Good day, ladies and gentlemen, and thank you for standing by. And welcome to eBay's First Quarter 2011 Earnings Call. [Operator Instructions] And now, I'll turn the program over to Jennifer Cerran, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us, and welcome to eBay earnings release conference call for the first quarter of 2011. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We're providing a slide presentation to accompany Bob's commentary during the call. This conference call is also being broadcast on the Internet, and both the presentation and call are available through the Investor Relations section of the eBay website at investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link. Before we begin, I'd like to remind you that during the course of this conference call, we will discuss some non-GAAP measures in talking about our company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements relating to our future performance that are based on current expectations, forecasts and assumptions and involve risks and opportunities. These statements include, but are not limited to, statements regarding expected financial results for the second quarter and full year 2011 and the future growth in the payments and marketplaces businesses. Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to: The after effects of the global economic downturn; changes in political, business and economic conditions, foreign exchange rate fluctuations; the impact and integration of recent and future acquisitions; our increasing need to grow revenues from existing users, particularly in more established markets; an increasing competitive environment to our businesses; the complexity of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity; our need to manage regulatory, tax, IP and litigation risks, including risks specific to PayPal, Bill Me Later and the financial industry; and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability. You can find more information about factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q available at investor.ebayinc.com. You should not rely on any forward-looking statements. All information in this presentation is as of April 27, 2011, and we do not intend and undertake no duty to update. With that, let me turn the call over to John.

Thanks, Jenny, and good afternoon, everyone, and welcome to our Q1 earnings call. At our February Investor Meeting, I outlined a rapidly changing external environment, where the lines between online and offline commerce are blurring, driven by fundamental changes in how consumers shop and pay. And this is requiring merchants around the globe to adjust to a new commerce environment. I also described a different eBay, a company positioned to capitalize on these trends by partnering with merchants of all sizes and delivering innovative consumer experiences. In this emerging new retail environment, we are playing offense. And that's just what we did in the first quarter. We hit 2011 running. Our strong start to the year underscores our growing opportunities and momentum. We're focused on redefining retail and leading the next generation of commerce and payments. As we execute our 3-year growth plans, our core businesses continue to get stronger, we're innovating faster, which means we're serving our customers better, and we're investing in growth. In Q1, both revenue and non-GAAP earnings per share exceeded our guidance. Revenue grew 16% and non-GAAP EPS was up 12% year-over-year and we generated $551 million in free cash flow during the quarter. PayPal drove strong growth in total payment volume, revenue and active accounts. And eBay delivered solid revenue growth including a 5-point acceleration in core GMV in the U.S. and stable growth in Europe. We also made several moves in Q1 to strengthen our portfolio. We completed our brands4friend acquisition in Germany, and we announced agreements to acquire GSI Commerce, Where and GittiGidiyor. We believe these acquisitions help extend our commerce capabilities and accelerate innovation. For example, GSI significantly expands our commerce capabilities and deepens relationships with large merchants. Where adds important innovation capabilities to our local commerce efforts. And GittiGidiyor extends…

Thanks, John. During my discussion, I'll reference our earnings slide presentation that accompanies the webcast. All growth rates mentioned in my prepared remarks represent year-over-year comparisons unless I clarify otherwise. In February, we shared with you our 3-year plan, including a framework for growth, a framework for execution and a framework for capital allocation. Our Q1 results reflect a strong start to 2011 and our 3-year journey. In summary, we exceeded our Q1 guidance on the top and bottom line as we continue to execute against our strategic priorities. From a growth perspective, we grew the top line 16% with contributions from our core businesses, our adjacent formats and our seeds. Our core businesses generated solid growth with non-vehicles GMV, up 8% and PayPal TPV, up 28%. Our Marketplaces' adjacencies grew 26% with strong organic growth from classifieds and advertising, and inorganic growth from the acquisition of brands4friend, which we closed in the quarter. Our seeds are today's investments that will drive tomorrow's growth and these continue to contribute as well from Bill Me Later, Mobile and PayPal Digital Products. From an execution perspective, operational excellence has increasingly become the way we work. Net promoter scores are up, the rate of innovation is accelerating and we are realizing good operational leverage and we continue to invest for the future. And finally, from a capital allocation perspective, we continue to generate strong free cash flows. We strengthened our portfolio with the acquisition of Brands4friends and the announcements of GSI, Where and GittiGidiyor, while also continuing our share repurchase program. Q1 2011 is the first step in our 3-year plan, and we're pleased with our progress and momentum. In the first quarter, our combined businesses generated net revenues of $2.5 billion, up 16%, and approximately $100 million above the midpoint of our…

[Operator Instructions] Our first question in queue is Scott Devitt with Morgan Stanley.

