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, future results of operations or financial condition, new or planned 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 in our condensed consolidated financial statements, related notes, and the other 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

eBay is a global commerce platform and payments leader. We enable commerce through eBay, the world's largest online marketplace, which allows users to buy and sell in nearly every country on earth; through PayPal, which enables individuals and businesses to securely, easily and quickly send and receive online payments; and through GSI, which facilitates ecommerce, multichannel retailing and interactive marketing for global enterprises. X.commerce brings together the technology assets and developer communities of eBay, PayPal and Magento, an ecommerce storefront platform, to support our mission of enabling commerce. We also reach millions of people through specialized marketplaces such as StubHub, the world's largest ticket marketplace, and eBay classifieds sites, which together have a presence in more than 1,000 cities around the world.

We have three reportable business segments: Marketplaces, Payments and GSI. Our Marketplaces segment includes our eBay.com platform and its localized counterparts and our other online trading platforms, such as our online classifieds sites and StubHub. Our Payments segment is comprised of PayPal, Bill Me Later and Zong. Our GSI segment consists of GSI Commerce, Inc. ("GSI"), and was added upon the completion of our acquisition of GSI on June 17, 2011. The results of our GSI segment have been included in our consolidated results of operations from the acquisition date.

Net revenues for the three months ended June 30, 2012 increased 23% to $3.4 billion, compared to the same period of the prior year, driven primarily by increases in net revenues from PayPal of 26%, Marketplaces of 9% and net revenues of $221 million from GSI. For the three months ended June 30, 2012, our operating margin increased to 20% from 19% in the same period of the prior year, driven primarily by the impact of GSI acquisition-related costs incurred in the second quarter 2011. For the three months ended June 30, 2012, our diluted earnings per share increased to $0.53, a $0.31 increase compared to the same period of the prior year, driven primarily by a loss from the divestiture of certain GSI businesses and GSI acquisition-related costs incurred in 2011, a gain from the divestiture of a business and strong growth in net revenues, partially offset by increased investment in the shopping experience and the impact of acquisitions. For the three months ended June 30, 2012, we generated cash flow from operations of approximately $768 million, compared to $783 million for the same period of the prior year.

Our Marketplaces segment total net revenues increased $151 million, or 9%, for the three months ended June 30, 2012 compared to the same period of the prior year. The increase in total net revenues was driven primarily by a year-over-year increase in GMV (as defined below) excluding vehicles of 10%, which was due primarily to strong growth across all regions partially offset by the negative impact of foreign currency movements relative to the U.S. dollar. Marketplaces segment operating margin increased 0.8 percentage points for the three months ended June 30, 2012 compared to the same period of the prior year due to the favorable resolution of an indirect tax dispute, partially offset by increased investments in technology and marketing.

Our Payments segment total net revenues increased $284 million, or 26%, for the three months ended June 30, 2012 compared to the same period of the prior year. The increase in total net revenues was driven primarily by a year-over-year increase in net TPV (as defined below) of 20% and strong growth in Bill Me Later. Our Payments segment operating margin increased 3.9 percentage points for the three months ended June 30, 2012 compared to the same period of the prior year, due primarily to higher take rate, lower processing costs and operating leverage.
Our GSI segment was formed as a result of our acquisition of GSI in June 2011. For the three months ended June 30, 2012, GSI contributed $221 million in revenue and had a segment operating margin of 4.5%.
Some key operating metrics that members of our senior management regularly review to evaluate our financial results include net promoter score (NPS), market share, GMV, GMV excluding vehicles, number of sold items, net TPV, Merchant Services net TPV (as defined below), on eBay net TPV (as defined below), net number of payments, global ecommerce (GeC) merchandise sales, penetration rates, active registered accounts, same store sales, funding mix (the mix of payments vehicles such as credit cards, debit cards, bank accounts and PayPal accounts, used by customers to make payments through our Payments networks), free cash flow (which we define as net cash provided by operating activities less purchases of property and equipment, net) and revenue excluding acquisitions and foreign currency impact.

We define GMV as the total value of all successfully closed items between users on our eBay Marketplaces trading platforms (excluding eBay's classified websites and Shopping.com) during the applicable period, regardless of whether the buyer and seller actually consummated the transaction. We define net TPV as the total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the applicable period, excluding PayPal's payment gateway business. We define Merchant Services net TPV as the total dollar volume of payments, net of reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the applicable period, excluding PayPal's payment gateway business and payments for transactions on eBay Marketplaces and GSI platforms. We define on eBay net TPV as the total dollar volume of payments, net of reversals, successfully completed through our payments networks for transactions on eBay Marketplaces or GSI platforms.

