Overall third quarter was a very good quarter for the business. We delivered solid revenue growth, strong earnings and free cash flow. In total, our business generated record net revenues of $1.449 billion, representing 31% year-over-year growth. Organic revenue, excluding acquisitions and foreign exchange, were up 20% versus last year. Acquisitions we made over the last 12 months contributed 8 points to our top line growth. Foreign exchange due to a weaker dollar contributed an additional 3 points of growth.
Our non-GAAP operating income was $464 million for the quarter, up 18% over the year ago period, and representing a non-GAAP operating margin of 32%. Our non-GAAP EPS was $0.26, a 28% increase from last year and $0.03 higher than the top end of our guidance range. Our EPS strength was driven primarily by better than expected revenue, a more favorable tax rate and higher interest income. Operating and free cash flows were $522 million and $385 million, respectively.
Let's take a closer look at each of our segments. The Marketplaces business achieved record net revenues of $1.049 billion, up 22% versus the year-ago period. In the U.S., revenue was $540 million, up 20% over last year, while international revenue was up 25% to $509 million.
Taking a closer look at the eBay platform, we added over 9 million new users in the quarter, bringing the total registered user base to 212 million users. eBay new listings in the quarter were 584 million, representing year-over-year growth of 27%. Core listings were up 20%, and store inventory listings grew by 85% to 95 million new listings in the quarter. As we anticipated, store inventory listings growth decelerated, a result of the price changes we implemented in the quarter as part of our eBay Marketplace rebalance efforts...
PayPal had another excellent quarter, posting record total revenue of $350 million, a 41% increase versus the same period last year. New accounts totaled 8.8 million, and PayPal now boasts a network of 123 million accounts. These accounts helped drive record TPV of $9.1 billion representing 37% year-over-year growth...
Skype continues to grow at a healthy pace this quarter, posting total revenue of $50 million, a sequential increase of 13% over last quarter. Skype's user base grew by 136 million, an increase of nearly 23 million users over the second quarter. This represents a sequential increase of 20%, and an increase of 137% from a year ago...
...gross margins were 79%, down 3 points from the year ago period, reflecting the inclusion of Skype and further investments in site operations capacity, primarily related to data center expansion to support our growth.
Next, sales and marketing was 26% of revenue in the quarter, down 1 point from the year ago period, and consistent with last quarter. We held our marketing program spend flat as a percentage to revenue versus last year, while continuing to leverage our fixed based costs.
Product development was 7% of revenue, on par from a year ago. We continue to increase our capacity, primarily at PayPal, to support major initiatives such as geographic expansion, while driving down our cost per unit to maximize our product spend.
Lastly, general and administrative at 14% is up 1 point from the year ago period. The year-over-year increase is driven by higher transaction losses at PayPal, as well as investments in trust and safety programs.
Collectively these factors translated into $464 million of non-GAAP operating income, 18% growth on a year-over-year basis. Consolidated non-GAAP net income was $367 million, up 31% over the year ago period, or $0.26 per diluted share. Our strong year-over-year net income growth benefited from a favorable tax rate, as well as increases in interest income due to higher cash balances and interest rates.
On a GAAP basis, Q3 net income was $281 million, or $0.20 per diluted share. This includes $74 million of gross stock option expense, primarily related to our implementation of FAS 123 R, in line with our previously stated guidance.
Our business model continues to deliver excellent cash flows. We generated $522 million of operating cash flow and $385 million of free cash flow in the quarter. Capital expenditures were 9% of revenue in Q3, and 10% of revenues year-to-date. We have generated $1.2 billion of free cash flow for the first nine months of 2006, while increasing investments to expand capacity in both Marketplaces and PayPal.
Excerpt from eBay's earnings conference call; CFO Bob Swan is speaking:
Source: eBay's Results in its Own Words