Good day, everyone and welcome to eBay's fourth quarter 2006 earnings results conference call. This call is being recorded. With us today from the company is the President and Chief Executive Officer, Ms. Meg Whitman; the Chief Financial Officer, Bob Swan; and the Investor Relations Director, Ms. Lydia Ventura. At this time, I would like to turn the call over to Ms. Lydia Ventura. Please go ahead, ma'am.

Good afternoon. Thank you and welcome to eBay's earnings release conference call for the fourth quarter and full year results for 2006. Joining me today are Meg Whitman, our President and CEO; and Bob Swan, our Chief Financial Officer. This quarter, for the first time, we will be providing a slide presentation to accompany Bob Swan'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 the conference call. In addition, management may make forward-looking statements regarding matters that involve risks and uncertainties, including those relating to the company's ability to grow its businesses, 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; an increasingly competitive environment for businesses; the complexity of managing a growing company with a broad range of businesses; regulatory tax and IP and other litigation risks, including risks specific to PayPal and the financial industry and risks specific to Skype's technology and to the VoIP industry; our need to upgrade technology and customer service infrastructure to accommodate growth at reasonable cost while adding new features and maintaining site stability; 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 our Form 10-Q available at investor.ebay.com. You should not unduly rely on any forward-looking statements and we assume the obligation to update them. Now, over to Meg.

Thank you, Lydia and welcome everyone to today's conference call. I thought I would start the call by spending a few minutes giving you my perspective on 2006 for both eBay as a company and for each of our three businesses: marketplaces, payments and communications. Overall, I would characterize 2006 for eBay as a year that had its share of both great successes and a few challenges. We started off the year at a very strong pace, encountered a few hurdles in the middle of the year that we worked to overcome, and then ended the year on a high note. I will spend some time talking about our strong Q4 results shortly, but let me first spend a few minutes on the highlights of 2006. From a financial perspective, we are very pleased by the results for the full year. eBay Inc. delivered nearly $6 billion of revenue in 2006, representing a 31% year-over-year growth rate. Six in ’06 was an internal goal we set for ourselves three years ago, and we are extremely pleased by the achievement of this milestone. We also delivered nearly $2 billion in non-GAAP operating income and closed out the year with $3.5 billion in cash, even as we repurchased $1.7 billion worth of eBay shares. During 2006, we focused on effectively integrating the acquisitions we made in 2005 and also wisely used our capital to acquire new companies, allowing us to strengthen our leadership position in each of our three key businesses in the United States and abroad. We expanded our reach even more broadly. We now have nearly 222 million eBay users, 133 million PayPal accounts and 171 million Skype users. As a result of both strengthening our general business fundamentals and through the acquisitions we made, eBay is exiting the year…

Thanks, Meg. Today, I will discuss our Q4 and full year financial performance, an update on our share repurchase program and our outlook for Q1 and 2007. First, our financial results. Overall, Q4 was a great quarter for our business. We delivered very strong revenue, earnings and free cash flow based on good GMV and TPV growth and strong growth from our non-GMV driven businesses, aided by a successful online holiday shopping season. Additionally, we leveraged our balance sheet to repurchase nearly 31 million shares worth $1 billion during the quarter. In total, our business generated record net revenues of $1.72 billion, representing 29% year-over-year growth. Organic revenue, excluding acquisitions and FX, was up 21% versus last year, an acceleration of growth versus the prior quarter. Acquisitions we made over the last 12 months contributed 3 points to our top line growth, and FX, due to a weaker dollar, contributed an additional 5 points of growth. On a non-GAAP basis, operating income was $575 million for the quarter, up 28% over the year-ago period and representing an operating margin of 33.4%. EPS was $0.31, a 29% increase from last year and $0.03 higher than the top end of our guidance range. Our EPS strength relative to the guidance was driven primarily by strong revenue performance, efficient marketing spend and the benefit of a weaker U.S. dollar. Our business model continued to deliver excellent cash flows as well, generating $529 million of free cash flow, 24% growth versus the year-ago period, including capital expenditures of 5.6% of revenue in the quarter. Now let's take a closer look at our segment results for the quarter. In Q4, the marketplaces business achieved record net revenues of $1.24 billion, up 24% versus the year-ago period. In the U.S., revenue was $614 million, up 17%…

(Operator Instructions) Your first question comes from Ben Schachter - UBS.

I was wondering if you could just talk about the organic growth rate and remind us what was pulled out of that in terms of acquisitions? Also, if you could discuss how classifieds is moving ahead internationally, and any talk of bringing that over to the U.S.? Thanks.

