BUAD 325-Security Analysis Report

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Security Analysis eBay Inc.

Basim Alnahari, Daniel Perkes, Crystal Yi, Guangchen (Michael) Zhang

BUAD325 Equity Markets and Portfolio Management

Professor Vladimir Atanasov March 1, 2014

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Table of Contents

Executive Summary ………………………………… 3

Introduction ……………………………………….... 4

Industry Overview ………………………………..… 4

Company Overview ………………………..……….. 6

Analysis of Historical Financial Data ………………. 7

Discounted Cash Flow Valuation…………………….. 9

WACC Calculation…………………………… 9

Base Case Valuation………………………….. 9

Base Case Sensitivity Analysis ……………… 10

Relative Valuation………………………………….…11

Conclusion …………………………………………….12

Tables and Figures …………………………………… 13

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Executive summary

eBay is an large international corporation that operates in three segments: Marketplace, Payments, and Enterprise. Marketplace includes eBay.com, Stubhub, and Half.com. Marketplace is eBay’s largest segment by revenue. This segment is smaller than their main competitors Amazon and Alibaba, but it reports higher net income than Amazon. The majority of listings on eBay.com are fixed price listings, meaning that eBay.com is becoming more similar to Amazon.

Payments is the fastest-growing segment, and includes PayPal digital payment products, including PayPal Here, a wireless point of sale system that competes with other systems such as Square. PayPal includes Bill Me Later, which is a line of credit available within PayPal and on other websites. PayPal also includes Zong, which allows users to make purchases with a mobile phone and charges the cell phone bill directly. PayPal is a market leader with 40% market share. Enterprise is eBay’s newest and smallest segment, which provides marketing and website support for other companies.

eBay is currently trading around fair value according to DCF and relative valuation. While there are major growth opportunities for all three segments of eBay’s business, there are also significant competitors in all three segments. We recommend a hold at this time.

Company Data

Current Price ($) 52.59 Target Range ($) 41-67 52-Week Range ($) 48.06-59.70 Market Cap ($B) 68.09 Shares Outstanding (B) 1.29 Average Volume (M) 11.35

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Introduction

eBay is a multinational multibillion dollar corporation based in San Jose, California that facilitates consumer-to-consumer trade for goods and services all over the world. The oft-repeated story that eBay was created to sell PEZ dispensers has, unfortunately, been since confirmed to be a story invented by their PR department to interest the media. It was originally created as AuctionWeb as Pierre Omidyar’s side hobby in 1995 during the dot-com bubble, and was soon upgraded to a business due to high volume to the website. In 1997, the name was changed to eBay after Omidyar’s consulting firm, Echo Bay Technology Group. By then, it was hosting over two million auctions per year; when the company went public in 1998, the share price skyrocketed to $53.50 on the first day, blowing past the original target price of $18. Today, eBay is made up of three segments: Marketplace, Payments, and ebay Enterprise.

Industry Overview

eBay operates in a highly competitive, growing industry. Demand is dependent on consumer income. Growth comes

from an expanding U.S. and international retail market, and from increased internet access. Currently, 80% of U.S. households have internet access, so there is opportunity for increased internet access in the U.S. The increasing use of mobile devices is an excellent opportunity for eBay. By 2017, a quarter of e-commerce sales will be through mobile devices.

E-commerce websites are facing increased competition from brick-and-mortar retailers, which are acknowledging that online sales are an integral part of their survival. Indeed, eBay understands that the future of retail lies in creating a seamless experience for customers online, on the go, and in physical retail environments.

As brick-and-mortar retailers move online, and as entrepreneurs seek to start new online retail sites, there is increasing demand for hosting and fulfillment services. This is a segment that is served by companies such as eBay Enterprise. There are three types of e-commerce platforms: hosted, open-source, and hosted shopping cart. Hosted e-commerce platforms allow an entrepreneur to focus only on product selection, while the hosted platform provider deals with website hosting and security, digital payments, and fulfillment services. Open-source e-commerce platforms often give less help to entrepreneurs because they are open-source and are usually not run by a specific company. Lastly, hosted shopping cart platforms only provide the technology of the shopping cart feature on retail websites that are hosted elsewhere.

Digital payment processing is becoming increasingly important both online and in the physical world. Digital payment processing is important online, in retail stores, and in other industries such as transportation and entertainment. Wireless point of sale terminals give flexibility and convenience to merchants and customers. Square debuted a credit card reader that can be plugged into a tablet or smartphone, and eBay’s PayPal brand recently released a competing product, PayPal Here. eBay’s PayPal brand dominates the digital payments market with 40% market share.

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eBay Revenue Breakdown

While Marketplace is currently the largest percentage of revenue, it is the Payments revenue that is growing most quickly, and has the most market share. While PayPal operates in 193 countries and with 26 currencies, it is clear that most of eBay’s overall revenue comes from the U.S. This means that eBay has an opportunity to expand further into international markets.

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Company Overview

eBay began as an online auction website, so Marketplace was its first segment. eBay acquired StubHub in January

2007. StubHub provides “fans a safe, convenient place to get tickets to the games, concerts, and theatre shows they want to see, and an easy way to sell their tickets when they can’t go.” It is the world’s largest ticket marketplace. In 2000, eBay purchased Half.com. This site is one where all listings are fixed-price, and listings are limited to books, music, movies, video games, and video game consoles. In other words, this site is for selling standardized media products, not rare, old, or collectible items. eBay’s most successful product from a market share perspective is PayPal. As mentioned before, it is a leader in the digital payment services market, with 40% market share. PayPal is an international e-commerce business allowing payments and money transfers to be made through the Internet. It performs payment processing for online vendors, auction sites, and other commercial users, for which it charges a fee. PayPal is an important part of eBay because it is part of the unique offering of the eBay Marketplace, as it is the exclusive payment processor on eBay Marketplace. Marketplace has also been an excellent source of customers for PayPal. PayPal is weaning itself off of reliance on Marketplace for customers. BillMeLater is a service that became a part of PayPal when it was acquired in 2008. It offers consumers a line of revolving credit through Comenity Community Bank. It allows purchases to be made online without using a credit card. This is very convenient because it can be accessed on a number of websites, and through PayPal.

Zong is another PayPal service that allows purchases to be made with just one’s cell phone number. The purchase shows up on one’s cell phone bill. Overall, PayPal offers a number of services that make payment seamless and secure in many different scenarios. It enjoys having first-mover advantage, a large customer base, and strong brand recognition.

eBay bought GSI Commerce in 2011, and subsequently renamed it eBay Enterprise. “eBay Enterprise is a leading provider of commerce technologies, omnichannel operations and marketing solutions for the world’s premier retailers and brands.” The diverse team of creative professionals delivers “insightful ideas that spark chain reactions of brand engagement, transaction and loyalty.”

One segment of Enterprise services is Omnichannel Operations, which includes order management and inventory management systems; as well as website hosting services. This segment also includes payment processing and fraud management.

eBay Enterprise can leverage these capabilities to also provide commerce technologies to its clients. These interfaces and tools include content and experience management; testing & optimization; and campaigns & promotions. For example, the Interfaces & Tools Module can provide seamless, engaging commerce experiences across all retail interfaces including web, smartphone, tablet, in-store associates, in-store self service experiences and customer service. eBay’s goal is to provide a seamless shopping experience both on- and off-line.

