eBay(EBAY) - 2024 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents eBay Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2024 Item 1: Financial Statements (unaudited) This section presents eBay Inc.'s unaudited condensed consolidated financial statements for the periods ended June 30, 2024, and December 31, 2023 (for balance sheet) or June 30, 2023 (for income, comprehensive income, stockholders' equity, and cash flows), along with detailed notes explaining significant accounting policies, net income per share, goodwill, intangible assets, segments, investments, derivative instruments, fair value measurements, debt, supplemental financial information, commitments and contingencies, stockholders' equity, employee benefit plans, income taxes, accumulated other comprehensive income, and restructuring activities - The financial statements are unaudited and include normal recurring adjustments necessary for fair statement[33] - Effective January 1, 2024, the estimated useful lives for servers and networking equipment changed from three to four years, reducing depreciation expense by $17 million (Q2 2024) and $43 million (YTD Q2 2024), increasing net income by $12 million and $34 million, respectively[28] Condensed Consolidated Balance Sheet This table provides a snapshot of eBay's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (June 30, 2024 vs. December 31, 2023): | Metric | June 30, 2024 (Millions) | December 31, 2023 (Millions) | | :-------------------------------- | :----------------------- | :------------------------- | | Total Assets | $20,378 | $21,620 | | Total Liabilities | $14,853 | $15,224 | | Total Stockholders' Equity | $5,525 | $6,396 | | Cash and cash equivalents | $1,963 | $1,985 | | Short-term investments | $3,203 | $2,533 | | Equity investment in Adevinta | $— | $4,474 | | Equity investment in Aurelia | $1,910 | $— | | Short-term debt | $1,551 | $750 | | Long-term debt | $6,174 | $6,973 | Condensed Consolidated Statement of Income This table presents eBay's financial performance, including revenues, expenses, and net income over specific periods Condensed Consolidated Statement of Income Highlights (Three Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | Change (%) | | :----------------------------------- | :-------------- | :-------------- | :--------- | | Net revenues | $2,572 | $2,540 | 1% | | Gross profit | $1,837 | $1,822 | 1% | | Income from operations | $549 | $518 | 6% | | Loss on equity investments and warrant, net | $(222) | $(214) | (4%) | | Income from continuing operations before income taxes | $328 | $285 | 15% | | Net income | $224 | $171 | 31% | | Net income per share - diluted | $0.45 | $0.32 | 41% | Condensed Consolidated Statement of Income Highlights (Six Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | Change (%) | | :----------------------------------- | :-------------- | :-------------- | :--------- | | Net revenues | $5,128 | $5,050 | 2% | | Gross profit | $3,693 | $3,632 | 2% | | Income from operations | $1,180 | $1,076 | 10% | | Loss on equity investments and warrant, net | $(319) | $(16) | (1894%) | | Income from continuing operations before income taxes | $864 | $1,015 | (15%) | | Net income | $662 | $738 | (10%) | | Net income per share - diluted | $1.29 | $1.36 | (5%) | Condensed Consolidated Statement of Comprehensive Income This table outlines eBay's comprehensive income, including net income and other comprehensive income components Condensed Consolidated Statement of Comprehensive Income Highlights (Three Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | | :-------------------------------- | :-------------- | :-------------- | | Net income | $224 | $171 | | Other comprehensive loss, net of tax | $(6) | $(64) | | Comprehensive income | $218 | $107 | Condensed Consolidated Statement of Comprehensive Income Highlights (Six Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | | :-------------------------------- | :-------------- | :-------------- | | Net income | $662 | $738 | | Other comprehensive loss, net of tax | $(20) | $(92) | | Comprehensive income | $642 | $646 | Condensed Consolidated Statement of Stockholders' Equity This table details changes in eBay's stockholders' equity, reflecting net income, share repurchases, and dividends Condensed Consolidated Statement of Stockholders' Equity Highlights (Six Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | | :----------------------------------- | :-------------- | :-------------- | | Balance, beginning of period (Total Stockholders' Equity) | $6,396 | $5,268 | | Net income | $662 | $738 | | Common stock repurchased | $(1,512) | $(503) | | Dividends