I will take the first; Meg, if you could take the second. Total growth in the quarter was up 29%, and 21% was FX neutral and organic. Acquisitions added 3 points of growth and on a year-over-year basis, you will remember that Skype was completed in the fourth quarter of 2005 and the VeriSign gateway acquisition was completed in the fourth quarter as well. So 21% organic FX neutral and the acquisitions added 3 points in the quarter.

With regard to classifieds, we continue to extend our classified reach through a combination of building our own sites under the Kijiji banner and acquiring strong local brands like LoQUo, Marktplaats and others. I think the current count is we're in about 400 cities and 33 countries around the world and we will continue to opportunistically expand that. At the moment, we don't have a plan to enter the U.S. business. As you recall, we own 25% of craigslist here in the U.S., but are focused on growing the international business very aggressively. As we reported, we really had a very nice Q4, with classifieds actually beginning to get to critical mass. Next question.

Your next question comes from Anthony Noto - Goldman Sachs. Anthony Noto - Goldman Sachs : Thank you very much. Have you considered a more significant recapitalization of the company and some type of leveraged buyback? If you look at the amount of EBITDA you will be generating in 2007, you could easily lever up two times, still be investment grade, still have capital on the balance sheet to invest in the business and do acquisitions; as opposed to doing $2 billion every six to 12 months, doing it in one fell swoop, given the change in your business, and still a discount multiple to the sector. Meg, there continues to be quite a divergence between revenue growth, GMV growth and listings. In the first half of 2006, listings outperformed significantly, but revenue and GMV growth disappointed on a quarterly basis. In the back half of the year we've now seen the inverse. I'm just wondering, as you think about your focus of improving successful listings as opposed to listings at any cost, do you see a point in time when listings more correlate with the revenue again? Could you talk about how much more deterioration you could see in listings growth while still seeing strong GMV and revenue growth? Thanks.

Anthony, on the first one, we have a great business model that generates excellent cash flows and gives us an extremely strong balance sheet so we always look at how to effectively optimize that balance sheet. Our primary focus is maintaining the financial flexibility to invest and grow in the business, but also to capitalize on opportunities and in effect, repurchase stock when we believe it does not reflect the near-term value of the company. The repurchase program we announced in July, we've been very opportunistic. We have in essence almost completed it in five months' time. This increased size of the program that we announced today is further evidence that we can maintain financial flexibility to invest and growth and capitalize on the trading value of our stock. We will continue to evaluate ways to do that as we go forward. But we think this is the right step.

Anthony, let me try to take your next question and let me focus on the brand eBay for a minute, then I will come back to talk about marketplaces in general. With regard to eBay, what you saw over the last 12 months was quite an imbalance in the marketplace. I think you accurately described that. The actions that we took in Q3 and Q2 began to bring balance back in. So listings now I think are at a better balance. Frankly, I think we may still see a change in the ratio between core listings and store inventory format listings, where store inventory and format listings continue to decline as a total overall percentage. But we are really now focused on successful items. And what you saw across the board was a better conversion rate, not only in SIF, but also in core. What that net-net is, is a better buyer experience, because buyers are finding higher quality listings at better prices. That is exactly what got out of balance in Q1. So the actions we took had exactly the desired effect. I would expect on a go-forward basis, it may take two or three more quarters, but you'll begin to see revenue and GMV and listings more back in line. That would be on the eBay side of things. So I think we are moving towards a healthier marketplace. I think we've got a little bit more work to do. We are focused on the user experience in 2007. You still may see some change in ratios. If I step all the way back to marketplaces, you will continue to see a disconnect between revenue and GMV because an increasing percentage of our marketplaces business is actually non-GMV driven. In other words, we can't calculate the GMV on C2C classifieds, nor do we calculate the GMV on Shopping.com. So I hope that gives you a sense. But I think net-net-net, the buyer experience improved and the marketplace is in better balance.

Your next question comes from Imran Khan – JP Morgan. Imran Khan – JP Morgan : Hi, Meg and Bob. You tried to rebalance the site, and I was wondering if you can give us some sense, how does current conversion rate compare with eBay's conversion rate, say, a year ago, a year-and-a-half ago, before the store became a bigger part of the listing growth? How much can conversion improve from current levels? Secondly, I think you integrated Skype Me buttons on the eBay platform globally, and can you tell us what kind of impact you saw on conversion from that? Thank you.

