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MarketScreener Homepage  >  Equities  >  Nasdaq  >  EBay Inc.    EBAY

EBAY INC.

(EBAY)
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EBAY INC : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

10/29/2020 | 03:53pm EST

FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements that involve expectations,
plans or intentions (such as those relating to future business, future results
of operations or financial condition, including with respect to the anticipated
effects of COVID-19, new or planned features or services, or management
strategies, including our strategic review). You can identify these
forward-looking statements by words such as "may," "will," "would," "should,"
"could," "expect," "anticipate," "believe," "estimate," "intend," "plan" and
other similar expressions. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from
those expressed or implied in our forward-looking statements. Such risks and
uncertainties include, among others, those discussed in "Part II - Item 1A: Risk
Factors" of this Quarterly Report on Form 10-Q as well as in our unaudited
condensed consolidated financial statements, related notes, and the other
information appearing elsewhere in this report and our other filings with the
Securities and Exchange Commission ("SEC"). We do not intend, and undertake no
obligation, to update any of our forward-looking statements after the date of
this report to reflect actual results or future events or circumstances. Given
these risks and uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements. You should read the following Management's
Discussion and Analysis of Financial Condition and Results of Operations in
conjunction with the unaudited condensed consolidated financial statements and
the related notes included in this report.

When we refer to "we," "our," "us" or "eBay" in this Quarterly Report on Form
10-Q, we mean the current Delaware corporation (eBay Inc.) and its consolidated
subsidiaries, unless otherwise expressly stated or the context otherwise
requires.

OVERVIEW

Business

eBay Inc. is a global commerce leader, which includes our Marketplace platforms.
Founded in 1995 in San Jose, California, eBay is one of the world's largest and
most vibrant marketplaces for discovering great value and unique selection.
Collectively, we connect millions of buyers and sellers around the world,
empowering people and creating opportunity. Our technologies and services are
designed to give buyers choice and a breadth of relevant inventory and to enable
sellers worldwide to organize and offer their inventory for sale, virtually
anytime and anywhere.

On February 13, 2020, we closed the previously announced sale of our StubHub
business to an affiliate of viagogo. Beginning in the first quarter of 2020,
StubHub's financial results for periods prior to the sale have been reflected in
our condensed consolidated statement of income as discontinued operations.
Additionally, the related assets and liabilities associated with the
discontinued operations in the prior year are classified as discontinued
operations in our condensed consolidated balance sheet. See "Note 3 -
Discontinued Operations" in our condensed consolidated financial statements
included elsewhere in this report for additional information.

In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic, which continues to spread throughout the
world. While the disruption is currently expected to be temporary, there is
uncertainty around its duration. As a result of COVID-19 mobility restrictions
globally, there have been changes in consumer behavior that have resulted in
more online retail experiences. We expect these changes in behavior to continue
to evolve as the pandemic progresses. Our Marketplace platforms experienced
improved traffic and buyer acquisition due to the ongoing impact of measures
taken globally to contain the spread of COVID-19. The Marketplace platforms also
experienced improved acquisition of small business sellers. The impacts seen may
continue to create volatility in our results and a wider range of outcomes as
consumer behaviors and mobility restrictions continue to evolve. See "Results of
Operations" below for impacts of COVID-19 on our results for the three and nine
months ended September 30, 2020. For additional information, see "- Liquidity
and Capital Resource Requirements" below and "Item 1A: Risk Factors" under the
caption "The global COVID-19 pandemic could harm our business and results of
operations" in Part II of this report.

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On July 20, 2020, we entered into a definitive agreement to transfer our
Classifieds business to Adevinta ASA ("Adevinta") for $2.5 billion in cash,
subject to certain adjustments, and 540 million shares in Adevinta. These shares
will represent, approximately 44% of Adevinta's total outstanding shares and
approximately 33% of Adevinta's outstanding voting shares, as of June 30, 2020.
Together, the total consideration payable under the definitive agreement is
valued at approximately $9.2 billion, based on the closing trading price of
Adevinta shares on the Oslo Stock Exchange on July 17, 2020. The transaction is
expected to close by the first quarter of 2021. Completion of the sale is
subject to certain conditions, including regulatory approvals and the approval
of the transaction by Adevinta's shareholders as set forth in the definitive
agreement and other risks and uncertainties. We have classified the results of
our Classifieds business as discontinued operations in our condensed
consolidated statement of income for the periods presented. Additionally, the
related assets and liabilities associated with the discontinued operations are
classified as held for sale in our condensed consolidated balance sheet. See
"Note 3 - Discontinued Operations" for additional information.

Presentation


In addition to the corresponding measures under generally accepted accounting
principles ("GAAP"), management uses non-GAAP measures in reviewing our
financial results. The foreign exchange neutral ("FX-Neutral"), or constant
currency, net revenue amounts discussed below are non-GAAP financial measures
and are not in accordance with, or an alternative to, measures prepared in
accordance with GAAP. Accordingly, the FX-Neutral information appearing in the
following discussion of our results of operations should be read in conjunction
with the information provided below in "Non-GAAP Measures of Financial
Performance," which includes reconciliations of FX-Neutral financial measures to
the most directly comparable GAAP measures. We calculate the year-over-year
impact of foreign currency movements using prior period foreign currency rates
applied to current year transactional currency amounts.

Quarter Highlights


Net revenues increased 25% to $2.6 billion during the three months
ended September 30, 2020 compared to the same period in 2019. FX-Neutral net
revenue increased 25% during the three months ended September 30, 2020 compared
to the same period in 2019. Operating margin increased to 26.1% for the three
months ended September 30, 2020 compared to 19.6% for the same period in 2019.
Diluted earnings per share from continuing operations increased to $0.88 during
the three months ended September 30, 2020 compared to $0.25 in the same period
in 2019.

