eBay's CEO Hosts Annual Shareholder Meeting (Transcript)

| About: eBay Inc. (EBAY)


Annual Shareholder Meeting

April 26, 2012 11:00 am ET


Edward W. Barnholt - Lead Independent Director and Chairman of Compensation Committee

Michael R. Jacobson - Senior Vice President of Legal Affairs, Secretary and General Counsel

John J. Donahoe - Chief Executive Officer, President, Director and Interim President of Paypal

Devin N. Wenig - President of Global Ebay Marketplaces Business Unit

David Marcus - President

Edward W. Barnholt

Good morning. I'm Ned Barnholt. I'm one of the members of the Board of Directors of eBay and eBay's Lead Independent Director. Pierre Omidyar, eBay's Founder and Chairman, regrets he cannot be here in person today's meeting, but he'll be joining us via Skype. I think he should be right there. Hi, Pierre. I'll be acting as Chairman of this meeting. I'm very happy to welcome you to our 2012 Annual Stockholder Meeting.

Before I call the meeting to order, I'd like to introduce you to members of the Board and the business team who are with us today. Other members of the Board that are here in person, John Donahoe, he's -- we'll be hearing from John, our President and Chief Executive Officer, in a little bit. On the telephone, we have Fred Anderson, Marc Andreessen, Scott Cook, Bill Ford, Dawn Lepore, Katie Mitic, David Moffett, Dick Schlosberg and Tom Tierney. And as I previously mentioned, appearing via Skype is Pierre Omidyar.

In addition to John Donahoe, the other executive officers of the company that are here today are Beth Axelrod, Senior Vice President, Human Resources; Mark Carges, Chief Technology Officer and Senior Vice President, Global Products Marketplaces; Mike Jacobson, Senior Vice President, Legal Affairs, General Counsel and Secretary; David Marcus, President of PayPal; Alan Marks, Senior Vice President, Corporate Communications; Bob Swan, Senior Vice President, Finance and Chief Financial Officer; and David Wenig -- Devin Wenig, President of eBay Marketplaces. We also have on the telephone, Chris Saridakis, the President of GSI. I'd also like to introduce you to Raman Chitkara of PricewaterhouseCoopers LLP, the company's independent auditor, who will be available to respond to appropriate questions.

So the meeting will now officially come to order. We will proceed with the formal business of the meeting as set forth in the notice of the annual meeting and proxy statement. After the formal part of the meeting, John will make some remarks regarding the company's recent business activity and address questions.

Upon entering the meeting, each of you was presented with the rules of conduct of this meeting. To conduct an orderly meeting, we ask that participants abide by these rules.

Mike, please report on the mailing of the notice of the meeting and the list of stockholders.

Michael R. Jacobson

I have at this meeting a complete list of holders of record of the company's capital stock on March 8, 2012, the record date for the meeting. I also have an affidavit certifying that beginning on March 23, 2012, the notice of Annual Meeting of Stockholders of the company and proxy statement was deposited in the United States mail to all stockholders of record as of the close of business on March 8, 2012.

Edward W. Barnholt

At this time, I'd like to introduce Sarah McDaniel [ph] of Broadridge Financial Solutions Inc. in the back there. I'm appointing Ms. Daniel to act as Inspector of Election at today's meeting. Ms. Daniel has taken and subscribed the company customary oath of office to execute her duties with strict impartiality. We will file this oath with the records of this meeting. As the Inspector of Election, Ms. McDaniel's function is to decide on the qualification of voters, accept their votes and when balloting on all matters as completed, to tally the final votes.

Mike, please report on the existence of a quorum.

Michael R. Jacobson

I've been informed by the Inspector of Elections that proxies have been received for 1,135,123,000 of the 1,290,103,429 shares of common stock outstanding on the record date, which represents approximately 88% of the total number of outstanding shares. This constitutes a quorum for the meeting today, and we may now carry out the official business of the meeting.

