Good day and welcome, everyone, to eBay's second quarter 2008 earnings results conference call. Today’s call is being recorded. With us today from the company is the Chief Executive Officer, Mr. John Donahoe, and the Chief Financial Officer, Mr. Bob Swan. At this time, I would like to turn the conference over to Mark Rowen, VP of Investor Relations. Please go ahead, sir.

Thank you, Operator. Good afternoon, everyone. Thanks for joining us and welcome to eBay's earnings release conference call for the second quarter of 2008. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We are providing a slide presentation to accompany Bob’s commentary during the call. This conference call is also being broadcast on the Internet and both the presentation and call are available through the investor relations section of the eBay website at investor.ebay.com. Before we begin, I’d 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 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, including those relating to the company’s ability to grow its businesses, user base and activity. Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to our increasing need to grow revenues from existing users in established markets; an increasingly competitive environment for our businesses; the complexity of managing a growing company with a broad range of businesses; our need to manage regulatory tax, IP and 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 our technology and customer service infrastructure to accommodate growth at reasonable cost while adding new features and maintaining site stability; foreign exchange rate fluctuations; changes in political, business, and economic conditions; our ability to profitably expand our business model to new types of merchandise and sellers; and the impact of integration of recent and future acquisitions. You can find more information about factors that could affect our operating results in our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q. You should not unduly rely on any forward-looking statements which are based on information available to us on the date hereof and we assume no obligation to update such statements. And now, let me turn the call over to John.

Thank you, Mark and welcome, everyone to our Q2 earnings call. I am delighted to report on my first official quarter as eBay's CEO. As I did on last quarter, today I will highlight our company’s financial performance, then I’ll give my perspective on each business units results and discuss progress against our priorities for 2008, and finally after a few closing thoughts, I’ll turn it over to Bob for more detail on our Q2 numbers and our outlook for the full year. Let’s start with the financial performance. We delivered strong financial results in Q2. Net revenue was $2.2 billion, up 20% and non-GAAP EPS was $0.43, up 25%. We generated free cash flow of $617 million in the quarter and we repurchased more than $0.5 billion worth of our stock, on top of the $1 billion repurchased in Q1. In our marketplaces business, we feel good about our overall results as we implement changes designed to make eBay more competitive, with better experiences for buyers and more opportunities for sellers. Marketplace’s revenue grew 13% for the quarter, with global GMV up 8% to $15.7 billion. Beneath these numbers we’re seeing some early, encouraging signs from the changes we are making, something I’ll talk more about in a minute. Our global platform also continues to drive strong cross-border trade, which accounted for more than 18% of global GMV for the quarter. And our non-GMV, or marketing services businesses also continued to perform well, growing 43% this quarter, led by strong momentum in classifieds and advertising. PayPal, which is celebrating its 10th anniversary this year, had another excellent quarter, growing both on and off eBay. PayPal revenue was up 33% to over $600 million and total payment volume grew 35% to $14.9 billion. We’re seeing increasing ubiquity at PayPal online.…

Thanks, John. Now I’ll review our financial performance in some detail. During my discussion, I’ll reference our earnings slide presentation which accompanies the webcast. Before I dive into the numbers, let me try to give you some context on how dramatically our business has evolved over the last several years. In just the past two years, the size of our business has increased by more than 50% and today, eBay Inc. represents a portfolio of increasingly diversified revenue streams. We’ve expanded our global reach in marketplaces and PayPal and begun to capitalize on new areas of opportunity, such as classifieds and advertising. Two years ago, 66% of our revenues were associated with marketplace transactions, while today these account for just 57%. PayPal transactions are now 26% compared to 23%; marketing services, which includes our fast-growing advertising and classifieds businesses, is 11% versus 8%; and Skype is now 6% compared to just 3% two years ago. We are also more globally diverse today, with 54% of our revenues coming from international markets, compared to 47% back then. And finally, even though our lower margin businesses have grown faster and we’ve accelerated the level of investment in the business, our company-wide operating margins have remained relatively stable over the last two years as productivity and leverage have increasingly been part of how we operate. As a result of our diversification efforts, we have a healthy portfolio of businesses today that is far less dependent on a single stream of revenue. Our Q2 results demonstrate continued progress in diversifying our revenues while maintaining strong operating margins. Now I’ll review our Q2 financial performance. Overall, as John said, we achieved strong financial results in the quarter despite a tough economic climate. We generated strong revenue growth, even stronger non-GAAP earnings growth and significant free…

