Mark Rowen - VP, IR John Donahoe - CEO Bob Swan - CFO

Doug Anmuth - Barclays Capital Scott Devitt - Stifel Nicolaus Mark Mahaney - Citi Steve Weinstein - Pacific Crest Jeffrey Lindsay - Sanford Bernstein Christa Quarles - Thomas Weisel Ben Schachter - UBS Justin Post - Merrill Lynch Youssef Squali - Jefferies & Company Imran Khan - JPMorgan

Good day, everyone. Welcome to eBay's fourth quarter and year end 2008 earnings results conference call. (Operator Instructions). At this time I would like to turn the conference over to Mark Rowen, VP of Investor Relations. Please, go ahead, sir.

Thank you, operator. Good afternoon. Thank you for joining us and welcome to eBay's earnings release conference call for the fourth quarter and full year of 2008. Joining me on today's call are John Donahoe, our President and Chief Executive Officer, and Bob Swan, our Chief Financial Officer. We are providing a slide presentation to accompany Bob's commentary during the call. This conference call is also being broadcast on the Internet and both, the presentation and call, are available through the Investor Relations section of the eBay website at investor.eBay.com. Before we begin, I'd like to remind you that during the course of this conference call we'll discuss some non-GAAP measures in talking about our company's performance. You can find the reconciliation of, those measure to the nearest comparable GAAP measures, in the slide presentation accompanying the conference call. In addition, Management may make forward-looking statements relating to our future performance that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties, including those relating to the company's ability to grow its business, user base and user activity. Our actual results may differ materially from those discussed in this call for a variety of reasons, including, but not limited to, the impact of recent global economic events and the global economic downturn, foreign exchange rate fluctuations, changes in political business and economic conditions, our ability to profitably expand our business model to new types of merchandise and sellers, the impact and integration of recent and future acquisitions, our increasing need to grow revenues from existing users in established markets, an increasingly competitive environment for our businesses, the complexity of managing a growing company with a broad range of businesses, our need to manage regulatory tax, IP and litigation risks, including risks specific to PayPal and the financial industry and risks specific to Skype's technology and to the VoIP industry, and our need to upgrade our technology and customer service infrastructure at reasonable cost, while adding new features and maintaining site stability. You can find more information about factors that could affect our operating results in our most recent Annual Report on our Form 10-K and our subsequent quarterly reports on Form 10-Q available at investor.eBay.com. You should not unduly rely on any forward-looking statements and we assume no obligation to update them. All information in the presentation is as of January 21, 2009, and we do not intend and undertake any duty to update this presentation. And now I'll turn the call over to John.