A few of eBay’s many peers include Amazon.com, Alibaba, and Google. Amazon.com is an online retailer that has 14.9% market share in the e-commerce industry. By comparison, eBay’s market share is only 2.6%. While Amazon has much higher revenue than eBay, Amazon invests very heavily in its business, so eBay has higher net income free cash flow. Alibaba.com is a private Chinese e-commerce company that is larger than Amazon and eBay combined. Alibaba is 24% owned by Yahoo. Google competes with eBay’s Marketplace and Payments Segments. Google Shopping competes with eBay’s marketplaces, and Google Wallet competes with PayPal. This is a risk for eBay, because Google has a lot of market share and very strong brand recognition.

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Analysis of Historical Financial Data

Based on some of eBay’s five year ( 2009-2013) financial statements, we analyzed its operating and investing cash flows, key indicators, and profitability.

This graph shows eBay’s operating and investing cash flow increase during the past five years.

This graph shows the trend of some eBay key indicators over the past five years, including EBIT, EBITDA, sales, Enterprise value and market capitalization. All of them are increasing from 2009 to 2013, which shows the growth of the company.

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Despite the positive evidence shown in the previous two graphs, eBay shows no obvious increase in profitability over the last five years.

The graph shows eBay’s profitability dropped during 2009 and increased during the year 2010, and reached a peak at the beginning of year 2011. It dropped again during 2012, and did not show any sign of raising during 2013.

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Discounted Cash Flow Valuation

First, we modelled the income statement and portions of the balance sheet and statement of cash flows. eBay reports revenue and cost of goods sold per segment, so the model includes growth drivers for the different segments, and many lines are driven off of net revenue. The model is dynamic, and allows analysis on the Base Case, Upside Case and Downside Case.

WACC Calculation

Base Case Discounted Cash Flow Valuation Price Per Share: $47.05

Cost of EquitySourceRisk Free Rate 2.64%Equity Risk Premium 7.13%Beta 0.98Cost of Equity 9.63%

Effective Tax Rate 2013 18.00%1 -‐ Effective Tax Rate 82.00%

EV Weight Cost of DebtPrice Per Share -‐ 4/30/2014 51.83$ Shares Outstanding as of January 24, 2014 1,294,654,966Market Value of Equity 67,101,966,887.78$ 94.20%Short-‐Term Debt (millions) 4,000,000.00$ 0.01% 0.41%Long-‐Term Debt (millions) 4,124,000,000.00$ 5.79% 2.64%Enterprise Value 71,229,966,887.78$

WACC 9.195% Sources: Bloomberg, eBay 2013 10-‐K

Discounted Cash Flow ValuationCurrent Cash & Equivalents 7,844.00$ WACC 9.19482%Shares Outstanding on January 24, 2014 1,294,654,966Return on Invested Capital FY 2013 13.21%Terminal Growth Rate 3.0%

2013A 2014E 2015E 2016E 2017E 2018EFirm Free Cash Flow 3,361.72$ 2,200.05$ 2,407.10$ 2,651.23$ 2,923.96$ 3,226.42$ Terminal Value 75,879.45$ CF + TV 3,361.72$ 2,200.05$ 2,407.10$ 2,651.23$ 2,923.96$ 79,105.86$ Enterprise Value $57,186.45Equity Value $60,908.45Price Per Share $47.05 Sources: Bloomberg, eBay 2013 10-‐K, eBay Q1 2014 results

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Base Case DCF Sensitivity Analysis

Discounted Cash Flow Sensitivity AnalysisWACC

$47.05 7% 8% 9% 9.19482% 10% 11%Terminal Growth Rate 2.80% 71.75$ 57.60$ 48.06$ 46.55$ 41.21$ 36.06$

2.90% 72.67$ 58.08$ 48.33$ 46.80$ 41.36$ 36.15$ 3% 73.62$ 58.58$ 48.61$ 47.05$ 41.52$ 36.24$

3.10% 74.62$ 59.11$ 48.90$ 47.30$ 41.68$ 36.33$ 3.20% 75.68$ 59.65$ 49.19$ 47.57$ 41.85$ 36.42$

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Relative Valuation

Starting on a Bloomberg terminal and adding and cutting companies, we choose eight comparable companies based on industry (using SIC) and size (market capital). They are American Express Co, Mastercard Inc., Visa Inc., Wal-mart Stores, Inc., Capital One financial Corp., Amazon.com Inc., Google Inc. and Priceline.com, Inc. While not all of these companies are listed in exactly the same SIC category, this is because they operated in multiple industries. This blend allows for a valuation of eBay off of retail, online shopping, and payments. We obtained several basic inputs for eBay for the purpose of range price calculation, and they are sales, debt, cash, number of outstanding shares, EBITDA and EBIT. The multiples we use to forecast the target prices are: EV/EBITDA, EV/EBIT, EV/Sales and P/E. We chose them because P/E is a historically popular multiple; EV/EBITDA is very popular and commonly-used multiple; EV/Sales is usually used for high technology companies and retail; and EV/EBIT, though similar to EV/EBITDA , adds another level of analysis. Based on the comparable companies relative valuation, eBay’s target price range is $41 to 67. The average target price is $56.54.

INPUTS OUTPUTLTM Sales 16,561.00$ Max price 67.00$ Debt 3/31/2014 4,128.00$ Min price 41.00$ Cash and cash equivalents 3/31/2014 4,415.00$ Target price 56.54$ Shares Outstanding 12/31/2013 (millions) 1294LTM EBITDA 4,902.00$ EBIT 3,449.00$ eBay EPS FY 2013 2.20$ Sources: Bloomberg, eBay Q1 2014 results

Name EV/EBITDA EV/EBIT EV/Sales P/EAMERICAN EXPRESS CO 14.72 13.67 3.74 17.00MASTERCARD INC-‐CLASS A 14.40 15.26 8.61 28.00VISA INC-‐CLASS A SHARES 17.55 18.50 11.69 24.00WALMART 8.27 11.02 0.64 16.00CAPITAL ONE FINANCIAL CORP 10.79 10.88 3.03 9.80AMAZON.COM INC 20.80 95.68 1.48 493.00GOOGLE 11.57 15.51 5.78 29.00PRICELINE 16.57 17.29 6.61 32.00Median 14.56 15.39 4.76 26.00Mean 14.33 24.73 5.20 22.73Note: P/E mean ratio does not include Amazon.

EV/Sales EV/EBITDA EV/EBIT P/EEV Median 78,789.61$ 71,378.47$ 53,067.00$ EV Mean 86,050.89$ 70,266.66$ 85,279.78$

Equity Median 79,076.61$ 71,665.47$ 53,354.00$ Equity Mean 86,337.89$ 70,553.66$ 85,566.78$ Price Median 61.11$ 55.38$ 41.23$ 57.20$ Price Mean 66.72$ 54.52$ 66.13$ 50.00$

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Conclusion At this time, we recommend a hold on this stock because it is trading around its fair value, as calculated in the DCF valuation, and in the relative valuation.