(Operator Instructions) Our first question comes from Jeffrey Lindsay with Sanford Bernstein.

Could I ask, what do you think is the impact of couponing on eBay's total revenues and take rate? And could you give us a sense of the relative magnitude of couponing and seller discounts? My question is about as eBay shifts to larger institutional power sellers, can we expect more discounting? And then secondly, could you indicate financially how these discounts and couponing are recorded? Are they contra revenues or costs? Thank you.

I will try to take them all. First, we indicated that our marketplaces revenue in the quarter were impacted by three points, and that was a function of three things: a modestly lower take rate from the price changes we made; secondly, higher discounting for the power sellers who continue to improve their overall service levels; and third, coupon as it relates to retaining our buyers as opposed to acquiring new ones. So a combination of those three things impacted marketplace revenue by three points in the quarter. That impacts overall Inc. level revenues by about two points. In terms of the power seller discounts, we think this is a great program to incent our power sellers to continue to provide a better experience for our buyers, so to the extent that they keep providing great service, we think that will help grow the business; in turn, we’ll reward those power sellers with discounts at the back end. And lastly in terms of how we account for both couponing and power seller discounts, they -- power seller discounts is in effect a reduction of our take rate and couponing is treated as contra revenues, so they both impact our top line growth rate. I should say you also will have noticed a dramatic decrease in sales and marketing percent, as a percent of total revenue and that is a function of the trade-off we’re making in terms of we’re using contra revenue couponing for better retention as opposed to more acquisition related sales and marketing expenses. So sales and marketing came down quite a bit during the course of the quarter.

Our next question will come from Doug Anmuth with Lehman Brothers.

This is actually Brian Fenske on the line for Doug. A quick question; there had been discussion about rolling out category specific pricing. In the U.S., you’ve rolled out media. Is there any sort of timeline for rolling out more category specific pricing in the U.S.? And secondly, can you comment a little bit more about the deal you are doing with buy.com and how the economics work there, and I guess how you manage that with other power sellers? Thank you.

Sure, Brian, I’ll take that. First on category based pricing, as you mentioned we did roll out specific media pricing in the first quarter and we’ve communicated that it’s our intention to move in that direction, and most likely in the second half of the year. And the rational is quite simple, that sellers make very different margins in different categories, and so we think over time that our pricing has to reflect that. With respect to buy.com, the buy.com relationship is one that really symbolizes what we want to do going forward, which is really incent and reward those sellers to provide low prices to buyers and great service, and buy.com has -- they’re in the process of doing that. I might point out that the movement to incent and reward great prices and great service to buyers is not limited to larger sellers. In fact, we have many small sellers who are achieving very high DSRs and are providing great prices and great service to our buyers, and so I really want to emphasize that we have many small sellers succeeding under these conditions, as well as larger sellers. And so we intend to continue to incent and reward that across sellers large and small.

Our next question comes from Youssef Squali with Jefferies & Company. Youssef Squali - Jefferies & Company: Thank you very much. A couple of questions; first, if I look at the GMV growth, both in the U.S. and outside, it was around 4%. That’s kind of the lowest we’ve seen in years. When you kind of work on your guidance, can you provide us or tell us what you baked into your guidance, both in terms of GMV growth and just how we should be thinking about ASPs? And second, can you speak to any areas of weakness, maybe economy related? I think you spoke to the auto sector. What other areas are you seeing weakness in that may be causing you to maybe be a little more cautious in your Q3 guidance. Thanks.