Thank you, Mark. Good afternoon, everyone. Welcome to our Q4 earnings call. Today I'll talk about our results from both the Q4 and annual perspective. I'll then outline our key priorities for the coming year, before turning it over to Bob, for more details on the quarter and our Q1 '09 outlook. Let's start with a quick look at our Q4 results. Clearly, we've been operating in an almost unprecedented external environment. You are all aware of the news that we've been reading. This is an extremely difficult holiday season where consumer spending dropped dramatically, while retail sales experienced the biggest decline in decades and even e-commerce saw negative growth for the first time. There is no doubt that eBay was impacted by the macro economy, and our fourth quarter results reflect this. Our revenue for the quarter was down about 7% to just over $2 billion, non-GAAP EPS was down about 9% to $0.41. This is eBay's first negative year-over-year quarter. We are not happy about that, however, our Q4 revenue is within the quarterly guidance we set and our EPS is at the high-end. We knew the holiday season would be extremely challenging and we managed our business with a prudent mix of operating discipline and competitiveness. We fought for our sellers and buyers. Our focus was helping our sellers compete in a brutal competitive environment and offered great deals for buyers on eBay, while continuing to grow PayPal, and the rest of our portfolio, faster than e-commerce and we achieved these goals. Let me provide a couple of examples. On eBay, our highest rated sellers, those rated 4A and above, grew their businesses 17% in the fourth quarter, once again demonstrating that sellers who deliver the best deal and a great shopping experience are growing their businesses on eBay. PayPal Merchant Services' total payment volume grew 35% in Q4, despite slowing e-commerce growth and classifieds continued to thrive in this tough economic environment. To summarize, Q4 created unique challenges, but we executed well in a difficult environment. Now, let me turn to the full year. Overall, our annual financial results met the initial guidance we set at the beginning of the year, and we accomplished this in a year where we embraced a tremendous amount of fundamental change and a year where the external market deteriorated significantly. Our performance for the full year, not only reflects the strength of our portfolio, but also the operating discipline and strategic clarity and focus with which our Management team is leading the company going forward. When I was named Chief Executive Officer at the beginning of last year, I said that we are a strong company with a great portfolio of assets. I also said that our user experience on eBay had not kept up and we needed to do make some fundamental changes to that business, and so, I set three clear priorities. First, make eBay safer and easier to use. Second, improve value and selection by combining fixed price with auctions in a uniquely eBay way. Third, extend PayPal's leadership position both on and off eBay. At the beginning of the year, I said that we would move aggressively in 2008 and exit the year a stronger company, but that achieving our priorities would take time. So, let me recap how we did. We made more fundamental changes to our core eBay business than any point in our history, most of which we implemented in the second half of the year. Many of these changes were overdue and were things that our sellers had been asking for and our buyers had come to expect. Today, eBay is safer and easier to use than a year ago. Our pricing is more competitive, our success is more aligned with that of our sellers and the fixed price and auctions are becoming more balanced. But let me be clear, we still have a lot of work to do. We are evolving a large and complex marketplace, and the significant structural changes we made in 2008, provide the necessary foundation for us to continue moving aggressively ahead to accelerate growth in our core business. We also continue to expand the number of ways we connect buyers and sellers. We have strong momentum in advertising, classifieds and StubHub. For the full year, text and graphical advertising revenue was up 139%, StubHub was up 54%, and classifieds grew 57%. These alternative ecommerce formats are increasingly giving us profitable, scalable and more diverse ways to monetize our traffic and connect buyers and sellers. Collectively, our alternative formats delivered over $1 billion in revenue in 2008. We've also strengthened PayPal both on and off eBay. PayPal increased its penetration on eBay by nine points during 2008 to 63%, and we significantly expanded market share off eBay during the year. We reached two important milestones for PayPal during 2008. For the first time, PayPal TPV of eBay, exceeded volume on eBay and PayPal Merchant Services business is now a $1 billion business, up 45% year-over-year. We also made two acquisitions that strengthened PayPal during the year, which I'll elaborate more on in a minute. Skype had a terrific year. Revenues of $551 million were up 44% and registered users reached 405 million, up 47%, and Skype's user metrics improved significantly during the year. As I said many times, Skype is a great standalone business, and more and more people around the world are discovering the power of Skype as a communications tool. I love the Skype anecdote that Vice President, Biden and his wife Jill shared earlier this week on Oprah. Using Skype on their laptop, the Biden's chatted live by video with their son who was in Iraq, while the Biden's were backstage on election night. What a fabulous example of how Skype helps families to share important moments together, regardless of where they are in the world. Now across our portfolio, technology is increasingly a key enabler of our growth and we invested more in our eBay and PayPal technology platforms in 2008 than ever before. We also significantly strengthened our portfolio through the acquisitions of Fraud Sciences', Bill Me Later, DBA and BilBasen. Fraud Sciences' enhances PayPal to risk management capabilities; Bill Me Later further extends our leadership position in payments; and DBA and BilBasen, the top sites in Denmark, broaden our global leadership in online classifieds. Now, while strategically investing $1.6 billion in our portfolio through these acquisitions, we also maintained a healthy balance sheet, ending the year with more than $3 billion in cash. Organizationally, we strengthened our management team and drove greater operating discipline across our company. As the economy began to turn, we took decisive action early and quickly to simplify our organization and reduce our global workforce by approximately 10%. As a result, we are entering 2009 with a prudent cost structure. And last, but not least, we met our financial commitments to you. Simply put, we did what we said we would do. We delivered double-digit revenue and earnings growth and generated $2.3 billion in free cash flow, while maintaining a healthy balance sheet. All-in-all, we played a pretty decent game when most playbooks failed. That's not to say we're content. We are aware of the challenges we face, and I am intent on continuing to address these. But we also have significant opportunities and I'm confident about our company's future. We have exited 2008 a stronger company. Our portfolio is more diversified than ever and we are more effectively monetizing our platforms in a greater variety of ways. And I'll remind you that we have proven business models that have significant growth opportunities. We still have a lot of work to do in our core eBay business. Our priorities, on making eBay safer and easier to use and improving value and selection, remain consistent for 2009. We are making the necessary changes, tough changes, and we are doing so with focus and conviction. At the same time, we have a powerful portfolio; one that, I frankly believe, is not fully credited in the value of the company. And during 2009, PayPal, Bill Me Later, advertising, classifieds, Stub Hubs and our other businesses will continue to contribute more revenue, more earnings and more opportunities as we grow, scale and diversify the ways in which we connect buyers and sellers and monetize traffic. We are the global ecommerce leader and we intend to maintain and extend that position. The macroeconomic environment will continue to be extremely challenging in 2009, and we plan conservatively. But tough times create opportunities for strong companies to get stronger and we intended to do just that in 2009. Now, I will turn it over to Bob for more details on the quarter and our financial outlook for Q109.

