EBAY
$28.42
Ebay
$1.03
3.76%
Earnings Details
3rd Quarter September 2016
Wednesday, October 19, 2016 4:15:07 PM
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Summary

Ebay Reports In-line

Ebay (EBAY) reported 3rd Quarter September 2016 earnings of $0.46 per share on revenue of $2.2 billion. The consensus earnings estimate was $0.44 per share on revenue of $2.2 billion. The Earnings Whisper number was $0.46 per share. Revenue grew 5.6% on a year-over-year basis.

The company said it expects fourth quarter non-GAAP earnings of $0.52 to $0.54 per share on revenue of $2.36 billion to $2.41 billion. The current consensus earnings estimate is $0.54 per share on revenue of $2.40 billion for the quarter ending December 31, 2016.

eBay Inc is a commerce platform and provides online marketplaces for sales of goods. The Company' business segments are Marketplaces, Payments and Enterprise.

Results
Reported Earnings
$0.46
Earnings Whisper
$0.46
Consensus Estimate
$0.44
Reported Revenue
$2.22 Bil
Revenue Estimate
$2.18 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

eBay Inc. Reports Third Quarter 2016 Results

Revenue of $2.2 billion

GAAP and Non-GAAP EPS per diluted share of $0.36 and $0.45, respectively, on a continuing operations basis

--Repurchased $500 million of common stock

eBay Inc. (EBAY), a global commerce leader, delivered gross merchandise volume (GMV) for the quarter ended September 30, 2016 of $20.1 billion, increasing 5% on a foreign exchange (FX) neutral basis and 3% on an as-reported basis. Revenue for the quarter was $2.2 billion, up 8% on an FX-Neutral basis and 6% on an as-reported basis. GAAP net income from continuing operations was $418 million, or $0.36 per diluted share, and non-GAAP net income from continuing operations was $509 million, or $0.45 per diluted share. During the quarter, the company generated $802 million of operating cash flow and $617 million of free cash flow from continuing operations while also repurchasing $500 million of its common stock.

"In Q3 we delivered good top- and bottom-line financial results, led by consistent performance across our business," said Devin Wenig, President and CEO of eBay Inc. "We continued to transform the shopping experience on eBay, delivered more personalization capabilities and began to activate our updated brand messaging."

In the third quarter, eBay added over one million active buyers across its platforms, to a total of 165 million global active buyers. Underlying total eBay Inc. performance, the Marketplace platforms delivered $19.0 billion of GMV and $1.8 billion of revenue. Marketplace revenue was up 5% on an FX-Neutral basis and 2% on an as-reported basis, driven by GMV growth of 4% on an FX-Neutral basis and 2% on an as-reported basis as well as growth in Marketing Services & Other revenue. StubHub had another strong quarter with GMV of $1.1 billion, up 23%, and revenue of $263 million, up 32%, aided by strength across concerts, theater and baseball as well as the continued benefit from ongoing product innovation. The Classifieds platforms delivered another quarter of good performance with revenue of $197 million, up 14% on an FX-Neutral basis and 11% on an as-reported basis, primarily driven by the Automotive and Real Estate verticals across several key geographies.

eBay made progress during the quarter in driving the most relevant shopping experiences for consumers. Marketplace delivered further enhancements to its mobile platform and introduced Quick Sale, a targeted consumer destination for selling mobile phones. The company also began to activate an updated strategy for the eBay brand and was recently ranked as number 32 in Interbrand’s Best Global Brands 2016 report. StubHub continued to drive innovation, expanding its virtual reality technology to more venues in the United States, as well as launching a blended primary and secondary tickets experience with the Philadelphia 76ers. Classifieds began integrating tickets inventory from StubHub in Canada, while furthering efforts to integrate inventory from eBay in several markets.

eBay continues to be acquisitive in the areas of geographic and vertical expansion, and adding key technology and talent. Most recently, it announced an agreement to purchase Corrigon Ltd., a pioneer of visual search technologies, expected to contribute to the Marketplace platform’s structured data initiative. In addition to its recent strategic acquisitions, eBay has returned $2 billion of capital to shareholders in 2016 in the form of share repurchases. eBay also recently sold most of its stake in MercadoLibre, Inc. The sale enables eBay to realize a significant gain on its investment, and the company intends to use the net proceeds in a manner consistent with its capital allocation policy.

