This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans or intentions (such as those relating to future business or financial results, new features or services, or management strategies). You can identify these forward-looking statements by words such as "may," "will," "should," "could," "expect," "anticipate," "believe," "estimate," "intend," "plan" and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in "Part II - Item 1A: Risk Factors," of this Quarterly Report on Form 10-Q as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission, or the SEC. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report.

Our Business

We operate three primary business segments: Marketplaces, Payments and Communications. The Marketplaces segment enables online commerce through a variety of different platforms, including the Marketplaces site comprising auction-style and fixed priced formats, our classifieds websites, our comparison shopping site, Shopping.com, our secondary tickets platform, StubHub, our fixed price media marketplace, Half.com, and our apartment listing service platform, Rent.com. Our Payments segment, which consists of PayPal, enables individuals and businesses to securely, easily and quickly send and receive payments online. Our Communications segment, which consists of Skype, enables VoIP communications between Skype users and also provides Skype users low-cost connectivity to traditional fixed-line and mobile telephones.

Key Operating Metrics and Financial Performance

Members of our senior management team regularly review key operating metrics such as active users, sold items, listings, Gross Merchandise Volume ("GMV"), net Total Payment Volume ("TPV"), transaction loss rates, Skype registered users and SkypeOut minutes. Members of our senior management team also regularly review key financial information including net revenues, operating margins, earnings per share, cash flows and financial metrics that exclude certain non-cash items. These financial measures allow us to monitor the profitability of our business and to evaluate the effectiveness of investments that we have made (and continue to make) in the areas of marketing, product development, international expansion, customer support and site operations. We believe that an understanding of these key operating and financial measures and how they change over time is important to investors, analysts and other parties analyzing our business results and future market opportunities.

Financial Summary

Net revenues for the three months ended September 30, 2008 were $2.1 billion, representing an increase of 12% compared to the same period of the prior year. Our revenue growth continues to be driven by PayPal merchant services, global classifieds, advertising and Skype as well as a weaker U.S. dollar relative to other currencies (primarily the Euro). Our revenue growth, particularly in our Marketplaces and Payments segments, was negatively impacted by the difficult global economic environment as buyers reduced their spending. Operating income for the three months ended September 30, 2008 was $524.1 million, or 25% of net revenues, compared to an operating loss of $937.7 million, or (50%) of net revenues, in the same period of the prior year. The year over year change in operating margin (which is operating income as a percentage of net revenues) was due to the goodwill impairment

charge in 2007 as well as margins improving in all three of our business segments offset by the continued faster growth of our lower margin businesses, primarily PayPal and Skype. Net income for the three months ended September 30, 2008 was $492.2 million, or $0.38 earnings per diluted share, compared to a net loss of $935.6 million, or $0.69 loss per diluted share for the same period of the prior year. The change in earnings per diluted share was due primarily to the goodwill impairment charge in 2007 and our lower weighted average share count as a result of shares of our common stock repurchased over the last year. During the third quarter of 2008, we repurchased 24.8 million shares of our common stock under our repurchase program for an aggregate purchase price of $622.8 million.

Our expectations

For the remainder of 2008, compared to the same period in 2007, we expect that our net revenues and earnings per diluted share will decrease primarily as a result of the slowing growth in our core Marketplace business, uncertain global consumer spending environment, the strengthening of the U.S. dollar, the impact of our previously announced acquisitions of Den Blå Avis and Bilbasen, and agreement to acquire Bill Me Later, and a charge associated with our global reduction in workforce. Our global reduction in workforce is intended to simplify and streamline our organization, improve our cost structure and strengthen the overall competitiveness of our existing businesses. The reduction is expected to result in pretax restructuring charges of approximately $70 to $80 million, with charges predominantly recorded in the fourth quarter of 2008. Additionally, we expect to continue to make significant investments in all three of our business segments that are designed to enhance our business fundamentals and enable us to provide a better overall experience for our customers, and we expect to benefit from these investments over time.

Seasonality

The following table sets forth, for the periods presented, our total net
revenues and the sequential quarterly growth of these net revenues:


                                                                 Three Months Ended
                                          March 31          June 30         September 30        December 31
                                                         (In thousands, except percentages)

2006
Net revenues                             $ 1,390,419      $ 1,410,784      $    1,448,637       $  1,719,901
Percent change from prior quarter                  5 %              1 %                 3 %               19 %
2007
Net revenues                             $ 1,768,074      $ 1,834,429      $    1,889,220       $  2,180,606
Percent change from prior quarter                  3 %              4 %                 3 %               15 %
2008
Net revenues                             $ 2,192,223      $ 2,195,661      $    2,117,531                N/A
Percent change from prior quarter                  1 %              0 %                (4 )%

We expect transaction activity patterns in our businesses to increasingly mirror general consumer buying patterns, both online and offline, as our business expands, with the strongest sequential growth usually occurring in the fourth quarter. Our revenue growth in the third quarter of 2008 was negatively impacted by the broader economic environment as well as a strengthening U.S. dollar. We saw a considerable slowdown across virtually all of our businesses beginning in mid-August. The uncertain global consumer spending environment and strengthening of the U.S. dollar, noted above, is expected to result in less than 3% sequential growth in the fourth quarter of 2008.