Thanks, John. First I'll review our Q4 and full year 2008 financial performance in some detail, and then I'll discuss guidance for the first quarter of 2009. During my discussion I'll reference our earnings slides presentation that accompanies the webcast. All growth rates mentioned in my prepared remarks represent year-over-year comparisons, unless I clarify otherwise. Overall, our revenue was down 7%, non-GAAP earnings were down 9%, and we generated $525 million in free cash flow during the quarter. Q4 financial results were impacted by a difficult economic environment coupled with a strengthening US dollar. Through belt tightening, we were able to deliver at the high end of our EPS guidance range despite the fact that revenue came in at the low end. 2008 overall was a good year financially; strong revenue growth, stronger EPS growth and excellent free cash flow. We had a strong first half with revenue and EPS up 22% and 25% respectively, but the second half proved to be extremely challenging as global ecommerce slowed, the dollar strengthened considerably, and interest rates declined. Let's take a closer look at our Q4 results. Our combined businesses generated net revenues of $2 billion in the fourth quarter, a 7% decrease. Organic revenue, excluding acquisitions and foreign exchange was down 3%, and couponings spending reduced revenue growth by an additional three points. Revenue was negatively impacted throughout the quarter by weakness in the economy as well as a much stronger US dollar. Despite the tough economic environment, PayPal Merchant Services, Classifieds, advertising and Skype delivered strong growth. Non-GAAP EPS was $0.41 in the quarter, a 9% decrease. Excluding the impact of the strengthening dollar, our EPS increased 7%. Tight cost controls offset the impact of lower volume and higher coupon expense. Our operating margins for the quarter were 32.8%. We generated free cash flow of $525 million, and CapEx, as a percentage of revenues, came in at 8%. Return on invested capital decreased to 26.6% on a trailing 12-month basis. The decline was primarily attributable to an increase in invested capital due to the acquisitions of Bill Me Later and DBA and BilBasen in the quarter. Now, let's take a look at our segment results. Overall, our Marketplaces businesses segment achieved net revenues of $1.3 billion, a 16% decrease. Excluding the impact of currency, revenues were down 10%. Transaction revenue decreased 18%, while marketing services revenues stayed flat. The year-over-year change in transaction revenues was primarily driven by declining ASP's, a strengthening dollar, as well as our coupon campaign and seller discounts, which are recorded as contra-revenue. Marketing services continued to become a bigger component of the Marketplaces revenue as we expand our formats and methods of monetization on the site. Classifieds grew 48%, text and graphical advertising were up 47%, but Shopping.com declined 50%, as rule changes, made by search engines last summer, disrupted Shopping's traffic. A couple of quick highlights on operational metrics for Marketplaces. Active user growth came in at 5% on a trailing twelve-month basis, excluding China and Taiwan; sold items were up 3% in the quarter, GMV on a geographic basis had the US, excluding vehicles, down 9%, and international flat on an FX neutral basis. We remain encouraged by our progress in the fixed price format, which accounted for 49% of GMV in the quarter, and continued to perform better than the market. Now, let's turn to our payments business. PayPal posted a strong quarter and now represents 31% of companywide revenues. Total revenue came in at $623 million, an 11% increase. Total payment volume was $16 billion, an increase of 14%. TPV increased by 13% in the US while growing by 15% internationally. PayPal continues to move towards ubiquity on the web through increased penetration on eBay, and an increasingly expanded footprint beyond eBay. PayPal extended its international presence with 45% of revenues coming from outside the US. In key operating metrics, global active PayPal accounts grew to 70 million, an increase of 23%. On eBay, PayPal's global penetration rate of addressable GMV increased to 63%. Beyond the eBay platform, PayPal Merchant Services business posted a strong quarter despite the difficult economic environment. Merchant Services recorded $8.3 billion of global TPV in the quarter, representing 35% growth, and accounting for 52% of total TPV. PayPal's global take rate came in at 3.78% in the first quarter, while transaction margins were 61%. I'd also like to discuss some key operating metrics for our latest acquisition, Bill Me Later, a leading online transactional credit provider. This strategic addition to our portfolio strengthens and extends PayPal's leadership position in online payments. Our portfolio balance at year end was $570 million. BML's unique transactional based credit decisioning model enables the business to adapt to the changing economic environment, while earning a higher than industry average risk adjusted margin. In a tough credit climate the BML team has been tightening their credit decisioning model. As expected, net charge-offs as a percent of receivables have increased moderately, but the increase is much less than other credit issuers, and in line with our expectations. We continue to make progress with the integration of Bill Me Later and PayPal. We terminated BML's high cost financing facility and replaced it with eBay's lower cost to borrowing. Cross promotional efforts with the BML and PayPal customers is progressing as expected and we've begun integrating our risk management and sales function as well. The acquisition is off to a great start. Now let's turn to our communications business. Skype posted total revenue of $145 million in the quarter, an