FORWARD-LOOKING STATEMENTS

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," "would," "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.

Overview

We operate three primary business segments: Marketplaces, Payments and Communications. Our Marketplaces segment provides the infrastructure to enable global online commerce on a variety of platforms, including the traditional eBay.com platform, and our other online platforms, such as our online classifieds businesses, our secondary tickets marketplace (StubHub), our online shopping comparison website (Shopping.com), our apartment listing service platform (Rent.com), as well as our fixed price media marketplace (Half.com). Our Payments segment is comprised of our online payment solutions - PayPal (which enables individuals and businesses to securely, easily and quickly send and receive payments online in approximately 190 markets worldwide) and Bill Me Later (which we acquired in November 2008 and which enables online U.S. merchants to offer, and U.S. consumers to obtain, transactional credit at the point of sale). Our Communications segment, which consists of Skype, enables Internet communications between Skype users and provides low-cost connectivity to traditional fixed-line and mobile telephones. On September 1, 2009 we entered into a definitive agreement to sell the share capital of Skype Luxembourg Holdings S.a.r.l., Skype Inc., Camino Networks, Inc. and Sonorit Holdings, A.S. (collectively with their respective subsidiaries, the "Skype Companies") to an entity organized and owned by an investment group led by Silver Lake that includes the Canada Pension Plan Investment Board, Index Ventures and Andreessen Horowitz (the "Buyer"). Upon completion of the sale, we will hold an approximately 35 percent equity investment in the Buyer. For further details see "Note 4 - Skype Assets Held for Sale" to the condensed consolidated financial statements included in this report.

For the three months ended September 30, 2009, net revenues increased 6% to $2.2 billion compared to the same period in the prior year due primarily to the continued growth in PayPal, Skype and our classifieds business as well as growth in eBay's fixed price format. Our operating margin decreased five percentage points to 19.8% compared to the same period of the prior year, due primarily to dilution from our recent acquisitions, including Bill Me Later, foreign currency movements against the U.S. dollar and a shift to faster growing, lower margin businesses. Our Marketplaces, Payments and Communications segment margins decreased one percentage point, four percentage points, and two percentage points, respectively, on a year over year basis. Our diluted earnings per share decreased $0.11, to $0.27, compared to the same period of the prior year, driven primarily by a lower operating margin, lower yield on cash balances and a higher effective tax rate. For the three months ended September 30, 2009, we generated cash flow from operations of approximately $738.2 million.

Some key operating metrics that members of our senior management regularly review to evaluate our financial results include gross merchandise volume (GMV), number of sold items, net total payment volume (TPV), net number of payments, SkypeOut Minutes, free cash flow, and revenue, excluding acquisitions and foreign currency impact.

We expect that net revenues in the fourth quarter of 2009 will be moderately stronger than our performance in the third quarter of 2009. Net revenues in the fourth quarter of 2009 are expected to benefit from GMV and TPV momentum and the holiday shopping season. Our net revenue expectations include Skype revenues through an assumed mid-quarter close of the pending sale transaction. We expect a significant increase in net income in the fourth quarter of 2009 due primarily to the estimated $1.0 billion gain on the pending sale of Skype as well as continued productivity gains realized from our operational excellence initiatives, partially offset by investments in improving our user experience.

Results of Operations

Summary of Net Revenues

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 paid by merchants for payment processing services. Our Communications segment net transaction revenues are generated primarily from fees charged to users to connect Skype's Internet communications products to traditional fixed-line and mobile telephones. These fees are charged on a per-minute basis or on a subscription basis, and we refer to these minutes as SkypeOut minutes.

Marketing services and other revenues are generated from all three of our business segments. Our marketing services are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees and lead referral fees. Our other revenues are derived principally from interest earned from banks on certain PayPal customer account balances, interest and fees earned on the Bill Me Later loan portfolio and from contractual arrangements with third parties that provide services to our users. Revenues are attributed to U.S. and international geographies primarily based upon the country in which the seller, payment recipient, customer, Skype user's Internet protocol address, online property that generates advertising, or other service provider, as the case may be, is located.