Third Quarter 2016 Financial Highlights (presented in millions,
except per share data and percentages)
Third Quarter
2016
2015
Change
eBay Inc.
Net revenues
$2,217
$2,099
$118
6%
GAAP - Continuing Operations
Income from continuing operations
$418
$545
$(127)
(23)%
Earnings per diluted share from continuing operations
$0.36
$0.45
$(0.09)
(20)%
Non-GAAP - Continuing Operations
Net income
$509
$529
$(20)
(4)%
Earnings per diluted share
$0.45
$0.43
$0.02
5%

Other Selected Financial and Operational Results

Operating margin -- GAAP operating margin decreased to 24.4% for the third quarter of 2016, compared to 27.5% for the same period last year. Non-GAAP operating margin decreased to 29.9% in the third quarter of 2016, compared to 31.9% for the same period last year.

Taxes -- The GAAP effective tax rate for continuing operations for the third quarter of 2016 was 21.6%, compared to 18.0% for the third quarter of 2015. The non-GAAP effective tax rate for continuing operations for the third quarter of 2016 was 22.2%, compared to 20.2% for the third quarter of 2015.

Cash flow -- The company generated $802 million of operating cash flow from continuing operations and $617 million of free cash flow from continuing operations during the third quarter of 2016.

Stock repurchase program -- The company repurchased approximately $500 million of its common stock, or 16.5 million shares, in the third quarter of 2016. The company’s total repurchase authorization remaining as of September 30, 2016 was $2.3 billion.

Cash and cash equivalents and non-equity investments -- The company’s cash and cash equivalents and non-equity investments portfolio totaled $10.4 billion as of September 30, 2016.

Business Outlook

Fourth quarter 2016 -- The company expects net revenue between $2.36 billion and $2.41 billion, representing FX-Neutral growth of 4% - 6%, with non-GAAP earnings per diluted share from continuing operations in the range of $0.52 - $0.54 and GAAP earnings per diluted share from continuing operations in the range of $1.05 - $1.15.

Full year 2016 -- The company expects net revenue between $8.95 billion and $9.0 billion, representing FX-Neutral growth of 6% - 7%, with non-GAAP earnings per diluted share from continuing operations in the range of $1.85 - $1.90 and GAAP earnings per diluted share from continuing operations in the range of $2.22 - $2.32.

Quarterly Conference Call and Webcast

eBay Inc. will host a conference call to discuss third quarter 2016 results at 2:00 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their nearest comparable GAAP measures, can be accessed through the company’s Investor Relations website at https://investors.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

eBay Inc. uses its Investor Relations website at https://investors.ebayinc.com as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor, in addition to following press releases, SEC filings, public conference calls and webcasts.

About eBay

eBay Inc. (EBAY) is a global commerce leader including the Marketplace, StubHub and Classifieds platforms. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity through Connected Commerce. Founded in 1995 in San Jose, Calif., eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selection. In 2015, eBay enabled $82 billion of gross merchandise volume. For more information about the company and its global portfolio of online brands, visit www.ebayinc.com.

Presentation

All growth rates represent year over year comparisons, except as otherwise noted. All amounts in tables are presented in U.S. dollars, rounded to the nearest millions, except as otherwise noted. As a result, certain amounts may not sum or recalculate using the rounded dollar amounts provided.

Non-GAAP Financial Measures

This press release includes the following financial measures defined as "non-GAAP financial measures" by the Securities and Exchange Commission (SEC): non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate and free cash flow. These non-GAAP financial measures are presented on a continuing operations basis. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For a reconciliation of these non-GAAP financial measures to the nearest comparable GAAP measures, see "Business Outlook," "Non-GAAP Measures of Financial Performance," "Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin," "Reconciliation of GAAP Net Income to Non-GAAP Net Income and Reconciliation of GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate" and "Reconciliation of Operating Cash Flow to Free Cash Flow" included in this press release.