Current Price $52.35 Discounted Cash Flow Price Target $47.05

Relative Valuation Price Range $41 to $67 Relative Valuation Price Target $56.54

Average Price Target $51.80 Recommendation: Hold References Bloomberg eBay 2013 10-K eBay Q1 2014 Results First Research IBISWorld U.S. Census Bureau

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Tables and Figures

1. Five-Year Balance Sheet from Bloomberg

Field FY 2009 FY 2010 FY 2011 FY 2012 FY 2013For the period ending 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013

original original original original originalAssets Cash & Near Cash Items 3,999.82$ 5,577.41$ 4,691.10$ 6,817.00$ 4,494.00$ Short-Term Investments 943.99$ 1,045.40$ 1,238.30$ 2,591.00$ 4,531.00$ Accounts & Notes Receivable 407.51$ 454.37$ 681.59$ 2,982.00$ 899.00$ Inventories -$ -$ -$ -$ -$ Other Current Assets 3,108.90$ 3,988.16$ 6,050.46$ 9,008.00$ 13,359.00$ Total Current Assets 8,460.21$ 11,065.34$ 12,661.45$ 21,398.00$ 23,283.00$ LT Investments & LT Receivables 1,381.77$ 2,492.01$ 2,452.76$ 3,044.00$ 4,971.00$ Net Fixed Assets 1,314.33$ 1,523.33$ 1,986.22$ 2,491.00$ 2,760.00$ Gross Fixed Assets 3,316.33$ 3,962.78$ 4,876.78$ 5,957.00$ 7,120.00$ Accumulated Depreciation 2,002.01$ 2,439.45$ 2,890.57$ 3,466.00$ 4,360.00$ Other Long-Term Assets 7,252.02$ 6,923.08$ 10,219.79$ 10,141.00$ 10,474.00$ Total Long-Term Assets 9,948.11$ 10,938.42$ 14,658.76$ 15,676.00$ 18,205.00$ Total Assets 18,408.32$ 22,003.76$ 27,320.22$ 37,074.00$ 41,488.00$

Liabilities & Shareholders' Equity Accounts Payable 192.41$ 184.96$ 283.10$ 301.00$ 309.00$ Short-Term Borrowings -$ 300.00$ 564.60$ 413.00$ 6.00$ Other Short-Term Liabilities 3,449.56$ 4,031.55$ 5,886.50$ 10,210.00$ 12,324.00$ Total Current Liabilities 3,641.97$ 4,516.51$ 6,734.20$ 10,924.00$ 12,639.00$ Long-Term Borrowings -$ 1,494.23$ 1,525.05$ 4,106.00$ 4,117.00$ Other Long-Term Liabilities 978.70$ 690.84$ 1,131.09$ 1,179.00$ 1,085.00$ Total Long-Term Liabilities 978.70$ 2,185.07$ 2,656.14$ 5,285.00$ 5,202.00$ Total Liabilities 4,620.67$ 6,701.58$ 9,390.34$ 16,209.00$ 17,841.00$ Total Preferred Equity -$ -$ -$ -$ -$ Minority Interest -$ -$ -$ -$ -$ Share Capital & APIC 9,987.69$ 10,482.22$ 11,146.37$ 12,064.00$ 13,033.00$ Retained Earnings & Other Equity 3,799.96$ 4,819.96$ 6,783.51$ 8,801.00$ 10,614.00$ Total Equity 13,787.65$ 15,302.18$ 17,929.88$ 20,865.00$ 23,647.00$ Total Liabilities & Equity 18,408.32$ 22,003.76$ 27,320.22$ 37,074.00$ 41,488.00$

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2. Five-Year Cash Flow Statement from Bloomberg

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013Cash From Operating Activities Net Income 2389.097 1800.961 3229.387 2609 2856 Depreciation & Amortization 810.946 762.465 939.953 1200 1400 Other Non-Cash Adjustments -543.824 1155.414 -593.833 689 985 Changes in Non-Cash Capital 251.867 -973.08 -301.833 -660 -246Cash From Operations 2908.086 2745.76 3273.674 3838 4995

Cash From Investing Activities Disposal of Fixed Assets 0 0 0 0 0 Capital Expenditures -567.094 -723.912 -963.498 -1257 -1250 Increase in Investments 0 0 0 0 0 Decrease in Investments 0 0 0 0 0 Other Investing Activities -582.289 -1558.558 -2343.364 -2506 -4762Cash From Investing Activities -1149.383 -2282.47 -3306.862 -3763 -6012

Cash from Financing Activities Dividends Paid 0 0 0 0 0 Change in Short-Term Borrowings -1000 300 250 -550 -400 Increase in Long-Term Borrowings 0 1488.702 0 2976 0 Decrease In Long-Term Borrowings 0 0 -199.271 0 0 Increase in Capital Stocks 107.276 277.418 321.891 613 638 Decrease in Capital Stocks 0 -711.068 -1063.986 -898 -1343 Other Financing Activities -55.089 -240.749 -161.756 -90 -201Cash from Financing Activities -947.813 1114.303 -853.122 2051 -1306Net Changes in Cash 810.89 1577.593 -886.31 2126 -2323

Reference ItemsEBITDA 2305.899 2837.473 3312.953 4088 4771Trailing 12M EBITDA Margin 26.4215 30.9894 28.4333 29.0506 29.7314Cash Paid for Taxes 342.173 645.783 372.528 789 466Cash Paid for Interest 6.05 0.054 29.2 15 99Net Cash Paid for Acquisitions 1209.433 90.568 3223.055 143 869Tax Benefit from Stock Options 4.75 41.891 79.681 130 201Free Cash Flow 2340.992 2021.848 2310.176 2581 3745Free Cash Flow to Firm #N/A N/A #N/A N/A 2330.8488 2634.2967 3827.4005Free Cash Flow to Equity 1340.992 3810.55 2360.905 5007 3345Free Cash Flow per Basic Share 1.8149 1.5486 1.787 1.9977 2.8919Price to Free Cash Flow 12.9646 17.971 16.9727 25.5285 18.972Cash Flow to Net Income 1.2172 1.5246 1.0137 1.4711 1.7489

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013Cash From Operations 2908.086 2745.76 3273.674 3838 4995Cash From Investing Activities -1149.383 -2282.47 -3306.862 -3763 -6012

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3. Five-Year Income Statement from Bloomberg

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FQ4 2013Revenue 8,727.36$ 9,156.27$ 11,651.65$ 14,072.00$ 16,047.00$ 16,047.00$ Cost of Revenue 2,479.76$ 2,564.67$ 3,460.18$ 4,216.00$ 5,036.00$ 5,036.00$ Gross Profit 6,247.60$ 6,591.61$ 8,191.47$ 9,856.00$ 11,011.00$ 11,011.00$ Operating Expenses 4,752.65$ 4,516.60$ 5,818.47$ 6,968.00$ 7,640.00$ 7,640.00$ Operating Income 1,494.95$ 2,075.01$ 2,373.00$ 2,888.00$ 3,371.00$ 3,371.00$ Interest Expense #N/A N/A #N/A N/A 25.03$ 63.00$ 100.00$ Foreign Exchange Losses (Gains) -$ -$ -$ -$ #N/A N/A Net Non-Operating Losses (Gains) (1,384.20)$ (23.44)$ (1,562.08)$ (259.00)$ (195.00)$ (95.00)$ Pretax Income 2,879.15$ 2,098.45$ 3,910.05$ 3,084.00$ 3,466.00$ 3,466.00$ Income Tax Expense 490.05$ 297.49$ 680.66$ 475.00$ 610.00$ 610.00$ Income Before XO Items 2,389.10$ 1,800.96$ 3,229.39$ 2,609.00$ 2,856.00$ 2,856.00$ Extraordinary Loss Net of Tax -$ -$ -$ -$ -$ -$ Minority Interests -$ -$ -$ -$ -$ -$ Net Income 2,389.10$ 1,800.96$ 3,229.39$ 2,609.00$ 2,856.00$ 2,856.00$ Total Cash Preferred Dividends -$ -$ -$ -$ -$ -$ Other Adjustments #N/A N/A -$ -$ -$ -$ -$ Net Inc Avail to Common Shareholders 2,389.10$ 1,800.96$ 3,229.39$ 2,609.00$ 2,856.00$ 2,856.00$