increase of 26%. Excluding currency translation, Skype revenue accelerated 5 points in the quarter. Total registered users grew to an impressive 405 million, representing an increase of 47%. Skype-to-Skype minutes increased to more than 20 billion in the quarter, to represent 72% growth. SkypeOut increased by 61% to 2.6 billion minutes. The team at Skype continues to invest and grow the business, while maintaining attractive margins. Overall, Skype had an extremely good year with strong user metrics and an increasing global footprint, recording over $550 million in revenue and segment margins of approximately 21%. Now, let me touch briefly on ink level operating expenses and cash position before I discuss guidance. We recorded $668 million of non-GAAP operating income and non-GAAP net income of $524 million. Sales and marketing as a percent of revenue decreased by 300 basis points, largely due to investments in buyer loyalty and retention, much of which gets recorded as contra-revenue instead of being expensed as sales and marketing. Product development came in 30 basis points higher than last year, while G&A was 80 basis points lower. We now have a separate line item provision for losses which includes a number of items including transaction losses in marketplaces and PayPal, consumer protection guarantees, and BML loan losses. Cash and cash equivalents were $3.2 billion at year end. Of this, $300 million was held in the US. Net cash was $2.2 billion as we drew down $1 billion on our line of credit to finance the BML acquisition. We had $840 million remaining on our credit facility at the end of the year. Before we get to the outlook for 2009, I'd like to put the full year 2008 in context. Overall, it was a strong year for us. We delivered $8.5 billion in revenues and 11% increase, $1.71 of EPS, a 12% increase, and we generated $2.3 billion of free cash flow during the course of the year. We delivered solid operating margins of 32%, with segment margins flat or better across all three of our business segments for the year. It was a year where we embarked on a series of bold actions to improve the competitiveness of our core eBay business, expanding selection, making the site safer and easier to use, and improving the value of deals on the site. John captured this earlier in his remarks. We've demonstrated some good progress, but lots of work remains to be done. We also continued to expand the ways we connect our community of users across our portfolio of businesses, and as a result, we have an increasingly diverse portfolio of businesses and revenue streams. Over the last three years, we've virtually doubled the size of the company, expanded our global footprint with 54% of our business coming from outside the US and diversified our revenue stream with about 45% of revenues coming from non-eBay transaction revenue. Our recent acquisition of Bill Me Later, DBA, and BilBasen will allow us to continue to extend the ways we connect buyers and sellers. We have lots of work to do, but believe we end 2008 with a stronger and healthier portfolio of businesses well-positioned to deal with extremely turbulent economic times. Let me put some context around our guidance. Historically, we've given full-year guidance on our Q1 call and will not be doing so today. The uncertain and unprecedented economic environment, coupled with the volatile currency movement, make it difficult to provide any meaningful outlook beyond the first quarter, so, let me turn to our first quarter non-GAAP guidance. In Q1, we expect to generate revenues of $1.8 billion to $2.05 billion, and non-GAAP EPS of $0.32 to $0.34. GAAP EPS is expected to be in the range of $0.21 to $0.23. Our guidance reflects tight cost controls against the backdrop of weaker consumer spending, along with a negative impact from foreign exchange and lower interest rates, both of which had a significant impact on our business. The midpoint of our guidance is down about 12%, over the first quarter of 2008. The biggest driver of this decline is a stronger US dollar, which will cost us approximately 10 points of growth in the quarter. Our EPS at $0.32 to $0.34 is down 22% year-on-year. The stronger dollar, lower interest rates, and dilutions from our recent acquisitions, will cost us approximately $0.11 in the quarter after adjusting for these factors. Tight cost controls will offset the impact from volume declines, mix and investments in our higher growth businesses. Without trying to predict where currencies and interest rates will be throughout the year, I've highlighted the impact these factor will have on the business, along with the dilution from acquisition, assuming rates to remain at their current levels, the combined impact on the full year would be more than $600 million in revenue, and $0.30 or more cents to EPS. Our challenge in this environment is to focus on what we can control, which means we will manage cost diligently as we seek a clear picture on the economy and the overall growth rate of the business. At the same time, we'll continue to invest in the higher growth businesses within our portfolio. In summary, as John said, we are clear about the challenges and opportunities we have in front of us. We are clear on what needs to be done in order to accelerate future growth in our eBay business, and I believe we have our best people in place to focus on our most difficult challenges. We will focus on growing and strengthening our portfolio, by extending our leadership position into ecommerce, online payments and online communication. We believe the financial architecture of our plan will allow us to invest in and continue to make the necessary changes to our business, while still delivering a strong top line, bottom line and free cash flow to our shareholders. And now we'd be happy to answer your questions. Operator?