Imran, how are you doing? I will take the rebalance effort. As you know, in the first quarter of '06, our conversion rates dropped quite a bit. The efforts that we have talked about in terms of rebalancing were really designed to reaccelerate GMV, primarily by improving conversion rates. The acceleration of GMV from Q3 to Q4 and the acceleration of revenue per listing was primarily driven by a fairly dramatic improvement in conversion rates across virtually all countries and all categories in which we operate. We're not quite back to end of '05, early Q1 of '06 levels so we still have some work to do. But in terms of progress, the efforts are really what drove a lot of the out-performance that you saw in the fourth quarter.

Let me take the question about Skype Me buttons. Let me give you an update. On the eBay platform, we now have Skype Me buttons in 150 categories in 20 markets, including 25 categories on eBay.com, which is up from about 14 categories a quarter ago. The early indications continue to be positive on conversion rates with Skype usage. The conversion rates with those listings that people utilize the Skype buttons are positive. So we are going to continue to make those available to our users in a very typical eBay way. When users want to adopt them, they do, and when users don't want to adopt them, they don't. What we now is that when people see their business increase because of Skype Me buttons, they use them more. So I think we will continue to make slow and steady progress here, but it is doing what we hoped it would do.

Your next question comes from David Joseph - Morgan Stanley. David Joseph - Morgan Stanley: Hi everyone. Just a quick question related to the core platform. It seems like you are seeing improved health across platforms, and I assume in the U.S. and in Germany. And I'm wondering what you are doing to really capitalize on that. I know you talked a little bit about the user experience and some improvements that you want to make in 2007 and you did bring Philip over to really focus on the core platform. What are his priorities in 2007 and where are you really trying to improve the user experience? Are you pulling in Skype a little bit more into the platform? What are you doing with My World or are you trying to really develop a more social experience there? Secondly, in terms of PayPal and Google Checkout, are you seeing Google Checkout on your radar at all or any kind of impact whatsoever? If so, or even if not, what do think you need to do to compete more effectively in that area? Meg Whitman: I will take both of those, David. So first of all, you are right, we brought one of our most talented managers from Germany and from Europe to run our core auction business here in the United States. His mission is to accelerate the growth rate of the auction business over time. We are going to do that in a couple of ways. The first is to focus on the user experience as it relates to the auction business. That is going to mean, I think, simplifying the site in some ways, making it easier to find items that a buyer wants. As the eBay platform has grown so enormous, finding has become more of…

Your next question comes from Safa Rashtchy - Piper Jaffray. Safa Rashtchy - Piper Jaffray : Thank you. Can you give us a sense of growth in the eBay component of marketplace revenue, and also how it trended compared to previous quarters? Also, can you give us some color on how much PS and Nintendo contributed in the quarter? Finally, I think I missed the contribution on forex, I believe you said 5% on total revenue. Can you clarify that and can you give us color on how much was that on the marketplace? Thank you. Bob Swan: I'm sure if I don't cover them all that you will come back to me, so I'll thank you in advance. First, I will go at the end. FX was 5 points of growth on a year-over-year basis in the quarter. In terms of the consumer electronics, both Nintendo and Sony PlayStation, we disproportionately benefited from those hard to find, hard to get items on our site. So clearly, it helped our GMV and helped our ASPs as well. We obviously don't break it out, but we clearly benefited from the activity around those products. On your first question, on our eBay business I think excluding the non-GMV based business or using the GMV platform, I guess, we saw accelerated growth from Q3 to Q4, essentially up a point in the U.S. and up a point internationally. And as Meg said, we kind of attributed that to a strong online shopping season, a couple hot products in consumer electronics, what we believe was a very effective marketing campaign, and then lastly, our efforts to rebalance the marketplace really accelerated conversion rates off of the third quarter. So the combination of those things had us accelerating our eBay platform or GMV-based businesses from Q3 to Q4. Meg Whitman: Let me add one point on the consumer electronics. We see this every quarter; this is actually not a new phenomenon, but people come to see what is going on with the Wii and the Sony PlayStation. They hear about it in the press, they come to see what's going on and they often end up buying something in another category. Or they bid and they're not the winning bidder, and they move on to another category or another consumer electronic. So it benefits us in two ways: one is sort of the traffic and the PR, as well as the actual GMV related to Nintendo or to Sony and Wii. Next question.