Abnormal Losses (Gains) (1,026.08)$ 37.70$ 277.88$ (152.00)$ (72.00)$ (92.00)$ Tax Effect on Abnormal Items 359.13$ (13.19)$ (97.26)$ 53.20$ 25.20$ Normalized Income 1,722.15$ 1,825.46$ 3,410.01$ 2,510.20$ 2,809.20$ 2,798.65$

Basic EPS Before Abnormal Items 1.34$ 1.40$ 2.64$ 1.94$ 2.16$ 2.16$ Basic EPS Before XO Items 1.85$ 1.38$ 2.50$ 2.02$ 2.20$ 2.20$ Basic EPS 1.85$ 1.38$ 2.50$ 2.02$ 2.20$ 2.20$ Basic Weighted Avg Shares 1289.848 1305.593 1292.775 1292 1295 1295Diluted EPS Before Abnormal Items 1.32$ 1.38$ 2.60$ 1.91$ 2.14$ 2.13$ Diluted EPS Before XO Items 1.83$ 1.36$ 2.46$ 1.99$ 2.18$ 2.18$ Diluted EPS 1.83$ 1.36$ 2.46$ 1.99$ 2.18$ 2.18$ Diluted Weighted Avg Shares 1304.981 1327.417 1312.95 1313 1313 1310

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4. Income Statement model Base Case

Revenue 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018ENet Marketplaces Revenue 6642 7398 8284 9,207.61$ 10,262.16$ 11,463.54$ 12,829.75$ 14,381.22$ Non-‐vehicle GMV 60332 67763 76495 86,352.21$ 97,479.64$ 110,040.95$ 124,220.92$ 140,228.14$ Vehicle GMV 8301 7613 6835 6,268.50$ 5,748.96$ 5,272.48$ 4,835.49$ 4,434.71$ Net GMV 68633 75376 83330 92,620.72$ 103,228.60$ 115,313.43$ 129,056.41$ 144,662.85$ Net Marketplaces Revenue/Net GMV 9.7% 9.8% 9.9% 9.9% 9.9% 9.9% 9.9% 9.9%

Net Marketplaces Revenue Growth 11.4% 12.0% 11.1% 11.5% 11.7% 11.9% 12.1%

Net Payments Revenue 4412 5574 6628 8,407.90$ 10,706.21$ 13,681.15$ 17,540.42$ 22,556.84$ Merchant Services TPV 77700 97277 125281 165,370.92$ 218,289.61$ 288,142.29$ 380,347.82$ 502,059.13$ eBay TPV 41058 47660 54382 62,539.30$ 71,920.20$ 82,708.22$ 95,114.46$ 109,381.63$ Net TPV 118758 144937 179663 227910.22 290209.8094 370850.5153 475462.282 611440.7544Net Payments Revenue/Net TPV 3.72% 3.85% 3.69% 3.69% 3.69% 3.69% 3.69% 3.69%

Net Payments Revenue Growth 26.3% 18.9% 26.9% 27.3% 27.8% 28.2% 28.6%

Net Enterprise Revenue 590 1083 1112 1,256.56$ 1,419.91$ 1,604.50$ 1,813.09$ 2,048.79$ Merchandise Sales 2046 3682 4180 4,723.40$ 5,337.44$ 6,031.31$ 6,815.38$ 7,701.38$ Net Enterprise Revenue/Merchandise Sales 29% 29% 27% 27% 27% 27% 27% 27%

Net Other and Eliminate Intersegment 8 17 23 8 8 8 8 8Total Net Revenues 11,652.00$ 14,072.00$ 16,047.00$ 18,880.07$ 22,396.29$ 26,757.19$ 32,191.26$ 38,994.85$ Total Net Revenues Growth 20.8% 14.0% 17.7% 18.6% 19.5% 20.3% 21.1%

Cost of Net Marketplaces Revenue 1210 1273 1520 1,689.47$ 1,882.96$ 2,103.40$ 2,354.08$ 2,638.76$ Cost of Net Marketplaces Revenue/Net Marketplaces Revenue 18.2% 17.2% 18.3% 18.3% 18.3% 18.3% 18.3% 18.3%

Cost of Net Payments Revenue 1866 2209 2675 3,393.35$ 4,320.93$ 5,521.59$ 7,079.15$ 9,103.73$ Cost of Net Payments Revenue/Net Payments Revenue 42.3% 39.6% 40.4% 40.4% 40.4% 40.4% 40.4% 40.4%

Cost of Net Enterprise Revenue 374 696 821 927.73$ 1,048.33$ 1,184.62$ 1,338.62$ 1,512.64$ Cost of Net Enterprise Revenue/Net Enterprise Revenue 63.4% 64.3% 73.8% 73.8% 73.8% 73.8% 73.8% 73.8%

Cost of Other Revenue 11 38 20 8 8 8 8 8Cost of Other Revenue/Net Other Revenues 137.5% 223.5% 87.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Total Cost of Net Revenues 3461 4216 5036 6,018.55$ 7,260.23$ 8,817.61$ 10,779.85$ 13,263.13$ Total Cost of Net Revenues Growth 22% 19% 20% 21% 21% 22% 23%

Gross profit 8,191.00$ 9,856.00$ 11,011.00$ 12,861.52$ 15,136.06$ 17,939.58$ 21,411.40$ 25,731.72$ Gross profit growth 20% 12% 17% 18% 19% 19% 20%

Operating expensesSales and marketing 2435 2913 3060 3,600.24$ 4,270.74$ 5,102.32$ 6,138.55$ 7,435.92$ Sales and marketing/Net revenues 20.9% 20.7% 19.1% 19.1% 19.1% 19.1% 19.1% 19.1%

Product development 1235 1573 1768 2,080.14$ 2,467.54$ 2,948.01$ 3,546.72$ 4,296.31$ Product development/Net revenues 10.6% 11.2% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%

General and administrative 1364 1567 1703 2,003.66$ 2,376.82$ 2,839.63$ 3,416.32$ 4,138.36$ General and administrative/Net revenues 11.7% 11.1% 10.6% 10.6% 10.6% 10.6% 10.6% 10.6%

Provision for transaction and loan losses 517 580 791 930.65$ 1,103.97$ 1,318.93$ 1,586.79$ 1,922.16$ Provision for transaction and loan losses/Net revenues 4.4% 4.1% 4.9% 4.9% 4.9% 4.9% 4.9% 4.9%

Amortization of acquired intangible assets 267 335 318 374.14$ 443.82$ 530.24$ 637.93$ 772.75$ Amortization of acquired intangible assets/Net Revenues 2.3% 2.4% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Total operating expenses 5,818.00$ 6,968.00$ 7,640.00$ 8,988.83$ 10,662.90$ 12,739.14$ 15,326.30$ 18,565.50$ Total operating expenses growth 20% 10% 18% 19% 19% 20% 21%

Income from operations 2,373.00$ 2,888.00$ 3,371.00$ 3,872.69$ 4,473.15$ 5,200.45$ 6,085.10$ 7,166.22$ Income from operations growth 22% 17% 15% 16% 16% 17% 18%

NOPAT 1,959.70$ 2,443.19$ 2,777.72$ 3,191.11$ 3,685.90$ 4,285.19$ 5,014.15$ 5,904.99$

Interest and other, net 1537 196 95 111.77$ 132.59$ 158.41$ 190.58$ 230.85$ Interest and other, net/Net revenues 13.2% 1.4% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

Income before income taxes 3,910.00$ 3,084.00$ 3,466.00$ 3,984.46$ 4,605.74$ 5,358.85$ 6,275.67$ 7,397.07$ Income before income taxes growth -‐21% 12% 15% 16% 16% 17% 18%Provision for income taxes (681.00)$ (475.00)$ (610.00)$ 701.25$ 810.59$ 943.13$ 1,104.49$ 1,301.85$ Provision for income taxes/Income before income taxes 17.4% 15.4% 17.6% 17.6% 17.6% 17.6% 17.6% 17.6%

Net income 3,229.00$ 2,609.00$ 2,856.00$ 4,685.71$ 5,416.33$ 6,301.98$ 7,380.16$ 8,698.92$

Net income per share:Basic 2.50$ 2.02$ 2.21$ 3.62$ 4.18$ 4.87$ 5.70$ 6.72$ Diluted 2.46$ 1.99$ 2.18$ 3.57$ 4.13$ 4.80$ 5.62$ 6.63$ Weighted average shares:Basic 1,293 1,292 1,295 1,295 1,295 1,295 1,295 1,295Diluted 1,313 1,313 1,313 1,313 1,313 1,313 1,313 1,313

17

5. Working Capital and partial balance sheet model Base Case (Note: Because cash and short-term assets were not projected forwards, we projected Net Working Capital as a percentage of Net Revenue.)

