Ebay Q309earningsslides Final

Q3 09 Financial Highlights October 21, 2009

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This presentation contains non-GAAP measures relating to the company's performance. You can find the reconciliation of those measures to the nearest comparable GAAP measures in the appendix at the end of this presentation. This presentation 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. These statements include, but are not limited to, statements regarding expected financial results for the fourth quarter of 2009, anticipated future stability and growth in the Marketplaces business unit, and the sale of Skype. 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; foreignexchange-rate fluctuations; changes in political, business, and economic conditions; the impact and integration of recent and future acquisitions; the impact of divestitures including Skype; our increasing need to grow revenues from existing users in established markets; an increasingly competitive environment for our businesses; the complexity of managing an increasingly large enterprise, with a broad range of businesses, our need to manage regulatory, tax, IP and litigation risks (including risks specific to PayPal, Bill Me Later and the financial 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 http://investor.ebayinc.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 October 21, 2009, and we do not intend, and undertake no duty, to update this presentation.

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1

Q3 09 Summary

• Continuing momentum in 3Q’09… •

Exceeded the high-end of guidance on both top and bottom line

• Executing against our priorities… •

Acceleration in PayPal metrics… launched Bill Me Later (BML) product in PayPal wallet

•

Marketplaces building some momentum… Gmarket strengthens Asia footprint

•

Skype positioned for full potential… on track for Q4 close

• Cautiously optimistic heading into holiday season…

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2

Q3 09 Summary… Revenue Revenue (in $millions)

2,181

2,192

2,238

2,196 2,118

2,098

2,036

2,021

1,889

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Reported Y/Y Growth

30%

27%

24%

20%

12%

-7%

-8%

-4%

6%

Organic Y/Y Growth

22%

18%

17%

15%

10%

-1%

-1%

1%

5%

Note: Calculation of Organic Y/Y Growth is included in the Appendix of this presentation

3

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Q3 09 Summary… Non-GAAP EPS Non-GAAP EPS

(in $)

0.46

0.45 0.42

0.41

Q3 07 Reported Y/Y Growth Non-GAAP Op. Margin

Q4 07

0.43

0.41

0.39

0.37

0.38

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

59%

45%

26%

25%

11%

-9%

-7%

-14%

-16%

31.4%

34.6%

32.0%

31.9%

31.8%

32.8%

30.7%

28.7%

28.4% ®

4

Note: Calculations of Non-GAAP EPS and Non-GAAP Op. Margin are included in the Appendix of this presentation

Q3 09 Summary… Free Cash Flow Generation Free Cash Flow (in $millions)

665 632

617 578 543

510

Q3 07

Q4 07

602 563

525

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Reported Y/Y Growth

32%

26%

32%

16%

6%

-21%

-9%

-2%

4%

Capex % of Revenue

6%

6%

6%

6%

7%

8%

5%

6%

8%

FCF % of Revenue

27%

30%

29%

28%

26%

26%

29%

29%

25% ®

5

Note: Calculation of FCF is included in the Appendix of this presentation

Q3 09 Summary… RoIC Recent acquisitions of Gmarket, BML and DBA/Bilbasen cause near term pressure on RoIC

Return on Invested Capital*

28.0% 25.5%

28.8% 27.0%

26.5%

25.5% 23.6%

23.2%

Q3 07

21.9%

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

*Trailing 12-month Pro-Forma Net Operating Profits After Tax / (Average Total Assets – 95% of Average Cash, Cash Equivalents, and Investments - Average Current Liabilities) Calculation of Return on Invested Capital is included in the Appendix of this presentation

6

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Business Update… Payments Revenue and Volume Revenue

TPV

($millions)

($billions)

Int’l US

268

267

281

269

288

303

334

330

342

374

381

385

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

597

623

643

669

688

27%

11%

11%

11%

15%

$ millions

5.7

5.6

6.3

6.9

5.4

5.3

9.5

9.5

10.3

10.2

10.4

10.8

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

14.8

16.0

15.9

16.7

17.7

$ billions

602 y/y growth

14.9 y/y growth

33% Fx-neutral y/y growth*

31%

35%

28%

14%

10%

12%

19%

28%

21%

18%

19%

23%

Fx-neutral y/y growth

27%

13%

15%

15%

19%

32%

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7

*Note: Fx-neutral revenue growth rates have been restated to exclude hedging activities from the calculation

