eBay 2000 Annual Report Download - page 32

further increased in absolute dollars but decreased as a percentage of sales to $166.8 million or 38.7% of net
revenues in the year ended December 31, 2000. The successive year-over-year growth from 1998 through 2000
was primarily the result of growth in online and traditional advertising, including expenses for various
marketing agreements, personnel related costs, costs associated with the use of outside services and
consultants and miscellaneous user and promotional costs.
Online sales and marketing expenses are expected to increase in absolute dollars for 2001 as we plan to
build the eBay brand more broadly. We expect to build our brand further with continued advertising
impressions delivered under the strategic alliances with America Online (""AOL''), Autotrader.com and
GO.com (a wholly owned subsidiary of the Walt Disney Company) an increase in mass media advertising and
the expansion of international advertising. Sales and marketing expenses in the traditional auction businesses
are expected to remain comparable with historical levels.
Product Development
Product development expenses consist primarily of compensation for our product development staÅ,
payments to outside contractors, depreciation on equipment used for development, employee and facilities
costs. Our product development expenses increased from $4.6 million or 5.4% of net revenues to $24.8 million
or 11.1% of net revenues for the years ended December 31, 1998 and 1999 and further increased to
$55.9 million or 12.9 % of net revenues in the year ended December 31, 2000. The successive year over year
growth from 1998 through 2000 was primarily the result of an increase in personnel-related costs as we
signiÑcantly increased the size of our product development staÅ, expenses related to contractors and
consultants employed within product development departments, and maintenance and depreciation for
equipment used in research and development. The year-over-year increase also resulted from the addition of
product development operations at Billpoint in 1999 and Half.com in 2000 including a one-time, stock-based
compensation expense at Half.com resulting from the acquisition. Product development expenses are expected
to increase in absolute dollars during future periods primarily from personnel additions, the continued impact
of Billpoint and Half.com product development, additional depreciation costs as we continue to purchase
equipment to improve and expand operations both domestically and internationally and expected amortization
costs associated with the phased rollout of our next generation three-tier architecture.
General and Administrative
General and administrative expenses consist primarily of compensation for personnel and, to a lesser
extent, fees for external professional advisors, provisions for doubtful accounts, employee and facilities costs.
Our general and administrative expenses increased from $15.8 million or 18.4% of net revenues to
$43.9 million or 19.5% of net revenues for the years ended December 31, 1998 and 1999 and increased in
absolute dollars but decreased as a percentage of sales to $73.0 million or 16.9% of net revenues in the year
ended December 31, 2000. The year-over-year increases resulted from growth in personnel-related expenses in
order to meet the demands of our expanding business, including operations in new countries and the
integration of new businesses, fees for professional services, employee and facilities costs. We expect that
general and administrative expenses will increase in absolute dollars in future periods as we continue to invest
in the infrastructure that is necessary for our business.
Payroll Expense on Employee Stock Options
We are subject to employer payroll taxes on employee exercises of non-qualiÑed stock options. These
employer payroll taxes are recorded as a charge to operations in the period such options are exercised and sold
based on actual gains realized by employees. Our quarterly results of operations and cash Öows could vary
signiÑcantly depending on the actual period that the stock options are exercised by employees and,
consequently, the amount of employer payroll taxes assessed.
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