e bay skype acquisition

Acquisition of Skype

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Legal disclosures placeholder

This presentation contains non-GAAP measures relating to the company's performance. You can find the reconciliation of those measures to GAAP measures in the tables of our earnings release which is available through our investor relations website located at http://investor.ebay.com/downloads/Reconciliation.pdf.

In addition, this presentation may contain forward-looking statements regarding matters that involve risk and uncertainty, including those relating to the future financial results of Skype and eBay, and the impact of the acquisition of Skype on eBay’s financial results. Our actual financial results could differ materially from those represented in this presentation.

Factors that could cause or contribute to such differences include, but are not limited to, the receipt and timing of the closing of the transaction, the possibility that the transaction may not close, the reaction of the users of Skype’s services, the future growth of Skype’s user base, the reaction of competitors and regulatory agencies to the transaction, developments in the regulation of voice-over-Internet protocol (VoIP) services including those provided by Skype, and the possibility that integration following the transaction may be more difficult than expected.

More information about factors that could affect the company’s operating results is included under the captions “Risk Factors That May Affect Results of Operations and Financial Condition” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, copies of which may be obtained by visiting the company’s investor relations site at http://investor.ebay.com. Undue reliance should not be placed on the forward-looking statements in this release, which are based on information available to the company on the date hereof eBay assumes no obligation to update such statements.

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The acquisition of Skype

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eBay is evolution

• 1996 – 1998: US only, collectibles only

• 1999 – Moving beyond collectibles

• 1999 – Going global

• 2000 – Introducing Fixed Price and eBay Stores

• 2002 – PayPal: removing friction and building a huge new business

• 2004 – 2005: Creating other marketplaces Marktplaats, Mobile, Rent.com, Shopping.com, Kijiji, ProStores

• Common theme – expanding our vision, our market and our opportunity

• Aspirational goal of growing faster than e-commerce

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1

10

100

1,000

10,000

100,000

1,000,000

1 5 9 13 17 21 25 29 33 37 41

(Real 2003 $M)

Years Since Incorporation

High performance company

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1

10

100

1,000

10,000

100,000

1,000,000

1 5 9 13 17 21 25 29 33 37 411

10

100

1,000

10,000

100,000

1,000,000

1 5 9 13 17 21 25 29 33 37 41

TPV

GMV

(Real 2003 $M)

Years Since Incorporation

High performance company

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Expanding eBay’s share of e-commerce

• Skype will accelerate commerce on eBay

• Skype opens up new lines of business, new monetization models, new geographies

• A great standalone communications business

• eBay + PayPal + Skype =Unparalleled e-commerce and communications engine

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Agenda

What is Skype?


A great standalone business

Financials

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Simply powerful

Internet

Any Skype user in the World (Free)

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Simply powerful

Internet

Any Skype user in the World (Free)

Any Regular Telephone in the World (Low cost)

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Easy to set up and use

1

Download and install Skype client from website,

get headset

12


2

Look up and add buddies

1


get headset

13


2

Look up and add buddies

Start talking with other Skype users

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get headset

14

Rich functionality

Advanced Instant Messaging

Are you available?

Call any phoneWallet

Find other Skype users

Send any kind of file

Make conference calls

Leave voicemailGet calls from any phone on your Skype number

Forward calls to any number

Skype Me…

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Viral growth

4.16.8

11.5

19.8

32.9

44.1

Q104 Q204 Q304 Q404 Q105 Q205

Skype Registered Users (M)

On track for 57M

registered Users in Q3!

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Viral usage

0.30.5

0.9

2

3.3

3.9

Q104 Q204 Q304 Q404 Q105 Q205

Skype Quarterly Minutes Served (B)

67% CQGR!

