Christa Quarles (Thomas Weisel Partners): On the PayPal slowdown, international in particular fell off significantly in the quarter. which markets are you seeing strengthen?
Robert H. Swan: We saw more deceleration outside the U.S., a function of a couple of things. One, second to third quarter currency. With the stronger dollar, international revenues are translating at a harder rate. Two, the on-eBay business decelerated second to third quarter, along with the GMV deceleration. And then third, our global merchant services business, we saw some deceleration second to third quarter both here in the U.S. and outside of the U.S.
John J. Donahoe: While there was a deceleration in the market and outside the U.S., PayPal''s international business was one of the things we are excited about. We continue to see merchants adopting PayPal in Asia, across Europe, and even in Latin America and other places where we do not have a strong eBay presence because it is driving incremental growth and it is opening up a worldwide, a global marketplace for those merchants. In fact, TPV outside the U.S. was up 37% for the quarter and the merchant services international growth was close to 50%. So the economy is impacting the whole world but the core value proposition PayPal delivers to merchants around the world as a global payment platform is one that we continue to think is powerful and merchants are responding to.
Christa Quarles (Thomas Weisel Partners): Could you give an update on your G-market intentions?
Robert H. Swan: We have said that we are going to continue to maintain the flexibility to invest and grow our businesses through acquisition and we have highlighted three specific areas of focus - one, geographic strengthening; two, adjacencies that leverage and strengthen our core businesses; and three, technologies that enable and strengthen our core businesses. That is the three areas that we have been in focus on over the last three years and that has resulted in acquisitions like Stub Hub, which we feel great about; more recently, Fraud Sciences, which is a technology that enables PayPal. And then recently, Bill Me Later and DBA or classifieds, kind of extensions of our core business. That has been our M&A strategy for the last several years. In terms of Korea, we have got a great business in Korea. Our IAC business has been performing well over the last couple of quarters and we continue to focus on competing and growing in that market. Along the lines, we in conjunction with G-market had filed with the Korean regulators to assess whether it would even be possible to take an equity stake in G-market and recently got a favorable ruling in that regard. We will evaluate on an ongoing basis whether that makes sense in terms of the best uses of how we allocate capital in a disciplined way.
Mark Mahaney (Citigroup): What is the timing or the speed at which you think it is optimal to try to remove sub-par sellers off the network?
John J. Donahoe: We are not assessing sub-par sellers. We are letting our buyers do it and so these detailed seller ratings where buyers are rating our sellers, that is the foundation we are using and so that is an important principal here, where we are creating a marketplace that allows transparency. What is interesting is when you lay out our highest rated sellers – these are sellers that have 4.8 and above and then look at sellers 4.6 to 8, 4.4 to 6, 4.4 and below, you see growth rates now increasingly consistent with those where buyers are increasingly buying from the highest rated sellers and buying less in fact, they have stopped buying from lower rated sellers. And so that tells us the eBay marketplace is getting safer. Some would say we should be moving faster and even more aggressively on that. Our sellers would say we are moving too fast and too aggressive. We are trying to strike that balance where a long-term seller has the opportunity to improve their service on eBay and improve their ratings from buyers but we see clear evidence that the site today is safer and easier to use than it was six months ago. We put these changes in in March it is safer today. Buyers are telling us that in their qualitative data and what is yet to happen is have that convert into more purchases.
Brian Pitz (Banc of America): Would you discuss where you expect the take rates for marketplace to go?
John J. Donahoe: Our goal with our pricing changes. This year was to modestly reduce our take rate. We are significantly rebalancing our fees to reduce the up-front fees and align our success with that of our sellers and the net effect of what we expect in a conversion neutral environment is the take rate will come down modestly over time. We have also gone to category-based pricing because margins for sellers differ significantly by category. So conversion impacted on the short-term but the general direction we are trying to do is to ensure that our marketplace is the most competitive marketplace for sellers to sell on.
Robert H. Swan: In the quarter, our take rate went up, which is a function of modestly lower take rates but also the mix of our business. So our highest take rate business, Stub Hub, continues to demonstrate great growth and our lowest take rate business, Vehicles, has been suffering by the overall economic environment. So those are two degradations about the overall take rate that is reflected in third quarter’s results. In terms of exchange rates, we try to stay away from giving specific rates but what I would say is 90 days ago when we spoke to you and we were looking at a Euro that was about $1.58 to the dollar and a pound that was about $1.98 to the dollar. And today, reflected in our guidance for the rest of the year, it is closer to a spot rate that is about $1.36, $1.37 and a pound that is about $1.78 to $1.77 to the dollar, so what has transpired over the course of the last three months is about a 10% strengthening of the dollar and that will impact our revenues from the last time we spoke to you by about $200 million.
