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xbrli:shares


 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
[x]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______
   
Commission file number 001-37713
 
ebaynotma03.jpg
 
 
eBay Inc.
 
(Exact name of registrant as specified in its charter)
 
 
 

Delaware
77-0430924
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
 
 
2025 Hamilton Avenue
San Jose, California
95125
(Address of principal executive offices)
(Zip Code)
(408) 376-7008
(Registrant’s telephone number, including area code)
 
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  [x]    No  [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  
Large accelerated filer
[x]
 
Accelerated filer
[ ]
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
 
 
 
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  [ ]    No  [x]
As of April 22, 2019, there were 871,527,401 shares of the registrant’s common stock, $0.001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.

 



PART I: FINANCIAL INFORMATION
Item 1:
Financial Statements
eBay Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
 
March 31,
2019
 
December 31,
2018
 
(In millions, except par value)
 
(Unaudited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,695

 
$
2,202

Short-term investments
2,746

 
2,713

Accounts receivable, net
716

 
712

Other current assets
1,508

 
1,499

Total current assets
6,665

 
7,126

Long-term investments
2,969

 
3,778

Property and equipment, net
1,582

 
1,597

Goodwill
5,208

 
5,160

Intangible assets, net
108

 
92

Operating lease right-of-use assets
696

 

Deferred tax assets
4,710

 
4,792

Other assets
391

 
274

Total assets
$
22,329

 
$
22,819

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
1,550

 
$
1,546

Accounts payable
251

 
286

Accrued expenses and other current liabilities
2,418

 
2,335

Deferred revenue
174

 
170

Income taxes payable
107

 
117

Total current liabilities
4,500

 
4,454

Operating lease liabilities
547

 

Deferred tax liabilities
2,893

 
2,925

Long-term debt
7,700

 
7,685

Other liabilities
1,486

 
1,474

Total liabilities
17,126

 
16,538

Commitments and contingencies (Note 12)

 


Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 3,580 shares authorized; 876 and 915 shares outstanding
2

 
2

Additional paid-in capital
15,785

 
15,716

Treasury stock at cost, 805 and 763 shares
(27,895
)
 
(26,394
)
Retained earnings
16,847

 
16,459

Accumulated other comprehensive income
464

 
498

Total stockholders’ equity
5,203

 
6,281

Total liabilities and stockholders’ equity
$
22,329

 
$
22,819


The accompanying notes are an integral part of these condensed consolidated financial statements.

2


eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In millions, except per share amounts)
 
(Unaudited)
Net revenues
$
2,643

 
$
2,580

Cost of net revenues
601

 
559

Gross profit
2,042

 
2,021

Operating expenses:
 
 
 
Sales and marketing
742

 
756

Product development
297

 
334

General and administrative
309

 
270

Provision for transaction losses
72

 
72

Amortization of acquired intangible assets
13

 
10

Total operating expenses
1,433

 
1,442

Income from operations
609

 
579

Interest and other, net
64

 
(32
)
Income before income taxes
673

 
547

Income tax provision
(152
)
 
(140
)
Income from continuing operations
521

 
407

Loss from discontinued operations, net of income taxes
(3
)
 

Net income
$
518

 
$
407

 
 
 
 
Income per share - basic:
 
 
 
Continuing operations
$
0.58

 
$
0.40

Discontinued operations

 

Net income per share - basic
$
0.58

 
$
0.40

 
 
 
 
Income per share - diluted:
 
 
 
Continuing operations
$
0.57

 
$
0.40

Discontinued operations

 

Net income per share - diluted
$
0.57

 
$
0.40

 
 
 
 
Weighted-average shares:
 
 
 
Basic
900

 
1,010

Diluted
908

 
1,029


The accompanying notes are an integral part of these condensed consolidated financial statements.