Your next question comes from Brian Pitz - Banc of America. Brian Pitz - Banc of America: Thank you very much. On your recent StubHub announcement, can you talk about your plan to integrate listings into your site? If you have any thoughts on what Ticketmaster is doing in terms of stepping up efforts to invalidate ticket barcodes? Secondly, any update on eMedia Exchange and maybe you can talk about the progress in signing up additional publishers? Thank you. Meg Whitman: Let me elevate the conversation a little bit here. So we see a tremendous opportunity in the online tickets business. It is a business that is very well suited for eBay. In fact, eBay's GMV in this business is actually higher than StubHub's GMV. Not monetized at the same rate, but we have a very strong business here so we are excited about the potential to combine them. It is a passionate user base and an incredibly inefficient market for the most part. With regard to eMedia and Ticketmaster and a number of areas, we are in the early days. We are in a number of discussions with industry leaders and industry players to actually figure out what the right way is to work with those players in the industry. So we will be able to give you an update on that at the end of the second quarter, maybe the end of the third quarter. We recognize the issues you have described and we are taking steps to figure out what the best way to deal with those issues are and leverage partnerships in the industry.

Your next question comes from Mark Rowen - Prudential. Mark Rowen - Prudential: Your advertising revenue was up almost 50% year over year. Was that pretty much all attributable to the new things that you're doing with Yahoo! in the U.S.? Would you expect those growth rates to accelerate as you implement it further into the sites? Second, in China, given that you have the JV now, are you going to be spending less on marketing in China in total or do you still spend the same thing and just move it down below operating profit? Bob Swan: On the first question, the ad revenue growth is primarily associated with the strong performance of Shopping.com in the quarter. While we are rolling out Yahoo! a bit more in the fourth quarter, relatively little impact. So that growth is primarily driven by Shopping. In terms of China and the joint venture, as Meg indicated we think this is the best long-term play for us in China. We will own 49% of that venture. As a result, the operating profits or the costs that they incur will be borne by us below the operating margin line. Mark Rowen - Prudential: Do you expect the marketing spend there to sort of remain constant where it has been or do you plan to increase that or pull it back? Bob Swan: I think during the course of 2006, we took a lot of steps ourselves to pull it back quite a bit and try to measure the marketing spend more in line with our ability to more effectively monetize that market. So I think we'll see how we, collectively with our JV partner, will manage the marketing spend on a go-forward basis. But clearly down off of '05 and first half of '06 levels. Mark Rowen - Prudential: Just a clarification: I thought most of Shopping.com's revenues were in transaction revenues, not advertising. Is that not the case? Bob Swan: Shopping is broken out both between transaction revenue and ad. The growth in the advertising bucket comes from really a variety of stuff. But clearly, the Yahoo! relationship is still in its early stages and they are not driving a whole lot of that.

Your next question comes from Steve Weinstein - Pacific Crest Securities. Steve Weinstein - Pacific Crest Securities: Thank you. I was hoping to get a little better understanding of StubHub and if your guidance reflects a change you'll be making in the business or if we can find out what it did in 2006 in terms of revenue. As it relates to Skype, you said it's not monetizing quite as quickly as you thought. I'm wondering if that is going to impact any sort of earn outs or total purchase price for the company? Meg Whitman: Let me take the Skype question and Bob, you can talk about the financials, which I think are outlined nicely in your slides. With regard to Skype, you might recall that the earn out is a three-year bullet. So there are no earn out metrics in year one, year two. It is all dependent on three metrics: revenues, active users and gross profit, and have they met the targets in year 3, and then there's a six-month period if they haven't met it at year 3, that they can continue to meet it. So there isn't an issue around the earn out in anything other than in the final period. Nicholas and Janice are very engaged in Skype. They continue to be very creative in terms of product ideas, as well as thinking about ways to monetize the site. What I am very pleased about in terms of Skype is the lead that we put between Skype and the other VoIP competitors. You remember from our road show, this was a very crowded field. I think we have really secured the lead. The belief is that with this level of network, the reinforcing nature of the network of users, that we will be able to monetize that in quite a nice way. Bob Swan: In terms of the StubHub question, we think this combination is going to work exceptionally well for our buyers and sellers. StubHub brings a best in class buying and selling experience to a dedicated user base, where we are going to bring a large number of buyers to enable StubHub to keep growing. We obviously haven't closed this transaction yet, so that is what we are focused on in the near term. In terms of what we expect in the 2007 guidance, we told you about $105 million to $120 million of revenue. Our expectation is that the transaction would close by the end of the first quarter, hopefully sometime in February.