Business Update… Payments Operating Metrics Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Active Registered Accounts (in millions) Global Active Accounts Y/Y Growth

62.6 19%

65.3 19%

70.4 23%

73.1 22%

75.4 20%

78.0 19% • On eBay: GMV accelerated… increased penetration

TPV (in $millions) On eBay Y/Y Growth Fx-Neutral Y/Y Growth

7,673 19% 16%

7,265 12% 12%

7,702 -3% 5%

7,268 -7% 3%

7,386 -4% 4%

7,582 4% 9%

Merchant Services Y/Y Growth Fx-Neutral Y/Y Growth

7,256 57% 54%

7,547 49% 49%

8,067 32% 38%

8,398 26% 34%

9,119 26% 32%

9,905 31% 35%

N/A

N/A

219 N/A

192 N/A

200 N/A

199 N/A

56.5%

59.6%

62.7%

63.6%

64.4%

65.7%

Global take rate

3.89%

3.89%

3.78%

3.81%

3.77%

3.67%

Transaction exp

1.23%

1.20%

1.16%

1.16%

1.15%

1.16%

Transaction loss

0.27%

0.29%

0.33%

0.28%

0.30%

0.25%

Bill Me Later Y/Y Growth PayPal On-eBay Penetration Rate Global Transaction rates

Segment Margin Payments Segment Margin

8

19.5%

19.0%

18.8%

17.4%

16.1%

14.8%

• Merchant Services: number of payments increased 47%; average transaction size down

• Progress in penetration across the board… strong acceleration in Germany • Trxn margin stable at 62% o Take rate down due to mix shift to larger merchants, fx, and our new P2P pricing initiative o Trxn exp down due to processing efficiency gains, shift to countries with lower card costs, and consumer trend away from credit o Trxn loss down due to improved fraud detection models • Segment margin erosion y/y due to BML, q/q due to fx impact (including currency hedges)

Notes: *Q4’08 BML TPV excludes pre-acquisition TPV (before Nov. 7, 2008) *Trxn margin is calculated as the trxn take rate less trxn expense less trxn loss divided by trxn take rate •Global Active Accounts reflects all registered accounts, excluding non-registered users, that successfully sent or received at least one payment or payment reversal through PayPal within the previous 12-month period and BML accounts that are currently able to transact and have received a statement in the past 12 months. •More information on these metrics can be found on Page 9 of our Earnings Press Release dated October 21, 2009

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Business Update… Bill Me Later Metrics Portfolio Balance: $561M*

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

• Risk-adjusted margin at ~9% • Economic conditions continue to affect credit performance • Margin % and margin trend remain favorable to card industry results

9

Net Charge-Offs as % of Receivables

Avg. Customer FICO Score

Risk Adjusted Margin**

3Q09

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

• Underwriting approach remains cautious as consumers remain under pressure

3Q09

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09

• Net charge-off rate at ~11.5% • Bankruptcy and credit write offs increased while average receivables did not change materially from Q2

*Gross receivables balance as of 9/30/09 ** Risk adjusted margin represents the annualized ratio of Bill Me Later revenue, excluding contra-revenue incentives to customers or merchants, less cost of funds less net credit and fraud losses relative to average loans receivable for the 3-month period.

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Business Update… Marketplaces Revenue Revenue ($millions) Marketing Services & Other Revenue Transaction Revenue

225

213

1,233

Q2 08

1,164

Q3 08

213 221

191

202

1,046

1,034

1,057

Q4 08

Q1 09

Q2 09

1,268

1,224

1,151

Q3 09

$ millions

1,458

1,377

1,259

1,365

y/y growth

13%

4%

-16%

-18%

-14%

-1%

8%

3%

-8%

-8%

-5%

4%

56%

53%

55%

54%

57%

56%

Fx-neutral y/y growth

Organic revenue growth*: -2% 6 pt positive impact from acquisitions 5 pt negative impact from FX