3


eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In millions)
 
(Unaudited)
Net income
$
518

 
$
407

Other comprehensive income, net of reclassification adjustments:
 
 
 
Foreign currency translation gain (loss)
(32
)
 
132

Unrealized gains (losses) on investments, net
40

 
(36
)
Tax benefit (expense) on unrealized gains (losses) on investments, net
(10
)
 
10

Unrealized gains (losses) on hedging activities, net
(41
)
 
(29
)
Tax benefit (expense) on unrealized gains (losses) on hedging activities, net
9

 
6

Other comprehensive income/(loss), net of tax
(34
)
 
83

Comprehensive income
$
484

 
$
490


The accompanying notes are an integral part of these condensed consolidated financial statements.


4


eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In millions)
 
(Unaudited)
Common stock:
 
 
 
Balance, beginning of period
$
2

 
$
2

Common stock issued

 

Common stock repurchased/forfeited

 

Balance, end of period
2

 
2

Additional paid-in-capital:
 
 
 
Balance, beginning of period
15,716

 
15,293

Common stock and stock-based awards issued
3

 
9

Tax withholdings related to net share settlements of restricted stock units and awards
(54
)
 
(60
)
Stock-based compensation
121

 
120

Other
(1
)
 

Balance, end of period
15,785

 
15,362

Treasury stock at cost:
 
 
 
Balance, beginning of period
(26,394
)
 
(21,892
)
Common stock repurchased
(1,501
)
 
(1,011
)
Balance, end of period
(27,895
)
 
(22,903
)
Retained earnings:
 
 
 
Balance, beginning of period
16,459

 
13,929

Net income
518

 
407

Dividends and dividend equivalents declared
(130
)
 

Other

 
(1
)
Balance, end of period
16,847

 
14,335

Accumulated other comprehensive income:
 
 
 
Balance, beginning of period
498

 
717

Foreign currency translation adjustment
(32
)
 
132

Change in unrealized gains (losses) on investments
40

 
(36
)
Change in unrealized gains (losses) on derivative instruments
(41
)
 
(29
)
Tax benefit (provision) on above items
(1
)
 
16

Balance, end of period
464

 
800

Total stockholders’ equity
$
5,203

 
$
7,596

 
 
 
 
Dividends and dividend equivalents declared per share or restricted stock unit
$
0.14

 
$


The accompanying notes are an integral part of these condensed consolidated financial statements.


5


eBay Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
Three Months Ended
March 31,
 
2019
 
2018
 
(In millions)
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
518

 
$
407

Loss from discontinued operations, net of income taxes
3

 

Adjustments:

 
 
Provision for transaction losses
72

 
72

Depreciation and amortization
169

 
179

Stock-based compensation
121

 
120

Loss on investments, net
1

 
3

Deferred income taxes
36

 
(29
)
Change in fair value of warrant
(113
)
 

Changes in assets and liabilities, net of acquisition effects
(257
)
 
(257
)
Net cash provided by operating activities
550

 
495

Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(182
)
 
(158
)
Purchases of investments
(11,926
)
 
(4,794
)
Maturities and sales of investments
12,747

 
6,650

Acquisitions, net of cash acquired
(93
)
 

Other
12

 

Net cash provided by investing activities
558

 
1,698

Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
5

 
9

Repurchases of common stock
(1,431
)
 
(1,009
)
Payments for taxes related to net share settlements of restricted stock units and awards
(54
)
 
(60
)
Payments for dividends
(125
)
 

Repayment of debt

 
(750
)
Other

 
(15
)
Net cash used in financing activities
(1,605
)
 
(1,825
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(10
)
 
38

Net increase (decrease) in cash, cash equivalents and restricted cash
(507
)
 
406

Cash, cash equivalents and restricted cash at beginning of period
2,219

 
2,140

Cash, cash equivalents and restricted cash at end of period
$
1,712

 
$
2,546

 
 
 
 
Supplemental cash flow disclosures:
 
 
 
Cash paid for:
 
 
 
Interest
$
107

 
$
117

Income taxes
$
93

 
$
77


The accompanying notes are an integral part of these condensed consolidated financial statements.