Balance Sheet and Working Capital 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018EAssetsCurrent AssetsCash and Cash Equivalents 4691 6817 4494Short-‐term Investments 1238 2591 4531Accounts Receivable, net 682 822 899 1,057.72$ 1,254.71$ 1,499.02$ 1,803.45$ 2,184.61$ Days Sales Outstanding 21.36 21.32 20.45 20.45 20.45 20.45 20.45 20.45Loans and Interest Receivable, net 1501 2160 2789 3,281.39$ 3,892.52$ 4,650.45$ 5,594.90$ 6,777.38$ Loans and Interest Receivable, net/Net Revenue 12.9% 15.3% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4%Funds Receivable and Customer Accounts 3968 8094 9260 10,894.84$ 12,923.89$ 15,440.37$ 18,576.12$ 22,502.17$ Funds Receivable and Customer Accounts/Net Revenue 34.1% 57.5% 57.7% 57.7% 57.7% 57.7% 57.7% 57.7%Other Current Assets 581 914 1310 1,541.28$ 1,828.33$ 2,184.33$ 2,627.94$ 3,183.35$ Other Current Assets/Net revenue 5.0% 6.5% 8.2% 8.2% 8.2% 8.2% 8.2% 8.2%Total Current Assets 12,661.00$ 21,398.00$ 23,283.00$ 16,775.23$ 19,899.44$ 23,774.17$ 28,602.41$ 34,647.51$

Long-‐term investments 3044 4971 5,848.62$ 6,937.87$ 8,288.78$ 9,972.13$ 12,079.73$ Long-‐term investments/Total Net Revenues 21.6% 31.0% 31.0% 31.0% 31.0% 31.0% 31.0%Property and equipment, net 2491 2760 3,247.27$ 3,852.04$ 4,602.10$ 5,536.73$ 6,706.91$ Property and equipment, net/Total Net Revenues 17.7% 17.2% 17.2% 17.2% 17.2% 17.2% 17.2%Goodwill 8537 9267 10,903.07$ 12,933.66$ 15,452.04$ 18,590.16$ 22,519.18$ Goodwill/Total Net Revenues 60.7% 57.7% 57.7% 57.7% 57.7% 57.7% 57.7%Intangible assets, net 1128 941 1,107.13$ 1,313.32$ 1,569.05$ 1,887.70$ 2,286.67$ Intangible assets, net/Total Net Revenues 8.0% 5.9% 5.9% 5.9% 5.9% 5.9% 5.9%Other assets 476 266 312.96$ 371.25$ 443.54$ 533.61$ 646.39$ Other assets/Total Net Revenues 3.4% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%Total assets 37,074.00$ 41,488.00$ 38,194.29$ 45,307.57$ 54,129.66$ 65,122.75$ 78,886.38$

Liabilities and Stockholder's Equity

Current LiabilitiesShort-‐term Debt 565 413 5Accounts Payable 282.00$ 301.00$ 309.00$ 369.29$ 445.47$ 541.03$ 661.43$ 813.80$ Days Payable Outstanding 29.74 26.06 22.40 22.40 22.40 22.40 22.40 22.40Funds Payable and Amounts Due to Customers 3,968.00$ 8,094.00$ 9,260.00$ 10,894.84$ 12,923.89$ 15,440.37$ 18,576.12$ 22,502.17$ Funds Payable and Amounts Due to Customers/Net Revenue 34.1% 57.5% 57.7% 57.7% 57.7% 57.7% 57.7% 57.7%Accrued Expenses and Other Current Liabilities 1,511.00$ 1,916.00$ 2,799.00$ 3,293.16$ 3,906.48$ 4,667.13$ 5,614.96$ 6,801.68$ Accrued Expenses and Other Current Liabilities/Net Revenue 13.0% 13.6% 17.4% 17.4% 17.4% 17.4% 17.4% 17.4%Deferred Revenue 110.00$ 137.00$ 158.00$ 185.89$ 220.52$ 263.45$ 316.96$ 383.95$ Deferred Revenue/Net Revenue 0.94% 0.97% 0.98% 0.98% 0.98% 0.98% 0.98% 0.98%Income Taxes Payable 298.00$ 63.00$ 107.00$ 125.89$ 149.34$ 178.41$ 214.65$ 260.01$ Income Taxes Payable/Net Revenue 2.6% 0.4% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%Total Current Liabilities 6,734.00$ 10,924.00$ 12,638.00$ 14,869.07$ 17,645.69$ 21,090.40$ 25,384.13$ 30,761.61$

Deferred and other tax liabilities, net 972.00$ 841.00$ 989.48$ 1,173.76$ 1,402.31$ 1,687.10$ 2,043.66$ Deferred and other tax liabilities, net/Total Net Revenues 6.9% 5.2% 5.2% 5.2% 5.2% 5.2% 5.2%Long-‐term debt 4106 4117 4117 3,268.00$ 3,268.00$ 1,000.00$ 1,000.00$ Other liabilities 207 244 287.08$ 340.54$ 406.85$ 489.48$ 592.93$ Other liabilities/Total Net Revenues 1.47% 1.52% 1.52% 1.52% 1.52% 1.52% 1.52%Total Liabilities 16,209.00$ 17,840.00$ 20,262.62$ 22,427.99$ 26,167.55$ 28,560.70$ 34,398.20$

Commitments and contingencies (Note 11)Stockholder's equity:Common stock, $0.001 par value; 3,580 shares authorized; 1,294 and 1,294 shares Additional paid-‐in capitalTreasury stock at cost, 296 and 271 sharesRetained earningsAccumulated other comprehensive incomeTotal stockholders' equityTotal liabilities and stockholder's equity

Net Working Capital 5,927.00$ 10,474.00$ 10,645.00$ 12,524.36$ 14,856.89$ 17,749.75$ 21,354.52$ 25,867.77$ Net Working Capital/Net Revenue 51% 74% 66% 66% 66% 66% 66% 66%Change in Net Working Capital 4,547.00$ 171.00$ 1,879.36$ 2,332.53$ 2,892.87$ 3,604.76$ 4,513.26$

Long-‐Term Debt due in the next three years

Carrying Value as of December 31, 2013

Senior notes due 2015 599.00$ Senior notes due 2015 250.00$ Senior notes due 2017 1,000.00$