and dividend equivalents declared | $(283) | $(278) | | Balance, end of period (Total Stockholders' Equity) | $5,525 | $5,268 | - Dividends declared per share increased to $0.54 for the six months ended June 30, 2024, from $0.50 in the prior year[20] Condensed Consolidated Statement of Cash Flows This table summarizes eBay's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statement of Cash Flows Highlights (Six Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | | :----------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities | $982 | $1,442 | | Net cash provided by investing activities | $902 | $424 | | Net cash used in financing activities | $(1,805) | $(1,458) | | Net increase in cash, cash equivalents and restricted cash | $62 | $402 | | Cash, cash equivalents and restricted cash at end of period | $2,555 | $2,674 | - Investing activities in 2024 included $2.4 billion in proceeds from the sale of Adevinta shares, offsetting significant purchases of investments[22] - Financing activities included $1.483 billion in common stock repurchases in 2024, compared to $492 million in 2023[22] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1 — The Company and Summary of Significant Accounting Policies This note describes eBay's business and outlines the significant accounting policies applied in its financial statements - eBay Inc. is a global commerce leader connecting buyers and sellers in over 190 markets through its Marketplace platforms and mobile apps[25] - Effective January 1, 2024, the estimated useful lives for servers and networking equipment were changed from three years to four years, resulting in a reduction of depreciation expense by $17 million (Q2 2024) and $43 million (YTD Q2 2024)[28] - Immaterial restricted cash balances were reclassified from short-term and long-term investments to other current assets and other assets, respectively, in the balance sheet[34] - New accounting pronouncements (ASU 2023-07, 2023-08, 2023-09) related to segment reporting, crypto assets, and income tax disclosures are not expected to have a material impact[42][43][44] Note 2 — Net Income Per Share This note details the calculation of basic and diluted net income per share for eBay Net Income Per Share (Three Months Ended June 30): | Metric | 2024 | 2023 | | :----------------------------- | :--- | :--- | | Net income per share - basic | $0.45 | $0.32 | | Net income per share - diluted | $0.45 | $0.32 | Net Income Per Share (Six Months Ended June 30): | Metric | 2024 | 2023 | | :----------------------------- | :--- | :--- | | Net income per share - basic | $1.30 | $1.37 | | Net income per share - diluted | $1.29 | $1.36 | Note 3 — Goodwill and Intangible Assets This note provides information on eBay's goodwill and identifiable intangible assets, including changes and amortization Goodwill Activity (Millions): | Metric | December 31, 2023 | Acquired | Adjustments | June 30, 2024 | | :------- | :---------------- | :------- | :---------- | :------------ | | Goodwill | $4,267 | $69 | $(51) | $4,285 | - Goodwill acquired during the six months ended June 30, 2024, relates to the acquisition of Goldin, a U.S.-based auction house for high-value trading cards and collectibles[50] Identifiable Intangible Assets, Net (Millions): | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :-------------- | :---------------- | | Customer lists and user base | $54 | $42 | | Marketing related | $42 | $21 | | Developed technologies | $42 | $49 | | All other | $1 | $2 | | Total | $139 | $114 | - Amortization expense for intangible assets was $9 million for Q2 2024 and $17 million for YTD Q2 2024[51] Note 4 — Segments This note describes eBay's operating segments and presents net revenues broken down by geographical regions - The Company has one operating and reportable segment: Marketplace, encompassing its online platform, off-platform businesses in Japan and the U.S., and mobile apps[54] Net Revenues by Geography (Three Months Ended June 30): | Geography | 2024 (Millions) | 2023 (Millions) | | :-------------- | :-------------- | :-------------- | | U.S. | $1,293 | $1,265 | | United Kingdom | $392 | $413 | | China | $291 | $263 | | Germany | $247 | $244 | | Rest of world | $349 | $355 | | Total net revenues | $2,572 | $2,540 | Net Revenues by Geography (Six Months Ended June 30): | Geography | 2024 (Millions) | 2023 (Millions) | | :-------------- | :-------------- | :-------------- | | U.S. | $2,595 | $2,526 | | United Kingdom | $782 | $794 | | China | $566 | $500 | | Germany | $489 | $496 | | Rest of world | $696 | $734 | | Total net revenues | $5,128 | $5,050 | Note 5 — Investments