6


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — The Company and Summary of Significant Accounting Policies

The Company

eBay Inc. is a global commerce leader, which includes our Marketplace, StubHub and Classifieds platforms. Founded in 1995 in San Jose, Calif., eBay is one of the world’s largest and most vibrant marketplaces for discovering great value and unique selection. Collectively, we connect millions of buyers and sellers around the world, empowering people and creating opportunity for all. Our technologies and services are designed to give buyers choice and a breadth of relevant inventory and to enable sellers worldwide to organize and offer their inventory for sale, virtually anytime and anywhere. 

When we refer to “we,” “our,” “us” or “eBay” in this Quarterly Report on Form 10-Q, we mean the current Delaware corporation (eBay Inc.) and its consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires.

In the first quarter of 2019, we announced several organizational changes, including bringing our Marketplace geographic regions together under one global leadership team. We changed from one reportable segment to three reportable segments to reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our three reportable segments are Marketplace, StubHub and Classifieds. Marketplace includes our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. StubHub includes our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Classifieds includes a collection of brands such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. Prior period information has been reclassified to conform to the current period segment presentation. For further information on our segments, refer to “Note 5 - Segments” to our condensed consolidated financial statements included in this report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, investments, goodwill and the recoverability of intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates.

Principles of Consolidation and Basis of Presentation

The accompanying condensed financial statements are consolidated and include the financial statements of eBay Inc., our wholly and majority-owned subsidiaries and variable interest entities (“VIE”) where we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Minority interests are recorded as a noncontrolling interest. A qualitative approach is applied to assess the consolidation requirement for VIEs. Investments in entities where we hold at least a 20% ownership interest and have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investees’ results of operations is included in interest and other, net and our investment balance is included in long-term investments. Investments in entities where we hold less than a 20% ownership interest are generally accounted for as equity investments to be measured at fair value or, under an election, at cost if it does not have readily determinable fair value, in which case the carrying value would be adjusted upon the occurrence of an observable price change in an orderly transaction for identical or similar instruments or impairment.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. We have evaluated all subsequent events through the date these condensed consolidated financial statements were issued. In the opinion of management, these condensed

7


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for the fair statement of the condensed consolidated financial position, results of operations and cash flows for these interim periods.

Significant Accounting Policies

Notwithstanding the additions of policies below for leases, there were no significant changes to our significant accounting policies disclosed in “Note 1 – The Company and Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the year ended December 31, 2018.

Leases

We determine if an arrangement is a lease or contains a lease at inception. Operating and finance lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for our operating leases, we generally use an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating right-of-use (“ROU”) assets and finance lease assets are generally recognized based on the amount of the initial measurement of the lease liability. Our leases have remaining lease terms of up to ten years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. Lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for our data center leases. Lease and non-lease components for all other leases are accounted for separately.

Operating leases are included in operating lease right-of-use assets, other current liabilities and operating lease liabilities on our condensed consolidated balance sheets. Finance leases are included in property and equipment, net, short-term debt, and long-term debt on our condensed consolidated balance sheet.  

Recently Adopted Accounting Pronouncements

In 2016, the FASB issued new guidance related to accounting for leases. The new guidance requires the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. We adopted this guidance in the first quarter of 2019 using the modified retrospective approach, electing the package of practical expedients, and the practical expedient to not separate lease and nonlease components for data center operating leases. We also elected the optional transition method that permits adoption of the new standard prospectively, as of the effective date, without adjusting comparative periods presented. Adoption of the standard resulted in the recognition of $728 million of ROU assets and $744 million of lease liabilities on our consolidated balance sheet at adoption related to office space, data and fulfillment centers, and other corporate assets. The difference of $16 million represented deferred rent for leases that existed as of the date of adoption, which was an offset to the opening balance of right-of-use assets. The adoption of the standard on January 1, 2019 did not have a material impact on our consolidated statements of income, stockholders’ equity and cash flows.

In 2017, the FASB issued new guidance that will shorten the amortization period for certain callable debt securities held at a premium to the earliest call date to more closely align with expectations incorporated in market pricing. The new guidance will not impact debt securities held at a discount. Adoption of this standard was made on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption of the standard in the first quarter of 2019 did not have a material impact on our consolidated financial statements at adoption.