Youssef, a few things; first, we indicated at the beginning of the year that our primary focus is on increasing velocity on the eBay platform and we do it through a combination of improving selection, improving trust, and improving findings, so when we laid out our plan at the beginning of the year, John talked about those three initiatives and the most important metric for us in the near-term is successful item growth. And that’s a measure of velocity and level of activity on the site. So in the quarter, we had 11% successful item growth in Q1, 10% successful item growth in Q2, and we felt reasonably good about that. You know, we feel like we are making some decent progress on successful item growth. That being said, GMV growth was dramatically impacted by lower average selling prices, and I kind of walked through the three different things that were driving lower average selling prices and that’s -- you know, the good news is buyers are getting better deals on eBay, lower selling prices; the bad news is we don’t convert that to higher GMV, but I won’t walk through the changes in selling price again. So the good, okay successful item growth, decline in average selling prices is what translated to the 4% GMV growth. The only additional item is vehicles. Our vehicles business grew by 7% in the first quarter of 2008, and that went down to 0% in the second quarter. And that’s primarily a function of two things; one, the economy overall unit growth in the overall secondary market in the quarter was down 6% to 7%. Our business was relatively flat, so clearly we’re impacted by unit volume. Secondly -- as a result the market was down 6% to 7%. We went from 7% growth in Q1 to 0% growth in Q2. The second thing that’s impacting our vehicles business is just a shift in formats and how that volume gets monetized. Format shift is to more classifieds, more local and that’s why we have our [Mobilay] brand and Kijiji brand and other classified brands around the globe to capitalize on a shift in vehicles, how vehicles get transacted. And the second thing is we monetize differently. We monetize today more through subscriptions and ad-based fees as opposed to GMV based transaction fees. So vehicles was down considerably Q1 to Q2; part of it was the economy, part of it was different formats that we think we’re well-positioned to win in, and I should just close on vehicles overall and say our revenues for vehicles grew by 11% in the quarter. It obviously doesn’t get reflected in a declining GMV type metric.

So just to clarify, Bob, the GMV -- vehicle GMV growth went from 7 to 0; GMV revenue, or vehicle revenue, went from -- was that 11%?

Eleven-percent.

Which reflects the shifting format.

Our next question will come from Scott Devitt with Stifel Nicolaus.

Thank you. Two quick questions; the first one, back on the motors question, if you strip out motors against the metric slide that you put out, GMV growth was up 11% and then parts seemed to be weak as well, and I assume that's associated with vehicle sales to a certain extent. If you strip that out, GMV was up 12%. And so my question is just in terms of calculating the FX impact, if you were to look at the business excluding the autos business, is it still a 400 basis point or would there be some differential given the location of the Motor transactions? And then separately, and if I missed this, I’m sorry, could you give the direct contribution margin for PayPal? Thank you.

Scott, in terms of the FX impact, yes, still 4 points, and secondly, transaction margins for PayPal were about 61% in the quarter, so that's about six quarters in a row where the transaction margins for PayPal have continued to be above 60%.

I'm sorry, the direct contribution margin for PayPal, that's in the Q?

Yeah -- well, no, the transaction margin is about 61%. The direct contribution margin in the quarter will be approximately 19, so up about a point on a year-over-year basis and down a few points from Q1 as we continue to make investments to accelerate PayPal's growth.

Okay. Thank you.

Thank you for taking the question. If I look at the GMV deceleration and disaggregate into a vehicle hit of about 1%, a Korea hit, a fraud hit and an ASP hit, is it safe to assume that the vehicle and ASP weakness, all else equal, ought to continue while Korea and fraud ought to normalize in the next couple of quarters? Also, is it safe to assume that vehicles in Korea have very low take-rate activities which have less impact on transaction revenue, while the reduction in ASPs would flow through to lower transaction revenue because of lower final value? Thank you.