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Historic success

(1) eBay starts Q2 98, PayPal starts Q1 00, Yahoo! starts Q1 95, AOL since Q1 92 (IPO) from company data and Merrill Lynch estimates, Skype since launch in 2003

0

10

20

30

40

50

60

1 3 5 7 9 11 13 15 17 19 21 23 25

Number of Reg Users (MM)

Months(1)

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Historic success

0

10

20

30

40

50

60

1 3 5 7 9 11 13 15 17 19 21 23 25

Number of Users (MM)

Months(1)

(1) eBay starts Q2 98, PayPal starts Q1 00, Yahoo! starts Q1 95, AOL since Q1 92 (IPO) from company data and Merrill Lynch estimates, Skype since launch in 2003

Adding 150K registered users / day

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A truly global community

Non SKYPE users

SKYPE users

Skype has a presencein 225 countries and independent

territories worldwide

Skype is a market leaderin every

major country(1)

(1) Skype estimates

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Significant buzz all over the world…

“To ‘Skype’ is to call someoneover your computer”

USAToday (17 December 2004)

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Agenda

What is Skype?



Financials

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Accelerating e-commerce

• Create a new way to monetize e-commerce

• Remove a key friction

• Accelerate existing categories

• Expand into new categories

• Monetize new marketplaces

• Expand the global footprint

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A new way to monetize e-commerce

eBay Today eBay with Skype

Transaction-based

monetization

Transaction and

lead-generation monetization

Listing feesFinal value fees

Feature feesPayPal fees

Listing feesFinal value fees

Feature feesPayPal fees

Pay percall

+

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Communication is key to e-commerce

The online transaction process requires various communication points along the way

Q+A before purchase

Order status

Closing transaction

“Bob” the buyer

“Steve”the seller

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Communication is key to e-commerce

The online transaction process requires various communication points along the way

5M e-mail messages areinitiated per day between

eBay buyers & sellers

30% of eBay bidstake place in

the last 2 hours!

“Bob” the buyer

“Steve”the seller

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Skype is a leap forward in communication

• In transaction flow

• Instantaneous and private

• Free with rich experience

• Advanced functionality

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eBay has historically removed friction

Trust & safety

Description

Payments

Shipping

Friction point Solution

Pictures

Feedback

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Removing friction is powerful$1.4B

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Q1

eBay UK GMV (USD)

2001Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2002 2003 2004 2005

$1.4B

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Accelerating e-commerce

• Create a new way to monetize e-commerce

• Remove a key friction

• Accelerate existing categories

• Expand into new categories

• Monetize new marketplaces

• Expand the global footprint

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Motors, collectibles, and B&I alone

represent ~40%of eBay GMV

Skype accelerates certain existing categories

Communications can accelerate categories that are:

• High involvement

• Expensive

• Complex

Motors

Collectibles Sporting goods

Music instruments

Business and industrial

Jewelry and watches

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Future motors listing

Firstclassauto – currently online!

“ Firstclassauto – currently online! ”

Skype accelerates certain existing categories: Example

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Communications enables expansion into new categories

Skype allows superior access to categories that

• Require significant communication

• Are less suited to transaction-based monetization

Source: Jupiter, Borrell, NADA, Manheim, eBay estimates

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Communications enables expansion into new categories

Skype allows superior access to categories that

• Require significant communication

• Are less suited to transaction-based monetization

Source: Jupiter, Borrell, NADA, Manheim, eBay estimates

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Pay Per Call enables monetization of new marketplaces

Pay Per Call on Local Classifieds

Listing Sponsorisé

Skype moi!

Charles de Gaulle RenaultLes meilleurs voitures!

Bagnolet Peugeot

BelleVille Audi

Skype moi!

Skype moi!

Paris

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Expanding the global footprint

• Large grey markets• Limited trust on Internet• Culture of haggling• Culture of IM/mobile• Price sensitivity

India

Emerging markets New markets

China

Poland

JapanNordic

• Limited eBay presence

• Large growth in Skype users

Brazil Russia

Cross-border trade

• Limited trust

• Buyers need more interaction and information from sellers

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Skype on eBay China

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Agenda

What is Skype?