Edward W. Barnholt

I hereby declare this meeting to be duly constituted for the transaction of all business. Are there any additional proxies to be submitted to the Inspector of Election at this time?

We will now proceed with the formal business of this meeting. There are 7 proposals to be considered by the stockholders at this meeting. Mike, please report on the opening of the polls.

Michael R. Jacobson

The time is now 8:05 a.m. Pacific time on April 26, and the polls are now open for voting on all matters to be presented at the meeting. The polls will be closed to voting after we go through the matters to be voted upon.

Edward W. Barnholt

The first item of business today is the election of 5 directors to serve until 2015 Annual Meeting of Stockholders and until their successors are duly elected and qualified. The 5 nominees for directors of the company are: Marc Andreessen, Bill Ford, Dawn Lepore, Katie Mitic and Pierre Omidyar. Is there any discussion?

The second item of business today is the approval, on an advisory basis, of the compensation of our named executive officers. Is there any discussion?

The third item of business today is the approval of the amendment and restatement of our 2008 equity incentive award plan, including an amendment to increase the aggregate number of shares authorized for issuance under the plan by 16.5 million shares. Is there any discussion?

The fourth item of business today is the approval of our employee stock purchase plan. Is there any discussion?

The fifth item of business today is the approval of an amendment to our amended and restated certificate of incorporation to declassify our Board of Directors and provide for the annual election of directors. Is there any discussion?

The sixth item of business today is the approval of an amendment to our amended and restated certificate of incorporation to provide stockholders with the right to call a special meeting of stockholders. Is there any discussion?

The seventh item of business today is the ratification of the appointment of PricewaterhouseCoopers LLP as the independent auditors of the company for the fiscal year ending December 31, 2012. Is there any discussion?

That was the final proposal for today's meeting. The Secretary will now describe the voting procedures.

Michael R. Jacobson

The voting is by proxy and written ballot. Each share of common stock is entitled to one vote. You do not need to vote in person if you've already submitted your signed proxy or if you have submitted your signed proxy at this meeting. Is there anyone present, whether or not you previously submitted a proxy and now wants to vote in person? The time is now 8:08 Pacific time, and the polls are closed for voting.

Edward W. Barnholt

May we have the results of the voting?

Michael R. Jacobson

The preliminary report of Inspector of Election covering the proposals presented at this meeting is as follows:

The proposal to elect Marc Andreessen, Bill Ford, Dawn Lepore, Katie Mitic and Pierre Omidyar as directors of the company has been approved, with each nominee receiving affirmative votes of more than 98% of the votes cast.

The proposal to approve, on an advisory basis, the compensation of our named executive officers has been approved, with approximately 95% of the votes being cast in favor of such proposal.

The proposal to approve the amendment and restatement of our 2008 equity incentive award plan has been approved with approximately 88% of the votes cast being in favor of such proposal.

The proposal to approve our employee stock purchase plan has been approved with approximately 99% of the votes cast being in favor of such proposal.

The proposal to approve an amendment to our amended and restated certificate of incorporation to declassify our Board of Directors and provide for the annual election of directors has been approved with approximately 99% of the shares outstanding, as of the record date, being voted in favor of the proposal.

The proposal to approve an amendment to our amended and restated certificate of incorporation to provide stockholders with the right to call a special meeting of stockholders has been approved, with approximately 99% of the shares outstanding, as of the record date, being voted in favor of such proposal.

The ratification of the appointment of PricewaterhouseCoopers LLP as independent auditors of the company for the fiscal year ended December 31, 2012, has been approved with approximately 9% of votes present in purpose or by proxy and entitled to vote on the proposal, voting in favor of such ratification.

The final voting results will be published in a current report on Form 8-K that we expect to file with the Securities and Exchange Commission within 4 business days of the annual meeting. If final voting results are not available to us in that time -- in time to file the Form 8-K, we intend to file a Form 8-K to disclose preliminary voting results within 4 business days after the final results are known. We will file an additional Form 8-K to disclose final voting results.