This note details eBay's investment portfolio, including short-term, long-term, and equity investments, and related transactions Total Investments (Millions): | Category | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :-------------- | :---------------- | | Short-term investments | $3,203 | $2,533 | | Long-term investments | $1,722 | $1,129 | | Equity investment in Adevinta | $— | $4,474 | | Equity investment in Aurelia | $1,910 | $— | | Other equity investments under the fair value option | $354 | $382 | | Other equity investments without readily determinable fair values | $134 | $93 | | Equity investments under the equity method of accounting | $55 | $55 | | Total equity investments | $2,453 | $5,004 | - On May 29, 2024, eBay completed the sale of Adevinta shares, receiving approximately $2.4 billion in cash and an equity investment in Aurelia valued at $1.9 billion (18.3% ownership)[68][182] - A realized gain of $84 million (Q2 2024) and $78 million (YTD Q2 2024) was recorded from the sale of Adevinta[69] - Unrealized losses on the equity investment in Gmarket were $22 million (Q2 2024) and $28 million (YTD Q2 2024)[76] - An Aurelia Option, granted in connection with the Adevinta transactions, was valued at $109 million as of June 30, 2024, and is reported as a current liability[80] Unrealized Gains (Losses) on Equity Investments Held (Millions): | Period | Net gains (losses) recognized during the period on equity investments | Less: Net gains recognized during the period on equity investments sold during the period | Total unrealized losses on equity investments held, end of period | | :----------------------------------- | :----------------------------------------------------------------- | :--------------------------------------------------------------------------------- | :----------------------------------------------------------------- | | Three Months Ended June 30, 2024 | $61 | $84 | $(23) | | Six Months Ended June 30, 2024 | $(185) | $78 | $(263) | Note 6 — Derivative Instruments This note explains eBay's use of derivative instruments for hedging and their fair value measurements - Derivatives are used to reduce volatility from foreign currency exchange rates and interest rates, not for trading purposes[87] - Foreign currency exchange contracts are used for cash flow hedges (initially reported in AOCI) and non-designated hedges (gains/losses in interest income and other, net)[88][90] - A warrant agreement with Adyen, accounted for as a derivative, entitles eBay to acquire up to 5% of Adyen's shares, vesting based on processing volume milestones[91] Fair Value of Outstanding Derivative Instruments (Millions): | Metric | June 30, 2024 | December 31, 2023 | | :------------------------------------------------ | :-------------- | :---------------- | | Total derivative assets | $380 | $396 | | Warrant (included in derivative assets) | $339 | $364 | | Total derivative liabilities | $10 | $33 | | Total fair value of derivative instruments (net) | $370 | $363 | - Notional amounts of outstanding derivatives totaled $3,329 million as of June 30, 2024, down from $3,924 million at December 31, 2023[98] Note 7 — Fair Value Measurement of Assets and Liabilities This note provides details on the fair value measurement of eBay's financial assets and liabilities across different levels Total Financial Assets Measured at Fair Value (Millions): | Level | June 30, 2024 | December 31, 2023 | | :-------------------------------- | :-------------- | :---------------- | | Level 1 (Active Markets) | $2,555 | $6,967 | | Level 2 (Observable Inputs) | $4,423 | $3,164 | | Level 3 (Unobservable Inputs) | $646 | $699 | | Total Financial Assets | $7,624 | $10,830 | - The warrant is valued using a Black-Scholes model, with a fair value of $339 million as of June 30, 2024[109][110] - The equity investment in Gmarket, a Level 3 asset, had a fair value of $307 million as of June 30, 2024, down from $335 million at December 31, 2023[112] - The Aurelia Option, a Level 3 liability, was valued at $109 million as of June 30, 2024[117] Note 8 — Debt This note outlines eBay's outstanding debt, including senior notes, credit facilities, and commercial paper programs Carrying Value of Outstanding Debt (Millions): | Metric | June 30, 2024 | December 31, 2023 | | :---------------- | :-------------- | :---------------- | | Total senior notes | $7,750 | $7,750 | | Total long-term debt | $6,174 | $6,973 | | Total short-term debt | $1,551 | $750 | | Total Debt | $7,725 | $7,723 | - On August 1, 2024, $750 million of 3.450% senior notes were repaid upon maturity[120][184] - The company has a $2.0 billion unsecured