eBay Inc. (EBAY)
Q3 2008 Earnings Call Transcript
October 15, 2008 5:00 p.m. ET

Executives

Mark Rowen - Vice President, Investor Relations
John J. Donahoe - President, Chief Executive Officer, Director
Robert H. Swan - Chief Financial Officer, Senior Vice President - Finance

Analysts

James Mitchell - Goldman Sachs
Youssef Squali - Jefferies & Company
Christa Quarles - Thomas Weisel Partners
Mark Mahaney - Citigroup
Brian Pitz - Banc of America Securities
Jeffrey Lindsay - Sanford C. Bernstein
Imran Khan - J.P. Morgan
David Joseph - Morgan Stanley
Scott Devitt - Stifel Nicolaus

Presentation

Operator

Good day everyone. Welcome to the eBay third quarter 2008 earnings results conference call. This call is being recorded. At this time, I would like to turn the conference over to Mark Rowen, VP of Investor Relations. Please go ahead.

Mark Rowen

Thank you Operator. Good afternoon everyone and thank you for joining us. Welcome to eBay''s earnings release conference call for the third quarter of 2008. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We are providing a slide presentation to accompany Bob’s commentary during the call. This conference call is also being broadcast on the Internet and both the presentation and the call are available through the Investor Relations section of the eBay website.

Before we begin, I’d like to remind you that during the course of this conference call we will discuss some non-GAAP measures in talking about our Company’s performance. You can find the reconciliation of these measures to the nearest comparable GAAP measures in the slide presentation accompanying the conference call.

In addition, management may make forward-looking statements relating to our future performance that are based on our current expectations, forecasts, and assumptions and involve risks and uncertainties, including those relating to the Company’s ability to grow its businesses, user base, and user activity. Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to the impact of recent global economic events and the potential global economic downturn, foreign exchange rate fluctuations, changes in political business and economic conditions, our ability to profitably expand our business model to new types of merchandise and sellers, the impact and integration of recent and future acquisitions, our increasing need to grow revenues from existing users in established markets, an increasingly competitive environment for our businesses, the complexity of managing a growing company with a broad range of businesses, our need to manage regulatory tax, IP and litigation risks, including risks specific to PayPal and the financial industry and risks specific to Skype''s technology and to the VOIP industry, and our need to upgrade our technology and customer service infrastructure at reasonable cost while adding new features and maintaining site stability.

You can find more information about the factors that could affect our operating results in our most recent annual report on our Form 10-K and our subsequent quarterly reports on Form 10-Q. You should not unduly rely on any forward-looking statements and we assume no obligation to update them. All information in the presentation is as of October 15, 2008 and we do not intend to -- and undertake no duty to update this presentation.

And now, I will turn the call over to John.

John J. Donahoe

Thanks Mark. Good afternoon and welcome everyone, to our Q3 earnings call. I’ll begin today by reviewing our financial performance and then provide an overview of our portfolio, and after a few closing thoughts, I will turn it over to Bob for more details on the quarter and on our outlook for the year.

Our Q3 results were in line with our guidance for the top line and exceeded our guidance on the bottom line. Specifically, revenue was $2.1 billion, up 12% over last year. Non-GAAP EPS was $0.46, up 11%. We generated $543 million in free cash flow and our return on invested capital continued to improve at 28.8%.

We ended the quarter with $3.3 billion in cash and cash equivalents on our balance sheet with $2.9 billion of this outside the U.S., and as we announced last week, we are strengthening our position in online payments and online classifieds through acquisitions and we proactively streamlined our organization by reducing our headcount by about 10%.

Overall, we are pleased with the performance and strength of our Company. We delivered strong results in what is a very challenging external environment, an external environment we expect to continue in fourth quarter and beyond. These are turbulent times for which no one has the perfect playbook. There is a high degree of economic uncertainty and turmoil in the financial markets and this is impacting consumer spending and e-commerce growth rates, and we are seeing an impact across all of our platforms. In this environment, we delivered a solid third quarter while also taking a number of steps to strengthen our Company and better align our cost structure to invest and compete in the future.

Challenging times create opportunities for companies that are prepared to lead and eBay has the global portfolio, the management discipline, and financial strength to take advantage of opportunities created by this period of challenge and uncertainty. I am confident that we will manage through this period and emerge an even stronger company and more formidable competitor, and I believe this for three simple reasons.