% Int'l

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10

*Calculation of organic revenue growth excludes impact from acquisitions and foreign exchange

Business Update… GMV based formats (fx-neutral*)

Fixed Price

Auctions

($billions)

Vehicles

($billions)

($billions)

$7

$8

10%

$4

10%

30%

$0

0% Q308

Q408

Q109

Q209

$6.8

$6.6

$7.0

Q309

$ billions

-30% $0 Q308

Q408

Q109

$5.9

$5.6

Q209

Q309

$ billions

$5.8

$7.9

FX-Neutral y/y growth

13%

13%

41%

45%

$5.5

12%

19%*

37%*

-8%

$4.9

47%

52%

39%

Q408

Q109

Q209

Q309

-17% 39%

$2.9

$2.4

$2.3

$2.5

$2.5

-27%

-25%

-15%

16%

17%

16%

FX-Neutral y/y growth

-20%

-17%

-12%

% of Total Fx-Neutral GMV

45%

-40% Q308

$ billions

$5.3

FX-Neutral y/y growth

% of Total Fx-Neutral GMV

11

$0

-13%

-24%

% of Total Fx-Neutral GMV

39%

36%

32%

21%

16%

*Fx-neutral GMV is calculated by applying the prior-year quarter’s spot rates to the current quarter. Fx-neutral growth is calculated by putting the calculated fxneutral GMV over the prior-year quarter at spot rates. *Excluding Gmarket, fx-neutral fixed price growth rate was 14% in Q2’09 and 17% in Q3’09

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Business Update… MP Marketing Services & Other Classifieds

Advertising

+20%

Q3'08

Q3'09

• Fx-neutral: +27% y/y • Growth helped by our acquisitions of DBA/BilBasen • Unique visitors: 86 million (+9% y/y) • Page views: 4.8 billion (+1% y/y)

Shopping/Rent/Other

-2%

Q3'08

Q3'09

• Fx-neutral: +2% y/y • Recent changes to optimize user experience modestly impacted advertising revenues

-16%

Q3'08

Q3'09

• Fx-neutral: -15% y/y • Continued weakness at Shopping.com as CPCs and traffic remain under pressure • Refocusing the business model on merchant leads ®

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Business Update… Marketplaces Operating Metrics Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Active Users (in millions) Global Active Users* Y/Y Growth

86.3 2%

87.2 3%

87.7 3%

88.3 2%

88.4 2%

89.2 2%

9.9%

5.7%

2.7%

-1.6%

5.6%

30.9%

US Non-Vehicles GMV Y/Y Growth

5,121 6%

4,976 2%

5,099 -9%

4,818 -11%

4,688 -8%

4,805 -3%

Int'l Non-Vehicles GMV Y/Y Growth Fx Neutral Y/Y Growth

7,180 15% 6%

6,385 3% 2%

6,371 -15% 0%

5,980 -20% -1%

6,438 -10% 6%

7,388 16% 27%

Non-Vehicles GMV Y/Y Growth Fx Neutral Y/Y Growth

12,301 11% 6%

11,361 3% 2%

11,470 -12% -3%

10,797 -16% -5%

11,127 -10% 0%

12,193 7% 14%

Vehicles GMV Y/Y Growth Fx Neutral Y/Y Growth

3,383 0% -3%

2,922 -12% -13%

2,176 -30% -24%

2,074 -35% -27%

2,300 -32% -25%

2,386 -18% -15%

43%

46%

49%

49%

51%

56%

43.8%

42.7%

45.2%

45.1%

42.5%

42.0%

Excluding Gmarket, sold items grew at 2.7% in Q2’09 and 8.1% in Q3’09

Sold Items Y/Y Growth in Sold Items

• Strong sold items growth in the UK, China cross-border, Germany, and StubHub

GMV (in $millions)

Fixed price as a % of GMV Segment Margin Marketplaces Segment Margin

13

Excluding Gmarket, int’l nonvehicles fx-neutral GMV grew at 4% in Q2’09 and 10% in Q3’09

Excluding Gmarket, global nonvehicles fx-neutral GMV grew at -1% in Q2’09 and 4% in Q3’09