Edward W. Barnholt

This concludes the formal portion of our meeting. After German, [ph] John will make some remarks regarding the company's business. These remarks may include forward-looking statements that involve risk and uncertainties. Actual results could differ materially from those discussed. More information about potential factors that could affect the company's business and financial results is included in the company's SEC filings including the company's Annual Report on Form 10-K and the company's quarterly reports on Form 10-Q. Following his remarks, John will be happy to answer question from the stockholders. This meeting is adjourned.


John J. Donahoe

Thank you, and good morning, everyone, and I want to thank all of you that have come out in person to join us today. I know -- I see some familiar faces, and I know we have both shareholders and some long-term eBay sellers in the audience.

What I want to do is just spend a few minutes touching on our results and our outlook real briefly and then talk a little bit about the changes we see going on in the technology and e-commerce and payments markets and how we're trying to position our company, your company, to be successful in that environment. And let me just start with our 2011 -- or 2010 results -- 2011. It's hard to tell what year we're in sometimes.

So we had a very strong year last year, and I'm not going to read through the numbers. But you can see we had 27% revenue growth, 17% EPS growth and generated strong cash flow across all of our businesses. And the eBay set of assets is growing in our breadth and depth. Last year, we enabled over $150 billion of commerce volume. Think about that, $150 billion of commerce volume, and you can see the results for each of the business units here. I won't go through them in detail, but suffice it to say that all 3 of our major businesses had strong years in 2011.

The other thing we did last year is we laid out what is in essence management commitments for the next 3 years. You may recall we did this in early 2009, where we went in our investor meeting, stood up and Bob, myself and the business unit leaders put out a 3-year set of goals, which we then tracked every point from 2009, 2010 and 2011, and I'm happy to say that we exceeded those goals. And so last year, we did the same thing. We pulled up and said, "What do we think shareholders can count on from us over the next 3 years?" And here's what those said: that PayPal, which had doubled between 2008 and 2011 would double again and be between $6.5 billion and $7 billion with expanding margins, margins of up to 25% to 26%. We said the eBay marketplace, the turnaround was complete and the eBay marketplace is on track with positive growth momentum and that the marketplace would grow to between $7.5 billion and $8 billion in revenue and maintain a margin structure of somewhere between 38% and 42%. And we said that GSI, our latest acquisition, one I'll talk about in a minute, would show nice top line growth, roughly 20% top line growth and grow to be between $1.2 billion and $1.3 billion in 2013 with expanding margins of somewhere between 14% and 16%.

So you step back, you have a company that has strong top line growth over the next 3 years, and we put out earnings growth between 14% and 16%. So these are the goals that the business unit leaders and Bob and I have committed externally, and these are the goals against which we are measuring ourselves each quarter. As Bob likes to say, this is a 12-quarter race we're in, and we knock off one quarter at a time driving toward these goals. And to be honest, I think the most recent quarter is demonstrating that shareholders are growing in their confidence that we will meet or beat these goals with the performance of our company.

So that's all I'm going to talk about in the numbers. Let me just take a few minutes now and talk about how we're positioning the company to take advantage of exciting changes in the market and to be able to deliver these kind of numbers. We're at an inflection point. I think those of us on the leadership team feel like the changes that are going on in the markets we participate are fundamental and dramatic. What we've been saying, and what we believe, is that there will be more change in how consumers will shop and pay over the next 3 years than there has been in the last 10 to 20 years. Now that's a pretty aggressive statement, more change in 3 than there's been in 10 to 20, in how consumers shop and pay.

And here's the analogy I would use: do we have any iPad users in the audience? Anyone here use an iPad? Okay. Do you consume your media differently today since you've gotten your iPad than you did before? How many do? Yes, me too, right? I now want my news when I want it, where I want it, how I want it. I don't want to have to wait for my newspaper to be in the driveway. If I want to watch a TV show or want to watch a movie, I want to watch it when I want it, where I want it, how I want it. So the iPad has had significant change in how we, as consumers, consume media and has had significant impact in the media industry. Well, we believe the same thing is about to happen to shopping and paying. And that in this case, again, as a mobile device, mobile devices, be it the iPhone, be it the iPad, be it an Android phone, mobile devices are changing how consumers behave. It's technology-enabled, consumers are leading it and merchants are adopting.

