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 or financial results, new features or services, or management strategies). You can identify these forward-looking statements by words such as "may," "will," "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 our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the 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 that appear elsewhere in this report.

Our Business

We operate three primary business segments: Marketplaces, Payments and Communications. The Marketplaces segment enables online commerce through a variety of different platforms, including the traditional eBay auction-style site, fixed pricing format, our classifieds websites, our comparison shopping site, Shopping.com, our secondary tickets platform, StubHub, and Rent.com. Our Payments segment, which consists of PayPal, enables individuals and businesses to securely, easily and quickly send and receive payments online. Our Communications segment, which consists of Skype, enables VoIP communications between Skype users and also provides Skype users low-cost connectivity to traditional fixed-line and mobile telephones.

Key Operating Metrics and Financial Performance

Members of our senior management team regularly review key operating metrics such as active users, listings, Gross Merchandise Volume ("GMV"), net Total Payment Volume ("TPV"), transaction loss rates, Skype registered users and SkypeOut minutes. Members of our senior management team also regularly review key financial information including net revenues, operating margins, earnings per share, cash flows and financial metrics that exclude certain non-cash items. These financial measures allow us to monitor the profitability of our business and to evaluate the effectiveness of investments that we have made (and continue to make) in the areas of marketing, product development, international expansion, customer support and site operations. We believe that an understanding of these key operating and financial measures and how they change over time is important to investors, analysts and other parties analyzing our business results and future market opportunities.

Financial Summary

Net revenues for the three months ended March 31, 2008 were $2.2 billion, representing a growth rate of 24% compared to the same period of the prior year. Revenue growth was driven primarily by Marketplaces net transaction revenues, the ongoing expansion at PayPal, Skype and our global advertising and classifieds businesses. Our global presence helped us to benefit from strength in other currencies relative to the U.S. dollar. Operating income for the three months ended March 31, 2008 was $552.8 million, or 25% of net revenues, compared to $467.8 million, or 26% of net revenues, in the same period of the prior year. The decrease in the operating margin (which is operating income as a percentage of net revenues) was due primarily to the continued higher growth of our lower-margin businesses, PayPal and Skype, which continued to grow at a faster rate than our Marketplaces business, as well as higher legal-related expenses. Net income for the three months ended March 31, 2008 was

$459.7 million, or $0.34 earnings per diluted share, compared to $377.2 million, or $0.27 earnings per diluted share for the same period of the prior year. Our net income results benefited in part from a lower tax rate for the three months ended March 31, 2008 compared to the same period of the prior year as the geographic mix of income became more favorable. In addition to the growth in net income, the higher earnings per diluted share was partially attributable to our lower diluted weighted average share count, the decrease of which was driven primarily by our stock repurchase activity during 2007 and the first quarter of 2008. During the first quarter of 2008, we repurchased approximately 36.7 million shares of our common stock under our repurchase program for an aggregate purchase price of approximately $1.0 billion.

Our expectations for growth

For the remainder of 2008, we expect that our net revenues and earnings per diluted share will continue to increase. We expect to continue to make significant investments in our Marketplaces segment, related primarily to our goals of making eBay easier and safer to use, retaining our top-buyers and making changes in our fee structure to further align our success with that of our sellers.

Seasonality

The following table sets forth, for the periods presented, our total net
revenues and the sequential quarterly growth of these net revenues:


                                                                 Three Months Ended
                                          March 31          June 30         September 30       December 31
                                                         (In thousands, except percentages)

2006
Net revenues                             $ 1,390,419      $ 1,410,784      $    1,448,637      $  1,719,901
Current quarter vs prior quarter                   5 %              1 %                 3 %              19 %
2007
Net revenues                             $ 1,768,074      $ 1,834,429      $    1,889,220      $  2,180,606
Current quarter vs prior quarter                   3 %              4 %                 3 %              15 %
2008
Net revenues                             $ 2,192,223              N/A                 N/A               N/A
Current quarter vs prior quarter                   1 %

We expect transaction activity patterns on our websites to increasingly mirror general consumer buying patterns, both online and offline, as our business expands, with the strongest sequential growth occurring in the fourth quarter.

Results of Operations

Beginning with the first quarter of 2008, we reclassified revenue generated primarily from our Marketplaces non-GMV based businesses (which include Shopping.com, Rent.com and our classified websites) from "Net Transaction Revenues" to "Marketing Services and Other Revenues" in order to more closely align our net transaction revenue presentation with our key operating metrics. "Marketing Services and Other Revenues" also includes amounts previously reflected under "Advertising and Other Revenue." Prior period amounts have been reclassified to conform to the current presentation. Consolidated net revenues, as well as total segment revenues, are unchanged.