James, yes, on your second point, less of an impact on revenue. On your bifurcation of GMV deceleration in terms of how you broke it out, lower ASPs, vehicles and Korea, yes, that's the right kind of numeric breakout. In terms of implications going forward, we expect the GMV from vehicles to continue to be relatively weak compared to prior period performance. One, you know, hopefully temporarily due to the economy, but two and more importantly on a long-term basis, just a continued change in format and how we monetize that business. So that will be a constant theme as we go forward. ASPs, I think there’s a couple of things in ASP that we laid out. One, it is more economy sensitive, and that is we've seen a slowdown -- or not a slowdown, but consumers migrating to lower-priced items within categories and we believe that is more economy sensitive and I think we'll continue to feel the effects of that until the economy rebounds. I think the lower mix is a result of promotional activity, I think that's more a temporary kind of move.

But James, let me just build on what Bob said; this is one of the reasons why I think we're going to be increasingly focused on sold items during 2008, because at the end of the day sold items is the best indication that buyers are coming back and they're buying. We can't manage ASPs and as Bob said, if in a tougher economy people are trading down, they're finding better values at cheaper prices, that's not a bad thing in the long-term. And sold items is the indication that buyers are coming back, they’re increasing their frequency, and over time that will translate into good GMV and revenue and through ASP. So we internally are very much focused on the buyer retention metrics of buyer retention and sold items as the key variables.

Thanks for taking my question. The first question is really just related to take rate. You might have touched on this before but I haven't heard the full answer; 9.3% versus about 8.1% in Q1, I know a lot of that has to do with the lower ASP and the vehicles softness but it seems like it might be unsustainable going forward and I'm wondering if you might give us a little bit of a feel for that. Secondly, higher level, we're trying to make a -- really kind of understand what's going on with the business and really, we're not sure how to take the quarter. Looking at 13% organic growth for transaction revenue, 4% GMV growth, you're seeing relatively decent strength in PayPal and Skype, but it's not enough to offset the weakness in the core marketplace. And when we look at those trends in the core marketplace, it doesn't really give us a feeling that they are necessarily going to improve anytime soon and you really need to give us a better feel for that because at your shareholder meeting, you suggested that your shares might be undervalued. But if we're thinking that these trends should be forecasted out over the next couple of years and that we really shouldn't expect an acceleration in 2009, I'm not sure how your shares are undervalued at current levels. If you could help us understand that, that would be great. Thank you.

Maybe, Bob, you take the first and I'll take the second?

Yeah, first, David, on take rate overall, our take rate in the quarter was just under 7.9%, which is roughly in line with Q1 and modestly higher than Q2 of last year; so no dramatic change, but several dynamics going on. First, the things that are negatively impacting our take rate I highlighted -- more couponing, less sales and marketing is negatively impacting our take rate. Secondly, the modest reduction in take rate as a result of our pricing efforts is impacting us, and third, the improved trust on the site as power sellers earn higher and higher discounts negatively impact take rate. So those three things work against us and frankly, those are conscious decisions we made that we think are good for the health and vibrancy of the marketplace. The things that are offsetting that that are actually increasing take rate are primarily mix. StubHub had another great quarter and as you know, the take rate on StubHub is pretty high, so with a high growth, high take rate business, that positively impacts the overall take rate. And vehicles at the other end is a low take rate, slowing growth business and that increases the take rate overall. So there’s puts and takes on the overall take rate. It was essentially flat quarter on quarter and year on year, and our expectations on a go-forward basis are that we will likely drive loyalty with more couponing and continue to lower sales and marketing. We will likely make category-based price changes along the way, which are less up-front fees and more back-end, and we hope that our power seller discounts continue to increase service levels, which in turn we think will drive a more vibrant marketplace. So that’s some of the dynamics on just take rate overall in the quarter.