five-year revolving credit facility, with no outstanding borrowings as of June 30, 2024[128][129] - eBay has a commercial paper program for up to $1.5 billion, with no outstanding notes as of June 30, 2024[126] Note 9 — Supplemental Consolidated Financial Information This note provides additional detailed financial information, including various asset and liability accounts and income components - Allowance for doubtful accounts and authorized credits decreased to $45 million as of June 30, 2024, from $49 million at December 31, 2023[132] Other Current Assets (Millions): | Metric | June 30, 2024 | December 31, 2023 | | :-------------------------- | :-------------- | :---------------- | | Warrant | $339 | $364 | | Prepaid expenses | $136 | $116 | | Restricted cash | $112 | $23 | | Income and other tax receivable | $89 | $99 | | Accounts receivable, net | $96 | $94 | | Short-term derivative assets | $28 | $23 | | Other | $232 | $292 | | Other current assets | $1,032 | $1,011 | Accrued Expenses and Other Current Liabilities (Millions): | Metric | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :-------------- | :---------------- | | Accrued sales and use tax and VAT | $478 | $424 | | Compensation and related benefits | $351 | $581 | | Accrued marketing expenses | $209 | $181 | | Operating lease liabilities | $120 | $118 | | Transaction loss reserve | $119 | $125 | | Aurelia option | $109 | $— | | Accrued general and administrative expenses | $74 | $79 | | Accrued legal matters | $67 | $132 | | Accrued interest expense | $56 | $56 | | Deferred revenue | $33 | $34 | | Accrued restructuring | $27 | $102 | | Other | $361 | $364 | | Total accrued expenses and other current liabilities | $2,004 | $2,196 | Loss on Equity Investments and Warrant, Net (Millions): | Metric | Q2 2024 | Q2 2023 | YTD Q2 2024 | YTD Q2 2023 | | :------------------------------------------------ | :------ | :------ | :---------- | :---------- | | Unrealized change in fair value of Adevinta | $— | $(210) | $(234) | $(36) | | Realized change in fair value of shares sold in Adevinta | $84 | $— | $78 | $— | | Unrealized change in fair value of Gmarket | $(22) | $(29) | $(28) | $(40) | | Change in fair value of warrant | $(174) | $31 | $(25) | $69 | | Fair value of Aurelia option | $(109) | $— | $(109) | $— | | Loss on other investments | $(1) | $(2) | $(1) | $(2) | | Total loss on equity investments and warrant, net | $(222) | $(214) | $(319) | $(16) | Interest Income and Other, Net (Millions): | Metric | Q2 2024 | Q2 2023 | YTD Q2 2024 | YTD Q2 2023 | | :-------------------------- | :------ | :------ | :---------- | :---------- | | Interest income | $63 | $48 | $124 | $90 | | Foreign exchange and other | $3 | $(2) | $10 | $(2) | | Total interest income and other, net | $66 | $46 | $134 | $88 | Note 10 — Commitments and Contingencies This note discloses eBay's commitments, contingencies, and legal proceedings, including potential liabilities - No material off-balance sheet arrangements as of June 30, 2024[143] - The U.S. Department of Justice filed a civil complaint alleging liability for the sale of regulated or illicit products on Marketplace platforms, which could result in material monetary damages or changes in business practices[145] - Accrued estimated losses for litigation and other legal matters totaled $67 million as of June 30, 2024[146] - The company has indemnification provisions with PayPal and in commercial agreements, but historical losses have not been significant[147][149][151] Note 11 — Stockholders' Equity This note details changes in eBay's stockholders' equity, including stock repurchase programs and dividend declarations - An incremental $2.0 billion was authorized for the stock repurchase program in February 2024, with no expiration date[155] Stock Repurchase Activity (Six Months Ended June 30, 2024): | Metric | Shares Repurchased (Millions) | Value of Shares Repurchased (Millions) | Remaining Amount Authorized (Millions) | | :-------------------------------- | :---------------------------- | :----------------------------------- | :------------------------------------- | | Repurchase of common stock | 29 | $1,499 | $1,948 | - Cash dividends paid totaled $135 million for Q2 2024 and $274 million for YTD Q2 2024. A quarterly cash dividend of $0.27 per share was declared in July 2024[157] Note 12 — Employee Benefit Plans This note provides information on eBay's employee benefit plans, including restricted stock unit activity and stock-based compensation Restricted Stock Unit (RSU) Activity (Millions of Units): | Metric | Units | | :-------------------------- | :---- | | Outstanding as