Let me go into a little bit more detail. Consumers now feel like we have a mall in our pocket. No longer are we willing to go down to the mall and hope that someone has inventory in our size or hope that's something there. We check ahead of time. We make sure we know it's there, and consumers are increasingly wanting what they want, when they want it, how they want it. And they view like they have access to both global markets and local markets through their mobile devices.

And the impact on our company has been significant. Last year, I would have stood here and said, "Your company, eBay, participates in the e-commerce segment. It's a $500 billion segment." And you recall, we were saying it's 5% or 6% of offline retail, and we think that will double to 10% or 20%. So that we -- we're in an enormous growth market. So we were just focused on that, on that circle on the left. But consumer behavior over the last year has blurred the lines between retail and e-commerce, and I'll remind you that retail is a $10 trillion market.

And here's how. In the United States last year in over 1/2 of all retail transactions, the consumer accessed the web at some point in their shopping experience. Think about your own shopping experience. How many times before you go to a store do you go online and do a search and maybe do -- review a product or decide which product you want to buy or do some homework, do some looking at reviews or guides, maybe checking out prices, maybe identifying what model you want to buy? How many times do you increasingly check your mobile phone to find a store you want to find? Or when you're in the store, maybe to read up a little bit on what do other people think. The fact is consumers and consumer behavior has completely blurred the line between retail and e-commerce. And the implications for our company are enormous because our addressable market is going from $500 billion to $10 trillion led by consumers.

And retailers and merchants of all sizes all over the world are struggling to keep up with this change. No longer can a merchant just have their physical stores and a website. They need to have physical stores, mobile applications. They need to be present on multiple websites because that's where consumers are starting their shopping. Increasingly, the Internet and technology is driving foot traffic into stores. Think about Groupon, LivingSocial, Facebook, Twitter.

And retailers want to go global. And so we've had retailer after retailer come to us and say, "Hey, eBay, we're -- technology is having a significant change in our world into how consumers are shopping and paying, a big impact in retail. And we're a retailer. We're a merchandiser. We're not a technology company. We need help from a technology company. Can you help us?" And so over the last 12 to 18 months, we have aggressively positioned our company to take advantage and, in fact, drive many of these trends. Simply put, our strategy as a company is that we enable commerce. And we want to help merchants of all sizes all over the world compete in this changing world, and we will never compete with them. And in some ways, this is just an extension of what eBay's historical origins have been. The company that Pierre founded, right, helped a small seller compete globally in a rapidly changing environment. And increasingly, we're helping small- and medium-sized businesses and now, we're helping large businesses.

And we do that through 3 strong core businesses and underlie it with our external-facing platform. Let me just spent a brief minute on each of our core business units. First, PayPal. You've seen PayPal's results, they're phenomenal. But I'll tell you, in the management team and the leadership team, we feel like PayPal is just getting started. Today, PayPal's the leader in online payments. Over $125 billion of volume processes through PayPal, 1/2 of that outside the United States. There's less than 0.03% loss in that figure, so PayPal's risk management capabilities are unmatched in the world. And that business has grown at 25%.

Mobile. PayPal is out front on mobile payments. There are a lot of people talking about mobile payments these days. PayPal is delivering on mobile payments. PayPal's mobile payments grew 500% to 600% last year and processed $4 billion on mobile payments, processed $4 billion on mobile payments. And we believe that will almost double this year to over $7 billion.