18

6. Depreciation and Capital Expenditures – Base Case

7. Discounted Cash Flow Analysis – Base Case

8. Weighted Average Cost of Capital

Provision for Transaction and Loan Losses 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018EDepreciation and Amortization 940.00$ 1,200.00$ 1,400.00$ 1,647.17$ 1,953.94$ 2,334.40$ 2,808.49$ 3,402.06$ Depreciation and Amortization/PP&E+Intangible Assets 33.2% 37.8% 37.8% 37.8% 37.8% 37.8% 37.8%

Cash Flows From Investing ActivitiesPurchases of Property and Equipment 1,250.00$ 1,257.00$ 963.00$ 1,133.02$ 1,344.03$ 1,605.73$ 1,931.84$ 2,340.13$ Purchases of Property and Equipment/Net Revenue 10.7% 8.9% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%





2.90% 72.67$ 58.08$ 48.33$ 46.80$ 41.36$ 36.15$ 3% 73.62$ 58.58$ 48.61$ 47.05$ 41.52$ 36.24$

3.10% 74.62$ 59.11$ 48.90$ 47.30$ 41.68$ 36.33$ 3.20% 75.68$ 59.65$ 49.19$ 47.57$ 41.85$ 36.42$

Cost of EquitySourceRisk Free Rate 2.64%Equity Risk Premium 7.13%Beta 0.98Cost of Equity 9.63%

Effective Tax Rate 2013 18.00%1 -‐ Effective Tax Rate 82.00%

EV Weight Cost of DebtPrice Per Share -‐ 4/30/2014 51.83$ Shares Outstanding as of January 24, 2014 1,294,654,966Market Value of Equity 67,101,966,887.78$ 94.20%Short-‐Term Debt (millions) 4,000,000.00$ 0.01% 0.41%Long-‐Term Debt (millions) 4,124,000,000.00$ 5.79% 2.64%Enterprise Value 71,229,966,887.78$

WACC 9.195% Sources: Bloomberg, eBay 2013 10-‐K

19

9. Comparable Companies Relative Valuation

INPUTS OUTPUTLTM Sales 16,561.00$ Max price 67.00$ Debt 3/31/2014 4,128.00$ Min price 41.00$ Cash and cash equivalents 3/31/2014 4,415.00$ Target price 56.54$ Shares Outstanding 12/31/2013 (millions) 1294LTM EBITDA 4,902.00$ EBIT 3,449.00$ eBay EPS FY 2013 2.20$ Sources: Bloomberg, eBay Q1 2014 results

Name EV/EBITDA EV/EBIT EV/Sales P/EAMERICAN EXPRESS CO 14.72 13.67 3.74 17.00MASTERCARD INC-‐CLASS A 14.40 15.26 8.61 28.00VISA INC-‐CLASS A SHARES 17.55 18.50 11.69 24.00WALMART 8.27 11.02 0.64 16.00CAPITAL ONE FINANCIAL CORP 10.79 10.88 3.03 9.80AMAZON.COM INC 20.80 95.68 1.48 493.00GOOGLE 11.57 15.51 5.78 29.00PRICELINE 16.57 17.29 6.61 32.00Median 14.56 15.39 4.76 26.00Mean 14.33 24.73 5.20 22.73Note: P/E mean ratio does not include Amazon.

EV/Sales EV/EBITDA EV/EBIT P/EEV Median 78,789.61$ 71,378.47$ 53,067.00$ EV Mean 86,050.89$ 70,266.66$ 85,279.78$

Equity Median 79,076.61$ 71,665.47$ 53,354.00$ Equity Mean 86,337.89$ 70,553.66$ 85,566.78$ Price Median 61.11$ 55.38$ 41.23$ 57.20$ Price Mean 66.72$ 54.52$ 66.13$ 50.00$

20

10. Income Statement Model Upside Case (Note: This case was not used because it includes assumptions that would represent a material increase in all of eBay’s financials, which is not very likely.)




Net Payments Revenue Growth 26.3% 18.9% 34.0% 29.1% 29.6% 30.1% 30.5%





Cost of Net Enterprise Revenue 374 696 821 904.06$ 1,048.71$ 1,216.51$ 1,411.15$ 1,636.93$ Cost of Net Enterprise Revenue/Net Enterprise Revenue 63.4% 64.3% 73.8% 63.4% 63.4% 63.4% 63.4% 63.4%

Cost of Other Revenue 11 38 20 6.956521739 6.956521739 6.956521739 6.956521739 6.956521739Cost of Other Revenue/Net Other Revenues 137.5% 223.5% 87.0% 87.0% 87.0% 87.0% 87.0% 87.0%






Provision for transaction and loan losses 517 580 791 808.03$ 968.73$ 1,170.40$ 1,424.93$ 1,747.97$ Provision for transaction and loan losses/Net revenues 4.4% 4.1% 4.9% 4.1% 4.1% 4.1% 4.1% 4.1%



Income from operations 2,373.00$ 2,888.00$ 3,371.00$ 4,631.11$ 5,395.26$ 6,330.61$ 7,482.56$ 8,910.31$ Income from operations growth 22% 17% 37% 17% 17% 18% 19%

NOPAT 1,959.70$ 2,443.19$ 2,777.72$ 3,917.82$ 4,564.27$ 5,355.56$ 6,330.09$ 7,537.94$

Interest and other, net 1537 196 95 98.02$ 117.52$ 141.98$ 172.86$ 212.05$ Interest and other, net/Net revenues 13.2% 1.4% 0.6% 0.5% 0.5% 0.5% 0.5% 0.5%

Income before income taxes 3,910.00$ 3,084.00$ 3,466.00$ 4,729.13$ 5,512.77$ 6,472.59$ 7,655.42$ 9,122.36$ Income before income taxes growth -‐21% 12% 36% 17% 17% 18% 19%Provision for income taxes (681.00)$ (475.00)$ (610.00)$ 728.38$ 849.08$ 996.91$ 1,179.09$ 1,405.03$ Provision for income taxes/Income before income taxes 17.4% 15.4% 17.6% 15.4% 15.4% 15.4% 15.4% 15.4%

Net income 3,229.00$ 2,609.00$ 2,856.00$ 5,457.52$ 6,361.85$ 7,469.50$ 8,834.51$ 10,527.39$


21

11. Balance Sheet/Working Capital – Upside Case Note: This model was not used because it would represent a material increase in eBay’s financial results. Cash and short-term investments were not projected forwards, so Net Working Capital was projected off of Net Revenue.

Balance Sheet and Working Capital 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018EAssetsCurrent AssetsCash and Cash Equivalents 4691 6817 4494Short-‐term Investments 1238 2591 4531Accounts Receivable, net 682 822 899 1,074.22$ 1,287.86$ 1,555.96$ 1,894.34$ 2,323.81$ Days Sales Outstanding 21.36 21.32 20.45 20.00 20.00 20.00 20.00 20.00Loans and Interest Receivable, net 1501 2160 2789 3,528.82$ 4,230.61$ 5,111.32$ 6,222.90$ 7,633.70$ Loans and Interest Receivable, net/Net Revenue 12.9% 15.3% 17.4% 18.0% 18.0% 18.0% 18.0% 18.0%Funds Receivable and Customer Accounts 3968 8094 9260 11,762.73$ 14,102.03$ 17,037.74$ 20,742.99$ 25,445.68$ Funds Receivable and Customer Accounts/Net Revenue 34.1% 57.5% 57.7% 60.0% 60.0% 60.0% 60.0% 60.0%Other Current Assets 581 914 1310 1,764.41$ 2,115.31$ 2,555.66$ 3,111.45$ 3,816.85$ Other Current Assets/Net revenue 5.0% 6.5% 8.2% 9.0% 9.0% 9.0% 9.0% 9.0%Total Current Assets 12,661.00$ 21,398.00$ 23,283.00$ 18,130.18$ 21,735.81$ 26,260.69$ 31,971.67$ 39,220.04$