One in Marketplaces and then a follow-up on payments, if I could. I don't know, Bob, if any of these deals are flowing through the Marketplaces transaction revenue line. But if I take that line and just divide it by GMV, it looks like the core take rate actually went up 30 basis points, sequentially. And I believe you comped the price change in the second quarter. So if that math is correct, what caused the take rate increase in the core eBay business?

So first, Scott, as you know, Milo and RedLaser and Critical Path have relatively little revenue. brands4friends, which is the majority of the revenue in the quarter from M&A, is in our marketing services and other line, so it's not in transaction revenue. If you exclude vehicles and StubHub on a year-over-year basis, take rate for Marketplaces going through transaction revenue was relatively flat in the first quarter, so no dramatic change.

And then the payments question is, I guess, similar take rate-related. It's used consecutive quarters of 3, 4, 5 in terms of take rate. And so I'm wondering if there's a point in time at which take rates start to stabilize and revenue grows more in line with TPV?

Yes, the 2 biggest drivers on take rate are: first, the larger merchants, all else equal, have a tendency to command a lower take rate. So as the base book of business from larger merchants grows, that has a downward effect on take rate. On the flip side, our expanding international presence in both Europe and Asia take rates have a tendency to be higher and continuing increase cross-border trade drives up take rate as well. I think the way you've seen them net together over time is a continued gradual trend down. And honestly, I don't expect that to change a whole lot. At the same time, Scott, as you know, we think more about the transaction margins for the business and the interrelationship between what we charge the take rate, what we pay transaction expense and how effectively we manage risks, i.e. fraud losses. And the interrelationship between those 3 is what we look at in terms of the health and vibrancy of the PayPal business and the economic margins that we generate. And as Scott shared with you back in February, we believe that over the next 3 years, we'll continue to generate transaction margins at 60% or above. And one quarter into the 12-quarter journey, we're above 63% and feel pretty good about the interrelationship going forward.

Our next question in queue is from Colin Sebastian with Lazard.

A question on the U.S. GNV, you mentioned stronger conversion in higher ASPs. Is part of the higher ASPs possibly a result of sellers baking in shipping costs into prices? Or was it really a function of the category and product mix? And as a follow-up on the Vehicles business, which appears to have stabilized, any relation on that from perhaps shortages of parts or cars from Japan? Or is that stabilization you think is going to continue?

Why don't I take that up? On U.S. GMV first quarter, the way we see this is a year ago, we put in place the fundamental pricing and format changes that we in the U.S. that we'd done in Europe. And we knew that would have a short-term negative impact on the business. We said it would take 3 to 4 quarters for that work its way through in the U.S. just like it had in Europe. And what we saw in the first quarter is, in fact, in the fourth quarter, it's worked its way through the system. And in particular, we reduced duplicate listings in the fourth quarter of last year, and we've made some tweaks to search in the first quarter of this year that got the U.S. business back to what I would call baseline. And a baseline off which we can now build, much like what we did in the U.K. and Germany after we went through that period in Europe. So the impact in ASPs was more a derivative function of that. It was not shipping x cost being transferred in the pricing. It was more just higher ASP items getting more visibility in search and fewer duplicate low ASP items crowding out others. So I would characterize it as kind of fine tuning to get us back to a baseline. And it was pretty consistent across categories and products. As Bob mentioned, there were a couple of categories that were a little higher, gold and iPads, but by and large, I think it reflected a healthy ecosystem. And then vehicles, I don't think there's any -- I don't think we can tie anything to Japan in specific. I think the economy is a little bit better. And I don't know if we're at an equilibrium between transaction vehicle format and advertising-based vehicle format. We've been in a transition more towards advertising base vehicle format or lead generation, so we'll see. We'll take a couple more quarters. We're now indifferent between the 2 formats, and we give sellers and buyers the choice of which format they want to sell in and which format they want to buy in with vehicles.