Results of Operations

Summary of Net Revenues

We generate two types of net revenues: net transaction revenues and marketing services and other revenues. Our net transaction revenues are derived principally from listing fees, final value fees (which are fees payable on transactions completed on our Marketplaces trading platforms), fees paid by merchants for payment processing services and ecommerce service fees. Our marketing services revenues are derived principally from the sale of advertisements, revenue sharing arrangements, classifieds fees, marketing service fees and lead referral fees. Other revenues are derived principally from interest and fees earned on the Bill Me Later portfolio of receivables from loans, interest earned on certain PayPal customer account balances and fees from contractual arrangements with third parties that provide services to our users.

The following table sets forth the breakdown of net revenues by type and geography for the periods presented.

                                  Three Months Ended June 30,       Percent        Six Months Ended June 30,       Percent
                                    2012              2011(1)        Change         2012             2011(1)        Change
                                                        (In millions, except percentage changes)
Net Revenues by Type:
Net transaction revenues
Marketplaces                  $       1,491       $       1,350         10 %   $      2,916       $      2,634         11 %
Payments                              1,234                 991         25 %          2,450              1,934         27 %
GSI                                     164                  16        N/A              346                 16        N/A
Total net transaction
revenues                              2,889               2,357         23 %          5,712              4,584         25 %
Marketing services and other
revenues
Marketplaces                            323                 313          3 %            626                583          7 %
Payments                                123                  82         50 %            216                131         65 %
GSI                                      57                   8        N/A              112                  8        N/A
Corporate and other                      10                   -        N/A               16                  -        N/A
Total marketing services and
other revenues                          513                 403         27 %            970                722         34 %
Elimination of inter-segment
net revenue (2)                          (4 )                 -        N/A               (7 )                -        N/A
Total net revenues            $       3,398       $       2,760         23 %   $      6,675       $      5,306         26 %
Net Revenues by Geography:
U.S.                          $       1,611       $       1,249         29 %   $      3,192       $      2,390         34 %
International                         1,787               1,511         18 %          3,483              2,916         19 %
Total net revenues            $       3,398       $       2,760         23 %   $      6,675       $      5,306         26 %

(1) Includes data for GSI since June 17, 2011 the date the acquisition of GSI was completed. Accordingly, the percent changes in GSI's revenues between the 2011 and 2012 periods are not meaningful.

(2) Represents revenue generated between our reportable segments.

Revenues are attributed to U.S. and international geographies based primarily upon the country in which the seller, payment recipient, customer, website that displays advertising, or other service provider, as the case may be, is located.

Because we generate substantial net revenues internationally, we are subject to the risks of doing business in foreign countries as discussed under "Part II - Item 1A - Risk Factors." In that regard, 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, the effectiveness of this program in mitigating the impact of foreign currency fluctuations on our results of operations varies from period to period, and in any given period, our operating results are usually affected, sometimes significantly, by changes in currency exchange rates. Fluctuations in exchange rates also directly affect our cross-border revenue. We calculate the year-over-year impact of foreign currency movements on our business using prior period foreign currency rates applied to current year transactional currency amounts.

For the three months ended June 30, 2012, foreign currency movements relative to the U.S. dollar negatively impacted net revenues by approximately $99 million (net of a $14 million positive impact from hedging activities included in PayPal's net revenue) compared to the same period of the prior year. On a business segment basis, for the three months ended June 30, 2012, foreign currency movements relative to the U.S. dollar negatively impacted Marketplaces, Payments and GSI net revenues by approximately $80 million, $18 million and $1 million, respectively, in each case compared to the same period of the prior year (net of the impact of hedging activities noted above).

For the six months ended June 30, 2012, foreign currency movements relative to the U.S. dollar negatively impacted net revenues by approximately $122 million (net of a $26 million positive impact from hedging activities included in PayPal's net revenue) compared to the same period of the prior year. On a business segment basis, for the six months ended June 30, 2012, foreign currency movements relative to the U.S. dollar negatively impacted Marketplaces, Payments and GSI net revenues by approximately $104 million, $17 million and $1 million, respectively, in each case compared to the same period of the prior year (net of the impact of hedging activities noted above).

The following table sets forth, for the periods presented, certain key operating metrics that we believe are significant factors affecting our net revenues.