Jeffrey Lindsay (Sanford C. Bernstein): Are you going to be taking any hedging initiatives, or do you have any in place to offset the risk of this dollar appreciation?
Robert H. Swan: For the most part our hedging strategies are entered into at the beginning of the quarter for the next 90 days, for the most part. So we are exposed in terms of translation of revenues within the quarter. However, we hedge our exposures in terms of income within a range in the 90-day period, so we get protective within the 90-day period but not protective overall beyond 90 days.
Jeffrey Lindsay (Sanford C. Bernstein): Can you give color on the quality of receivables in the Bill Me Later acquisition and your expectation for net charge-offs?
Robert H. Swan: We indicated last week that our expectation was that the receivable portfolio would be about $550 million, give or take when we closed the transaction later on in the quarter. And when we assess the portfolio, we try to take into account both historical trend rates, what we were seeing on recent approval rates and charge-offs, and a view on a go-forward basis about what we could expect the current economy and the future would be on the portfolio. And with that, we tried to as best we could take that into account in giving you the $550 million loan portfolio balance.
Imran Khan (J.P. Morgan): Could you expand on the 18% conversion decline?
John J. Donahoe: The conversion rate is transitioning as we talk because the recent changes we have made are changing the nature of fixed price listings where now instead of a seven-day listing, sellers are getting a 30-day listing goods to cancels. What I think we will see is a site that has more listings but those fixed price listings will only get exposure when the sellers offer the best prices and the highest service. We are going to spend less time on conversion and more time on sold items, and what in essence is happening is our search or our finding platform is changing how we bring value to the top of the search results. Auctions will continue to time ending soonest, which is the best way to bring the best values to a buyer in an auction format for auction listings. And then for fixed price listings, the change we are making in fourth quarter is that instead of time ending soonest being what is bringing the fixed price listings to the top of the list, we will find the lowest price, highest quality seller fit with that particular search term or bring that to the top of the list. So conversion rates will still remain relatively lower because of the increased fixed price listings but successful items, that is sold items, is the metric we will be focusing on. That is down four points in third quarter, we think largely driven by the economy and it is a metric we are focusing on, both to assess how findings are going as well as how our site is going in fourth quarter and beyond.
Robert H. Swan: A better consumer spending environment, all else equal, will also impact conversion so that is one that we believe is impacting growth of sold items.
David Joseph (Morgan Stanley): Your fourth quarter guidance implies a decline in revenue of about 4% at the midpoint of your year versus 11% growth implied in the prior guidance. Given that you reiterated guidance in the beginning of September, it sounds like there was significant weakness in September, which is in line with what we have been hearing in retail across the board. Could you talk about the linearity and what you have seen in October?
Robert H. Swan: Third quarter grew by 12% in our implied guidance and fourth quarter has us at about minus 4%. I would characterize three things primarily that are impacting that - one is the third quarter was impacted by a strengthening dollar and a weaker economy but in the latter part of the quarter. So as the dollar strengthened towards the end of the quarter and we had the full effect in the fourth quarter, the economy weakened in mid-August and for the rest of the quarter and the combination of those two things are making the growth deceleration or growth from third to fourth quarter that much harder. The third thing, we are going to in a difficult consumer spending environment, we are going to be spending more on sales and marketing, particularly in coupon related expenditures. And that will impact the revenue growth as well.
Scott Devitt (Stifel Nicolaus): Your market cap is above $20 billion and you have about $3.6 billion of cash and short-term investments, and the company spent $5.3 billion in buy-backs over the past years at about $30 a share. With your free cash you are going to generate in 2008 and an S&P like dividend payout, you could have a 4% or 5% dividend yield. Was there any change in the company’s perspective in terms of returning capital to shareholders via the existing buy-back versus a dividend in the future?
Robert H. Swan: We end the quarter with $3.3 billion in cash. Tthe reality of that cash is about $400 million sits in the U.S. and the rest of it off-shore, so the inherent flexibility we have to use our strong balance sheet and our strong cash flows here domestically has a severe tax rate penalty associated with it. So that is a constraint that we have to deal with. Secondly, you also realize that with the acquisition of Bill Me Later and the relatively low cash position we have in the U.S., as we will be using both our cash and available financing, including our line of credit to finance that transaction and in a sense we will have borrowings here in the U.S. post the completion the completion of that transaction. And then third, and from a more macro perspective, we always look at our inherent capital structure and the best way to maintain our financial flexibility to invest and grow while redeploying our capital to shareholders, and we will continue to do that.
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