• Strong productivity, lower take rate; fx impact

Notes: *Global active users number reflects all users, excluding users of StubHub, Half.com, Gmarket and IAC, who bid on, bought, listed, or sold an item within the previous 12-month period. •More information on these metrics can be found on Page 10 of our Earnings Press Release dated October 21, 2009

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Business Update… Skype Revenue and Operating Metrics

Revenue ($millions)

Q2 08

185 170 153 143

136

Q2 08

Q3 08

145

Q4 08

Q1 09

Q2 09

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Registered Users (in m) Y/Y Growth

338 54%

370 51%

405 47%

443 43%

481 42%

521 41%

Skype to Skype Minutes (in b) Y/Y Growth

14.8 38%

16.0 63%

20.5 72%

23.6 67%

25.5 72%

27.7 74%

Skype Out Minutes (in b) Y/Y Growth

1.9 42%

2.2 54%

2.6 60%

2.9 65%

3.0 57%

3.1 44%

Segment Margin Sk ype Segment Margin

18.8%

26.3%

24.2%

23.7%

23.6%

24.2%

Q3 09

y/y growth

51%

46%

26%

21%

25%

29%

34%

38%

38%

43%

36%

Fx-neutral y/y growth

31%

14

Notes: •Number of registered users represents the cumulative number of unique user accounts, which includes, among other things, users who may have registered via non-Skype based websites and users that have more than one account. •Skype-to-Skype minutes are estimated •Information on these metrics can be found on Page 11 of our Earnings Press Release dated October 21, 2009.

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Business Update… Operating Expenses

Sales & Marketing*

Product Development*

General & Admin.*

(% of Revenue)

(% of Revenue)

(% of Revenue)

Prov. for Trxn and Loan Loss* (% of Revenue)

20.2%

20.7% 10.2% 7.9%

Q3 08

Q3 09

• Increase as a % of revenue primarily due to acquisitions and fx, partially offset by increased efficiencies in our marketing spend

Q3 08

10.8%

8.2%

Q3 09

• Higher PD spend as a % of revenue due primarily to improvements around the customer experience in Marketplaces and impact from currency

Q3 08

Q3 09

• Increase due primarily to deal related costs around recent M&A activity and impact from fx, partially offset by productivity gains through operational excellence

Q3 Non-GAAP Op Inc: Q3 Non-GAAP Net Inc:

4.2%

4.3%

Q3 08

Q3 09

• Increase due mainly to our new dispute resolution program and the inclusion of BML charge offs, partially offset by decreases in transaction losses at PayPal

$635M $502M ®

15

*All expenses are shown on a non-GAAP basis (calculations can be found in the Appendix of this presentation) Note: Prov. For Trxn and Loan Loss Includes MP and PP trxn loss, MP consumer protection programs, bad debt expense, and BML loan loss

Q3 09 Cash Flow / Capital Allocation…

Generating strong cash flows and maintaining a conservative balance sheet…

Cash Balance / Flows*

Free Cash Flow / Other Movements

($ in billions)

• $563 million in FCF 2.6

0.6

(0.6)

2.6

• Paid down $200M on our line of credit… $200M remains outstanding • $601M in short-term investments at quarter-end

2.2

2.4

• $479M in long-term investments at quarter-end

Int'l Cash US Cash

0.4 Q2'09 Ending Cash

0.2 FCF

Other*

Q3'09 Ending Cash

…while investing for growth. 16

Note: Cash balances/flows do not include investments *Other includes repayment of debt, purchases of investments, and impact from fx

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Guidance Summary

Q4’09 Guidance Revenue

eBay Inc. (Skype included through assumed mid-qtr close-date)

Non-GAAP EPS

Low

High

Low

High

$2.20B

$2.30B

$0.38

$0.40

+8%

+13%

-7%

-2%

Skype (full Q4 financials)

~$200M

~$0.04

Strong productivity… funds investment… enabling growth… • GMV/TPV momentum continues… • Ops Excellence initiatives drive productivity… reinvest savings into better customer experience/accelerated large merchant adoption (lower take rates, increased customer protections) • Focus our portfolio… Gmarket/BML acquisitions; Skype sale • Tough one-time comps vs. Q4’08 17 Note: Reconciliation of GAAP to Non-GAAP guidance is available in the Appendix of this presentation

