eBay 2012 Annual Report Download - page 16

and sellers) and PayPal account holders (especially in our merchant services business) active and increasing their activity level on our websites
and mobile platforms and their use of our payment services, respectively, in order to continue to grow those businesses. The growth of Internet
users is accelerating in some countries and regions where we do not have a significant presence (e.g., Brazil/Latin America, Russia, China and
certain developing countries in which we do not have a meaningful (or, in some cases, any) domestic business). If we are unable to establish our
businesses and drive adoption of our services in such markets, our future growth would be negatively impacted.
Our Marketplaces business continues to face increased competitive pressure online and offline. In particular, the competitive norm for, and
the expected level of service from, Internet ecommerce and mobile commerce has significantly increased, due to, among other factors, improved
user experience, greater ease of buying goods, lower (or no) shipping costs, faster shipping times and more favorable return policies. If we are
unable to change our services in ways that reflect the changing demands of the Internet ecommerce and mobile commerce marketplaces,
particularly the higher growth of sales of fixed-price items and higher expected service levels (some of which depend on services provided by
sellers on our platforms), our business will suffer.
We regularly announce changes to our Marketplaces business intended to drive more sales and improve seller efficiency and buyer
experiences and trust. Some of the changes that we have announced to date have been controversial with, and led to dissatisfaction among, our
sellers, and additional changes that we announce in the future may also be negatively received by some of our sellers. This may not only impact
the supply of items listed on our websites, but because many sellers also buy from our sites, it may adversely impact demand as well. Given the
number of recent changes that we have made and continue to make to our policies and pricing, it may take our sellers some time to fully assess
and adjust to these changes, and sellers may elect to reduce volume on our sites while making such assessments and adjustments or in response
to these changes. If any of these changes cause sellers to move their business (in whole or in part) away from our websites or otherwise fail to
improve gross merchandise volume or the number of successful listings, our operating results and profitability will be harmed.
We believe that the mix of sales under our traditional auction-style listing format and fixed-price listing format will continue to shift
towards our fixed-price format. Accordingly, we have eliminated some of the features related to our traditional auction-style format and expect
others will continue to become less meaningful to, and used less frequently by, our sellers, resulting in a corresponding decrease in revenues
from those features. We also expect that the costs associated with our seller discount programs will increase as more sellers become eligible for
such discounts. In addition, because a large percentage of PayPal transactions originate on the eBay platform, declines in growth rates in major
Marketplaces markets also adversely affect PayPal's growth. The expected future growth of our PayPal, GSI, StubHub and our other lower
margin businesses may also cause downward pressure on our profit margins because those businesses have lower gross margins than our
Marketplaces platforms.
The sluggish economy and the sovereign debt crisis could harm our business.
Our Marketplaces, Payments and GSI ecommerce services businesses are dependent on consumer purchases, and our GSI business is also
impacted by the offline businesses of our GSI clients. The economic downturn resulted in reduced buyer demand and reduced selling prices, and
the slow recovery and possible impact of automatic sequesters or a failure to raise the “debt ceiling” in the U.S., as well as the impact of the
sovereign debt crisis and resulting austerity measures in Europe, may reduce the volume and prices of purchases on our Marketplaces platforms,
the volume and prices of transactions paid for using our Payment services and the online and offline businesses of our GSI clients, which would
adversely affect our business. These macroeconomic factors could also have a negative and adverse impact on companies with which we do
business, which in turn could have an adverse effect on our business.
We are exposed to fluctuations in currency exchange rates and interest rates.
Because we generate a majority of our revenues outside the U.S. but report our financial results in U.S. dollars, we face exposure to
adverse movements in currency exchange rates. In connection with its multi-currency service, PayPal fixes exchange rates twice per day, and
may face financial exposure if it incorrectly fixes the exchange rate or if exposure reports are delayed. Given that PayPal also holds some
corporate and customer funds in non-U.S. currencies, its financial results are affected by the translation of these non-U.S. currencies into U.S.
dollars. In addition, the results of operations of many of our internationally focused websites are exposed to foreign exchange rate fluctuations as
the financial results of the applicable subsidiaries are translated from the local currency into U.S. dollars upon consolidation. If the U.S. dollar
weakens against foreign currencies, the translation of these foreign currency denominated transactions will result in increased revenues,
operating expenses and net income. Similarly, if the U.S. dollar strengthens against foreign currencies, our translation of foreign currency
denominated transactions will result in lower net revenues, operating expenses and net income. If the U.S. dollar
14