We generated cash flow from continuing operating activities of $716 million
during the three months ended September 30, 2020 compared to $801 million in the
same period in 2019. During the three months ended September 30, 2020, we repaid
debt of $500 million for our outstanding senior notes maturing in 2020, paid
$421 million for the remaining outstanding senior notes maturing in 2021
pursuant to a redemption call, paid $700 million for repurchases of common stock
and paid $111 million in cash dividends.

RESULTS OF OPERATIONS


We have one reportable segment to reflect the way management and our chief
operating decision maker ("CODM") review and assess performance of the business.
Our reportable segment is Marketplace, which includes our online marketplace
located at www.ebay.com, its localized counterparts and the eBay suite of mobile
apps. During the first quarter of 2020, we classified the results of our
previous StubHub segment as discontinued operations in our condensed
consolidated statement of income for all prior periods presented. In addition,
during the third quarter of 2020, we classified the results of our Classifieds
segment as discontinued operations in our condensed consolidated statement of
income for the periods presented. The accounting policies of our segment are the
same as those described in "Note 1 - The Company and Summary of Significant
Accounting Policies" in our condensed consolidated financial statements included
elsewhere in this report. Prior period segment information has been reclassified
to conform to the current period segment presentation.

                                       36
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Net Revenues

Seasonality

We expect transaction activity patterns on our platforms to mirror general
consumer buying patterns and expect that these trends will continue. As we
introduce new products and platforms, such as managed payments, we expect net
revenues to fluctuate. In addition, macroeconomic conditions, such as the
ongoing COVID-19 pandemic, may also contribute to fluctuations in revenues and
margins. The following table sets forth sequential quarterly movements of our
total net revenues for the periods presented (in millions, except percentages):

                                                     Quarter Ended
                               March 31      June 30       September 30      December 31
2018
Net revenues                  $ 2,104$ 2,137$     2,107$     2,302
% change from prior quarter        (2) %          2  %             (1) %              9  %
2019
Net revenues                  $ 2,161$ 2,156$     2,083$     2,236
% change from prior quarter        (6) %          -  %             (3) %              7  %
2020
Net revenues                  $ 2,129$ 2,668$     2,606       $         -
% change from prior quarter        (5) %         25  %             (2) %



Net Revenues by Geography

Revenues are attributed to U.S. and international geographies primarily based
upon the country in which the seller, platform that displays advertising, other
service provider or customer, as the case may be, is located. The following
table presents net revenues by geography for the periods presented (in millions,
except percentages):

                                          Three Months Ended                                            Nine Months Ended
                                             September 30,                    % Change                    September 30,                    % Change
                                         2020              2019              As Reported              2020              2019              As Reported
U.S.                                 $   1,078$   804                        34  %       $  2,986$ 2,466                        21  %
Percentage of net revenues                  41  %            39  %                                       40  %            39  %

International                            1,528            1,279                        19  %          4,417            3,934                        12  %
Percentage of net revenues                  59  %            61  %                                       60  %            61  %

Total net revenues                   $   2,606$ 2,083                        25  %       $  7,403$ 6,400                        16  %



Our commerce platforms operate globally, resulting in certain revenues that are
denominated in foreign currencies, including the British pound, euro and Korean
won. In addition, as shown in the table above, we generate a majority of our net
revenues internationally. Because of these factors, we are subject to the risks
related to doing business in foreign countries as discussed in "Part II - Item
1A: Risk Factors."

Net revenues included $6 million and $23 million of hedging gains during the
three and nine months ended September 30, 2020, as compared to $19 million and
$52 million of hedging gains during the same periods in 2019. The hedging
activity in net revenues specifically relates to hedges of net transaction
revenues. Foreign currency movements relative to the U.S. dollar had a favorable
impact of $31 million on net revenues during the three months ended
September 30, 2020 compared to an unfavorable impact of $32 million during the
same period in 2019, and an unfavorable impact of $45 million on net revenues
during the nine months ended September 30, 2020 compared to an unfavorable
impact of $148 million during the same period in 2019.


                                       37
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The effect of foreign currency exchange rate movements during the three months
ended September 30, 2020 compared to the same period in 2019 was primarily
attributable to the weakening of the U.S. dollar against the British pound and
euro. The effect of foreign currency exchange rate movements during the nine
months ended September 30, 2020 compared to the same period in 2019 was
primarily attributable to the strengthening of the U.S. dollar against the
Korean won.

Net Revenues by Type

We generate two types of net revenues:


Net transaction revenues primarily include final value fees, feature fees,
including fees to promote listings, and listing fees from sellers on our
platforms. Our net transaction revenues also include store subscription and
other fees, often from large enterprise sellers. Our net transaction revenues
are reduced by incentives, including discounts, coupons and rewards, provided to
our customers.

Marketing services and other ("MS&O") revenues consist of revenues principally
from the sale of advertisements, revenue sharing arrangements and first-party
inventory programs.

The following table presents net revenues by type (in millions, except
percentages):

                                          Three Months Ended                                            Nine Months Ended
                                             September 30,                                                September 30,
                                         2020                2019              % Change               2020               2019              % Change

Net transaction revenue            $    2,355$ 1,829                     29  %       $    6,702$ 5,601                     20  %

Marketing services and other
revenues                                  251                 254                     (1) %              701              799                    (12) %

Total net revenues                 $    2,606$ 2,083                     25  %       $    7,403$ 6,400                     16  %


** Not meaningful

Net Transaction Revenues

Key Operating Metrics

Gross Merchandise Volume ("GMV") and take rate are significant factors that we believe affect our net transaction revenues.