Forward-Looking Statements

This press release contains forward-looking statements relating to, among other things, the future performance of eBay Inc. and its consolidated subsidiaries that are based on the company’s current expectations, forecasts and assumptions and involve risks and uncertainties. These statements include, but are not limited to, statements regarding the future performance of eBay Inc. and its consolidated subsidiaries, including expected financial results for the fourth quarter and full year 2016 and the future growth in our business. Actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of future performance. Other factors that could cause or contribute to such differences include, but are not limited to: changes in political, business and economic conditions, any regional or general economic downturn or crisis and any conditions that affect ecommerce growth or cross-border trade; fluctuations in foreign currency exchange rates; the company’s need to successfully react to the increasing importance of mobile commerce and the increasing social aspect of commerce; an increasingly competitive environment for our business; changes to the company’s capital allocation or management of operating cash; the company’s ability to manage its indebtedness, including managing exposure to interest rates and maintaining its credit ratings; the company’s need to manage an increasingly large enterprise with a broad range of businesses of varying degrees of maturity and in many different geographies; the company’s need and ability to manage regulatory, tax, data security and litigation risks; whether the operational, marketing and strategic benefits of the separation of the eBay and PayPal businesses can be achieved; the company’s ability to timely upgrade and develop its technology systems, infrastructure and customer service capabilities at reasonable cost while maintaining site stability and performance and adding new products and features; and the company’s ability to integrate, manage and grow businesses that have been acquired or may be acquired in the future.

The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof.

More information about factors that could affect the company’s operating results is included under the captions "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the company’s most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting the company’s Investor Relations website at https://investors.ebayinc.com or the SEC’s website at www.sec.gov. All information in this release is as of October 19, 2016. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to the company on the date hereof. The company assumes no obligation to update such statements.

eBay Inc.
Unaudited Condensed Consolidated Balance Sheet
September 30,
December 31,
2016
2015
(In millions, except par value amounts)
ASSETS
Current assets:
Cash and cash equivalents
$
1,753
$
1,832
Short-term investments
6,292
4,299
Accounts receivable, net
626
619
Other current assets
1,112
1,154
Total current assets
9,783
7,904
Long-term investments
3,921
3,391
Property and equipment, net
1,526
1,554
Goodwill
4,727
4,451
Intangible assets, net
117
90
Other assets
428
365
Total assets
$ 20,502
$
17,755
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt
$
1,449
$
--
Accounts payable
278
349
Accrued expenses and other current liabilities
1,813
1,736
Deferred revenue
116
106
Income taxes payable
107
72
Total current liabilities
3,763
2,263
Deferred and other tax liabilities, net
2,268
2,092
Long-term debt
7,582
6,749
Other liabilities
70
75
Total liabilities
13,683
11,179
Total stockholders’ equity
6,819
6,576
Total liabilities and stockholders’ equity
$ 20,502
$
17,755
eBay Inc.
Unaudited Condensed Consolidated Statement of Income
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
(In millions, except per share amounts)
Net revenues
$
2,217
$
2,099
$ 6,584
$
6,270
Cost of net revenues (1)
498
433
1,468
1,278
Gross profit
1,719
1,666
5,116
4,992
Operating expenses:
Sales and marketing (1)
600
565
1,760
1,672
Product development (1)
288
241
822
694
General and administrative (1)
224
207
651
862
Provision for transaction losses
56
65
172
199
Amortization of acquired intangible assets
9
10
24
30
1,177
1,088
3,429
3,457
Total operating expenses
Income from operations
542
578
1,687
1,535
Interest and other, net
(9 )
87
(40 )
221
Income from continuing operations before income taxes
533
665
1,647
1,756
Provision for income taxes
(115 )
(120 )
(310 )
(332 )
Income from continuing operations
$
418
$
545
$ 1,337
$
1,424
Loss from discontinued operations, net of income taxes (2)
(5 )
(6 )
(7 )
(176 )
Net income
$
413
$
539
$ 1,330
$
1,248
Income (loss) per share - basic:
Continuing operations
$
0.37
$
0.45
$
1.17
$
1.17
Discontinued operations
--
--
(0.01 )
(0.14 )
Net income per share - basic
$
0.37
$
0.45
$
1.16
$
1.03
Income (loss) per share - diluted:
Continuing operations
$
0.36
$
0.45
$
1.16
$
1.16
Discontinued operations
--
--
(0.01 )
(0.14 )
Net income per share - diluted
$
0.36
$
0.45
$
1.15
$
1.02
Weighted average shares:
Basic
1,126
1,210
1,143
1,214
Diluted
1,139
1,223
1,153
1,226
(1) Includes stock-based compensation as follows:
Cost of net revenues
$
9
$
10
$
26
$
28
Sales and marketing
24
28
71
75
Product development
40
29
115
83
General and administrative
32
26
94
115
$
105
$
93
$
306
$
301

