eBay (EBAY)

Q1 2011 Earnings Call

April 27, 2011 5:00 pm ET


Robert Swan - Chief Financial Officer and Senior Vice President of Finance

Jenny Cerran -

John Donahoe - Chief Executive Officer, President, Interim President of eBay Marketplaces and Director


Sandeep Aggarwal - Caris & Company

Scott Devitt - Morgan Stanley

Spencer Wang - Crédit Suisse AG

Colin Sebastian - Lazard Capital Markets LLC

Colin Gillis - BGC Partners, Inc.

James Mitchell - Goldman Sachs Group Inc.

Mark Mahaney - Citigroup Inc

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Good day, ladies and gentlemen, and thank you for standing by. And welcome to eBay's First Quarter 2011 Earnings Call. [Operator Instructions] And now, I'll turn the program over to Jennifer Cerran, Vice President of Investor Relations. Please go ahead.

Jenny Cerran

Thank you. Good afternoon, everyone, and thank you for joining us, and welcome to eBay earnings release conference call for the first quarter of 2011. Joining me today on the call are John Donahoe, our President and Chief Executive Officer; and Bob Swan, our Chief Financial Officer. We're 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 call are available through the Investor Relations section of the eBay website at investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

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 those measures to the nearest comparable GAAP measures in the slide presentation accompanying this conference call. In addition, management will make forward-looking statements relating to our future performance that are based on current expectations, forecasts and assumptions and involve risks and opportunities. These statements include, but are not limited to, statements regarding expected financial results for the second quarter and full year 2011 and the future growth in the payments and marketplaces businesses. Our actual results may differ materially from those discussed in this call for a variety of reasons, including but not limited to: The after effects of the global economic downturn; changes in political, business and economic conditions, foreign exchange rate fluctuations; the impact and integration of recent and future acquisitions; our increasing need to grow revenues from existing users, particularly in more established markets; an increasing competitive environment to our businesses; the complexity of managing an increasingly large enterprise with a broad range of businesses at different stages of maturity; our need to manage regulatory, tax, IP and litigation risks, including risks specific to PayPal, Bill Me Later and the financial 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 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 available at investor.ebayinc.com. You should not rely on any forward-looking statements. All information in this presentation is as of April 27, 2011, and we do not intend and undertake no duty to update.

With that, let me turn the call over to John.

John Donahoe

Thanks, Jenny, and good afternoon, everyone, and welcome to our Q1 earnings call. At our February Investor Meeting, I outlined a rapidly changing external environment, where the lines between online and offline commerce are blurring, driven by fundamental changes in how consumers shop and pay. And this is requiring merchants around the globe to adjust to a new commerce environment.

I also described a different eBay, a company positioned to capitalize on these trends by partnering with merchants of all sizes and delivering innovative consumer experiences. In this emerging new retail environment, we are playing offense. And that's just what we did in the first quarter.

We hit 2011 running. Our strong start to the year underscores our growing opportunities and momentum. We're focused on redefining retail and leading the next generation of commerce and payments. As we execute our 3-year growth plans, our core businesses continue to get stronger, we're innovating faster, which means we're serving our customers better, and we're investing in growth.

In Q1, both revenue and non-GAAP earnings per share exceeded our guidance. Revenue grew 16% and non-GAAP EPS was up 12% year-over-year and we generated $551 million in free cash flow during the quarter. PayPal drove strong growth in total payment volume, revenue and active accounts. And eBay delivered solid revenue growth including a 5-point acceleration in core GMV in the U.S. and a stable growth in Europe.

We also made several moves in Q1 to strengthen our portfolio. We completed our brands4friend acquisition in Germany, and we announced agreements to acquire GSI Commerce, Where and GittiGidiyor. We believe these acquisitions help extend our commerce capabilities and accelerate innovation. For example, GSI significantly expands our commerce capabilities and deepens relationships with large merchants. Where adds important innovation capabilities to our local commerce efforts. And GittiGidiyor extends our geographic footprint into Turkey, which is the world's 12th largest market for Internet usage.

Let me now turn to Q1 results for each business unit. PayPal had another great quarter with strong revenue, active account and Merchant Services growth. In fact, PayPal's Merchant Services business now accounts for almost 2/3 of global TPV. Overall, PayPal continued to gain share and expand its presence on websites around the world, including launching on Singapore Airlines and L.L. Bean during Q1.

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