We generate the majority of our revenue internationally and, accordingly, fluctuations in foreign currency exchange rates impact our results of operations. We have a foreign exchange risk management program that is designed to reduce our exposure to fluctuations in foreign currencies; however, this program will not fully offset the effect of those fluctuations on our revenues and earnings. For the three months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted net revenues by approximately $96.7 million compared to the same period of the prior year. On a business segment basis for the three months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted Marketplaces, Payments and Communications net revenues by approximately $66.2 million, $20.8 million and $9.7 million, respectively, compared to the same period of the prior year. For the three months ended September 30, 2009, Payments net revenues were negatively impacted by hedging activities. For the nine months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted net revenues by approximately $463.9 million compared to the same period of the prior year. On a business segment basis for the nine months ended September 30, 2009, foreign currency movements against the U.S. dollar negatively impacted Marketplaces, Payments and Communications net revenues by approximately $331.9 million, $76.2 million and $55.8 million, respectively, compared to the same period of the prior year. For the nine months ended September 30, 2009, Payments net revenues were positively impacted by hedging activities.

                                                  Three Months Ended                   Percent                       Nine Months Ended                   Percent
                                      September 30, 2008       September 30, 2009      Change           September 30, 2008       September 30, 2009      Change
                                                                           (In thousands, except percentages)
Net Revenues by Type:
Net transaction revenues
Marketplaces                         $          1,163,890     $          1,151,361          (1 )%      $          3,664,830     $          3,242,105         (12 )%
Payments                                          576,302                  649,159          13 %                  1,716,309                1,884,154          10 %
Communications                                    137,201                  172,957          26 %                    387,143                  471,856          22 %

Total net transaction revenues                  1,877,393                1,973,477           5 %                  5,768,282                5,598,115          (3 )%
Marketing services and other
revenues
Marketplaces                                      212,963                  213,222           0 %                    654,371                  605,626          (7 )%
Payments                                           20,909                   38,904          86 %                     64,276                  116,168          81 %
Communications                                      6,266                   12,249          95 %                     18,486                   36,521          98 %

Total marketing services and
other revenues                                    240,138                  264,375          10 %                    737,133                  758,315           3 %

Total net revenues                   $          2,117,531     $          2,237,852           6 %       $          6,505,415     $          6,356,430          (2 )%

Net Revenues by Segment:
Marketplaces                         $          1,376,853     $          1,364,583          (1 )%      $          4,319,201     $          3,847,731         (11 )%
Payments                                          597,211                  688,063          15 %                  1,780,585                2,000,322          12 %
Communications                                    143,467                  185,206          29 %                    405,629                  508,377          25 %

Total net revenues                   $          2,117,531     $          2,237,852           6 %       $          6,505,415     $          6,356,430          (2 )%

Net Revenues by Geography:
U.S.                                 $          1,001,637     $          1,013,477           1 %       $          3,028,098     $          2,941,758          (3 )%
International                                   1,115,894                1,224,375          10 %                  3,477,317                3,414,672          (2 )%

Total net revenues                   $          2,117,531     $          2,237,852           6 %       $          6,505,415     $          6,356,430          (2 )%

                                                   Three Months Ended                   Percent                       Nine Months Ended                   Percent
                                      September 30, 2008        September 30, 2009      Change           September 30, 2008       September 30, 2009      Change
                                                                            (In millions, except percentages)
Supplemental Operating Data:
Marketplaces Segment:
GMV excluding vehicles (1)           $              11,361     $             12,192           7 %       $             36,530     $             34,116          (7 )%
Vehicles GMV (2)                                     2,922                    2,386         (18 )%                     9,473                    6,760         (29 )%

Total GMV (3)                        $              14,283     $             14,578           2 %       $             46,003     $             40,876         (11 )%
Payments Segment:
Net total payment volume (4)         $              14,812     $             17,686          19 %       $             44,159     $             50,250          14 %
Communications Segment:
Registered users (5)                                 370.2                    520.8          41 %                      370.2                    520.8          41 %
SkypeOut
Minutes (6)                                        2,160.0                  3,102.7          44 %                    5,786.4                  8,942.7          55 %

(1) Total value of all successfully closed items between users on eBay Marketplaces trading platforms during the quarter, regardless of whether the buyer and seller actually consummated the transaction, excluding vehicles gross merchandise volume.

(2) Total value of all successfully closed vehicle transactions between users on eBay Marketplaces trading platforms during the quarter, regardless of whether the buyer and seller actually consummated the transaction.