GMV consists of the total value of all successfully closed transactions between
users on our platforms during the applicable period, regardless of whether the
buyer and seller actually consummated the transaction. Despite GMV's divergence
from revenue, we still believe that GMV provides a useful measure of the overall
volume of closed transactions that flow through our platforms in a given period,
notwithstanding the inclusion in GMV of closed transactions that are not
ultimately consummated.

Take rate is defined as net transaction revenues divided by GMV.

                                       38
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Net Transaction Revenues
                                  Three Months Ended                                                                    Nine Months Ended
                                     September 30,                                 Change                                 September 30,                                 Change
                                2020              2019              As Reported              FX-Neutral              2020              2019              As Reported              FX-Neutral
                                                                                              (In millions, except percentages)
Net transaction revenues (1) $  2,355$  1,829                       29  %                   28  %       $  6,702$  5,601                       20  %                   21  %

Supplemental data:
GMV                          $ 25,049$ 20,489                       22  %                   21  %       $ 73,443$ 63,544                       16  %                   17  %
Take rate                        9.40  %           8.93  %                  0.47  %                                   9.13  %           8.81  %                  0.32  %

(1)Net transaction revenues were net of $6 million and $23 million hedging activity during the three and nine months ended September 30, 2020, respectively, and $19 million and $52 million of hedging activity during the three and nine months ended September 30, 2019, respectively.


Net transaction revenues increased during the three and nine months ended
September 30, 2020 compared to the same periods in 2019 primarily due to an
increase in GMV due to improved traffic and buyer acquisition due to global
restrictions implemented to contain the spread of COVID-19 which resulted in
consumers engaging in more online retail experiences during the second and third
quarter of 2020 and higher take rate due to the expansion of managed payments
and promoted listings.

Transaction take rate was higher during the three and nine months ended
September 30, 2020 compared to the same periods in 2019, due to the expansion of
managed payments and promoted listings, which along with final value fees are
calculated as a percentage of an item's sale price and category mix.

Marketing Services and Other Revenues

                         Three Months Ended                                                                   Nine Months Ended
                            September 30,                                % Change                               September 30,                                % Change
                        2020              2019             As Reported              FX-Neutral               2020             2019             As Reported              FX-Neutral
                                                                                    (In millions, except percentages)
MS&O                $      251$  254                       (1) %                   (1) %       $     701$  799                      (12) %                  (11) %



The decrease in MS&O revenues during the three and nine months ended
September 30, 2020 compared to the same periods in 2019 was primarily due to the
sale of brands4friends in the third quarter of 2019, and lower advertising
revenues that were driven by our ongoing shift to promoted listing fees, which
are recognized in net transaction revenues, partially offset by increases
attributable to our first-party inventory program in Korea.

Cost of Net Revenues


Cost of net revenues primarily consists of costs associated with customer
support, site operations, costs of goods sold and payment processing.
Significant components of these costs include employee compensation, contractor
costs, facilities costs, depreciation of equipment and amortization expense,
first-party inventory program costs, bank transaction fees, and credit card
interchange and assessment fees. The following table presents cost of net
revenues (in millions, except percentages):

                                               Three Months Ended                                          Nine Months Ended
                                                  September 30,                                              September 30,
                                            2020                  2019             % Change              2020              2019             % Change
Cost of net revenues                    $    656$  530                    24  %       $  1,731$ 1,580                    10  %
Percentage of net revenues                  25.1   %              25.4  %                                 23.4  %          24.7  %



Cost of net revenues, net of immaterial hedging activities, was unfavorably
impacted by $2 million attributable to foreign currency movements relative to
the U.S. dollar during the three months ended September 30, 2020 compared to the
same period in 2019. Cost of net revenues, net of immaterial hedging
activities, was favorably

                                       39
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impacted by $19 million attributable to foreign currency movements relative to
the U.S. dollar during the nine months ended September 30, 2020 compared to the
same period in 2019.

The increase in cost of net revenues during the three and nine months ended
September 30, 2020 compared to the same period in 2019 was primarily due to an
increase in payment processing costs as we continue to transition customers to
our payments platform and an increase in cost of goods sold related to our
first-party inventory program in Korea. The increase in cost of net revenues was
partially offset by lower cost of goods sold due to the sale of brands4friends
in the third quarter of 2019. The increase in cost of net revenues for the nine
months ended September 30, 2020 was partially offset by a favorable impact from
foreign currency movements relative to the U.S. dollar.

Operating Expenses


The following table presents operating expenses (in millions, except
percentages):
                                                 Three Months Ended                                        Nine Months Ended
                                                    September 30,                                            September 30,
                                                2020              2019             % Change              2020              2019             % Change
Sales and marketing                         $     660$   577                    14  %       $  1,835$ 1,731                     6  %
Percentage of net revenues                         25  %            28  %                                   25  %            27  %
Product development                               287              243                    18  %            788              735                     7  %
Percentage of net revenues                         11  %            12  %                                   11  %            11  %
General and administrative                        258              250                     3  %            750              756                    (1) %
Percentage of net revenues                         10  %            12  %                                   10  %            12  %
Provision for transaction losses                   60               68                   (13) %            245              194                    27  %
Percentage of net revenues                          2  %             3  %                                    3  %             3  %
Amortization of acquired intangible assets          6                7                   (14) %             20               21                    (5) %
Total operating expenses                    $   1,271$ 1,145                    11  %       $  3,638$ 3,437                     6  %



Foreign currency movements relative to the U.S. dollar had an unfavorable impact
of $7 million on operating expenses during the three months ended September 30,
2020 compared to the same period in 2019 and a favorable impact of $29 million
on operating expenses during the nine months ended September 30, 2020 compared
to the same period in 2019. There was no hedging activity within operating
expenses during the three and nine months ended September 30, 2020.