In 2018, the FASB issued new guidance to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption of the standard in the first quarter of 2019 did not have an impact on our consolidated financial statements.


8


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In 2018, the FASB issued guidance to permit use of the Overnight Index Swap (“OIS”) rate as a U.S. benchmark interest rate for hedge accounting purposes in addition to the UST, the London InterBank Offered Rate (“LIBOR”) swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Market Association Municipal Swap Rate. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. The adoption of the standard in the first quarter of 2019 did not have a material impact on our consolidated financial statements at adoption.

Recent Accounting Pronouncements Not Yet Adopted

In 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses. Further, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In 2017, the FASB issued new guidance to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This standard is effective for annual or any interim goodwill impairment test in fiscal years beginning after December 15, 2019, with early adoption permitted for impairment tests performed after January 1, 2017. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. This standard will be effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those fiscal years, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.

In 2018, the FASB issued new guidance to clarify the interaction between Collaborative Arrangements and Revenue from Contracts with Customers standards. The guidance (1) clarifies that certain transactions between collaborative arrangement participants should be accounted under revenue guidance; (2) adds unit of account guidance to the collaborative arrangement guidance to align with the revenue standard; and (3) clarifies presentation guidance for transactions with a collaborative arrangement participant that is not accounted for under the revenue standard. The guidance is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods, with early adoption permitted. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.


9


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 2 — Net Income Per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The dilutive effect of outstanding options and equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares. The following table sets forth the computation of basic and diluted net income (loss) per share for the three months ended March 31, 2019 and 2018 (in millions, except per share amounts):
 
Three Months Ended
March 31,
 
2019
 
2018
Numerator:
 
 
 
Income from continuing operations
$
521

 
$
407

Loss from discontinued operations, net of income taxes
(3
)
 

Net income
$
518

 
$
407

Denominator:
 
 
 
Weighted average shares of common stock - basic
900

 
1,010

Dilutive effect of equity incentive awards
8

 
19

Weighted average shares of common stock - diluted
908

 
1,029

 
 
 
 
Income per share - basic:
 
 
 
Continuing operations
$
0.58

 
$
0.40

Discontinued operations

 

Net income per share - basic
$
0.58

 
$
0.40

Income per share - diluted:
 
 
 
Continuing operations
$
0.57

 
$
0.40

Discontinued operations

 

Net income per share - diluted
$
0.57

 
$
0.40

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive
11

 
1




10


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3 – Business Combinations

Business Combinations

In February 2019, we completed our acquisition of the U.K.-based classifieds site, Motors.co.uk for $93 million in cash. We believe the acquisition will increase our international presence and give buyers access to more listings.

The aggregate purchase consideration was allocated as follows (in millions):
 
Motors.co.uk
Goodwill
$
65

Purchased intangible assets
30

Net liabilities
(2
)
Total
$
93



These allocations were prepared on a preliminary basis and changes to these allocations may occur as additional information becomes available. We assigned the goodwill to our Classifieds segment. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Motors.co.uk. We generally do not expect goodwill to be deductible for income tax purposes.

Our condensed consolidated financial statements include the operating results of Motors.co.uk from the date of acquisition. Separate post acquisition operating results and pro forma results of operations for this acquisition have not been presented as the effect of the acquisition is not material to our financial results.

Note 4 — Goodwill and Intangible Assets

Goodwill

The following table presents goodwill activity by reportable segment during the three months ended March 31, 2019 (in millions):
 
December 31,
2018
 
Goodwill
Acquired
 
Adjustments
 
March 31,
2019
Marketplace
$
4,594

 
$

 
$
(12
)
 
$
4,582

StubHub
227

 

 
(2
)
 
225

Classifieds
339

 
65

 
(3
)
 
401

Total
$
5,160

 
$
65

 
$
(17
)
 
$
5,208



The adjustments to goodwill during the three months ended March 31, 2019 were primarily due to foreign currency translation.