(Operator Instructions). We will hear first from Doug Anmuth of Barclays Capital. Doug Anmuth - Barclays Capital: Great, thank you for taking my question. A couple of things; first, I was hoping that you could give some color on conversion rates and ASPs in terms of, I assume, the declines there, as you have in previous quarters. And then, secondly, can you comment on the increased emphasis that you guys have put recently on larger merchants and, in particular, the Buy.com relationship and how other similar ones have gone so far. Do you expect the platform to continue to move in this direction and what does this mean; overtime for some of the smaller sellers on eBay? Thank you.

Hey, Doug, let me tackle the first one and then have John address the second one. What we indicated for the quarter is our sold items grew by about 3%, and that's a function of the equation you've seen throughout the year, with strong listings growth, but having an impact on conversion rates. So conversion rates did come down. GMV and our core business, excluding vehicles, were down 4%, excluding the affect of currencies. The difference is a seven point decline in ASPs during the quarter, as we saw consumers continue to trade down and, also, we continue to serve up the great deals on eBay, in a more effective and efficient manner, with our new search platform.

And Doug, on your second question on the larger merchants; here's how we do it. Let me just say right up front, we are still committed to individual and small business sellers. So, that us creating opportunity for them to sell on eBay, is as true today as it was five years ago. That said, what sellers have been telling us for years, the most successful sellers that have been scaling their businesses, say that eBay is a very hard platform to scale on and at some point they reach a point where the way we operate is challenging for them, and so, we are evolving our platform to make it easier for larger merchants to upload higher volumes of inventory on eBay, and we are also trying to make it easier to move deep volume on eBay. One of the encouraging things that we saw in the fourth quarter was, you may have seen, our deal of the day promotions and we had several examples where sellers came in and said we are going to offer an extraordinary deal on a given item, and we had sellers that were moving 5,000, 6,000, 7,000 items within a 24-hour period of time. So we don't view it as either-or; our ambition is to have the most diverse selection and the most flexible platform so that both small sellers and large sellers can compete and drive good values and deals for our buyers.

Operator, we'll take the next question, and if we could ask the callers to limit themselves to one question, so more people get a chance to ask questions, we'd appreciate it.

Thank you and we'll move next to Scott Devitt with Stifel Nicolaus. Scott Devitt - Stifel Nicolaus: I'll limit it to one. In reference to Skype, in the slide you noted that the revenue accelerated by 500 basis points on an organic basis and so now, it's on a run rate of north of $600 million in revenue and segment margins of above $120 million. So, I was wondering if you could just update us on your thoughts or plans in terms of creating shareholder value with Skype. Thanks.

Thanks Scott. I said from the beginning, I think I said it a year ago, Skype is a great standalone business and that I was uncertain of the synergies between Skype and the other parts of our portfolio, and certainly today, I still think it's a great stand alone business. And as you referenced, I think we've done a great job on really strengthening this business this year. I think Josh Silverman and his team, who I put in during March or April, have had a very positive impact on this business. Skype-to-Skype minutes last Q4 were growing at 26%, today they are growing at 72%, primarily because more and more users are adopting this product in tough economic times; a free product has a lot of traction. SkypeOut minutes have gone from 7% last Q4 to 61% growth this Q4, and that said, it's a $600 million run rate with 20% margin. So, there is no doubt this is a great standalone business that's getting stronger. I think we are now confident that the synergies between Skype and the other parts of our portfolio are minimal. So, we are going to continue to run and operate the business. It's not a distraction currently and at such time when we have further announcement to that, we'll let you know, but for now, we are very pleased with the momentum of the business and it's not a distraction.

Thank you. Next question please.

Our next question will come from James Mitchell with Goldman Sachs. Mr. Mitchell, your line is open. You may be on mute. Hearing no response we'll move to our next question, Mark Mahaney with Citi. Mark Mahaney - Citi: Great, thanks. I wanted to ask about product development priorities on the Marketplace side. John, you've done a lot of changes, or eBay has done a lot of changes, both for targeting buyers and sellers. If you think about 2009, could you just tick off what you would now view as the top three priorities, in terms of improvements, you want to make? Thank you.

Sure, Mark. Thanks. So, I'm pleased with the progress we made in 2008. I'm frustrated it hasn't yet translated into enhanced revenue and GMV growth, but, at the beginning of the year we laid out three priorities, and let me just comment on each. I said that eBay's competitive position hasn't kept up and that we needed to focus first on safety or trust. And so a year ago, we had no incentives for sellers to provide a safe and good service experience. Today, we have DSRs and sellers discounts tied to DSRs, and there is evidence that it's clearly a safer place to shop, as evidenced by the high growth rates of high DSR sellers, but we still have more room to go. I said we want to make it easier. A year ago, we fully had pictures on two-thirds of the listings on eBay and today Gallery is an example with over 95%. But, we still need to make it easier. And then, on value and selection, this is the one we made the most fundamental or structural changes to. A year ago you'll remember, we were still using a fundamentally auctioned approach to both auctions and fixed priced in eBay. So, we treated all this things as the same, Time Ending Soonest was our search approach on all listings and we priced, both fixed price and auctions, exactly the same across all categories. And 12 short months later, we've rebalanced pricing overall, of both auctions and fixed price, and then we fundamentally changed how we approached fixed price, so that we can now optimize auctions and fixed price. Namely, we cut fixed price insertion fees to almost zero. We made them category based and we've gone in Q4 to popularity sort for fixed price item. So, I would characterize what we've done in 2008, as sort of making some of the necessary structural changes that provide the foundation for going forward. If I were to take each of those areas for 2009; in trust, or making it safer; we will continue to build on what we've done, but leverage the increased PayPal penetration and look for ways to provide enhanced guarantees, and when people have problems, our resolutions will be easier and more affective. On making it easier to use; I feel like we've made a good start on search in 2008, but I think we can make it even easier to shop on eBay in 2009 through enhanced search where we will get better and better. And then driving value and selection through the balancing auctions and fixed price in an equal eBay way. In 2008, we sort of got the fundamentals I described earlier in terms of pricing and search. In 2009, I think, you can look to see a more cohesive user experience that creatively blends auctions and fixed price in different categories and different ways as we compete throughout the year. So, I'm as frustrated as anyone that the changes we made in no way lead to more immediate results, but I feel like it sets us up to go after the key priorities in 2009, and continue this, what will be, multiyear path we're on. Mark Mahaney - Citi: Thank you, John.