Results of Operations

Beginning with the first quarter of 2008, we reclassified revenue generated primarily from our Marketplaces non-GMV based businesses (which include Shopping.com, Rent.com and our classified websites) from "Net Transaction Revenues" to "Marketing Services and Other Revenues" in order to more closely align our net transaction revenue presentation with our key operating metrics. "Marketing Services and Other Revenues" also includes amounts previously reflected under "Advertising and Other Revenue." Prior period amounts have been reclassified to conform to the current presentation. Consolidated net revenues, as well as total segment revenues, are unchanged.

Our net transaction revenues from our Marketplaces segment are derived primarily from listing and final value fees paid by sellers. For our Payments segment, net transaction revenues are generated primarily by fees from payment processing services. Our Communications segment net transaction revenues are generated primarily from fees charged to users to connect Skype's VoIP product to traditional telecommunication networks. These fees are charged on a per minute basis or on a subscription basis, and we refer to these minutes as SkypeOut minutes.

Our Marketing Services and Other Revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, lead referral fees and other revenues. Other revenues are derived principally from contractual arrangements with third parties that provide services to eBay and PayPal users and interest earned from banks on certain PayPal customer account balances.

Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, payment recipient, Skype user's Internet protocol address, online property that generates advertising, or other service provider, as the case may be, is located. Because we generate the majority of our revenue internationally, fluctuations in foreign currency exchange rates will impact our results of operations.

The following table sets forth, for the periods presented, the breakdown of net revenues by type, segment and geography. In addition, we have provided a table of certain key operating metrics that we believe are significant factors affecting our net revenues.

                                                 Three Months Ended                                      Nine Months Ended
                                          September 30,       September 30,       Percent        September 30,       September 30,       Percent
                                              2007                2008            Change             2007                2008            Change
                                                                          (In thousands, except percent changes)

Net Revenues by Type:
Net transaction revenues
Marketplaces                             $     1,155,886     $     1,163,890             1 %    $     3,400,535     $     3,664,830             8 %
Payments                                         447,952             576,302            29 %          1,299,238           1,716,309            32 %
Communications                                    93,823             137,201            46 %            254,198             387,143            52 %

Total net transaction revenues                 1,697,661           1,877,393            11 %          4,953,971           5,768,282            16 %
Marketing services and other revenues
Marketplaces                                     164,746             212,963            29 %            460,851             654,371            42 %
Payments                                          22,444              20,909            (7 )%            64,666              64,276            (1 )%
Communications                                     4,369               6,266            43 %             12,235              18,486            51 %

Total marketing services and other
revenues                                         191,559             240,138            25 %            537,752             737,133            37 %

Total net revenues                       $     1,889,220     $     2,117,531            12 %    $     5,491,723     $     6,505,415            18 %

Net Revenues by Segment:
Marketplaces                             $     1,320,632     $     1,376,853             4 %    $     3,861,384     $     4,319,201            12 %
Payments                                         470,396             597,211            27 %          1,363,904           1,780,585            31 %
Communications                                    98,192             143,467            46 %            266,435             405,629            52 %

Total net revenues                       $     1,889,220     $     2,117,531            12 %    $     5,491,723     $     6,505,415            18 %

Net Revenues by Geography:
U.S.                                     $       929,605     $     1,001,637             8 %    $     2,710,334     $     3,028,098            12 %
International                                    959,615           1,115,894            16 %          2,781,389           3,477,317            25 %

Total net revenues                       $     1,889,220     $     2,117,531            12 %    $     5,491,723     $     6,505,415            18 %

                                                       Three Months Ended                                      Nine Months Ended
                                               September 30,        September 30,       Percent        September 30,       September 30,       Percent
                                                    2007                2008            Change             2007                2008            Change
                                                                                (In millions, except percent changes)

Supplemental Operating Data:
Marketplaces Segment:(1)
Active users(2)                                           83.0                85.7             3 %               83.0                85.7             3 %
Number of new listings(3)                                555.6               700.2            26 %            1,703.1             2,014.6            18 %
Gross merchandise volume(4)                   $         14,395     $        14,284            (1 )%   $        43,140     $        46,004             7 %
Payments Segment:
Active registered accounts(5)                             54.8                65.3            19 %               54.8                65.3            19 %
Net total payment volume(6)                   $         11,569     $        14,812            28 %    $        33,426     $        44,159            32 %
Communications Segment:
Registered users(7)                                      245.7               370.2            51 %              245.7               370.2            51 %

(1) Rent.com, Shopping.com and our classifieds websites are not included in these metrics.