                                 Three Months Ended June 30,    Percent     Six Months Ended June 30,     Percent
                                      2012            2011       Change         2012            2011       Change
                                                     (In millions, except percentage changes)
Supplemental Operating Data:
Marketplaces Segment: (1)
GMV excluding vehicles (2)      $       16,171     $ 14,680        10  %   $      32,377     $ 29,176        11  %
GMV vehicles only (3)           $        2,021     $  2,238       (10 )%   $       3,892     $  4,288        (9 )%
Total GMV (4)                   $       18,192     $ 16,918         8  %   $      36,269     $ 33,464         8  %
Payments Segment:
Merchant services net TPV (5)   $       23,114     $ 18,860        23  %   $      45,547     $ 36,427        25  %
On eBay net TPV (6)             $       11,337     $  9,882        15  %   $      22,761     $ 19,677        16  %
Total net TPV (7)               $       34,451     $ 28,742        20  %   $      68,308     $ 56,104        22  %
GSI Segment:
GeC Merchandise Sales (8)       $          674     $     76       787  %   $       1,389     $     76     1,728  %

(1) eBay's classifieds websites and Shopping.com are not included in these metrics.

(2) 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, excluding vehicles GMV.

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

(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) Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the period, excluding PayPal's payment gateway business and payments for transactions on eBay Marketplaces and GSI platforms.

(6) Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks during the period for transactions on eBay Marketplaces and GSI platforms during the period.

(7) Total dollar volume of payments, net of payment reversals, successfully completed through our Payments networks, Bill Me Later accounts and Zong during the period, excluding PayPal's payment gateway business.

(8) Represents the retail value of all sales transactions, inclusive of freight charges and net of allowance for returns and discounts, which flow through the GSI ecommerce services platform, whether we record the full amount of such transaction as a product sale or a percentage of such transaction as a service fee.

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 millions, except percentage changes)
2010
Net revenues                      $ 2,196      $ 2,215     $      2,249     $     2,495
Percent change from prior quarter      (7 )%         1 %              2 %            11 %
2011(1)
Net revenues                      $ 2,546      $ 2,760     $      2,966     $     3,380
Percent change from prior quarter       2  %         8 %              7 %            14 %
2012
Net revenues                      $ 3,277        3,398                -               -
Percent change from prior quarter      (3 )%         4 %              -               -

(1) Net revenues attributable to the GSI segment are reflected from June 17, 2011 (the date the acquisition of GSI was completed).

We expect transaction activity patterns on our websites to mirror general consumer buying patterns. Our GSI segment is highly seasonal. The fourth calendar quarter typically accounts for a disproportionate amount of GSI's total annual revenue because consumers increase their purchases and businesses increase their advertising to consumers during the fourth quarter holiday season.

Marketplaces Net Transaction Revenues

Marketplaces net transaction revenues increased $141 million, or 10%, while GMV excluding vehicles increased 10% during the second quarter of 2012 compared to the same period in the prior year. The increase in net transaction revenue and GMV excluding vehicles was due primarily to strong growth across all regions partially offset by the negative impact of foreign currency movements relative to the U.S. dollar. Additionally, net transaction revenue increased due to the favorable resolution of an indirect tax dispute.

Marketplaces net transaction revenues increased $282 million, or 11%, while GMV excluding vehicles increased 11% during the first six months of 2012 compared to the same period in the prior year. The increase in net transaction revenue and GMV excluding vehicles was due to the same factors noted above.

Marketplaces net transaction revenues earned internationally (i.e., outside the U.S.) totaled $848 million and $1.6 billion during the second quarter and first six months of 2012, respectively, representing 57% of total Marketplaces net transaction revenues during both periods. Marketplaces net transaction revenues earned internationally (i.e., outside the U.S.) totaled $759 million and $1.5 billion during the second quarter and first six months of 2011, respectively, representing 56% of total Marketplaces net transaction revenues during both periods. The increase in international net transaction revenues was due primarily to growth in our existing international markets, partially offset by the impact of foreign currency movements relative to the U.S. dollar.

Payments Net Transaction Revenues

Payments net transaction revenues increased $243 million, or 25%, during the second quarter of 2012 compared to the same period of the prior year, due primarily to net TPV growth of 20% and a higher take rate. The increase in net TPV was due primarily to growth in consumer and merchant adoption and use of PayPal both on and off eBay. Our Merchant Services net TPV increased 23% during the second quarter of 2012, compared to the same period of the prior year, and represented 67% of PayPal's net TPV in the second quarter of 2012, compared with 66% in the second quarter of 2011. On eBay net TPV increased 15% during the second quarter of 2012, compared to the same period of the prior year and represented 33% of PayPal's net TPV in the second quarter of 2012, compared to 34% for the same period in the prior year. The increase in the take rate was driven primarily by foreign exchange income and gains from hedging.