David, why don’t I take your second question on the changes to the marketplace -- as I said earlier, we are about where we expected to be at this stage. In January, we said that we were going to focus on this year in making the aggressive changes to make the eBay business more competitive and in the first quarter, we announced the first series of those changes that in essence went into effect roughly March 1st. And if you sort of look at the variables we’re looking at on selection, the movement in pricing drove selection relatively quickly with new listings up. And then perhaps more importantly, on many of the trust and safety changes we're making, and best match changes to make eBay easier and safer to use, some of the early metrics where we'd expect to see those show up, such as buyer retention, the ratings buyers are giving sellers on DSRs, bad buyer experience is down -- that's a measure we track, that's down 15%; shipping costs are down roughly 8% to 10%; net promoter score, which is a buyer metric we track internally, is up. And so the first place we expect to see that show up is in sold items or successful items, and as I said earlier, we see some improvement there. We're going to continue to make changes in the second-half of the year and we think those changes will continue to drive that sold item count up and it's one we're going to stay very focused on. As we said earlier, the ASP equation is not something we can manage but it's something that will play its way out, but we're confident that with buyers coming back and increasing their frequency, over time GMV and revenue will go up as well. So halfway into the year, we've increased guidance $300 million and $0.10 of EPS. We're going to focus on the second-half of the year on continuing to make changes and we're continuing our second-half guidance to give ourselves the latitude to take these actions and bear the short-term risks and also absorb any uncertainty in the economy. But we feel like we're on the right path and we're going to stay with it.

John, if I could; David, I’d like to just emphasize a point that John made as well -- when he talks about increasing velocity on the site and the significance of increasing velocity, that's because we will monetize that traffic in new ways, in different ways on a go-forward basis. So when you look at just transaction revenue growth of 9% in the quarter, that's a function of velocity on the site. But the other things, PayPal's on-eBay revenue growth was up 19% year over year. That's because of increased velocity and increased penetration on transactions on the site. Advertising was up 183% year over year; that is a function of increased velocity and people coming back to the site. So as we focus on improving velocity, we know we're going to monetize that in different ways over time, not just through insertion fees and final value fees, but also through progress we make on penetration and our ability to monetize in new and different ways on an advertising basis.

One question on the marketing side; it seems as if, given the fact that if I go to the page, for example, the only monetization that's happening above the fold is an ad from Yahoo!, and I was just curious if that's indicative of its ability to better monetize relative to what you think your listings can monetize, and/or if you think that ultimately improves the buyer experience? Thanks.

Christa, yes, the bottom line is we think our listings, especially as we improve search, are the best way to monetize that above-the-fold real estate. So we do have the graphical display ad from Yahoo! at the top of the page but listings are still monetized most effectively and are consistent with the real core focus on the transaction marketplace. We're finding where the text ads really monetize best are on null search results, where in those rare cases we don't have inventory, or on complementary items that are made to fold down at the bottom, and so overall both text ads and graphical advertising, as Bob said, is growing. We continually test that to make sure what placements optimize our advertising but by and large, above-the-fold listings monetize better.

So you think that you can continue to see high double-digit growth, even in this environment, given what's going on in the display marketplace?

I think we look at advertising overall and we continue to be optimistic that advertising is a nice complementary way to monetize our traffic.

Thank you. Two quick questions; would you talk about any noticeable benefit you realized from tax rebates stimulus checks in the quarter? And then separately, can you give us any color on the traction regarding PayPal's 1.5% cash-back promotion? Thanks.

First on the tax rebate in the quarter, we saw in the U.S. some -- we indicated successful item growth quarter over quarter, so we feel good about that. It is hard to isolate, given the changes that we are making, down to whether the tax rebate check really had a discernible impact on that or not, but I would say probably not. Secondly, I didn’t break down the -- yeah, I think on the PayPal promotion, too early to say. We just launched it a little bit ago and we think it’s a unique way to leverage the inherent synergies between PayPal and eBay but I’d say a little too early to say at this stage.

Thank you.

Thank you, everyone, for joining us and we’ll see you on the next call.

That does conclude today’s conference. We thank you for your participation. Have a great day.