(2) Includes PayPal financial results from July 1, 2015 to July 17, 2015; and January 1, 2015 to July 17, 2015; respectively; also includes eBay Enterprise financial results for the full periods in 2015, respectively.

eBay Inc.
Unaudited Condensed Consolidated Statement of Cash Flows
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
(In millions)
Cash flows from operating activities:
Net income
$
413
$
539
$
1,330
$
1,248
Income from discontinued operations, net of income taxes
5
6
7
176
Adjustments:
Provision for transaction losses
56
65
172
199
Depreciation and amortization
172
182
506
516
Stock-based compensation
105
93
306
301
(Gain) loss on sale of investments
31
(110 )
25
(212 )
Changes in assets and liabilities, and other, net of acquisition
20
(71 )
(139 )
(477 )
effects
Net cash provided by continuing operating activities
802
704
2,207
1,751
Net cash provided by (used in) discontinued operating activities (1)
--
(18 )
(1 )
1,242
Net cash provided by operating activities
802
686
2,206
2,993
Cash flows from investing activities:
Purchases of property and equipment
(185 )
(242 )
(490 )
(539 )
Purchases of investments
(2,654 )
(1,102 )
(7,782 )
(4,452 )
Maturities and sales of investments
2,410
1,627
5,929
5,579
Acquisitions, net of cash acquired
(173 )
(24 )
(201 )
(24 )
Other
7
(12 )
(24 )
(15 )
Net cash provided by (used in) continuing investing activities
(595 )
247
(2,568 )
549
Net cash used in discontinued investing activities (1)
--
(1,114 )
--
(3,837 )
Net cash used in investing activities
(595 )
(867 )
(2,568 )
(3,288 )
Cash flows from financing activities:
Proceeds from issuance of common stock
15
27
67
173
Repurchases of common stock
(501 )
(512 )
(2,002 )
(1,512 )
Excess tax benefits from stock-based compensation
5
32
9
72
Tax withholdings related to net share settlements of restricted
(19 )
(46 )
(96 )
(226 )
stock units and awards
Proceeds from issuance of long-term debt, net
--
--
2,216
--
Repayment of debt
(11 )
(250 )
(17 )
(250 )
Other
8
10
5
10
Net cash provided by (used in) continuing financing activities
(503 )
(739 )
182
(1,733 )
Net cash used in discontinued financing activities (1)
--
(1,615 )
--
(1,599 )
Net cash provided by (used in) financing activities
(503 )
(2,354 )
182
(3,332 )
Effect of exchange rate changes on cash and cash equivalents
48
(37 )
101
(286 )
Net increase (decrease) in cash and cash equivalents
(248 )
(2,572 )
(79 )
(3,913 )
Cash and cash equivalents at beginning of period
2,001
4,987
1,832
6,328
Cash and cash equivalents at end of period
1,753
2,415
1,753
2,415
Less: Cash and cash equivalents of held for sale
--
28
--
28
Cash and cash equivalents of continuing operations at end of period
$
1,753
$
2,387
$
1,753
$
2,387