(2) All users, excluding users of Half.com, StubHub and Internet Auction Co., our Korean subsidiary, who bid on, bought or listed an item within the previous 12-month period. Users may register more than once and as a result, may have more than one account.

(3) Listings on eBay Marketplaces trading platforms during the period, regardless of whether the listing subsequently closed successfully.

(4) Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the period, regardless of whether the buyer and seller actually consummated the transaction.

(5) All registered accounts that successfully sent or received at least one payment or payment reversal through the PayPal system within the previous 12-month period.

(6) Total dollar volume of payments, net of payment reversals, successfully completed through the PayPal system during the period, excluding the payment gateway business.

(7) Cumulative number of unique user accounts, which includes users who may have registered via non-Skype based websites, as of the end of the period. Users may register more than once and, as a result, may have more than one account.

Marketplaces Net Transaction Revenues

Total net transaction revenues from Marketplaces increased 1% and 8% during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. The slight increase in net transaction revenues for the third quarter of 2008 was primarily due to an increase in take rate resulting from a change in category mix offset by a 1% decline in total GMV due to slowing growth in our core Marketplaces business and as a result of slowing consumer spending in an uncertain economic environment more than offset the growth of listings. The increase in net transaction revenues for the first nine months of 2008 was due primarily to a 7% year-over-year growth in GMV with clothing, consumer electronics, home and garden, tickets, parts and accessories and sports having the most significant dollar impact, partially offset by a decrease in vehicles GMV. Marketplaces net transaction revenue growth rate year-over-year was negatively impacted by an increase in buyer and seller incentive programs, some of which are recorded as contra-revenue.

Marketplaces net transaction revenues earned internationally were $601.1 million and $2.0 billion during the third quarter and first nine months of 2008, respectively, and represented 52% and 54% of total Marketplaces net transaction revenues during those periods, respectively. Marketplaces net transaction revenues earned internationally were $599.3 million and $1.8 billion during the third quarter and first nine months of 2007, respectively, and represented 52% of total Marketplaces net transaction revenues during both periods. Based on changes in foreign currency rates year over year, Marketplaces net revenues were positively impacted by foreign currency translation of approximately $51.7 million and $244.6 million during the third quarter and first nine months of 2008,

respectively, as compared to net revenues that would have been recorded had foreign currency rates remained constant. Changes in foreign currency rates will impact our operating results and, to the extent that the U.S. dollar strengthens, our foreign currency denominated net revenues will be negatively impacted.

We expect our Marketplaces net transaction revenues for the remainder of 2008, compared to the same period in 2007, to decrease as a result of the slowing growth in our core Marketplaces business, the uncertain global consumer spending environment, strengthening dollar and our continued use of buyer and seller incentives (some of which are recorded as contra revenue).

Payments Net Transaction Revenues

Payments net transaction revenues increased 29% and 32% during the third quarter and first nine months of 2008 respectively, compared to the same periods of the prior year. The increase in net transaction revenues was consistent with our 28% and 32% growth in TPV during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. TPV increased due to growth in PayPal's merchant services business and continued penetration of eBay Marketplaces transactions. However, TPV growth was negatively impacted by the difficult global economic environment.

TPV for PayPal's merchant services business was approximately $7.5 billion and $21.4 billion in the third quarter and first nine months of 2008, respectively, which represented an increase of 49% and 56% compared to the same periods of the prior year, respectively. PayPal's merchant services business accounted for approximately 51% and 49% of PayPal's TPV in the third quarter and first nine months of 2008, respectively, compared to 44% and 41% in the same periods of the prior year, respectively. The increase in PayPal's merchant services business was primarily the result of more online merchants, both domestically and internationally, adding PayPal as a payment option, as well as increased usage of PayPal by customers of our existing merchant services clients. Our Payments net transaction revenues as a percentage of TPV was 3.9% for all periods presented.