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Skype Transaction

Transaction Overview

Skype Impact on FY’09 Financials Skype

eBay Inc. Excluding Skype

’09 Rev:

~$700M

$7.95 - $8.05B

• Values Skype at $2.75B

‘09 EPS:

~$0.13

$1.41 - $1.43

• Retaining 35% of the company in order to capture future upside

• Skype tax rate materially lower than eBay Inc. average

• Announced the sale of 65% of Skype

• Allows Skype to achieve full potential… enables us to focus on our core competency of connecting buyers and sellers

• Equity income from Skype (post-deal) will be minimal due to interest costs and amortization of intangibles • Gain on transaction of ~$1B and associated deal costs excluded from non-GAAP results

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18 Note: Reconciliation of GAAP to Non-GAAP guidance is available in the Appendix of this presentation

Summary

• Strong third quarter results • Better-than-expected revenue and EPS • PayPal momentum continues • Marketplaces executing against turnaround strategy • Skype deal on track to close in Q4’09 • Continue to improve efficiencies and streamline processes through operational excellence Cautiously optimistic heading into the holiday season… ®

19

Q&A

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20

Appendix

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21

Calculation of Organic Revenue Growth

Mar 31, 2007 Total revenue growth Acquisition impact Foreign currency impact Total organic revenue growth

27% (1%) (5%) 21%

Mar 31, 2008 Total revenue growth Acquisition impact Foreign currency impact Total organic revenue growth

24% (2%) (5%) 17%

Mar 31, 2009 Total revenue growth Acquisition impact Foreign currency impact Total organic revenue growth

(8%) (2%) 9% (1%)

Jun 30, 2007 30% (3%) (4%) 23%

Jun 30, 2008 20% 0% (5%) 15%

Jun 30, 2009 (4%) (3%) 8% 1%

Sept 30, 2007 30% (3%) (4%) 23%

Sept 30, 2008 12% 0% (2%) 10%

Dec 31, 2007 27% (3%) (6%) 18%

Dec 31, 2008 (7%) (2%) 7% (2%)

Sept 30, 2009 6% (5%) 4% 5%

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22

Note: Acquisition impact includes acquisitions made within 12 months of the quarter

Reconciliation of Quarterly GAAP to Non-GAAP Net Income / EPS Three Months Ended Sept 30, 2007

Dec 31, 2007

Mar 31, 2008

Jun 30, 2008

Sep 30, 2008

Dec 31, 2008

Mar 31, 2009

June 30, 2009

Sept 30, 2009

(in millions, except per share data) GAAP net income (loss) Stock-based compensation expense Employer payroll taxes on stock-based compensation Amortization of acquired intangible assets (1) Restructuring Impairment of goodwill Gain on sale of equity investment Income taxes associated with certain non-GAAP entries Non-GAAP net income

$

$

Non-GAAP net income per diluted share $ Shares used in non-GAAP diluted share calculation

(935.6) $

530.9 $

459.7 $

460.3 $

492.2 $

367.2 $

357.1 $

327.3 $

349.7

80.6

69.7

87.4

91.9

90.3

82.6

113.8

96.4

92.5

2.3

1.5

0.3

1.7

0.5

0.6

2.6

0.9

0.9

57.3 1,390.9

57.7 -

60.9 -

61.5 -

59.4 -

82.2 49.1 -

74.6 6.6 -

75.6 17.7 -

86.5 12.7 -

-

-

-

-

-

-

-

-

-

(31.7)

(48.9)

(46.8)

(47.9)

(50.3)

(57.9)

(54.8)

(39.3)

(40.7)

563.8 $

610.9 $

561.5 $

567.5 $

592.1 $

523.8 $

499.9

478.6

501.6

0.41 $

0.45 $

0.42 $

0.43 $

0.46 $

0.41 $

1,373

1,368

1,344

1,325

1,297

1,284

0.39 $

1,288

0.37 $

1,300

0.38

1,311

(1) Includes amortization of acquired intangible assets within cost of net revenues and operating expenses. ®