11


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Intangible Assets

The components of identifiable intangible assets as of March 31, 2019 and December 31, 2018 are as follows (in millions, except years): 
 
March 31, 2019
 
December 31, 2018
 
Gross Carrying Amount  
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
 
Gross Carrying Amount
 
Accumulated Amortization 
 
Net Carrying Amount
 
Weighted Average Useful Life (Years)
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer lists and user base
$
537

 
$
(452
)
 
$
85

 
5
 
$
519

 
$
(445
)
 
$
74

 
5
Marketing related
584

 
(575
)
 
9

 
5
 
584

 
(578
)
 
6

 
5
Developed technologies
282

 
(271
)
 
11

 
3
 
278

 
(269
)
 
9

 
3
All other
160

 
(157
)
 
3

 
4
 
160

 
(157
)
 
3

 
4
Total
$
1,563

 
$
(1,455
)
 
$
108

 
 
 
$
1,541

 
$
(1,449
)
 
$
92

 
 


Amortization expense for intangible assets was $15 million and $16 million for the three months ended March 31, 2019 and 2018, respectively.

Expected future intangible asset amortization as of March 31, 2019 is as follows (in millions):
 
 
 
Remaining 2019
 
$
43

2020
 
44

2021
 
18

2022
 
2

2023
 
1

Total
 
$
108



Note 5 — Segments

In the first quarter of 2019, we announced several organizational changes, including bringing our Marketplace geographic regions together under one global leadership team. We changed from one reportable segment to three reportable segments to reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our three reportable segments are Marketplace, StubHub and Classifieds. Marketplace includes our online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. StubHub includes our online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. Classifieds includes a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others. The accounting policies of our segments are the same as those described in Note 1. The Company and Summary of Significant Accounting Policies. Prior period segment information has been reclassified to conform to the current period segment presentation.

Our reportable segments reflect the way management and our chief operating decision maker (“CODM”) review and assess performance of the business. Our CODM reviews revenue and operating income (loss) for each reportable segment. Our CODM does not evaluate reportable segments using asset information. Corporate and other costs includes: (i) corporate management costs, such as human resources, finance and legal, that are not allocated to our segments; (ii) amortization of intangible assets; (iii) restructuring charges; (iv) stock-based compensation; and (v) results of operations of various initiatives that support all of our reportable segments.


12


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Segment net revenue and operating income for the three months ended March 31, 2019 and 2018 were as follows (in millions):
 
Three Months Ended
March 31,
 
2019
 
2018
Net Revenues
 
 
 
Marketplace
 
 
 
Net transaction revenues
$
1,885

 
$
1,792

Marketing services and other revenues
277

 
310

Total Marketplace
2,162

 
2,102

 
 
 
 
StubHub
 
 
 
Net transaction revenues
223

 
231

Marketing services and other revenues
7

 
1

Total StubHub
230

 
232

 
 
 
 
Classifieds (1)
256

 
246

 
 
 
 
Elimination of inter-segment net revenue (2)
(5
)
 

Total consolidated net revenue
$
2,643

 
$
2,580

 
 
 
 
Operating income (loss)
 
 
 
Marketplace
$
772

 
$
688

StubHub
26

 
31

Classifieds
92

 
87

Corporate and other costs
(281
)
 
(227
)
Total operating income
609

 
579

Interest and other, net
64

 
(32
)
Income before income taxes
$
673

 
$
547


(1)
Classifieds net revenues consists entirely of marketing services and other revenue.
(2)
Represents revenue generated between our reportable segments.

The following table summarizes the allocation of net revenues based on geography for the three months ended March 31, 2019 and 2018 (in millions):  
 
Three Months Ended
March 31,
 
2019
 
2018
U.S.
$
1,058

 
$
1,074

Germany
384

 
392

United Kingdom
356

 
356

South Korea
298

 
283

Rest of world
547

 
475

Total net revenues
$
2,643

 
$
2,580



Net revenues, inclusive of the effects of foreign exchange during each period, are attributed to U.S. and international geographies primarily based upon the country in which the seller, platform that displays advertising, other service provider or customer, as the case may be, is located.