So online, on the mobile device and now, PayPal is going offline. In fact, PayPal's getting pulled offline by large retailers. You've seen we've launched directly into the point of sale at Home Depot, which has now rolled out to Home Depot stores nationwide. If any of you have a chance, go into a Home Depot store, buy something and when you go to check out on that little terminal, it'll come up when they say, "How would you like to pay?" Look down and you can press a button and say, "I want to pay with PayPal." The next screen, all it asks you to do is put in your mobile telephone number and your pin and you're done. And it'll email you your receipt or text you to your receipt. You don't need your wallet. You don't even need your mobile phone. PayPal is enabling seamless transactions for large retailers.

And then most recently our news product, PayPal Here, is enabling small retailers offline to accept PayPal, whether it's a small coffee shop or a gardener or anyone else. There's PayPal Here now accepts PayPal and allows anybody, whether it's a small individual painter, or contractor or small business to accept PayPal. So think about this, going from a $500 billion to a $10 trillion market, PayPal has the most innovative, leading-edge products to capitalize on that.

The eBay Marketplaces. The eBay Marketplaces has been through a significant reinvention over the last 3 years, and I hope all of you have seen the changes. There have been significant changes. It's easier, more engaging, it's safer. And the results show that consumers are finding that. eBay Marketplaces has 105 million active consumers around the world, and the existing customers are buying more frequently on eBay. And what's really changing is new customers are coming to eBay, new consumers. In fact, under Devin's leadership, he's put a real focus on how do we bring lapsed customers and consumers back to eBay and new customers. 9% new consumer growth in the first quarter and that's -- and when they come back, they love the experience.

Again, the marketplace is also jumping on the mobile technology trend. In fact, the eBay mobile apps do more e-commerce volume than anybody in the world. eBay mobile apps have been downloaded 78 million times. In fact, 12 million people downloaded eBay mobile app in the first quarter alone. Last year, it did over $5 billion in volume. This year, it would do over $8 billion in volume. If you haven't had a chance to play with the eBay mobile apps, it gives you a little bit of a taste of what's to come. The fashion app allows you to take a picture of someone else's clothing and get matches of inventory that look like that piece of clothing from eBay. The technology and capability of these devices and what our creative engineers can do to provide compelling consumer experiences is just extraordinary. And you can see the detail here, eBay mobile and PayPal mobile growing significantly.

GSI, our third business. We acquired GSI last year. And we acquired GSI because we realized that while we had a strong set of relationships with small- and medium-sized businesses all over the world, we needed to increase our presence with large retailers. And we looked all around and found that GSI had the best, strongest relationships with large retailers anywhere for a technology company. They have 180 long-term clients, major brands and retailers around the world. People like Ralph Lauren, Toys"R"Us, Dick's Sporting Goods.

And GSI has 3 businesses, they drive online and mobile web services. GSI clients, and these clients use GSI software, they grew 26% last year. They're growing 50% faster than e-commerce. GSI provides fulfillment capabilities and customer support capabilities for those retailers that want to outsource that portion of their online business. And then GSI drives some of the most innovative demand generation out there. And so this business is helping those retailers compete in a multi-channel world. And all of us on the leadership team have had a chance to meet with numerous retailers over the last year, and the retailers are saying just what I referred to earlier, "The retail world's changing. We see consumer behavior changing. We're not a technology company. Can you help us?" And what's so interesting is that is the same mindset that we brought to small- and medium-sized sellers throughout our history, and now it's simply extending into large retailers. Powerful opportunity, GSI has a proper set of capabilities.

And last but not least, X.commerce. X.commerce is our external-facing platform. And what we're doing is taking all the capabilities of our company and putting it into the external-facing platform, so that third-party developers or retailers themselves can access it directly. And here's the analogy: If you think about the iPhone, what an amazingly innovative device. But if you think about it, all Apple's really done is they've created the device. The cool applications that we're all taking advantage of were created either by third-party developers or by companies, not by Apple. Apple's enabled incredible innovation, the consumers, all of us, are benefiting from. And we're trying to bring the same mindset to commerce and payments. We want our technology platforms to enable incredible innovation. We'll drive some of the innovation ourselves, some of the mobile innovations and other things I referred to earlier, but we also want to enable millions of third-party developers and retailers. And today, we have over 800,000 active members of X.commerce. So you won't hear a whole lot about this in the next 6, 12 months, I don't think. It's a little lower profile, but I think 2, 3, 4 years out, this will be a very important part of our company, and we're investing in it today.