Our net transaction revenues from our Marketplaces segment are derived primarily from listing, feature and final value fees paid by sellers. For our Payments segment, net transaction revenues are generated primarily by fees from payment processing services. Our Communications segment generates net transaction revenues primarily from fees charged to users to connect Skype's VoIP product to traditional telecommunication networks. These fees are charged on a per minute basis or on a subscription basis and we refer to these minutes as SkypeOut minutes.

Our marketing services and other revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, lead referral fees and other revenues. Other revenues are derived principally from contractual arrangements with third parties that provide transaction services to eBay and PayPal users and interest earned from banks on certain PayPal customer account balances.

Revenues are attributed to U.S. and international geographies based upon the country in which, as the case may be, the seller, payment recipient, Skype user's Internet protocol address, online property that generates advertising, or other service provider, is located. Because we generate the majority of our revenue internationally, fluctuations in foreign currency exchange rates will impact the results of our operations.

The following table sets forth, for the periods presented, the breakdown of net revenues by type, segment and geography. In addition, we have provided a table of key operating metrics that we believe are significant factors affecting our net revenues.

Three Months Ended
                                                            March 31,               March 31,           Percent
                                                               2007                    2008             Change
                                                                (In thousands, except percent changes)

Net Revenues by Type:
Net transaction revenues
Marketplaces                                           $          1,111,361    $          1,267,633           14 %
Payments                                                            418,992                 559,720           34 %
Communications                                                       73,988                 119,791           62 %

Total net transaction revenues                                    1,604,341               1,947,144           21 %
Marketing services and other revenues
Marketplaces                                                        138,839                 216,684           56 %
Payments                                                             20,349                  21,859            7 %
Communications                                                        4,545                   6,536           44 %

Total marketing services and other revenues                         163,733                 245,079           50 %

Total net revenues                                     $          1,768,074    $          2,192,223           24 %

Net Revenues by Segment:
Marketplaces                                           $          1,250,200    $          1,484,317           19 %
Payments                                                            439,341                 581,579           32 %
Communications                                                       78,533                 126,327           61 %

Total net revenues                                     $          1,768,074    $          2,192,223           24 %

Net Revenues by Geography:
U.S.                                                   $            884,909    $          1,024,272           16 %
International                                                       883,165               1,167,951           32 %

Total net revenues                                     $          1,768,074    $          2,192,223           24 %

Three Months Ended
                                        March 31,          March 31,        Percent
                                          2007                2008          Change
                                          (In millions, except percent changes)

      Supplemental Operating Data:
      Marketplaces Segment(1):
      Active users(2)                          82.9               83.9             1 %
      Number of new listings(3)               588.5              647.4            10 %
      Gross merchandise volume(4)            14,281             16,036            12 %
      Payments Segment:
      Active registered accounts(5)            51.3               60.2            17 %
      Total payment volume(6)                10,777             14,417            34 %
      Communications Segment:
      Registered Users(7)                     195.5              309.3            58 %

(1) Rent.com, Shopping.com and our classifieds websites are not included in these metrics.

(2) All users, excluding users of Half.com, StubHub and Internet Auction Co., our Korean subsidiary, who bid on, bought or listed an item within the previous 12-month period. Users may register more than once and as a result, may have more than one account.

(3) Listings on eBay Marketplaces trading platforms during the period, regardless of whether the listing subsequently closed successfully.

(4) Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the period, regardless of whether the buyer and seller actually consummated the transaction.

(5) All registered accounts that successfully sent or received at least one payment or payment reversal through the PayPal system within the previous 12-month period.

(6) Total dollar volume of payments, net of payment reversals, successfully completed through the PayPal system during the period, excluding the payment gateway business.

(7) Cumulative number of unique user accounts, which includes users who may have registered via non-Skype based websites, as of the end of the period. Users may register more than once and, as a result, may have more than one account.

Marketplaces Net Transaction Revenues

Total net transaction revenues from Marketplaces increased 14% during the first quarter of 2008 compared to the same period of the prior year primarily as a result of 12% growth in GMV and the positive impact from a weaker U.S. dollar. GMV growth was driven primarily by an increase in listings and a full quarter of results of StubHub (which was acquired in February 2007). GMV growth occurred across all major categories, with the motors, consumer electronics, clothing, home and tickets categories having the most significant dollar impact when comparing the first quarter of 2008 to the same period of the prior year.