13


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 6 — Investments

The following tables summarize the unrealized gains and losses and estimated fair value of our investments classified as available-for-sale as of March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
17

  
$

  
$

 
$
17

Corporate debt securities
2,733

  
1

  
(5
)
 
2,729

 
$
2,750

  
$
1

  
$
(5
)
 
$
2,746

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
2,827

  
3

  
(15
)
 
2,815

 
$
2,827

  
$
3

  
$
(15
)
 
$
2,815

 
 
December 31, 2018
 
Gross
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Estimated
Fair Value
Short-term investments:
 
  
 
  
 
 
 
Restricted cash
$
17

  
$

  
$

 
$
17

Corporate debt securities
2,615

  

  
(9
)
 
2,606

Government and agency securities
90

  

  

 
90

 
$
2,722

 
$

 
$
(9
)
 
$
2,713

Long-term investments:
 
  
 
  
 
 
 
Corporate debt securities
3,682

  
1

  
(48
)
 
3,635

 
$
3,682

  
$
1

  
$
(48
)
 
$
3,635



Investment securities in a continuous loss position for less than 12 months had an estimated fair value of $1.3 billion and an immaterial amount of unrealized losses of as of March 31, 2019, and an estimated fair value of $2.9 billion and an immaterial amount of unrealized losses as of December 31, 2018. Investment securities in a continuous loss position for greater than 12 months had an estimated fair value of $2.6 billion and an immaterial amount of unrealized losses as of March 31, 2019 and an estimated fair value of $2.7 billion and unrealized losses of $41 million as of December 31, 2018. Refer to “Note 16 - Accumulated Other Comprehensive Income” for amounts reclassified to earnings from unrealized gains and losses.

The estimated fair values of our short-term and long-term investments classified as available-for-sale by date of contractual maturity as of March 31, 2019 are as follows (in millions):  
 
March 31, 2019
One year or less (including restricted cash of $17)
$
2,746

One year through two years
1,597

Two years through three years
792

Three years through four years
426

 
$
5,561



14


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Equity investments

Our equity investments are reported in long-term investments on our condensed consolidated balance sheet. The following table provides a summary of our equity investments as of March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
December 31, 2018
Equity investments without readily determinable fair values
$
137

 
$
137

Equity investments under the equity method of accounting
17

 
6

Total equity investments
$
154

 
$
143



The following table summarizes the change in total carrying value during the three months ended March 31, 2019 and 2018 related to equity investments without readily determinable fair values still held at March 31, 2019 and 2018 (in millions):

 
Three Months Ended
March 31,
 
2019
 
2018
Carrying value, beginning of period
$
137

 
$
872

Foreign currency translation and other

 
18

Carrying value, end of period
$
137

 
$
890



For such equity investments without readily determinable fair values still held at March 31, 2019, cumulative downward adjustments for price changes and impairment was $81 million. There have been no upward adjustments for price changes to our equity investments without readily determinable fair values still held at March 31, 2019.

Note 7 — Derivative Instruments

Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign exchange rate and interest rate movements. We do not use any of our derivative instruments for trading purposes.

We use foreign currency exchange contracts to reduce the volatility of cash flows related to forecasted revenues, expenses, assets and liabilities, including intercompany balances denominated in foreign currencies. These contracts are generally one month to one year in duration but with maturities up to 18 months. The objective of the foreign exchange contracts is to better ensure that ultimately the U.S. dollar-equivalent cash flows are not adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. We evaluate the effectiveness of our foreign exchange contracts designated as cash flow or net investment hedges on a quarterly basis.

We use interest rate swaps to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024. These interest rate swaps had the economic effect of modifying the fixed interest obligations associated with $2.4 billion of these notes so that the interest payable on these senior notes effectively became variable based on London InterBank Offered Rate (“LIBOR”) plus a spread. The duration of these interest rate contracts matches the duration of the fixed rate notes due 2019, 2021 and 2024.