Financials

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A large and growing opportunity

A strong leadership position

Competitive advantage

1

2

3

39

480

An important consumer activity

0

50

100

150

200

250

300

350

400

450

500

Search eBaymarketplace

Web Email IM Phone

Skype today

Calls from home(3)

Share of VOIP calls expected to increase significantly over time

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195

80127

16

Minutesper userper month(1)

CommunicationsSource: (1) Nielsen Netratings averages for biggest sites in each category, (2) eBay estimates from Comscore data, (3) Yankee Group as of April 2003

44% of all user time online is

spent communicating(2)

435

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Increasing penetration

Global Broadband subscribers (M)

0

50

100

150

200

250

300

350

United States Europe Asia/Pacific ROW

2004 2005 2006 2007 2008 2009

'04-'09CAGR

21.6%

13.8%

18.1%

18.8%

145.7

185.4

256.9

223.1

287.8

317.3

Source: IDC

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Increasing penetration

Global Broadband subscribers (M)

0

50

100

150

200

250

300

350

United States Europe Asia/Pacific ROW

2004 2005 2006 2007 2008 2009

'04-'09CAGR

21.6%

13.8%

18.1%

18.8%

US Broadband and VOIP households (M)

30M VOIP households in US by 2009

TotalBB

% VoIP38%

29%

20%

13%8%3%1%

0

10

20

30

40

50

60

70

80

VoIP subscribers Broadband households

2003 2004 2005 2006 2007 2008 2009

24.6

32.6

41.1

50.1

58.5

66.9

72.3

145.7

185.4

256.9

223.1

287.8

317.3

Source: IDC

42Source: IDC

VOIP Annual Minutes of Use (B)

10 17 27 42 72183

367

760

1,495

2001 2002 2003 2004 2005E 2006E 2007E 2008E 2009E

Increasing usage

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A leadership position

EU48%

% of total

Asia27%

NA13%

Other12%

Skype’s global revenue base

Source: Skype, Sandvine

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A leadership position

0 20 40 60Percent of total (%)

Skype segment share in North America

46.2%

35.8%

Skype is #1

Skype is #1

EU48%

% of total

Asia27%

NA13%

Other12%

Skype’s global revenue base

VOIPMinutes

VOIPUsers

Estimated ~25% of Skype users

are businesses

Source: Skype, Sandvine

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Strong team

• Founders created Kazaa, were executives at Tele2

• Entrepreneurial senior management team from Tele2, Microsoft, Yahoo!, OpenWave

• Developers pioneered peer-to-peer technology

Niklas ZennströmCEO & Co-Founder

Janus FriisCo-Founder

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Focus matters

Payments

Commerce

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Focus matters

Content

Search

Payments

Commerce

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Focus matters

Communications

Content

Search

Payments

Commerce

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Advanced technology

Virtual, peer-to-peer architecture brings key advantages

• System is massively scalable

• No single point of failure

• Low CapEx

In addition, Skype has

• Better firewall tunneling that allows more calls to be completed

• Advanced security and encryption technology

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Many great applications

Voice MarketplaceWeb Presence Integration

Integration with Outlook - BetaInternet Explorer Toolbar - Beta

Interactive voice

response

Language learning tools

Homework tutoring

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Interactive voice

response


Homework tutoring

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Interactive voice

response


Homework tutoring

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Interactive voice

response


Homework tutoring

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Picture share with Kodak Web Presence Integration

Integration with OutlookInternet Explorer Toolbar


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Interactive voice

response


Homework tutoring

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Voice Marketplace

Interactive voice

response (eg. traffic reports)

Language learning

tools

Homework tutoring

Valuable content and services

Key partners

• Create and share innovative voice services

• Content providers get a share of call revenue

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Reinforcing ecosystem

200+ Hardware devices labeled as

Skype-compatible200+ Skype-enabled

Applications

1000+ Developers

30+ partnerships with world-class

companies

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The power of three

New users invite more

users

Users invite other users

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The power of three


users


Sellers go where buyers are

Buyers go where sellers are

More buyersuse PayPal

More sellers offer PayPal

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The power of three


users




More buyersuse PayPal

More sellers offer PayPal

eBay UserseBay Usage

PayPal Wallet

PayPal WalletSkype Users

Skype-Enabled Commerce

eBay UsersSkype Users

eBay & Skype Usage

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Agenda

What is Skype?