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

(4) Total dollar volume of payments, net of payment reversals, successfully completed through our payments network or on Bill Me Later accounts during the period, excluding the payment gateway business.

(5) Cumulative number of unique user accounts, which includes, among other things, users who may have registered via non-Skype based websites and users that have more than one account.

(6) Cumulative number of minutes that Skype users were connected with Skype's Internet communications products to traditional fixed-line and mobile telephones.

Seasonality

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



                                                                    Quarter Ended
                                       March 31             June 30           September 30          December 31
                                                          (In thousands, except percentages)
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         $  2,035,846
Percent change from prior quarter               1 %                 0 %                  (4 )%                (4 )%
2009
Net revenues                          $ 2,020,586         $ 2,097,992        $    2,237,852                  N/A
Percent change from prior quarter              (1 )%                4 %                   7 %

We expect transaction activity patterns on our websites to increasingly mirror general consumer buying patterns.

Marketplaces Net Transaction Revenues

Marketplaces net transaction revenues decreased $12.5 million, or 1%, during the third quarter of 2009 compared to the same period of the prior year due primarily to an increase in seller discounts and buyer loyalty programs (recorded as contra-revenue), partially offset by a 7% increase in our GMV (excluding vehicles) over the same period due to the acquisition of Gmarket (acquired June 2009). GMV generated by our largest category, vehicles, declined 18% during the third quarter of 2009, which was reflective of the decline in the automotive market generally as well as a shift in consumer preference toward online automotive classified listings. Growth rates for both revenue and GMV during the third quarter of 2009 were negatively impacted by foreign currency movements against the U.S. dollar.

Marketplaces net transaction revenues decreased $422.7 million or 12%, during the first nine months of 2009 compared to the same period of the prior year due to a 7% decrease in our GMV (excluding vehicles) over the same period, as well as an increase in seller discounts and buyer loyalty programs (recorded as contra-revenue). GMV generated by our largest category, vehicles, declined 28% during the first nine months of 2009, which was reflective of the decline in the automotive market generally as well as a shift in consumer preference toward online automotive classified listings. The decrease in both revenue and GMV was attributable to a stronger dollar and difficult macroeconomic conditions.

Marketplaces net transaction revenues earned internationally totaled $623.5 million and $1.7 billion during the third quarter and the first nine months of 2009, respectively, representing 54% and 53% of total Marketplaces net transaction revenues during those respective periods. Marketplaces net transaction revenues earned internationally totaled $601.1 million and $2.0 billion during the third quarter and the first nine months of 2008, respectively, and represented 52% and 54% of total Marketplaces net transaction revenues during those respective periods.

Payments Net Transaction Revenues

Payments net transaction revenues increased $72.9 million and $167.8 million, or 13% and 10%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increases are due primarily to growth in net TPV of 19% and 14% during the third quarter and first nine months of 2009, respectively, compared to the same period of the prior year, partially offset by lower take rates due primarily to a shift in business and geographic mix, including a faster growing Merchant Services component. The increase in net TPV during the third quarter and first nine months of 2009 was due to growth in consumer and merchant adoption of PayPal and the inclusion of Bill Me Later (acquired November 2008). Our Merchant Services net TPV experienced 31% and 28% growth during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year and represented 56% and 55% of PayPal's net TPV during those respective periods. The increase in our Merchant Services business is due primarily to an increased number of online merchants offering PayPal as a payment option.

Payments net transaction revenues earned internationally totaled $300.6 million and $853.8 million during the third quarter and first nine months of 2009, respectively, representing 46% and 45% of total Payments net transaction revenues during those respective periods. Payments net transaction revenues earned internationally totaled $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 during those respective periods.

Communications net transaction revenues increased $35.8 million and $84.7 million, or 26% and 22%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in net transaction revenues was due primarily to a 44% and 55% increase in SkypeOut minutes during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in SkypeOut minutes during the third quarter and first nine months of 2009 was due primarily to the growth in the cumulative number of Skype registered users to 520.8 million at September 30, 2009 from 370.2 million at September 30, 2008. We believe that the growth in Skype registered users was due primarily to its marketing activities, ongoing viral adoption (whereby users encourage others to become users), strategic partnership initiatives and the expansion of its product offerings.