Sales and Marketing

Sales and marketing expenses primarily consist of advertising and marketing program costs (both online and offline), employee compensation, certain user coupons and rewards, contractor costs, facilities costs and depreciation on equipment. Online marketing expenses represent traffic acquisition costs in various channels such as paid search, affiliates marketing and display advertising. Offline advertising primarily includes brand campaigns and buyer/seller communications.


The increase in sales and marketing expense during the three months ended
September 30, 2020 compared to the same period in 2019 was primarily due to an
increase in online advertising expenses and employee related costs partially
offset by lower offline advertising expenses.

The increase in sales and marketing expense during the nine months ended
September 30, 2020 compared to the same period in 2019 was primarily due to an
increase in online advertising expenses partially offset by a favorable impact
from foreign currency movements relative to the U.S. dollar and lower offline
advertising expenses.

Product Development

Product development expenses primarily consist of employee compensation,
contractor costs, facilities costs and depreciation on equipment. Product
development expenses are net of required capitalization of major platform and
other product development efforts, including the development and maintenance of
our technology platform. Our top technology priorities include payment
intermediation capabilities and improved seller tools and buyer experiences
built on a foundation of structured data.

                                       40
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The increase in product development expenses during the three and nine months
ended September 30, 2020 compared to the same periods in 2019 was primarily due
to an increase in employee-related costs.

Capitalized internal use and platform development costs were $32 million and $96
million in the three and nine months ended September 30, 2020 compared to $34
million and $103 million for the same periods in 2019. These costs are primarily
reflected as a cost of net revenues when amortized in future periods.

General and Administrative


General and administrative expenses primarily consist of employee compensation,
contractor costs, facilities costs, depreciation of equipment, employer payroll
taxes on stock-based compensation, legal expenses, restructuring, insurance
premiums and professional fees. Our legal expenses, including those related to
various ongoing legal proceedings, may fluctuate substantially from period to
period.

The increase in general and administrative expenses during the three months
ended September 30, 2020 compared to the same period in 2019 was primarily due
to employee related costs and charitable donations, partially offset by costs
related to our CEO transition.

The decrease in general and administrative expenses during the nine months ended
September 30, 2020 compared to the same period in 2019 was primarily due to
restructuring costs incurred in 2019 related to our global workforce reduction
partially offset by charitable contributions.

Provision for Transaction Losses


Provision for transaction losses primarily consists of transaction loss expense
associated with our buyer protection programs, losses from our managed payments
services, fraud and bad debt expense associated with our accounts receivable
balance. We expect our provision for transaction losses to fluctuate depending
on many factors, including changes to our protection programs and the impact of
regulatory changes.

The decrease in provision for transaction losses during the three months ended
September 30, 2020 compared to the same period in 2019 was primarily due to
lower bad debt expense driven by a decrease in provisions taken for COVID-19,
partially offset by losses incurred due to managed payments as we scale the
platform.

The increase in provision for transaction losses during the nine months ended
September 30, 2020 compared to the same period in 2019 was primarily due to an
increase in bad debt expense and higher customer protection program costs as a
result of increased volume and additional provisions taken for COVID-19.

Interest and Other, Net


Interest and other, net primarily consists of interest earned on cash, cash
equivalents and investments, as well as foreign exchange transaction gains and
losses, gains and losses due to changes in fair value of the warrant received
from Adyen, our portion of operating results from investments accounted for
under the equity method of accounting, investment gain/loss on acquisitions or
disposals and interest expense, consisting of interest charges on any amounts
borrowed and commitment fees on unborrowed amounts under our credit agreement
and interest expense on our outstanding debt securities and commercial paper, if
any. The following table presents interest and other, net (in millions, except
percentages):

                                               Three Months Ended                                       Nine Months Ended
                                                 September 30,                                            September 30,
                                           2020                  2019            % Change              2020             2019            % Change

Total interest and other, net           $    95$ (142)                    **       $    277$ (128)                    **
Percentage of net revenues                    4   %                (7) %                                  4   %           (2) %


The increase in interest and other, net during the three months ended September 30, 2020 compared to the same periods in 2019 was primarily attributable to the change in the fair value of the Adyen warrant and the

                                       41
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absence of a loss recorded in 2019 for the divestiture of brands4friends, partially offset by foreign exchange losses and lower interest income.


The increase in interest and other, net during the nine months ended
September 30, 2020 compared to the same periods in 2019 was primarily
attributable to the change in the fair value of the Adyen warrant, a gain
recorded for the receipt of proceeds that were held in escrow related to a
long-term investment that was sold in 2018 and the absence of a loss recorded in
2019 for the divestiture of brands4friends. These increases were partially
offset by lower interest income, an impairment recorded on an investment and
foreign exchange losses.
Income Tax Provision

The following table presents provision for income taxes (in millions, except
percentages):

                                     Three Months Ended                 Nine Months Ended
                                       September 30,                      September 30,
                                  2020                  2019          2020               2019

       Income tax provision   $     153$  56$    550$ 208
       Effective tax rate          19.8   %            21.2  %        23.8   %          16.6  %



The decrease in our effective tax rate for the three months ended September 30,
2020 compared to the same period in 2019 was primarily due to the benefits in
2020 from the finalization of U.S. Regulations on certain foreign tax credits.