The only thing I'd add on that latter point, Colin, is as opposed to vehicles, parts and accessories has continued to generate demonstrate strong performance and growing performance, and that's been a trend that you've seen for the last 3 to 4 quarters as opposed to any short-term dynamics associated with supply shortages coming out of Japan.

Our next questioner in queue is Sandeep Aggarwal with Caris & Company. Sandeep Aggarwal - Caris & Company: John, eBay has significant lease trends in its product portfolio for local commerce with a series of acquisitions. Can you articulate by when we can see a fully rolled out eBay strategy for local commerce or maybe by then, eBay will become a significant player for the local market? And then on BML, we see a lot of ad campaigns on ebay.com. Have you done any kind of efficacy analysis in terms of aggressively pushing Bill Me Later on eBay.com or is it basically buyers' experience?

Sandeep, I'll take the first and Bob will take the second. On local commerce, as you've mentioned, we've done a series of things ranging from buying RedLaser to buying Milo. We bought Where, which has local geotargeting this quarter. And what's fascinating, as we've talked an Analyst Day about growing synergies between eBay and PayPal, we're seeing just that, that local commerce is being enabled by mobile commerce. And the fact that we have mobile payments is and PayPal's capabilities, we think will further enable what Scott referred to as POS at Analyst Day. With respect to how fast it'll happen, I don't know. I think it's happening faster than any of us would have guessed 6 to 12 months ago, frankly, driven by consumers and driven by consumer behavior with their mobile devices. So we're focused on is ensuring that we have the best mobile commerce and mobile payments capabilities, which I think our volumes speak to. With Milo, we've got what we believe is the best technology to bring local products online and give a consumer a choice between, regardless of where they are on their mobile device, being able to buy online or see the offline inventory in their area. And we now have some live examples of that and as couple of categories or small lease on eBay. And then buying the Where property gives us geotargeting, which we think is another element of local commerce, where it will enable us to deliver relevant online and offline product results to a consumer based on where they are. So we like the pieces we're putting together in the puzzle. We're not trying to talk a lot about it externally. We're trying to build working prototypes and working examples that work with consumers. And as we said in our Analyst Day, we think local represents a significant growth opportunity for both eBay and for PayPal in the coming years. But frankly, we didn't put any of that in the numbers we talked about on Analyst Day. So we're focused on it but we're not getting distracted by it.

And Sandeep, one other aspect of our local business is our Classifieds business, which is primarily a local business with medium positions in several countries around the world, which as we indicated earlier, is growing about 15%, given us great traction in the markets in which we operate. On your second question, one of the benefits of the multi-business portfolio, if you will, is we can take great innovations from one business and use them on this big ecosystem called eBay as a test bed to drive rapid adoption. That's what we're doing with Bill Me Later. We launched or we strengthened the offering of Bill Me Later on the eBay platform back in the fourth quarter. It got wonderful traction in the fourth quarter. We continue to, in a sense, market it to the 40 million-plus active users on eBay in the U.S. to get them to adopt. And the feedback we've gotten from them is increased growth and increased usage as exhibited in the Bill Me Later results. So with that is one of the benefits we have to pilot new innovations in one business on eBay platform. As a related but may be a complete aside, that's one of the powers for us of the GSI acquisition, leveraging that business and its group of merchants and clients to help them grow on the eBay platform and/or to leverage PayPal as a way to pay for GSI merchants with their consumers. So I characterize it a bit as a power the portfolio and Bill Me Later on eBay is an example of that.

Our next questioner in queue is Colin Gillis with the BGC Financial.

Gentlemen, I was wondering if you can talk a little bit about Marketplace leadership and your thoughts there. The current guys are doing a pretty good job.