of Jan 1, 2024 | 24 | | Awarded | 11 | | Vested | (5) | | Forfeited | (3) | | Outstanding as of Jun 30, 2024 | 27 | Stock-Based Compensation Expense (Millions): | Metric | Q2 2024 | Q2 2023 | YTD Q2 2024 | YTD Q2 2023 | | :-------------------------------- | :------ | :------ | :---------- | :---------- | | Cost of net revenues | $14 | $14 | $27 | $27 | | Sales and marketing | $25 | $25 | $48 | $45 | | Product development | $77 | $74 | $141 | $133 | | General and administrative | $38 | $41 | $84 | $77 | | Total stock-based compensation expense | $154 | $154 | $300 | $282 | Note 13 — Income Taxes This note discusses eBay's income tax provision, effective tax rates, and ongoing tax examinations - The company is under examination by tax authorities for tax years 2010 to 2022 in various jurisdictions, including the U.S., Germany, India, Israel, Switzerland, and the UK[163] - A liability of $292 million for deemed repatriation of foreign earnings is included in income taxes payable as of June 30, 2024[165] - The balance of gross unrecognized tax benefits could significantly change in the next 12 months due to ongoing tax examinations, but the full range of possible adjustments is not estimable[164] Note 14 — Accumulated Other Comprehensive Income This note details the components and changes in eBay's accumulated other comprehensive income Changes in AOCI (Millions): | Component | Balance as of Dec 31, 2023 | Net current period other comprehensive income (loss) (YTD Q2 2024) | Balance as of Jun 30, 2024 | | :----------------------------------- | :------------------------- | :---------------------------------------------------------------- | :------------------------- | | Unrealized Gains (Losses) on Derivative Instruments | $(13) | $29 | $16 | | Unrealized Gains (Losses) on Investments | $(45) | $14 | $(31) | | Foreign Currency Translation | $206 | $(53) | $153 | | Estimated Tax (Expense) Benefit | $37 | $(10) | $27 | | Total | $185 | $(20) | $165 | - Reclassifications out of AOCI to net income for the six months ended June 30, 2024, resulted in a net loss of $12 million, primarily from foreign exchange contracts affecting net revenues[169] Note 15 — Restructuring This note outlines eBay's restructuring activities, including workforce reductions and associated liabilities Restructuring Reserve Activity (Millions): | Metric | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | | Accrued liability, beginning of period | $102 | | Payments | $(69) | | Adjustments | $(6) | | Accrued liability, end of period | $27 | - Workforce reductions approved in 2023 resulted in pre-tax charges of $42 million (Q1 2023) and $99 million (Q4 2023), substantially completed by Q2 2024[171][172] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on eBay's financial performance, condition, and results of operations for the three and six months ended June 30, 2024, compared to 2023. It discusses revenue trends, operating expenses, investment losses, and liquidity, highlighting the impact of macroeconomic factors and strategic initiatives OVERVIEW This section provides a high-level summary of eBay's business, market conditions, and key financial highlights for the period - eBay Inc. operates as a global commerce leader, connecting buyers and sellers across over 190 markets[176] - Discretionary spending trends are dynamic due to geopolitical events, inflation, FX volatility, high interest rates, and low consumer confidence, which are expected to continue[177] Quarter Highlights (Three Months Ended June 30, 2024): | Metric | Value | YoY Change | | :-------------------- | :------ | :--------- | | Net revenues | $2,572M | 1% | | FX-Neutral net revenues | N/A | 2% | | Operating margin | 21.3% | +0.9 pp | | Loss on equity investments and warrant, net | $(222)M | (4%) | | Cash flow from continuing operating activities | $367M | (39%) | - Completed the sale of Adevinta shares for $2.4 billion cash and a $1.9 billion equity investment in Aurelia on May 29, 2024[182] - Repaid $750 million senior notes on August 1, 2024, and plans to refinance a portion with commercial paper[184] RESULTS OF OPERATIONS This section analyzes eBay's financial performance, detailing trends in revenues, costs, and operating expenses Net Revenues This section examines eBay's net revenue performance, including reported and FX-neutral changes and key operating metrics Net Revenues (Millions): | Period | 2024 | 2023 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $2,572 | $2,540 | 1% | | Six Months Ended June 30 | $5,128 | $5,050 | 2% | Key Operating Metrics (Three Months Ended June 30): | Metric | 2024 As Reported | 2023 As Reported | % Change As Reported | 2024 FX-Neutral | % Change FX-Neutral | | :-------------------- | :--------------- | :--------------- | :------------------- | :-------------- | :------------------ | | Net Revenues | $2,572 | $2,540 | 1% | $2,583 | 2% | | GMV | $18,418 | $18,214 | 1% | $18,448 | 1% | | Take rate | 13.96% | 13.95% | 0.01% | N/A | N/A | Key Operating Metrics (Six Months Ended June 30): | Metric | 2024 As Reported | 2023 As Reported | % Change As Reported | 2024 FX-Neutral | % Change FX-Neutral | | :-------------------- | :--------------- | :--------------- | :------------------- | :-------------- | :------------------ | | Net Revenues | $5,128 | $5,050 | 2% | $5,125 | 2% | | GMV | $37,041 | $36,624 | 1% | $36,899 | 1% | | Take rate | 13.84% | 13.79% | 0.05% | N/A | N/A | - Net revenues and GMV were impacted by dynamic discretionary spending trends, geopolitical events, inflationary pressure, foreign exchange rate volatility, elevated interest rates, and lower consumer confidence[197] Cost of Net Revenues This section analyzes the factors influencing eBay's cost of net revenues, including specific expense drivers Cost of Net Revenues (Millions): | Period | 2024 | 2023 | % Change | | :-------------------- | :----- | :----- | :------- | | Three Months Ended June 30 | $735 | $718 | 2% | | Six Months Ended June 30 | $1,435 | $1,418 | 1% | - Q2 2024 increase driven by $25 million in indirect tax matters, $15 million in promoted listings, and $11 million in data center equipment disposition, partially offset by $17 million depreciation decrease and $9 million payment processing decrease[199][200] - YTD Q2 2024 increase driven by $30 million in eBay International Shipping, $26 million in promoted listings, $29 million in indirect tax matters, and $11 million in data center equipment disposition, partially offset by $43 million depreciation decrease and $20 million payment processing decrease[201] Operating Expenses This section details eBay's operating expenses, including sales and marketing, product development, and general and administrative costs Operating Expenses (Millions): | Expense Category | Q2 2024 | Q2 2023 | % Change (QoQ) | YTD Q2 2024 | YTD Q2 2023 | % Change (YoY) | | :-------------------------------- | :------ | :------ | :------------- | :---------- | :---------- | :------------- | | Sales and marketing | $577 | $566 | 2% | $1,118 | $1,077 | 4% | | Product development | $379 | $392 | (3%) | $730 | $744 | (2%) | | General and administrative | $241 | $251 | (4%) | $479 | $548 | (13%) | | Provision for transaction losses | $86 | $90 | (5%) | $177 | $174 | 2% | | Amortization of acquired intangible assets | $5 | $5 | 0% | $9 | $13 | (30%) | | Total operating expenses | $1,288 | $1,304 | (1%) | $2,513 | $2,556 | (2%) | - Sales and marketing increased due to a $44 million (Q2) and $89 million (YTD Q2) increase in advertising and marketing program costs[205][206] - Product development decreased due to lower employee-related costs, despite continued investment in strategic areas like browsing experience and search optimization[208] - General and administrative expenses decreased primarily due to lower employee-related costs (Q2) and a $48 million decrease in one-time restructuring costs (YTD Q2)[211][212] - Provision for transaction losses decreased in Q2 due to a slight decrease in buyer/seller fraud rates but increased YTD due to a slight increase in fraud rates[214] Loss on equity investments and warrant, net This section explains the net loss or gain from eBay's equity investments and warrant, detailing contributing factors Loss on Equity Investments and Warrant, Net (Millions): | Metric | Q2 2024 | Q2 2023 | % Change (QoQ) | YTD Q2 2024 | YTD Q2 2023 | % Change (YoY) | | :------------------------------------------------ | :------ | :------ | :------------- | :---------- | :---------- | :------------- | | Unrealized change in fair value of Adevinta | $— | $(210) | 100% | $(234) | $(36) | (550%) | | Realized change in fair value of shares sold in Adevinta | $84 | $— | 100% | $78 | $— | 100% | | Unrealized change in fair value of Gmarket | $(22) | $(29) | 24% | $(28) | $(40) | 30% | | Change in fair value of warrant | $(174) | $31 | (661%) | $(25) | $69 | (136%) | | Fair value of Aurelia option | $(109) | $— | (100%) | $(109) | $— | (100%) | | Loss on other investments | $(1) | $(2) | N/A | $(1) | $(2) | N/A | | Total loss on equity investments and warrant, net | $(222) | $(214) | (4%) | $(319) | $(16) | (1894%) | - The significant increase in YTD Q2 2024 loss was due to the unrealized loss on Adevinta ($234 million) and the fair value of the Aurelia option ($109 