We also use our balance sheet to accelerate the pace of change and enhance our capabilities. Our M&A philosophy, we run a very disciplined M&A philosophy, we treat your capital seriously. Bob Swan, our CFO, runs a very rigorous process for all acquisitions. We tend to put into 3 buckets, one expanding our geographic footprint. So for instance, GittiGidiyor is the eBay of Turkey. We owned a minority position in it up until last year and decided to buy the entire thing. That now positions us well in Turkey, which will be an important market down the road.

Second, we're making a growing number of acquisitions that acquire talent and technologies. Because the pace of change is so fast, when we see a small start-up that has great engineers or a cool technology and they want to be part of a larger entity so that they can innovate at scale, we acquire them, and you see some examples. And lastly, it allows us to enable adjacent markets and enhance our product capabilities. A nice example I'll highlight here is a company called Zong. Zong was a mobile payments company that was the simplest and easiest way to buy digital goods because you just build it to your mobile carrier. So whether young -- or whether your children or people all over the world found they could buy mobile goods on their mobile device. We saw this company last year, and we bought it. It's enhancing PayPal's capability in digital payments. Along with it, we got a pretty good entrepreneur, David Marcus, the founder, who has made such an impact on the PayPal organization that I recently named him as President of PayPal, so we have an innovative product leader leading PayPal. So these acquisitions bring us capabilities and great people, and I use that as just an example.

So let me just wrap up by saying that I don't think anyone on the leadership team has ever felt more excited and optimistic about our future. We see significant change in how consumers are shopping and paying. We feel like we have a set of assets and a set of capabilities that'll allow us to really help the merchants deliver great compelling experiences to consumers. And in the process, we believe we'll be able to meet the growth goals that I laid out at the beginning of the presentation.

So with that, I'll just wrap up and see the last slide about our evolution (r)evolution, helping consumers get what they want, when they want, how they want it, helping merchants of all sizes compete in this rapidly changing world.

So let me wrap up there. I'd be welcome -- I'd be happy to take any of your questions.

Question-and-Answer Session

Unknown Shareholder

Tony Mazzapeli [ph], shareholder. First, congratulations on the last few quarters. Good growth, really nice. My question has to do with the Marketplace goals. Traditionally, eBay has been the small sellers and now, it seems like you're saying you want to be the IT provider for all retail, especially anything web-facing, be the enabler. But I'm wondering if this is a little bit forward-looking, if we're ready right now. I'm wondering for 5 reasons. One, the Marketplace revenue is -- growth is kind of modest. I think you said it's growing the same as other e-commerce market. I also know other retail chains that are growing at a similar rate, offline companies. Second, our gross merchandise value is kind of tiny compared to your addressable market. I think it's about 0.5% of what's out there, and that's not dominant. Even Walmart is 6x bigger than what we ship. They have IT labs, so they're not unimportant. Number 3, even in e-commerce, we're not that dominant, about 15%, I think. We're not a Apple, Google kind of dominant. Number 4, inside of retail companies, they have professional IT groups that are doing IT for retail right now. Some of those people are pretty smart. They're doing the apps right now. They're on those lists of IT, very powerful groups. They might be your competitors, in a sense. Number 5, there are IT companies that are supplying software and services to retail companies right now, very powerful companies, IBM, Oracle, SAP, Microsoft, 4, even a little bit of Hewlett-Packard. These companies know how to do analytics. They know about the web, web-facing apps. They know about corporations who want to spend on apps and services right now. So my question is where are the enterprise customers for us? Why aren't they just crawling up to us right now and really begging for our services? Do we have solutions ready to go right now, really?