Payments net transaction revenues earned internationally were $256.6 million and $753.8 million during the third quarter and first nine months of 2008, respectively, and represented 45% and 44% of total Payments net transaction revenues in the third quarter and first nine months of 2008, respectively. Payments net transaction revenues earned internationally were $191.1 million and $543.5 million during the third quarter and first nine months of 2007, respectively, and represented 43% and 42% of total Payments net transaction revenues during those periods, respectively. International growth in our Payments segment continues to benefit from the expansion of our international operations and the number of currencies supported by PayPal over the last 12 months. Based on changes in foreign currency rates year over year, Payments net revenues were positively impacted by foreign currency translation of approximately $0.9 million and $4.6 million during the third quarter and first nine months of 2008, respectively, as compared to net revenues that would have been recorded had foreign currency rates remained constant.

We expect our Payments net transaction revenues for the remainder of 2008, compared to the same period in 2007, to continue to grow based upon growth in our merchant services business resulting from an increased number of merchants integrating PayPal on their websites, continued penetration on Marketplaces transactions and the expected completion of our acquisition of Bill Me Later in the fourth quarter of 2008. Our growth rate will continue to be impacted by the uncertain global consumer spending environment.

Communications Net Transaction Revenues

Communications net transaction revenues increased 46% and 52% during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. The increase in net transaction revenues was due primarily to an increase in SkypeOut minutes to 2.2 billion and 5.8 billion during the third quarter and first nine months of 2008, respectively, compared to 1.4 billion and 4.4 billion in the same periods of the prior year, or year-over-year growth of 54% and 30%, respectively. The cumulative number of Skype registered users increased to 370.2 million at September 30, 2008 from 245.7 million at September 30, 2007. The growth in Skype registered users was due primarily to its marketing activities and strategic partnership initiatives, such as Skype's collaboration with MySpace.

Communications net transaction revenues earned internationally were $113.0 million and $321.6 million in the third quarter and first nine months of 2008, respectively, and represented 82% and 83% of total Communications net transaction revenues during those periods, respectively. Communications net transaction revenues earned internationally were $78.3 million and $214.8 million in the third quarter and first nine months of 2007, respectively, and represented 83% and 85% of total Communications net transaction revenues during those periods, respectively. Based on changes in foreign currency rates year over year, Communications net revenues were positively impacted by foreign currency translation of approximately $12.3 million and $46.6 million during the third quarter and first nine months of 2008, respectively, as compared to net revenues that would have been recorded had foreign currency rates remained constant.

We expect our Communications net transaction revenues for the remainder of 2008, compared to the same period in 2007, to continue to grow as we focus on increasing user activity, growing our registered user base and expanding our calling plans and products.

Marketing Services and Other Revenues

Marketing services and other revenues was $240.1 million and $737.1 million in the third quarter and first nine months of 2008, respectively, representing an increase of 25% and 37%, respectively, compared to the same periods in the prior year. Marketing services and other revenues represented 11% of total net revenues during both the third quarter and first nine months of 2008, respectively, compared to 10% of total net revenues during both the third quarter and first nine months of 2007. Marketing services and other revenues increased during the third quarter and first nine months of 2008 compared to the same periods of the prior year due primarily to the advertising initiatives in our Marketplaces segment, primarily internationally, as well as growth in our classifieds business partially offset by a decline in Shopping.com business and interest earned from banks on certain U.S. PayPal customer account balances.

We expect marketing services and other revenues for the remainder of 2008, compared to the same period in 2007, to continue to grow as advertising revenue generated from all of Marketplaces platforms increases along with our classifieds business.

Cost of Net Revenues


                                          Three Months Ended                                     Nine Months Ended
                                   September 30,       September 30,       Percent       September 30,       September 30,       Percent
                                       2007                2008            Change            2007                2008            Change
                                                                    (In thousands, except percentages)

Cost of net revenues              $       446,521     $       560,963            26 %   $     1,256,999     $     1,648,478            31 %
As a percentage of net revenues              23.6 %              26.5 %                            22.9 %              25.3 %

Cost of net revenues consists primarily of costs associated with payment processing, customer support and site operations, and Skype telecommunications costs. Significant cost components include bank transaction fees, credit card interchange, assessments, other payment processing costs, employee compensation, contractor costs, facilities costs for our customer support and site operations, depreciation of equipment, amortization of capitalized product development costs and amortization of acquired developed technology.

The increase in cost of net revenues in the third quarter and first nine months of 2008 of $114.4 million and $391.5 million, respectively, compared to the same periods in the prior year was due primarily to an increase in customer support and site operations costs, payment processing costs and Skype telecommunications costs. Aggregate customer support and site operations costs increased $57.4 million and $162.8 million during the third quarter and first nine months of 2008, respectively, compared to the same periods of the prior year. The increase was due primarily to our increased focus on customer care initiatives and the development and expansion of our customer support and site operations . . .