23

Reconciliation of GAAP to Non-GAAP Quarterly Operating Margin Three Months Ended Sept 30, 2007

Dec 31, 2007

Mar 31, 2008

Jun 30, 2008

Sept 30, 2008

Dec 31, 2008

Mar 31, 2009

Jun 30, 2009

Sept 30, 2009

(in millions) GAAP operating income (loss) $ Stock-based compensation expense Employer payroll taxes on

(937.7) $

626.1 $

552.8 $

545.4 $

524.1

453.5 $

422.8 $

411.7 $

442.9

80.6

69.7

87.4

91.9

90.3

82.6

113.8

96.4

92.5

stock-based compensation Amortization of acquired intangible assets (1) Restructuring Impairment of goodwill

2.3

1.5

0.3

1.7

0.5

0.6

2.6

0.9

0.9

57.3 1,390.9

57.7 -

60.9 -

61.5 -

59.4 -

82.2 49.1 -

74.6 6.6 -

75.6 17.7 -

86.5 12.7 -

Non-GAAP operating income

$

593.4 $

755.0 $

701.4 $

700.5 $

674.3

668.0 $

620.4 $

602.3 $

635.5

Revenues GAAP operating margin Non-GAAP operating margin

$

1,889 $ -50.0% 31.0%

2,181 $ 28.7% 34.6%

2,192 $ 25.2% 32.0%

2,196 $ 24.8% 31.9%

2,118 24.7% 31.8%

2,036 $ 22.3% 32.8%

2,020 20.9% 30.7%

2,098 19.6% 28.7%

2,238 19.8% 28.4%

(1) Includes amortization of acquired intangible assets within cost of net revenues and operating expenses. ®

24

Calculation of Free Cash Flow Three Months Ended Mar 31, 2007

GAAP operating cash flow Purchases of property and equipment, net

$

Free cash flow

$

564.5 $ (85.4) 479.1 $

Mar 31, 2008

GAAP operating cash flow Purchases of property and equipment, net

$

Free cash flow

$

766.2 $ (134.6) 631.6 $

Jun 30, 2007

654.6 $ (121.3) 533.3 $

Sept 30, 2007

629.5 $ (119.3) 510.2 $

Three Months Ended Jun 30, Sept 30, 2008 2008

738.4 $ (121.7) 616.7 $

693.4 $ (150.4) 543.0 $

Dec 31, 2007

792.8 $ (127.9) 664.9 $

Dec 31, 2008

684.0 $ (159.2) 524.8 $

Full Year 2007

2,641.4 (454.0) 2,187.4

Full Year 2008

2,882.0 (565.9) 2,316.1

Three Months Ended Mar 31, Jun 30, Sept 30, 2009 2009 2009

25

GAAP operating cash flow Purchases of property and equipment, net Free cash flow

$

668.5 $

730.7 $

738.2

$

(90.9) 577.6 $

(128.4) 602.3 $

(174.8) 563.4

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Reconciliation of GAAP to Non-GAAP Quarterly Statement of Income (in millions, except per share data and percentages) Net revenues Cost of net revenues

Reported $

2,117.5 $ 560.9

Gross Profit Operating expenses: Sales and marketing Product development General and administrative

1,556.6

Provision for transaction and loan losses Amortization of acquired intangible assets Restructuring Total operating expense Income from operations Interest and other income, net Income before income taxes Provision for income taxes

88.3 52.7 1,032.5 524.1 38.5 562.6 (70.4)

451.8 190.8 248.9

Net income

$

Net income per share: Basic Diluted

$ $

Weighted average shares: Basic Diluted Operating margin Effective tax rate

Three Months Ended September 30, 2008 Non-GAAP Entries

492.2 $

$ (10.4) (a) (6.7) (c) 17.1

____________________ Notes: (a) Stock-based compensation expense (b) Employer payroll taxes on stock-based compensation (c) Amortization of acquired intangible assets and developed technology (d) Income taxes associated with certain non-GAAP entries (e) Impairment of goodwill 26(f) Restructuring