I don't know. I still have an active search going on. What I've said and have said before, I have a very high bar. Frankly, the Marketplace performance is being driven by a very strong Marketplace team. You guys that came to Investor Day saw Mark Carges and what he's doing with product and technology. You got a chance to meet Doug McCallum who's running Europe. You got a chance to meet Christopher Payne, who's running North America. You didn't have a chance to meet Jay Lee who runs Asia. Chad O'Meara runs CS and ops. We've got a strong team in that Marketplace business. And so we'll keep looking for the right leader. That business deserves someone that's focusing on it full time, not just as I am, but we will keep a high bar.

And just following up on PayPal and just sort of opening up that platform, there was some good news this quarter regarding that. Can you just talk about how that's getting traction?

You're talking about the external platform? Can you clarify the question just a little bit?

Just PayPal x and other people who are building on top of that?

Yes. We recognized a couple years ago that we don't want to be the bottleneck on innovation off the PayPal platform. And so we've now got 60,000 developers developing on the PayPal platform, 1,500 live applications. It's being pulled in some areas, we would imagine, like you saw in the Developers Conference last year, in the mobile applications, into social gaming applications, into digital applications. And it's being pulled in some situations we wouldn't have imagined. And that's what's so great about platform. One of the things that we're learning along the way that's interesting is that what developers are telling us, and frankly, merchants are telling us, is they love the PayPal platform, but they want even more. They want commerce, services. They want more from the commerce services stack because they are finding that they need help competing in this multichannel world. And so that was behind -- one of the factors behind our acquisition of GSI that gives us some commerce capabilities for larger merchants. You'll see us taking the eBay open platform and the PayPal open platform and operating those more together to give more of a seamless experience for third-party developers and merchants. And it's also behind our 49% interest in Magento, which is as you know, one of the fastest-growing open-source commerce platforms. And what we're, in essence, doing is building the soup to nuts from the smallest through the largest sellers and the ability to build a commerce services stack so that merchants and developers can really capitalize on the capabilities we have, grow their businesses.

And our next questioner in queue is Spencer Wang with Credit Suisse. Spencer Wang - Crédit Suisse AG: 2 questions, one is just a first, a follow-up for Bob on the marketplace take rate question, if I could maybe ask it a different way. If your core take rate was up year-over-year, but the core take rate was roughly flat year-over-year, is the increase in the former then just a function of lower mix of auto and maybe a higher mix of StubHub?

Yes. Spencer Wang - Crédit Suisse AG: And then maybe for John, your Internet peers are reinvesting and hiring pretty aggressively. So I was wondering if you're seeing any sort of upward pressure in cost as you build out the business and make investments? And are these fully contemplated in your 3-year guidance?

Well, the first thing I'll say is that the labor world -- I divide it into 2 worlds. There is Silicon Valley and the rest of the world. And the thing to keep in mind, at least with our company, is 75% of our employees are outside of Silicon Valley. And while the economy is getting a little bit better in many regions around the world, it does not -- the labor markets don't have quite that sort of white-hot heat that you're seeing in Silicon Valley at the moment. And then in Silicon Valley, what's interesting is yes, there's a lot of competition in the short term for certain classes of engineers. What's interesting is engineers, while money is important to them, what they really care about is working on challenging and difficult problems. And we're having great success hiring engineers to work on eBay Search or to work on PayPal Mobile or PayPal Local. And so we are while -- and we have a number of rep positions open right now. So we're hiring, but just not quite at the rate some of the others are. So we feel good about our ability to add that, and we feel like by and large, what it's going to be necessary to compete is in the 3-year guidance we gave. If the changes, we'll say so. But we're trying not to get too distracted by what I think is a little bit of a short-term bubble-ish effect in certain classes of engineers in Silicon Valley.

The only thing that I would add is we talked back in March '09 and again in February of this year about what we call our framework for execution or operational excellence. And essentially, over the last 3 years by doing things smarter, we've been able to free up capacity to invest in a variety of different things, whether it's more R&D, whether it's increased protection, whatever it is that we think we need to do to improve our competitive position, we've been able to free up capital by doing things better and reinvest that. In February, we said we'd do the same thing over the next 3 years, that we thought that we could generate about $1 billion of efficiencies by doing things better. But our expectation is that billion dollars would go back into things that are required to help us compete and grow and extend our leadership position in commerce and payment. So along the way, there'll be lots of dynamics that we'll have to deal with. What will be consistent is how we operate, how we free up capacity and how we'll reinvest in the business.

