eBay 2004 Annual Report Download - page 47

‚ expenses associated with localizing our products, including oÅering customers the ability to transact
business in the local currency;
‚ laws and business practices that favor local competitors or prohibit foreign ownership of certain
businesses;
‚ proÑt repatriation restrictions, foreign currency exchange restrictions, and exchange rate Öuctuations;
‚ volatility in a speciÑc country's or region's political or economic conditions; and
‚ diÅering intellectual property laws.
Some of these factors may cause our international costs of doing business to exceed our comparable
domestic costs. As 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. The impact of
currency exchange rate Öuctuations is discussed in more detail under ""We are exposed to Öuctuations in
currency exchange rates,'' below.
We are in the process of expanding PayPal's services internationally. Both eBay and PayPal have limited
experience with the payments business outside of the U.S. In some countries, expansion of PayPal's business
may require a close commercial relationship with one or more local banks. We do not know if these or other
factors may prevent, delay, or limit PayPal's expansion or reduce its proÑtability. Any limitation on our ability
to expand PayPal internationally could harm our business.
Our operations in China are subject to risks and uncertainties relating to the laws and regulations of the
People's Republic of China.
In July 2003, we completed the acquisition of the remaining outstanding capital stock and options of
EachNet. EachNet is a Delaware corporation and a foreign person under the laws of the People's Republic of
China, or PRC, and is subject to many of the risks of doing business internationally described above in ""There
are many risks associated with our international operations.'' The PRC currently regulates its Internet sector
through regulations restricting the scope of foreign investment and through the enforcement of content
restrictions on the Internet. While many aspects of these regulations remain unclear, they purport to limit and
require licensing of various aspects of the provision of Internet information services. These regulations have
created substantial uncertainties regarding the legality of foreign investments in PRC Internet companies,
including EachNet, and the business operations of such companies. In order to meet local ownership and
regulatory licensing requirements, the new eBay EachNet website is operated through a foreign-owned
enterprise indirectly owned by eBay's European operating entity, which acts in cooperation with a local PRC
company owned by certain local employees. We believe EachNet's current ownership structure complies with
all existing PRC laws, rules, and regulations. There are, however, substantial uncertainties regarding the
interpretation of current PRC laws and regulations, and it is possible that the PRC government will ultimately
take a view contrary to ours. There are also uncertainties regarding EachNet's ability to enforce contractual
relationships it has entered into with respect to management and control of the company's business. If
EachNet were found to be in violation of any existing or future PRC laws or regulations, it could be subject to
Ñnes and other Ñnancial penalties, have its business and Internet content provider licenses revoked, or be
forced to discontinue its business entirely.
We are exposed to Öuctuations in currency exchange rates.
Net revenues outside the United States accounted for approximately 42% of our net revenues in 2004.
Because we conduct a signiÑcant and growing portion of our business outside the United States but report our
results in U.S. dollars, we face exposure to adverse movements in currency exchange rates. In connection with
its multi-currency service, PayPal Ñxes exchange rates twice per day, and may face Ñnancial exposure if it
incorrectly Ñxes the exchange rate. PayPal also holds some corporate funds in non-U.S. currencies to facilitate
customer withdrawals, and thus its Ñnancial results are aÅected by the translation of these non-U.S. currencies
into U.S. dollars. In addition, the results of operations of our internationally focused websites are exposed to
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