Next question, please.

And next we will move to Steve Weinstein with Pacific Crest. Steve Weinstein - Pacific Crest: Thank you. So, as you mentioned, you shifted some of your promotional strategy more towards couponing and trying to drive repeat purchases. I'm wondering what we should expect here for Q1 and the rest of 2009, or are you going to shift the balance back towards a more traditional kind of marketing and advertising type of methods?

Steve, I feel like we made good progress in 2008. And frankly, given our penetration and scale in our more mature market, the competitive gain going forward, is not going to be adding the incremental new user. It's going to be, can we translate the strong user base we've got and large number of users and grow our share of wallet. And so, as you highlighted, we fairly significantly shifted our marketing mix in '08 more towards loyalty based and frequency based marketing. I think we learned a lot on couponing and on loyalty. Frankly, that helped us fight for our sellers in Q4. It was more a competitive fight against the discounts off on what we are providing. And I think, Q1 and the rest of '09 will continue to build on that. And it's interesting, I'm pleased that you see our active user growth with 5%, I wish that were higher, but that's some indication that activation rates are going up a little. Our sold item growth was 3%, I wish it were higher but it's higher than e-commerce growth rates and so we are going to continue to try to drive more frequency with our buyers and get them to shop more and more cross category. And I think we are just building our muscles, really, in those areas and will continue to build on the progress of '08 and drive it hard in '09 in what will be a very challenging competitive environment. Steve Weinstein - Pacific Crest: Thank you, that's helpful.

And Steve, the only thing I would add is, while strategically we will continue to do this, I think in '08, the year-over-year impact was fairly significant, because, we hadn't done that kind of loyalty retention based marketing in 2007. As we think about 2009, the year-over-year impact, we don't imagine, will be like it was in 2008, obviously, as we get to a more normalized level.

Let me just add one more thing to build on. Our IM efforts, we didn't talk a lot about in '08 our Internet Marketing efforts, but we continued to be, I believe, the largest purchaser of key words and continue to achieve efficiencies and productivity in our effectiveness, both to generate new users through IM, but also to generate repeat usage. So, I think we continue to be the best in the world at that.

Next question, please.

Next we will hear from Jeffrey Lindsay with Sanford Bernstein. Jeffrey Lindsay - Sanford Bernstein: Thank you for taking my question. It looks like the Bill Me Later net charge-off rate is going up. Could I ask how the company managed BML? And will the net charge-off ratio be allowed to rise above the credit card industry average going forward? And, just a point of qualification, is BML offered oversees? Thank you.

Let me take the second one first; on overseas, no, it's not offered. The ambitions of the PayPal and the Bill Be Later team are to take that functionality and competency overseas, but that's not where we are today. In terms of the net charge-offs, it did grow, what we don't know about the net charge-offs on a competitive basis is, how the others will come in when they report their Q4 results. So, we're not exactly sure how we rack and stack vis-à-vis the competition. But ours did trend up as we expected. What the team has done is they have tightened their credit decisioning model through the course of Q3 and Q4 to mitigate the impact of potential of higher losses. And that's their secret sauce and that's what they are great at. They have great risk management processes to ensure that in issuing transactional credit as opposed to a line of credit; with transactional credit, they can manage risk in a much more effective way than the rest of the industry. In terms of the net charge-offs itself, a couple of things different about the Bill Me Later model vis-à-vis the industry. And that is, their customer balance tends to turn more frequently and therefore their denominator isn't nearly as high. Therefore, all else equal, net charge-offs has a tendency to be a bit higher than industry. Secondly, in terms of balance transfers that the industry benefits from when they get somebody to switch credit card usage, is in the denominator of the competitive landscape and that's not a function of the BML model. So, all else equal, we expect that rate to be a little bit higher than the industry, just in terms of how it's measured. Our team continues to manage that very effectively with their credit decisioning model.

Next question, please, operator.

Our next question will come from Christa Quarles from Thomas Weisel. Christa Quarles - Thomas Weisel: Hi, I was curious about your hiring of Chris Payne. One of our views is that, in part of the issue on the site, it's just really a search problem, and I was wondering if you could highlight any specific product development that you expect to come out of that. And then just one quick housekeeping item, I was wondering if you could give us vehicle sales on a domestic and international split? Thanks.