John J. Donahoe

Thank you for the great question, and I hope I can remember at least 2 of the 5 parts. So let me actually -- I want to address the last couple, and I'm going to ask Devin Wenig, who's the President of the eBay Marketplace business, to talk a little bit about how he's driving incremental growth. Because Devin would agree with you, I look at the improvement in the Marketplace growth, and I think it's just extraordinary. It's gone from what was negative growth to now growing 10% to 15%. Devin walks in and says, "John, we can do a lot better. I believe we can do a lot better." And so those numbers that we put out, I believe we can do better. So I'll let him comment on that in a minute. But let me just comment on what you were talking about with the large retailers. First thing I'll say is the reason we're now asking large retailers and responding to large retailers to put their inventory on eBay is eBay consumers want it. eBay consumers want maximum choice. They want to see what small sellers, medium sellers and large sellers have and make that choice. And if they can make that choice all in one marketplace, like eBay, that's what they're really asking for, and that's what we're trying to deliver. In terms of the actual -- let me give a little bit of a characterization of the dialogue we're having with retailers. Retailers do have their own IT shop, but -- and they may have built their first website, but web technology is changing so fast. Mobile technology is changing so fast. Social commerce, Facebook, Twitter, how you integrate those is changing so fast and what they're saying is, "We can't keep up. We're not a software company. We're a retailer. So we're looking for a third party to provide us software that can keep up with an enormous pace of change and allow us to be innovative without having to build it ourselves." The second thing I would say is when you talk about other enterprise software companies, IBM, Oracle, SAP, those are all great enterprise software companies. None of them are completely focused on e-commerce and mobile commerce. We are. And the mobile applications and the consumer experiences we can provide, we believe, are better. And so with the combination of GSI and the technology that Mark Carges and his team and the PayPal technology team has built, we believe that we have -- and GSI, we have capabilities that can help retailers deliver on that piece of their company better than the competition, so. And Devin, do you want to talk about some of the things you're doing to help enhance growth at the marketplace?

Devin N. Wenig

Yes. I mean I would agree with your assessment. I don't think anybody in Marketplace is -- thinks that we've even scratched the surface of the opportunity yet. I think the way I look at Marketplaces is Phase 1 was to build a safe and trusted marketplace, which was the work a lot of these people did before I ever came. Phase 2 is now really trying to accelerate that growth, and there's a few things we're looking at. Geographic expansion is one of them. Keep in mind, we're big in 7 markets, and none of those are really fast growth-markets. There are fantastically quick-growing e-commerce markets around the world where eBay doesn't yet have a strong presence. We're really looking at using our data. I think data is a very important long-term sustainable differentiator for an e-commerce company. We're looking at really starting to accelerate user acquisition. I think it's a very important measure of marketplace health. John mentioned the 9%, that's a really good sign. That means that, say, 30 million or so of the 100 million that are really passionate eBay buyers, that have been with eBay for over a decade, are staying with us, but it also means now there's a new generation that's coming in, and I think that's really important. So we look at our results and we say, "Great. We built a sustainable growth-oriented business. Our growth of 12% last quarter isn't bad." But to me, that's the baseline, and now we grow over that. And I think the other activities of eBay Inc. to enable commerce across other retailer channels only help us, because they bring those big retailers and their inventory into our Marketplace and give us more diversity. So there's a lot of synergy through the company now. We talk about it in separate divisions. But the truth is those divisions are really helping each other, and I see I'm the beneficiary of that in Marketplaces through both PayPal and GSI.

John J. Donahoe

So thank you for the great question. Other questions, yes, right back here?

Unknown Shareholder

I'd like to talk about -- my name is Shelton Orlicke [ph]. I'm a shareholder for a long time. Security, political donations and sales taxes. On security, you mentioned that 0.03% loss rate on PayPal, why is it that high? And what did you mean by safer when you mentioned safer transactions? That's first question. The second item has to do -- I start off with a video I watched online of a person making a donation to the Obama campaign without having to enter an address or the code on the back of your credit card. It seems to me that Congress needs to pass a law that you can only donate through PayPal to the politicians.