The increase in our effective tax rate for the nine months ended September 30,
2020 compared to the same period in 2019 was primarily due to the effects of a
2020 retroactive California law change including incremental taxes on the gain
on the sale of StubHub and a non-recurring benefit in 2019 due to the enacted
New York state legislation regarding the taxability of foreign earnings offset
by benefits in 2020 from the finalization of U.S. Regulations on certain foreign
tax credits.

The realignment of our legal structure, substantially completed in 2018, allows
us to achieve certain foreign cash tax benefits due to the step-up in tax basis
achieved in certain foreign jurisdictions. We expect these cash tax benefits to
remain consistent, subject to the performance of our foreign platforms, for a
period in excess of 10 years. The realignment primarily impacted our
international entities. However, U.S. tax reform and the new U.S. minimum tax on
foreign earnings will reduce our expected consolidated cash tax benefits.

We are regularly under examination by tax authorities both domestically and
internationally. We believe that adequate amounts have been reserved for any
adjustments that may ultimately result from these examinations, although we
cannot assure you that this will be the case given the inherent uncertainties in
these examinations. Due to the ongoing tax examinations, we believe it is
impractical to determine the amount and timing of these adjustments.


                                       42
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Discontinued Operations


On February 13, 2020, we closed the previously announced sale of our StubHub
business to an affiliate of viagogo. Beginning in the first quarter of 2020,
StubHub's financial results for periods prior to the sale have been reflected in
our condensed consolidated statement of income as discontinued operations.
Additionally, the related assets and liabilities associated with the
discontinued operations in the prior year are classified as discontinued
operations in our condensed consolidated balance sheet. See "Note 3 -
Discontinued Operations" in our condensed consolidated financial statements
included elsewhere in this report for additional information.

On July 20, 2020, we entered into a definitive agreement with Adevinta ASA
("Adevinta") to transfer our Classifieds business to Adevinta for $2.5 billion
in cash, subject to certain adjustments, and 540 million shares in Adevinta.
Together, the total consideration payable under the definitive agreement is
valued at approximately $9.2 billion, based on the closing trading price of
Adevinta's outstanding shares on the Oslo Stock Exchange on July 17, 2020. The
transaction is expected to close by the first quarter of 2021. Completion of the
sale is subject to certain conditions, including regulatory approvals and the
approval of the transaction by the requisite number of Adevinta's shareholders
as set forth in the definitive agreement, and other risks and uncertainties,
including general industry and economic conditions outside our control. As
result, we have classified the results of our Classifieds business as
discontinued operations in our condensed consolidated statement of income for
the periods presented. Additionally, the related assets and liabilities
associated with the discontinued operations are classified as held for sale in
our condensed consolidated balance sheet. See "Note 3 - Discontinued Operations"
in our condensed consolidated financial statements included elsewhere in this
report for additional information.

Non-GAAP Measures of Financial Performance


To supplement our condensed consolidated financial statements presented in
accordance with generally accepted accounting principles, we use FX-Neutral net
revenues, which are non-GAAP financial measures. Management uses the foregoing
non-GAAP measures in reviewing our financial results. We define FX-Neutral net
revenues as net revenues minus the exchange rate effect. We define exchange rate
effect as the year-over-year impact of foreign currency movements using prior
period foreign currency rates applied to current year transactional currency
amounts, excluding hedging activity.

These non-GAAP measures are not in accordance with, or an alternative to,
measures prepared in accordance with GAAP and may be different from non-GAAP
measures used by other companies. In addition, these non-GAAP measures are not
based on any comprehensive set of accounting rules or principles. Non-GAAP
measures have limitations in that they do not reflect all of the amounts
associated with our results of operations as determined in accordance with GAAP.
These measures should only be used to evaluate our results of operations in
conjunction with the corresponding GAAP measures.

These non-GAAP measures are provided to enhance investors' overall understanding
of our current financial performance and its prospects for the future.
Specifically, we believe these non-GAAP measures provide useful information to
both management and investors by excluding the foreign currency exchange rate
impact that may not be indicative of our core operating results and business
outlook. In addition, because we have historically reported certain non-GAAP
results to investors, we believe that the inclusion of these non-GAAP measures
provide consistency in our financial reporting.


                                       43
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The following tables set forth a reconciliation of FX-Neutral GMV and FX-Neutral
net revenues (each as defined below) to our reported GMV and net revenues for
the periods presented (in millions, except percentages):

                                                                                                      Three Months
                                                                                                          Ended
                                                    Three Months Ended                                September 30,
                                                    September 30, 2020                                    2019
                                                      Exchange Rate                                                          As Reported %             FX-Neutral
                               As Reported            Effect(1)(3)             FX-Neutral(2)           As Reported              Change                  % Change

GMV                          $     25,049          $            250          $       24,799$     20,489                      22  %                     21  %

Net Revenues:

Net transaction revenues     $      2,355          $             30          $        2,325$      1,829                      29  %            

28 %


Marketing services and other
revenues                              251                         1                     250                   254                      (1) %                     (1) %

Total net revenues           $      2,606          $             31          $        2,575$      2,083                      25  %                     25  %



                                                                                                      Nine Months
                                                                                                         Ended
                                                    Nine Months Ended                                September 30,
                                                    September 30, 2020                                   2019
                                                     Exchange Rate                                                          As Reported %             FX-Neutral
                               As Reported            Effect(1)(3)            FX-Neutral(2)           As Reported              Change                  % Change

GMV                          $     73,443          $          (811)         $       74,254$     63,544                      16  %                     17  %

Net Revenues:

Net transaction revenues     $      6,702          $           (36)         $        6,738$      5,601                      20  %                     21  %

Marketing services and other
revenues                              701                       (9)                    710                   799                     (12) %                    (11) %

Total net revenues           $      7,403          $           (45)         $        7,448$      6,400                      16  %                     17  %





(1)We define exchange rate effect as the year-over-year impact of foreign
currency movements using prior period foreign currency rates applied to current
year transactional currency amounts excluding hedging activity.
(2)We define FX-Neutral GMV as GMV minus the exchange rate effect. We define the
non-GAAP financial measures of FX-Neutral net revenues as net revenues minus the
exchange rate effect.
(3)Net transaction revenues were net of $6 million and $23 million hedging
activity during the three and nine months ended September 30, 2020,
respectively, and $19 million and $52 million of hedging activity during the
three and nine months ended September 30, 2019, respectively.