Long-‐term investments 3044 4971 6,273.46$ 7,521.08$ 9,086.80$ 11,062.93$ 13,571.03$ Long-‐term investments/Total Net Revenues 21.6% 31.0% 32.0% 32.0% 32.0% 32.0% 32.0%Property and equipment, net 2491 2760 3,470.36$ 4,160.53$ 5,026.65$ 6,119.81$ 7,507.25$ Property and equipment, net/Total Net Revenues 17.7% 17.2% 17.7% 17.7% 17.7% 17.7% 17.7%Goodwill 8537 9267 11,893.41$ 14,258.70$ 17,227.02$ 20,973.43$ 25,728.37$ Goodwill/Total Net Revenues 60.7% 57.7% 60.7% 60.7% 60.7% 60.7% 60.7%Intangible assets, net 1128 941 1,571.48$ 1,884.01$ 2,276.22$ 2,771.23$ 3,399.51$ Intangible assets, net/Total Net Revenues 8.0% 5.9% 8.0% 8.0% 8.0% 8.0% 8.0%Other assets 476 266 663.14$ 795.03$ 960.53$ 1,169.42$ 1,434.54$ Other assets/Total Net Revenues 3.4% 1.7% 3.4% 3.4% 3.4% 3.4% 3.4%Total assets 37,074.00$ 41,488.00$ 42,002.04$ 50,355.16$ 60,837.91$ 74,068.49$ 90,860.73$


Current LiabilitiesShort-‐term Debt 565 413 5Accounts Payable 282.00$ 301.00$ 309.00$ 491.30$ 601.78$ 742.36$ 922.12$ 1,153.07$ Days Payable Outstanding 29.74 26.06 22.40 29.74 29.74 29.74 29.74 29.74Funds Payable and Amounts Due to Customers 3,968.00$ 8,094.00$ 9,260.00$ 6,676.18$ 8,003.90$ 9,670.12$ 11,773.11$ 14,442.22$ Funds Payable and Amounts Due to Customers/Net Revenue 34.1% 57.5% 57.7% 34.1% 34.1% 34.1% 34.1% 34.1%Accrued Expenses and Other Current Liabilities 1,511.00$ 1,916.00$ 2,799.00$ 2,542.27$ 3,047.86$ 3,682.35$ 4,483.16$ 5,499.54$ Accrued Expenses and Other Current Liabilities/Net Revenue 13.0% 13.6% 17.4% 13.0% 13.0% 13.0% 13.0% 13.0%Deferred Revenue 110.00$ 137.00$ 158.00$ 185.08$ 221.88$ 268.07$ 326.37$ 400.36$ Deferred Revenue/Net Revenue 0.94% 0.97% 0.98% 0.94% 0.94% 0.94% 0.94% 0.94%Income Taxes Payable 298.00$ 63.00$ 107.00$ 87.77$ 156.72$ 127.13$ 230.52$ 189.87$ Income Taxes Payable/Net Revenue 2.6% 0.4% 0.7% 0.4% 0.7% 0.4% 0.7% 0.4%Total Current Liabilities 6,734.00$ 10,924.00$ 12,638.00$ 9,982.59$ 12,032.14$ 14,490.04$ 17,735.28$ 21,685.06$

Deferred and other tax liabilities, net 972.00$ 841.00$ 980.23$ 1,175.17$ 1,419.81$ 1,728.58$ 2,120.47$ Deferred and other tax liabilities, net/Total Net Revenues 6.9% 5.2% 5.0% 5.0% 5.0% 5.0% 5.0%Long-‐term debt 4106 4117 4117 3,268.00$ 3,268.00$ 1,000.00$ 1,000.00$ Other liabilities 207 244 288.38$ 345.74$ 417.71$ 508.55$ 623.85$ Other liabilities/Total Net Revenues 1.47% 1.52% 1.47% 1.47% 1.47% 1.47% 1.47%Total Liabilities 16,209.00$ 17,840.00$ 15,368.20$ 16,821.05$ 19,595.56$ 20,972.42$ 25,429.38$


Net Working Capital 5,927.00$ 10,474.00$ 10,645.00$ 14,591.96$ 17,493.92$ 21,135.75$ 25,732.19$ 31,566.00$ Net Working Capital/Net Revenue 51% 74% 66% 74% 74% 74% 74% 74%Change in Net Working Capital 4,547.00$ 171.00$ 3,946.96$ 2,901.96$ 3,641.82$ 4,596.45$ 5,833.80$




22

12. Depreciation, Amortization, Capital Expenditures – Upside Case

13. Discounted Cash Flow Valuation – Upside Case


Cash Flows From Investing ActivitiesPurchases of Property and Equipment 1,250.00$ 1,257.00$ 963.00$ 980.23$ 1,175.17$ 1,419.81$ 1,728.58$ 2,120.47$ Purchases of Property and Equipment/Net Revenue 10.7% 8.9% 6.0% 5.0% 5.0% 5.0% 5.0% 5.0%





2.90% 89.81$ 71.24$ 58.82$ 56.87$ 49.97$ 43.35$ 3% 91.03$ 71.88$ 59.18$ 57.19$ 50.17$ 43.46$

3.10% 92.31$ 72.54$ 59.55$ 57.52$ 50.38$ 43.58$ 3.20% 93.66$ 73.23$ 59.93$ 57.86$ 50.59$ 43.69$

23

14. Income Statement model – Downside Case (Note: This model was not used, because the downside case represents a material decline in eBay’s performance, which is not very likely in the next few years.)




Net Payments Revenue Growth 26.3% 18.9% -‐3.3% 19.2% 19.3% 19.5% 19.6%





Cost of Net Enterprise Revenue 374 696 821 793.16$ 872.47$ 959.72$ 1,055.69$ 1,161.26$ Cost of Net Enterprise Revenue/Net Enterprise Revenue 63.4% 64.3% 73.8% 75.0% 75.0% 75.0% 75.0% 75.0%

Cost of Other Revenue 11 38 20 9.6 9.6 9.6 9.6 9.6Cost of Other Revenue/Net Other Revenues 137.5% 223.5% 87.0% 120.0% 120.0% 120.0% 120.0% 120.0%






Provision for transaction and loan losses 517 580 791 827.38$ 943.63$ 1,079.72$ 1,239.07$ 1,425.83$ Provision for transaction and loan losses/Net revenues 4.4% 4.1% 4.9% 5.1% 5.1% 5.1% 5.1% 5.1%



Income from operations 2,373.00$ 2,888.00$ 3,371.00$ 2,642.17$ 2,961.46$ 3,330.20$ 3,755.39$ 4,245.19$ Income from operations growth 22% 17% -‐22% 12% 12% 13% 13%

NOPAT 1,959.70$ 2,443.19$ 2,777.72$ 2,166.58$ 2,428.40$ 2,730.77$ 3,079.42$ 3,481.06$

Interest and other, net 1537 196 95 2,139.97$ 2,440.66$ 2,792.62$ 3,204.79$ 3,687.82$ Interest and other, net/Net revenues 13.2% 1.4% 0.6% 13.2% 13.2% 13.2% 13.2% 13.2%

Income before income taxes 3,910.00$ 3,084.00$ 3,466.00$ 4,782.14$ 5,402.12$ 6,122.83$ 6,960.19$ 7,933.01$ Income before income taxes growth -‐21% 12% 38% 13% 13% 14% 14%Provision for income taxes (681.00)$ (475.00)$ (610.00)$ 860.79$ 972.38$ 1,102.11$ 1,252.83$ 1,427.94$ Provision for income taxes/Income before income taxes 17.4% 15.4% 17.6% 18.0% 18.0% 18.0% 18.0% 18.0%

Net income 3,229.00$ 2,609.00$ 2,856.00$ 5,642.93$ 6,374.50$ 7,224.94$ 8,213.02$ 9,360.96$


24

15. Balance Sheet/Working Capital – Downside Case Note: This model was not used, because the downside case represents a material decline in eBay’s performance, which is not very likely in the next few years.