2,237.9 $ 643.9

1,573.7

1,594.0

428.1 167.3 215.7

491.4 205.2 272.2

88.3 899.4 674.3 38.5 712.8 (120.7)

96.7 72.8 12.7 1,151.0 443.0 (4.6) 438.4 (88.8)

(a) (a) (a) (b)

99.9

$

592.1 $

$ $

0.46 $ 0.46 $

7% 4%

(c)

(d)

Reported

2,117.5 $ 543.8

(23.7) (23.5) (32.7) (0.5) (52.7) (133.1) 150.2 150.2 (50.3)

0.38 0.38 1,289 1,297 25% 13%

Non-GAAP

Three Months Ended September 30, 2009 Non-GAAP Entries

1,289 1,297 32% 17%

349.6 $

$ (11.1) (a) (13.7) (c) 24.8

2,237.9 619.1

(28.3) (a) (22.8) (a) (30.3) (a) (0.9) (b)

463.1 182.4 241.0

1,618.8

(72.8) (c) (12.7) (f) (167.8) 192.6 192.6 (40.7) (d)

96.7 983.2 635.6 (4.6) 631.0 (129.5)

151.9 $

501.5

$ $

0.39 0.38

0.27 0.27 1,294 1,311 20% 20%

Non-GAAP

8% 1%

1,294 1,311 28% 21%

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Reconciliation of GAAP to Non-GAAP YTD Statement of Income (in millions, except per share data and percentages) Net revenues Cost of net revenues

Reported $

Nine Months Ended September 30, 2008 Non-GAAP Entries

6,505.4 $ 1,648.5

Gross Profit Operating expenses: Sales and marketing Product development General and administrative

4,856.9 1,463.2 554.4 793.8

Provision for transaction and loan losses Amortization of acquired intangible assets Restructuring Total operating expense Income from operations Interest and other income, net Income before income taxes Provision for income taxes

260.9 162.4 3,234.7 1,622.2 88.1 1,710.3 (298.0)

Net income

$

1,412.3 $

Net income per share: Basic Diluted

$ $

1.08 1.07

Weighted average shares: Basic Diluted Operating margin Effective tax rate ____________________ Notes: (a) Stock-based compensation expense (b) Employer payroll taxes on stock-based compensation (c) Amortization of acquired intangible assets and developed technology (d) Income taxes associated with certain non-GAAP entries (e) Impairment of goodwill 27 (f) Restructuring

1,312 1,322 25% 17%

$ (31.9) (a) (19.4) (c) 51.3

6,356.4 $ 1,809.1

4,908.2

4,547.3

1,391.1 482.8 697.3

1,359.3 605.1 798.0

260.9 2,832.1 2,076.1 88.1 2,164.2 (443.0)

270.6 200.1 36.9 3,270.0 1,277.3 9.0 1,286.3 (252.1) 1,034.2 $

(d)

308.9

$

1,721.2 $

$ $

1.31 $ 1.30 $

(c)

Reported

6,505.4 $ 1,597.2

(72.1) (71.6) (93.9) (2.6) (162.4) (402.6) 453.9 453.9 (145.0)

7% 3%

(a) (a) (a) (b)

Non-GAAP

Nine Months Ended September 30, 2009 Non-GAAP Entries

1,312 1,322 32% 20%

$ (37.6) (a) (36.5) (c) 74.1

6,356.4 1,735.0

(91.2) (a) (78.5) (a) (95.5) (a) (4.4) (b) (200.1) (c) (36.9) (f) (506.6) 580.7 580.7 (134.9) (d)

1,268.1 526.6 698.1 270.6 2,763.4 1,858.0 9.0 1,867.0 (387.0)

445.8 $

1,480.0

$ $

1.15 1.14

0.80 0.80 1,288 1,299 20% 20%

Non-GAAP

9% 1%

4,621.4

1,288 1,299 29% 21%

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Reconciliation and Calculation of Return on Invested Capital

(in thousands, except percentages) Numerator components: Non-GAAP operating income

Tax rate Non-GAAP operating income after tax Denominator components: Total assets Cash and cash equivalents Short-term investments Long-term investments Total cash, cash equivalents and investments Current liabilities