Marketplaces net transaction revenues earned internationally were $686.2 million during the first quarter of 2008 and represented 54% of total Marketplaces net transaction revenues. Marketplaces net transaction revenues earned internationally were $578.4 million during the first quarter of 2007 and represented 52% of total Marketplaces net transaction revenues. Based on changes in foreign currency rates year over year, Marketplaces net revenues were positively impacted by foreign currency translation of approximately $92.8 million during the first quarter of 2008. Changes in foreign currency rates will impact our operating results and, to the extent that the U.S. dollar strengthens, our foreign currency denominated net revenues will be negatively impacted.

For the remainder of 2008, we expect the amount of Marketplaces net transaction revenues to increase, driven primarily by increased levels of GMV.

Payments Net Transaction Revenues

Payments net transaction revenues increased 34% during the first quarter of 2008 compared to the same period of the prior year. The increase in net transaction revenues was consistent with our 34% growth in TPV during the first quarter of 2008 compared to the same period of the prior year. TPV increased due to growth in the Merchant Services business and continued penetration of eBay Marketplaces transactions.

The TPV for PayPal's Merchant Services transactions was approximately $6.6 billion in the first quarter of 2008, which represented an increase of 61% compared to the same period of the prior year. The Merchant Services business represented approximately 46% of PayPal's TPV in the first quarter of 2008. The increase in Merchant Services business is primarily the result of more online merchants, both domestically and internationally, adding PayPal as a payment option, and increased usage of PayPal by customers of our existing Merchant Services clients. Our Payments net transaction revenues as a percentage of TPV was 3.9% during each of the first quarters of 2008 and 2007. The TPV for PayPal's Merchant Services transactions was approximately $4.1 billion in the first quarter of 2007 and represented 38% of PayPal's TPV.

Payments net transaction revenues earned internationally were $241.6 million during the first quarter of 2008 and represented 43% of total Payments net transaction revenues during that period. Payments net transaction revenues earned internationally were $171.3 million during the first quarter of 2007 and represented 41% of total Payments net transaction revenues during that period. International growth in our Payments segment continues to benefit from the expansion of our geographical footprint and the number of currencies supported by PayPal over the last twelve months. Based on changes in foreign currency rates year over year, Payments net revenues were positively impacted by foreign currency translation of approximately $1.7 million during the first quarter of 2008.

For the remainder of 2008, we expect Payments net transaction revenues to increase in total and net transaction revenues earned internationally to increase in total and as a percentage of Payments net transaction revenues. We expect our Payments Merchant Services business to continue to grow as the number of merchants integrating PayPal on their websites increases and as we build consumer preference for PayPal. In addition, we expect that our Payments business will continue to benefit from growth in GMV and higher levels of penetration on Marketplaces transactions.

Communications Net Transaction Revenues

Communications net transaction revenues increased 62% during the first quarter of 2008 compared to the same period of the prior year. The increase in net transaction revenues was due primarily to an increase in SkypeOut minutes to 1.7 billion during the first quarter of 2008, compared to 1.3 billion in the same period of the prior year. The increase in SkypeOut minutes was due primarily to the growth in the cumulative number of Skype registered users to 309.3 million at March 31, 2008 from 195.5 million at March 31, 2007. The growth in Skype users is due to strategic partnership initiatives, such as Skype's collaboration with MySpace, and its marketing activities.

Communications net transaction revenues earned internationally were $99.5 million in the first quarter of 2008 and represented 83% of total Communications net transaction revenues. Communications net transaction revenues earned internationally were $63.1 million in the first quarter of 2007 and represented 85% of total Communications net transaction revenues. Based on changes in foreign currency rates year over year, Communications net revenues were positively impacted by foreign currency translation of approximately $15.7 million during the first quarter of 2008.

For the remainder of 2008, we expect an increase in total Communications net transaction revenues and we expect to continue our focus on increasing user activity, growing our registered user base and expanding our product and feature-set.

Marketing Services and Other Revenues

Marketing services and other revenues was $245.1 million in the first quarter of 2008, representing an increase of $81.3 million or 50%, compared to the same period in the prior year. Marketing services and other revenues represented 11% and 9% of total net revenues during the first quarter of 2008 and 2007, respectively. Marketing services and other revenues increased during the first quarter of 2008 compared to the same period of the prior year

due to the advertising initiatives in our Marketplaces segment, primarily internationally, and growth in our classifieds business and Shopping.com. We expect marketing services and other revenues to continue to increase as we continue to benefit from the significant number of users on our non-GMV-based Marketplaces platforms.