John J. Donahoe

I like him. We'll vote for you.

Unknown Shareholder

Because you have the database on lots and lots of people. People can't be crooks on PayPal, or very few can. And the other question has to do with -- I'm an eBay buyer, I'm an eBay seller, I'm an eBay stockholder, I have an eBay hat. It's wearing out, by the way. I can't imagine myself collecting sales taxes for the $1,000 a year sales I make.

John J. Donahoe

Yes. So I'll tell you what, I'll address the third of those, and David, maybe, you can address the first about risk and why PayPal's safer. But let's go in reverse order. On sales tax. We hear you, and we're with you. So we are working aggressively in Washington. In fact, Devin was in Washington yesterday, and we are lobbying such that if Internet sales tax does happen, that small businesses are excluded from having to collect sales tax. Much like they are in the offline world for cross-state transactions. We'll start to collect sales tax in the state, but for cross-state transactions. So rest assured that the full force and weight of eBay's Government Relations department is advocating for just that. And one of the ways we advocate is we bring sellers from -- Devin and I don't walk into the senator from Louisiana and say, "You need to exempt small businesses because they can't afford and don't have the resource and capacity to collect sales tax from 7,500 different sales tax jurisdictions." What Devin does is he brings 2 Louisianan sellers, and they tell the senator. And so we're cautiously optimistic about if, in fact, legislation does pass an Internet sales tax, that there would be a small business exclusion. And that's certainly what we're fighting for, it's what we believe is right, and we'll put the full force and weight of this company behind lobbying and advocating to protect people like you. And then I agree with you on the political front. Increasingly, politicians are using PayPal because they find PayPal is a safe and easy way to collect money and we do provide...

Unknown Attendee

I've got another suggestion. Why doesn't eBay have -- why don't you have a mini-ad on the website, one spot for Republicans, one for Democrats to make donations?

John J. Donahoe

It's a concept. I'm going to delegate that one to you guys. You guys put that into consideration, but thank you. So David, you want to talk a bit about PayPal and the first, very good question about PayPal's risk and security?

David Marcus

Sure. So 0.03% of loss rate is, as compared with a traditional website that runs its own e-commerce site, much, much lower buy a factor of 2 or 3. So fraud is all over the place online and offline as well. And we have the most extensive database of transactions and user behavioral data that we put to service of building the best fraud detection algorithms. But you always have to balance the fraud detection with the user experience. The only way that you can actually get 0% fraud rates is if you have 0 transactions, right? And so the way to enable people to have the best user experience -- because ultimately, people want one thing first, they want to be safe, and then the second thing they want is the user experience to be frictionless, to be easy. And so we have to remove some of these steps to maintain a good user experience and still have added value for consumers when they shop online that if they pay with PayPal, they have less friction than if they paid by using their credit cards directly on the website. So we always have to balance this. The good news is as more volume goes to mobile, mobile becomes a place where we can innovate around risk and fraud detection and prevention. Because with mobiles, you have more data than you have online because you have location data sometimes, you have all kinds of things that you can leverage in your risk models to protect our users better and better. So we expect that to improve over time and as more volume goes to mobile, our fraud and loss rates should be at least the same for the foreseeable future. So I hope that answers your question.

John J. Donahoe

Thanks, that's a great question, good enough. And I think we can probably get you a new hat. Okay.

Other questions? Great. Well, look, thank you very much for coming out this morning. Thank you for being such great shareholders. Thank you for being such great buyers and sellers on eBay, users of PayPal. Hopefully, you'll begin to notice when GSI's powering retailers that you're shopping at. And you can rest assure that this leadership team is deeply committed to help bring to life the strong core values that Pierre created inside of our company and while also building a great and enduring company and a great and enduring business. So thank you very much, and we look forward to seeing you next year.

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