Payments net transaction revenues increased $516 million, or 27%, during the first six months of 2012 compared to the same period of the prior year, due primarily to net TPV growth of 22% and a higher take rate. The increase in net TPV and take rate are due to the same factors noted above. Our Merchant Services net TPV increased 25% during the first six months of 2012, compared to the same period of the prior year, and represented 67% of PayPal's net TPV in the first six months of 2012, compared with 65% in the first six months of 2011. On eBay net TPV increased 16% during the first six months of 2012, compared to the same period of the prior year and represented 33% of PayPal's net TPV for the first six months of 2012, compared to 35% for the same period of the prior year.

Payments net transaction revenues earned internationally totaled $680 million and $1.3 billion during the second quarter and first six months of 2012, respectively, representing 55% of total Payments net transaction revenues during both periods. Payments net transaction revenues earned internationally totaled $515 million and $991 million during the second quarter and first six months of 2011, respectively, representing 52% and 51% of total Payments net transaction revenues during those respective periods. The increase in international net transaction revenues was due primarily to the growth of our Merchant Services business and increased penetration on eBay Marketplaces platforms internationally.

GSI Net Transaction Revenues

GSI net transaction revenues were $164 million and $346 million during the second quarter and first six months of 2012, respectively, compared to $16 million for the both periods of the prior year. Net transaction revenues attributable to the GSI segment for the second quarter and first six months of 2011 are reflected from June 17, 2011 (the date the acquisition of GSI was completed). Accordingly, comparisons with GSI's net transaction revenues in the corresponding 2011 periods are not meaningful.

Marketing Services and Other Revenues

Marketing services and other revenues increased $110 million and $248 million, or 27% and 34%, during the second quarter and first six months of 2012, respectively, compared to the same periods of the prior year, and represented 15% of total net revenues for both periods in 2012. The increase in marketing services and other revenues during the second quarter and first six months of 2012 was due primarily to revenues attributable to GSI and growth in our Bill Me Later (BML) portfolio of receivables from loans, as well as increased revenue from our classifieds and advertising business.

Summary of Cost of Net Revenues

The following table summarizes changes in cost of net revenues for the periods
presented:
                                                              Change from                                                   Change from
                      Three Months Ended June 30,            2011 to 2012             Six Months Ended June 30,            2011 to 2012
                        2012              2011(1)         in Dollars      in %         2012             2011(1)         in Dollars      in %
                                                               (In millions, except percentages)
Cost of net
revenues:
Marketplaces      $        310         $        304     $        6          2 %   $        609       $        600     $        9          2 %
As a percentage
of total
Marketplaces net
revenues                  17.1 %               18.3 %                                     17.2 %             18.6 %
Payments                   525                  457             68         15 %          1,040                890            150         17 %
As a percentage
of total Payments
net revenues              38.7 %               42.6 %                                     39.0 %             43.1 %
GSI                        147                   12            135        N/A              292                 12            280        N/A
As a percentage
of total GSI net
revenues                  66.5 %               52.2 %                                     63.8 %             52.2 %
Corporate and
other                        5                    -              5        N/A               29                  -             29        N/A
Total cost of net
revenues          $        987         $        773     $      214         28 %   $      1,970       $      1,502     $      468         31 %
As a percentage
of net revenues           29.0 %               28.0 %                                     29.5 %             28.3 %

(1) Cost of net revenues attributable to the GSI segment are reflected from June 17, 2011 (the date the acquisition of GSI was completed). Accordingly, the percent changes in GSI's cost of revenues between the 2011 and 2012 periods are not meaningful.

Cost of Net Revenues

Cost of net revenues consists primarily of costs associated with payment processing, customer support, site operations, fulfillment and inventory. Significant components of these costs include bank transaction fees, credit card interchange and assessment fees, interest expense on indebtedness incurred to finance the purchase of consumer loans receivable by Bill Me Later, employee compensation, contractor costs, facilities costs, depreciation of equipment and amortization expense.

Marketplaces

Marketplaces cost of net revenues increased $6 million and $9 million, or 2%, during both the second quarter and first six months of 2012, compared to the same periods of the prior year. The increase was due primarily to an increase in our customer support costs associated with our volume growth.

Marketplaces cost of net revenues as a percentage of Marketplaces net revenues decreased 1.2 and 1.4 percentage points during the second quarter and first six months of 2012, respectively, compared to the same periods of the prior year, due primarily to improved operating leverage from our site operation infrastructure partially offset by investment in customer support programs.

Payments

Payments cost of net revenues increased $68 million and $150 million, or 15% and 17%, during the second quarter and first six months of 2012, respectively, compared to the same periods of the prior year. The increase in Payments cost of net revenues was due primarily to the impact of growth in net TPV.

Payments cost of net revenues as a percentage of Payments net revenues decreased 3.9 and 4.1 percentage points during the second quarter and first six months of . . .