So, thanks Christa. As you highlighted, for those that don't know, we bought a small search company in December and Chris Payne is the founder. We picked up Chris and a handful of other topnotch search engineers that not only have a deep background in search, but also brought some technologies we think would really help enhance our search capabilities. So, we are very excited about them joining our team, and we think they will help us accelerate our progress in search. And the way I feel of our step back on search, one of the real opportunities we have, is we have the close transaction data that no one else has online and, between eBay and PayPal, that's a real potential advantage. Frankly, 18 months ago we weren't even collecting that data, that close transaction data, and no way could we use it in search. So, I feel like search is stronger today than it was a year ago, and it will be stronger, a lot stronger a year from now than it is today. And our current search team I think, enhanced by Chris and his team, are going to make good progress. Again, in '08, it was kind of a year of some heavy lifting and fundamentals. We launched a new search platform; we went to Best Match Search for the first time. So for the first time we incorporated seller quality in search results. We improved the search and recall ability. We went to popularity or relevant space search in Q4 in fixed price, but we are learning. And I think in '09 we will build on those fundamentals, and I think it is, absolutely we have an opportunity to continue to improve the search experience on eBay. It's a journey that will probably never end, but it's one, that I think you'll see some real nice progress in '09.

Chris as it relates to the vehicles question, just probably worth just highlighting. We made a change in kind of how we disclose GMV for you this quarter, where we gave you GMV without vehicles on its own and GMV vehicles. And the reason we did that is because they are such different businesses. And the way we manage things and the way we'll present you on a go-forward basis is GMV x vehicles and GMV with vehicles. Secondly as it relates to vehicles itself, GMV was down about 30% in the quarter. On an FX neutral basis it was down about 24%. Revenues performed better than GMV on a global basis because we continue to monetize that platform in different ways and GMV becomes increasingly less relevant. We do not plan on breaking out global vehicles by geography, by US and international, so, you're going to have to use your historical relationships to try to get that split, if that's important for you. Christa Quarles - Thomas Weisel: Okay, thanks.

Next question please, operator.

(Operator Instructions) We will hear next from Ben Schachter with UBS. Ben Schachter - UBS: Given the uncertainty around the macro and your comments on cost controls, can you just help us understand what your internal target operating margins are for '09, and any change to any of the long-term operating margin targets among the various businesses. Thanks.

I'll tell you what we are trying to do to manage the business in this rather volatile environment, and I'll do it in the context of our first quarter guidance. So bear with me a second, because, I think it's important to kind of explain. While we couldn't provide full clarity for outlook for the year maybe explain how we are running the business. Last year's first quarter, we generated $0.42 of earnings per share, and I highlighted the three areas. How FX, how interest rates and how the acquisitions that we did are going to impact EPS in the first quarter of this year, which is a minus $0.11. So, we kind of started on January 1st with $0.31 of earnings and we are going to grow earnings to $0.33 in the quarter. And how we are going to do that in a fairly cloudy economic environment is - focus intently on the things that we can control, and the relationship we are trying to drive; is to make sure that our cost control and productivity that we generate more than offsets the impact of declines in volume and the change in mix in our business. That relationship, net-net, will generate a few pennies of EPS this quarter, best we can tell based on the range of volume that we guided to. That's how we'll manage the business through the course of the year. It's not necessarily targeting an operating margin rate for the company nor is it necessarily targeting operating margin rates by business unit. I will say that the implications of FX on our business will have an impact on our operating margin rates in the first quarter and we expect to have an impact on the full year.

Next question please.

Our next question will come from Justin Post with Merrill Lynch. Justin Post - Merrill Lynch: Thank you. It looks like you've taken a lot of initiatives to really improve the seller profile which will, presumably, help the buyers have better experiences. So I'm just wondering what you're thinking, as if you have more and larger sellers and reduce the number of total sellers, what that could do for long-term take rates and how you see that affecting your margins or do you really think that will have no net long-term effect. Just what your thoughts are as the seller mix changes?

Well, the first thing I'd say, Justin, is we have no, I would say, stated goals to shift our seller mix. As I said earlier, we think we've made it too difficult for larger sellers to sell on eBay historically. We're trying to make it easier. But at the end of the day, we are trying to create an opportunity where all sellers can compete for buyers business, and offer the best deal and the best service, and there are many examples where some of the absolute best deals on eBay and the best service come from smaller sellers. So I want to be clear on that. With respect to the impact on margin, I don't think we see any fundamental shift in margin. We have shifted our pricing in '08 to where we are somewhat indifferent between format, auction and fixed price, stores and core. And we have begun moving toward category based pricing. So, I think we are making some of the fundamental changes that allow sellers to compete and win on eBay. Anything you can add to that, Bob?