And one of the things we like about our business models is they're not asset intensive. So it allows us to grow them without quite the same level of expenditures.

Our next questioner in queue is James Mitchell with Goldman Sachs.

Digging into Korea a little bit. My Korean's rough, but I think a local newspaper suggested tmarking [trademarking] an auction will allow Naver's price comparison engine to scrape the listings again. Is that correct? Or did Google Translate lead me astray? And do you expect Naver to expand from a price comparison engine into a mainstream marketplace competing directly for sellers?

Yes, James. I think the dynamics of what's going on in Korea on the -- as you know, comparison shopping is a relatively large vehicle for traffic or for eyeballs in that market, more like in the other markets that we operate in around the world. And we have been, as the large search player in the market has extended its reach maybe into commerce, we've continued to think differently about what it is they're trying to do and what we think we need to do to strengthen our position locally. And along the way, we've reduced our presence on comparison, other comparison shopping sites, while in effect building our own organically built comparison shopping site. In Korea, it's called a bout. And we thought it was going to be more prominent over the long term to use that platform to generate eyeballs and traffic. And based on competitive dynamics in the market and the relationships that we have with the other players, we'll determine when to dial down our presence on other comparison shopping and when to dial up. We dialed it way down and recently had been putting up with listings more, and that will ebb and flow, is our guess, as that market evolves.

But the original rationale for dialing it down was concern that the incumbent price comparison site, which will either become more of a marketplace, I think. If that's the local concern or are you less worried about that now?

I think we'll continue to assess how that plays out in the local market to determine and influence whether we're serving up our ads on that platform or not. And the other important factor is we did build our own comparison shopping engine as well. So it gave us an alternative to serve up our listings, our own comparison shopping platform. And again, the dynamics locally will determine how much we dial down or how much we dial up on other comparison shopping sites.

I think that market's still in transition, James. In most markets around the world, if you look at the really successful Internet companies, they're staying really focused on what they're great at. If you're great at commerce, you focus on that. If you're great at search and advertising, you focus on that. If you're great at social networking, you focus on that. And while there's been a little bit of movement into each other's categories, it's hard to be great at more than one thing. And we'll see how Korea plays out. Our hope and perspective is that over time, that we'll be best in class in commerce and others will be best in class in what they do.

Operator, we have time for one more question.

Our final question in queue comes from Mark Mahaney with Citi.

I just want to ask a broad question about Mobile. You have a lot of visibility into it from both the commerce and a payments perspective. Some of that numbers you just rolled out in terms of your estimates for the full year against some of our estimates, I assume that Mobile penetration is something like 2% for payments and 6% or something for commerce. Can you draw many broad general thoughts on whether those penetration rates would converge over time? Or are there good structural or behavioral reasons why commerce penetration on Mobile should be higher always going forward than for payments?

Yes, there's a simple reason. I'm looking at Scott Thompson right now. The fact is PayPal is the only safe way to pay on mobile phones. Because what people -- what you're finding is people don't want to enter their credit card information into a mobile device because it's: A, it's inconvenient; and B, has the risk of being unsafe. And not all the mobile platforms have yet proven to be secure, and certain things can be intercepted in Wi-Fi. And so when you pay with PayPal on a mobile device, you are never sharing your financial information. Your financial information is never passing through the airwaves or through that mobile device. And so PayPal is absolutely a superior way to pay on mobile devices. And so I think what you're seeing is the recent penetrations lagging is: one, in general, consumers have to feel comfortable paying on mobile devices; and two, it reflects that PayPal doesn't yet have 100% our share of the market, which is what the goal we set for Scott. More broadly, Mark, what we do see for both is we just see enormous growth in consumer behavior of using their mobile devices. And when we talk to customers, they really like being able to, in essence, have the store, the world brought to them in their pocket, on their mobile device and having that flexibility. And so our mobile penetration curves across both businesses are quite steep, and we're investing a lot in improving our applications and in making sure we have a pretty clear leadership position in that space. All right. Thank you, everyone. We'll see you next quarter.

Thank you, ladies and gentlemen. This does conclude today's program. Thank you for your participation and have a wonderful day. Attendees, you may disconnect at this time.