Balance Sheet and Working Capital 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018EAssetsCurrent AssetsCash and Cash Equivalents 4691 6817 4494Short-‐term Investments 1238 2591 4531Accounts Receivable, net 682 822 899 949.55$ 1,082.97$ 1,239.15$ 1,422.04$ 1,636.37$ Days Sales Outstanding 21.36 21.32 20.45 21.36 21.36 21.36 21.36 21.36Loans and Interest Receivable, net 1501 2160 2789 2,089.85$ 2,383.49$ 2,727.21$ 3,129.73$ 3,601.45$ Loans and Interest Receivable, net/Net Revenue 12.9% 15.3% 17.4% 12.9% 12.9% 12.9% 12.9% 12.9%Funds Receivable and Customer Accounts 3968 8094 9260 5,524.66$ 6,300.93$ 7,209.59$ 8,273.66$ 9,520.68$ Funds Receivable and Customer Accounts/Net Revenue 34.1% 57.5% 57.7% 34.1% 34.1% 34.1% 34.1% 34.1%Other Current Assets 581 914 1310 808.93$ 922.59$ 1,055.64$ 1,211.44$ 1,394.03$ Other Current Assets/Net revenue 5.0% 6.5% 8.2% 5.0% 5.0% 5.0% 5.0% 5.0%Total Current Assets 12,661.00$ 21,398.00$ 23,283.00$ 9,372.99$ 10,689.99$ 12,231.59$ 14,036.86$ 16,152.53$

Long-‐term investments 3044 4971 3,509.32$ 4,002.42$ 4,579.60$ 5,255.51$ 6,047.64$ Long-‐term investments/Total Net Revenues 21.6% 31.0% 21.6% 21.6% 21.6% 21.6% 21.6%Property and equipment, net 2491 2760 2,757.93$ 3,145.45$ 3,599.05$ 4,130.24$ 4,752.76$ Property and equipment, net/Total Net Revenues 17.7% 17.2% 17.0% 17.0% 17.0% 17.0% 17.0%Goodwill 8537 9267 8,922.72$ 10,176.45$ 11,643.99$ 13,362.54$ 15,376.57$ Goodwill/Total Net Revenues 60.7% 57.7% 55.0% 55.0% 55.0% 55.0% 55.0%Intangible assets, net 1128 941 811.16$ 925.13$ 1,058.54$ 1,214.78$ 1,397.87$ Intangible assets, net/Total Net Revenues 8.0% 5.9% 5.0% 5.0% 5.0% 5.0% 5.0%Other assets 476 266 162.23$ 185.03$ 211.71$ 242.96$ 279.57$ Other assets/Total Net Revenues 3.4% 1.7% 1.0% 1.0% 1.0% 1.0% 1.0%Total assets 37,074.00$ 41,488.00$ 25,536.34$ 29,124.47$ 33,324.49$ 38,242.89$ 44,006.94$


Current LiabilitiesShort-‐term Debt 565 413 5Accounts Payable 282.00$ 301.00$ 309.00$ 288.47$ 331.85$ 382.90$ 443.05$ 514.00$ Days Payable Outstanding 29.74 26.06 22.40 20.00 20.00 20.00 20.00 20.00Funds Payable and Amounts Due to Customers 3,968.00$ 8,094.00$ 9,260.00$ 9,409.41$ 10,731.53$ 12,279.12$ 14,091.41$ 16,215.30$ Funds Payable and Amounts Due to Customers/Net Revenue 34.1% 57.5% 57.7% 58.0% 58.0% 58.0% 58.0% 58.0%Accrued Expenses and Other Current Liabilities 1,511.00$ 1,916.00$ 2,799.00$ 2,920.16$ 3,330.48$ 3,810.76$ 4,373.20$ 5,032.33$ Accrued Expenses and Other Current Liabilities/Net Revenue 13.0% 13.6% 17.4% 18.0% 18.0% 18.0% 18.0% 18.0%Deferred Revenue 110.00$ 137.00$ 158.00$ 162.23$ 185.03$ 211.71$ 242.96$ 279.57$ Deferred Revenue/Net Revenue 0.94% 0.97% 0.98% 1.00% 1.00% 1.00% 1.00% 1.00%Income Taxes Payable 298.00$ 63.00$ 107.00$ 414.91$ 473.21$ 541.45$ 621.36$ 715.01$ Income Taxes Payable/Net Revenue 2.6% 0.4% 0.7% 2.6% 2.6% 2.6% 2.6% 2.6%Total Current Liabilities 6,734.00$ 10,924.00$ 12,638.00$ 13,195.18$ 15,052.09$ 17,225.93$ 19,771.97$ 22,756.21$

Deferred and other tax liabilities, net 972.00$ 841.00$ 1,120.59$ 1,278.04$ 1,462.34$ 1,678.17$ 1,931.11$ Deferred and other tax liabilities, net/Total Net Revenues 6.9% 5.2% 6.9% 6.9% 6.9% 6.9% 6.9%Long-‐term debt 4106 4117 4117 3,268.00$ 3,268.00$ 1,000.00$ 1,000.00$ Other liabilities 207 244 259.57$ 296.04$ 338.73$ 388.73$ 447.32$ Other liabilities/Total Net Revenues 1.47% 1.52% 1.60% 1.60% 1.60% 1.60% 1.60%Total Liabilities 16,209.00$ 17,840.00$ 18,692.33$ 19,894.17$ 22,295.01$ 22,838.87$ 26,134.64$


Net Working Capital 5,927.00$ 10,474.00$ 10,645.00$ 8,252.18$ 9,411.70$ 10,768.96$ 12,358.36$ 14,221.04$ Net Working Capital/Net Revenue 51% 74% 66% 51% 51% 51% 51% 51%Change in Net Working Capital 4,547.00$ 171.00$ (2,392.82)$ 1,159.52$ 1,357.25$ 1,589.41$ 1,862.68$




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16. Depreciation, Amortization, Capital Expenditures – Downside Case Note: This model was not used, because the downside case represents a material decline in eBay’s performance, which is not very likely in the next few years.

17. Discounted Cash Flow Analysis – Downside Case Note: This model was not used, because the downside case represents a material decline in eBay’s performance, which is not very likely in the next few years.


Cash Flows From Investing ActivitiesPurchases of Property and Equipment 1,250.00$ 1,257.00$ 963.00$ 1,740.38$ 1,984.92$ 2,271.16$ 2,606.37$ 2,999.21$ Purchases of Property and Equipment/Net Revenue 10.7% 8.9% 6.0% 10.7% 10.7% 10.7% 10.7% 10.7%





2.90% 46.74$ 38.12$ 32.34$ 31.43$ 28.20$ 25.10$ 3% 47.30$ 38.41$ 32.50$ 31.57$ 28.29$ 25.15$

3.10% 47.90$ 38.72$ 32.67$ 31.73$ 28.39$ 25.20$ 3.20% 48.52$ 39.04$ 32.85$ 31.88$ 28.49$ 25.26$

Documents

BUAD 325-Security Analysis Report