Cost of Net Revenues


                                                   Three Months Ended
                                             March 31,             March 31,
                                               2007                   2008
                                           (In thousands, except percentages)

      Cost of net revenues               $       393,689        $       525,412
      As a percentage of net revenues               22.3 %                 24.0 %

Cost of net revenues consists primarily of costs associated with payment processing, customer support and site operations, and Skype telecommunications costs. Significant cost components include bank transaction fees, credit card interchange, assessments, other payment processing costs, employee compensation, contractor costs, facilities costs for our customer support and site operations, depreciation of equipment, amortization of capitalized product development costs and amortization of acquired developed technology.

The increase in cost of net revenues in the first quarter of 2008 of $131.7 million, compared to the same period in the prior year, was due primarily to an increase in payment processing costs, Skype telecommunications costs, and customer support and site operations costs. Payment processing costs increased $46.5 million during the first quarter of 2008 compared to the same period of the prior year. Payment processing costs were driven by an increase in PayPal TPV driven by Marketplaces and Merchant Services activity. The increase in payment processing costs was also due to the proportion of TPV processed using credit cards instead of bank or PayPal balance transfers. Skype telecommunications costs increased $19.8 million during the first quarter of 2008 compared to the same period of the prior year due primarily to an increase in SkypeOut minutes. Aggregate customer support and site operations costs increased approximately $44.7 million during the first quarter of 2008 compared to the same period of the prior year due to the development and expansion of our customer support and site operations infrastructure as a result of our growth in transaction volume as demonstrated through the increase in the number of users, GMV and TPV. Cost of net revenues increased as a percentage of net revenues during the first quarter of 2008 primarily as a result of the growth of our lower gross margin businesses, PayPal and Skype.

For the remainder of 2008, cost of net revenues is expected to increase in total and as a percentage of net revenues due primarily to growth in our Payments and Communications segments, each of which is growing faster and has a lower gross margin than our Marketplaces segment.

Sales and Marketing


                                                   Three Months Ended
                                             March 31,             March 31,
                                               2007                   2008
                                           (In thousands, except percentages)

      Sales and marketing                $       443,252        $       527,178
      As a percentage of net revenues               25.1 %                 24.0 %

Sales and marketing expense consists primarily of advertising costs, marketing programs, contractor costs and employee compensation for sales and marketing staff.

The increase in sales and marketing expense in the first quarter of 2008 of $83.9 million compared to the same period in the prior year was due primarily to our continued investment in growing and retaining our active user base. We direct customers to our websites primarily through a number of online marketing channels such as sponsored search, portal advertising, email campaigns and other initiatives. Our marketing expenses are largely variable, and are based primarily on growth in sales and changes in rates. Combined advertising and marketing costs increased $39.5 million in the first quarter of 2008 compared to same period in the prior year. Employee related costs, including the use of contractors, increased $30.0 million in the first quarter of 2008, compared to the same periods in the prior year, due to an increase in staffing.

For the remainder of 2008, sales and marketing expense is expected to increase in total due to an expected increase in our marketing expenses to attract new customers and increase user activity across all of our segments. However, sales and marketing expense as a percentage of net revenues is expected to decrease due to improved sales and marketing expense leverage in our Marketplaces segment, the relative growth in our Payments and Communications segments each of which generally has lower relative sales and marketing expense as a percentage of net revenues than our Marketplaces segment, and our increased use of coupons (for which certain associated expenses are recorded as contra-revenue instead of sales and marketing expense) in an effort to improve buyer loyalty and retention.

Product Development


                                                   Three Months Ended
                                             March 31,             March 31,
                                               2007                   2008
                                           (In thousands, except percentages)

      Product development                $       137,598        $       176,760
      As a percentage of net revenues                7.8 %                  8.1 %

Product development expense consists primarily of employee compensation, contractor costs, facilities cost and depreciation on equipment. Product development expense is net of required capitalization of major site and other product development efforts, including the development of our next-generation platform architecture, migration of certain platforms, seller tools and Payments services projects. Capitalized site and product development costs were $24.7 million in the first quarter of 2008 and $17.5 million in the first quarter of 2007, respectively. Capitalized site and product development costs are reflected as a cost of net revenues when amortized in future periods.

The increase in product development expense in the first quarter of 2008 of $39.2 million compared to the same period in the prior year was due primarily to an increase in staffing and contractor costs, including stock-based compensation expense, to support several platform development initiatives to enhance the user . . .