(1) Includes PayPal financial results from July 1, 2015 to July 17, 2015; January 1, 2015 to July 17, 2015; respectively; also includes eBay Enterprise financial results for the full periods in 2015, respectively.

eBay Inc.
Unaudited Summary of Consolidated Net Revenues
Three Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
2016
2016
2016
2015
2015
(In millions, except percentages)
Net Revenues by Type:
Net transaction revenues:
Marketplace
$
1,484
$
1,521
$
1,500
$
1,584
$
1,459
Current quarter vs prior year quarter
2 %
-- %
(2 )%
(5 )%
(5 )%
Percent from international
62 %
62 %
61 %
63 %
62 %
StubHub
261
225
177
232
200
31 %
40 %
34 %
34 %
17 %
Current quarter vs prior year quarter
Percent from international
2 %
1 %
2 %
1 %
2 %
Total net transaction revenues
1,745
1,746
1,677
1,816
1,659
Current quarter vs prior year quarter
5 %
4 %
1 %
(1 )%
(3 )%
Percent from international
53 %
54 %
55 %
55 %
54 %
Marketing services and other revenues:
Marketplace
273
277
274
326
266
Current quarter vs prior year quarter
3 %
10 %
17 %
4 %
-- %
Percent from international
45 %
46 %
44 %
47 %
44 %
Classifieds
197
207
186
183
178
Current quarter vs prior year quarter
11 %
15 %
15 %
2 %
(3 )%
Percent from international
100 %
100 %
100 %
100 %
100 %
StubHub, Corporate and other
2
--
--
(3 )
(4 )
Total marketing services and other revenues
472
484
460
506
440
Current quarter vs prior year quarter
7 %
14 %
17 %
4 %
(2 )%
Percent from international
68 %
69 %
67 %
66 %
67 %
Total net revenues
$
2,217
$
2,230
$
2,137
$
2,322
$
2,099
Current quarter vs prior year quarter
6 %
6 %
4 %
-- %
(2 )%
eBay Inc.
Unaudited Supplemental Operating Data
Three Months Ended
September 30,
June 30,
March 31,
December 31,
September 30,
2016
2016
2016
2015
2015
(In millions, except percentages)
Active Buyers (1)
165
164
162
162
159
Current quarter vs prior year quarter
3 %
4 %
4 %
5 %
5 %
Gross Merchandise Volume (2)
Marketplace
$ 18,973
$ 19,790
$ 19,581
$
20,676
$ 18,674
Current quarter vs prior year quarter
2 %
3 %
1 %
(1 )%
(3 )%
StubHub
$
1,142
$
1,060
$
869
$
1,184
$
927
Current quarter vs prior year quarter
23 %
35 %
29 %
30 %
10 %
Total GMV
$ 20,115
$ 20,850
$ 20,450
$
21,860
$ 19,601
Current quarter vs prior year quarter
3 %
4 %
1 %
-- %
(2 )%
(1)
All buyers who successfully closed a transaction on our Marketplace
and StubHub platforms within the previous 12-month period. Buyers
may register more than once, and as a result, may have more than one
account.
(2)
Total value of all successfully closed transactions between users on
our Marketplace and StubHub platforms during the period regardless
of whether the buyer and seller actually consummated the
transaction. We believe that GMV provides a useful measure of the
overall volume of closed transactions that flow through our
platforms in a given period, notwithstanding the inclusion in GMV of
closed transactions that are not ultimately consummated.

eBay Inc. Business Outlook (In Millions, Except Per Share Amounts)

The guidance figures provided below and elsewhere in this press release are forward-looking statements, reflect a number of estimates, assumptions and other uncertainties, and are approximate in nature because the company’s future performance is difficult to predict. Such guidance is based on information available on the date of this press release, and the company assumes no obligation to update it.