TTM Non-GAAP operating income after tax TTM average total assets TTM 95% of average cash, cash equivalents and investments TTM average current liabilities ROIC

Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 Q3'08 Q4'08 Q1'09 Q2'09 Q3'09 594,664 $ 593,445 $ 754,979 $ 701,364 $ 700,487 $ 674,318 $ 667,958 $ 620,347 $ 602,252 $ 635,468 25% 10% 24% 23% 22% 17% 24% 22% 20% 21% $ 447,544 $ 531,845 $ 576,276 $ 540,892 $ 549,673 $ 559,684 $ 508,685 $ 485,732 $ 482,223 $ 505,197 $

Q2'07 14,361,157 3,418,349 199,190 176,138 3,793,677 2,328,643

Q3'07 14,786,812 3,912,591 93,903 455,281 4,461,775 3,272,867

Q4'07 15,366,037 4,221,191 676,264 138,237 5,035,692 3,099,579

Q1'08 15,046,305 3,565,182 422,696 120,263 4,108,141 3,080,432

Q2'08 15,021,625 3,696,028 355,336 130,353 4,181,717 3,006,234

Q3'08 14,240,157 3,342,717 301,136 133,629 3,777,482 2,854,733

Q4'08 15,592,439 3,188,928 163,734 106,178 3,458,840 3,705,087

Q1'09 15,127,787 3,057,159 180,285 89,361 3,326,805 3,159,924

Q2'09 16,566,289 2,573,617 441,202 119,659 3,134,478 3,730,364

Q309 17,356,732 2,557,859 601,443 479,285 3,638,587 3,646,678

$ 1,633,595 $ 1,827,615 $ 1,997,188 $ 2,096,556 $ 2,198,685 $ 2,226,524 $ 2,158,933 $ 2,103,774 $ 2,036,324 $ 1,981,837 13,697,718 14,005,030 14,385,614 14,696,072 14,916,387 14,892,187 15,053,313 15,005,663 15,309,659 15,776,681 3,536,980 2,207,540 20.5%

3,622,670 2,518,232 23.2%

3,858,237 2,694,011 25.5%

3,974,641 2,806,418 26.5%

4,100,390 2,957,551 28.0%

4,097,313 3,062,769 28.8%

3,906,756 3,149,213 27.0%

3,582,067 3,161,282 25.5%

3,397,071 3,291,268 23.6%

3,293,876 3,419,357 21.9%

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Reconciliation of GAAP to Non-GAAP Guidance

(in millions, except per share amounts) Revenues (b) Diluted EPS (b)

Three Months Ending December 31, 2009 GAAP Non-GAAP (a) $2,200-$2,300 $2,200-$2,300 $0.28 - $0.30 $0.38-$0.40

(a) Estimated Non-GAAP amounts above for the three months ending December 31, 2009, reflect the estimated quarterly adjustments that exclude the amortization of acquired intangible assets of approximately $65-$75 million, stock-based compensation expense and employer payroll taxes on stock-based compensation expense of approximately $90-$105 million, and restructuring charges of approximately $20-$25 million. (b) The GAAP and non-GAAP amounts above assume a mid-quarter close date for the pending sale of Skype and do not reflect the gain on the pending sale of Skype of approximately $1.0 billion.

(in millions, except per share amounts) Revenues Diluted EPS

Full Year Ending December 31, 2009 GAAP (d) Non-GAAP (c) $8,650 - $8,750 $7,950 - $8,050 $1.10 - $1.12 $1.41 - $1.43

(c) Estimated non-GAAP revenues above exlcude Skype revenues of $700 million. Estimated Non-GAAP diluted EPS amounts above, reflect the estimated quarterly adjustments that exclude the amortization of acquired intangible assets of approximately $300-$315 million, stock-based compensation expense and employer payroll taxes on stock-based compensation expense of approximately $395-$415 million, restructuring charges of approximately $55-$60 million, and earnings per diluted share contribution from Skype of $0.13.

29

(d) The estimated GAAP amounts reflect full year Skype results and do not reflect the gain on the pending sale of Skype of approximately $1.0 billion.

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