15


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash Flow Hedges

For derivative instruments that are designated as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”) and subsequently reclassified into earnings in the same period the forecasted hedged transaction affects earnings. Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Unrealized gains and losses in AOCI associated with such derivative instruments are immediately reclassified into earnings. As of March 31, 2019, we have estimated that approximately $29 million of net derivative gain related to our cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.

Net Investment Hedges

For derivative instruments that are designated as net investment hedges, the derivative’s gain or loss is initially reported in the translation adjustments component of AOCI and is reclassified to net earnings in the period in which the hedged subsidiary is either sold or substantially liquidated.

Fair Value Hedges

We have designated the interest rate swaps used to manage interest rate risk on our fixed rate notes issued in July 2014 and maturing in 2019, 2021 and 2024 as qualifying hedging instruments and are accounting for them as fair value hedges. These transactions are designated as fair value hedges for financial accounting purposes because they protect us against changes in the fair value of certain of our fixed rate borrowings due to benchmark interest rate movements. Changes in the fair values of these interest rate swap agreements are recognized in other assets or other liabilities with a corresponding increase or decrease in long-term debt. Each quarter we pay interest based on LIBOR plus a spread to the counterparty and on a semi-annual basis receive interest from the counterparty per the fixed rate of these senior notes. The net amount is recognized as interest expense in interest and other, net.

Non-Designated Hedges

Our derivatives not designated as hedging instruments consist of foreign currency forward contracts that we primarily use to hedge monetary assets or liabilities, including intercompany balances denominated in non-functional currencies. The gains and losses on our derivatives not designated as hedging instruments are recorded in interest and other, net, which are offset by the foreign currency gains and losses on the related assets and liabilities that are also recorded in interest and other, net.

Warrant

We entered into a warrant agreement in conjunction with a commercial agreement with a service provider that, subject to meeting certain conditions, entitles us to acquire a fixed number of shares up to 5% of the service provider’s fully diluted issued and outstanding share capital at a specific date. The warrant has a term of seven years and will vest in a series of four tranches, at a specified price per share upon meeting significant processing volume milestone targets on a calendar year basis. If and when the relevant milestone is reached, the warrant becomes exercisable with respect to the corresponding tranche of warrant shares up until the warrant expiration date of January 31, 2025. The maximum number of tranches that can vest in one calendar year is two.
 
The warrant is accounted for as a derivative under ASC Topic 815, Derivatives and Hedging. We report the warrant at fair value within other assets in our condensed consolidated balance sheets and changes in the fair value of the warrant are recognized in interest and other, net in our condensed consolidated statement of income. The day-one value attributable to the other side of the warrant, which was recorded as a deferred credit, is reported within other liabilities in our condensed consolidated balance sheets and will be amortized over the life of the commercial arrangement.

16


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


Fair Value of Derivative Contracts

The fair values of our outstanding derivative instruments as of March 31, 2019 and December 31, 2018 were as follows (in millions):
 
Balance Sheet Location
 
March 31,
2019
 
December 31,
2018
Derivative Assets:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Assets
 
$
37

 
$
72

Foreign exchange contracts designated as net investment hedges
Other Current Assets
 
5

 

Foreign exchange contracts not designated as hedging instruments
Other Current Assets
 
16

 
38

Warrant
Other Assets
 
261

 
148

Foreign exchange contracts designated as cash flow hedges
Other Assets
 
8

 
4

Interest rate contracts designated as fair value hedges
Other Assets
 
7

 

Total derivative assets
 
 
$
334

 
$
262

 
 
 
 
 
 
Derivative Liabilities:
 
 
 
 
 
Foreign exchange contracts designated as cash flow hedges
Other Current Liabilities
 
$
1

 
$

Foreign exchange contracts designated as net investment hedges
Other Current Liabilities
 

 
1

Interest rate contracts designated as fair value hedges
Other Current Liabilities
 
4

 
7

Foreign exchange contracts not designated as hedging instruments
Other Current Liabilities
 
17

 
30

Interest rate contracts designated as fair value hedges
Other Liabilities
 
5

 
10

Total derivative liabilities
 
 
$
27

 
$
48

 
 
 
 
 
 
Total fair value of derivative instruments
 
 
$
307

 
$
214



Under the master netting agreements with the respective counterparties to our derivative contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our condensed consolidated balance sheet. As of March 31, 2019, the potential effect of rights of set-off associated with the foreign exchange contracts would be an offset to both assets and liabilities by $17 million, resulting in net derivative assets of $49 million and net derivative liabilities of $1 million.