The company’s future performance involves risks and uncertainties, and the company’s actual results could differ materially from the information below and elsewhere in this press release. Some of the factors that could affect the company’s operating results are set forth under the caption "Forward-Looking Statements" above in this press release. More information about factors that could affect the company’s operating results is included under the captions "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in its most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting eBay’s investor relations website at https://investors.ebayinc.com or the SEC’s website at www.sec.gov.

eBay Inc.
Three Months Ending
December 31, 2016
(In millions, except per share amounts)
GAAP
Non-GAAP (a)
Net Revenue
$2,360 - $2,410
$2,360 - $2,410
Diluted EPS from continuing operations
$1.05 - $1.15
$0.52 - $0.54
Twelve Months Ending
December 31, 2016
(In millions, except per share amounts)
GAAP
Non-GAAP (b)
Net Revenue
$8,950 - $9,000
$8,950 - $9,000
Diluted EPS from continuing operations
$2.22 - $2.32
$1.85 - $1.90
(a) Estimated non-GAAP amounts above for the three months ending
December 31, 2016, reflect adjustments that exclude the estimated
amortization of acquired intangible assets of approximately $10 -
$15 million, estimated stock-based compensation expense and
employer payroll taxes on stock-based compensation expense of
approximately $110 - $120 million, estimated gain from the
previously announced sale of most of our stake in MercadoLibre,
Inc., as well as the associated tax impacts.
(b) Estimated non-GAAP amounts above for the twelve months ending
December 31, 2016, reflect adjustments that exclude the estimated
amortization of acquired intangible assets of approximately $45 -
$50 million, estimated stock-based compensation expense and
employer payroll taxes on stock-based compensation expense of
approximately $425 - $435 million, estimated gain from the
previously announced sale of most of our stake in MercadoLibre,
Inc., as well as the associated tax impacts.

eBay Inc. Non-GAAP Measures of Financial Performance

To supplement the company’s condensed consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, the company uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin, non-GAAP effective tax rate, and free cash flow. These non-GAAP financial measures are presented on a continuing operations basis.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company’s results of operations in conjunction with the corresponding GAAP measures.

Reconciliation to the nearest GAAP measure of all non-GAAP measures included in this press release can be found in the tables included in this press release.

These non-GAAP measures are provided to enhance investors’ overall understanding of the company’s current financial performance and its prospects for the future. Specifically, the company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses, or net purchases of property and equipment, as the case may be, that may not be indicative of its core operating results and business outlook. In addition, because the company has historically reported certain non-GAAP results to investors, the company believes that the inclusion of non-GAAP measures provides consistency in the company’s financial reporting.

For its internal budgeting process, and as discussed further below, the company’s management uses financial measures that do not include stock-based compensation expense, employer payroll taxes on stock-based compensation, amortization or impairment of acquired intangible assets, impairment of goodwill, significant gains or losses from the disposal/acquisition of a business, certain effects of the planned separation of our eBay and PayPal business, certain gains and losses on investments, restructuring-related charges and the income taxes associated with the foregoing. In addition to the corresponding GAAP measures, the company’s management also uses the foregoing non-GAAP measures in reviewing the financial results of the company.

The company excludes the following items from non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating margin and non-GAAP effective tax rate:

Stock-based compensation expense and related employer payroll taxes. This expense consists of expenses for stock options, restricted stock and employee stock purchases. The company excludes stock-based compensation expense from its non-GAAP measures primarily because they are non-cash expenses that management does not believe are reflective of ongoing operating results. The related employer payroll taxes are dependent on the company’s stock price and the timing and size of exercises by employees of their stock options and the vesting of their restricted stock, over which management has limited to no control, and as such management does not believe it correlates to the company’s operation of the business.

Amortization or impairment of acquired intangible assets, impairment of goodwill, significant gains or losses and transaction expenses from the acquisition or disposal of a business and certain gains or losses on investments. The company incurs amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and may incur significant gains or losses from the acquisition or disposal of a business and therefore excludes these amounts from its non-GAAP measures. The company also excludes certain gains and losses on investments. The company excludes the impact of the accretion of a note receivable associated with the disposal of certain businesses. The company excludes these items because management does not believe they correlate to the ongoing operating results of the company’s business.

