Ecommerce Platform a Case in Scalability

Annual Report 2009 To Our Stockholders, In 2009, Ebay Inc. became a stronger, more focused company. We communicated our three-year growth and operating targets in March 2009, setting bold goals for us to remain a global payments and e-commerce leader. During the year, we experienced significant growth in our payments business, which we believe is wellpositioned for success in the years to come. We strengthened our Marketplaces business by fixing fundamental issues that we believe were holding us back.

And we sold a majority of Skype, allowing us to focus on our two core growth engines: payments and e-commerce. We did all of this while embracing the kind of operational and financial discipline that is the hallmark of a healthy, growing company. Our financial performance for the full year reflects these efforts. Despite the challenging environment in 2009, particularly in the first half of the year, we delivered $8. 7 billion in revenues, a 2 percent increase from the prior year, and $1.

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83 of diluted EPS. Although our operating margin of 17 percent was lower compared to 2008, we delivered $2. billion in operating cash flow for the year. We connected more buyers and sellers than ever before through our core payments and e-commerce businesses in 2009. PayPal had an exceptional 2009, ending the year with net total payment volume (TPV) of $71 billion – a 19 percent increase over 2008 – and 81 million active registered accounts globally.

Our Marketplaces business, led by eBay, grew its customer base to 90 million active users worldwide and took important steps in improving the fundamentals of its business, focusing on trust, value and selection.

Our Marketplaces portfolio got stronger overall in 2009: Acquiring Gmarket, Korea’s leading online marketplace, gave us a leadership position in a key e-commerce market in Asia. StubHub, a leading online secondary tickets marketplace, continued its robust growth trajectory in 2009, as did our global classifieds businesses, which now includes DBA. dk/BilBasen, two leading online classifieds sites in Denmark that we acquired in 2008. In November 2009, we sold approximately 70 percent of Skype, allowing us to focus our energies on our two core businesses.

At the same time, Skype got top-notch partners to help the company realize its full potential and eBay Inc. retained the ability to share in the company’s future success through an ongoing minority stake. PayPal grew even more ubiquitous in 2009, driving strong consumer and merchant adoption. By the end of 2009, PayPal supported 24 currencies in 190 markets – a truly global business. PayPal continues to leverage this unique global footprint by making it easier to send and receive payments across borders.

In fact, cross-border trade now accounts for almost 25 percent of PayPal’s net TPV.

PayPal’s merchant services division once again delivered strong growth both in the U. S. and worldwide. In 2009, for the first time, annual revenue and net TPV from PayPal’s merchant services business exceeded PayPal’s net TPV on eBay. And our momentum is predicated on a fundamental strength: Merchants generally realize higher transaction completion rates when PayPal is available as a payment option. In other words, consumers are more likely to complete the transaction when PayPal is used.

PayPal also drove consumer adoption through Bill Me Later, which was integrated into the PayPal “wallet” on certain merchant sites in 2009, giving consumers more funding options. PayPal Student Accounts launched in the fall, helping to eliminate the hassle of everyday money exchanges between parents and teens. In 2009, PayPal became the first major payments platform to open up to third-party developers – a move that we believe will accelerate the adoption of PayPal and innovation in payments overall. Simply put, we are well on our way to making PayPal the preferred online payments provider around the world.

In 2010, we will remain focused on driving consumer and merchant adoption of PayPal on eBay and across the Web, as well as expanding our open platform initiative and ongoing integration of Bill Me Later onto eBay. eBay continues to be one of the most popular shopping destinations on Earth, and we made great strides in 2009 to ensure the vitality of this business for buyers and sellers everywhere.

Our focus was improving the fundamentals – trust, value and selection – and winning in the secondary market. We were pleased to see our efforts starting to pay off by year’s end.

But more important, our progress is evident across key success metrics: Net Promoter Scores, our measure for customer loyalty, were up significantly in our major markets (U. S. , U. K.

and Germany) and sold items growth accelerated in the last three quarters of 2009. We saw significant improvement in the area of trust as we continued to raise the bar on customer experience across the eBay marketplace. In 2009, we introduced Top-Rated Seller status as a way for buyers to easily identify those sellers who consistently receive high customer satisfaction ratings and meet certain other criteria.

Bottom line: Sellers who deliver the very best service experience are succeeding on eBay, and our buyers are benefitting. We believe that improving the fundamentals of the eBay marketplace is also positioning us to compete and win in the secondary market. We are increasingly moving new types of merchandise at high velocity, particularly through our Daily Deals offers and Fashion Vault pilots.

In 2010, our intent is to make eBay the best place to sell online and a preferred shopping destination for buyers, especially in the most important retail product categories.

Across the Marketplaces segment, our adjacent e-commerce formats gained momentum. StubHub had another fantastic year, particularly in Q4, with revenues up 54 percent over the same period in 2008. High-profile concerts and sporting events drove ticket demand on our site, leading to increased market share. Our classifieds business was also strong, up 20 percent in 2009 as we strengthened our global footprint. We saw promising early results from initiatives in Spain, France, Germany and Italy that integrated our local classifieds offerings with the core eBay business and eBay brand.

We expect these initiatives to drive innovation in other markets in 2010. We accelerated innovation across eBay Inc. to connect buyers and sellers in new ways. In addition to PayPal opening its platform to third-party developers, our efforts in mobile commerce have put us in a strong leadership position in this nascent business. As one example of our progress, the eBay mobile app for iPhone had been downloaded almost seven million times as of January 2010, making it one of the top apps in the iTunes store at the time.

Beyond downloading our app, consumers are shopping more and more via their mobile phones: In 2009, more than $600 million worth of sales were transacted through our mobile applications. We intend to continue to innovate in mobile commerce in 2010 and provide consumers other convenient ways to buy, sell and find the best deals on eBay with their smart phones and other devices. Within our organization, we focused on implementing smarter, more disciplined ways of operating.

This approach is designed to help us meet our goal of reducing our cost structure by a cumulative $2 billion over a three-year period – a commitment we made at Analyst Day in March of 2009. We remain on track to achieve this goal, and have reinvested our savings into customer experience, trust, marketing and technology. In addition, we generated strong operating cash flow of $2.

9 billion during 2009 and ended the year with $5. 2 billion in cash, cash equivalents and non-equity investments. While we’re proud of the progress we made in 2009, we know we can do more in 2010, our 15th anniversary year.