Financials

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Valuation considerations

• Traditional financial valuation methods– Precedent transactions

– Value per user

– Discounted cash flow

• Earn out structure based on aggressive goals

• A great standalone business, not just VOIP functionality – Leading market position with considerable momentum

– Technology leadership

– Considerable monetization potential

• Synergistic opportunities with existing businesses

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The power of three: synergistic opportunities

eBay + Paypal Users• 157M eBay registered

users• 79M PayPal accounts• 1% overlap between

Skype and eBay US users today(1)

eBay Usage• 5M email messages/day• 1.4B new listings/year

PayPal Wallet• Boosts sales of

premium services(1) Nielsen Netratings

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premium services

Skype Users• 54M registered

users• ~25% of users are

business accounts

Skype Commerce (usage)

• Skype-enabled commerce

• 200+ Skypehardware applications

(1) Nielsen Netratings

67







premium services

Skype Users• 54M registered

users• ~25% of users are

business accounts

Skype Commerce (usage)

• Skype-enabled commerce

• 200+ Skypehardware applications

Skype Users• >80% outside US

Skype Usage• Payment of call

services• Send money to

buddies


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Transaction summary

Expected Closing • Q4 2005

Transaction Value and Structure

• Pay $1.3B(1) in cash• Deliver $1.3B(1) in eBay stock subject to certain sale

restrictions• Total of $2.6B (4.8% of market cap)

(1) Based on an exchange rate of € 1.239(2) Earn-out value presented on an undiscounted basis

Performance-based earn out

• Earn out of up to an additional $1.5B(1,2) based on high active user, gross profit, and revenue goals in 2008– Earn out participants received less up-front

consideration– All of management opted for the earn out

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Strong Business Model


Rapid revenue growth

Outstanding cash generation

• Large market opportunity• Transaction-based revenues• No inventory or warehouses• Efficient customer acquisition• High operating leverage• Low capital requirements

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Skype revenues

Free services

Free Skype to Skype calls

(cost nothing to provide)

Premium services

SkypeIn and SkypeOut

Expressive content (avatars, ringtones,

ringbacks)

Hardware royalties

Voice services

71

Strong Revenue Growth

$0.4 $5.7

$47.4

$12.6

$103.8

$259.0

$200

$60

$7

2004 2005E 2006E 1996 1997 1998 2000 2001 2002

+

(Dollars in millions)

Existing Lines Of Business

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Strong Revenue Growth

$0.4 $5.7

$47.4

$12.6

$103.8

$259.0

$200

$60

$7

2004 2005E 2006E 1996 1997 1998 2000 2001 2002

+

(Dollars in millions)

Existing Lines Of Business

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Skype revenues

Free services

Free Skype to Skype calls

(cost nothing to provide)

Premium services New eBay Opportunities

• Existing eBay Categories

• Emerging markets• New geographies• Cross-border trade

• New categories• New marketplaces

(classifieds, shopping.com)

SkypeIn and SkypeOut

Expressive content (avatars, ringtones,

ringbacks)

Hardware royalties

Voice services

74

Leveraged cost structure

• Efficient customer acquisition– Word of mouth significantly reduces user acquisition cost

• High operating leverage– Minimal incremental cost for each user call– Software business model with low fixed costs

• Infinitely scalable network infrastructure with low capex– Peer to Peer technology requires minimal capex– Distributed architecture eliminates single point of failure– Centralized server(s) for authentication for basic services– Centralized server(s) for premium services, e.g. voicemail

Outstanding cash generation capability

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Financial impact

• Dilutive to Q4-05 pro-forma and GAAP EPS by $0.01 and $0.04, respectively

• Dilutive to 2006 pro-forma and GAAP EPS(3) by $0.04 and $0.12, respectively

• Breakeven on a pro-forma basis in Q4 2006

• Long term operating margins of 20-25%

(3) Not adjusted for FAS 123

76

eBay Inc Balance Sheet

• Funding acquisition through internally generated cash flows

• Balance sheet fundamentals remain unchanged:– Cash reserves of >$1B– Annualized free cash flows of >$1.5B– Low capex requirements: ~$2M in 2006– No long-term debt

• Long-term revenue and profit growth will continue to add to already strong cash flow position

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Summary

• A great standalone business with a very complementary business model

• Significant growth opportunities:

– Build on Skype momentum

– Accelerate eBay existing and new businesses

– Create entirely new businesses

• The power of 3

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The power of 3

New users invite more users




More Buyersuse PayPal

More Sellers Offer PayPal

e bay skype acquisition

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