Restructuring. These charges consist of expenses for employee severance and other exit and disposal costs. The company excludes significant restructuring charges primarily because management does not believe they are reflective of ongoing operating results.

Other certain significant gains, losses, or charges that are not indicative of the Company’s core operating results. These are significant gains, losses, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly or be repeated in the future. The company excludes these amounts from its results primarily because management does not believe they are indicative of its current or ongoing operating results.

Separation. These are significant expenses that are related to the separation of our eBay and PayPal businesses into separate publicly traded companies. These consist primarily of third-party consulting fees, legal fees, employee retention payments, tax indemnifications and other expenses related to the separation.

Tax effect of non-GAAP adjustments. This amount is used to present stock-based compensation and the other amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income.

In addition to the non-GAAP measures discussed above, the company also uses free cash flow. Free cash flow represents operating cash flows less purchases of property and equipment. The company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property, buildings, and equipment, which can then be used to, among other things, invest in the company’s business, make strategic acquisitions, and repurchase stock. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company’s cash balance for the period.

eBay Inc.
Reconciliation of GAAP Operating Margin to Non-GAAP Operating
Margin
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
(In millions, except percentages)
GAAP operating income
$
542
$
578
$
1,687
$ 1,535
Stock-based compensation expense and related employer payroll taxes
106
94
315
319
Amortization of acquired intangible assets within cost of net
6
4
14
16
revenues
Amortization of acquired intangible assets within operating expenses
9
10
24
30
Separation
--
--
(1 )
119
Restructuring and acquisition related
--
--
--
62
Other significant gains, losses or charges
--
(16 )
(13 )
1
Total non-GAAP operating income adjustments
121
92
339
547
Non-GAAP operating income
$
663
$
670
$
2,026
$ 2,082
Non-GAAP operating margin
29.9 %
31.9 %
30.8 %
33.2 %
Reconciliation of GAAP Net Income to Non-GAAP Net Income and
GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate*
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
(In millions, except percentages)
GAAP income from continuing operations before income taxes
$
533
$
665
$ 1,647
$
1,756
GAAP provision for income taxes
(115 )
(120 )
(310 )
(332 )
GAAP net income from continuing operations
$
418
$
545
$ 1,337
$
1,424
Non-GAAP adjustments to net income from continuing operations:
Non-GAAP operating income from continuing operations adjustments
121
92
339
547
(see table above)
Gains or losses on investments
--
(94 )
(35 )
(264 )
Tax effect of non-GAAP adjustments
(30 )
(14 )
(86 )
(75 )
Non-GAAP net income from continuing operations
$
509
$
529
$ 1,555
$
1,632
Diluted net income from continuing operations per share:
GAAP
$
0.36
$ 0.45
$
1.16
$
1.16
Non-GAAP
$
0.45
$ 0.43
$
1.35
$
1.33
Shares used in GAAP and non-GAAP diluted net income per-share
1,139
1,223
1,153
1,226
calculation
GAAP effective tax rate - Continuing operations
22 %
18 %
19 %
19 %
Tax effect of non-GAAP adjustments to net income from continuing
-- %
2 %
1 %
1 %
operations
Non-GAAP effective tax rate - Continuing Operations
22 %
20 %
20 %
20 %
*Presented on a continuing operations basis
Reconciliation of Operating Cash Flow to Free Cash Flow*
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
(In millions)
(In millions)
Net cash provided by continuing operating activities
$ 802
$ 704
$ 2,207
$ 1,751
Less: Purchases of property and equipment
(185 )
(242 )
(490 )
(539 )
Free cash flow from continuing operations
$ 617
$ 462
$ 1,717
$ 1,212
*Presented on a continuing operations basis

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eBay Inc.
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Selim Freiha
ir@ebay.com
Media Relations Contact:
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press@ebay.com
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