eBay 2001 Annual Report Download - page 42

‚ seasonal reductions in business activity; and
‚ potentially adverse tax consequences.
Some of these factors may cause our international costs to exceed our domestic costs of doing
business. To the extent we expand our international operations and have additional portions of our
international revenues denominated in foreign currencies, we also could become subject to increased
diÇculties in collecting accounts receivable and risks relating to foreign currency exchange rate
Öuctuations.
Disputes between our Korean subsidiary, Internet Auction, and credit card companies may harm our
operations in Korea.
The credit card companies providing payment services to our majority-owned Korean subsidiary,
Internet Auction, have experienced higher than anticipated delinquency rates on transactions carried out
on the Internet Auction platform. Some of these delinquencies are related to Ñctitious transactions on
Internet Auction and other Korean Internet sites to enable users to receive cash advances on their credit
cards that would not otherwise be permitted by the credit card companies. As of December 31, 2001, the
credit card companies had withheld approximately 3.4 billion Won (about $2.6 million) as ""collateral''
against certain delinquent accounts, and had threatened to terminate their agreements with Internet
Auction if matters were not resolved to their satisfaction. Beginning in the spring of 2001, Internet Auction
has been putting into place certain user veriÑcation and site-monitoring processes that it believes have
substantially reduced this type of credit card misuse on its system. The credit card companies are
requesting that Internet Auction enter into new agreements that could shift the risk of credit card misuse,
nonpayment or chargeback by the purchaser to Internet Auction and would formalize the ability of the
credit card companies to withhold ""collateral'' against future delinquencies. Internet Auction is currently in
negotiations with the credit card companies to resolve this situation. If these negotiations are not
successful, termination of its agreements with the credit card companies would adversely aÅect Internet
Auction's business and could adversely impact eBay's business. Any settlement related to past transactions
could adversely aÅect Internet Auction's results of operations. Proposed legislation now pending in the
Korean legislature, would, if enacted, make Internet Auction liable for credit card misuses by its users. If
Internet Auction becomes liable for credit card misuse or failure to pay by its users, Internet Auction may
have to change its procedures and processes relating to payments, accept higher losses, or both, which
could adversely aÅect its business and could thereby adversely aÅect our business.
Our revenue from third-party advertising and end-to-end services and promotions is subject to factors
beyond our control and is expected to decrease.
We are receiving revenues from end-to-end service providers and direct advertising promotions. These
revenues may be aÅected by the Ñnancial condition of the parties with whom we have these relationships
and by the success of online promotions generally. Recently, the pricing of online advertisements has
deteriorated. Our direct advertising revenue is dependent in signiÑcant part on the performance of AOL's
sales force, over which we do not have control. These revenues have become increasingly important to us.
Reduction in these revenues, whether due to the softening of the demand for online advertising in general
or particular problems facing parties with whom we have commercial relationships, would adversely aÅect
our results. At this time, we expect such revenues to decrease as a percentage of total revenue, and
possibly on an absolute basis, in 2002 relative to 2001.
Problems with third parties who provide services to our users could harm us.
A number of third parties provide services to our users which indirectly beneÑt us. Such services
include seller tools that automate and manage listings, merchant tools that manage listings and interface
with inventory management software, photo hosting, payment processing and other services. In many cases
we have contractual agreements with these companies which may give us a direct Ñnancial interest in their
success, in other cases we have none. In either circumstance, Ñnancial, regulatory or other problems that
38