million), partially offset by a realized gain on Adevinta sale ($78 million)[216] Interest Expense, Interest Income and Other, Net This section outlines eBay's interest expense, interest income, and other net financial items Interest Expense, Interest Income and Other, Net (Millions): | Metric | Q2 2024 | Q2 2023 | % Change (QoQ) | YTD Q2 2024 | YTD Q2 2023 | % Change (YoY) | | :-------------------------------- | :------ | :------ | :------------- | :---------- | :---------- | :------------- | | Interest expense | $(65) | $(65) | 0% | $(131) | $(133) | (2%) | | Interest income | $63 | $48 | 31% | $124 | $90 | 38% | | Foreign exchange and other | $3 | $(2) | N/A | $10 | $(2) | N/A | | Total interest income and other, net | $66 | $46 | 43% | $134 | $88 | 52% | - Interest income increased due to higher yields on interest-bearing instruments, a trend expected to continue to a lesser extent in 2024[218] Income Tax Provision This section details eBay's income tax provision and effective tax rates for the reporting periods Income Tax Provision (Millions): | Metric | Q2 2024 | Q2 2023 | YTD Q2 2024 | YTD Q2 2023 | | :-------------------- | :------ | :------ | :---------- | :---------- | | Income tax provision | $102 | $113 | $199 | $274 | | Effective tax rate | 31.1% | 39.7% | 23.0% | 27.0% | - The decrease in effective tax rate was primarily due to the lapping of increased reserves for uncertain tax positions in 2023 and the reversal of a dividend apportionment benefit in Q2 2024[219] Liquidity and Capital Resources This section assesses eBay's ability to generate and manage cash, including cash flows and capital requirements Cash Flows This section summarizes eBay's cash flows from operating, investing, and financing activities Net Cash Provided by (Used in) Activities (Six Months Ended June 30): | Metric | 2024 (Millions) | 2023 (Millions) | | :----------------------------------- | :-------------- | :-------------- | | Continuing operating activities | $982 | $1,446 | | Continuing investing activities | $902 | $424 | | Continuing financing activities | $(1,805) | $(1,458) | | Net increase in cash, cash equivalents and restricted cash | $62 | $402 | - The decrease in operating cash flow was primarily due to working capital movements and changes in non-cash items[224] - Investing cash flow was significantly boosted by $2.4 billion from the sale of Adevinta equity investment[225] - Financing cash flow was primarily used for $1.5 billion in common stock repurchases and $274 million in dividends[227] Liquidity and Capital Resource Requirements This section discusses eBay's current liquidity position and future capital resource needs and plans - As of June 30, 2024, total cash, cash equivalents, and non-equity investments aggregated $6.3 billion[229] - The company believes its liquidity sources are sufficient for the next 12 months and foreseeable future, but acknowledges risks from geopolitical events, inflation, FX volatility, and elevated interest rates[229][230] - $750 million of senior notes were repaid on August 1, 2024[234] - $1.9 billion remained available for future common stock repurchases as of June 30, 2024, following $1.5 billion in repurchases during the six months ended June 30, 2024[243] - A quarterly cash dividend of $0.27 per share was declared in July 2024[244] Item 3: Quantitative and Qualitative Disclosures About Market Risk This section discusses eBay's exposure to market risks, including interest rate risk, equity price risk, and foreign currency risk. The company uses various strategies, including derivative instruments, to mitigate these risks, though not entirely eliminating them Interest Rate Risk This section describes eBay's exposure to interest rate fluctuations on its investments and debt - The company is exposed to interest rate risk on its investments and outstanding debt[247] - A hypothetical 1% increase in interest rates would decrease the fair value of investments by $32 million as of June 30, 2024[249] - Approximately 26% of total cash and investments were held in cash and cash equivalents and customer accounts as of June 30, 2024, making interest income sensitive to rate changes[248] Equity Price Risk This section details eBay's exposure to changes in equity prices, particularly for its investments and warrant - Equity investments, primarily in privately-held companies, totaled $2.5 billion as of June 30, 2024[252] - The warrant agreement with Adyen is sensitive to changes in Adyen's common stock price and equity volatility; a hypothetical $1 change in Adyen's stock price would impact the warrant's fair value by approximately $0.4 million[253] Foreign