eBay 2004 Annual Report Download - page 27

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Net transaction revenues from the Payments segment earned internationally totaled $207.6 million in
2004 and $93.9 million in 2003, representing 30.5% and 21.9% of total Payments segment net transaction
revenue, respectively. Changes in foreign currency rates will impact our operating results and, to the extent
that the U.S. dollar strengthens, our foreign currency denominated net revenues will be negatively impacted.
We expect the Payments segment net transaction revenues to increase in total during 2005 and for net
transaction revenues earned internationally to increase in total and as a percentage of Payments net
transaction revenues. We also expect that the Payments segment net transaction revenues will increase as a
percentage of total net transaction revenues in 2005.
Advertising and Other Non-Transaction Net Revenues
Advertising and other non-transaction net revenues increased in total and as a percentage of total net
revenues in 2004 as compared to 2003. Advertising and other net revenues totaled $94.3 million in 2004,
$52.9 million in 2003 and $105.1 million in 2002. These amounts as a percentage of total net revenues
represented 3% in 2004, 2% in 2003 and 9% in 2002. We continue to view our business as primarily transaction
driven and we expect advertising and other net revenues to continue to represent a relatively small proportion
of total net revenues during 2005.
Cost of Net Revenues
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
Cost of net revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $213,876 95% $416,058 48% $614,415
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏ 17.6% 19.2% 18.8%
Cost of net revenues consists primarily of costs associated with payment processing, site operations, and
certain types of customer support. SigniÑcant cost components include bank charges, credit card interchange,
other payment processing costs, employee compensation and facilities costs for our customer support and site
operations, depreciation of equipment and amortization of required capitalization of major site and product
development costs.
The increase in cost of net revenues during 2004 was primarily due to an increase in the volume of
transactions on the PayPal and eBay websites and continued development and expansion of our customer
support and site operations infrastructure. The decrease in cost of net revenues as a percentage of net revenues
was primarily due to eBay's Marketplace's site operations costs growing at a slower rate than net revenues.
Payment processing costs increased to $305.1 million in 2004 from $215.7 million in 2003, due to the increase
in PayPal's total payment volume and increased payment processing costs related to the growth of our eBay
Marketplace activity. Aggregate customer support and site operations costs increased $105.3 million during
2004, compared to the prior year, and resulted primarily from an increase in headcount and related employee
costs and consultant costs of approximately $37.1 million and increased facilities costs of approximately
$16.2 million. In addition, aggregate depreciation of site equipment and amortization of capitalized software
development costs increased $36.0 million as compared to 2003. Costs of net revenues are expected to increase
in total and to decrease slightly as a percentage of net revenues during 2005.
Cost of net revenues increased in total and slightly as a percentage of net revenues in 2003 as compared to
2002. The increase in absolute dollars was due to a full year of payment processing costs resulting from our
acquisition of PayPal in October 2002, an increase in the volume of transactions on the eBay websites, and
continued development and expansion of our customer support and site operations infrastructure. The increase
in cost of net revenues as a percentage of net revenues was primarily due to the impact of PayPal's higher
structural costs relating to payment processing oÅset, in part, by eBay's site operations costs growing at a
slower rate than net revenues. Payment processing costs, which consist of credit card interchange fees, bank
charges and other processing charges increased by approximately $94.9 million in 2003, reÖecting the full year
of PayPal activity in 2003, the substantial increase in PayPal's total payment volume and increased payment
processing costs related to our eBay fees. Aggregate customer support and site operations costs increased
25