Well great --

My apologies. Heath Terry from Credit Suisse First Boston. Heath Terry - Credit Suisse: Just in under the wire. I was wondering if you could just talk a little bit about what you are seeing from initial buyer and seller reaction to the advertising that you're doing on the site and the places that you are you using null results or are using the complementary search results, what kind of click-through rates are you seeing? Any anecdotal feedback that you can provide would be really appreciated. Meg Whitman: We look at the total user experience. And interestingly, on null search results, the early data suggests that no one is bothered by it, either buyer or seller, and in fact actually may increase or improve the buyer experience, because if they get a null search result on eBay, they are actually quite delighted to be shown other results. So this was of course the easiest thing to do and we are moving quite aggressively on that. As we moved into complementary searches, we're going to see what the reaction is. We have actually quite a constructive partnership with Yahoo! to walk our way into this in a considered way, making sure that we are first and foremost focused on the buyer experience and then the selling experience. So we will know more; we are in the early days of testing on that but I would say green light on null search results. I think we have time for two more questions.

Your next question comes from Scott Devitt - Stifel Nicolaus. Scott Devitt - Stifel Nicolaus: First, from looking at the marketplace revenue growth and the GMV growth, it seems like the non-motors GMV accelerated again this quarter, which is positive. I was wondering if you could give us the motors GMV growth in the quarter globally? Bob Swan: Motors GMV was up 16% year over year in Q4 to about $2.1 billion. Scott Devitt - Stifel Nicolaus: Could you talk about the integration of Skype into Google Pack? I don't believe that was part of your broad international agreement and was wondering how you were able to attain access to that platform, given that Google does have a product called Google Talk. Similarly, could you talk about the value that you find in areas such as your feedback system, the ACH transfer system at PayPal, the balance feature at PayPal and the customer service at PayPal, and whether you would be open to opening those respective platforms for the appropriate economics? Thanks. Meg Whitman: With regard to Google Pack, actually you are right, Skype was integrated into Google Pack I think late last year. Google Pack, and you should ask Google about it, but my understanding is this is an agnostic view of the very best features on the web pulled together that is not actually driven by Google's revenue or interest in promoting their own products. So I think it is actually a testament to Skype that the internal team who makes the decisions about Google Pack thought Skype was deserving about being in this basket of items that you kind of need when you start on the web. So we were excited by that and appreciate their doing that. With regard to feedback and ACH and balance and…

Your final question comes from Robert Peck - Bear, Stearns. Robert Peck - Bear Stearns: Thank you, I appreciate it. I wanted to ask a couple quick questions here. The first is, Meg, as you think about eBay as a platform, one of the great things about it for your marketing campaign is whatever it is you are looking for, you can find it on eBay. So therefore as you think about it, is there any sort of optimal mix you have for store and core in your listings versus any sort of blanket price increases on the store side? That is one. Number two is it looks like the user activity metrics declined again since last quarter. Could you tell us when you think you start to see that stabilize and when you start to see some of the changes you have done in 2H '06 and 1H '07 will start to affect some of those metrics and reinvigorate some of the user activity? Meg Whitman: Sure. With regard to the store and core mix, or frankly, auction versus auction, BIN versus BIN, we actually experiment with that over time. If we get the incentives right and we get the pricing right, this market does self-regulate. That is what we need to continue to have happen. We've got this thing out of balance. I think we've now brought it back into balance. The mix will be what it will be once we get all the incentives lined up correctly for both buyers and sellers. With regard to user metrics, actually, what are you referring to? Because most of the user metrics that we look at actually improved in the quarter. Robert Peck - Bear Stearns: We're just looking at active users over CRUs. Meg Whitman: Active users over CRUs, okay. That actually has been going on for quite some time, with a 14% year-over-year growth versus 17% year-over-year growth in Q3. So we're actually seeing it move in a decent direction here. But as that base goes up over time, active users I think it has been true for almost five years that that number has actually been declining. I am not sure, given how fast we add new users and the fact that people come in and reregister over time if they have forgotten their password or user ID, I'm not sure we actually ever see an increase in active users as a percentage of the total. So the things that I look for are GMV per listing, GMV per CRU, trailing 12-month GMV divided by active CRUs, active CRUs in absolute and the growth rate quarter over quarter. So I wouldn't overly focus on active users as a percentage of the total base. Great. Okay, thank you very much. Thanks for listening in. Appreciate it. Bob Swan: Thank you.

Once again, thank you all for joining us today. That does conclude the presentation.