Liquidity and Capital Resources

Cash Flows

Nine Months Ended September 30,

                                                                           2020                    2019
                                                                                 (In millions)
Net cash provided by (used in):
Continuing operating activities                                     $          2,263          $     1,889
Continuing investing activities                                                 (444)               2,554
Continuing financing activities                                               (5,141)              (5,983)

Effect of exchange rates on cash, cash equivalents and restricted cash

                                                                              25                  (59)

Net increase in cash, cash equivalents and restricted cash - discontinued operations

                                                        3,420                  289
Net increase (decrease) in cash, cash equivalents and restricted
cash                                                                $            123          $    (1,310)




                                       44
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Continuing Operating Activities


Cash provided by continuing operating activities of $2.3 billion in the nine
months ended September 30, 2020 was primarily attributable to net income of $4.8
billion with adjustments for income from discontinued operations of
$3.1 billion, $471 million in depreciation and amortization, $311 million in
stock-based compensation, $245 million in provision for transaction losses, $169
million for deferred income taxes, partially offset by $199 million in changes
in assets and liabilities, net of acquisition effects and adjustments of $496
million for changes in the fair value of the Adyen warrant.

Continuing Investing Activities


Cash used in continuing investing activities of $444 million in the nine months
ended September 30, 2020 was primarily attributable to cash paid for investments
of $28.9 billion, property and equipment of $326 million, partially offset by
proceeds of $28.7 billion from the maturities and sales of investments.

Continuing Financing Activities


Cash used in continuing financing activities of $5.1 billion in the nine months
ended September 30, 2020 was primarily attributable to cash paid to repurchase
$4.7 billion of common stock, of which $3.0 billion related to repurchases of
common stock under an accelerated share repurchase program, repaid debt of $1.8
billion, which comprised of $500 million of our 2.150% senior fixed rate notes
that matured, $500 million of our 3.250% senior fixed rate notes that were
redeemed, $341 million paid to repurchase a portion of our outstanding 2.875%
senior fixed rate notes maturing in 2021 pursuant to a tender offer and $430
million paid to redeem the remaining portion of our outstanding 2.875% senior
fixed rate notes maturing in 2021 and paid $337 million of cash dividends, which
was partially offset by $1.8 billion of proceeds from debt issuances.

The positive effect of exchange rate movements on cash, cash equivalents and restricted cash was due to the weakening of the U.S. dollar against other currencies, primarily the euro and Korean won during the nine months ended September 30, 2020 compared to the 2019 year-end rate.

Stock Repurchases


In January 2019, our Board authorized a $4.0 billion stock repurchase program
and in January 2020, our Board authorized an additional $5.0 billion stock
repurchase program. These stock repurchase programs have no expiration from the
date of authorization.

On February 13, 2020, we entered into accelerated share repurchase agreements
(the "ASR Agreements") with each three financial institutions (each, an "ASR
Counterparty"), as part of our share repurchase program. Under the ASR
Agreements, we paid an aggregate amount of $3.0 billion to the ASR
Counterparties and received an initial delivery of approximately 69 million
shares of our common stock, which shares were recorded as a $2.55 billion
increase to treasury stock. The remaining $450 million was evaluated as an
unsettled forward contract indexed to our own stock, classified within
stockholders' equity. In July 2020, the ASR Agreements settled and resulted in
approximately 74 million shares repurchased at an average price per share of
$40.77 and the forward contract was settled and recorded as an increase to
treasury stock.

Our stock repurchase programs are intended to programmatically offset the impact
of dilution from our equity compensation programs and, subject to market
conditions and other factors, to make opportunistic and programmatic repurchases
of our common stock to reduce our outstanding share count. Any share repurchases
under our stock repurchase programs may be made through open market
transactions, block trades, privately negotiated transactions (including
accelerated share repurchase transactions) or other means at times and in such
amounts as management deems appropriate and will be funded from our working
capital or other financing alternatives.

During the nine months ended September 30, 2020, we repurchased approximately
$4.7 billion of our common stock under our stock repurchase programs. As of
September 30, 2020, a total of approximately $2.5 billion remained available for
future repurchases of our common stock under our stock repurchase programs.


                                       45
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We expect, subject to market conditions and other uncertainties, to continue
making opportunistic and programmatic repurchases of our common stock. However,
our stock repurchase programs may be limited or terminated at any time without
prior notice. The timing and actual number of shares repurchased will depend on
a variety of factors, including corporate and regulatory requirements, the
impacts of the COVID-19 pandemic, price and other market conditions and
management's determination as to the appropriate use of our cash.

Dividends


The Company paid a total of $111 million and $337 million in cash dividends
during the three and nine months ended September 30, 2020, respectively, and
$115 million and $360 million in cash dividends during the three and nine months
ended September 30, 2019, respectively. In October 2020, our Board of Directors
declared a cash dividend of $0.16 per share of common stock to be paid on
December 18, 2020 to stockholders of record as of December 1, 2020.

