eBay 2004 Annual Report Download - page 29

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The increase in product development expenses in 2004, as compared to the prior year, was primarily the
result of increased headcount and consultant costs. The headcount growth was focused on hiring new
employees for various platform development initiatives at eBay and PayPal in addition to our international
expansion of both platforms. Our development staÅ increased approximately 48% from approximately 1,000 at
December 31, 2003 to approximately 1,500 at December 31, 2004. In addition, our consultant costs increased
by approximately $13.4 million. Product development expenses are expected to increase in total and may
increase slightly as a percentage of net revenues in 2005, as we develop new site features and functionality and
continue to improve and expand operations across all our segments including the U.S. Marketplace, China,
and PayPal Merchant Services.
The increase in product development expenses in 2003, as compared to the prior year, was primarily the
result of increased headcount and computer equipment depreciation. These increases were partially oÅset by
the amounts capitalized in connection with major site and other product development eÅorts in 2003. The
headcount growth was focused on hiring new employees for various platform development initiatives at eBay
and PayPal. Our product development employees increased approximately 59% from approximately 600 at
December 31, 2002 to approximately 1,000 at December 31, 2003.
General and Administrative
Percent Percent
2002 Change 2003 Change 2004
(In thousands, except percentages)
General and administrative ÏÏÏÏÏÏÏÏÏÏÏÏÏ $171,785 76% $302,703 37% $415,725
As a percentage of net revenuesÏÏÏÏÏÏÏÏÏ 14.1% 14.0% 12.7%
General and administrative expenses consist primarily of employee compensation, provisions for transac-
tion losses associated with our Payments segment, depreciation of equipment, provision for doubtful accounts,
insurance and professional fees.
General and administrative expenses increased in total, but decreased as a percentage of net revenues in
2004, as compared to the prior year. The dollar increase was due primarily to employee related costs, fees for
external professional advisors, including Sarbanes-Oxley compliance costs, and payment transaction loss
expenses. The increases in employee related costs resulted from growth in the Ñnance, human resource and
legal departments to meet the demands of our expanding business, including growing international operations,
increased regulatory demands, and the integration of acquired businesses. We increased our general and
administrative employees from approximately 1,900 at December 31, 2003 to approximately 2,700 at
December 31, 2004. This increase related primarily to the addition of employees in our eBay trust and safety
functions. Consultant and employee related costs increased by approximately $53.8 million during 2004 as
compared to the prior year. PayPal's payment transaction loss increased by approximately $14.1 million, to
$50.5 million at December 31, 2004, reÖecting the increase in activity in the Payments segment in addition to
the expansion of our PayPal Buyer Protection Program. PayPal's payment transaction loss rate, which is the
transaction loss expense as a percentage of PayPal's total payment volume, was 0.27% in 2004 compared to
0.30% in 2003. The decrease in this percentage from 2003 to 2004 was oÅset in part by the increase in
coverage for our PayPal Buyer Protection Program. With our continued investment, primarily in the expansion
in our Marketplace and Payments segments, and related corporate functions, we expect general and
administrative expenses to increase during 2005.
The increase in general and administrative expenses in 2003 was due primarily to employee and facilities
related costs, fees for external professional advisors, payment transaction loss expenses resulting from our
acquisition of PayPal and charges associated with various legal matters. The increases in employee and
facilities related costs resulted from the addition of PayPal employees in various trust and safety functions as
well as continued headcount growth in the Ñnance, human resource and legal departments to meet the
demands of our expanding business, including growing international operations and the integration of acquired
businesses. We increased our general and administrative staff from approximately 1,300 at December 31, 2002
to approximately 1,900 at December 31, 2003. Fees for external professional advisors increased by $10.4 million.
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