Effect of Derivative Contracts on Accumulated Other Comprehensive Income

The following tables present the activity of derivative instruments designated as cash flow hedges as of March 31, 2019 and December 31, 2018, and the impact of these derivative contracts on AOCI for the three months ended March 31, 2019 and 2018 (in millions): 
 
December 31, 2018
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
 
March 31, 2019
Foreign exchange contracts designated as cash flow hedges
$
68

 
$
(21
)
 
$
20

 
$
27



17


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
December 31, 2017
 
Amount of Gain (Loss)
Recognized in Other
Comprehensive 
Income
 
Amount of Gain (Loss)
Reclassified From
AOCI to Earnings
 
March 31, 2018
Foreign exchange contracts designated as cash flow hedges
$
(57
)
 
$
(57
)
 
$
(28
)
 
$
(86
)


Effect of Derivative Contracts on Condensed Consolidated Statement of Income

The following table provides a summary of the total gain (loss) recognized in the condensed consolidated statement of income from our foreign exchange derivative contracts by location (in millions): 
 
Three Months Ended
March 31,
 
2019

2018
Foreign exchange contracts designated as cash flow hedges recognized in net revenues
$
20

 
$
(28
)
Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net
(5
)
 
(2
)
Total gain (loss) recognized from foreign exchange derivative contracts in the condensed consolidated statement of income
$
15

 
$
(30
)

The following table provides a summary of the total gain (loss) recognized in the condensed consolidated statement of income from our interest rate derivative contracts by location (in millions): 
 
Three Months Ended
March 31,
 
2019
 
2018
Gain (loss) from interest rate contracts designated as fair value hedges recognized in interest and other, net
$
15

 
$
(30
)
Gain (loss) from hedged items attributable to hedged risk recognized in interest and other, net
(15
)
 
30

Total gain (loss) recognized from interest rate derivative contracts in the condensed consolidated statement of income
$

 
$


The following table provides a summary of the total gain recognized in the condensed consolidated statement of income due to changes in the fair value of the warrant (in millions): 
 
Three Months Ended
March 31,
 
2019
 
2018
Gain attributable to changes in the fair value of warrant recognized in interest and other, net
$
113

 
$




18


eBay Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Notional Amounts of Derivative Contracts

Derivative transactions are measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged, but is used only as the basis on which the value of foreign exchange payments under these contracts are determined. The following table provides the notional amounts of our outstanding derivatives as of March 31, 2019 and December 31, 2018 (in millions):
 
March 31,
2019
 
December 31,
2018
Foreign exchange contracts designated as cash flow hedges
$
1,678

 
$
1,510

Foreign exchange contracts designated as net investment hedges
300

 
804

Foreign exchange contracts not designated as hedging instruments
2,698

 
3,517

Interest rate contracts designated as fair value hedges
2,400

 
2,400

Total
$
7,076

 
$
8,231



Credit Risk

Our derivatives expose us to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. To further limit credit risk, we also enter into collateral security arrangements related to certain interest rate derivative instruments whereby collateral is posted between counterparties if the fair value of the derivative instrument exceeds certain thresholds. Additional collateral would be required in the event of a significant credit downgrade by either party. We are not required to pledge, nor are we entitled to receive, collateral related to our foreign exchange derivative transactions. As of March 31, 2019, we had neither pledged nor received collateral related to our interest rate derivative transactions.

Note 8 — Fair Value Measurement of Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 (in millions):

 
 
March 31, 2019
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant 
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,695

 
$
1,630

 
$
65

 
$

Short-term investments:
 
 
 
 
 
 
 
Restricted cash
17

 
17