Shelf Registration Statement and Debt

Shelf Registration


As of September 30, 2020, we had an effective shelf registration statement on
file with the Securities and Exchange Commission that allows us to issue various
types of debt securities, as well as common stock, preferred stock, warrants,
depositary shares representing fractional interest in shares of preferred stock,
purchase contracts and units from time to time in one or more offerings. Each
issuance under the shelf registration statement will require the filing of a
prospectus supplement identifying the amount and terms of the securities to be
issued. The registration statement does not limit the amount of securities that
may be issued thereunder. Our ability to issue securities is subject to market
conditions and other factors including, in the case of our debt securities, our
credit ratings and compliance with the covenants in our credit agreement.

Senior Notes


As of September 30, 2020, we had floating- and fixed-rate senior notes
outstanding for an aggregate principal amount of $7.8 billion. The net proceeds
from the issuances of these senior notes are used for general corporate
purposes, including, among other things, capital expenditures, share
repurchases, repayment of indebtedness and possible acquisitions. The floating
rate notes are not redeemable prior to maturity. On and after March 1, 2021, we
may redeem some or all of the 6.000% fixed rate notes due 2056 at any time and
from time to time prior to their maturity, at a redemption price equal to 100%
of the principal amount of the notes to be redeemed, plus accrued and unpaid
interest. We may redeem some or all of the other fixed rate notes of each series
at any time and from time to time prior to their maturity, generally at a
make-whole redemption price plus accrued and unpaid interest. If a change of
control triggering event (as defined in the applicable senior notes) occurs with
respect to the 3.800% fixed rate notes due 2022, the floating rate notes due
2023, the 2.750% fixed rate notes due 2023, the 1.900% fixed rate notes due
2025, the 3.600% fixed rate notes due 2027, the 2.700% fixed rate notes due 2030
or the 6.000% fixed rate notes due 2056, we must, subject to certain exceptions,
offer to repurchase all of the notes of the applicable series at a price equal
to 101% of the principal amount plus accrued and unpaid interest. For additional
details related to our senior notes, please see "Note 9 - Debt" to the condensed
consolidated financial statements included in this report.

To help achieve our interest rate risk management objectives, in connection with
the previous issuance of certain senior notes, we entered into interest rate
swap agreements that effectively converted $2.4 billion of the fixed rate notes
to floating rate debt based on the London Interbank Offered Rate ("LIBOR") plus
a spread. These swaps were designated as fair value hedges against changes in
the fair value of certain fixed rate senior notes resulting from changes in
interest rates. As of September 30, 2020, we had no interest rate swaps
designated as fair value hedges outstanding as $1.15 billion related to our
2.200% senior notes of the $2.4 billion aggregate notional amount matured in
2019 and in 2019 we terminated the interest rate swaps related to $750 million
of our 2.875% senior notes due July 2021 and $500 million of our 3.450% senior
notes due July 2024. As a result of the early termination, hedge accounting was
discontinued prospectively and the gain on termination was recorded as an
increase to the long-term debt balance and is being recognized over the
remaining life of the underlying debt as a reduction to interest expense. The
gain recognized during the three and nine months ended September 30, 2020

                                       46
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was immaterial. For additional details related to the interest rate swap termination, please see, "Note 9 - Debt" to the condensed consolidated financial statements included in this report.


During the second quarter of 2020, we began to hedge the variability of the cash
flows in interest payments associated with our floating-rate debt using interest
rate swaps. These interest rate swap agreements effectively convert our
LIBOR-based floating-rate debt to a fixed-rate basis, reducing the impact of
interest-rate changes on future interest expense. The total notional amount of
these interest swaps was $400 million as of September 30, 2020 with terms
calling for us to receive interest at a variable rate and to pay interest at a
fixed rate. Our interest rate swap contracts have maturity dates in 2023.

The indenture pursuant to which the senior notes were issued includes customary
covenants that, among other things and subject to exceptions, limit our ability
to incur, assume or guarantee debt secured by liens on specified assets or enter
into sale and lease-back transactions with respect to specified properties, and
also includes customary events of default with customary grace periods in
certain circumstances, including payment defaults and bankruptcy-related
defaults.

Commercial Paper


We have a commercial paper program pursuant to which we may issue commercial
paper notes in an aggregate principal amount at maturity of up to $1.5 billion
outstanding at any time with maturities of up to 397 days from the date of
issue. As of September 30, 2020, there were no commercial paper notes
outstanding.

Credit Agreement


In March 2020, we entered into a credit agreement that provides for an unsecured
$2 billion five-year credit facility. We may also, subject to the agreement of
the applicable lenders, increase commitments under the revolving credit facility
by up to $1 billion. Funds borrowed under the credit agreement may be used for
working capital, capital expenditures, acquisitions and other general corporate
purposes. The credit agreement replaced our prior $2 billion unsecured revolving
credit agreement dated November 2015, which was terminated effective March 2020.

As of September 30, 2020, no borrowings were outstanding under our $2 billion
credit agreement. However, as described above, we have an up to $1.5 billion
commercial paper program and are required to maintain available borrowing
capacity under our credit agreement in order to repay commercial paper
borrowings in the event we are unable to repay those borrowings from other
sources when they become due, in an aggregate amount of $1.5 billion. However,
as of September 30, 2020, no borrowings were outstanding under our commercial
paper program; therefore, $2 billion of borrowing capacity was available for
other purposes permitted by the credit agreement. The credit agreement includes
a covenant limiting our consolidated leverage ratio to no more than 4.0:1.0,
subject to, upon the occurrence of a qualified material acquisition, if so
elected by us, a step-up to 4.5:1.0 for the four fiscal quarters completed
following such qualified material acquisition. The credit agreement includes
customary events of default, with corresponding grace periods in certain
circumstances, including payment defaults, cross-defaults and bankruptcy-related
defaults. In addition, the credit agreement contains customary affirmative and
negative covenants, including restrictions regarding the incurrence of liens and
subsidiary indebtedness, in each case, subject to customary exceptions. The
credit agreement also contains customary representations and warranties.