Net transaction revenues from Communications earned internationally totaled $142.9 million and $388.2 million during the third quarter and first nine months of 2009, respectively, representing 83% and 82% of total Communications net transaction revenues in those respective periods. Communications net transaction revenues earned internationally totaled $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 in those respective periods. Communications net transaction revenues are primarily generated in Europe.

Marketing Services and Other Revenues

Marketing services and other revenues increased $24.2 million, or 10% during the third quarter of 2009, compared to the same period of the prior year, and represented 12% of total net revenues during the third quarter of 2009 compared to 11% of total net revenues during the same period of the prior year. The increase in marketing services and other revenues during the third quarter of 2009 was due primarily to income generated from our Bill Me Later loan portfolio (acquired November 2008) and an increase in our Classifieds business, primarily attributable to Den Blå Avis and BilBasen (acquired October 2008). These increases were partially offset by a decrease in Shopping.com revenue, a decline in interest income earned on certain PayPal customer account balances resulting primarily from decreased interest rates, and a general market decline in advertising.

Marketing services and other revenues increased $21.2 million, or 3%, during the first nine months of 2009 compared to the same period of the prior year, and represented 12% of total net revenues during the first nine months of 2009, compared to 11% of total net revenues during the same period of the prior year. The increase in marketing services and other revenues during the first nine months of 2009 was due primarily to income generated from our Bill Me Later loan portfolio (acquired November 2008) and an increase in our Classifieds business, primarily attributable to Den Blå Avis and BilBasen (acquired October 2008). These increases were partially offset by a decrease in Shopping.com revenue related to the impact of rule changes made in the third quarter of 2008 by third-party search engines that adversely affected click-though traffic to retailers from our Shopping.com website and reduced associated fees, as well as a decline in interest income earned on certain PayPal customer account balances resulting primarily from decreased interest rates.

Summary of Cost of Net Revenues

The following table summarizes changes in cost of net revenues:



                                                     Three Months Ended                                        Nine Months Ended
                                                                        Change from                                                Change from
                                           September 30,               2008 to 2009                 September 30,                 2008 to 2009
                                        2008           2009          in Dollars    in %         2008             2009           in Dollars    in %
                                                                           (In thousands, except percentages)
       Cost of net revenues:
Marketplaces                          $ 238,810      $ 255,083      $     16,273      7 %    $   681,662      $   692,515      $     10,853      2 %
As a percentage of total
Marketplaces net revenues                  17.3 %         18.7 %                                    15.8 %           18.0 %
Payments                                253,785        302,971            49,186     19 %        759,045          873,113           114,068     15 %
As a percentage of total Payments
net revenues                               42.5 %         44.0 %                                    42.6 %           43.6 %
Communications                           68,368         85,854            17,486     26 %        207,771          243,439            35,668     17 %
As a percentage of total
Communications net revenues                47.7 %         46.4 %                                    51.2 %           47.9 %

Total cost of net revenues            $ 560,963      $ 643,908      $     82,945     15 %    $ 1,648,478      $ 1,809,067      $    160,589     10 %

As a percentage of net revenues            26.5 %         28.8 %                                    25.3 %           28.5 %

Marketplaces cost of net revenues increased $16.3 million and $10.9 million, or 7% and 2%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase during the third quarter of 2009 was due primarily to costs attributable to Gmarket (acquired June 2009), partially offset by cost savings in connection with our restructuring activities. Marketplaces cost of net revenues during the first nine months of 2009 did not materially change from the same period in the prior year. Marketplaces cost of net revenues increased as a percentage of Marketplaces net revenues during the first nine months of 2009 due primarily to the impact of foreign currency movements on revenues, pricing discounts and the growth of lower margin Marketplaces businesses.

Payments cost of net revenues increased $49.2 million and $114.1 million, or 19% and 15%, during the third quarter and first nine months of 2009, respectively, compared to the same periods of the prior year. The increase in cost of net revenues was primarily due to costs attributable to Bill Me Later (acquired November 2008) as well as the impact from our growth in net TPV. Cost of net revenues as a percentage of Payments net revenues increased during the third quarter and first nine months of 2009 compared to the same periods of the prior year due primarily to the impact of foreign currency movements on revenues and increased investment in our site operations, partially offset by a more favorable geographic and payment processor mix.

Communications cost of net revenues increased $17.5 million and $35.7 million, or 26% and 17%, during the third quarter and first nine months of 2009, . . .