Currency Risk This section explains eBay's exposure to foreign currency exchange rate fluctuations and its hedging strategies - Significant international revenues and costs, primarily in British pounds and euros, expose the company to foreign currency risk[254] - A foreign exchange exposure management program uses foreign currency exchange contracts to reduce volatility, though not entirely eliminating it[255][256] - A hypothetical 20% adverse change in foreign exchange rates would have an immaterial adverse impact on income before income taxes as of June 30, 2024, due to offsetting hedging effects[261] Item 4: Controls and Procedures As of June 30, 2024, eBay's principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective. There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter - Disclosure controls and procedures were effective as of June 30, 2024[263] - No material changes in internal control over financial reporting occurred during the quarter[264] PART II: OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal, risk, and equity matters Item 1: Legal Proceedings This section incorporates by reference the information on legal proceedings detailed in Note 10 to the condensed consolidated financial statements, which includes a civil complaint from the U.S. Department of Justice regarding the sale of regulated products on eBay's platforms - Information on legal proceedings is incorporated from Note 10, detailing ongoing litigation and regulatory matters[267] Item 1A: Risk Factors The company reiterates that it is subject to various risks and uncertainties, as described in its 2023 Form 10-K, with no material changes to these risk factors. Current global economic and geopolitical events may amplify these existing risks - No material changes to the company's risk factors from those disclosed in the 2023 Form 10-K[268] - Current global economic and geopolitical events may amplify existing risks[268] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity, showing that during the three months ended June 30, 2024, eBay repurchased approximately $1.0 billion of common stock. As of June 30, 2024, approximately $1.9 billion remained available under the stock repurchase program Issuer Purchases of Equity Securities (Three Months Ended June 30, 2024): | Period Ended | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs | | :------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | :----------------------------------------------------------------------------- | | April 30, 2024 | 4,148,511 | $51.47 | 4,148,511 | $2,734,959,172 | | May 31, 2024 | 7,036,407 | $51.54 | 7,036,407 | $2,372,306,488 | | June 30, 2024 | 7,927,381 | $53.46 | 7,927,381 | $1,948,472,536 | | Total | 19,112,299 | N/A | 19,112,299 | N/A | - Approximately $1.0 billion of common stock was repurchased during the three months ended June 30, 2024[270] - As of June 30, 2024, $1.9 billion remained available for future repurchases under the stock repurchase program[270] Item 3: Defaults Upon Senior Securities This item is marked as "Not applicable," indicating no defaults upon senior securities - No defaults upon senior securities[273] Item 4: Mine Safety Disclosures This item is marked as "Not applicable," indicating no mine safety disclosures - No mine safety disclosures[274] Item 5: Other Information This section discloses Rule 10b5-1 trading plans adopted by the President and CEO, Jamie Iannone, and the CFO, Steve Priest, in May and June 2024, respectively, for potential sales of company shares - Jamie Iannone, President and CEO, adopted a 10b5-1 Plan on May 30, 2024, for potential sales of up to 90,000 shares[276] - Steve Priest, CFO, adopted a 10b5-1 Plan on June 12, 2024, for potential sales of shares, including those from future vesting equity awards, up to a maximum of 64,129 shares (before tax withholdings)[277] Item 6: Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including various agreements related to the Adevinta transactions, corporate organizational documents, and certifications required by the Sarbanes-Oxley Act - The report includes certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[281] - Exhibits include Bid Conduct Agreement and Transaction Completion Agreement related to Adevinta, as well as amendments[281] Signatures The report is signed by Jamie Iannone (Chief Executive Officer), Steve Priest (Chief Financial Officer), and Rebecca Spencer (Vice President, Chief Accounting Officer) on August 1, 2024, certifying its submission - The report was signed by the Chief Executive Officer, Chief Financial Officer, and Vice President, Chief Accounting Officer on August 1, 2024[284]