We were in compliance with all covenants in our outstanding debt instruments for the nine months ended September 30, 2020.

Credit Ratings


As of September 30, 2020, we were rated investment grade by Standard and Poor's
Financial Services, LLC (long-term rated BBB+, short-term rated A-2, with a
stable outlook), Moody's Investor Service (long-term rated Baa1, short-term
rated P-2, with a stable outlook), and Fitch Ratings, Inc. (long-term rated BBB,
short-term rated F-2, with a stable outlook). We disclose these ratings to
enhance the understanding of our sources of liquidity and the effects of our
ratings on our costs of funds. Our borrowing costs depend, in part, on our
credit ratings and any actions taken by these credit rating agencies to lower
our credit ratings, as described above, will likely increase our borrowing
costs.

                                       47
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Liquidity and Capital Resource Requirements


As of September 30, 2020 and December 31, 2019, we had assets classified as cash
and cash equivalents, as well as short-term and long-term non-equity investments
from continuing operations, in an aggregate amount of $4.1 billion and $3.7
billion, respectively. As of September 30, 2020, this amount included assets
held in certain of our foreign operations totaling approximately $3.2 billion.
As we repatriate these funds to the U.S., we will be required to pay income
taxes in certain U.S. states and applicable foreign withholding taxes on those
amounts during the period when such repatriation occurs. We have accrued
deferred taxes for the tax effect of repatriating the funds to the U.S.

We actively monitor all counterparties that hold our cash and cash equivalents
and non-equity investments, focusing primarily on the safety of principal and
secondarily on improving yield on these assets. We diversify our cash and cash
equivalents and investments among various counterparties in order to reduce our
exposure should any one of these counterparties fail or encounter difficulties.
To date, we have not experienced any material loss or lack of access to our
invested cash, cash equivalents or short-term investments; however, we can
provide no assurances that access to our invested cash, cash equivalents or
short-term investments will not be impacted by adverse conditions in the
financial markets, including, without limitation, as a result of the impact of
the COVID-19 pandemic. At any point in time we have funds in our operating
accounts and customer accounts that are deposited and invested with third party
financial institutions.

We believe that our existing cash, cash equivalents and short-term and long-term
investments, together with cash expected to be generated from operations,
borrowings available under our credit agreement and commercial paper program,
and our access to capital markets, will be sufficient to fund our operating
activities, anticipated capital expenditures, repayment of debt and stock
repurchases for the foreseeable future. However, COVID-19 and related measures
to contain its impact have caused material disruptions in both national and
global financial markets and economies. The future impact of COVID-19 and these
containment measures cannot be predicted with certainty and may increase our
borrowing costs and other costs of capital and otherwise adversely affect our
business, results of operations, financial condition and liquidity, and we
cannot assure that we will have access to external financing at times and on
terms we consider acceptable, or at all, or that we will not experience other
liquidity issues going forward.

Off-Balance Sheet Arrangements

As of September 30, 2020, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.


We have a cash pooling arrangement with a financial institution for cash
management purposes. This arrangement allows for cash withdrawals from the
financial institution based upon our aggregate operating cash balances held
within the same financial institution ("Aggregate Cash Deposits"). This
arrangement also allows us to withdraw amounts exceeding the Aggregate Cash
Deposits up to an agreed-upon limit. The net balance of the withdrawals and the
Aggregate Cash Deposits are used by the financial institution as a basis for
calculating our net interest expense or income under the arrangement. As of
September 30, 2020, we had a total of $4.8 billion in aggregate cash deposits,
partially offset by $4.7 billion in cash withdrawals, held within the financial
institution under the cash pooling arrangement.

Indemnification Provisions


We entered into a separation and distribution agreement and various other
agreements with PayPal to govern the separation and relationship of the two
companies. These agreements provide for specific indemnity and liability
obligations and could lead to disputes between us and PayPal, which may be
significant. In addition, the indemnity rights we have against PayPal under the
agreements may not be sufficient to protect us and our indemnity obligations to
PayPal may be significant.

In addition, we have entered into indemnification agreements with each of our
directors, executive officers and certain other officers. These agreements
require us to indemnify such individuals, to the fullest extent permitted by
Delaware law, for certain liabilities to which they may become subject as a
result of their affiliation with us.

                                       48

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In the ordinary course of business, we have included limited indemnification
provisions in certain of our agreements with parties with which we have
commercial relations, including our standard marketing, promotions and
application programming interface license agreements. Under these contracts, we
generally indemnify, hold harmless and agree to reimburse the indemnified party
for losses suffered or incurred by the indemnified party in connection with
claims by a third party with respect to our domain names, trademarks, logos and
other branding elements to the extent that such marks are applicable to our
performance under the subject agreement. In certain cases, we have agreed to
provide indemnification for intellectual property infringement. It is not
possible to determine the maximum potential loss under these indemnification
provisions due to our limited history of prior indemnification claims and the
unique facts and circumstances involved in each particular provision. To date,
losses recorded in our condensed consolidated statement of income in connection
with our indemnification provisions have not been significant, either
individually or collectively.

© Edgar Online, source Glimpses

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