Justin, the only thing that I would say is, as a marketplace manager where we don't control the whole end-to-end experience and we don't have warehouses and we don't have inventory, we try to use incentives to ensure that sellers or particularly PowerSellers are creating a great experience for buyers, and from that, we believe, we can accelerate velocity of trade on the site. To the extent that the PowerSellers continue to dramatically improve their service levels over the long haul, we would expect to provide higher PowerSellers discounts which impact our take rate. And we believe that that is a great trade-off to make to continue to provide great service for buyers where PowerSeller discounts are a little bit higher, experiences of buyers is just that much better, and as a result, while take rate may be lower, velocity of trade on the site is higher. So, I think that over the long haul, that would be a lower take rate that we would feel great about because the experience we are providing is just that much better. Justin Post - Merrill Lynch: Great. Thank you.

Next question please, operator.

Our next question comes from Youssef Squali with Jefferies & Company. Youssef Squali - Jefferies & Company: Thank you very much. John, I want to go back to something you said earlier, something to the effect that, your portfolio of assets is not fairly credited in the value of the company. I guess an issue with that statement is that some of the parts kind of remain a theoretical exercise until investors feel that you are potentially serious about doing something in that vein. So, considering the trend of your depiction for '09, is there a point where a more drastic measure, I'm not talking necessarily just about a spinoff with PayPal, but, just a recap of the whole business, I mean, the alternative formats business is doing great. PayPal seems to be doing very well. The core business seems to be now maturing. Is there a point where a recap kind of becomes to be a “must” if shareholders are to make money in the stock?

Thanks for the question because I know it's on a lot of people's mind. Look, here's how we are thinking about it. We have a great portfolio, and I completely would agree, as I said earlier, we are not getting credit for it, and believe me, Bob and I regularly look at our portfolio with objectivity. Here's what we see. We are continuing to drive success in our business in each of these units as well as trying to drive synergies and we still see strong synergies between eBay and PayPal. In particular, we see the synergies around eBay provide new users to PayPal, in essence, for free, and that continues to be the case. That's still about half of PayPal's new users. Penetration on eBay is still only 63%. Now, if we had a greater reign and penetration in '08, based on eBay, then we had in the last five years, that's not a coincidence. We drove that penetration hard and we anticipate similar gains in '09, and that's real synergy, and frankly, PayPal is helping make eBay safer in a more effective marketplace. Perhaps as, or more importantly, being part of eBay does not constrain PayPal's growth. Quite the opposite, our acquisition of Bill Me Later is a great example of where we leveraged eBay's balance sheet to make a strategic acquisition or an acquisition that is quite strategic to PayPal. So, our intent is to continue to drive these synergies and continue to realize value from them. If and when those synergies run their course, we would reevaluate it then, but, I think for now, we feel quite good about those synergies and obviously the synergies between the alternative ecommerce formats in eBay and PayPal continue to be strong.

Operator, we have time for one last question.

Thank you. We'll move to Imran Khan with JPMorgan. Imran Khan - JPMorgan: Yes, hi. Thank you for taking my question. The question is for John. John, if you look at your fixed price, as a percentage of GMV, improved 300 basis points, implying that your auction business is declining in a faster pace. So the question is, do you think that the consumer appetite for auction related business, which has higher friction, has reduced significantly, and if so, do you think its going to headwind, even if the economy recovers for eBay to grow its marketplace business. Thank you.

Thanks, Imran. Let me tell you how we think about it, how we are looking at it. If you step back, we're still in the very early days in e-commerce, right. E-commerce is today only 5% of offline retail. And frankly, I can see that doubling or tripling in the next five to 10 years, because if you think about what e-commerce should be, it should be lot higher than 5% of offline retail. So, it's a large market with lots of long-term growth potential. But like all markets, customer needs evolve overtime. And what it takes to compete and win tomorrow is not necessarily what it took to compete and win yesterday. So, we are the global leader. We have a leadership position and we are the only one with a very strong global footprint, but we've got to evolve our business model overtime to compete and win. And at the end of the day customers are my only compass. And so, we aren't pushing auction versus fixed price. We are trying to offer customers choice. And three years ago auction was 70% of what we did and fixed price 30%. As you heard Bob say earlier today, that it is now 50/50. And frankly, I'm not certain what it's going to be three years from now. But what we are doing is we understand where the Web is going and e-commerce is going and the kind of innovations we need to do and so our strategy is two fold. One, evolve eBay marketplace so that we have a more unique blend of auctions and fixed price and we are, frankly, somewhat indifferent to the format. And then secondly, we understand that there are going to be a growing number of ways to connect buyers and sellers. And so, these alternative e-commerce formats: be they classifieds, be it advertising, be it StubHub, are simply other ways to connect buyers and sellers. And so, we want to build the strongest portfolio of formats and monetization approaches, so that we can continue our leadership position in e-commerce over the next three to five to ten years. And so, frankly, the three or four key themes or principles: one, the best deals online; two, the widest selection; and three, offering buyers and sellers choice whether they trade, auction on eBay, fixed price on eBay or classifieds through net. And I think we are building the foundation that will allow us to compete and win over the next three to five to ten years as this market continues to grow. Imran Khan - JPMorgan: Great. Thank you.

Thank you everyone for joining us and we will catch up with you throughout the quarter.

That does conclude today's conference. We do thank you for your participation. Have a great day.