any other market. The second question was around eBay Express rollout internationally. We have said that pending our first rollout in the United States, we are planning Germany, the UK. But we have not said what timeframe or when. Again, that's going to be a little predicated upon what we see in the United States. But, the product development work is being done, and we will be ready to roll it when we have a little bit of data from the US.

Okay, thank you very much for joining us. We look forward to seeing you at Analyst Day here in the early part of May.

That does conclude today's conference call. Thank you for your participation.