eBay 2004 Annual Report Download - page 44

‚ increasing consumer acceptance of the Internet and other online services for commerce in the face of
increasing publicity about fraud, spooÑng, viruses, and other dangers of the Internet;
‚ general economic conditions and those economic conditions speciÑc to the Internet and e-commerce
industries; and
‚ geopolitical events such as war, threat of war, or terrorist actions.
Our limited operating history and the increased variety of services oÅered on our websites make it
diÇcult for us to forecast the level or source of our revenues or earnings accurately. In view of the rapidly
evolving nature of our business and our limited operating history, we believe that period-to-period comparisons
of our operating results may not be meaningful, and you should not rely upon them as an indication of future
performance. We do not have backlog, and substantially all of our net revenues each quarter come from
transactions involving sales or payments during that quarter. Due to the inherent diÇculty in forecasting
revenues it is also diÇcult to forecast income statement expenses as a percentage of net revenues. Quarterly
and annual income statement expenses as a percentage of net revenues may be signiÑcantly diÅerent from
historical or projected rates. Our operating results in one or more future quarters may fall below the
expectations of securities analysts and investors. In that event, the trading price of our common stock would
almost certainly decline.
We may not maintain our level of proÑtability or rates of growth.
We believe that our continued proÑtability and growth will depend in large part on our ability to do the
following:
‚ attract new users and keep existing users active on our websites;
‚ manage the costs of our business, including the costs associated with maintaining and developing our
websites, customer support, transaction and chargeback rates, and international and product expansion;
‚ maintain suÇcient transaction volume to attract buyers and sellers;
‚ increase the awareness of our brands; and
‚ provide our customers with superior community, customer support, and trading experiences.
We invest heavily in marketing and promotion, customer support, and further development of operating
infrastructure for our core and recently acquired operations. Some of this investment entails long-term
contractual commitments. As a result, we may be unable to adjust our spending rapidly enough to compensate
for any unexpected revenue shortfall, which may harm our proÑtability. In addition, we are spending in
advance of anticipated growth, which may also harm our proÑtability. Growth rates in our most established
markets, such as Germany and the U.S., have declined over time and may continue to do so as the existing
base of users and transactions becomes larger. The expected future growth of our PayPal business may also
cause downward pressure on our proÑt margin because that business has lower gross margins than our eBay
business.
System failures could harm our business.
We have experienced system failures from time to time, and any interruption in the availability of our
websites will reduce our current revenues and proÑts, could harm our future revenues and proÑts, and could
subject us to regulatory scrutiny. eBay's primary website has been interrupted for periods of up to 22 hours,
and our PayPal site suÅered intermittent unavailability over a Ñve-day period in October 2004. Any
unscheduled interruption in our services results in an immediate, and possibly substantial, loss of revenues.
Frequent or persistent interruptions in our services could cause current or potential users to believe that our
systems are unreliable, leading them to switch to our competitors or to avoid our sites, and could permanently
harm our reputation and brands. These interruptions increase the burden on our engineering staÅ, which, in
turn, could delay our introduction of new features and services on our sites. Because PayPal is a regulated
Ñnancial entity, frequent or persistent site interruptions could lead to regulatory inquiries. These inquiries
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